[Federal Register Volume 69, Number 113 (Monday, June 14, 2004)]
[Notices]
[Pages 33081-33088]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-13277]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27856]


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

June 7, 2004.
    Notice is hereby given that the following filing(s) has/have been 
made with the Commission pursuant to provisions of the Act and rules 
promulgated under the Act. All interested persons are referred to the 
application(s) and/or declaration(s) for complete statements of the 
proposed transaction(s) summarized below. The application(s) and/or 
declaration(s) and any amendment(s) is/are available for public 
inspection through the Commission's Branch of Public Reference.
    Interested persons wishing to comment or request a hearing on the 
application(s) and/or declaration(s) should submit their views in 
writing by June 29, 2004, to the Secretary, Securities and Exchange 
Commission, Washington, DC 20549-0609, and serve a copy on the relevant 
applicant(s) and/or declarant(s) at the address(es) specified below. 
Proof of service (by affidavit or, in the case of an attorney at law, 
by certificate) should be filed with the request. Any request for 
hearing should identify specifically the issues of facts or law that 
are disputed. A person who so requests will be notified of any hearing, 
if ordered, and will receive a copy of any notice or order issued in 
the matter. After June 29, 2004, the application(s) and/or 
declaration(s), as filed or as amended, may be granted and/or permitted 
to become effective.

Emera Inc., et al. (70-10227)

    Emera Inc. (``Emera''), located at P.O. Box 910, Halifax, Nova 
Scotia, Canada B3J2W5, a registered holding company under the Act, and 
its direct and indirect subsidiary companies, Emera U.S. Holdings Inc. 
(``Emera USH''), BHE Holdings Inc. (``BHEH''), located at 1209 Orange 
Street, New Castle, Wilmington, DE 19801, and Bangor Hydro-Electric 
Company (``BHE''), located at 33 State Street, Bangor, Maine 04401, and 
the direct and indirect subsidiary companies of Emera listed in Exhibit 
A of the Application (collectively, ``Applicants''), have filed an 
application-declaration (``Application'') with the Commission under 
sections 6, 7, 9, 10, 12 and 13 of the Act and rules 43, 45, 46, 53, 87 
and 90 under the Act seeking authorization for certain financing and 
other transactions as described below, during the period from

[[Page 33082]]

the effective date of any order issued in this matter authorizing the 
proposed transactions through June 30, 2007 (``Authorization Period'').
    Emera was formed under the laws of the Province of Nova Scotia, 
Canada in 1998, and its common stock is listed and traded on the 
Toronto Stock Exchange (``TSE''). The securities commissions of each of 
the provinces of Canada regulate securities issuances by Emera and the 
company also is subject to the rules and regulations of the TSE. 
Emera's public disclosure documents such as annual reports and proxy 
statements are available on SEDAR, an electronic document management 
system that is administered by the Canadian Securities Administrators, 
an association of the Canadian provincial securities commissions. Emera 
became a registered holding company on October 11, 2001, after its 
acquisition of the outstanding common stock of BHE, a Maine electric 
public utility company. In connection with that acquisition, Emera 
organized Emera USH and BHEH to hold its interest in BHE. Emera USH is 
a wholly-owned direct subsidiary of Emera and BHEH is a wholly-owned 
direct subsidiary of Emera USH, and both are registered holding 
companies under the Act. Emera is the parent of Nova Scotia Power Inc. 
(``NSPI''), a Canadian electric utility company that owns and operates 
a vertically integrated electric utility system in Nova Scotia. NSPI, 
which is classified as a foreign utility company under section 33 of 
the Act (``FUCO''), 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. For the twelve months ending December 31, 2003, Emera 
had revenues of approximately CDN $1,231.3 million and income of CDN 
$129.2 million (US $878.9 and U.S. $92.2, respectively). As of December 
31, 2003, Emera had assets of approximately CDN $3,840.9 million (US 
$2,971.9).
    BHE is a public utility and holding company exempt under section 
3(a)(1) of the Act in accordance with an order of the Commission issued 
on October 1, 2001, (HCAR No. 27445) (``Acquisition Order''). BHE 
provides the transmission and distribution system for the delivery of 
electricity to approximately 123,000 Maine customers. The Maine Public 
Utilities Commission (``MPUC'') regulates BHE with respect to rates, 
maintenance of accounting records and various other service and safety 
matters. BHE holds a 14.2% equity interest in Maine Electric Power 
Company (``MEPCO''), a Maine utility that owns and operates electric 
transmission facilities from Wiscasset, Maine to the Maine-New 
Brunswick border. MEPCO is also owned by the unaffiliated entities, 
Central Maine Power Company (78.3%) and Maine Public Service Company 
(7.5%). In addition, BHE owns a 50% general partnership interest in 
Chester SVC Partnership (``Chester SVC''), through BHE's wholly-owned 
subsidiary Bangor Var Co., Inc. (``Bangor Var''). Chester SVC is a 
single-purpose financing entity formed to own a static var compensator, 
which is electrical equipment that supports the New England Power Pool 
(NEPOOL)/Hydro Quebec Phase II transmission line.
    Proceeds from the sale of securities in the proposed financing 
transactions would be used for general corporate purposes, including 
financing the capital expenditures and working capital requirements of 
Emera and its subsidiaries (``Emera Group''), the acquisition, 
retirement or redemption of securities previously issued by Emera Group 
companies, and for authorized investments in companies organized in 
accordance with rule 58 under the Act, Canadian Energy Related 
Subsidiaries (as defined below), exempt wholesale generators 
(``EWGs''), FUCOs, exempt telecommunications companies (``ETCs'') and 
for other lawful purposes.
    Applicants represent that no financing proceeds will be used to 
acquire the securities of any company unless the acquisition has been 
approved by Commission order, or it is in accordance with an available 
exemption under the Act or the rules under the Act, including sections 
32, 33 and 34 and rule 58. Financing and guarantees used to fund 
investments in rule 58 subsidiaries will be subject to the limitations 
of that rule.

