SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM U-1
APPLICATION /DECLARATION UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
With Respect To Trustee Compensation Program
***
Northeast Utilities
One Federal Street, Building 111-4
Springfield, Massachusetts 01105
(Name of company filing this statement and
address of principal executive office)
***
Northeast Utilities
(Name of top registered holding company parent
of each applicant or declarant)
***
Gregory B. Butler, Esq.
Senior Vice President, Secretary and General Counsel
Northeast Utilities
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
Assistant General Counsel
Northeast Utilities Service Company
P.O. Box 270
Hartford, CT 06141-0270
Richard M. Early
Senior Counsel
Northeast Utilities Service Company
P.O. Box 270
Hartford, CT 06141-0270
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTIONS.
1. Northeast Utilities ("NU"), a registered holding company,
hereby submits to the Commission an application/declaration
(the "Application") pursuant to Sections 6(a) and 7 of the
Public Utility Holding Company Act of 1935 (the "Act").
2. The Application relates to the issuance of up to 275,000 Northeast
Utilities Common Shares, $5.00 par value ("Common Shares") through December
31, 2014 to non-employee trustees of NU as a portion of their fees.
These Common Shares would be purchased on the open market by or on
behalf of NU and transferred to the recipient.
3. In File No. 70-8080 (See Holding Co. Act Rel. No. 35-26368,
September 5, 1995) ("1995 Order"), the Commission approved the
issuance by NU of up to 50,000 Common Shares prior to April
30, 2005 for purposes of compensating its non-employee
trustees for their services. These shares would be and have
been purchased on the open market by NU or Northeast Utilities
Service Company ("NUSCO"), a subsidiary service company of NU,
on NU's behalf.
4. When the Commission issued the 1995 Order, each non-
employee trustee received 250 shares annually as part of his
or her retainer. These shares were either purchased on the
open market and immediately delivered to the trustee or
receipt of the shares was deferred, at the option of the
recipient. In 2000, NU increased this annual share payment to
500 shares, and in 2002, increased it to 1,000 shares. In
2004, this annual grant of shares to be purchased on the open
market was replaced with a restricted share unit grant under
the Northeast Utilities Incentive Plan (the "Incentive
Plan")1.
5. Non-employee trustees also have the option to elect to take
all or a portion of their cash compensation in the form of
Common Shares and to receive or defer receipt of all or part
of these Common Shares. The number of trustees so electing
and the number of Common Shares paid to such Trustees as a
result of such elections has varied from year to year.
6. During 2001, NUSCO outsourced its shareholder services
department, in preparation for a proposed merger with
Consolidated Edison (See File No. 70-7613). The shareholder
services department had been keeping track of the shares
issued under the authorization granted by the Commission in
the 1995 Order. By the end of 2001, NU or NUSCO had issued
36,024 Common Shares under the 1995 Order for non-deferred
compensation for non-employee trustees, and had issued 5,345
Common Shares under the 1995 Order to non-employee trustees to
satisfy payouts of deferred Common Shares (and reinvested
dividends thereon) following the expiration of the deferral
period, for a total of 41,369 shares. In January, 2002, an
additional 7,610 shares were issued under the 1995 Order as
current compensation to non-employee trustees and 781 shares
were issued under the 1995 Order to a former trustee in
satisfaction of deferred compensation obligations, for a total
of 49,760 shares. The 50,000 share limitation contained in
the 1995 Order was inadvertently exceeded with the issuance of
555 shares to non-employee trustees on April 1, 2002, for a
total of 50,315 shares. The total number of shares
issued to non-employee trustees other than under the Incentive
Plan have been as follows as of the dates indicated:
Date Number of Shares
December 31, 2002 51,567
December 31, 2003 64,290
September 30, 2004 65,122
Additionally, almost 25,000 Common Shares (plus shares
resulting from reinvested future dividends) will have to be issued
to non-employee trustees to satisfy NU's obligation to issue
shares receipt of which Trustees chose to defer.
7. NU requests authority in the Application to issue up to
275,000 Common Shares during the period beginning with the date of the
order through December 31, 2014, inclusive. This figure is based
on a projected need of not more than 25,000 Common Shares per
year from 2005 through 2014, plus the 25,000 shares currently
needed to satisfy deferred shares obligations. NU expects to
adapt its trustee compensation program from time to time in the future
as necessary or desirable to take into account trends in director
compensation, regulatory and tax changes and business needs.
8. Upon discovering that the 50,000 share limit in the 1995
Order had been exceeded, NU reviewed its existing procedures
relating to tracking share issuances to employees and non-
employee trustees for compensation purposes. NU has revised
its tracking system, and under the revised system its Treasury
Department will be responsible for preparing and issuing to
appropriate personnel in the Treasury, Legal, Human Resources,
and Accounting Departments of NUSCO a report each month which
tracks the number of Common Shares issued to employees and non-
employee trustees under the various compensatory and share
purchase plans and arrangements and will initiate timely
applications to the Commission under the Act when appropriate
to obtain required authority to issue Common Shares.
