[Federal Register Volume 69, Number 171 (Friday, September 3, 2004)]
[Notices]
[Pages 53953-53963]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2068]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 35-27888; International Series Release No. 1280; 70-10236]
Filings Under the Public Utility Holding Company Act of 1935, as
Amended (``Act'')
August 30, 2004.
Notice is hereby given that the following filing(s) has/have been
made with the Commission pursuant to provisions of the Act and rules
promulgated under the Act. All interested persons are referred to the
application(s) and/or declaration(s) for complete statements of the
proposed transaction(s) summarized below. The application(s) and/or
declaration(s) and any amendment(s) is/are available for public
inspection through the Commission's Branch of Public Reference.
Interested persons wishing to comment or request a hearing on the
application(s) and/or declaration(s) should submit their views in
writing by September 24, 2004, to the Secretary, Securities and
Exchange Commission, Washington, DC 20549-0609, and serve a copy on the
relevant applicant(s) and/or declarant(s) at the address(es) specified
below. Proof of service (by affidavit or, in the case of an attorney at
law, by certificate) should be filed with the request. Any request for
hearing should identify specifically the issues of facts or law that
are disputed. A person who so requests will be notified of any hearing,
if ordered, and will receive a copy of any notice or order issued in
the matter. After September 24, 2004, the application(s) and/or
declaration(s), as filed or as amended, may be granted and/or permitted
to become effective.
National Grid Transco, plc et al (70-10236)
National Grid Transco plc (``National Grid Transco''), and its
registered holding company subsidiaries (``Intermediate
Subsidiaries''), National Grid Holdings One plc, National Grid (U.S.)
Investments, all at 1-3 Strand, London WC2N 5EH, United Kingdom,
National Grid General Partnership c/o RL&F Service Corp., One Rodney
Square, Wilmington, New Castle County, DE 19801, National Grid USA,
National Grid Holdings Inc., both at 25 Research Drive, Westborough, MA
01582 all registered holding companies, National Grid USA's public
utility subsidiaries (``Utility Subsidiaries'') New England Power
Company (``NEPCO''), Massachusetts Electric Company (``Mass.
Electric''), The Narragansett Electric Company (``Narragansett''),
Granite State Electric Company (``Granite State''), Nantucket Electric
Company (``Nantucket''), New England Electric Transmission Corporation
(``NEET''), New England Hydro-Transmission Corporation (``N.H.
Hydro''), New England Hydro-Transmission Electric Co. Inc. (``Mass.
Hydro''), all at 25 Research Drive, Westborough, MA 01582, and Niagara
Mohawk Power Corporation (``Niagara Mohawk''), 300 Erie Boulevard, West
Syracuse, New York 13202 and the direct and indirect nonutility
subsidiaries (``Nonutility Subsidiaries'') of National Grid Transco
listed in Exhibit A (``Subsidiaries,'' and collectively ``Applicants'')
to this application-declaration (``Application''), have filed under
sections 6(a), 7, 9(a), 10, 12(b), 12(c) and 13(b) of the Act and rules
20, 26, 42, 43, 45, 46, 52, 53, 54, 87 and 90 under the Act.
I. Background
By order dated October 16, 2002 (HCAR No. 27577) (``October 2002
Order''), National Grid Group plc merged with Lattice Group plc
(``Lattice Group'') (``Merger'') and was renamed National Grid Transco.
In connection with the Merger, the Commission authorized National Grid
Transco to invest up to $20 billion in foreign utility companies
(``FUCOs'') and to issue and sell equity and debt securities and to
enter into guarantees to finance and support these investments. The
financing authority granted in the October 2002 Order supplemented
financing authority that National Grid Transco had received prior to
the Merger by order dated January 16, 2002 (HCAR No. 27490) (``January
2002 Order''). The January 2002 Order and the October 2002 Order
provide that the financing authorizations granted by each order expires
on September 30, 2004. Applicants now propose the following new
financing authorizations for the National Grid Transco system.
A. National Grid Transco
National Grid Transco is a registered holding company under the
Act. National Grid Transco's ordinary shares are listed on the London
Stock Exchange and its American Depositary Receipts (``ADRs'') are
listed on the New York Stock Exchange. As of March 31, 2004, there were
3,087,603,756 ordinary shares (including ADRs) outstanding. For the 12
months ended March 31, 2004, National Grid Transco reported
consolidated gross revenues, operating income and net income of $15.2
billion, $3.1 billion, and $1.8 billion, calculated in accordance with
United States generally accepted accounting principles (``US GAAP'').
As of March 31, 2004, National Grid Transco had total consolidated
assets of $59.4 billion, and a market capitalization of approximately
$21.5 billion. National Grid Transco and its subsidiaries employ
approximately 25,000 employees.
National Grid Transco's consolidated capitalization (including
short-term debt) at March 31, 2004 was as follows:
------------------------------------------------------------------------
Percentage
Book value of total
(millions) (%)
------------------------------------------------------------------------
Common Stock Equity*....................... 16,428.7 41.2
Preferred Stock............................ 70.6 0.2
Long-Term Debt............................. 20,590.1 51.7
Short-Term Debt**.......................... 2,761.9 6.9
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[[Page 53954]]
Total.................................. 39,851.3 100.0
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* Including minority interests.
** Including current portion of long-term debt.
National Grid Transco's senior unsecured debt is currently rated A- by
Standard & Poor's Inc. (``S&P'') and Baa1 by Moody's Investor Service
(``Moody's'').
1. U.K. Business Overview
Through its direct wholly owned subsidiary, National Grid Holdings
One plc (``NGH One''), and that company's subsidiary, National Grid
Holdings Ltd, National Grid Transco owns The National Grid Company plc
(``NGC'') and certain other non-U.S. subsidiaries. NGC is engaged in
the transmission of electricity in England and Wales. NGC owns and
operates a transmission system consisting of approximately 4,500 route
miles of overhead lines and approximately 410 route miles of
underground cable together with approximately 341 substations at some
243 sites.
Through NGH One and its subsidiary Lattice Group, National Grid
Transco owns Transco plc (``Transco'') and certain other non-U.S.
subsidiaries. Transco is the owner and operator of the majority of
Great Britain's gas transportation and distribution system however it
does not sell gas to consumers. Transco's transportation network
comprises approximately 4,200 miles of high pressure national
transmission pipelines and approximately 170,000 miles of lower
pressure regional transmission and distribution systems pipelines. An
interconnector to Belgium links Transco's own gas transportation system
to continental Europe. A second interconnector supplies gas to Eire and
Northern Ireland.
2. U.S. Business Overview
National Grid Transco's U.S. business is conducted through National
Grid USA, a registered holding company and an indirect wholly owned
subsidiary of National Grid Transco. National Grid USA is held directly
and indirectly by intermediate companies (``Intermediate Companies'')
which also are registered holding companies.\1\
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\1\ Applicants state that Intermediate Companies are all the
holding companies in the chain of ownership of National Grid USA
that are direct or indirect subsidiaries of National Grid Transco
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.
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Through its subsidiaries, National Grid USA is engaged in electric
transmission and distribution to residential, commercial, and
industrial customers in New England and the transmission and
distribution of electricity and the distribution of natural gas to
residential, commercial, and industrial customers in New York.
Applicants state that National Grid USA and its direct and indirect
subsidiaries (``National Grid USA Group'') operates and maintains
distribution power lines and substations; provides metering, billing,
and customer services; designs and builds distribution-related
facilities; and provides related products and services including energy
efficiency programs for customers.
National Grid USA owns companies that deliver electricity to
approximately 3.3 million customers in New York, Massachusetts, Rhode
Island and New Hampshire. These electric public utility companies own
and operate approximately 76,000 miles of transmission and distribution
lines in New York and New England. The National Grid USA Group includes
five wholly owned electricity distribution companies: Niagara
Mohawk,\2\ Mass. Electric, Narragansett, Granite State, and Nantucket
and four other utility companies: NEPCO, NEET, N.H. Hydro, and Mass.