Financing Authorization Requested

    Applicants seek the following authorizations through the 
Authorization Period:
    Emera requests authorization:
    (i) to issue and sell through the Authorization Period up to $3 
billion of securities at any one time outstanding (``Emera External 
Limit'') and to issue guarantees and other forms of credit support in 
an aggregate amount of $650 million at any one time outstanding 
(``Emera Guarantee Limit'');
    (ii) to enter into hedging transactions, including anticipatory 
hedges, with respect to its indebtedness to manage and minimize 
interest rate costs and to lock-in current interest rates; and
    (iii) to finance certain of its nonutility subsidiaries at a mark 
up to Emera's cost of funds.
    Emera USH and BHEH request authorization to issue and sell 
securities to Emera, to finance one another through the issuance and 
acquisition of securities, and to finance BHE by acquiring its 
securities.
    Emera requests authorization to change the terms of any wholly-
owned subsidiary's authorized capital stock.
    Emera's non-utility subsidiaries request authorization to pay 
dividends out of capital or unearned surplus.
    Emera and its subsidiaries request authorization to acquire the 
equity securities of one or more special purpose subsidiaries 
(``Financing Subsidiaries'') organized solely to facilitate a financing 
transaction and to guarantee the securities issued by Financing 
Subsidiaries.
    Emera requests that the Commission approve the issuance of up to 5 
million shares of common stock under dividend reinvestment and stock-
based management incentive and employee benefit plans (``Common Stock 
Plan Limit'').
    BHE requests authorization to issue and sell up to $100 million in 
short-term debt (``BHE Limit'').
    Emera requests authorization to invest up to $300 million in 
certain energy-related companies doing business in Canada (``Canadian 
Energy Related Subsidiaries'').
    Emera requests authorization to issue and sell securities and 
guarantees in an aggregate amount of up to $2.0 billion (``EWG-FUCO 
Investment Limit''), which would be included within the Emera External 
Limit and Emera Guarantee Limit proposed above, for the purpose of 
financing the acquisition of EWGs and FUCOs.
    Emera requests authorization to restructure its non-utility 
interests from time to time, including to establish one or more 
intermediate subsidiaries organized exclusively for the purpose of 
acquiring, financing, and holding the securities of one or more 
existing or future non-utility subsidiaries.

Parameters for Financing Authorization

    Applicants propose that the following general terms and conditions 
(``Financing Limitations'') apply, where appropriate, to the requested 
financing authorizations:
    a. Effective Cost of Money.
    The effective cost of money on long-term debt borrowings in 
accordance with authorizations granted under the Application would not 
exceed the greater of (i) 500 basis points over the comparable-term 
U.S. or Canadian treasury securities or (ii) a gross spread over U.S. 
or Canadian treasuries that is consistent with similar securities of

[[Page 33083]]

comparable credit quality and maturities issued by other companies. The 
effective cost of money on short-term debt borrowings in accordance 
with the authorizations granted in the Application would not exceed the 
greater of (i) 500 basis points over the comparable-term London 
Interbank Offered Rate (``LIBOR'') or (ii) a gross spread over LIBOR 
that is consistent with similar securities of comparable credit quality 
and maturities issued by other companies. The dividend rate on any 
series of preferred stock, preferred securities or equity-linked 
securities will not exceed the greater of (i) 500 basis points over the 
yield to maturity of a U.S. or Canadian treasury security having a 
remaining term equal to the term of that series of preferred stock or 
(ii) a rate that is consistent with similar securities of comparable 
credit quality and maturities issued by other companies.
    b. Maturity.
    The maturity of long-term debt would be between one and fifty years 
after its issuance. Preferred securities and equity-linked securities 
would be redeemed no later than fifty years after their issuance, 
unless they were converted into common stock. Preferred stock issued 
directly by Emera may be perpetual in duration. Short-term debt would 
mature within a year.
    c. Issuance Expenses.
    The underwriting fees, commissions or other similar remuneration 
paid in connection with the non-competitive issue, sale or distribution 
of securities authorized in accordance with the Application would not 
exceed the greater of (i) 5% of the principal or total amount of the 
securities being issued or (ii) issuance expenses that are generally 
paid at the time of the pricing for sales of the particular issuance, 
having the same or reasonably similar terms and conditions issued by 
similar companies of reasonably comparable credit quality.
    d. Common Equity Ratio.
    Emera will maintain common stock equity as a percentage of total 
capitalization, as shown in its most recent quarterly consolidated 
balance sheet, of at least 30% or above. In addition, BHE will maintain 
common stock equity of at least 30% of total capitalization as shown in 
its most recent quarterly balance sheet.
    e. Investment Grade Ratings.
    Applicants further agree that no guarantees or other securities, 
other than common stock, may be issued in reliance upon authorization 
granted by the Commission in accordance with the Application, unless 
(i) the security to be issued, if rated, is rated investment grade; 
(ii) all outstanding securities of the issuer that are rated are rated 
investment grade; and (iii) all outstanding securities of Emera that 
are rated are rated investment grade. For purposes of this provision, a 
security will be deemed to be rated ``investment grade'' if it is rated 
investment grade by at least one nationally recognized statistical 
rating organization (``NRSRO''), as that term is used in paragraphs 
(c)(2)(vi)(E), (F) and (H) of rule 15c3-1 under the Securities Exchange 
Act of 1934, as amended (``1934 Act''). Applicants further request that 
the Commission reserve jurisdiction over the issuance of any guarantee 
or other securities in reliance upon the authorization granted by the 
Commission in accordance with the Application at any time that the 
conditions set forth in clauses (i) through (iii) above are not 
satisfied.

