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U.S. Securities and Exchange Commission


(Release No. 35-27874, 70-9637)

NU Enterprises Inc., et al.

Order Authorizing Certain Exemptions From At-Cost Requirements

July 12, 2004

NU Enterprises, Inc. ("NUEI"), a nonutility holding company subsidiary of Northeast Utilities ("NU"), a registered holding company under the Public Utility Holding Company Act of 1935, as amended ("Act"), and the following subsidiaries of NUEI and NU, Woods Network Services, Inc., Northeast Generation Company ("NGC"), Northeast Generation Services Company, E. S. Boulos Company, Woods Electrical Company, Inc.; Select Energy, Inc., Mode 1 Communications, Inc., R.M. Services, Inc., Yankee Financial Services, Inc. and Yankee Energy Services Company, all of Berlin, Connecticut; Select Energy Services Inc. and Select Energy Contracting Inc. of Natick, Massachusetts; Select Energy New York, Inc., of Syracuse, New York; and Reeds Ferry Supply Co., Inc., of Manchester, New Hampshire, as well as any to-be-formed direct or indirect nonutility subsidiary of NUEI (collectively, "Competitive Companies" or "Applicants") filed an application, as amended ("Application"), with the Securities and Exchange Commission ("Commission") under section 13(b) of the Act and rules 54, 86, 87, 90 and 91 under the Act. The Commission issued a notice of the Application on June 4, 2004 (Holding Co. Act Release No. 27855).

The Competitive Companies are all nonutility companies under the Act that provide various services to customers who are not affiliated with NU. In addition, some of the Competitive Companies, in the ordinary course of their business, may also provide services to affiliated companies (both utility affiliates and nonutility affiliates). The Competitive Companies seek authority to provide certain services in the ordinary course of their business (collectively, "Services") to one another, in certain circumstances described below, at any price they deem appropriate, including but not limited to cost or fair market prices. The Competitive Companies, therefore, request an exemption under section 13(b) from the at-cost requirement of rules 90 and 91 to the extent that a price other than cost is charged.1 Any Services provided by the Competitive Companies to NU's regulated public utility subsidiaries will continue to be provided at cost consistent with rules 90 and 91. The Competitive Companies will not provide Services at other than cost to any other Competitive Company that, in turn, provides the same Services, directly or indirectly, to any other associate company that is not a Competitive Company, except according to the requirements of the Commission's rules and regulations under section 13(b) or an exemption from that section granted by the Commission.

The Competitive Companies request authorization to provide Services to one another at other than cost in any case where the Competitive Company receiving the Services is:

  1. a foreign utility company ("FUCO") or an exempt wholesale generator ("EWG") that derives no part of its income, directly or indirectly, from the generation, transmission, or distribution of electric energy for sale within the United States;
  2. an EWG which sells electricity at market-based rates, which have been approved by the Federal Energy Regulatory Commission ("FERC"), provided that the purchaser of the electricity is not an associate utility company;
  3. a "qualifying facility" ("QF") within the meaning of the Public Utility Regulatory Policies Act of 1978, as amended ("PURPA"), that sells electricity exclusively (a) at rates negotiated at arms'-length to one or more industrial or commercial customers purchasing the electricity for their own use and not for resale, and/or (b) to an electric utility company (other than an associate utility company) at the purchaser's "avoided cost," as determined in accordance with the regulations under PURPA;
  4. a domestic EWG or QF that sells electricity at rates based upon its cost of service, as approved by FERC or any state public-utility commission having jurisdiction, provided that the purchaser of the electricity is not an associate utility company; or
  5. a direct or indirect subsidiary of NU formed under rule 58 of the Act or any other nonutility company that (a) is partially owned by NU, provided that the ultimate recipient of the Services is not an associate utility company, or (b) is engaged solely in the business of developing, owning, operating and/or providing Services to Competitive Companies described in clauses (i) through (iv) immediately above, or (c) does not derive, directly or indirectly, any material part of its income from sources within the United States and is not a public-utility company operating within the United States.

The requested authority is subject to rule 54 of the Act. NU currently meets all of the conditions of rule 53(a), except for clause (1). At March 31, 2004, NU's "aggregate investment," as defined in rule 53(a)(1), in EWGs and FUCOs was approximately $448.2 million, or approximately 54.3% of NU's average consolidated retained earnings, also as defined in rule 53(a)(1), for the four quarters ended March 31, 2004 ($825.7 million). However, the Commission, by orders dated June 30, 2004, and July 2, 2004 (Holding Co. Act Release Nos. 27868 and 27868A, respectively)(collectively, "2004 Order"), determined that NU's financing of its investment in EWGs in an amount not to exceed $1 billion would have neither of the adverse effects set forth in rule 53(c). NU continues to assert that its EWG investments will not adversely affect the holding company system. In addition, NU and its subsidiaries are in compliance and will continue to comply with the other provisions of rule 53(a) and (b).

Applicants state that the proposed transactions, considered in conjunction with the effect of the capitalization and earnings of NGC, NU's only EWG (it has no FUCOs), would not have a material adverse effect on the financial integrity of the NU system or an adverse effect on NU's public-utility subsidiaries, their customers, or the ability of state commissions to protect the system's public-utility customers. The 2004 Order was predicated, in part, upon an assessment of NU's overall financial condition, which took into account, among other factors, NU's consolidated capitalization ratio and its retained earnings. NGC, which was acquired in March 2000, has been profitable for all quarterly periods from June 30, 2000, through March 31, 2004. As of June 30, 2000, the end of the first quarter after the acquisition of NGC, the consolidated capitalization ratios of NU, with consolidated debt including all short-term debt and non-recourse debt of the EWG, were: common shareholders' equity, 36.9%, preferred stock, 4.3%, long-term and short-term debt, 58.8%.

The consolidated capitalization ratios of NU as of March 31, 2004, with consolidated debt including all short-term debt and non-recourse debt of the EWG, were: common shareholders' equity, 34.4%, preferred stock, 1.7 %, long-term and short-term debt, 39.0%, rate reduction bonds, 24.9%. If rate reduction bonds are excluded, the consolidated capitalization ratio of NU as of March 31, 2004 is: common shareholders' equity, 45.8%, preferred stock, 2.3%, long-term and short-term debt, 51.9%.

NGC has made a positive contribution to earnings by contributing $146.8 million in revenues in the 12-month period ending March 31, 2004, and net income of $38.3 million for the same period. Although since the acquisition of NGC in March 2000, the common equity ratio of NU on a consolidated basis has decreased, it still remains at a financially healthy level, above the 30% benchmark generally required by the Commission, and if rate reduction bonds are excluded, the consolidated common equity ratio has increased.

Applicants state that no state or federal commission, other than the Commission, has jurisdiction over the authority requested. The fees, commissions and expenses paid or incurred, or to be paid or incurred, directly or indirectly, in connection with the proposed transactions are not expected to exceed $10,000.

Due notice of the filing of this Application has been given in the manner prescribed in rule 23 under the Act, and no hearing has been requested of or ordered by the Commission. Based on the facts in the record, the Commission finds that the applicable standards of the Act and rules are satisfied and that no adverse findings are necessary.

IT IS ORDERED, under the applicable provisions of the Act and the rules under the Act, that the Application is granted, subject to the terms and conditions prescribed in rule 24 under the Act.

For the Commission, by the Division of Investment Management, pursuant to delegated authority.

Margaret H. McFarland
Deputy Secretary



Modified: 07/19/2004