[Federal Register Volume 66, Number 108 (Tuesday, June 5, 2001)]
[Notices]
[Pages 30237-30244]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-14025]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27409]


Filings Under the Public Utility Holding Company Act of 1935, as 
Amended (``Act'')

May 29, 2001.
    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 June 22, 2001, to the Secretary, Securities and Exchange 
Commission, Washington, DC 20549-0609, and serve a copy on the relevant 
applicant(s) and/or declaration(s) at the address(es) specified below. 
Proof of service (by

[[Page 30238]]

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 June 
22, 2001, the application(s) and/or declaration(s), as filed or as 
amended, may be granted and/or permitted to become effective.

Emera Incorporated, et al. (70-9787)

    Emera Incorporated (``Emera''), a holding company formed under the 
laws of the Province of Nova Scotia Canada; Nova Scotia Power Inc. 
(``NSPI''), Emera's wholly owned electric utility subsidiary company, 
both located at P.O. Box 910, Halifax, Nova Scotia, Canada B3J2W5; 
Bangor Hydro-Electric Company (``BHE''), a Maine electric public 
utility company and a holding company currently exempt by order under 
section 3(a)(1) of the Act; and Bangor Var Co., Inc. (``Bangor Var''), 
a wholly owned subsidiary of BHE, both located at 33 State Street, P.O. 
Box 1599, Bangor, Maine 04402-0932 (``Applicants'') have filed an 
application-declaration (``Application'') under sections 2(a)(7), 
2(a)(8), 3(a)(1), 6, 7, 9, 10, 11, 12, 13(b), 32, and 33 and rules 45, 
52, 53, 54, and 80-92 under the Act.

I. Summary of Proposal

    Emera proposes to acquire the outstanding common stock of BHE and 
its public utility subsidiary companies (``Merger''). In connection 
with the proposed Merger, Emera has undertaken that NSPI will qualify 
for an exemption as a foreign utility company (``FUCO'') within the 
meaning of section 33 of the Act. Emera will register as a holding 
company under the Act after completion of the Merger as will the to-be 
formed intermediate holding companies US HoldCo and Acquisition Co. 
No.1 (``Acq. Co 1'' (collectively, ``Intermediate HCs''). BHE and 
Bangor Var request an exemption from registration under section 
3(a)(1). In addition, Applicants request authority for financing, 
creation of a service company, associate company transactions, and 
other intrasystem authorizations. For purposes of identifying what 
entities in this application are requesting authority, the term 
``Subsidiaries'' includes all companies of which Emera holds 10% or 
more of the voting securities, but specifically excludes NSPI, and the 
term ``Nonutility Subsidiaries'' refers to all Subsidiaries other than 
BHE, MEPCO, Chester SVC Partnership (``Chester SVC'' and Bangor Var 
Emera, the Subsidiaries, and NSPI are referred to as the Emera system 
(``Emera System'').

II. The Applicants

A. Emera
    Emera is a corporation that was formed under the laws of the 
Province of Nova Scotia, Canada in 1998. Emera's common stock is listed 
and traded on the Toronto Exchange (``TSE''). Emera is subject to TSE's 
rules and regulations and files public disclosures in SEDAR, TSE's 
version of the Commission's EDGAR system. The securities commissions of 
each of the provinces of Canada regulate securities issuances by Emera.
    Emera is the parent of NSPI, a Canadian electric utility company 
that owns and operates a vertically integrated electric utility system 
in Nova Scotia. NSPI serves 440,000 customers in Nova Scotia with 2, 
183 MW of generating capacity, approximately 5,200 km of transmission 
lines, 24,000 km of distribution lines, associated substations, and 
other facilities. NSPI has no retail gas distribution facilities. 
NSPI's electric generation, transmission and distribution facilities 
are located exclusively within Nova Scotia.
    NSPI is subject to regulation by the Nova Scotia Utility and Review 
Board (``UARB''). The UARB has supervisory powers over NSPI's 
operations and expenditures. The UARB also regulates NSPI's electricity 
rates and capital structure.
    NSPI's transmission assets are used primarily to transmit power 
within Nova Scotia and, on a limited basis, to transmit power for sale 
to customers in New Brunswick and beyond. In 2000, NSPI generated 
11,432 GWh of electricity and sold 10,656 GWh of electricity. Of the 
amount sold, 10,475 GWh was consumed in the province of Nova Scotia and 
181 GWh was exported using the international lines of New Brunswick 
Power Corporation (``NB Power''). NB Power's principal interconnection 
with the U.S. is with the transmission facilities of Maine Electric 
Power Company, Inc. (``MEPCO''), in which BHE, then to be acquired 
domestic utility, has a minority interest of 14.2%. Currently, NSPI is 
not authorized to transmit power and energy within the U.S., and all 
purchasers of energy from NSPI purchase the energy within Canada for 
export by the purchaser across the international border for 
transmission via ISO-New England facilities.
    Emera requests that the Commission find that all of Emera's 
nonutility subsidiaries, directly or indirectly held, are retainable 
interests under section 11(b)(1) and include the following: NS Power 
Services Ltd. (``NS Power''), which is inactive, but provided energy 
services, and owns 50% of NSP Trigen Inc. that is also inactive; 
Enercom Inc. (``Enercom''), which is a holding company that wholly owns 
Emera Fuels Inc. that is engaged in the supply of furnace and fuel oil, 
lubricants, diesel, and gasoline products; Stellarton Basin Coal Gas 
Inc. (``Stellarton''), which participates in a joint venture to explore 
and develop methane gas reserves in Nova Scotia; Strait Energy Inc. 
(``Strait Energy''), which sells steam energy in Nova Scotia; 510845 
N.B. Inc. (``510845 NB''), which engages in the supply and maintenance 
of electric transformers and wholly owns Cablecom Ltd. that wholly owns 
Fibretek Inc. (both are engaged in the design, engineering, project 
management, construction, structured cabling, maintenance and 
installation of fiber optic and wireless communications applications); 
1447585 Ontario Ltd. (``1447585''), which was formed for the merger, 
will not be used, and is currently inactive; 3054167 Nova Scotia Ltd. 
(``3054167''), which holds the Sable Offshore Energy Project; NSP 
Pipeline Management Ltd. (``NSP Management''), which owns a 12.5% 
interest in Maritimes and Northeast Pipeline Management Ltd (``M&N 
Management) ''\1\ NSP Pipeline Inc. (``NSP Pipeline''), which owns a 
12.375% interest in M&N Limited Partnership;\2\ and NSP US Holdings 
Inc. (``NSP US Holdings''),\3\ which indirectly owns a 12.5% interest 
in Maritimes and Northeast Pipeline L.L.C. (``M&N L.L.C.''), which owns 
the U.S. portion of the Maritimes and Northeast Pipeline through these 
holding companies: Scotia Holdings Inc.; Nova Power Holdings Inc., and 
Scotia Power U.S. Ltd. Emera wholly owns these direct Nonutility 
Subsidiaries: NS Power, Enercom, Stellarton, Strait Energy,