Emera's Proposed External Financing Program

    Emera proposes to issue equity and debt securities aggregating not 
more than the Emera External Limit at any one time outstanding during 
the Authorization Period. Those securities could include, but would not 
necessarily be limited to, common stock, preferred stock equivalent 
securities, options, warrants, purchase contracts, units (consisting of 
one or more purchase contracts, warrants, debt securities, shares of 
preferred stock, shares of common stock or any combination of those 
securities), long- and short-term debt (including commercial paper), 
subordinated debt, bank borrowings, securities with call or put 
options, and securities convertible into any of these securities. In 
addition, Emera also seeks authorization to issue shares of common 
stock or options to purchase shares under stock purchase/dividend 
reinvestment plans and stock-based management incentive and employee 
benefit plans up to the Common Stock Plan Limit. Securities issued 
under the Common Stock Plan Limit would not reduce the capacity to 
issue securities under the Emera External Limit. Emera also requests 
authorization to issue guarantees and enter into interest rate swaps 
and hedges as described below.
Common Stock
    Emera seeks authorization to issue common stock in an aggregate 
amount outstanding not to exceed the Emera External Limit at any time 
during the Authorization Period. Specifically, Emera proposes to issue 
and sell common stock, options, warrants, purchase contracts, units, 
other stock purchase rights exercisable for common stock. Emera 
requests authorization, during the Authorization Period, to issue and 
sell from time to time those securities, either: (i) through 
underwritten public offerings, (ii) in private placements, (iii) under 
its dividend reinvestment, stock-based management incentive and 
employee benefit plans and any other such plans that Applicants may 
adopt in the future; (iv) in exchange for securities or assets being 
acquired from other companies, and (v) in connection with redemptions 
of certain series of NSPI preferred stock.
    Emera may perform common stock financings in accordance with 
underwriting agreements of a type generally standard in the industry. 
Public distributions may be made by private negotiation with 
underwriters, dealers or agents as discussed below or through 
competitive bidding among underwriters. In addition, sales may be made 
through private placements or other non-public offerings to one or more 
persons. All those common stock sales will be at rates or prices and 
under conditions negotiated or based upon, or otherwise determined by, 
competitive capital markets. Underwriters may resell common stock from 
time to time in one or more transactions, including negotiated 
transactions, at a fixed public offering price or at varying prices 
determined at the time of sale. Emera also may grant underwriters a 
``green shoe'' option permitting common stock to be offered solely for 
the purpose of covering over-allotments.
    Emera issues and sells common stock in accordance with its Common 
Shareholder Dividend Reinvestment Plan and its Employee Common Share 
Purchase Plan, which provide an opportunity for shareholders and 
company employees to reinvest dividends and make cash contributions for 
the purpose of purchasing common shares. Emera also has a stock option 
plan that grants options to the senior management of Emera and its 
subsidiary companies for a maximum term of 10 years. The option price 
for these shares is the market price of the shares on the day prior to 
the option grant. Emera may also buy back shares of that stock or those 
options during the Authorization Period. Emera proposes to issue shares 
in accordance with these plans and any other such plans that may be 
adopted during the Authorization Period, subject to the Common Stock 
Plan Limit.
    Emera may seek to acquire securities of companies engaged in 
energy-related businesses as described in rule 58, Canadian Energy 
Related Subsidiaries (as defined below), or other businesses authorized 
by the Act, by the rules under the Act or by Commission order.