Hydro.
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\2\ Niagara Mohawk is indirectly held by National Grid USA
through the exempt holding company Niagara Mohawk Holdings Inc.
(``NiMo Holdings''). See January 2002 Order.
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Niagara Mohawk provides gas utility service to over 560,000 retail
customers in New York State and electric service to about 1.6 million
electric customers in eastern, central, northern and western New York
State. As of and for the 12 months ended March 31, 2004, Niagara Mohawk
had total assets of $12,415.9 million, operating revenues of $4,063.6
million and net income of $139.7 million. Niagara Mohawk is subject to
rate regulation by the Federal Energy Regulatory Commission (``FERC'')
and the New York State Public Service Commission (``NYPSC'').
Mass. Electric is engaged in the delivery of electric energy to
approximately 1.2 million customers in 171 cities and towns in
Massachusetts. As of and for the 12 months ended March 31, 2004, Mass.
Electric had total assets of $3,123.8 million, operating revenues of
$1,993.5 million and net income of $34.8 million. Mass. Electric is
subject to regulation by the FERC and the Massachusetts Department of
Telecommunications and Energy (``MDTE'').
Narragansett is engaged in the delivery of electric energy to
approximately 473,000 customers in 38 cities and towns in Rhode Island.
As of and for the 12 months ended March 31, 2004, Narragansett had
total assets of $1,552.2 million, operating revenues of $812.1 million
and net income of $30.1 million. Narragansett is subject to rate
regulation by the FERC and the Rhode Island Public Utilities Commission
(``RIPUC''). The Rhode Island Division of Public Utilities and Carriers
(``RIDIV'') has jurisdiction over Narragansett's financings and
transactions with affiliates.
Granite State provides retail electric service to approximately
40,000 customers in 21 communities in New Hampshire. As of and for the
12 months ended March 31, 2004, Granite State had total assets of
$100.8 million, operating revenues of $73.1 million and net income of
$2.7 million. Granite State is subject to regulation by the FERC and
the New Hampshire Public Utilities Commission (``NHPUC'').
Nantucket provides retail electric service to approximately 11,000
customers on Nantucket Island, Massachusetts. As of and for the 12
months ended March 31, 2004, Nantucket had total assets of $59.2
million, operating revenues of $19.8 million and net income of $0.9
million. Nantucket is subject to regulation by the FERC and the MDTE.
National Grid USA's wholly owned subsidiary, NEPCO, is the operator
of electricity transmission facilities in the states of Massachusetts,
Rhode Island, New Hampshire, and Vermont. As of and for the 12 months
ended March 31, 2004, NEPCO had total assets of $2,715.1 million,
operating revenues of $457.9 million and net income of $72.5 million.
NEPCO is subject to rate regulation by the FERC. The Vermont Public
Service Board (``VPSB''), the MDTE and the NHPUC have jurisdiction over
NEPCO's financings and transactions with affiliates. Although the Maine
Public Utilities Commission (``MPUC'') has jurisdiction over NEPCO's
financings, it defers to financing authorizations from the MDTE. The
Nuclear Regulatory Commission (``NRC'') has jurisdiction over NEPCO's
ownership of nuclear facilities.
NEET, a wholly owned subsidiary of National Grid USA, owns and
operates a direct current/alternating current converter terminal
facility for the first phase of the Hydro-Quebec and New England
interconnection (``Interconnection'') and six miles of
[[Page 53955]]
high voltage direct current transmission line in New Hampshire. As of
and for the 12 months ended March 31, 2004, NEET had total assets of
$9.8 million, operating revenues of $6.3 million, and net income of
$0.5 million. NEET is subject to rate regulation by FERC. The NHPUC has
jurisdiction over its financings and transactions with affiliates. N.H.
Hydro, in which National Grid USA holds 53.7% of the common stock,
operates 121 miles of high-voltage direct current transmission line in
New Hampshire for the second phase of the Interconnection, extending to
the Massachusetts border. As of and for the 12 months ended March 31,
2004, N.H. Hydro had total assets of $92.2 million, operating revenues
of $25.5 million, and net income of $3.1 million. N.H. Hydro is subject
to rate regulation by FERC. The NHPUC has jurisdiction over N.H.
Hydro's financings and transactions with affiliates.
Mass. Hydro, 53.7% of the voting stock of which is held by National
Grid USA, operates a direct current/alternating current terminal and
related facilities for the second phase of the Interconnection and 12
miles of high-voltage direct current transmission line in
Massachusetts. As of and for the 12 months ended March 31, 2004, Mass.
Hydro had total assets of $107.8 million, operating revenues of $31.1
million, and net income of $5.1 million. New England Hydro Finance
Company, Inc. (``N.E. Hydro Finance'') is owned in equal shares by
Mass. Hydro and N.H. Hydro. NE Hydro Finance provides the debt
financing required by the owners to fund the capital costs of their
participation in the Interconnection. Mass. Hydro is subject to rate
regulation by FERC. The MDTE has jurisdiction over Mass. Hydro's
financings and transactions with affiliates.
Applicants state that the table below shows the capital structure
of each Utility Subsidiary as of March 31, 2004.
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Common
Utility subsidiary stock Debt
Equity
------------------------------------------------------------------------
Niagara Mohawk.................................... 42.4 57.6
Mass. Electric.................................... 77.5 22.5
Nantucket......................................... 49.6 50.4
Narragansett...................................... 89.4 10.6
Granite State..................................... 78.0 22.0
NEPCO............................................. 71.1 28.9
NEET.............................................. 2.6 97.4
NH Hydro.......................................... 39.4 57.7
Mass. Hydro....................................... 39.9 61.1
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The Nonutility Subsidiaries in the National Grid Transco System
that are Applicants are described in Exhibit A to the Application.
II. Request for Financing Authorization
A. Financing Parameters
Applicants request authorization to engage in financing
transactions through September 30, 2007 (``Authorization Period''), for
which the specific terms and conditions are not known at this time.
Applicants state that the following general terms (``Financing
Parameters'') will be applicable where appropriate to the proposed
external financing activities requested (including, without limitation,
securities issued for the purpose of refinancing or refunding
outstanding securities of the issuer):
1. Effective Cost of Money
The effective cost of capital on long-term debt, preferred stock,
preferred securities, equity-linked securities, and short-term debt
will not exceed the greater of (a) 500 basis points over U.K. or U.S.
government-issued securities or other government benchmark for the
currency concerned having a remaining term equal to the term of such
series or (b) a gross spread over U.K. or U.S. government-issued
securities that is consistent with similar securities of comparable
credit quality and maturities issued by other companies.
2. Maturity
The maturity of long-term debt will be between one and 50 years
after issuance. Preferred securities and equity-linked securities will
be redeemed no later than 50 years after issuance, unless converted
into common stock. Preferred stock issued directly by National Grid
Transco may be perpetual in duration. Short-term debt will have a
maturity of one year or less.
3. Issuance Expenses
The underwriting fees, commissions, or other similar remuneration
paid in connection with the non-competitive issue, sale or distribution
of securities under this Application will not exceed the greater of (a)
5% of the principal or total amount of the securities being issued or
(b) issuance expenses that are generally paid at the time of the
pricing for sales of the particular issuance, having the same or
reasonably similar terms and conditions issued by similar companies of
reasonably comparable credit quality.
4. Common Equity Ratio
National Grid Transco will maintain common stock equity \3\ as a
percentage of total consolidated capitalization \4\, as shown in its
most recent quarterly balance sheet (but measured on a book value U.S.
GAAP basis), of at least 30% or above. National Grid USA, on a
consolidated basis, and each Utility Subsidiary \5\ on an individual
basis (except NEET),\6\ will maintain common stock equity of at least
30% of total capitalization as shown in each company's most recent
quarterly balance sheet (measured on a book value U.S. GAAP basis).