[[Page 30239]]

510845 NB, 1447585, 3054167, NSP Management, NSP Pipeline, and NSP US 
Holdings.
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    \1\ M&N Management is 12.5% owned by NSP Management and the 
remainder is owned by nonaffiliates. M&N Management is also the 
general partner of and owns a 1.25% interest in Maritimes and 
Northeast Pipeline Limited Partnership (``M&N Limited 
Partnership''). M&N Management operates and manages the Canadian 
portion of the Maritimes and Northeast Pipeline, a natural gas 
pipeline with its origin in Nova Scotia and its terminus near 
Boston.
    \2\ M&N Limited Partnership is 12.375% owned by NSP Pipeline and 
1.25% owned by M&N Management. Nonaffiliates own the remainder. M&N 
Limited Partnership owns the Canadian portion of the Maritimes and 
Northeast Pipeline.
    \3\ NSP US Holdings wholly owns a financing subsidiary, NSP 
Investments Inc., which was established to acquire the interest in 
M&N L.L.C. M&N L.L.C is 12.5% owned by Scotia Power U.S. Ltd. and 
the remainder is owned by nonaffiliates.
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    On February 6, 2001, Emera offered to purchase 8.4% of the Sable 
Offshore Energy Project (``SOEP'') infrastructure assets for 
approximately $60.6 million. The offer is subject to certain rights of 
first refusal, and other approvals. The SOEP infrastructure assets 
comprise a gas processing plant at Goldboro, Nova Scotia; a natural gas 
liquids fractionation plant at Point Tupper, Nova Scotia; a natural gas 
liquids line connecting the Goldboro and Point Tupper operations; and 
offshore production platforms and sub-sea gathering pipelines. 
Applicants request Commission authorization to acquire the SOEP assets, 
if they have not been acquired prior to Emera's registrtion under the 
Act, and to retain the SOEP assets if they have already been acquired 
when Emera registers.
    For the twelve months ending December 31, 2000, Emera had revenues 
of approximately $604.4 million and NSPI had operating revenues of 
approximately $548.2 million. As of December 31, 2000, Emera and NSPI 
had assets approximately $1,989.0 million and $1,913.3 million, 
respectively.
B. BHE
    BHE is a public utility and holding company currently exempt by 
order dated October 25, 1999 (HCAR No. 27094) under section 3(a)(1) of 
the Act. BHE provides the transmission and distribution system for the 
delivery of electricity to approximately 123,000 Maine customers. The 
Maine Public Utility Commission (``MPUC'' regulates BHE. Under Maine's 
electric restructuring laws, BHE exited the power supply aspect of 
traditional utility function as of March 1, 2000.
    BHE holds a 14.2% equity interest in MEPCO, a Maine utility that 
owns and operates electric transmission facilities from Wiscasset, 
Maine to the Maine-New Brunswick border. MEPCO is owned jointly by 
Central Maine Power Company (``CMP'') (78.3%), BHE (14.2) and Maine 
Public Service Company (7.5%). In addition, BHE owns a 50% general 
partnership interest in Chester SVC through BHE's wholly-owned 
subsidiary Bangor Var. Chester SVC is a single-purpose financing entity 
formed to own a static var compensator, electrical equipment that 
supports the New England Power Pool (NEPOOL)/Hydro Quebec Phase II 
transmission line.
    BHE requests that the Commission find that all of BHE's nonutility 
subsidiaries, directly or indirectly held, are retainable interests 
under section 11(b)(1) and include the following: Bangor Energy Resale, 
Inc. (``BE Energy Resale''), which permits BHE to use a power sales 
agreement as collateral for a bank loan; CareTaker, Inc. (``Care 
Taker''), which provides security alarm services; East Branch 
Improvement Company (``EBIC''), which BHE owns 60% of the common stock 
and holds the inactive subsidiaries, Godfrey's Falls Dam Company and 
The Sawtelle Brook Dam & Improvement Company; The Sebois Dam Company 
(``Sebois''), which is an inactive subsidiary; The Pleasant River Gulf 
Improvement Company (``Pleasant River''), which is an inactive 
subsidiary; Bangor Fiber Company, Inc. (``Bangor Fiber''), which owns 
and leases fiber optic communications cable; and Bangor Line Company 
(``Bangor Line''), which constructs and maintains transmission and 
distribution lines and provides engineering services. BHE wholly owns 
BE Energy Resale, Care Taker, Sebois, Pleasant River, Bangor Fiber, and 
Bangor Line.
    BHE also holds 7% of the outstanding common stock of Maine Yankee 
Atomic Power Company (``Maine Yankee''), a company that owns and, prior 
to its permanent closure in 1997, operated an 880 MW nuclear generating 
plant in Wiscasset, Maine. Maine Yankee is being decommissioned.
    BHE is obligated to negotiate in good faith to acquire a 50% 
interest in a joint venture to develop a second 345 kV transmission 
line to New Brunswick, Canada, under a Memorandum of Understanding with 
Penobscot Hydro, LLC. The transmission line would connect with BHE's 
existing transmission facilities. BHE's investment in the joint venture 
has not been determined at this time but could be approximately $25 
million. In addition, Applicants request that the Commission reserve 
jurisdiction over the acquisition of an interest in a joint venture 
until the record is complete.
    For the twelve months ending December 31, 2000, BHE had $212 
million of utility operating revenues. As of December 31, 2000, BHE has 
approximately $532 million in utility assets.