[[Page 33084]]

These acquisitions may involve the exchange of Emera stock for 
securities of the company being acquired in order to provide the seller 
with certain tax advantages. These transactions would be individually 
negotiated. 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 Canadian 
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 in accordance with a compensation, 
dividend or stock purchase plan, or a public offering of debt. Subject 
to the foregoing, Emera accordingly seeks authorization to issue common 
stock or options, warrants or other stock purchase rights exercisable 
for common stock in public or privately negotiated transactions as 
consideration for the equity securities or assets of other companies, 
provided that the acquisition of any equity securities or assets has 
been authorized by the Commission or is exempt under the Act or rules 
under the Act.
    The ability to offer stock as consideration may make a transaction 
more economical for Emera as well as for the seller of the business. 
For purposes of calculating compliance with the Emera External Limit, 
Emera's common stock would be valued at market value based upon the 
negotiated agreement between the buyer and the seller.
Preferred Stock
    Emera may issue preferred stock from time to time during the 
Authorization Period in accordance with the Financing Limitations and 
the Emera External Limit. Preferred stock or other types of preferred 
or equity-linked securities may be issued in one or more series with 
those rights, preferences, and priorities that may be designated in the 
instrument creating each series, as determined by Emera's board of 
directors. Dividends or distributions on preferred stock or other 
preferred securities will be made periodically and to the extent funds 
are legally available for that 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 Emera common stock or unsecured 
indebtedness.
Long-Term Debt
    Emera proposes to issue long-term debt in accordance with the 
Financing Limitations and the Emera External Limit. Long-term debt 
would be unsecured and have the maturity, interest rate(s) 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.
    Any long-term debt: (i) May be convertible into any other 
authorized securities of Emera; (ii) will have maturities ranging from 
one to fifty years; (iii) may be subject to optional and/or mandatory 
redemption, in whole or in part, at par or at various premiums above 
the principal amount; (iv) may be entitled to mandatory or optional 
sinking-fund provisions; (v) may provide for reset of the coupon in 
accordance with a remarketing arrangement; (vi) may be subject to 
tender or the obligation of the issuer to repurchase at the election of 
the holder or upon the occurrence of a specified event; (vii) may be 
called from existing investors by a third party or (viii) may be 
entitled to the benefit of financial or other covenants.
Short-Term Debt
    Emera requests authorization to issue directly, or indirectly 
through Financing Subsidiaries existing or to be formed under the 
authorization requested, short-term debt including, but not limited to, 
institutional borrowings, commercial paper and bid notes. The issuance 
of short-term debt will be in accordance with the Financing Limitations 
and the Emera External Limit. Proceeds of any short-term debt issuance 
may be used to refund Emera's outstanding debt securities and to 
provide financing for general corporate purposes, working capital 
requirements and the capital expenditures of the Emera Group until 
long-term financing can be obtained. Short-term debt issued by Emera 
will be unsecured.
    Emera may sell commercial paper, from time to time, in established 
domestic Canadian, U.S. or European commercial paper markets. That 
commercial paper would 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 that 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 lines of credit, directly or 
indirectly through one or more financing subsidiaries. Loans under 
these lines will have maturities of less than one year from the date of 
each borrowing. Alternatively, if the notional maturity of short-term 
debt is greater than 364 days, the debt security will include put 
options at appropriate points in time to cause the security to be 
accounted for as a current liability under U.S. generally accepted 
accounting principles. 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. To the extent credit is extended 
under either commercial paper or short-term debt facilities during the 
Authorization Period, these amounts would be included within Emera's 
External Limit and would be subject to the Financing Limitations.
Hedges and Interest Rate Risk Management
    Emera requests authorization 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. 
Hedges may also include the issuance of structured notes (i.e., a debt 
instrument in which the principal and/or interest payments are 
indirectly linked to the value of an underlying asset or index), or 
transactions involving the purchase or sale, including short sales, of 
U.S. Treasury or agency (e.g., Federal National Mortgage Association) 
obligations or LIBOR based swap instruments (collectively, ``Hedge 
Instruments'').
    Emera would employ Hedge Instruments as a means of managing the 
risk associated with any of its outstanding debt by, in effect, 
synthetically (i) converting variable rate debt to fixed rate debt, 
(ii) converting fixed rate debt to variable rate debt, (iii) limiting 
the impact of changes in interest rates resulting from variable rate 
debt and (iv) providing an option to enter into interest rate swap 
transactions in future periods for planned issuances of debt 
securities. In no case will the notional principal amount of any Hedge 
Instrument exceed that of the

[[Page 33085]]