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\3\ Common stock equity includes common stock (i.e., amounts
received equal to the par or stated value of the common stock),
additional paid in capital, retained earnings, and minority
interests.
\4\ Applicants would calculate the common stock equity to total
capitalization ratio as follows: common stock equity (as defined in
the immediately preceding footnote)/(common stock equity + preferred
stock + gross debt). Gross debt is the sum of long-term debt, short-
term debt, and current maturities.
\5\ Nantucket would maintain a minimum of 30% common stock
equity as a percentage of total capitalization on a combined basis
with Mass. Electric.
\6\ Applicants state that NEET owns and operates a direct
current/alternating current converter terminal facility for the
first phase of the Hydro-Quebec and New England interconnection and
six miles of high voltage DC transmission line in New Hampshire. The
facilities are financed with a high level of debt on a project
basis. The New England utilities participating in Phase 1 are
responsible for the full costs of the facilities under a support
agreement. Applicants state that it would be disruptive and
economically inappropriate to refinance the facilities with
additional equity since that would increase the cost of operating
the facility. Based on this reasoning, the Commission excepted NEET
from the 30% minimum common equity standard in the January 2002
Order.
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5. Investment Grade Ratings
Applicants further represent that, except for securities issued for
the purpose of funding money pool operations, no guarantees or other
securities, other than common stock, may be issued in reliance upon the
authorization granted by the Commission under this Application, unless
(a) the security to be issued, if rated, is rated investment grade; (b)
all outstanding securities of the issuer that are rated are rated
investment grade; and (c) all outstanding securities of National Grid
Transco that are rated, are rated investment grade. For purposes of
this provision, a security will be deemed to be rated ``investment
grade'' if it is rated investment grade by at least one nationally
recognized statistical rating organization (``NRSRO''), as that term is
used in paragraphs (c)(2)(vi)(E), (F) and (H) of Rule 15c3-1 under the
Securities Exchange Act of 1934, as amended (``1934 Act''). Applicants
request that the Commission reserve jurisdiction over the issuance of
any guarantee or other securities in reliance upon the authorization
granted by the Commission under this Application at any time that the
conditions set forth in
[[Page 53956]]
clauses (a) through (c) above are not satisfied.
B. Use of Proceeds
The proceeds from the financings authorized by the Commission under
this Application will be used for general corporate purposes, including
(a) financing investments by and capital expenditures of the National
Grid Transco System, (b) the funding of future investments in FUCOs,
and companies exempt under rule 58 under the Act (``Rule 58
Subsidiaries''), (c) the repayment, redemption, refunding, or purchase
by National Grid Transco or any Subsidiary of any of its own
securities, and (d) financing working capital requirements of National
Grid Transco and the Subsidiaries. The Applicants represent that no
financing proceeds will be used to acquire the equity securities of any
company unless the acquisition has been approved by the Commission in
this proceeding or in a separate proceeding or in accordance with an
available exemption under the Act or rules, including sections 32, 33,
34, and rule 58.
III. Proposed Financing Program
National Grid Transco requests authorization to increase its
capitalization through the issuance and sale of securities including,
but not necessarily limited to, common stock, preferred stock,
preferred securities, equity-linked securities, options, warrants,
purchase contracts, units (consisting of one or more purchase
contracts, warrants, debt securities, shares of preferred stock, shares
of common stock, or any combination of these securities), long-term
debt, subordinated debt, bank borrowings, securities with call or put
options, and securities convertible into any of these securities. The
aggregate amount of new financing obtained by National Grid Transco
during the Authorization Period (exclusive of short-term debt) through
the issuance of securities, in each case valued at the time of
issuance, shall not exceed $20 billion outstanding at any one time,
(``NGT External Limit''), provided that securities issued for purposes
of refunding or replacing other securities where National Grid
Transco's capitalization is not increased as a result shall not be
counted against the NGT External Limit. In addition, National Grid
Transco requests authority to issue and sell from time to time,
directly or indirectly through one or more financing subsidiaries
(``Financing Subsidiaries''), short-term debt, including commercial
paper and bank borrowings, in an aggregate principal amount at any time
outstanding not to exceed $6 billion (``NGT Short-term Limit'').
Although the financing limits in the application are stated in U.S.
dollars, a large portion of the securities issued under this
authorization are expected to be denominated in pounds or other
currencies the value of which will fluctuate against the dollar. To
provide consistent financing limits over the Authorization Period, for
purposes of measuring compliance with the limits, National Grid Transco
would value securities issued in currencies other than the dollar, on
their date of issuance, based on the applicable exchange rate between
the dollar and the currency in which the security is denominated in
effect on the date the Commission order granting the Application is
entered.
National Grid Transco contemplates that securities 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 who would resell the securities without registration
under the Securities Act of 1933, as amended (``1933 Act'') in reliance
upon one or more applicable exemptions from registration thereunder, or
to the public either (a) through underwriters selected by negotiation
or competitive bidding or (b) through selling agents acting either as
agent or as principal for resale to the public either directly or
through dealers. If underwriters are used, securities will be acquired
by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions,
at a fixed public offering price or at varying prices determined at the
time of sale. These securities may be offered to the public either
through underwriting syndicates (which may be represented by a managing
underwriter or underwriters designated by National Grid Transco) or
directly by one or more underwriters acting alone, or may be sold
directly by National Grid Transco or through agents designated by
National Grid Transco from time to time. If dealers are utilized,
National Grid Transco will sell securities to the dealers, as
principals. Any dealer may then resell these securities to the public
at varying prices to be determined by the dealer at the time of resale.
If common stock is being sold in an underwritten offering, National
Grid Transco may grant the underwriters a ``green shoe'' option
permitting the purchase from National Grid Transco at the same price
additional shares then being offered solely for the purpose of covering
over-allotments.
A. Common Stock
1. General Issuance
National Grid Transco proposes to issue and sell common stock, or
options, warrants, or other stock purchase rights exercisable for
common stock, through underwriting agreements of a type generally
standard in the industry. Public distributions may be under private
negotiation with underwriters, dealers or agents, or effected through
competitive bidding among underwriters. In addition, sales may be made
through private placements or other non-public offerings to one or more
persons. All common stock sales will be at rates or prices and under
conditions negotiated or based upon, or otherwise determined by,
competitive capital markets.
2. Acquisitions
National Grid Transco proposes to issue common stock or options,
warrants, or other stock purchase rights exercisable for common stock
in public or privately-negotiated transactions as consideration for the
equity securities or assets of other companies, provided that the
acquisition of any equity securities or assets has been authorized in a
separate proceeding or is exempt under the Act or the rules thereunder
(e.g., rule 58).
3. Stock Plans
National Grid Transco also proposes to issue common stock and/or
purchase shares of its common stock (either currently or under forward
contracts) in the open market for purposes of (a) reissuing the shares
at a later date under stock-based plans which are maintained for
stockholders, employees and nonemployee directors or (b) managing its
capital structure. Applicants state that National Grid Transco's stock-
based plans are briefly described in Exhibit E to the Application.
National Grid Transco proposes to issue shares of its common stock in
order to satisfy its obligations under each of these existing stock-
based plans, as they may be amended or extended, and similar plans or
plan funding arrangements hereafter adopted without any additional
Commission order. Shares of common stock issued under these plans may
either be newly issued shares, treasury shares or shares purchased in
the open market, including ADSs, provided that only the net proceeds
from sales of newly issued shares will be counted against the NGT
External Limit. National Grid Transco proposes to make open-market
purchases of common stock in accordance with the terms of, or in
connection with, the operation of
[[Page 53957]]
the plans, or as part of a program to repurchase its securities
generally. Stock repurchases would be conducted through open market
transactions and could include the acquisition at arms'-length of
National Grid Transco common stock from institutional investors that
may have an affiliate interest in National Grid Transco.
