[Federal Register Volume 64, Number 201 (Tuesday, October 19, 1999)]
[Notices]
[Pages 56372-56375]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27184]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 35-27086]
Filings Under the Public Utility Holding Company Act of 1935, as
Amended (``Act'')
October 12, 1999.
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
applications(s) and/or declaration(s) for complete statements of the
proposed transactions(s) summarized below. The application(s) and/or
declarations(s) and any amendments 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
applications(s) and/or declaration(s) should submit their view in
writing by November 12, 1999, 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 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 November 12, 1999, the application(s) and/or
declaration(s), as filed or as amended, may be granted and/or permitted
to become effective.
The National Grid Group plc, et al. (70-9519)
The National Grid Group plc (``National Grid''), a public limited
company incorporated under the laws of England and Wales, located at
National Grid House, Kirby Corner Road, Coventry CV4 8JY, United
Kingdom; National Grid (US) Holdings Limited, National Grid (US)
Investments, National Grid (Ireland) 1 Limited, National Grid (Ireland)
2 Limited, National Grid General Partnership, and NGG Holdings, Inc.
(``Holdings''), also located at National Grid House, Kirby Corner Road,
Coventry CV4 8JY, United Kingdom, each of which is a subsidiary of
National Grid (except for National Grid, collectively ``Intermediate
Companies''); \1\ New England Electric System (``NEES''), a registered
holding company; NEES' subsidiaries (``NEES Subsidiaries''), New
England Power Company, Massachusetts Electric Company, The Narragansett
Electric Company, Granite State Electric Company, Nantucket Electric
Company, New England Electric Transmission Corporation, New England
Hydro-Transmission Corporation, New England Hydro-Transmission Electric
Company, Inc., Vermont Yankee Nuclear Power Corporation, New England
Hydro Finance Company, Inc., NEES Global, Inc., NEES Energy, Inc., All
Energy Marketing Company, L.L.C., Texas Liquids, L.L.C., Texas-Ohio
Gas, Inc., Granite State Energy, Inc., New England Power Service
Company, Metro West Realty, L.L.C., 25 Research Drive, L.L.C., New
England Energy, Inc., and Nexus Energy Software, Inc all located at 25
Westborough Drive, Westborough, Massachusetts 01582, (collectively,
``Applicants'') have filed a joint application-declaration under
sections 6(a), 7, 9(a), 10, 12(b), 12(c), 32 and 33 of the Act and
rules 42, 43, 45, 46, and 54 under the Act.
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\1\ National Grid's other operations have been segregated under
a newly-formed first-tier subsidiary company, National Grid Holdings
Ltd., which will be a foreign utility company within the meaning of
Section 33 of the Act.
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National Grid, the Intermediate Companies, and NEES have filed an
application-declaration (file no 70-9473) under the Act, requesting
authority for the proposed acquisition by National Grid of all of the
voting securities of NEES, and NGG's consequent indirect acquisition of
the voting securities of the NEES Subsidiaries (``Merger''), as well as
for certain related transactions (the ``Merger Filing'').\2\ As
discussed more fully below, NEES and its subsidiaries, together with
National Grid and the Intermediate Companies, now request authority to
engage in a variety of financing transactions subsequent to the
Merger.\3\ In summary, NEES and its subsidiaries seek authority to
extend, through May 31, 2003 (``Authorization Period''), the existing
authority granted in certain Commission financing orders more
particularly described below. In addition, Applicants seek authority
for the following transactions through the Authorization Period: (a)
external financings by National Grid; (b) intrasystem financings by the
Intermediate Companies, NEES and the NEES Subsidaries (``U.S.
Subsidiaries''); (c) the payment by the NEES Subsidiaries of dividends
out of capital or unearned surplus; (d) increases in the number of
shares authorized by any U.S. Subsidiary with respect to any capital
security \4\ of the company, as well as alteration of the terms of any
capital security, without further Commission authorization; (e) the
formation of financing entities and the issuance by those entities of
securities authorized to be issued and sold under the authority
requested in this filing; and (f) the execution of a system tax
allocation agreement.
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\2\ Immediately after the Merger, NEES will have been merged
with and into NGG Holdings, LLC, with NEES as the surviving entity
and then merged again into another to-be-formed LLC (which survives)
which in turn will have been merged into NGG Holdings, Inc. with NGG
Holdings, Inc. as the surviving entity. The term ``NEES'' refers to
both NEES and NGG Holdings, Inc. as the surviving entity.
\3\ In addition, NEES and Eastern Utilities Associates (``EUA'')
have filed an application-declaration (file no. 70-9537) for NEES to
acquire all of the outstanding common stock of EUA, including the
indirect acquisition of EUA's utility and nonutility subsidiaries.