underlying debt instrument and related interest rate exposure. Thus, 
Emera will not engage in ``leveraged'' or ``speculative'' transactions. 
The underlying interest rate indices of those Hedge Instrument will 
closely correspond to the underlying interest rate indices of Emera's 
debt to which those Hedge Instrument relate. Off-exchange Hedge 
Instruments would be entered into only with counterparties whose senior 
debt ratings are investment grade (``Approved Counterparties'').
    In addition, Emera requests authorization to enter into Hedge 
Instruments with respect to anticipated debt offerings (``Anticipatory 
Hedges''), subject to certain limitations and restrictions. 
Anticipatory Hedges would only be entered into with Approved 
Counterparties, and would be used to fix and/or limit the interest rate 
risk associated with any new issuance through (i) a forward sale of 
exchange-traded Hedge Instruments (``Forward Sale''), (ii) the purchase 
of put options on Hedge Instruments (``Put Options Purchase''), (iii) a 
Put Options Purchase in combination with the sale of call options on 
Hedge Instruments ( ``Zero Cost Collar''), (iv) transactions involving 
the purchase or sale, including short sales, of Hedge Instruments, or 
(v) 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.
    Emera will comply with applicable standards relating to accounting 
for derivative transactions as are adopted and implemented by the 
Financial Accounting Standards Board (``FASB'') or Canadian GAAP. In 
addition, Emera will endeavor to qualify these financial instruments 
for hedge accounting treatment under FASB rules. In the event 
transactions in financial instruments or products are qualified for 
hedge accounting treatment under Canadian GAAP, but not under U.S. 
GAAP, Emera's financial statements filed with the Commission will 
include a reconciliation of the difference between the two methods of 
accounting treatment. No gain or loss on a hedging transaction entered 
into by Emera or its subsidiaries (except BHE and its subsidiaries) 
will be allocated to BHE or its subsidiaries, regardless of the 
accounting treatment accorded to the transaction.
    BHE requests authorization to enter into the transactions described 
above on the same terms applicable to Emera, except that BHE would 
comply with applicable FASB standards and U.S. GAAP.
Guarantees
    Emera and BHE request 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 their respective subsidiaries as may be appropriate or necessary to 
enable those subsidiaries to carry on in the ordinary course of their 
respective businesses in an aggregate principal amount not to exceed 
the Emera Guarantee Limit outstanding at any one time (not taking into 
account obligations exempt under rule 45) with respect to guarantees 
issued by Emera and $55 million with respect to guarantees issued by 
BHE. All debt guaranteed would comply with the Financing Limitations. 
Included in this amount are Guarantees entered into by Emera that were 
previously issued in favor of its subsidiaries to the extent that they 
remain outstanding during the Authorization Period. The limit on 
Guarantees is separate from the Emera External Limit.
    Guarantees may take the form of, among others, direct guarantees, 
reimbursement undertakings under letters of credit, ``keep well'' 
undertakings, agreements to indemnify, expense reimbursement 
agreements, and credit support with respect to the obligations of the 
subsidiary companies as may be appropriate to enable those system 
companies to carry on their respective authorized or permitted 
businesses. Emera may, for example, provide credit support to Emera 
Energy Inc. or Emera Energy Services Inc. in connection with energy 
trading, transportation and physical commodity contracts. BHE may need 
guarantee authorization to provide credit support for a subsidiary 
engaged in utility construction activity. Any guarantee that is 
outstanding at the end of the Authorization Period shall remain in 
force until it expires or terminates in accordance with its terms.
    Certain Guarantees may be in support of obligations that are not 
capable of exact quantification. In these cases, Emera and BHE will 
determine the exposure under a Guarantee for purposes of measuring 
compliance with their respective guarantee limit by appropriate means, 
including estimation of exposure based on loss experience or potential 
payment amounts. Each subsidiary may be charged a fee for any Guarantee 
provided on its behalf that is not greater than the cost, if any, of 
obtaining the liquidity necessary to perform the Guarantee for the 
period of time the Guarantee remains outstanding.
Subsidiary Financing
    Emera seeks authorization to finance the capital requirements of 
its subsidiaries and to fund their authorized or permitted businesses 
through the acquisition of the securities of subsidiaries issued under 
the Act, the Commission's rules, regulations or orders, and within any 
limits applicable to investments in EWGs, FUCOs, rule 58 subsidiaries 
and Canadian Energy Related Subsidiaries.
Market Rate Subsidiaries
    Under a prior Commission order Emera was granted authorization to 
lend funds to certain of its nonutility subsidiaries at a mark up to 
Emera's cost of funds. Emera requests that this authorization be 
continued for the Authorization Period. The authorization requested 
would apply to borrowings by all nonutility subsidiaries except (i) 
BHE, (ii) any of BHE's direct or indirect subsidiaries, or (iii) NSPI 
(``Market Rate Subsidiaries''), and would apply to loans from Emera or 
NSPI to Market Rate Subsidiaries and to loans between those companies. 
Emera requests this authority principally to allow it to operate its 
businesses efficiently under Canadian tax regulations.
    As explained in Emera's application in SEC File No. 70-9787, which 
was granted by the Acquisition Order, the Income Tax Act (Canada) and 
the Regulations promulgated under it (collectively the ``ITA'') 
requires borrowed funds to be used for the purpose of earning income 
before it allows a taxpayer a deduction in calculating taxable income, 
for the interest expense associated with a borrowing. This restriction 
flows from the fundamental principle in the ITA that each taxable 
company is a separate and distinct entity for tax purposes. 
Consequently, Emera must earn income from lending its external 
borrowings to its subsidiaries or Emera will not be permitted a 
deduction of the related interest expense in calculating its taxable 
income under the ITA. Each company must independently demonstrate a 
business purpose for