B. Preferred Stock, Preferred Securities and Equity-Linked Securities
Applicants state that National Grid Transco states that it has not
issued any preferred stock directly or other forms of preferred
securities indirectly through any financing subsidiary. In the future,
however, National Grid Transco wishes to have the flexibility to issue
preferred stock directly and/or issue, indirectly through one or more
Financing Subsidiaries, other forms of preferred securities (including,
without limitation, trust preferred securities or monthly income
preferred securities). Preferred stock and other forms of preferred
securities may be issued in one or more series with rights,
preferences, and priorities as may be designated in the instrument
creating each series, as determined by National Grid Transco's board of
directors, and may be convertible or exchangeable into shares of
National Grid Transco common stock or unsecured indebtedness. Dividends
or distributions on these securities would be made periodically and to
the extent funds are legally available for the purpose, but may be made
subject to terms which allow the issuer to defer dividend payments for
specified periods. National Grid Transco also proposes to issue and
sell equity-linked securities in the form of stock purchase units,
which combine a security with a fixed obligation (e.g.,, preferred
stock or debt) with a stock purchase contract that is exercisable
(either mandatorily or at the option of the holder) within a relatively
short period (e.g., three to six years after issuance). The dividend or
distribution rates, interest rates, redemption and sinking fund
provisions, conversion features, if any, and maturity dates with
respect to the preferred stock or other types of preferred securities
and equity-linked securities 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.
C. Long-Term Debt
Applicants state that long-term debt would be unsecured and may be
issued directly through a public or private placement or indirectly
through one or more financing subsidiaries, in the form of notes,
convertible notes, medium-term notes, or debentures under one or more
indentures, or unsecured long-term indebtedness under agreements with
banks or other institutional lenders. The maturity dates, interest
rates, redemption and sinking fund provisions, and conversion features,
if any, with respect to the long-term debt 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 at the time of issuance.
D. Short-Term Debt
National Grid Transco proposes to issue and sell from time to time,
directly or indirectly through one or more financing subsidiaries,
short-term debt, in the form of unsecured commercial paper, notes
issued to banks and other institutional lenders, and other forms of
unsecured short-term indebtedness, in an aggregate principal amount at
any time outstanding not to exceed the NGT Short-Term Limit. Unused
borrowing capacity under a credit facility would not count towards the
NGT Short-Term Limit. National Grid Transco proposes that short-term
borrowings under credit lines will have maturities of a year or less
from the date of each borrowing.
National Grid Transco proposes that commercial paper issued under
any commercial paper facility would be sold, directly or indirectly
through one or more Financing Subsidiaries, in established U.S. or
European commercial paper markets. Commercial paper would typically be
sold to dealers at the discount rate per annum prevailing at the date
of issuance for commercial paper of comparable quality and maturities
sold to commercial paper dealers generally. It is expected that the
dealers acquiring the commercial paper would reoffer it at a discount
to corporate, institutional and, with respect to European commercial
paper, individual investors. It is anticipated that commercial paper
would be reoffered to investors such as commercial banks, insurance
companies, pension funds, investment trusts, foundations, colleges and
universities, finance companies, and nonfinancial corporations.
E. Utility Subsidiary Financing
Applicants state that they expect the issue and sale of most
securities by the Utility Subsidiaries will be exempt from the
preapproval requirements of sections 6(a) and 7 of the Act under rule
52(a), as most of these securities must be approved by the public
service commission in the state in which each Utility Subsidiary is
incorporated and operating.\7\ To the extent their financing is not
exempt under rule 52(a) or otherwise, Applicants request authorization
for the Utility Subsidiaries listed in the table below to issue debt
securities having a maturity of 12 months or less in the aggregate
amounts shown.
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\7\ Specifically, Applicants state that: (a) The NYPSC must
approve all financings by Niagara Mohawk other than short-term
indebtedness having a maturity of 12 months or less, (b) the MDTE
must approve all financings by Mass. Electric and Nantucket other
than short-term indebtedness having a maturity of 12 months or less,
(c) the RIDIV must approve all financings by Narragansett other than
short-term indebtedness having a maturity of 12 months or less, (d)
the NHPUC must approve all financings by Granite State, a New
Hampshire corporation, (e) NEPCO is regulated by the VPSB, MDTE, and
the MPUC with regard to security issuances other than short-term
indebtedness having a maturity of 12 months or less and by the NHPUC
with regard to both long- and short-term financings; (f) NEET and
N.H. Hydro are subject to the jurisdiction of the NHPUC with respect
to all financing transactions and (g) Mass. Hydro is subject to the
jurisdiction of the MDTE which must approve all financings, other
than short-term indebtedness having a maturity of 12 months or less.
------------------------------------------------------------------------
In dollars
------------------------------------------------------------------------
Niagara Mohawk............................ 1 billion.
Mass. Electric............................ 400 million.
Nantucket................................. 40 million.
Narragansett.............................. 145 million.
Granite State............................. 10 million.
NEPCO..................................... 750 million.
NEET...................................... 10 million.
NH Hydro.................................. 12.5 million.
Mass. Hydro............................... 12.5 million.
------------------------------------------------------------------------
F. Nonutility Subsidiary Financing
1. Generally
Applicants request authority for National Grid Transco or any
Nonutility Subsidiary, including a Financing Subsidiary, to make loans
to Nonutility Subsidiaries. Applicants state that these loans would
generally have interest rates and maturities that are designed to
parallel the lending company's effective cost of capital. Applicants
request authorization to acquire the equity securities of wholly owned
subsidiaries and to lend funds to these companies to finance ongoing
operations and additional investments consistent with their existing
businesses. Except as noted below, loans would bear interest at the
lender's effective cost of capital. Applicants state that no financing
proceeds will be used to acquire the equity securities of any company
unless the acquisition has been approved by the Commission in this
proceeding or in a separate proceeding or in accordance
[[Page 53958]]
with an available exemption under the Act or rules.
2. U.S. Chain of Companies
Applicants request authority for National Grid USA Group, the
Intermediate Companies, National Grid USA, and NiMo Holdings to issue
and sell securities to: (a) direct and indirect parent companies, and
(b) FUCOs, such as NGH One and Lattice Group and their associate
company subsidiaries. Applicants state that no FUCO or subsidiary of a
FUCO will purchase equity and convertible debt securities from the
Intermediate Companies, National Grid USA or NiMo Holdings. The
Intermediate Companies, National Grid USA, and NiMo Holdings also
propose to acquire securities from their direct or indirect subsidiary
companies. The financing of Utility Subsidiaries would be subject to
the Finance Parameters and the best rate method (``Best Rate Method''),
described below. Applicants propose that financing of Nonutility
Subsidiaries of National Grid USA also would be conducted under the
Best Rate Method.
Applicants state that in no case would the Intermediate Companies,
National Grid USA or NiMo Holdings borrow, or receive any extension of
credit or indemnity from any of their respective direct or indirect
subsidiary companies, except their Financing Subsidiaries or the
Financing Subsidiaries of a direct or indirect parent company. Further,
the Intermediate Companies, National Grid USA and NiMo Holdings would
not acquire equity or convertible securities from indirect
subsidiaries, unless otherwise authorized or permitted by the
Commission, if the result would be to create a minority interest in a
public utility company.
3. Intermediate Companies
Applicants commit that the Intermediate Companies would not issue
securities to third parties. Applicants state that all borrowings by
the Intermediate Companies would be unsecured, but may be guaranteed by
National Grid Transco or other Intermediate Companies. Debt offerings
by the Intermediate Companies and National Grid USA would have short,
medium, and long-term maturities. Short-term debt would have a maturity
of one year or less, medium-term debt would have maturities up to 5
years, and long-term debt would have maturities up to 50 years.
Applicants propose to structure financings within the National Grid
Transco System and with FUCO subsidiaries. From time-to-time,
Applicants request authority for the Intermediate Companies, National
Grid USA, or NiMo Holdings to borrow funds from an indirect parent
company or from a FUCO associate company. Applicants assert that these
loans allow National Grid Transco the flexibility to meet the short-
term working capital requirements of National Grid USA and its
subsidiaries when funds can be raised at a lower cost by National Grid
Transco.
