SECURITIES AND EXCHANGE COMMISSION

(Release No. 35-27928; 70-9541)

Northeast Utilities et al.

Order Authorizing Payment of Dividends and Repurchase of Stock out of Capital or Unearned Surplus, Extension Of Authorization To Remain Below 30% Common Equity; Reservation of Jurisdiction

December 28, 2004

Northeast Utilities ("NU"), a public utility holding company registered under the Public Utility Holding Company Act of 1935, as amended ("Act"), The Connecticut Light and Power Company ("CL&P"), Public Service Company of New Hampshire ("PSNH") and Western Massachusetts Electric Company ("WMECO"), each an electric utility subsidiary of NU, North Atlantic Energy Corporation ("NAEC"), formerly a public utility company under the Act, NU Enterprises, Inc. ("NUEI"), a sub-holding company over certain of NU's non-utility subsidiaries, Northeast Generation Company ("NGC"), Northeast Generation Services Company ("NGS"), Select Energy, Inc. ("SE"), HEC Inc., now known as Select Energy Services, Inc. ("SESI"), Select Energy Portland Pipeline, Inc. ("SEPPI"), Reeds Ferry Supply Co., Inc. ("Reeds"), Select Energy Contracting, Inc. ("SECI") and HEC Energy Consulting Canada Inc. ("HEC Energy"), each a direct or indirect non-utility subsidiary of NU, and E.S. Boulos Company ("Boulos") and Woods Electrical Contracting, Inc. ("Woods"), wholly-owned subsidiaries of NGS, Yankee Energy Service Company ("YESCO") and Yankee Energy Financial Services Company ("Yankee Financial"), subsidiaries of Yankee Energy System, Inc., and Select Energy New York, Inc. ("SENY"), a subsidiary of SE ("Applicants"), have filed with the Commission a post-effective application/declaration ("Application") under sections 6(a), 7, 9(a), 10 and 12(c) of the Act and rules 26(c)(3), 42, 43, 44, 46(a) and 54 under the Act. The Commission issued a notice of the filing of the Application on November 23, 2004 (HCAR No. 27916).

Applicants request authorizations to pay dividends and repurchase stock out of capital or unearned surplus, and extension of authorization to maintain the common equity component of their capitalization at below 30%.

On March 7, 2000, the Commission issued an order (HCAR No. 27147) ( "Prior Order") granting Applicants' previously-submitted application/declaration ("Original Application") and authorizing (a) the payment of dividends to, and/or the repurchase of stock from, NU out of capital or unearned surplus by each of CL&P, PSNH, WMECO and NAEC, from certain restructuring proceeds, though, as a result of the issuance of Rate Reduction Bonds (as described herein) each of CL&P, WMECO and PSNH ("Utilities"), and NU , on a consolidated basis, would fall below the Commission's common equity-to- total capitalization threshold of 30% ("30% Threshold"), (b) the payment of dividends to, and/or the repurchase of stock from, NU out of capital or unearned surplus by NUEI, the payment of dividends, and/or the repurchase of stock out of capital or unearned surplus by each of NGC, NGS, SE, SESI, SEPPI, Reeds, SECI and HEC Energy, in each case from their respective parent company, (c) the payment of dividends and/or the repurchase of stock out of capital or unearned surplus by CL&P from certain restructuring proceeds in accordance with the provisions of CL&P's dividend covenant under its First Mortgage Indenture and Deed of Trust dated May 1, 1921 to the Bankers Trust Company as trustee all through December 31, 2004 (the "Initial Authorization Period"), and (d) the issuance of additional shares by NU to the extent necessary to fulfill its obligations under one or more forward stock purchase contracts through June 30, 2001.

