[Federal Register Volume 68, Number 150 (Tuesday, August 5, 2003)]
[Notices]
[Pages 46252-46254]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-19889]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27703; International Series Release No. 1270]


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

July 30, 2003.
    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 August 25, 2003, 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 August 25, 2003, the application(s) and/or 
declaration(s), as filed or as amended, may be granted and/or permitted 
to become effective.

Hydro-Qu[eacute]bec, et al. (70-10083)

    Hydro-Qu[eacute]bec (``HQ''), 75 Ren[eacute]-L[eacute]vesque Blvd. 
West, Montr[eacute]al, Qu[eacute]bec H2Z 1A4 Canada, a corporation 
wholly owned by the government of Qu[eacute]bec and a public-utility 
holding company that claims exemption under the Act under rule 10, and 
its subsidiaries, TransEnergie HQ, Inc. (``TEI''), 740 rue N[ocirc]tre-
Dame Ouest, Bureau 800, Montr[eacute]al, Qu[eacute]bec, H3C 3X6 Canada, 
a Canadian corporation, TransEnergie U.S. Ltd. (``TEUS''), a Delaware 
corporation and Cross-Sound Cable Company (New York), LLC (``CSC NY''), 
a New York limited liability company, both located at 110 Turnpike 
Road, Westborough, MA 01581 (collectively, ``Applicants'') have filed 
an application under sections 3(a)(1), 3(a)(5), 9(a)(2) and 10 of the 
Act in connection with a proposed acquisition of interests in CSC NY 
(the ``Transaction'').
    Applicants request an order under sections 9(a)(2) and 10 of the 
Act authorizing HQ, through TEI and TEUS to acquire interests in CSC 
NY; \1\ an order exempting TEUS from registration under section 
3(a)(1); and an order exempting HQ from registration under section 
3(a)(5).
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    \1\ When CSC NY commences operations, it will be a public-
utility company under the Act.
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I. Background

    HQ is a large electric utility operating in eastern Canada. HQ owns 
both gas and electric systems. The company's overall international 
strategy is to become a multi-service electric and gas utility in the 
areas where it operates.
    HQ was created in 1944 by the Hydro-Qu[eacute]bec Act of the 
Parliament of Qu[eacute]bec. HQ's common stock is held entirely by the 
Government of Qu[eacute]bec (``GOQ''). Applicants state that the GOQ 
plays no role in day-to-day management of HQ, but it appoints the 18-
member board of directors of the company. Of these eighteen, two are 
representatives of the GOQ, one is also the chief executive officer of 
HQ, and the remaining fifteen directors, including the Chairman of the 
Board, are independent directors. The daily affairs of HQ are managed 
by the Executive Committee, which consists of seven members appointed 
by the Board of Directors. Of those seven, five are drawn from the 
ranks of the independent directors. The Executive Committee, in turn, 
appoints the senior corporate officers.
    Pursuant to the Hydro-Qu[eacute]bec Act, HQ must provide quality 
electric service to all Qu[eacute]bec customers and manage its affairs 
to create value for its sole shareholder, the GOQ. To that end, every 
two years, HQ submits a strategic plan to the GOQ for approval. This 
plan discusses whether the generation will be built or developed, 
financial targets for profitability of the major business segments 
(generation, transmission and distribution) and the nature and amount 
of investments for each segment. Upon GOQ approval of the plan, the 
utility's officers (selected by the Board of Directors) will execute 
the plan. Applicants note that, although HQ is wholly owned by the GOQ, 
it is required by the Act respecting the R[eacute]gie de 
l'[eacute]nergie to be subject to the regulatory jurisdiction of the 
Qu[eacute]bec Energy Board, an independent agency established pursuant 
to the Act respecting the R[eacute]gie de l'[eacute]nergie with respect 
to certain matters primarily related to transmission and distribution.
    HQ has six functionally, but not legally, separate business 
segments: Transmission; Distribution; Generation; Construction; Oil and 
Gas; and Corporate and Other Activities (which includes research and 
development and corporate and financial services). HQ is organized 
along these functional lines, but, as a result of its statutory 
mandate, it does not conduct business outside of Qu[eacute]bec. 
Instead, all of its non-Qu[eacute]bec activities are conducted through 
intermediate companies, such as TEI.
    HQ's Generation segment activities include the sale of surplus 
electricity outside of Qu[eacute]bec through a subsidiary, H.Q. Energy 
Marketing, Inc. (``HQEM''), and energy trading operations. HQ exports 
electrical power subject to the National Energy Board Act (Canada), 
which requires that a permit or license be obtained from the National 
Energy Board of Canada (the ``National Board'') for such exports. HQ 
holds two permits, which were granted by the National Board in December 
1994 and which authorize HQ to export annually, for a continuous period 
of no more than five years for any single contract, up to 30 gigawatts 
(``TWh'') of interruptible energy and up to 20 TWh of firm energy to 
the United States. The permits cover a 16-year period from December 1, 
1994 to December 31, 2010, and allow HQ to take advantage of the spot 
market in the United States. Longer-term export contracts (more than 
five years) remain subject to the prior issuance of specific permits or 
licenses by the National Board.
    On April 8, 1999, HQEM, a Qu[eacute]bec corporation wholly owned by 
HQ, obtained two permits from the National Board to enable HQEM, as a 
power marketer outside Qu[eacute]bec, to export firm and interruptible 
energy up to 30 TWh annually to the United States from interconnections 
located in other provinces, under contracts with a term of five years 
or less. The permits cover a 10-year period from April 8, 1999 to April 
7, 2009. HQEM buys, sells and trades power in Canada and the United 
States. On March 5, 2003, HQEM obtained a renewal of its permit to 
export natural gas to the United States. This permit covers a 2-year 
period through March 4, 2005.
    HQ is a holding company under the Act by reason of its indirect 
ownership interest in Gaz M[eacute]tropolitain, Inc. (``GMI''), a 
Canadian corporation and a public-utility holding company exempt from 
registration by order under section