[[Page 33086]]

incurring debt. If Emera would be required to on-lend funds to its 
Market Rate Subsidiaries at cost, Emera would not be eligible, under 
the rules for computation of taxable income in the ITA and the rules of 
administrative practice adopted by Canada's Customs and Revenue Agency 
(``Revenue Canada''), (administrative body responsible for the 
administration of the ITA) for an interest expense deduction on those 
borrowed funds.
    Because the ITA treats each company as a separate and distinct 
entity for Canadian income tax purposes, an associated group of 
Canadian companies also cannot file a consolidated tax return. 
Therefore, unlike U.S. corporate groups, Canadian groups cannot use 
losses from affiliated companies to offset income from other companies 
in the same corporate group. Intercompany loans at market rates may be 
used where appropriate to adjust taxable income among the group 
members. The proposed market rate loan authority, therefore, would 
allow Emera to implement the most economically efficient financial 
structure given its tax constraints.
    Emera would determine the appropriate market rate for loans from 
Emera or NSPI to each Market Rate Subsidiary, or between Market Rate 
Subsidiaries, in much the same manner practiced by an independent bank. 
Emera would review the nature of each subsidiary's business, evaluate 
its capital structure, the particular risks to which it is subject, and 
generally prevailing market conditions. Emera would also evaluate and 
take into account information from third parties such as banks that 
would indicate the prevailing market rates for similar businesses. In 
particular, Emera will obtain information on the range of rates used by 
one or more banks for loans to similar businesses. That independent 
third-party information would serve as an index against which an 
appropriate market rate could be determined. Emera would provide its 
analysis supporting its market-based rate determination to the 
Commission upon request.
Financing BHE
    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 from nonassociated entities or 
through borrowings from Emera directly, or indirectly through Emera USH 
and BHEH. BHE also proposes to borrow funds from NSPI 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.
    The MPUC exercises jurisdiction over the securities issued by BHE 
with maturities of one year or longer. BHE requests Commission 
authorization to issue and sell securities with maturities of less than 
one year. That short-term debt issued and outstanding at any time 
during the Authorization Period will not exceed the BHE Limit.
Financing Emera USH and BHEH
    Emera USH requests authorization to issue and sell securities to 
Emera and NSPI and to acquire securities from BHEH and BHE. BHEH 
requests authorization to issue and sell securities to Emera, NSPI and 
Emera USH and to acquire securities from BHE. Each of Emera USH and 
BHEH also seeks authority to issue guarantees and other forms of credit 
support for the benefit of their direct and indirect subsidiaries. 
Emera USH and BHEH would not borrow, or receive any extension of credit 
or indemnity from any of their respective direct or indirect subsidiary 
companies.
    Each of Emera USH and BHEH is intended to function as a financial 
conduit to facilitate Emera's U.S. investments. As authorized by the 
Acquisition Order, for reasons of economic efficiency, the terms and 
conditions of any securities issued by Emera USH and BHEH to an 
associate company will be on an arm's length basis. The financing 
proposed would be used to fund the capital requirements of BHE and its 
subsidiaries and any exempt or subsequently authorized activity that is 
hereafter acquired. That financing would not be used by Emera USH or 
BHEH to carry on business or investment activities, other than as 
described in the Application.
Changes in Capital Stock of Wholly-Owned Subsidiaries
    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 
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 in accordance with 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 that subsidiary. In addition, the subsidiary may choose to use 
capital stock with no par value. The relief requested would provide 
necessary financing flexibility. The requested authorization is limited 
to Emera's wholly-owned subsidiaries and will not affect the aggregate 
limits or other conditions. A subsidiary would be able to change the 
par value, or change between par value and no-par stock, without 
additional Commission approval. Any such action by BHE or any other 
public utility company would be subject to and would only be taken upon 
the receipt of any necessary approvals by the MPUC or other public 
utility commission with jurisdiction over the transaction. As noted 
previously, BHE will maintain, during the Authorization Period, a 
common equity capitalization of at least 30%.
Payment of Dividends Out of Capital or Unearned Surplus
    Upon the acquisition of BHE by Emera, the retained earnings of BHE 
were eliminated. The goodwill resulting from the transaction was pushed 
down to BHE and reflected as additional paid-in-capital in its 
financial statements. The effect of these accounting adjustments was to 
leave BHE without retained earnings, the traditional source of dividend 
payment, but, nevertheless, a strong balance sheet showing a 
significant equity level. Accordingly, the Acquisition Order permitted 
BHE to pay dividends and or to repurchase or redeem its common stock 
held by its associate company parent after the acquisition out of its 
additional paid-in-capital up to the amount of BHE's pre-acquisition 
retained earnings plus any amortization or write-down of goodwill 
charged against post-acquisition earnings. The Acquisition Order 
provided, however, that in no event would dividends paid or share 
repurchases and redemptions cause BHE's common equity capitalization to 
fall below 30% of total capitalization. BHE will continue to rely on 
the Acquisition Order for the dividend authorization summarized above.
    Applicants now request authorization for the nonutility companies 
in the Emera Group, excluding NSPI, to pay dividends with respect to 
their securities from time to time through the Authorization Period, 
out of capital and unearned surplus to the extent

