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 63 169K
Declaration
2: EX-99.1 Exhibit D-1.2 11± 38K
3: EX-99.2 Exhibit D-3.2 3 11K
4: EX-99.3 Exhibit D-6.2 14 32K
5: EX-99.4 Exhibit D-7.2 6 20K
6: EX-99.5 Exhibit J-1 5 21K
EX-99.1 — Exhibit D-1.2
Exhibit D-1.2
87 FERC 61,287
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Before Commissioners: James J. Hoecker, Chairman;
Vicky A. Bailey, William L. Massey,
Linda Breathitt, and Curt H,bert, Jr.
New England Power Company; )
Massachusetts Electric Company; )
The Narragansett Electric )
Company; New England Electric )
Transmission Corporation; New )
England Hydro-Transmission ) Docket No. EC99-49-000
Corporation; New England Hydro- )
Transmission Electric Company, )
Inc.; ALLEnergy Marketing )
Company, L.L.C.; NGG Holdings )
LLC )
ORDER APPROVING MERGER
(Issued June 16, 1999)
On March 10, 1999, as supplemented March 22, March 31, April 7, April 14,
April 27, and May 27, 1999, New England Power Company (NEP), its affiliates
holding jurisdictional assets (collectively, the NEES Companies) 1/, and NGG
Holdings LLC (NGG) (collectively, Applicants) filed an application under section
203 of the Federal Power Act (FPA) 2/ for approval of the merger of NGG into New
England Electric System (NEES). 3/ NEES is the
1/ The NEES Companies are: Massachusetts Electric Company (Massachusetts
Electric); The Narragansett Electric Company (Narragansett); New
England Electric Transmission Corporation (New England Electric); New
England Hydro-Transmission Corporation (New England Hydro); New
England Hydro-Transmission Electric Company, Inc. (New England
Hydro-Electric); and ALLEnergy Marketing Company, L.L.C.
2/ 16 U.S.C. 824b (1994).
3/ Joint Application of New England Power Company, et al., for Approval
of Merger and Related Authorizations (Application) at 1.
Docket No. EC99-49-000
- 2 -
holding company for the NEES Companies. NGG is an indirect wholly-owned
subsidiary of the National Grid Group plc (National Grid). 4/ Through the
merger, NEES, which will be the surviving entity, and the NEES Companies will
become the indirect subsidiaries of National Grid. 5/
As discussed below, the Commission has reviewed the proposed merger under
the Commission's Merger Policy Statement. 6/ In this order, we will approve the
merger as proposed.
I. Background
A. Description of the Parties to the Merger 7/
1. NEES
NEES is a registered public utility holding company headquartered in
Westborough, Massachusetts whose affiliates own and operate electric
transmission and distribution assets and market electric energy and related
services in New England. The affiliates that deliver electric energy serve about
1.3 million customers in Massachusetts, Rhode Island, and New Hampshire. Other
NEES subsidiaries offer telecommunications and other services. NEES does not
directly own any facilities subject to the Commission s jurisdiction.
a. NEP
NEES's wholly-owned subsidiary NEP is a public utility organized and
operated under the laws of Massachusetts. NEP owns and operates about 2,400
miles of transmission facilities located
4/ Id. at 1-2.
5/ Id. at 2.
6/ Inquiry Concerning the Commission's Merger Policy Under the Federal
Power Act; Policy Statement, Order No. 562, 61 Fed. Reg. 68,595
(1996), FERC Statutes and Regulations, 31,044 (1996), reconsideration
denied, Order No. 592-A, 62 Fed. Reg. 33,341 (1997), 79 FERC 61,321
(1997)(Merger Policy Statement).
7/ Applicants describe the parties to the merger in the Application at
7-14 and Attachment 1 at 2-6.
Docket No. EC99-49-000
- 3 -
in Massachusetts, New Hampshire, and Vermont. NEP has disposed of almost all of
its non-nuclear generating assets. 8/
b. NEP Affiliates - The NEES Distribution and Transmission
Companies
NEES wholly owns the following distribution companies: Massachusetts
Electric, Granite State Electric Company (Granite State), Nantucket Electric
Company (Nantucket), and Narragansett. 9/ Other NEES affiliates own and operate
transmission facilities interconnecting New England and Quebec. These affiliates
include New England Electric, New England Hydro, and New England Hydro-
Electric. 10/
c. AllEnergy Marketing Company, L.L.C.