[[Page 46253]]

3(a)(5) of the Act.\2\ GMI is the general partner of Gaz 
M[eacute]tropolitain and Company, Limited Partnership (``GMCLP''), in 
which it holds a 77.4% interest. Through Northern New England Gas 
Corporation, a public-utility holding company exempt from registration 
under section 3(a)(1) of the Act, GMCLP owns a 100% ownership interest 
in Vermont Gas Systems, Inc., a Vermont gas utility company. By order 
of the Commission dated November 23, 1994, GMI is exempt from 
registration under section 3(a)(5) of the Act.\3\ The holding companies 
over GMI rely upon rule 10(a)(2) for exemption from registration.\4\
    Noverco also owns 9.8% of Enbridge Inc. (``Enbridge''), a Canadian 
gas public-utility company that wholly owns St. Lawrence Gas Company, 
Inc. (``St. Lawrence Gas''), a New York public-utility company. HQ thus 
holds an indirect, economic interest in St Lawrence Gas of less than 
5%.
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    \2\ HQ owns 41.2% of the share capital of Noverco Inc., a 
Canadian corporation that holds a 100% ownership interest in GMI.
    \3\ Holding Co. Act Release No. 26170.
    \4\ Rule 10(a) in pertinent part provides an exemption for a 
holding company that is such ``solely by reason of such company 
having as a subsidiary any company which, insofar as it is * * * a 
holding company, is: (2) A company exempted as a holding company * * 
* under subparagraph [3(a)(5) of the Act.]''
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    HQ's subsidiaries also have an active presence in the United States 
gas and electric markets.\5\ HQ Energy Services (U.S.) Inc. (``HQUS'') 
is a power marketing subsidiary of HQ that was authorized by the 
Federal Energy Regulatory Commission (the ``FERC'') in November 1997 to 
sell electricity at wholesale within the United States at market-based 
rates. HQUS does not own any electric generation or transmission 
facilities within the meaning of the Act in North America. HQUS buys 
electricity from HQ for resale in the United States and is an active 
trader of power in the New York Independent System Operator (``New York 
ISO''), the New England Independent System Operator (``New England 
ISO'') and the PJM Interconnection, organizations in which HQUS is a 
member.\6\
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    \5\ HQ is a voluntary foreign government registrant of the 
Commission. HQ has debt securities registered under section 12(b) of 
the Securities Exchange Act of 1934 and files an Annual Report on 
Form 18-K.
    \6\ HQ also holds an indirect ownership interest in Bucksport 
Energy LLC (``Bucksport Energy''), which owns 72.2% of a qualifying 
cogeneration facility located in Bucksport, Maine. Energy Holding, 
Inc., a wholly owned subsidiary of HQ, owns 38.88% of Bucksport 
Energy's membership interests. MEG Holding US Corporation owns the 
remaining 61.12% interest. MEG Holding US Corporation is wholly 
owned by Multinational Electricity and Gas Corporation, which, in 
turn, is 50% owned by HQ. HQ therefore owns 49.9968% of the 
Bucksport facility, which commenced operations in January 2001.
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    HQ's transmission activities in the United States are held through 
an intermediate entity, TEI. TEI, a Canadian corporation, is a wholly 
owned subsidiary of HQ, with which TEI is fully consolidated.\7\ At 
present, TEI has no utility or non-utility businesses in the United 
States except its indirect interest in the Project described below.
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    \7\ TEI does not publish financial statements separate from 
those of HQ.
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    TEUS, currently a Delaware corporation, is owned by TEI.\8\ 
Applicants state that, by holding TEUS through a conduit such as TEI, 
HQ can satisfy its legal mandate of conducting operations solely within 
the province of Qu[eacute]bec.
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    \8\ At present, TEUS is a Delaware corporation. A New York 
corporation, TransEnergie Newco, Inc. (``TEUS-NY'') has been 
authorized to be formed as a wholly owned subsidiary of TEI. 
Applicants state that all necessary corporate approvals have been 
obtained to merge TEUS into TEUS-NY with the latter being the 
surviving corporation. Applicants state that upon receipt of the 
Commission's approval and following the filing of the various 
certificates of merger, TEUS-NY, a New York corporation will hold 
100% of the Class A membership interest in CSC-NY and 75% of the 
Class B membership interest in CSC-NY.
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II. The Transaction