III. The Proposed Merger and Financing the Merger

A. The Proposed Merger
    Under the terms of the merger agreement entered into on June 29, 
2000 (``Merger Agreement'' ), Merger Sub, a to-be-formed Emera 
subsidiary incorporated in the U.S., will merge with and into BHE, with 
BHE surviving (the ``Surviving Corporation''). Under the terms of the 
Merger Agreement: (1) Each outstanding share of common stock of Merger 
Sub will be converted into one share of common stock of the Surviving 
Corporation; (2) each outstanding share of preferred stock of BHE 
(``BHE Preferred Stock'') will remain outstanding as one share of 
preferred stock of the Surviving Corporation; and (3) each outstanding 
share of common stock of BHE (``BHE Common Stock'') other than 
Dissenting Shares (as defined in the Merger Agreement) or shares owned 
by BHE as treasury shares, or by Emera, if any, will be converted into 
the right to receive $26.50 in cash (``Per Share Amount''),\4\ the 
amount may be adjusted in accordance with the Merger Agreement (the 
``Merger Consideration''). Holders of BHE's warrants outstanding at the 
effective time of the Merger will be entitled to receive, upon exercise 
of each warrant, the Merger Consideration less the exercise price.
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    \4\ The closing price of BHE's common stock on June 29, 2000, 
the day prior to the Merger announcement, was $15.13 per share.
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    The total value of consideration that BHE shareholders will receive 
in the Merger, based on the number of BHE shares of BHE common stock 
outstanding on September 15, 2000 (7,363,424), is approximately $195 
million. If the closing of the Merger does not occur on or prior to 
June 29, 2001, then the Per Share Amount shall be increased by an 
amount equal to $0.003 for each day after June 29, 2001 up to and 
including the day which is one day prior to the closing of the Merger.
    To effect the Merger, Emera will hold its ownership interest in BHE 
through one or more Intermediate HCs. The Intermediate HC will be 
wholly owned, directly or indirectly, by Emera and will have no public 
or private institutional equity or debt holders. The Intermediate HC 
will be capitalized with equity and/or debt, all of which will be held 
either by Emera or an Intermediate HC. The only utility holdings of the 
Intermediate HCs will be direct or indirect interests in BHE and its 
utility subsidiaries. Applicants further request that the Commission 
authorize Emera to reorganize the Intermediate HC structure without 
seeking prior Commission approval subject to the following conditions: 
(1) The companies in the intermediate structure would be wholly owned 
directly or indirectly by Emera; (2) the companies in the intermediate 
structure would not issue debt or equity to any company outside the 
Emera System and would not borrow from BHE or its subsidiaries; (3) the 
changes will not have a material