Applicants propose that the terms and conditions of any financings
between an Intermediate Company and its direct or indirect parent, or
between an Intermediate Company and a FUCO subsidiary, such as NGH One
or Lattice Group or their associate company subsidiaries, be on market
terms. Applicants state that financing on market terms assists National
Grid Transco to comply with U.K. tax regulations. Market rate financing
assures that intercompany loans will not be used to transfer profits
from one related entity to another. Market rates also allow the lending
entity to recover its true costs of liquidity, and the risks associated
with credit quality and interest rate and currency variability.
4. Best Rate Method
Applicants propose that, regardless of the market rate applicable
to these transactions, debt funding provided to National Grid USA Group
companies would bear interest at a rate set according to the Best Rate
Method. Under the Best Rate Method, short-term loans from associate
companies to National Grid USA Group companies would bear interest at
the rate, as published in the Wall Street Journal on the day of the
borrowing (or the most recently published rate when borrowings occur on
days when the Wall Street Journal is not published), for high grade 30-
day commercial paper issued by major corporations and sold through
dealers plus an ``at cost'' allocation of National Grid Transco's
funding costs.\8\ For medium and long-term loans to National Grid USA
Group companies, unless there is a directly identifiable external
borrowing intended to finance the company, National Grid Transco would
use a rate equal to the effective rate that National Grid Transco would
pay on the issuance of a comparable security in a competitive offering
to unaffiliated banks or other lenders.
---------------------------------------------------------------------------
\8\ National Grid Transco states that the ``at cost'' allocation
would add to the interest rate for high grade 30-day commercial
paper a small additional percentage that would compensate National
Grid Transco for the cost that it incurs in issuing commercial
paper, notes to banks or other institutional lenders, and other
forms of unsecured short-term debt. The issuance costs include any
selling agent fees, commissions, discounts, commitment fees,
facility fees and other costs directly associated with the
financing. The costs would be allocated among all borrowers based on
a ratio derived from historical National Grid Transco short-term
borrowings and the average costs associated of those borrowings.
---------------------------------------------------------------------------
The interest rates paid by the National Grid USA Group companies in
connection with borrowings from National Grid Transco and the other
companies in the National Grid System, including the FUCO subsidiaries,
would not increase the cost of capital used by the National Grid USA
Group. National Grid Transco regularly monitors its ability to access
the capital markets and states that if it determines that the rate at
which it can borrow is higher than the rate a National Grid USA Group
company would pay in a direct borrowing at that time from a
nonassociated party, the interest rate applied to National Grid USA
Group borrowings from associated companies would be based on that lower
cost of funds. Consequently, Applicants state that under the Best Rate
Method, the interest rate on loans to any company in the National Grid
USA Group would be set at a rate equal to the lower of: (a) National
Grid Transco's cost of funds, (b) the cost of funds of another
associate company that proposes to lend funds to the prospective
National Grid USA Group company borrower, or (c) the cost of funds that
would be paid by the prospective National Grid USA Group company
borrower in a transaction directly with a nonassociated lender.
In implementing the Best Rate Method, National Grid Transco states
that it would determine whether the lending rate applied to an
associated company loan is equal to or lower than the rate available to
a National Grid USA Group company in a direct borrowing from a
nonassociated party (i.e., a market rate), in much the same manner as
an independent bank would determine the market rate. National Grid
Transco further states that it would take into account the nature of
National Grid USA's business, or that of the individual subsidiary to
be financed, evaluate its capital structure, the particular risks to
which it is subject, and generally prevailing market conditions.
National Grid Transco would also evaluate and take into account
information from third parties such as banks that would indicate the
prevailing market rates for similar businesses. In particular, National
Grid Transco states that it will obtain information on the range of
rates used by one or more banks for loans to similar businesses.
[[Page 53959]]
5. National Grid USA
National Grid USA requests authorization to issue debt securities
to third parties through public or private offerings. Any issuances
would be limited to an aggregate amount outstanding at any one time of
$1 billion (``NGUSA Limit'') and would be subject to the Financing
Parameters. All borrowings by National Grid USA would be unsecured.
6. NiMo Holdings
In the January 2002 Order, the Commission found NiMo Holdings to be
an exempt holding company under section 3(a)(1) of the Act, although it
remains (regulated as) a subsidiary of a registered holding company.
NiMo Holdings requests authorization to issue and sell securities to
associate companies, but not NiMo Holdings' direct and indirect
subsidiaries (other than Financing Subsidiaries), for the purpose of
financing NiMo Holdings' existing business, the businesses of its
respective subsidiaries, and future authorized or permitted businesses.
Applicants state that NiMo Holdings would not issue equity or
convertible securities to associate companies other than its immediate
parent company and would not issue securities to third parties. Debt
securities issued by NiMo Holdings would bear interest at the rates
applicable to National Grid USA Group companies under the Best Rate
Method described above. All borrowings by NiMo Holdings would be
unsecured, except that borrowings may be guaranteed as provided below.
G. Continuation of Money Pool
Applicants request authority for the Utility Subsidiaries, National
Grid USA Service Company (``ServiceCo'') and any National Grid Transco
System company (``Participating Subsidiaries'') (to participate in the
money pool established for the National Grid USA Group (``Money Pool'')
in the Merger Order. Applicants request that the Commission reserve
jurisdiction over the participation of any National Grid Transco System
company in the Money Pool, other than the Utility Subsidiaries and
ServiceCo, as a borrower until the record in this matter has been
supplemented with additional information regarding the proposed
participant.
Applicants request authority for the Participating Subsidiaries to
make unsecured short-term borrowings from the Money Pool, to contribute
surplus funds to the Money Pool, to lend and extend credit to, and
acquire promissory notes from, one another through the Money Pool.
Applicants further request authority for: (a) National Grid
Transco, (b) the Intermediate Companies, (c) NGH One, Lattice Group,
their subsidiaries and any subsequently organized or acquired FUCO, (d)
National Grid USA, (e) NiMo Holdings, and (f) the Nonutility
Subsidiaries of National Grid USA to invest surplus funds and/or lend
and extend credit to the Participating Subsidiaries through the Money
Pool.
All the Utility Subsidiaries request authorization within the
limits for short-term debt set forth in section III.E. above to: (a)
Invest surplus funds and/or lend and extend credit to the Money Pool
and (b) to borrow from the Money Pool.
Applicants state that the effective cost of short-term borrowings
under the Money Pool will generally be as favorable to the
Participating Subsidiaries than the comparable cost of external short-
term borrowings. Applicants state that the investment rate paid to
Participating Subsidiaries that invest surplus funds in the Money Pool
will generally be higher than the typical yield on short-term money
market investments. Applicants state that, under the Money Pool
agreement (``Money Pool Agreement''), short-term funds are available
from the following sources for short-term loans to the Participating
Subsidiaries from time to time: (a) Surplus funds in the treasuries of
Participating Subsidiaries and (b) proceeds received by National Grid
Transco and National Grid USA from the sale of commercial paper,
borrowings from banks and other lenders, and other financing
arrangements (``External Funds''). Applicants state that funds are made
available from sources in the order that ServiceCo, as the
administrative agent under the Money Pool Agreement, determines would
result in a lower cost of borrowing, consistent with the individual
borrowing needs and financial standing of the Participating
Subsidiaries.
Applicants state that Participating Subsidiaries authorized to
borrow from the Money Pool (``Eligible Borrowers'') will borrow pro
rata from each lending Participating Subsidiary in the proportion that
the total amount invested by each Participating Subsidiary bears to the
total amount then invested in the Money Pool. The interest rate charged
to Eligible Borrowers on borrowings under the Money Pool will be as
follows:
(a) A borrower with a commercial paper credit rating or an
investment grade bond rating (``Commercial Paper Issuer'') will pay
interest at a rate equal to the weighted monthly average of the rates
on its outstanding commercial paper;
(b) During any month when a Commercial Paper Issuer has no
commercial paper outstanding, the rate will be the monthly average of
the rate for high grade 30-day commercial paper sold through dealers by
major corporations as published in the Wall Street Journal. The rate to
be used for weekends and holidays will be the next preceding published
rate.
