Pre-Effective Amendment to Application or Declaration — Form U-1
Filing Table of Contents
Document/Exhibit Description Pages Size
1: U-1/A Pre-Effective Amendment to Application or 59± 262K
Declaration
2: EX-99.1 Ex A-1 Memorandum of Association of Emera 4± 19K
11: EX-99.10 Ex D-5 Ferc Order 9 28K
12: EX-99.11 Ex G-1 Emera's Annual Report 46 256K
13: EX-99.12 Ex K-1 Emera Inc. Group of Companies 2± 15K
3: EX-99.2 Ex A-2 Articles of Association of Emera 42± 170K
4: EX-99.3 Ex A-3 Articles of Organization of Bhe 144 382K
5: EX-99.4 Ex A-4 By-Laws of Bhe 42 83K
6: EX-99.5 Ex A-5 Articles of Bangor Var 9 44K
7: EX-99.6 Ex A-6 Bylaws of Bangor Var 8 21K
8: EX-99.7 Ex A-7 Partnership Agreement 23± 96K
9: EX-99.8 Ex D-2 Order of Maine Public Utilities Commission 17 58K
10: EX-99.9 Ex D-3 Mpuc Certification 1 8K
EX-99.10 — Ex D-5 Ferc Order
| EX-99.10 | 1st Page of 9 | TOC | ↑Top | Previous | Next | ↓Bottom | Just 1st |
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EXHIBIT D-5
UNITED STATES OF AMERICA 94 FERCP. 61,049
FEDERAL ENERGY REGULATORY COMMISSION
Before Commissioners: Curt Hebert, Jr., Chairman;
William L. Massey, and Linda Breathitt.
Bangor Hydro-Electric Company and Docket No. EC01-13-000
Emera Incorporated
ORDER AUTHORIZING MERGER
(Issued January 24, 2001)
On October 31, 2000, Bangor Hydro-Electric Company (Bangor Hydro) and Emera
Incorporated (Emera) (collectively, Applicants) filed an application under
section 203 of the Federal Power Act (FPA)/1/ seeking authorization for the
merger of Bangor Hydro with Emera. Bangor Hydro will become a wholly-owned
subsidiary of Emera upon consummation of the merger, and will continue to do
business under its present name./2/
The Commission has reviewed the proposed merger under the Commission's
Merger Policy Statement/3/ and, as discussed below, we will authorize the
proposed transaction as consistent with the public interest.
I. Background
A. Description of the Parties to the Merger
---------------------
/1/ 16 U.S.C.ss.824b (1994).
/2/ Application at 20.
/3/ Inquiry Concerning the Commission's Merger Policy Under the Federal
Power Act: Policy Statement, Order No. 592, 61 Fed. Reg. 68,595 (1996), FERC
Statutes and RegulationsP. 31,044 (1996), reconsideration denied, Order No.
592-A, 62 Fed. Reg. 33,341 (1997), 79 FERCP. 61,321 (1997) (Merger Policy
Statement).
-2-
Bangor Hydro is a public utility engaged in the transmission, distribution,
generation, purchase, and sale of electricity in eastern and coastal Maine.
Bangor Hydro owns approximately 600 miles of transmission lines and 4,000 miles
of distribution lines. Bangor Hydro's peak load for 1999 was 293 MW.
Bangor Hydro owns several energy subsidiaries. These subsidiaries include
Bangor Energy, a public utility engaged in power marketing subject to the
Commission's jurisdiction, which is a special-purpose vehicle created in 1997 to
permit Bangor Hydro to utilize a 24.27 MW power sales agreement as collateral
for a loan; and Bangor Var Company, which holds a 50 percent interest in Chester
SVC Partnership, the owner of static var compensator electrical equipment in
Chester, Maine. Bangor Hydro also owns 7 percent of Maine Yankee Atomic Power
Company, whose sole power generating facility has been closed since 1997, and
14.2 percent of Maine Electric Power Company (MEPCO), a public utility that owns
a 345 kV transmission line and provides service under an open access
transmission tariff.
Under Maine's restructuring legislation, over the past several years Bangor
Hydro has been divesting its generating capacity and generation entitlements.