[[Page 30240]]

impact on the financial condition or operations of BHE or its 
subsidiaries or a material adverse effect on Emera; and (4) the 
companies in the intermediate structure would be organized in the U.S., 
Canada, or a country in Europe.
    Following the Merger, BHE will be operated as a subsidiary of 
Emera. BHE will retain its name and continue to serve its customers 
under the terms of its existing contracts and state and federal 
requirements. Emera expects that the President and CEO of BHE will be a 
resident of Maine and a member of BHE's board. The Merger Agreement 
requires that when the Merger is consummated the Board of BHE post-
merger must have at least nine members, with at least four carry-over 
from the prior BHE Board of Directors. the merger Agreement provider 
that BHE's corporate headquarters will be located in Maine for not less 
than ten years following the Merger. BHE will also retain local 
facilities for customer service, maintenance and field work operations.
B. Financing the Merger
    Emera expects to use a combination of its available cash deposits 
and credit facility entered into with one or more banks in the amount 
of up to $225 million to fund the Merger consideration. The credit 
facility will have a non-revolving term of 364 days and at the 
borrower's option an interest rate of (1) the greater of (a) the 
Agent's Base Rate Canada, and (b) the Federal Funds Effective Rate for 
overnight funds (as published by the Federal Reserve in the U.S.) plus 
50 basis points per annum, or (2) the London Interbank Offered Rate 
(``LIBOR'') plus 75 to 90 basis points. Emera expects that this credit 
facility will be replaced or refinanced with longer-term debt, equity 
or preferred securities in the future. Also, Emera intends to use a 
wholly owned special purpose financing entity (``ULC'') to provide debt 
and non-voting preferred financing to Acq. Co. 1 for the purpose of 
partially funding the Merger consideration. Applicant's request for 
financing authorization incorporates the debt that will be issued to 
fund and refinance the Merger.

IV. Post Merger Financing Request

    Applicants seek Commission authorization of the financing 
activities of the Emera System for the period through June 30, 2004 
(``Authorization Period''). Applicants propose that the following 
general terms and conditions (``Financing Parameters'') would apply, 
where appropriate, to the requested financing authorizations:
    Investment Grade Credit Rating--Emera commits that all long-term 
debt issued by Emera to unaffiliated parties under the authority 
requested in the Application will, when issued, be rated investment 
grade by a nationally recognized statistical rating organization.
    Minimum Capitalization Ratio--Emera, on a consolidated basis, and 
BHE, individually, will maintain common stock equity as a percentage of 
total capitalization of at least 30%.
    Effective Cost of Money on Borrowings--The effective cost of money 
on debt financings by Emera under the authorizations requested in the 
Application will not exceed the competitive market rates available at 
the time of issuance to companies with comparable credit ratings with 
respect to debt having similar maturities. The effective cost of money 
on BHE's short-term debt will not at the time of issuance exceed 300 
basis points over the comparable term LIBOR.
    Maturity of Debt--The maturity of debt will not exceed 50 years.
    Effective Cost of Preferred Stock--The dividend rate on preferred 
stock or other types of preferred or equity-linked securities will not 
exceed at the time of issuance the rate generally obtainable for 
preferred securities having the same or reasonably similar terms and 
conditions issued by utility holding companies of reasonably comparable 
credit quality, as determined by competitive capital markets.
    Issuance Expenses--The underwriting fees, commissions and other 
similar remuneration paid in connection with the non-competitive issue, 
sale or distribution of a security pursuant to this Application would 
not exceed an amount or percentage of the principal or total amount of 
the security being issued that would be charged to or paid by other 
companies with a similar credit rating and credit profile in a 
comparable arm's-length credit or financing transaction with an 
unaffiliated person.
    Emera's ``aggregate investment'' as defined in rule 53(a)(1)(i)--
investment in exempt wholesale generators (``EWG'') and FUCOs will not 
exceed $3.0 billion.
A. Emera's External Financing
    Emera proposes to issue long-term equity and debt securities 
aggregating not more than $3 billion at any one time outstanding during 
the Authorization Period, which includes the Merger related financing. 
Securities could include, but would not necessarily be limited to, 
common stock, preferred stock, options, warrants, long- and short-term 
debt (including commercial paper), convertible securities, subordinated 
debt, bank borrowings and securities with call or put options. Emera 
may also issue guarantees and enter into interest rate swaps and 
hedges.
    1. Common Stock. During the Authorization Period, Emera requests 
authorization to issue and sell from time to time common stock, either: 
(a) Through underwritten public offerings; (b) in private placements; 
(c) under its dividend reinvestment, stock-based management incentive 
and employee benefit plans; (d) in exchange for securities or assets 
being acquired from other companies; and (e) in connection with 
redemptions of the Series C and Series D shares. Emera also proposes to 
issue and sell common stock or options, warrants, or other stock 
purchase rights. Emera may also buy back shares of common stock during 
the Authorization Period in accordance with rule 42 under the Act. 
Common stock and securities convertible into common stock will not 
exceed $2 billion. Common stock sales will be at rates or prices and 
under conditions negotiated or based upon, or otherwise determined by, 
competitive capital markets.
    Emera may seek to acquire securities of companies engaged in 
energy-related businesses as described in rule 58 under the Act (``Rule 
58 Companies''), exempt telecommunications companies (``ETCs''), EWGs 
and FUCOs. These acquisitions may involve the exchange of Emera stock 
for securities of the company being acquired. The Emera common stock to 
be exchanged may be purchased on the open market under rule 42, or may 
be original issue. Original issue stock may be registered or qualified 
under applicable securities laws or unregistered and subject to resale 
restrictions. Emera does not intend to engage in any transaction where 
original issue stock is not registered or qualified while a public 
offering is being made, other than a public offering under a 
compensation, dividend or stock purchase plan, or a public offering of 
debt.
    For purposes of calculating compliance with the $3 billion external 
financing limit, Emera's common stock would be valued at market value 
based upon the closing price on the day before closing of the sale or 
based upon average high and low prices for a period of 20 days prior to 
the closing of the sale.
    2. Preferred Stock. Emera may issue preferred stock from time to 
time during the Authorization Period, which will not to exceed $500 
million. Preferred stock or other types of preferred or equity-linked 
securities may be issued