(c) An Eligible Borrower other than Commercial Paper Issuers will
pay interest at a rate of 1.08 times the rate described in paragraph
(b). In no event will the rate be greater than the monthly average of
the Base Lending Rate of Fleet Boston.
Applicants state that funds not required by the Money Pool to make
loans (with the exception of funds required to satisfy the Money Pool's
liquidity requirements) would ordinarily be invested in one or more
short-term investments, including: (a) Obligations issued or guaranteed
by the U.S. government and/or its agencies and instrumentalities; (b)
commercial paper; (c) certificates of deposit; (d) bankers'
acceptances; (e) repurchase agreements; (f) tax exempt notes; (g) tax
exempt bonds; (h) tax exempt preferred stock; and (i) such other
investments as are permitted by section 9(c) of the Act and rule 40
thereunder.
Applicants state that the interest income and investment income
earned on loans and investments of surplus funds would be allocated
among those Money Pool participants that have invested funds in
accordance with the ratio of the surplus funds contributed by each
participant to the total surplus funds invested in the Money Pool.
Applicants state that each Eligible Borrower receiving a loan through
the Money Pool would be required to repay the principal amount of the
loan, together with all interest accrued, on demand and in any event
within one year after the date of the loan. All loans made through the
Money Pool may be prepaid by the borrower without premium or penalty
and without prior notice.
Applicants state that proceeds of any short-term borrowings from
the Money Pool may be used by an Eligible Borrower: (a) For the interim
financing of its construction and capital expenditure programs; (b) for
its working capital needs; (c) for the repayment, redemption or
refinancing of its debt and preferred stock; (d) to meet unexpected
contingencies, payment and timing differences, and cash requirements;
and (e) to otherwise
[[Page 53960]]
finance its own business and for other lawful general corporate
purposes.
III. Guarantees
National Grid Transco requests authorization to provide guarantees
(``Guarantees'') with respect to debt securities or other contractual
obligations of any Subsidiary as may be appropriate in the ordinary
course of the Subsidiary's business, in an aggregate principal or
nominal amount not to exceed $20 billion (``NGT Guarantee Limit'') at
any one time outstanding, provided however, that the amount of any
Guarantees in respect of obligations of any Subsidiaries shall also be
subject to the limitations of rule 53(a)(1) or rule 58(a)(1), as
applicable.
National Grid Transco states that Guarantees may take the form of,
among others, direct guarantees, reimbursement undertakings under
letters of credit, ``keep well'' undertakings, agreements to indemnify,
expense reimbursement agreements, and credit support with respect to
the obligations of the Subsidiaries as may be appropriate to enable
Subsidiaries to carry on their respective authorized or permitted
businesses. Any Guarantee that is outstanding at the end of the
Authorization Period shall remain in force until it expires or
terminates in accordance with its terms.
National Grid Transco states that any Guarantee provided to a
Financing Subsidiary will comply with the Financing Parameters and will
count against the NGT External Limit. To avoid double counting,
Applicants propose that the amount of any Guarantee with respect to
securities issued by a Financing Subsidiary will not also be counted
against the proposed limit on Guarantees.
Applicants state that Guarantees may be provided to support
obligations of Subsidiaries that are not readily susceptible of exact
quantification or that may be subject to varying quantification. In
these cases, National Grid Transco will determine the exposure under
that Guarantee for purposes of measuring compliance with the proposed
limitation on Guarantees by appropriate means, including estimation of
exposure based on loss experience or projected potential payment
amounts. If appropriate, estimates will be made in accordance with GAAP
and this estimation will be reevaluated periodically.
National Grid Transco requests authorization to charge each
Subsidiary a fee for each Guarantee that is not greater than the cost,
if any, of obtaining the liquidity necessary to perform the Guarantee
(for example, bank line commitment fees or letter of credit fees, plus
other transactional expenses) for the period of time that it remains
outstanding.
In addition, Applicants request authority for the Nonutility
Subsidiaries, National Grid USA, NiMo Holdings, the Intermediate
Companies, and NGH One to guarantee the indebtedness or contractual
obligations and to otherwise provide credit support to associate
companies. Guarantees provided by National Grid USA and NiMo Holdings
in support of the external obligations of direct or indirect
subsidiaries would not exceed $1 billion outstanding at any one time,
in the aggregate, exclusive of any Guarantees and other forms of credit
support that are exempt pursuant to rule 45(b) and rule 52(b), provided
however, that the amount of Guarantees in respect of obligations of any
Rule 58 Subsidiaries shall remain subject to the limitations of rule
58(a)(1). The company providing credit support may charge its associate
company a fee for each Guarantee provided on its behalf determined in
the same manner as specified above.
IV. Interest Rate and Currency Risk Management Devices
National Grid Transco proposes to enter into, perform, purchase and
sell financial instruments intended to manage the volatility of
currencies and interest rates, including but not limited to currency
and interest rate swaps, caps, floors, collars and forward agreements
or any other similar agreements (``Hedging Instruments''). National
Grid Transco would employ Hedging Instruments as a means of prudently
managing the risk associated with any of its outstanding or anticipated
debt by, for example, synthetically (a) converting variable rate debt
to fixed rate debt, (b) converting fixed rate debt to variable rate
debt, (c) limiting the impact of changes in interest rates resulting
from variable rate debt, and (d) providing an option to enter into
interest rate swap transactions in future periods for planned issuances
of debt securities.
National Grid Transco proposes to enter into Hedging Instruments
with respect to anticipated debt offerings (``Anticipatory Hedges''),
to fix and/or limit the interest rate or currency exchange rate risk
associated with any new issuance. In addition to the use of Hedging
Instruments, Anticipatory Hedges may include: (a) A forward sale of
exchange-traded government securities futures contracts, government
securities and/or a forward swap (each a ``Forward Sale''), (b) the
purchase of put options on government securities (``Put Options
Purchase''), (c) a Put Options Purchase in combination with the sale of
call options on government securities (``Zero Cost Collar''), (d)
transactions involving the purchase or sale, including short sales, of
government securities, or (e) some combination of a Forward Sale, Put
Options Purchase, Zero Cost Collar, and/or other derivative or cash
transactions, including, but not limited to structured notes, caps, and
collars appropriate for the Anticipatory Hedges. National Grid may seek
to hedge its exposure to currency fluctuations through currency swaps
or options and forward exchange or similar transactions.
Applicants state that Hedging Instruments and instruments used to
effect Anticipatory Hedges will be executed on-exchange (``On-Exchange
Trades'') with brokers through the opening of futures and/or options
positions, 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. National Grid Transco will
determine the optimal structure of each transaction at the time of
execution. Off-Exchange Trades would be entered into only with
Intermediate Companies or with counterparties whose senior debt ratings
are investment grade as determined by Standard & Poor's, Moody's
Investors Service, Inc. or Fitch IBCA, Inc. (``Approved
Counterparties'').
The Utility Subsidiaries also propose to enter into Hedging
Instruments with third-party Approved Counterparties, but not other
National Grid Transco System companies, on the same terms generally
applicable to National Grid Transco.\9\ The Utility Subsidiaries expect
to use this authority principally to hedge external debt.
---------------------------------------------------------------------------
\9\ Applicants state that the terms applicable to Hedging
Instruments entered into by the Utility Subsidiaries differ from
those applicable to National Grid Transco in that the Utility
Subsidiaries will qualify Hedging Instruments entered into by the
Utility Subsidiaries for hedge accounting treatment under U.S. GAAP.
In addition, to the extent a Utility Subsidiary incurs a gain or
loss on a Hedging Instrument that it has entered into to hedge a
currency or interest rate risk associated with a security that the
Utility Subsidiary has issued, the gain or loss would be attributed
to the Utility Subsidiary.