NEES, through its subsidiary, NEES Energy, Inc., owns 100 percent of the
voting stock of AllEnergy Marketing Company, L.L.C., a power marketer that sells
electric energy, natural gas and heating oil to commercial, industrial and
residential consumers in the Northeast and markets propane, fuel oil and other
liquid fuels through its subsidiary, Texas Fluids. AllEnergy also sells fuel oil
through its PAL and Griffith operating divisions.
2. National Grid
National Grid originated in 1990 as part of the privatization of the
electric industry in England and Wales. National Grid and its subsidiaries own
and operate the transmission system in England and Wales and the
interconnections between this system and Scotland and France. Through its
subsidiary, National Grid Company, plc (NGC), National Grid matches the
generation of electric energy with demand on a real time basis. NGC also
facilitates the trading of power in the
8/ On September 1, 1998, as part of the electric industry restructuring
efforts of several New England states, NEP completed divestiture of
its fossil and hydroelectric generation assets and its power purchase
contracts to U.S. Generating Company. NEP still owns a 9.3 percent
share in an oil-fired generating unit, which it is attempting to sell.
See Application at 7 and n.10; Attachment 1 at 3-4.
9/ Neither Granite State nor Nantucket owns any jurisdictional
facilities. Application at 9, n.11.
10/ New England Electric is a wholly-owned subsidiary of NEES, which owns
majority interests in New England Hydro and New England
Hydro-Electric.
Docket No. EC99-49-000
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electric energy market in England and Wales. In particular, NGC manages the
daily bidding system for generators desiring to sell power, calculates market
prices and payments due by individual traders, and manages the transfer of funds
to settle the trades of electric energy.
Through subsidiaries, National Grid also owns and operates transmission
assets outside of the United Kingdom. Specifically, National Grid indirectly
owns 41.25 percent of the Power Division of Zambia Consolidated Copper Mines,
and, as part of a joint venture with the Karnatka Electricity Board, National
Grid will build a transmission line in southern India. Neither National Grid nor
any of its subsidiaries owns or operates transmission assets in the United
States, Canada, or Mexico. National Grid has almost no assets in the United
States, 11/ and has no assets in the markets that the NEES Companies or their
affiliates serve, nor does National Grid engage in any activity in any United
States utility markets.
National Grid Overseas Limited (National Overseas) is a 41.25 percent
partner in Citelec, S.A., which owns a substantial share in, and is the
registered operator for, the Transener electric transmission network in
Argentina, representing 95 percent of the Argentine high voltage system.
National Overseas is also part of a consortium that will construct a new
communications network in Brazil, intended to cover the major population centers
of that country.
NGG is a wholly-owned indirect subsidiary of National Grid. National Grid
formed NGG for the purpose of merging into NEES and effecting the merger.
B. Description of Proposed Merger
The Merger Agreement establishes that NEES would merge with NGG, with NEES
continuing as the surviving corporation. Applicants would cancel NEES s
outstanding shares upon completion of the merger, and its shareholders would
receive a cash payment of $53.75 per share (subject to upward adjustment). The
total purchase price would be about $3.2 billion. Applicants would convert each
one percent interest in NGG into a share of the surviving company. As a result
of the merger, NEES would be a wholly-owned subsidiary of National Grid.
11/ In the United States, National Grid owns Teldata, Inc., which offers
automatic meter reading and related services.
Docket No. EC99-49-000
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NEES would remain a registered public utility holding company under the
Public Utility Holding Company Act (PUHCA) 12/ and would be wholly-owned by
National Grid, which itself would register as a public utility holding company.
13/ National Grid s other utility subsidiaries operating in the United Kingdom
and elsewhere outside the United States will seek foreign utility company status
under PUHCA. The NEES corporate headquarters would remain in Massachusetts and
NEES and its operating subsidiaries would retain their separate corporate status
and names following the merger. 14/
II. Notice of Filing, Interventions, and Answers
Notices of Applicants merger filing and amendments were published in the
Federal Register, 64 Fed. Reg. 13,984 (1999), 64 Fed. Reg. 25,031 (1999), and 64
Fed. Reg. 30,324 (1999), with comments, interventions, and protests due on or
before June 10, 1999.
The New Hampshire Public Utilities Commission (New Hampshire Commission)
filed a timely notice of intervention, raising no substantive issues.