The consummation of the merger between NEES and EUA (``NEES/EUA
Merger'') is not conditioned on, and is proceeding independently
from, the closing of the Merger.
\4\ Capital securities includes common stock, preferred stock,
other preferred securities, options and/or warrants convertible into
common or preferred stock, rights, and similar securities.
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Applicants state that the proceeds from the sale of securities in
external financing transactions will be used for the acquisition,
retirement or redemption of securities issued by National Grid or the
U.S. Subsidiaries, without the need for prior Commission approval, and
for necessary and urgent general and corporate purposes, including: (a)
extension or renewal of Merger-Related Debt (as defined below),
[[Page 56373]]
(b) the financing, in part, of the capital expenditures of the National
Grid system, (c) the financing of working capital requirements of the
National Grid system, and (d) other lawful general corporate purposes.
The proceeds of external financings will be allocated to companies in
the National Grid System in various ways through the proposed
intrasystem financing discussed below.
In addition, National Grid seeks authority to finance exempt
wholesale generator (``EWG'') and foreign utility company (``FUCO'')
investments and operations in an aggregate outstanding amount of up to
fifty percent of its consolidated retained earnings at any one time
during the Authorization Period. Further, National Grid seeks authority
to use its ordinary shares (or associated American Depositary Shares
(``ADSs'') or American Depositary Receipts (``ADRs'')) as consideration
for acquisitions that are otherwise authorized under the Act and to
provide shares for various award and shareholder investment programs.
Specifically, Applicants seek authority for the following:
1. National Grid External Financing
National Grid proposes to issue equity and debt securities, in
amounts that, except as noted below, would not aggregate more than $4.0
billion outstanding at any time during the Authorization Period
(``Aggregate Limitation''). These securities could include, but would
not necessarily be limited to, ordinary shares, preferred shares,
options, warrants, long- and short-term debt (including commercial
paper), convertible securities, subordinated debt, bank borrowings and
securities with call or put options. In addition, National Grid may
also enter into currency and interest rate swaps as described below. In
addition to the Aggregate Limitation, aggregate outstanding amounts of
securities issued by National Grid would be subject to the limits for
each type of security described below.\5\
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\5\ Further, Applicants have proposed that certain other
conditions be imposed in the requested order, relating to, among
other things, the capitalization and liquidity of National Grid and
certain U.S. Subsidiaries.
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Debt incurred to finance the Merger (``Merger-Related Debt'') would
be included in the Aggregate Limitation. Specifically, National Grid
has entered into a fully committed bank facility with six banks
providing for, among other things, up to $2.750 billion in borrowings,
in order to fund the acquisition and to provide other working capital
needs for National Grid. Drawings under this facility will have a
maturity of three to five years.
a. Ordinary Shares
(1) General
National Grid's common equity consists of ordinary shares, with a
par value of 11\13/17\ pence each, that are listed on the London Stock
Exchange. National Grid currently has a small number of ADSs in the
U.S. which trade as ADRs. Prior to the consummation of the Merger,
National Grid intends to establish a sponsored ADR program in the U.S.
under which ADRs will be listed on a national stock exchange and
registered under the Securities Act of 1933, as amended. As a result,
National Grid will register under the Securities Exchange Act of 1934,
as amended, and file the periodic disclosure reports required of a
foreign issuer with the Commission. The request contained in this
application with respect to ordinary shares refers to the issuance of
ordinary shares directly or through the ADR program and, for purposes
of this request, the ADSs and ADRs are not considered separate
securities from the underlying ordinary shares. National Grid requests
authority to issue up to $500 million in equity \6\ through the
Authorization Period (``Equity Limitation'').\7\
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\6\ This would include stock options or warrants that NGG may
issue from time to time.
\7\ National Grid currently has $754 million (translated at the
Noon Buying Rate on March 31, 1999 of $1.61 for one pound) in
aggregate principal amount outstanding of 4.25% exchangeable bonds
that mature in 2008. These bonds are exchangeable on or prior to
February 8, 2008, at the option of the holder, into common stock of
National Grid. Should bondholders exchange their bonds prior to
maturity, National Grid may issue up to 110 million additional
shares of common stock. This would not be included in the Aggregate
Limitation or the Equity Limitation.
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National Grid seeks authority to use its ordinary shares (or
associated ADSs or ADRs) as consideration for acquisitions that are
otherwise authorized under the Act. Among other things, transactions
may involve the exchange of parent company equity securities for
securities of the company being acquired in order to provide the seller
with certain tax advantages. The National Grid ordinary shares to be
exchanged may, among other things, be purchased on the open market
under rule 42 or may be original issue. For purposes of the Aggregate
Limitation, National Grid ordinary shares used to fund an acquisition
of a company through the exchange of National Grid equity for
securities being acquired, would be valued at market value based upon
the closing price on the London Stock Exchange on the day before
closing of the sale or issuance.