---------------------------------------------------------------------------
The Intermediate Companies also request authorization to enter into
currency derivatives with National Grid Transco and other Intermediate
Companies for the purpose of managing their exposure to various
currencies that may be used to finance their business.
National Grid Transco maintains a central treasury department whose
[[Page 53961]]
activities are governed by policies and guidelines approved by the
Board of Directors, with regular reviews and monitoring by a standing
committee of the Board. The treasury department operates as a service
center rather than as a profit center and is subject to internal and
external audit. Treasury activities are managed in a non-speculative
manner and all transactions in Hedging Instruments would be matched to
an underlying business purpose. Consequently, Applicants state,
National Grid Transco, the Intermediate Companies and the Utility
Subsidiaries would not enter into transactions in Hedging Instruments
for speculative purposes or to finance businesses that are not
permitted, authorized or exempt under the Act. National Grid Transco
will qualify transactions in Hedging Instruments for hedge-accounting
treatment under GAAP in the U.S. or the UK. In the event transactions
in Hedging Instruments are qualified for hedge accounting treatment
under UK GAAP, but not under U.S. GAAP, National Grid Transco's
financial statements filed with the Commission will contain a
reconciliation of the difference between the two methods of accounting
treatment as is required by Form 20-F. Applicants affirm that no gain
or loss on a Hedging Instrument entered into by National Grid Transco
or the Intermediate Companies, or associated tax effects, will be
allocated to National Grid USA or NiMo Holdings or their subsidiaries,
regardless of the accounting treatment accorded to the transaction and
that National Grid USA, and its subsidiaries would not be adversely
affected by these transactions.
V. Payment of Dividends Out of Capital or Unearned Surplus
By order dated March 15, 2000 (HCAR No. 27154) (``March 2000
Order'') and also in the January 2002 Order, the Commission authorized,
subject to certain conditions, the payment of dividends out of capital
and unearned surplus of National Grid USA and its Utility and
Nonutility Subsidiaries. As to the Utility Subsidiaries, dividends were
permitted to be paid out of capital and unearned surplus in an amount
equal to the retained earnings of each subsidiary prior to the mergers
of National Grid Transco's predecessors with New England Electric
System and NiMo Holdings. In addition, the March 2000 Order and January
2002 Order stated that the amortization or write down of goodwill could
be ignored in calculating earnings available for the payment of
dividends after the mergers.
Applicants request that the Utility Subsidiaries continue to be
authorized to pay dividends out of capital or unearned surplus in an
amount up to: (a) The amount of any retained earnings of the subsidiary
prior to the mergers authorized in the January 2002 Order (with respect
to Niagara Mohawk) and the March 2000 Order (with respect to all other
Utility Subsidiaries), and (b) the amount of any goodwill impairment
charge. Consequently, ``Income Available for Dividends'' would be
calculated by starting with the amount of pre-merger retained earnings
that had not already been paid in previous periods, adding any post-
merger retained earnings, and adding any current period income grossed
up for non-cash charges to income resulting from a determination that
goodwill has been impaired.
In addition, the January 2002 Order further authorized Niagara
Mohawk to calculate ``Income Available for Dividends,'' by excluding
non-cash charges to income resulting from accounting changes or charges
to income resulting from significant unanticipated events.
Applicants now request that the Commission continue to authorize
this variation in the calculation of Income Available for Dividends for
Niagara Mohawk alone, consistent with the January 2002 Order.
Applicants state that the Utility Subsidiaries would not pay dividends
out of capital or unearned surplus if the effect of the dividend would
be to reduce capitalization to less than 30% equity as a percentage of
total capitalization or to reduce a rated Utility Subsidiary to below
investment grade.
Applicants also seek authorization for the Nonutility Subsidiaries
to pay dividends from time to time through the Authorization Period,
out of capital and unearned surplus, to the extent permitted under
applicable corporate law and the terms of any credit agreements and
indentures that restrict the amount and timing of distributions to
shareholders. In addition, Applicants state that none of the Nonutility
Subsidiaries will declare or pay any dividend out of capital or
unearned surplus unless it: (a) Has received excess cash as a result of
the sale of some or all of its assets, (b) has engaged in a
restructuring or reorganization, and/or (c) is returning capital to an
associate company.
VI. Changes in Capitalization of Majority-Owned Subsidiaries
Applicants state that the portion of an individual Subsidiary's
aggregate financing to be effected through the sale of stock to
National Grid Transco or other immediate parent company during the
Authorization Period under rule 52 and/or under an order issued by the
Commission cannot be ascertained at this time. The proposed sale of
capital securities (i.e., common stock or preferred stock) may in some
cases exceed the then authorized capital stock of the Subsidiary. In
addition, the Subsidiary may choose to use capital stock with no par
value.
Applicants request authorization to change the terms of any 50% or
more owned Subsidiary's authorized capital stock capitalization or
other equity interests by an amount deemed appropriate by National Grid
Transco or other intermediate parent company, provided that the
consents of all other shareholders have been obtained for the proposed
change. This request for authorization is limited to National Grid
Transco's 50% or more owned Subsidiaries and will not affect the
aggregate limits or other conditions contained herein. A Subsidiary
would be able to change the par value, or change between par value and
no-par stock, or change the form of equity from common stock to limited
partnership or limited liability company interests or similar
instruments, or from instruments to common stock, without additional
Commission approval. Additional terms that may be changed include
dividend rates, conversion rates and dates, and expiration dates. Any
action of this kind by a Utility Subsidiary would be subject to and
would only be taken upon the receipt of any necessary approvals by the
state commission in the state or states where the Utility Subsidiary is
incorporated and doing business. National Grid Transco will be subject
to all applicable laws regarding the fiduciary duty of fairness of a
majority shareholder to minority shareholders in any 50% or more owned
Subsidiary and will undertake to ensure that any change implemented
under this paragraph comports with such legal requirements.
VII. Financing Entities
National Grid Transco currently owns the stock of NGG Finance plc
which assists in the financing of National Grid Transco and its
Subsidiaries. Applicants request authorization to organize and acquire
the securities of Financing Subsidiaries in the form of one or more
additional corporations, trusts, partnerships or other entities, to
finance the business of the respective founding company or its
subsidiaries. A Financing Subsidiary would be used to finance the
authorized or permitted businesses of its direct or indirect
[[Page 53962]]
parent company (``Founding Parent''), including the businesses of the
National Grid USA Group, but in no event would a Financing Subsidiary
engage in prohibited upstream loans involving companies in the National
Grid USA Group. Financing Subsidiaries may issue any securities that
the Founding Parent would be authorized to issue under the terms of
this Application as authorized by the Commission, or Commission rule,
regulation or order under the Act. Applicants also request
authorization to issue securities to a Financing Subsidiary to evidence
the transfer of financing proceeds by a Financing Subsidiary to a
company receiving financing. Applicants state that the terms of the
securities issued to a Financing Subsidiary would typically be designed
to service the obligations of the Financing Subsidiary under the
securities that it has issued.
As noted above, a Financing Subsidiary would raise funds and
finance the businesses of its Founding Parent company, or the
subsidiaries thereof, as authorized and permitted under the Act. A
Financing Subsidiary would finance these companies on terms and
conditions applicable to financings conducted by its parent as set
forth in this Application or permitted by rule, regulation, or order of
the Commission. Applicants state, for example, NGG Finance plc may
finance an Intermediate Company at market rates, but a financing of
National Grid USA or its subsidiaries must be in accordance with the
Best Rate Method.
Securities issued by Financing Subsidiaries to third parties would
count against issuance limits set forth in this Application that are
applicable to the Founding Parent of the Financing Subsidiary. To avoid
double counting, securities or Guarantees issued by the Founding Parent
to the Financing Subsidiary would not count against the Founding
Parent's respective issuance limits.