The Office of Energy and Community Services of the State of New Hampshire
(New Hampshire Energy and Community Services), Northeast Utilities Services
Company (Northeast Utilities), U.S. Generating Company (U.S. Generating), the
Attorney General of the State of Rhode Island and the Rhode Island Division of
Public Utilities and Carriers (Rhode Island), and the Massachusetts Department
of Telecommunications and Energy filed timely motions to intervene, raising no
substantive issues.
12/ 15 U.S.C. 79 et seq. (1994).
13/ Application at 17. Between National Grid and NEES there will be one or
more intermediate entities, wholly-owned, directly or indirectly, by
National Grid. Applicants explain that United Kingdom companies with
foreign subsidiaries usually use this type of structure "to avoid
losing United Kingdom tax relief for foreign taxes paid on profits
repatriated to the United Kingdom, and to minimize taxes on the
repatriation of foreign subsidiary profits." Application at 18.
Applicants maintain that "[t]he structure will have no impact on the
control of NEES[,] nor will the structure affect the financial
integrity of NEES or its relationship with National Grid." Id.
14/ Application at 18.
Docket No. EC99-49-000
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III. Discussion
A. Procedural Matters
Pursuant to Rule 214 of the Commission s Rules of Practice and Procedure,
15/ the timely, unopposed notice of intervention and motions to intervene serve
to make the New Hampshire Commission, New Hampshire Energy and Community
Services, Northeast Utilities, U.S. Generating, Rhode Island and the
Massachusetts Department of Telecommunications and Energy parties to this
proceeding.
B. Standard of Review
Section 203(a) of the Federal Power Act (FPA) 16/ provides, in relevant
part, as follows:
No public utility shall sell, lease, or otherwise dispose of the whole
of its facilities subject to the jurisdiction of the Commission, or
any part thereof of a value in excess of $50,000, or by any means
whatsoever, directly or indirectly, merge or consolidate such
facilities or any part thereof with those of any other person, or
purchase, acquire, or take any security of any other public utility,
without first having secured an order of the Commission authorizing it
to do so.
Under section 203(a), the Commission must approve a proposed merger if it finds
that the merger "will be consistent with the public interest." 17/
In 1996, the Commission issued its Merger Policy Statement updating and
clarifying its procedures, criteria and policies applicable to public utility
mergers. 18/ The 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.
For the reasons discussed below, we find that Applicants proposed merger is
consistent with the public interest.
15/ 18 C.F.R. 385.214 (1998).
16/ 16 U.S.C. 824b (1994).
17/ 16 U.S.C. 824b (1994).
18/ See supra note 6.
Docket No. EC99-49-000
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Accordingly, we will approve the merger without further investigation.
C. Effect on Competition
1. Applicants Analysis
Applicants point out that neither National Grid nor any of its subsidiaries
provides transmission or distribution services in any geographic area that
overlaps with the areas that the NEES Companies serve. NEES affiliates provide
transmission and distribution services solely in the northeastern United States.
National Grid and its subsidiaries do not provide transmission or distribution
services in North America. NEES transmission or distribution customers cannot
turn to National Grid or its subsidiaries as alternate providers of service.
Applicants further note that the NEES companies do not provide electric
generation services in any geographic area that overlaps the areas that National
Grid or its subsidiaries serve. Applicants state that NEP has sold nearly all of
its generation assets and is attempting to sell the remainder. Applicants
observe that NEP s few remaining generation interests are located in New
England; they note that neither National Grid nor any of its subsidiaries owns
or controls any generation facilities located in New England.
Applicants state that because National Grid, its subsidiaries and the NEES
Companies do not provide any products or services in any overlapping relevant
markets, the proposed merger is not a horizontal merger and will not result in
the elimination of a competitor in any market. They submit that the acquisition
of NEES by National Grid will not result in competitive harm through the
creation or enhancement of market power. 19/
Applicants also conclude that the proposed merger does not raise any
vertical competitive concerns because: (1) they do not supply inputs used in the
generation or delivery of electric products or services in common geographic
regions and (2) since NEES continues to provide service under open access
tariffs, the merger will not affect the ability of the merged company to
restrict access to NEES' transmission or distribution assets. 20/
19/ Application, Attachment 1 at 7-8.
20/ Declaration of Henry J. Kahwaty, at 10.