OTHER MATTERS
9. 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.
10. NU currently meets all of the conditions of Rule 53(a),
except for clause (1). At June 30, 2004, NU's "aggregate
investment," as defined in Rule 53(a)(1), in EWGs and FUCOs
was approximately $448.2 million, or approximately 536% of
NU's average "consolidated retained earnings," also as defined
in Rule 53(a)(1), for the four quarters ended June 30, 2004
($836 million). With respect to Rule 53(a)(1), however, the
Commission has determined that NU's financing of its
investment in EWGs in an amount not to exceed $1 billion
would not have either of the adverse effects set forth in Rule
53(c). (See Holding Co. Act Release No. 27868, June 30, 2004
(the "2004 Order"). NU continues to assert that its EWG
investments will not adversely affect the System.
11. 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, NU's only EWG, 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 affected 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.
12. The proposed transactions, considered in conjunction with
the effect of the capitalization and earnings of NU's EWG,
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 2004 Order concerning EWG investments was predicated, in
part, upon an assessment of NU's overall financial condition
which took into account, among other factors, NU's
consolidated capitalization. NU's current EWG investment,
NGC, (it has no FUCO investment) has been profitable for all
quarterly periods ending June 30, 2000 through June 30, 2004
(NGC was acquired in March 2000).
13. The consolidated capitalization ratios of NU as of June
30, 2004, with consolidated debt including all short-term debt
and non-recourse debt of the EWG, were as follows:
As of June 30, 2004
(thousands
of dollars) %
Common shareholders' equity$ 2,323,458 34.8
Preferred stock 116,200 1.7
Long-term and short-term debt 2,605,848 39.0
Rate Reduction Bonds 1,639,344 24.5
$ 6,684,850 100.0
If Rate Reduction Bonds are excluded the consolidated
capitalization ratio of NU as of June 30, 2004 is as follows:
As of June 30, 2004
(thousands
of dollars) %
Common shareholders' equity 2,323,458 46.0
Preferred stock 116,200 2.3
Long-term and short-term debt 2,605,848 51.7
$ 5,045,506 100.0
14. In addition, NGC has made a positive contribution to
earnings by contributing $148.7 million in revenues in the
12-month period ending June 30, 2004 and net income of $39.4
million for the same period.
ITEM 2. FEES, COMMISSIONS, AND EXPENSES.
15. The estimated fees, commissions, and expenses paid or
incurred, or to be paid or incurred, directly or indirectly,
in connection with the proposed transactions will be specified
in Exhibit H (to be filed by amendment).
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
16. Sections 6(a) and 7 of the Act apply to the issuance by NU
from time to time of Common Shares in connection with the
transactions as described above.
ITEM 4. REGULATORY APPROVAL.
17. No commission, other than this Commission, has
jurisdiction over NU with respect to any of the proposed
transactions described in this Application.
ITEM 5. PROCEDURE.
18. NU respectfully requests the Commission's approval prior
to December 14, 2004, pursuant to this Application, of its
issuance of Common Shares as referred to above, whether under
the sections of the Act and rules thereunder enumerated in
Item 3 or otherwise. NU also requests the Commission's
approval as may be necessary of any other aspect of the
transactions described in this Application under the
appropriate provisions of the Act or rules thereunder.
19. The Company hereby waives any recommended decision by a
hearing officer or by any other responsible officer of the
Commission and 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 forthwith. The Company
consents that the Office of Public Utility Regulation within
the Division of Investment Management may assist in the
preparation of the Commission's decision and/or order unless
the Office opposes the transactions covered by this
Application. It is requested that the Commission issue an
order authorizing the jurisdictional transactions proposed
herein at the earliest practicable date but in any event not
later than 40 days from filing date. It is further requested
that (i) there not be a recommended decision by an
Administrative Law Judge or other responsible officer of the
Commission, (ii) the Office of Public Utility Regulation be
permitted to assist in the preparation of the Commission's
decision, and (iii) the Commission's order become effective
forthwith upon issuance.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
(a) Exhibits
F. Preliminary Opinion of Counsel (to be filed by amendment).
G. Proposed notice of the proceeding initiated by the filing
of this Application/Declaration.
H. Statement of Estimated Fees, Commissions and Expenses (to
be filed by amendment)
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
(a) The issuance of an order with respect to this
Application/Declaration is not a major federal action
significantly affecting the quality of the human environment.
(b) No Federal agency has prepared or is preparing an
environmental impact statement with respect to the subject
transactions.
SIGNATURES
Pursuant to the requirements of the Public Utility
Holding Company Act of 1935, as amended, the undersigned has
duly caused this statement to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHEAST UTILITIES
By /s/Randy A. Shoop
Its Assistant Treasurer - Finance
Dated: October 15, 2004