[[Page 30241]]

in one or more series with such rights, preferences, and priorities as 
may be designated in the instrument creating the series, as determined 
by Emera's Board of Directors. All such securities will be redeemed no 
later than 50 years after the issuance. The dividend rate on any series 
of preferred stock or other preferred securities will not exceed at the 
time of issuance the rate generally obtainable for preferred securities 
having the same or reasonably similar terms and conditions issued by 
utility holding companies of reasonably comparable credit quality, as 
determined by competitive capital markets. Dividends or distributions 
on preferred stock or other preferred securities will be made 
periodically and to the extent funds are legally available for such 
purpose, but may be made subject to terms that allow the issuer to 
defer dividend payments for specified periods. Preferred stock or other 
preferred securities may be convertible or exchangeable into shares of 
common stock.
    3. Long-Term Debt. Emera proposes to issue long-term unsecured debt 
in accordance with the conditions described in the overall financing 
terms and not to exceed $1.5 billion. Any long-term debt security will 
have the maturity, interest rates or methods of determining the same, 
terms of payment of interest, redemption provisions, sinking fund terms 
and other terms and conditions as Emera may determine at the time of 
issuance. Prior to issuing debt, preferred securities or equity, Emera 
will evaluate the relevant financial implications of the issuance, 
including without limit, the cost of capital, and select the security 
that provides the most efficient capital structure consistent with 
sound financial practices and the capital markets.
    4. Short-Term Debt. Emera requests authorization to issue short-
term debt including, but not limited to, institutional borrowings, 
commercial paper and bid notes; all in accordance with the conditions 
described in the overall financing terms. Short-term debt will not 
exceed $1.5 billion. Proceeds of any short-term debt issuance may be 
used to refund pre-Merger short-term debt and Merger-related debt, and 
to provide financing for general corporate purposes, working capital 
requirements and Subsidiary capital expenditures until long-term 
financing can be obtained.
    Emera may sell commercial paper, from time to time, in established 
domestic U.S. or European commercial paper markets. The commercial 
paper will be sold to dealers at the discount rate or the coupon 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 commercial paper 
from Emera will reoffer the paper at a discount to corporate, 
institutional and, with respect to European commercial paper, 
individual investors. Institutional investors are expected to include 
commercial banks, insurance companies, pension funds, investment 
trusts, foundations, colleges and universities and finance companies.
    Emera also proposes to establish bank liens of credit, directly or 
indirectly through one or more financing subsidiaries. Loans under 
these liens will have maturities of less than one year from the date of 
each borrowing. Emera may engage in other types of short-term financing 
generally available to borrowers with comparable credit ratings as it 
may deem appropriate in light of its needs and market conditions at the 
time of issuance.
    5. Hedges and Interest Rate Risk Management. Emera requests 
authority to enter into, perform, purchase and sell financial 
instruments intended to manage the volatility of interest rates, 
including but not limited to interest rate swaps, caps, floors, collars 
and forward agreements or any other similar agreements (``Hedging 
Instruments''). Emera would employ Hedging Instruments as a means of 
managing the risk associated with any of its outstanding debt issued 
under the authority requested in this application or an applicable 
exemption by, in effect, 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. Emera, states it will not engage in 
``leveraged'' or ``speculative'' transactions. Off-exchange Hedging 
Instruments will be entered into only with counterparties whose senior 
debt ratings are investment grade (``Approved Counterparties'').
    In addition, Emera requests authorization to enter into Hedging 
Instruments with respect to anticipated debt offerings (``Anticipatory 
Hedges''), subject to certain limitations and restrictions. 
Anticipatory Hedges will only be entered into with Approved 
Counterparties, and will be used to fix and/or limit the interest rate 
risk associated with any new issuance through (a) a forward sale of 
exchange-traded U.S. or Canadian Treasury futures contracts, U.S. or 
Canadian Treasury obligations and/or a forward swap (``Forward Sale''), 
(b) the purchase of put options on U.S. or Canadian Treasury 
obligations (``Put Options Purchase''), (c) a Put Options Purchase in 
combination with the sale of call options on U.S. or Canadian Treasury 
obligations (``Zero Cost Collar''), (d) transactions involving the 
purchase or sale, including short sales, of U.S. or Canadian Treasury 
obligations, 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.
    Hedging Instruments may be executed on-exchange (``On-Exchange 
Trades'') with brokers through the opening of futures and/or options 
positions traded on the Chicago Board of Trade, 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. Emera will determine the optimal structure of each Hedging 
Instrument transaction at the time of execution. No gain or loss on 
hedging transaction entered into by Emera or Emera's subsidiaries 
(except BHE and BHE's subsidiaries) will be allocated to BHE or BHE's 
subsidiaries, regardless of the accounting treatment accorded to the 
transaction.
    To the extent such securities are not exempt under rule 52(a), BHE 
requests authorization to enter into Hedges on the same terms as 
applicable to Emera.
    6. Guarantees. Emera requests authorization to enter into 
guarantees, obtain letters of credit, enter into expense agreements or 
otherwise provide credit support (``Guarantees'') with respect to the 
obligations of Emera's subsidiaries in an aggregate principal amount 
not to exceed $500 million outstanding at any one time and not taking 
into account obligations exempt under rule 45. All debt guaranteed will 
comply with the Financing Parameters. Included in this amount are 
Guarantees entered into by Emera that were previously issued in favor 
of Emera's subsidiaries. The limit on Guarantees is separate from the 
limit on Emera's external financing. Emera proposes to charge each 
Subsidiary a fee for each Guarantee provided on its behalf that is not 
greater than the cost, if any, of obtaining the liquidity necessary to 
perform the guarantee.