Docket No. EC99-49-000
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2. Commission Determination
In the Merger Policy Statement, the Commission adopted the Department of
Justice/Federal Trade Commission Merger Guidelines (Guidelines) as our basic
framework for analyzing the effect on competition of a proposed horizontal
merger. 21/ The Merger Policy Statement adopted a five-part analytic screen and
set forth the conditions under which the Commission would set the issue of
competition for hearing. 22/ The Commission also stated in the Merger Policy
Statement that:
it would not be necessary for merger applicants to perform the screen
analysis or file the data needed for the screen analysis in cases
where the merging firms do not have facilities or sell relevant
products in common geographic markets. In these cases, the proposed
merger will not have an adverse competitive impact (i.e., there can be
no increase in the applicants' market power unless they are selling
relevant products in the same geographic markets) so there is no need
for a detailed data analysis. 23/
The Commission finds that the proposed merger does not raise competitive
concerns, and notes that no intervenor argues to the contrary. We agree with
Applicants that a screen analysis is unnecessary because the merging firms
clearly do not have facilities or sell relevant products in common geographic
markets. As a result, the proposed merger does not eliminate a competitor and
therefore raises no potential horizontal competitive concerns. We also find that
because Applicants do not supply inputs used to produce electricity products and
do not sell electricity products in common geographic markets, the merger raises
no vertical competitive concerns.
D. Effect on Rates
The Merger Policy Statement explains our concern that there be adequate
ratepayer protection from adverse rate effects as a result of a merger. It
describes various commitments that may be acceptable means of protecting
ratepayers, such as hold harmless
21/ Merger Policy Statement at 30,117-18.
22/ Id., at 30,119. Appendix A of the Policy Statement provides a detailed
illustrative description of the analytic screen.
23/ Id., at 30,136.
Docket No. EC99-49-000
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provisions, open seasons for wholesale customers, rate freezes, and rate
reductions. 24/
According to the application, the proposed merger will have no adverse
effect on rates. With respect to wholesale generation rates, no adverse effects
will occur because NEP has divested virtually all of its generation assets (and
plans to sell the remainder). NEP currently makes only limited wholesale sales,
and the arrangements governing those sales are unaffected by the merger. 25/
With respect to transmission rates, the NEES companies will continue to provide
transmission service under currently effective open access transmission tariffs.
Applicants note that there will be an acquisition premium and transaction costs
associated with their proposed merger that Applicants may push down to the
operating companies. 26/ However, Applicants commit not to attempt to recover
these merger-related costs through rates without first receiving specific
regulatory approval to do so. 27/ Applicants assert that their ratepayers will
be held harmless and thus, that the Commission's ratepayer protection goals are
met.
Intervenors raise no rate or ratepayer protection issues.
Upon consideration of the above, we conclude that the proposed merger will
not adversely affect rates.
E. Effect on Regulation
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
24/ Merger Policy Statement at 30,123-24.
25/ According to the application, NEP retains its existing wholesale
requirements tariff and associated service agreements with its former
large wholesale customers, but only to provide a mechanism to allow
recovery of certain costs that it is permitted to recover from those
customers consistent with various restructuring settlements.
Application at 23.
26/ Application at 24.
27/ Application at 25.
Docket No. EC99-49-000
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regulation where a state does not have authority to act on a merger. 28/
With respect to federal regulation, Applicants note that NEES is currently
a registered holding company under PUHCA. Applicants state that, as a result of
the proposed merger, National Grid will also become a registered holding company
under PUHCA. 29/ Since a new registered holding company layer will be created
above NEES, Applicants commit to follow the Commission's policy regarding
intra-corporate transactions between the NEES companies and National Grid and
its affiliates. 30/ National Grid also agrees to make available, upon request by
the Commission, all of its publicly available financial information and related
books and records as well as all information necessary to support the pricing
for the sales of goods and services between the National Grid companies and the
NEES companies. 31/
Applicants state that the proposed merger will have no adverse effect on
state regulation. Applicants maintain that each of the NEES operating companies
subject to state regulation before the merger will continue to be subject to
that regulation after the merger. Furthermore, Applicants note that filings will
be made with all states that either require them or request them. There is no
indication that any state lacks authority to regulate this merger and no state
has raised any concern about the effect on regulation. 32/
Intervenors, including the public utility commissions of the States of New
Hampshire and Rhode Island, raise no issues concerning the merger's effect on
regulation. 33/
When a public utility is acquired by another company, whether a domestic
company or a foreign company, the Commission's ability to adequately protect
public utility ratepayers against
28/ Merger Policy Statement at 30,124-25.
