SECURITIES AND EXCHANGE COMMISSION
(Release No. 35-27817; 70-10163)
The Connecticut Light and Power Company
Order Authorizing Public Utility Company Subsidiary of Registered Holding Company to Waive Charter Provision.
March 18, 2004
The Connecticut Light and Power Company ("CL&P"), Berlin, Connecticut, a wholly owned public-utility subsidiary of Northeast Utilities ("NU"), a registered holding company, filed a declaration ("Declaration") with the Securities and Exchange Commission ("Commission") under section 6(a)(2) of the Public Utility Holding Company Act of 1935, as amended ("Act") and rule 54 under the Act. On September 25, 2003, the Commission issued a notice of the Declaration (Holding Co. Act Release No. 27726, "Proxy Solicitation Order").
Currently, the ability of CL&P to incur or assume unsecured indebtedness is limited by a provision in its Certificate of Incorporation ("Charter"). The Charter provides that, except with the consent of the holders of a majority of CL&P preferred stock then outstanding, and providing that holders of one-third of the aggregate voting rights represented by shares of CL&P preferred stock then outstanding do not dissent in writing or vote against such action, CL&P may not issue or assume any unsecured debt if, immediately after such issuance or assumption, (a) the total outstanding principal amount of all unsecured debt of CL&P will thereby exceed twenty percent of the aggregate of all outstanding secured debt and the capital stock, premium and surplus of CL&P, as stated on its books ("Capitalization"), or (b) the total outstanding principal amount of all unsecured debt of CL&P having maturities of less than ten years will then exceed ten percent of its Capitalization. This limitation is referred to as the "Unsecured Debt Restriction."
By the Proxy Solicitation Order, CL&P obtained authority to solicit proxies regarding the Proposals 1 and 2, described below, for use at a special meeting of the holders of CL&P preferred stock on November 25, 2003 ("Meeting"). The first proposal, "Proposal 1," sought the consent of holders of CL&P common stock and preferred stock to eliminate the Unsecured Debt Restriction. Holders of CL&P common stock and holders of CL&P preferred stock were entitled to one vote per share. Under the Charter, adoption of Proposal 1 requires the affirmative vote of two-thirds of the total number of outstanding shares of common and preferred CL&P stock, each voting as a single class.
In the event that the required Proposal 1 shareholder approvals were not obtained, or if approval by the Connecticut Department of Public Utility Control was required and not obtained, CL&P also sought the consent of holders of CL&P preferred stock to continue the current waiver of the ten percent limit contained in the Unsecured Debt Restrictions for an additional ten-year period.1 This alternative proposal is referred to as "Proposal 2." Under the Charter, adoption of Proposal 2 requires: (1) the affirmative vote of a majority of shares of CL&P preferred stock; and (2) that less than one-third of the aggregate voting rights represented by shares of CL&P preferred stock outstanding do not dissent in writing or vote against the proposal.
At the Meeting, CL&P failed to secure the consent of a sufficient number of shareholders to implement Proposal 1, but was able to obtain the necessary approvals to implement Proposal 2. Correspondingly, CL&P requests authority to implement Proposal 2.
CL&P states that, as a result of utility restructuring in Connecticut, its capitalization has become smaller and its unsecured debt has become a greater proportion of its total capitalization. The company believes that the 10-year waiver of the Unsecured Debt Restriction will provide more financial flexibility to lower its financing costs as it issues debt to fund its planned construction and improvement program.
Under rule 54, the proposed transactions are subject to rule 53(a), (b) and (c). CL&P states that none of the adverse conditions of rule 53(b) exist, and that NU meets all of the conditions of rule 53(a) except for rule 53(a)(1), the safe harbor that allows a registered holding company to make an aggregate investment in exempt wholesale generators ("EWGs") and foreign utility companies ("FUCOs") of up to fifty percent of its system's consolidated retained earnings. CL&P states that NU has no FUCO investments, and asserts that NU satisfies the requirements of rule 54 because the holding company's continued investment in one EWG will not have the adverse effects set forth in rule 53(c), as discussed below.
CL&P states that, as of September 30, 2003, NU's "aggregate investment" in its EWG was approximately $448.2 million, or approximately 55.8% of NU's average "consolidated retained earnings" of $802.7 million for the four quarters ended September 30, 2003, as both those terms are defined in rule 53(a)(1). Although that level of investment exceeded the parameters of rule 53(c)(1), as noted above, the Commission authorized this increased investment. Northeast Utilities, Holding Co. Act Release No. 27148 (March 7, 2000). Consequently, in accordance with rule 54, the Commission will not consider the effect on the NU system of the capitalization or earnings of any NU subsidiary that is an EWG (or a FUCO) in determining whether to approve the proposed transactions. Additionally, it is stated that NU and its subsidiaries are in compliance, and will continue to comply, with the other provisions of rule 53(a) and (b).
The company estimates that the fees, commissions and expenses to be incurred in connection with the proposed transactions will be $100,000, consisting chiefly of outside solicitation fees and expenses, brokers' fees and printing costs.
Due notice of the filing of the Declaration has been given in the manner prescribed, and no hearing has been requested of or ordered by the Commission. Upon the basis of the facts in the record, it is hereby found that, the applicable standards of the Act and rules thereunder are satisfied, and that no adverse findings are necessary.
IT IS ORDERED, under rule 62 under the Act, that the Declaration regarding the waiver of a provision of CL&P's charter become effective immediately, subject to the terms and conditions contained in rule 24 under the Act.
For the Commission, by the Division of Investment Management, pursuant to delegated authority.
Margaret H. McFarland
|Home | Previous Page||