[[Page 30242]]

B. Subsidiary, Nonutility Subsidiary, and Intermediate HCs Financing
    Emera requests authorization to lend funds to its Nonutility 
Subsidiaries at a mark up to Emera's cost of funds at any time during 
the Authorization Period without prior Commission authorization. The 
authorization request would not apply to BHE or any of BHE's 
subsidiaries or to NSPI. Applicants state this is desirable as a risk 
management measure and it avoids cross subsidization of higher risk 
Subsidiaries from lower risk subsidiaries. The Nonutility Subsidiaries 
that will be financed in this manner will not pass any increased costs 
on to BHE or BHE's subsidiaries because they will not sell goods or 
services or lend funds to BHE or BHE's subsidiaries.
    Emera intends to finance BHE's capital needs at the lowest 
practical cost. BHE will either finance its capital needs through 
short, medium, and long-term borrowings authorized by the MPUC and 
exempt under rule 52(a) or through borrowings from Emera, directly or 
indirectly, through the Intermediate HC. BHE may also borrow funds from 
NSPI,\5\ if NSPI has surplus funds and the interest rate on the loan 
would result in a lower cost of borrowing for BHE. All borrowings by 
BHE from an associate company would be at the lower of Emera's 
effective cost of capital, NSPI's effective cost of capital (if NSPI is 
the lender) or BHE's effective cost of capital incurred in a direct 
borrowing at that time from nonassociates for a comparable term loan. 
In addition, borrowings by BHE from an associate company would be 
unsecured (i.e., not backed by the pledge of specific BHE assets as 
collateral).
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    \5\ Applicants note that as a FUCO, NSPI's financing would be 
exempt under section 33 and because NSPI can offer creditors a 
direct claim on its assets rather than the indirect claim that 
Emera's creditors are offered, NSPI generally finances its capital 
needs independently of Emera.
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    BHE requests Commission authorization to issue and sell securities 
with maturities of less than one year.\6\ The short-term debt will not 
exceed an aggregate amount of $60 million outstanding at any time 
during the Authorization Period. BHE also requests authorization to 
guarantee the obligations of BHE's subsidiaries in an aggregate amount 
not to exceed $30 million. BHE may charge each of BHE's subsidiaries a 
fee for each guarantee provided on its behalf that is not greater than 
the cost, if any, of obtaining the liquidity necessary to perform the 
guarantee.
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    \6\ The MPUC exercises jurisdiction over the securities issued 
by BHE with maturities of one year or longer.
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    Each of the Intermediate HC's requests authorization to issue and 
sell securities to the other Intermediate HC's and Emera, and to 
acquire securities from their respective Intermediate HC subsidiaries 
and BHE. Each of the Intermediate HCs also seeks authority to issue 
guarantees and other forms of credit support to direct and indirect 
Intermediate HCs and BHE. In no case would the Intermediate HC borrow, 
or receive any extension of credit or indemnity from any of their 
respective direct or indirect subsidiary companies. Each of the 
Intermediate HCs intends to function as a financial conduit to 
facilitate Emera's U.S. investments. The terms and conditions of any 
Intermediate HC's financings will be on arm's length basis, as noted 
for financings by BHE. The Intermediate HC's proposed financings would 
be used to finance capital requirements of BHE and any exempt or 
subsequently authorized activity that is acquired in the future. The 
Intermediate HC financing will not be used by the Intermediate HCs to 
carry on business or investment activities within the Intermediate HCs.
C. Use of Proceeds
    The proceeds from the financings authorized by the Commission under 
this Application will be used for general corporate purposes, including 
(1) refinancing the Merger-related debt, (2) financing, in part, 
investments by and capital expenditures of Emera and its Subsidiaries, 
(3) funding future investments in EWGs, FUCOs and Rule 58 Companies, 
(4) repaying, redeeming, refunding or purchasing any securities issued 
by Emera or any Subsidiary, and (5) financing the working capital 
requirements of Emera and its Subsidiaries.
    Applicants represent that no financing proceeds will be used to 
acquire the equity securities of any company unless such acquisition 
has been approved by the Commission in this proceeding, in a separate 
proceeding, or in accordance with an available exemption under the Act 
or rules, including sections 32 and 33 and rule 58. The proceeds of 
financing and guarantees used to fund investments in Rule 58 Companies 
will be subject to the limitations of rule 58 under the Act.
D. Other Intrasystem Transactions
    1. Changes in Capital Stock of wholly Owned Subsidiaries. The 
portion of an individual Subsidiary's aggregate financing to be 
effected through the sale of stock to Emera or other immediate parent 
company during the Authorization Period pursuant to rule 52 and/or an 
order issued in this file is unknown 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. As needed to accommodate the proposed transactions and to 
provide for future issues, Applicants request authority to change the 
terms of any wholly owned Subsidiary's authorized capital stock 
capitalization by an amount deemed appropriate by Emera or other 
intermediate parent company.
    The requested authorization is limited to Emera's wholly owned 
Subsidiaries and will not affect the aggregate limits or other 
conditions noted. A Subsidiary would be able to change the par value, 
or change between par value and no-par stock, without additional 
Commission approval. Any action by BHE or any other public utility 
company will be subject to and will only be taken upon the receipt of 
any necessary approvals by the MPUC or other public utility commission 
with jurisdiction over the transaction. BHE will maintain, during the 
Authorization Period, a common equity capitalization of at least 30%.
    2. Payment of Dividends Out of Capital or Unearned Surplus. To 
allow BHE to pay dividends after the Merger, BHE requests authorization 
to pay dividends out of additional paid-in-capital and to redeem its 
common stock held by its associate company parent in lieu of the 
payment of dividends to the extent permitted by state law, provided 
that in each case, BHE maintains the required minimum 30% common equity 
capitalization. In no case will dividends be paid if BHE's common stock 
equity as a percentage of its total capitalization is below 30%. 
Applicants anticipate that BHE's cash flow from operations after the 
Merger will improve, because BHE's future earnings projections include 
amortization of ``legacy'' assets associated with its restructuring 
into a pure ``wires'' company. Applicants explain that when BHE 
collects the revenue associated with these ``legacy'' assets, cash 
flows from operations improve, generating operating cash in excess of 
earnings. Applicants further state, the legacy revenues produce cash 
that is free and available for dividend payments because it is derived 
from BHE's former role as a provider of generation. BHE states that 
because it no longer is in the generation business, it does not need to 
reinvest these revenues in generation activities to continue to provide 
adequate services to customers.