Applicants now request (a) a modification and extension through December 31, 2007 ("Authorization Period") of the authorization for the payment of dividends to, and/or the repurchase of stock from, NU out of capital or unearned surplus by NUEI, the payment of dividends to, and/or the repurchase of stock from their respective parent company, out of capital or unearned surplus by NGC, NGS, SE, SESI and SECI, subject to the limitations set forth herein; (b) that the Commission reserve jurisdiction over the payment of dividends to, and the repurchase of stock from, NU out of capital or unearned surplus by NUEI, the payment of dividends to, and the repurchase of stock from their respective parent company, out of capital or unearned surplus by each of NGC, NGS, SE, SESI and SECI after December 31, 2006; (c) authorization for E.S. Boulos Company ("Boulos") and Woods Electrical Contracting, Inc. ("Woods"), wholly-owned subsidiaries of NGS, Yankee Energy Service Company ("YESCO") and Yankee Energy Financial Services Company ("Yankee Financial"), subsidiaries of Yankee Energy System, Inc., Select Energy New York, Inc. ("SENY"), a subsidiary of SE, and any direct or indirect non-utility subsidiaries of NU to be formed after the date of this order, to pay dividends to, and repurchase stock from their respective parent company out of capital or unearned surplus, (NUEI, NGC, NGS, SE, SENY, SESI, Reeds, SECI, Boulos, Woods, YESCO, Yankee Financial and any future direct or indirect non-utility subsidiaries of NU are collectively referred to as the "Non-Utility Subsidiaries"),¹ (c) that the Commission reserve jurisdiction over Bouolos' payment by of dividends to, and repurchase of stock from, its parent company, NGS, out of capital or unearned surplus; (d) an extension through the Authorization Period of the authorization granted in the Prior Order for CL&P and PSNH to remain below the 30% Threshold, as a result of the impact of the Rate Reduction Bonds; and (e) that the Commission reserve jurisdiction over the request by CL&P and PSNH to remain below the 30% Threshold beyond December 31, 2006. The Utilities are not seeking an extension of any other authorizations granted in the Prior Order.

In the Prior Order, the Commission noted that restructuring legislation in each state in which the utility subsidiaries of NU were located allowed for the issuance of Rate Reduction Bonds by each Utility to finance a portion of its cost incurred in the sale of its regulatory assets and/or renegotiation of its obligations under purchase power contracts. Rate Reduction Bonds are securities issued by a subsidiary of the Utility and are non-recourse to the Utility or the NU system. Because of the mandated divestiture of generating assets and issuance of Rate Reduction Bonds, the Utilities experienced a significant decrease in the amount of tangible assets that each owned and received a significant influx of cash.

The Original Application noted that as a result of increased debt from the issuance of the Rate Reduction Bonds, NU and the Utilities would fall below the Commission's benchmark 30% common equity-to-total capitalization ratio ("Common Equity Ratio"). After giving effect to various restructuring transactions, including the then-contemplated issuance of the Rate Reduction Bonds, CL&P's pro forma Common Equity Ratio, as reported in Exhibit K filed with the Original Application was projected to be 19.1%, WMECO's pro forma Common Equity Ratio was projected to be 16.6%, PSNH's pro forma Common Equity Ratio was projected to be 14.2%, and NU's pro forma Common Equity Ratio was projected to be 29.1%. In the Original Application, the Applicants stated that they expected NU's Common Equity Ratio to be above 30% by December 31, 2001 but that the Utilities expect that their Common Equity Ratios would remain below 30% throughout the duration of the Initial Authorization Period and thereafter. The Commission, in the Prior Order, noted that after the end of the Initial Authorization Period, further Commission authority would be required if the Common Equity Ratios of any of the Utilities would be below 30%. CL&P and PSNH seek authorization through the Authorization Period for their respective Common Equity Ratios to remain below the 30% Threshold when the impact of Rate Reduction Bonds is considered.

NU and the Non-Utility Subsidiaries seek a modification and extension, through the Authorization Period, of the authorization contained in the Prior Order for the payment of dividends to, and/or the repurchase of stock from, the respective parent company of each such Non-Utility Subsidiary, in each case out of capital or unearned surplus, subject to the new limitations set forth in the Application. The modification to the authorization in the Prior Order is to add Boulos, Woods, SENY, YESCO and Yankee Financial as applicants and to add the limitations on the payment of dividends as set forth below. There may be situations in which one or more of the Non-Utility Subsidiaries would have unrestricted cash available for distribution in excess of current and retained earnings resulting from a disposition of assets, a restructuring or other accounting charge that eliminated retained earnings or its normal operations (excluding debt financing). Consistent with these considerations, NU and the Non-Utility Subsidiaries seek authorization for the payment of dividends to, and/or the repurchase of stock from, the respective parent company of each such Non-Utility Subsidiary, in each case out of capital or unearned surplus provided, however, that, without further approval of the Commission, no Non-Utility Subsidiary will declare or pay any dividend out of capital or unearned surplus if such Non-Utility Subsidiary derives any material part of its revenues from the sale of goods, services or electricity to an associate Utility (such company referred to as a "Non-exempt Subsidiary"). In addition, no Non-Utility Subsidiary will declare or pay any dividend out of capital or unearned surplus unless it: (a) has received excess cash as a result of the sale of its assets; (b) has engaged in a restructuring or reorganization; and/or (c) is returning capital to an associate company.