Bangor Hydro is to remain a retail standard-offer provider through February 28,
2001, and is prohibited from bidding to remain a retail provider. Therefore,
Bangor Hydro expects to exit that market shortly. Additionally, Bangor Hydro
will be prohibited by Maine law from selling electricity at retail, and will
likewise be forbidden from owning or controlling generation or
generation-related assets.
According to the application, Bangor Hydro directly owns and operates 21 MW
of electric generating capacity. However, it has divested itself of all other
generation-related resources but for Bangor Energy's power sale agreement and
certain generation capacity it uses to provide standard-offer retail service.
Bangor-Hydro is a net purchaser of electricity.
Emera is a Canadian business corporation whose principal operating
subsidiary is Nova Scotia Power Inc. (Nova Scotia), which sells electricity
primarily to customers in Nova Scotia, Canada. Nova Scotia owns approximately
2,200 MW of generating capacity, all of which is located within Nova Scotia,
Canada. According to the application, Nova Scotia neither owns nor controls any
generating resources in the United States, and has no contracts for the purchase
of power from any source located within the United States. Nova Scotia is
interconnected to only one other utility, New Brunswick Power (NB Power), which
is owned by the Province of New Brunswick, Canada.
-3-
Emera also has a 12.5 percent ownership interest in Maritimes & Northeast
Pipeline, L.L.C. (Maritimes) via its subsidiary Scotia Power U.S. Ltd. Maritimes
is a natural gas pipeline that originates in Nova Scotia and terminates at a
point of interconnection with the United States pipeline grid at Dracut,
Massachusetts. Maritimes' United States markets are located primarily in New
England. Maritimes provides natural gas transportation service pursuant to a
Commission-approved open access transportation tariff.
B. Description of Proposed Merger
The proposed merger is governed by an Agreement and Plan of Merger (Merger
Agreement) dated June 29, 2000. The Merger Agreement provides that Emera will
directly or indirectly acquire all of Bangor Hydro's shares of common stock,
making Bangor Hydro a wholly-owned subsidiary of Emera. Pursuant to the Merger
Agreement, a to-be-formed United States Emera subsidiary will merge with and
ultimately into Bangor Hydro, with Bangor Hydro to be the surviving entity.
Following consummation of the transaction, Bangor Hydro will continue to do
business under its current name and will continue service to all customers
pursuant to existing contracts and Federal and state requirements.
II. Notice of Filing and Responsive Pleadings
Notice of Applicants' filing was published in the Federal Register, 65 Fed.
Reg. 69,760 (2000), with comments, interventions, and protests due on or before
December 29, 2000. On November 21, 2000, the Maine Public Utilities Commission
(Maine Commission) filed a notice of intervention raising no substantive issues.
III. Discussion
A. Procedural Issues
Pursuant to Rule 214(a)(2) of the Commission's Rules of Practice and
Procedure,/4/ the Maine Commission's notice of intervention makes it a party to
this proceeding.
B. The Merger
---------------------
/4/ 18 C.F.R. ss. 385.214(a)(2) (2000).
-4-
1. Standard of Review
Section 203(a) of the FPA/5/ provides that the Commission must approve a
proposed merger if it finds that the merger "will be consistent with the public
interest." The Commission's Merger Policy Statement provides that the Commission
will generally take account of three factors in analyzing proposed mergers: (a)
the effect on competition; (b) the effect on rates; and (c) the effect on
regulation.
2. Effect on Competition
Applicants' Analysis
Applicants analyze the competitive effects of the proposed transaction
relating to the consolidation of generation (i.e., horizontal effects) and the
consolidation of generation, delivered gas and transmission assets (i.e.,
vertical effects).
Applicants argue that it is unnecessary to perform the analysis described
in Appendix A of the Merger Policy Statement to evaluate the horizontal effects
of the proposed merger, for two major reasons. First, Applicants explain that
Bangor Hydro currently owns only 21 MWs of relatively high cost, diesel-fired
internal combustion units, which could have been used for, at most, 1.4 percent
of the hours from August 1999 through July 2000./6/ Applicants state that Bangor
Hydro's diesel units comprise less than 0.1 percent of NEPOOL's current
installed generating capacity and that, most of the time, the variable cost of
Bangor Hydro's diesel units exceeds the market price of energy. Second,
Applicants explain that Bangor Hydro and Nova Scotia Power do not sell to common
wholesale customers based on 1998 and 1999 trading data. Additionally, they
state that OASIS postings currently show that only 2 MWs of firm or non-firm
capacity will be available for export on New Brunswick Power's system to Maine
Electric Power Company (MEPCO) through September 2001./7/ Notwithstanding the
foregoing,
---------------------
/5/ 16 U.S.C.ss.824b(a) (1994).