[[Page 33087]]

permitted under applicable corporate law and state or national law 
applicable in the jurisdiction where each company is organized, and any 
applicable financing covenants. In addition, each of those nonutility 
companies will not declare or pay any dividend out of capital or 
unearned surplus unless it: (i) Has received excess cash as a result of 
the sale of some or all of its assets; (ii) has engaged in a 
restructuring or reorganization; and/or (iii) is returning capital to 
an associate company.
Financing Subsidiaries
    The Emera Group companies (except NSPI) seek authorization to 
organize new corporations, trusts, partnerships or other entities that 
will facilitate financings by issuing short-term debt, long-term debt, 
income preferred securities, equity securities or other securities to 
third parties and transferring the proceeds of these financings to 
Emera or to that entity's respective parent company. To the extent not 
exempt under rule 52, the Financing Subsidiaries also request 
authorization to issue those securities to third parties. In connection 
with this method of financing, Emera and the subsidiaries may: (i) 
Issue debentures or other evidences of unsecured indebtedness to a 
Financing Subsidiary in return for the proceeds of the financing; (ii) 
acquire voting interests or equity securities issued by the Financing 
Subsidiary to establish ownership of the Financing Subsidiary (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 Subsidiary) and 
(iii) guarantee a Financing Subsidiary's obligations in connection with 
a financing transaction. Any amounts issued by a Financing Subsidiary 
to a third party under this authorization would be included in the 
overall external financing limitation authorized for the immediate 
parent of that Financing Subsidiary. However, the underlying intra-
system mirror debt and parent guarantee would not be so included.
    Applicants also request authorization to enter into support or 
expense agreements (``Expense Agreement'') with Financing Subsidiaries 
to provide services to and pay the expenses of those entities. In cases 
where it is necessary or desirable to ensure legal separation for 
purposes of isolating a Financing Subsidiary from its parent or another 
subsidiary for bankruptcy purposes, the ratings agencies require that 
any Expense Agreement whereby the parent or subsidiary provides 
services related to the financing to the Financing Subsidiary be at a 
price, not to exceed a market price, consistent with similar services 
for parties with comparable credit quality and terms entered into by 
other companies so that a successor service provider could assume the 
duties of the parent or subsidiary in the event of the bankruptcy of 
the parent or subsidiary without interruption or an increase of fees. 
Therefore, Applicants seek approval under section 13(b) of the Act and 
rules 87 and 90 to provide the services described in this paragraph at 
a charge not to exceed a market price but only for so long as the 
Expense Agreement established by the Financing Subsidiary is in place.

Intermediate Subsidiaries and Nonutility Reorganizations

    The Acquisition Order authorized the Applicants to restructure 
Emera's nonutility holdings from time to time as may be necessary or 
appropriate to further the Emera Group's authorized nonutility 
activities. Applicants request the continuation of that authorization. 
In particular, Emera requests authorization to acquire, directly or 
indirectly, the equity securities of one or more entities 
(``Intermediate Subsidiaries'') which would be organized exclusively 
for the purpose of acquiring, holding and/or financing the securities 
of one or more existing or future EWGs, FUCOs, rule 58 subsidiaries, 
ETCs, Canadian Energy Related Subsidiaries or other non-exempt 
nonutility subsidiaries (as authorized in this proceeding or in a 
separate proceeding), provided that Intermediate Subsidiaries may also 
engage in administrative activities (``Administrative Activities'') and 
development activities (``Development Activities''), as those terms are 
defined in the Application, relating to those subsidiaries.
    An Intermediate Subsidiary may be organized, among other things, 
(i) To facilitate the making of bids or proposals to develop or acquire 
an interest in any EWG, FUCO, rule 58 Subsidiary, ETC, Canadian Energy 
Related Subsidiary or other authorized nonutility business; (ii) after 
the award of a bid proposal, to facilitate closing on the purchase or 
financing of the acquired company; (iii) at any time subsequent to the 
consummation of an acquisition of an interest in any company to, among 
other things, effect an adjustment in the respective ownership 
interests in that business held by Emera and non-affiliated investors; 
(iv) to facilitate the sale of ownership interests in one or more 
acquired nonutility companies; (v) to comply with applicable laws of 
foreign jurisdictions limiting or otherwise relating to the ownership 
of domestic companies by foreign nationals; (vi) as a part of tax 
planning to limit Emera's exposure to Canadian, U.S. and foreign taxes; 
(vii) to further insulate Emera and its utility subsidiaries from 
operational or other business risks that may be associated with 
investments in non-utility companies; or (viii) for other lawful 
business purposes.
    Investments in Intermediate Subsidiaries may take the form of any 
combination of the following: (i) Purchases of capital shares, 
partnership interests, member interests in limited liability companies, 
trust certificates or other forms of equity interests; (ii) capital 
contributions; (iii) open account advances with or without interest; 
(iv) loans; and (v) guarantees issued, provided or arranged in respect 
of the securities or other obligations of any Intermediate 
Subsidiaries. Funds for any direct or indirect investment in any 
Intermediate Subsidiary will be derived from: (i) Financings authorized 
in this proceeding; (ii) any appropriate future debt or equity 
securities issuance authorization obtained by Emera from the 
Commission; and (iii) other available cash resources, including 
proceeds of securities sales by nonutility subsidiaries in accordance 
with rule 52.
    Emera requests authorization to consolidate or otherwise reorganize 
all or any part of its direct and indirect ownership interests in 
nonutility subsidiaries, and the activities and functions related to 
those investments. To effect those consolidations or other 
reorganizations, Emera may wish to merge or contribute the equity 
securities of one nonutility subsidiary to another nonutility 
subsidiary (including a newly formed Intermediate Subsidiary) or sell 
(or cause a nonutility subsidiary to sell) the equity securities or all 
or part of the assets of one nonutility subsidiary to another one. To 
the extent that these transactions are not otherwise exempt under the 
Act or rules thereunder, Emera requests authorization under the Act to 
consolidate or otherwise reorganize under one or more direct or 
indirect Intermediate Subsidiaries Emera's ownership interests in 
existing and future nonutility subsidiaries. Those transactions may 
take the form of a nonutility subsidiary selling, contributing or 
transferring the equity securities of a subsidiary or all or part of 
that subsidiary's assets as a dividend to an Intermediate Subsidiary or 
to another nonutility subsidiary, and the