[[Page 30243]]

Applicants predict that without removal of the cash in the form of a 
dividend, BHE's common equity component of its capital structure will 
grow. Therefore, Applicants request that they merely use dividends or 
common stock redemptions to maintain BHE's equity level in the 30% to 
40%\7\ total capitalization band.
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    \7\ The MPUC, which regulates BHE, has prescribed a target 
common equity component not exceeding 40% of total capitalization.
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    3. Financing Entities. Emera and the Subsidiaries seek 
authorization to organize new corporations, trusts, partnerships or 
other entities that will facilitate financings by issuing income 
preferred securities or other securities to third parties. To the 
extent not exempt under rule 52, the financing entities also request 
authorization to issue the securities to third parties. In connection 
with this method of financing, Emera and the Subsidiaries may: (a) 
Issue debentures or other evidences of indebtedness to a financing 
entity in return for the proceeds of the financing; (b) acquire voting 
interests or equity securities issued by the financing entity to 
establish ownership of the financing entity (the equity portion of the 
entity generally being created through a capital contribution or the 
purchase of equity securities, ranging from one to three percent of the 
capitalization of the financing entity); and (c) guarantee a financing 
entity's obligations in connection with a financing transaction. Emera 
and the Subsidiaries also request authorization to enter into expense 
agreements with financing entities to pay the expenses of any such 
entity. Applicants represent that any amounts issued by a financing 
entity to a third party under this authorization will be included in a 
overall external financing limitation authorized for the immediate 
parent of the financing entity; however, the underlying intra-system 
mirror debt and parent guarantee shall not be included.
    4. Tax Allocation Agreement. Applicant ask the Commission to 
approve an agreement among certain Emera System companies to file a 
consolidated tax return (``Tax Allocation Agreement''). Applicants 
state the Intermediate HCs are seeking to retain the benefit of tax 
losses that have been generated by it in connection with Merger-related 
debt only. Applicants state the Tax Allocation Agreement will not give 
rise to the types of problems (e.g., upstream loans) that the Act was 
intended to address.
    5. Direct Stock Purchase and Dividend Reinvestment Plan, Incentive 
Compensation Plans and Other Employee Benefit Plans. Emera proposes, 
from time to time during the Authorization Period to issue and/or 
acquire in open market transactions or by some other method that 
complies with applicable law and Commission interpretations, then in 
effect, up to 5 million shares of Emera common stock under Emera's 
dividend reinvestment plan, certain incentive compensation plans and 
certain other employee benefit plans currently existing or that may be 
adopted in the future. Emera currently maintains the flowing stock 
based benefit plans for employees: (a) Emera Senior Management Stock 
Option Plan, which currently has 1,706,109 treasury shares reserved; 
(b) Emera Common Share Purchase Plan, which currently has 2,000,000 
treasury shares reserved; and (c) Emera Dividend Reinvestment Plan. The 
plans will remain in effect following consummation of the Merger.