/6/ Applicants additionally explain that environmental concerns limit these
diesel- fired units to a total operating time of 500 hours per year. Fox-Penner
Affidavit, p. 11.
/7/ Applicants state there are plans for a new transmission line to be
constructed by Pennsylvania Power & Light Energy Plus that would provide an
additional 300 MWs of transmission capability from New Brunswick to NEPOOL.
However, development of this line has temporarily ceased, pending approval from
Maine environmental and land use agencies.
-5-
Applicants perform an analysis of installed capacity in NEPOOL and conclude that
the market is unconcentrated in winter and summer, with de minimis increases in
the Herfindahl-Hirschman indices attributable to the proposed merger./8/
Applicants assert that the proposed transaction raises no vertical
competitive concerns associated with consolidating generation and transmission
because Independent System Operator, New England, Inc. (ISO-NE) has operational
control over transmission assets owned by Bangor Hydro. They also state that
although Emera has a minority ownership interest in Maritimes (which delivers
natural gas in Bangor Hydro's service area), the proposed transaction raises no
vertical competitive concerns related to consolidating generation and delivered
gas because there is limited overlap between the electricity and delivered gas
markets in which Applicants compete. They also note that because Bangor Hydro's
only generation is diesel-fired and used infrequently, the merged company would
have little incentive to withhold delivered gas to foreclose competitors or
raise their costs.
Commission Determination
With regard to horizontal competitive issues raised by the proposed merger,
we note that based on the information provided by Applicants, Bangor Hydro and
Nova Scotia do not, and likely will not, compete in the same relevant markets in
the United States (our analysis focused on only United States markets) within
the time frame relevant for our merger review. Limited ATC on the transmission
path from New Brunswick to MEPCO effectively prevents Applicants from competing
in common
/8/ Applicants state that this analysis employs conservative assumptions
regarding capacity controlled by Applicants. Currently, Applicants have purchase
agreements for 100 MWs of peak and 50 MWs of off-peak power to serve standard
offer service customers in their service area. In performing their installed
capacity analysis, they assume that they retain full control over the dispatch
of these MWs, and they find little competitive impact. Further, these contracts
are due to expire on February 28, 2001, and Applicants do not intend to renew
them.
-6-
relevant markets in the United States./9/ Even if ATC were to increase so that
Bangor Hydro and Nova Scotia could compete in common relevant markets (e.g., if
a new transmission line is built), the small amount of generation that Bangor
Hydro does control, which is economic only a short time of the year, would be
unlikely to have a material effect on market concentration in relevant markets
when combined with generation controlled by Nova Scotia.
With regard to vertical issues associated with electricity and delivered
gas, we note that there is currently no overlap between the delivered gas and
electricity markets in which Applicants compete. Moreover, if ATC on the
transmission path from New Brunswick to MEPCO were to increase, it is unlikely
that the merged company would have the incentive to foreclose rivals or raise
their delivered gas costs, thereby adversely affecting electricity prices or
output. Therefore, we find that the proposed merger does not pose horizontal or
vertical competitive concerns. We note that no intervenor raises any arguments
to the contrary.
3. Effect on Rates
According to Applicants, the proposed transaction will have no adverse
impact on rates. Currently, Bangor Hydro has only three wholesale requirements
customers representing a combined peak load of only 0.9 MW. Applicants state
that all three of these customers are now, and will remain, eligible to choose
different suppliers. Bangor Hydro commits to a hold harmless provision under
which "its wholesale requirements customers and transmission customers [will be
held] harmless from costs related to the merger for five years."
Commission Determination
Based on these considerations, the Commission finds that the proposed
transaction will not cause any adverse rate effects. We note that no commenter
argues otherwise.