(2) Employee Benefit Plans
In addition to other general corporate purposes, the ordinary
shares will be used to fund employee benefit plans. In addition to
existing plans,\8\ National Grid intends to issue ordinary shares to
U.S. employees, following consummation of the Merger, through the
introduction of the National Grid U.S. Employee Stock Purchase Plan
(the ``U.S. Plan''). The U.S. Plan, which is designed to qualify under
Section 423 of the U.S. Internal Revenue Code of 1986, will enable U.S.
employees to receive awards of National Grid shares. Following
consummation of the Merger, National Grid may wish to adopt other plans
to give investment opportunities, to provide retirement benefits, to
facilitate deferral of compensation opportunities, and to motivate and
retain key executives and other employees (``New Plans''). National
Grid requests authority to issue ordinary shares to employees under the
existing plans, the U.S. Plan and such additional plans (collectively,
``Plans'') that may be developed for the purposes stated above. All
shares issued under the Plans will be subject to the Equity Limitation.
Securities issued by National Grid under the Plans will be valued, if
ordinary shares, at market value based on the closing price on the
London Stock Exchange on the day before the award. Securities issued by
National Grid to a plan that are not ordinary shares will be valued
based on a reasonable and consistent method applied at the time of the
award.
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\8\ National Grid currently maintains three employee benefit
plans under which its employees may acquire equity interests in the
company as part of their compensation. The first is the National
Grid 1990 Savings Related Share Option Scheme, under which National
Grid offers staff who take out special savings contracts the
opportunity to purchase National Grid shares at a discount. The
second is The National Grid Executive Share Option Scheme 1990 which
is an executive share option plan for its senior executives. Share
options have been granted to over 120 senior executives under this
plan to a maximum aggregate level of four times base salary for
executive directors and lower levels for other participants. Under
the plan, options may be exercised after they have been held for a
minimum period of three years provided that financial performance
targets have been achieved. The third plan, The National Grid Share
Match Plan 1996, requires executive directors of NGG to invest 25%
of their annual bonuses, net of income tax, in NGG shares. Provided
these shares are held for a minimum of three years, the company will
provide additional shares equal to the pre-tax equivalent of the
investment by the director. A small number of other senior
executives may also, but are not required to, participate in the
share match.
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[[Page 56374]]
b. Preferred Securities
National Grid proposes to issue preferred securities from time to
time during the Authorization Period. The aggregate outstanding amount
of preferred securities would not exceed $100 million. Any issuance of
preferred securities would have dividend rates or methods of
determining dividend rates, redemption provisions, conversion or put
terms and other terms and conditions as National Grid may determine at
the time of issuance; provided, however, that the dividend rate on any
preferred security of National Grid, when issued, will not exceed 500
basis points over that for comparable term U.S. treasury securities or
government benchmark for the currency in which the preferred security
is denominated.
c. Debt
National Grid proposes to issue debt securities during the
Authorization Period. These securities may include bank debt
obligations, commercial paper, and convertible and nonconvertible
bonds. Subject to the following conditions, any issuance of debt
securities would have the designation, aggregate principal amount,
maturity, interest rate(s) or method of determining interest rate(s),
terms of payment of interest, redemption provisions, non-refunding
provisions, sinking fund terms, conversion or put terms and other terms
and conditions as are deemed appropriate at the time of issuance. In
addition to the Aggregate Limitation, aggregate outstanding amounts
during the Authorization Period of any type of debt securities issued
by National Grid would be further subject to the specific limitation
described below:
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Amount
Type of debt (billion)
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Bank Debt.................................................. $3.0
Commercial Paper........................................... 3.0
Convertible Bonds.......................................... 1.0
Nonconvertible Bonds....................................... 3.0
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The interest rate on debt financing of National Grid will not
exceed 300 basis points over that for comparable term U.S. treasury
securities or government benchmark for the currency in which the debt
is denominated. The maturity of any debt security will not exceed fifty
years.
Parent-level debt may be issued for the acquisition, retirement or
redemption of securities issued by National Grid or the U.S.