V. Intra-System Service Arrangements

    Emera requests authorization to form a service company, Emera 
Services, to provide a variety of services to the companies in the 
Emera System. The individual system companies will continue to perform 
certain functions independently that are most efficiently and 
effectively provided internally by each company. Emera Services will 
offer system-wide coordination and strategy services, oversight 
services and other services where economies can be captured by 
centralization of personnel, equipment, practice and procedures in one 
organization. Emera Services will also ensure adequate oversight and 
realize economies of scale by consolidating certain administrative and 
service functions for the Emera System.
    Applicants anticipate that the following services may be offered by 
Emera Services to system companies: Rates and regulatory services; 
internal auditing; strategic planning; external relations; transmission 
and distribution system management; legal services and general legal 
oversight, as well as corporate secretarial functions; marketing; 
financial services; information systems and technology; executive 
services such as formulating and executing general plans and policies, 
including operations, issuances of securities, appointment of executive 
personnel, budgets and financing plans, expansion of services, 
acquisitions and dispositions of property, and public relationships; 
investor relations; customer services; employee services; engineering; 
business support; power procurement; purchasing; and facilities 
management.
    In accordance with the services agreement, services provided by 
Emera Services will be directly assigned if possible or allocated as 
necessary by activity, project, program, work order or other 
appropriate basis. It is anticipated that Emera Services will be 
staffed primarily by transferring personnel from Emera and, to a 
certain extent, with personnel transferred from NSPI and BHE. Emera 
Services' accounting and cost allocation methods and procedures would 
be structured to comply with the Commission's standards for service 
companies in a registered holding company system.\8\
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    \8\ Applicants represent that the regulatory agency, Nova Scotia 
Utility and Review Board UARB, will not regulate the conduct of 
business by Emera Services.
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    As compensation for services, the services agreement will provide 
for client companies to pay to Emera Services the cost of such 
services, computed in accordance with the applicable rules and 
regulations (including, but not limited to rules 90 and 91) under the 
Act and appropriate accounting standards. Where more than one company 
is involved in or has received benefits from a service performed, the 
services agreement will provide that client companies will pay their 
fairly allocated pro rata share in accordance with the methods set out 
in a schedule to the services agreement. Charges for all services 
provided by Emera Services to associate utility companies, Nonutility 
Subsidiaries, and Emera will be on an ``at cost'' basis as determined 
under rules 90 and 91 of the Act.
    Emera proposes that, for a limited period of time ending on March 
31, 2002 (``Transition Period''), Emera will continue to provide 
services and sell goods to Emera System companies. Emera will comply 
with the provisions of rule 90 with respect to the performance of 
services or construction for associate companies on the basis of cost 
and with the provisions of rule 92 with respect to the sale of goods 
produced by the seller. Applicants state the Transition Period will 
allow the Emera holding company system to implement the transition to 
Emera Services as the principal provider of services to the Emera 
System.

VI. Request for Authority To Reorganize the Nonutility Subsidiaries

    Applicants propose to restructure Nonutility Subsidiaries. To do 
this, Emera requests authorization to acquire, directly or indirectly, 
the equity securities of one or more intermediate subsidiaries 
(``Intermediate

[[Page 30244]]

Subsidiaries'') organized exclusively for the purpose of acquiring, 
financing, and holding the securities of one or more existing or future 
Nonutility Subsidiaries. The Intermediate Subsidiaries would be 
organized for the purpose of acquiring, holding and/or financing the 
acquisition of the securities of or other interest in one or more EWGs, 
FUCOs, and Rule 58 Companies. Intermediate Subsidiaries may also 
provide management, administrative, project development, and operating 
services to Nonutility Subsidiaries.
    Intermediate Subsidiaries may engage in development activities 
(``Development Activities'') and administrative activities 
(``Administrative Activities'') relating to the permitted businesses of 
the Nonutility Subsidiaries. Development Activities will be limited to 
due diligence and design review; market studies; preliminary 
engineering; site inspection; preparation of bid proposals, including, 
in connection with, 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, power purchasers, thermal ``hosts,'' fuel 
suppliers and other project contractors; negotiation of financing 
commitments with lenders and other third-party investors; and such 
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. 
Administrative Activities will include ongoing personnel, accounting, 
engineering, legal, financial, and other support activities necessary 
to manage Emera's investments in Nonutility Subsidiaries.
    Applicants state restructuring could also involve the acquisition 
of one or more new special-purpose subsidiaries (``SPSs''). The SPS 
would acquire and hold direct or indirect interests in any or all of 
the Emera System's existing or future authorized nonutility businesses.
    Applicants may transfer existing Subsidiaries, or portions of 
existing businesses, among the Emera associates and/or the 
reincorporation of existing Subsidiaries in a different jurisdiction.
    Emera does not seek authorization to acquire an interest in any 
nonassociate company as part of the authority requested and states that 
the reorganization will not result in the entry by the Emera System 
into a new, unauthorized line of business.

VII. Request To Invest in Rule 58 Companies After the Merger

    Applicants state Emera's post-merger investment in Canadian energy-
related and gas related companies will be aggregated with its post-
merger investment in Rule 58 Companies for purposes of calculating the 
15% limit of consolidated capitalization limit under rule 
58(a)(1)(ii).\9\
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    \9\ Emera conducts various businesses in Canada that would 
qualify as ``energy-related'' or ``gas-related'' companies under 
rule 58, but for the fact that the revenues from these companies are 
from Canada. Emera requests that investment in these companies be 
excluded from the investment limit under rule 58 of the Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-14025 Filed 6-4-01; 8:45 am]
BILLING CODE 8010-01-M