[[Page 33088]]

acquisition, directly or indirectly, of the equity securities or assets 
of the subsidiary, either by purchase or by receipt of a dividend. The 
purchasing nonutility subsidiary in any transaction structured as an 
intrasystem sale of equity securities or assets may execute and deliver 
its promissory note evidencing all or a portion of the consideration 
given. Each transaction would be carried out in compliance with all 
applicable laws and accounting requirements.
    The requested authorization would enable the Emera Group to 
consolidate similar businesses and to participate effectively in 
authorized nonutility activities, without the need to apply for or 
receive additional Commission approval. Those restructurings would be 
undertaken in order to eliminate corporate complexities, to combine 
related business segments for staffing and management purposes, to 
eliminate administrative costs, to achieve tax savings, or for other 
ordinary and necessary business purposes. Any new entity formed under 
the authority requested may be a corporation, partnership, limited 
liability company or other entity in which Emera, directly or 
indirectly, might have a 100% interest, a majority equity or debt 
position, or a minority debt or equity position. These entities would 
engage only in businesses to the extent the Emera Group is authorized, 
whether by statute, rule, regulation or order, to engage in those 
businesses. Emera does not seek authorization to acquire an interest in 
any nonassociate company as part of the authority requested in this 
application and states that the reorganization will not result in the 
entry by the Emera Group into a new, unauthorized line of business.
    Emera requests authorization to make expenditures on Development 
and Administrative Activities, as defined above, in an aggregate amount 
of up to $150 million. Emera proposes a ``revolving fund'' concept for 
permitted expenditures on those activities. Thus, to the extent a 
nonutility subsidiary in respect of which expenditures for Development 
or Administrative Activities were made subsequently becomes an EWG, 
FUCO or qualifies as an ``energy-related company'' under rule 58, the 
amount so expended will cease to be considered an expenditure for 
Development and Administrative Activities, but will instead be 
considered as part of the ``aggregate investment'' in that entity in 
accordance with rule 53 or 58, as applicable.

Canadian Energy Related Subsidiaries

    The Acquisition Order authorized Emera to invest in various 
businesses located in Canada that are energy related and retainable 
nonutility businesses under section 11 of the Act. In particular, the 
Acquisition Order authorized Emera to invest up to $300 million to 
organize or acquire companies engaged in the nonutility businesses in 
which Emera was then engaged and in certain other nonutility energy 
related businesses specifically described below without obtaining 
additional Commission authorization under the Act for each individual 
acquisition. Those businesses would derive substantially all their 
revenues from Canada or the U.S., or derive revenues from both 
countries. Emera requests a continuation of this authorization.
    The specific nonutility businesses in which Emera proposes to 
invest include, in addition to its current nonutility businesses:
    (i) Energy management services and other energy conservation 
related businesses,
    (ii) The maintenance and monitoring of utility equipment,
    (iii) The provision of utility related or derived software and 
services,
    (iv) Engineering, consulting and technical services, operations and 
maintenance services,
    (v) Brokering and marketing electricity and other energy 
commodities and providing services such as fuel management, storage and 
procurement; and
    (vi) Oil and gas exploration, development, production, gathering, 
transportation, storage, processing and marketing activities, and 
related or incidental activities.

EWG and FUCO Investments

    Emera seeks authorization to issue and sell securities for the 
purpose of funding investments in EWGs and FUCOs in an aggregate amount 
not to exceed the EWG-FUCO Investment Limit. Emera does not satisfy the 
conditions of rule 53(a) because its FUCO investment exceeds 50% of its 
consolidated retained earnings. As of December 31, 2003, Emera had 
consolidated retained earnings of $235.5 million and an investment of 
$642.7 million in NSPI. Consequently, the additional authorization 
requested and Emera's current investment in EWGs and FUCOs could result 
in an aggregate investment of approximately $2.64 billion.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-13277 Filed 6-10-04; 8:45 am]
BILLING CODE 8010-01-P