National Grid Transco and its Subsidiaries also request
authorization to enter into support or expense agreements (``Expense
Agreement'') with Financing Subsidiaries to pay the expenses of any
such entity. In cases where it is necessary or desirable to ensure
legal separation for purposes of isolating the Financing Subsidiary
from its parent or another Subsidiary for bankruptcy purposes, the
ratings agencies may require that any Expense Agreement whereby the
parent or Subsidiary provides financing related services to the
Financing Subsidiary be at a price, not to exceed a market price,
consistent with similar services for parties with comparable credit
quality and terms entered into by other companies so that a successor
service provider could assume the duties of the parent or Subsidiary in
the event of the bankruptcy of the parent or Subsidiary without
interruption or an increase of fees. Applicants seek approval under
section 13(b) of the Act and rules 87 and 90 to provide the services
described in this paragraph at a charge not to exceed a market price
but only for so long as such Expense Agreement established by the
Financing Subsidiary is in place.
VIII. FUCO Financing Limits
Applicants propose that National Grid Transco use the proceeds of
the financings proposed in this Application, in part, for investments
in FUCOs.\10\ In the October 2002 Order, National Grid Transco was
authorized to issue securities to finance additional FUCO investments
and operations up to a total aggregate investment of $20 billion.
Applicants state that they have current investments in FUCOs of
approximately $14.9 billion. National Grid Transco now seeks to use the
authorization requested in this Application to issue up to $20 billion
of securities during the Authorization Period for the purpose of
financing additional FUCO investments beyond its current $14.9
investment. Applicants do not seek authorization to invest in exempt
wholesale generators, as that term is defined in section 33 of the Act.
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\10\ Applicants propose that a reorganization of existing FUCO
investments that results in an increased FUCO investment for
accounting purposes as a result of the recognition of the market
value of transferred FUCO interests would not be counted as an
increased FUCO investment if National Grid Transco did not actually
make a cash investment in, or increase its guarantee exposure to, a
FUCO subsidiary.
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IX. Intermediate Subsidiaries and Nonutility Subsidiary Reorganizations
National Grid Transco proposes to acquire, directly or indirectly,
the securities of one or more entities (``Intermediate Subsidiaries''),
which would be organized exclusively for the purpose of acquiring,
holding and/or financing the acquisition of the securities of or other
interest in one or more FUCOs, Rule 58 Subsidiaries, exempt
telecommunications companies as that term is defined in section 34 of
the Act (``ETCs'') or other non-exempt Nonutility Subsidiaries (as
authorized in this proceeding or in a separate proceeding), provided
that Intermediate Subsidiaries may also engage in administrative
activities (``Administrative Activities'') and development activities
(``Development Activities''), as those terms are defined below,
relating to those subsidiaries.
Applicants state that Administrative Activities include ongoing
personnel, accounting, engineering, legal, financial, and other support
activities necessary to manage National Grid Transco's investments in
Nonutility Subsidiaries. Applicants state that Development Activities
will be limited to due diligence and design review; market studies;
preliminary engineering; site inspection; preparation of bid proposals,
including, in connection therewith, posting of bid bonds; application
for required permits and/or regulatory approvals; acquisition of site
options and options on other necessary rights; negotiation and
execution of contractual commitments with owners of existing
facilities, equipment vendors, construction firms, and other project
contractors; negotiation of financing commitments with lenders and
other third-party investors; and other preliminary activities as may be
required in connection with the purchase, acquisition, financing or
construction of facilities or the acquisition of securities of or
interests in new businesses.
An Intermediate Subsidiary may be organized, among other things,
(a) in order to facilitate the making of bids or proposals to develop
or acquire an interest in any FUCO, Rule 58 Subsidiary, ETC or other
nonutility subsidiary, (b) after the award of a bid proposal, in order
to facilitate closing on the purchase or financing of such acquired
company, (c) at any time subsequent to the consummation of an
acquisition of an interest in any such company in order, among other
things, to effect an adjustment in the respective ownership interests
in such business held by National Grid Transco and non-affiliated
investors, (d) to facilitate the sale of ownership interests in one or
more acquired Nonutility Subsidiaries, (e) to comply with applicable
laws of foreign jurisdictions limiting or otherwise relating to the
ownership of domestic companies by foreign nationals, (f) as a part of
tax planning in order to limit National Grid Transco's exposure to
taxes, (g) to further insulate National Grid Transco and the Utility
Subsidiaries from operational or other business risks that may be
associated with investments in Nonutility Subsidiaries, or (h) for
other lawful business purposes.
Applicants propose that investments in Intermediate Subsidiaries
may take the form of any combination of the following: (a) Purchases of
capital shares, partnership interests, member interests in limited
liability companies, trust certificates or other forms of equity
interests, (b) capital contributions, (c)
[[Page 53963]]
open account advances with or without interest, (d) loans, and (e)
Guarantees issued, provided or arranged in respect of the securities or
other obligations of any Intermediate Subsidiaries. Funds for any
direct or indirect investment in any Intermediate Subsidiary will be
derived from: (a) Financings authorized in this proceeding, (b) any
appropriate future debt or equity securities issuance authorization
obtained by National Grid Transco from the Commission, and (c) other
available cash resources, including proceeds of securities sales by
Nonutility Subsidiaries under rule 52. Applicants state that, to the
extent that National Grid Transco provides funds or Guarantees directly
or indirectly to an Intermediate Subsidiary that are used for the
purpose of making an investment in any FUCO or a Rule 58 Subsidiary,
the amount of the funds or Guarantees will be included in National Grid
Transco's ``aggregate investment'' in those entities, as calculated in
accordance with rule 53 or rule 58, as applicable.
National Grid Transco requests authorization to consolidate or
otherwise reorganize all or any part of its direct and indirect
ownership interests in Nonutility Subsidiaries, and the activities and
functions related to such investments. To effect any such consolidation
or other reorganization, National Grid Transco may wish to either
contribute the equity securities of one Nonutility Subsidiary to
another Nonutility Subsidiary (including a newly formed Intermediate
Subsidiary) or sell (or cause a Nonutility Subsidiary to sell) the
equity securities or all or part of the assets of one Nonutility
Subsidiary to another one. National Grid Transco requests authorization
to consolidate or otherwise reorganize, under one or more direct or
indirect Intermediate Subsidiaries, National Grid Transco's ownership
interests in existing and future Nonutility Subsidiaries. Applicants
state that these transactions may take the form of a Nonutility
Subsidiary selling, contributing, or transferring the equity securities
of a subsidiary or all or part of a subsidiary's assets as a dividend
to an Intermediate Subsidiary or to another Nonutility Subsidiary, and
the acquisition, directly or indirectly, of the equity securities or
assets of a subsidiary, either by purchase or by receipt of a dividend.
The purchasing Nonutility Subsidiary in any transaction structured as
an intrasystem sale of equity securities or assets may execute and
deliver its promissory note evidencing all or a portion of the
consideration given. Each transaction would be carried out in
compliance with all applicable U.S. or foreign laws and accounting
requirements. In addition, in the event that proxy solicitations are
necessary with respect to any corporate reorganization, Applicants
state that they will seek Commission approvals as necessary under
section 6(a)(2) and 12(e) of the Act through the filing of a
declaration.
National Grid Transco requests authorization to make expenditures
on Development Activities, as defined above, in an aggregate amount of
up to $600 million. National Grid Transco proposes a ``revolving fund''
for permitted expenditures on Development Activities. Thus, Applicants
propose, to the extent a Nonutility Subsidiary in respect of which
expenditures for Development Activities were made subsequently becomes
a FUCO or qualifies as an ``energy-related company'' under Rule 58, the
amount so expended will cease to be considered an expenditure for
Development Activities, but will instead be considered as part of the
``aggregate investment'' in such entity under rule 53 or 58, as
applicable.
For the Commission by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E4-2068 Filed 9-2-04; 8:45 am]
BILLING CODE 8010-01-P