Subsidiaries, and for necessary and urgent general and corporate
purposes, including the servicing of the Merger-Related Debt, the
financing of capital expenditures, the financing of working capital
requirements, and other lawful general corporate purposes.
d. Interest Rate Management Devices
In order to protect the National Grid System from adverse interest
rate movements, the interest rate on the debt portfolio is managed
through the use of fixed-rate debt, combined with interest rate swaps,
options and option-related instruments with a view to maintaining a
significant proportion of fixed rates over the medium term. National
Grid states that these transactions will meet the criteria established
by the Financial Accounting Standards Board in order to qualify for
hedge accounting treatment or will so qualify under generally accepted
accounting principles in the United Kingdom.
e. Guarantees
National Grid requests authorization to enter into guarantees,
obtain letters of credit, enter into guaranty-type expense agreements
or other credit support arrangements (``Guarantees'') with respect to
the obligations of the U.S. Subsidiary Companies as may be appropriate
to enable these system companies to carry on their respective
authorized or permitted businesses. This credit support may be in the
form of committed bank lines of credit. Guarantees entered into by
National Grid would not be subject to the Aggregate Limitation, but
instead would be subject to a separate $2 billion limit (``NGG
Guarantee Limitation''), based on the amount at risk.
2. U.S. Subsidiary Financings
a. Existing Financing Authority
NEES and certain of its subsidiaries are currently authorized under
various Commission orders to engage in certain financing transactions
(``Existing Financing Authority''). Applicants request that the
Commission extend the term of the Existing Financing Authority through
the Authorization Period. The orders are described below.
By order dated October 29, 1997 (HCAR No. 26768), the Commission
authorized Massachusetts Electric Company, Nantucket Electric Company,
Nantucket Electric Company, Narragansett Electric Company, New England
Hydro-Transmission Electric Co., Inc., New England Power Company and
New England Power Service Company (collectively, the ``Borrowing
Companies'') to participate in the NEES money pool (``Money Pool'') and
to issue and sell commercial paper and short-term, all through October
31, 2001. The Borrowing Companies were authorized to borrow money and/
or issue commercial paper up to the following amounts: $150 million for
Massachusetts Electric Company, $5 million for Nantucket Electric
Company, $100 million for Narragansett Electric Company, 25 million for
New England Hydro-Transmission Electric Co., Inc., $375 million for New
England Power Company and $12 million for New England Power Service
Company. By order dated June 2, 1998 (HCAR No. 26881), the Commission
increased the limits on short-term borrowings by New England Power
Company from $375 million to $750 million.
By order dated October 9, 1996 (HCAR No. 26589), the Commission
authorized NEES to issue and sell short-term notes in a principal
amount of up to $100 million at any one time outstanding through
October 31, 2001. This authority was amended by order dated December
10, 1997 (HCAR No. 26793), which authorized NEES to borrow up to $500
million. By orders dated March 25, 1998 and November 18, 1998 (HCAR
Nos. 26849 and 26942), NEES was also authorized to issue up to two
million shares of its common stock, through December 31, 2002, which
would be used to acquire the stock or assets of one or more ``energy-
related companies,'' within the meaning of rule 58.
In addition to the request for an extension through the
Authorization Period of the authority granted in these orders,
Applicants request an extension through the Authorization Period of the
authority granted in two other orders. Under one order, dated January
27, 1999 (HCAR No. 26969), NEES was authorized to invest up to $50
million in one or more new special purpose subsidiaries that will
acquire interests in office and warehouse space that would be leased to
associate companies. Further, New England Power Company was authorized
by order dated September 25, 1998 (HCAR No. 26918), to repurchase up to
five million shares of its common stock from NEES through December 31,
2000.
b. Intrasystem Non-Money Pool Financing
Each of the Intermediate Companies and NEES request authority to
issue and sell securities to, and to acquire securities from, its
immediate parent and subsidiary companies, respectively. In addition,
each of the Intermediate Companies and NEES request authority to
provide Guaranties to its direct and indirect subsidiaries. In no case
would NEES or any Intermediate Company
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borrow, or receive any extension of credit or indemnity from any of its
subsidiaries. Securities issuances by NEES will be limited to issuances
permitted by the Existing Financing Authority, as such authority may be
extended through the Authorization Period by the order requested in
this filing. Guaranties issued by NEES on behalf of a NEES subsidiary
would not in the aggregate exceed $500 million (``NEES Guarantee
Limitation''), based on the amount at risk. Further, each NEES
nonutility subsidiary requests authority to provide Guaranties on
behalf of any other NEES nonutility subsidiary, to the extent not
exempt under rule 45.
c. Money Pool
National Grid requests authority to substitute Holdings, the
successor to NEES, as an investor in the Money Pool. In addition,
Applicants request authority for National Grid, any Intermediate
Company, and any newly formed or acquired or current nonparticipating
NEES Subsidiary to participate in the Money Pool as lenders only.