29/ Application at 26.
30/ Application at 26.
31/ Application at 27, n. 38.
32/ See Merger Policy Statement at 32,125. See also Application at 27.
33/ Furthermore, we note that the New Hampshire Commission found that it
has jurisdiction over aspects of the proposed merger and has set the
proposed merger for hearing; NHPUC Order No. 23,202, issued April 21,
1999.
Docket No. EC99-49-000
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inappropriate cross-subsidization may be impaired absent access to the parent
companies' books and records. Section 301(c) of the FPA gives the Commission
authority to examine the books and records of any person who controls, directly
or indirectly, a jurisdictional public utility insofar as the books and records
relate to transactions with or the business of such public utility. 34/ In this
case National Grid has made a commitment to make available to the Commission
financial information and books and records necessary to support intracorporate
transactions between National Grid companies and NEES companies. We construe
this commitment as agreeing to provide the Commission access to all books and
records within the lawful scope of section 301(c) of the FPA and our approval of
the proposed acquisition is based on this understanding. 35/
In light of the discussion above, we find that the proposed merger will not
have any adverse effect on regulation.
F. Accounting Issues
Applicants state that they will record the merger using the purchase method
of accounting in accordance with Accounting Principles Board Opinion No. 16. The
Commission, in previous applications, has approved the use of the purchase
method of accounting. 36/ We have no basis to dispute Applicants' use of the
purchase method of accounting and therefore approve its use.
34/ Section 301(c) of the FPA, 16 U.S.C. 825(c) (1994), provides that:
The books, accounts, memoranda, and records of any person who
controls, directly or indirectly, a licensee or public utility
subject to the jurisdiction of the Commission, and of any other
company controlled by such person, insofar as they relate to
transactions with or the business of such licensee or public
utility, shall be subject to examination on the order of the
Commission.
35/ As we noted earlier, NEES will remain, and National Grid will become,
registered public utility holding companies, subject to the applicable
laws and policies of the United States.
36/ Entergy Services, Inc. and Gulf States Utilities Company, Opinion No.
385, 65 FERC 61,332 (1993), order on reh'g, Opinion No. 385-A, 67 FERC
61,192 (1994), order on compliance filing, 85 FERC 61,356 (1998).
Docket No. EC99-49-000
- 12 -
Applicants propose to recognize "goodwill" consisting of an acquisition
premium of approximately $1.6 billion plus related transaction costs. They
propose to record the goodwill on the books of the non-jurisdictional holding
company and have not decided whether to push down goodwill to the jurisdictional
subsidiaries. Because Applicants have not made this decision, the potential
effects of such a decision on the accounting records of the FERC-jurisdictional
public utilities is unclear. However, Applicants commit to submit their proposed
accounting entries to the Commission for approval within six months after the
merger is consummated. According to Applicants, this submission will provide all
accounting entries necessary to reflect the merger, along with appropriate
narrative explanations describing the bases for the entries. 37/
We will direct Applicants to inform the Commission of any change in the
circumstances that would reflect a departure from the facts that we have relied
on in approving the merger accounting. We will also direct Applicants to submit
their proposed accounting for the merger within six months of the date of
consummation of the merger.
The Commission orders:
(A) Applicants' proposed merger is hereby approved subject to the
commitments and conditions discussed in the body of this order.
(B) The purchase method of accounting for the proposed transaction is
hereby approved. Applicants must promptly inform the Commission of any change in
the circumstances that would reflect a departure from the facts the Commission
has relied upon in approving the merger accounting.
(C) Applicants shall submit their proposed accounting for the merger
consistent with the body of this order within six months of the date of
consummation of the merger.
(D) 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 which may come before the Commission.
(E) 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.
37/ Application at 29.
Docket No. EC99-49-000
- 13 -
(F) The Commission retains authority under section 203(b) of the FPA to
issue supplemental orders as appropriate.
(G) Applicants shall advise the Commission within 10 days of the date on
which the merger is consummated.
By the Commission.
( S E A L )
Linwood A. Watson, Jr.,
Acting Secretary.
Dates Referenced Herein
| This ‘U-1/A’ Filing | | Date | | Other Filings |
|---|
| |  |
| Filed on: | | 7/12/99 | | None on these Dates |
| | 6/16/99 |
| | 6/10/99 |
| | 5/27/99 |
| | 4/21/99 |
| | 3/10/99 |
| | 9/1/98 |
| List all Filings |
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