4. Effect on Regulation
---------------------
/9/ ATC from MEPCO to New Brunswick would be required for Bangor Hydro to
reach Maine Public Service (MPS), a market in the United States possibly
affected by the proposed merger. However, since MPS is several systems removed
from NEPOOL, it is unlikely to be a relevant market.
-7-
As explained in the Merger Policy Statement, the Commission's primary
concern with the effect on regulation of a proposed merger involves possible
changes in the Commission's jurisdiction when a registered holding company is
formed, thus invoking the jurisdiction of the Securities and Exchange Commission
(SEC). We are also concerned with the effect on state regulation where a state
does not have authority to act on a merger and raises concerns about the effect
on state regulation./10/
With respect to Federal regulation, Applicants expect that, following
consummation of the transaction, Emera will become an exempt holding company
under the Public Utility Holding Company Act of 1935./11/ If Applicants are not
successful in receiving a PUHCA exemption and instead must register under PUHCA,
Applicants commit to comply with this Commission's policies concerning
intra-system transactions. Therefore, the proposed merger will not create any
issues regarding the overlap of jurisdiction by this Commission and the SEC.
With respect to state regulation, Applicants state that the Maine
Commission has jurisdiction to review their proposed merger, and that after
consummation Bangor Hydro will continue to be regulated by the Maine Commission
with respect to retail rates, services and facilities.
Commission Determination
Based on these considerations, the Commission finds that the proposed
merger will not adversely effect either Federal or state regulation. We note
that no commenter argues otherwise.
5. Accounting Matters
The application is unclear as to how Applicants propose to account for the
merger (i.e., using the purchase or pooling of interests method) or the effect
of the transaction on Bangor Hydro's account balances. In addition, the filing
does not provide proposed accounting for amounts paid in excess of the original
cost net book value (i.e., the acquisition premium), if any, or the
merger-related costs to be recorded by Bangor Hydro. Therefore, we cannot
determine to what extent the merger will affect the books and
---------------------
/10/ Merger Policy Statement at 30,124-25.
/11/ 15 U.S.C.ss. 79a, et seq. (1994) (PUHCA).
-8-
records of Bangor Hydro and whether the accounting complies in all respects with
the Commission's Uniform System of Accounts requirements. However, the Merger
Policy Statement states that proper accounting treatment is a requirement of all
mergers./12/ Therefore, we direct Bangor Hydro to submit its proposed accounting
within six months following the consummation of the merger in accordance with
the Uniform System of Accounts./13/ The filing should include all amounts
recorded on Bangor Hydro's books as well as narrative explanations regarding the
journal entries, the method of accounting used to record the merger, and the
proposed accounting treatment for merger-related costs.
The Commission orders:
(A) Applicants' proposed merger is hereby authorized, as discussed in the
body of this order.
(B) Applicants shall advise the Commission within 10 days of the date the
merger is consummated.
(C) The foregoing authorization is without prejudice to the authority of
the Commission or any other regulatory body with respect to rates, services,
accounts, valuation, estimates, or determinations of cost, or any other matter
whatsoever now pending or that may come before the Commission.
(D) Nothing in this order shall be construed to imply acquiescence in any
estimate or determination of cost or any valuation of property claimed or
asserted.
(E) The Commission retains authority under sections 203(b) and 309 of the
FPA to issue supplemental orders as appropriate.
(F) Within six months of consummating the merger, Bangor Hydro shall submit
its proposed accounting, as directed in the body of this order.
By the Commission.
---------------------
/12/ Merger Policy Statement at 30,126.
/13/ Electric Plant Instruction No. 5, Electrical Plant Purchased or Sold,
and Account 102, Electric Plant Purchased or Sold, 18 C.F.R. Part 101 (2000).
-9-
( S E A L )
David P. Boergers,
Secretary.
Dates Referenced Herein
| Referenced-On Page |
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| This ‘U-1/A’ Filing | | Date | | First | | Last | | | Other Filings |
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| Filed on: | | 5/3/01 | | | | | | | None on these Dates |
| | 2/28/01 | | 2 | | 5 |
| | 1/24/01 | | 1 |
| | 12/29/00 | | 3 |
| | 11/21/00 | | 3 |
| | 10/31/00 | | 1 |
| | 6/29/00 | | 3 |
| List all Filings |
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