A. The Project

    TEUS and UIL Holdings Corporation (``UIL''), a Connecticut public-
utility holding company exempt from registration under section 3(a)(1) 
of the Act by rule 2, have formed a joint venture for the construction, 
financing and ownership of a new merchant transmission facility between 
Connecticut and New York (the ``Project'').\9\ The Project consists of 
a 26-mile high-voltage direct-current transmission cable system 
underneath the Long Island Sound that will connect the electric 
transmission grids of Connecticut and Long Island, New York, and 
provide additional power transfer capability of up to 330 megawatts in 
both directions between New Haven, Connecticut and Brookhaven/Shoreham, 
New York.
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    \9\ The sole public-utility subsidiary company of UIL is The 
United Illuminating Company.
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    TEUS has obtained approval from the FERC to sell transmission 
service at negotiated rates that reflect the difference between 
generation prices in Connecticut and Long Island. The Project will not 
have any retail customers. It will sell only rights to transmission 
capacity, and will not take title to, or sell, electricity. Its sole 
customer will be the Long Island Lighting Company, doing business as 
LIPA. LIPA is a wholly owned subsidiary of the Long Island Power 
Authority, which is a corporate municipal instrumentality of the State 
of New York. LIPA provides retail electric service to Long Island 
residents and has entered into a twenty-year contract for all of the 
Project's available transmission capacity rights.

B. Ownership of CSC NY

    CSC NY has undertaken the construction, financing and ownership of 
the Project, and holds all of the Project's assets. As noted above, 
upon the commencement of operations, CSC NY will be an electric utility 
company within the meaning of section 2(a)(3) of the Act.
    There are two classes of membership interests in CSC NY. A Class A 
membership interest entitles the holder to 100% of the voting rights. A 
Class B membership interest entitles the holder to a percentage of the 
economic benefits from the Project and no voting rights. ``Economic 
benefits'' consist of the right to income, losses and any gains or 
losses on the sale of the project.
    TEUS owns all of the Class A membership interests in CSC NY (and 
thus has 100% of the voting interests) and 75% of the Class B 
membership interests (which entitle TEUS to 75% of the economic 
benefits). United Capital Investments, Inc. (``UCI''), a wholly owned 
subsidiary of United Resources, Inc., a non-regulated business unit of 
UIL, holds the remaining 25% of the Class B membership interest in CSC 
NY and is therefore entitled to 25% of the economic benefits in the 
Project. As of February 28, 2003, TEUS and UCI had made capital 
contributions of $29,250,750 and $9,750,250, respectively, for their 
respective membership interests in the Project.

C. Operating and Financing Agreements

    Applicants state that, upon commercial operation of the Project, 
both day-to-day and long-term administration of the Project will be 
exercised according to the following contracts and arrangements: (i) 
The Firm Transmission Capacity Purchase Agreement dated August 2, 2000 
and as amended from time to time between TEUS, as seller, and LIPA, as 
buyer (the ``LIPA Off-Take Agreement''), and the Assignment and 
Assumption Agreement between TEUS, as assignor and CSC NY, as assignee, 
under which CSC NY assumes all of the rights and obligations of TEUS 
under the LIPA Off-take Agreement; (ii) the Transmission System 
Operation and Maintenance Agreement dated October 13, 2000 and as 
amended from time to time between

[[Page 46254]]

CSC NY, as owner of the Project's assets, and TEUS, as operator; (iii) 
the Limited Liability Company Agreement of CSC NY, effective October 
13, 2000 and as amended from time to time, and (iv) the Project's 
financing documents.

III. Requested Orders and Other Requests

    As noted above, Applicants request an order under sections 9(a)(2) 
and 10 of the Act authorizing HQ, through TEI and TEUS to acquire 
interests in CSC NY. In addition, Applicants request an order exempting 
TEUS from registration under section 3(a)(1) of the Act. TEUS states 
that, following the Transaction, both it and CSC NY will be 
predominantly intrastate in character and carry on their business 
substantially in New York, the state in which both will be organized. 
HQ requests an order under section 3(a)(5) of the Act exempting it from 
registration. HQ states that, following the Transaction, it will 
continue to be a holding company that is not, and derives no material 
part of its income, directly or indirectly, from any one or more 
subsidiary companies which are, a company or companies the principal 
business of which within the United States is that of a public-utility 
company.
    Applicants further request that the Commission look through TEI, an 
intermediate holding company, for purposes of the analysis under 
section 11(b)(2) of the Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary,
[FR Doc. 03-19889 Filed 8-4-03; 8:45 am]
BILLING CODE 8010-01-P