NU requests that the Commission reserve jurisdiction over dividends out of capital or unearned surplus paid by any Non-exempt Subsidiary.

The proposed transaction is subject to rule 54 under the Act, and meets the requirements set forth in that rule. Rule 54 provides that, in determining whether to approve the issue or sale of any securities for purposes other than the acquisition of any "exempt wholesale generator" ("EWG") or "foreign utility company" ("FUCO") or other transactions unrelated to EWGs or FUCOs, the Commission shall not consider the effect of the capitalization or earnings of subsidiaries of a registered holding company that are EWGs or FUCOs if the requirements of rule 53(a), (b) and (c) are satisfied.²

Fees and expenses not to exceed $25,000 are expected to be incurred in connection with the proposed transactions. Applicants state that no state or federal commission, other than this Commission, has jurisdiction over the proposed transactions.

Due notice of the filing of the 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. On the basis of the facts in the record, it is found that the applicable standards of the Act and rules under the Act are satisfied, and no adverse findings are necessary.

IT IS ORDERED, under the applicable provisions of the Act and the rules under the Act, that the Application, as amended, be, and hereby is, granted and permitted to become effective immediately, subject to the terms and conditions prescribed in rule 24 under the Act.

IT IS FURTHER ORDERED that jurisdiction is reserved, pending completion of the record, over (a) the payment of dividends to, and the repurchase of stock from, NU out of capital or unearned surplus by NUEI, the payment of dividends to, and the repurchase of stock from their respective parent company, out of capital or unearned surplus by each of NGC, NGS, SE, SESI and SECI after December 31, 2006; (b) Bouolos' payment by of dividends to, and repurchase of stock from, its parent company, NGS, out of capital or unearned surplus; and (c) the request by CL&P and PSNH to remain below the 30% Threshold beyond December 31, 2006.

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

Endnotes

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¹ In the Prior Order, NAEC was listed as a utility; as a result of the sale of its utility assets, NAEC is no longer a utility for purposes of the Act. NAEC, along with SEPPI and HEC Energy, which are now inactive, do not seek an extension of the authorizations previously granted and are not applicants to the Application.

² Applicants state that (i) none of them is now, or as a consequence of the transactions proposed herein will become, a party to, or has, or will as a consequence of the transactions proposed in the Application have, a right under, a service, sales, or construction contract with an EWG or a FUCO; and (ii) none of the proceeds from the proposed transactions would be used to acquire any securities of, or any interest in, an EWG or a FUCO.

NU states that it currently meets all of the conditions of rule 53(a), except for clause (1). At June 30, 2004, NU's "aggregate investment," as defined in rule 53(a)(1), in EWGs and FUCOs was approximately $448.2 million, or approximately 536% of NU's average "consolidated retained earnings," also as defined in rule 53(a)(1), for the four quarters ended June 30, 2004 ($836 million). With respect to rule 53(a)(1), however, the Commission has determined that NU's financing of its investment in EWGs in an amount not to exceed $1 billion would not result in the adverse effects set forth in rule 53(c). (See HCAR No. 27868, June 30, 2004 ("2004 Order"). NU continues to assert that its EWG investments will not adversely affect the NU system.

NU also asserts that it and its subsidiaries are, and will continue to be, in compliance with the other provisions of rule 53(a) and (b).

NU asserts that the proposed transactions, considered in conjunction with the effect of the capitalization and earnings of NU's EWG, would not have a material adverse effect on the financial integrity of the NU system, or an adverse impact on NU's public-utility subsidiaries, their customers, or the ability of State commissions to protect such public-utility customers.

NU notes that the 2004 Order concerning NU's EWG investments was predicated, in part, upon an assessment of NU's overall financial condition which took into account, among other factors, NU's consolidated capitalization. NU's current EWG investment, NGC, (it has no FUCO investment) has been profitable for all quarterly periods ending June 30, 2000 through June 30, 2004 (NGC was acquired in March 2000).

NU states that its consolidated capitalization ratios as of September 30, 2004, with consolidated debt including all short-term debt and non-recourse debt of the EWG, were as follows:

NU states that if Rate Reduction Bonds are excluded, the consolidated capitalization ratio of NU as of September 30, 2004 is as follows:

NU states that in addition, NGC has made a positive contribution to earnings of $148.7 million in revenues in the 12-month period ending June 30, 2004 and net income of $39.4 million for the same period.