3. Payment of Dividends Out of Capital or Unearned Surplus
National Grid and NEES will account for the Merger using the
purchase method of accounting. Under this method of accounting, the
Merger will give rise to a substantial level of goodwill which, in
accordance with the Commission's Staff Accounting Bulletin No. 54,
Topic 5J (``Staff Accounting Bulletin''), will be ``pushed down'' to
the NEES Subsidiaries and reflected as additional paid-in-capital in
their financial statements. In addition, as a result of the push down
of the goodwill, the retained earnings of NEES and the NEES
Subsidiaries will be effectively reset to zero as if they were new
companies, with the balance being reflected in paid-in capital.
Accordingly, Applicants request authorization to pay dividends out of
the additional paid-in-capital account up to the amount of NEES
Subsidiaries' aggregate retained earnings just prior to the Merger and
out of earnings before the amortization of the goodwill after the
Merger.
4. Approval of New Tax Allocation Agreement
Applicants request approval of an agreement for the allocation of
consolidated tax among National Grid General Partnership and the NEES
Group post-Merger (the ``Tax Allocation Agreement''). Approval is
necessary because the Tax Allocation Agreement provides for the
retention by National Grid General Partnership of certain payments for
tax losses that it has incurred solely in connection with acquisition-
related debt, rather than the allocation of these losses to subsidiary
companies without payment as would otherwise be required by rule
45(c)(5).
5. Changes in Capital Stock of Subsidiaries
Applicants state that the portion of an individual U.S.
Subsidiary's aggregate financing to be effected through the sale of
equity securities to its immediate parent during the Authorization
Period may in some cases exceed the then authorized capital stock of
the U.S. Subsidiary. In addition, the U.S. Subsidiary may choose to use
other forms of capital securities.\9\ Each U.S. Subsidiary requests
authority to increase the amount or change the terms of any of its
authorized capital securities, without additional Commission approval,
as needed to accommodate the sale of additional equity.\10\ The terms
that may be changed include dividend rates, conversion rates and dates,
and expiration dates. These proposed changes to the terms of and
increases in the amounts of capital securities affect only the manner
in which financing is conducted by the U.S. Subsidiaries and will not
alter the terms of limits proposed in the application or those of the
Existing Financing Authority.
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\9\ As noted above, these securities include common stock,
preferred stock, other preferred securities, options and/or warrants
convertible into common or preferred stock, rights, and similar
securities.
\10\ Applicants request that the Commission reserve jurisdiction
over changes to the capital stock of any U.S. Subsidiary that is not
wholly-owned directly or indirectly by National Grid.
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6. Financing Entities
Applicants seek authority for National Grid and the U.S. Subsidiary
Companies to organize and acquire interests in new corporations,
trusts, partnerships or other entities (``Financing Entities'') created
for the purpose of facilitating financings through their issuance to
third parties of securities authorized under this filing or issued
under an applicable exemption. Applicants also request authority for
these financing entities to issue these securities to third parties in
the event these issuances are not exempt under rule 52. In addition,
Applicants request authority for the financing entities to transfer the
proceeds of the financing to National Grid or any of the U.S.
Subsidiaries. Applicants also request authority for the parent of a
financing entity to provide Guarantees with respect to that financing
entity's obligations in connection with the securities it issues. Any
amounts issued by such financing entities to third parties under this
authorization will be included in the Aggregate Limitation. However,
the underlying debt incurred to transfer the proceeds of those
securities would not be included in the Aggregate Limitation and the
parent Guarantee of those securities would not be included in the NGG
Guarantee Limitation of the NEES Guarantee Limitation.
7. EWG/FUCO-related Financing
As a general matter, National Grid intends to fund its FUCO
activities at the level of its first-tier subsidiary, National Grid
Holdings Ltd (``UK Holdings''), under which National Grid subsidiaries
other than the U.S. Subsidiaries will be segregated.\11\ However, under
certain circumstances, it may be desirable from time to time for
National Grid to provide some investment capital or credit support for
FUCO acquisitions or operations. To that end, National Grid is seeking
authority to fiance EWG and FUCO investments and operations in an
aggregate amount of up to fifty percent of its consolidated retained
earnings at any one time outstanding during the Authorization
Period.\12\
\11\ In the Merger Filing, National Grid and NEES have asked
that National Grid's investments in UK Holdings, which will claim
status as a FUCO under rule 53, not be counted in the determination
of ``aggregate investment'' as defined in the rule.
\12\ Applicants state that National Grid cannot fully comply
with some of the technical requirements of rule 53(a).
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For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-27184 Filed 10-18-99; 8:45 am]
BILLING CODE 8010-01-M