ML20101P487
| ML20101P487 | |
| Person / Time | |
|---|---|
| Site: | Seabrook  |
| Issue date: | 07/06/1992 |
| From: | Feigenbaum T NORTH ATLANTIC ENERGY SERVICE CORP. (NAESCO) |
| To: | NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM) |
| References | |
| NYN-92095, NUDOCS 9207130071 | |
| Download: ML20101P487 (30) | |
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M North La2* wo74 Telephone (603)474 9521 h6NffC
=
Facsimile (603)474 2987 Energy Service Corporation Ted C. Folgenbaum Senior Vice President and Chief Nuclear Officer NYN. 92095 July ri,1902 United States Nuclear Iteputatory Commission Wa6hington, D.C.
20555 Attention:
Document Control Desk it efere nce:
Facility Operating License No. NPP 86, Docket No, 50 443
Subject:
Securities and IIxchange Comenission (SlIC) Order Authori/ing Formation of North Atlantic Energy Service Corporation Gentlemen:
Enclosed please find the SEC Memorandum and Order that authorized the formation of North Atlantic Energy Service Corporation (North Atlantic). The order also denied the Town of Iludson's request for a hearing, and ordered that no material changes in the Service Agreements that North Atlantic has with NUSCO, Yankee Atomic, and PSNil shall become effective without written notice to the SEC.
on this matter, please contact Mr. Terry L If you have any further questions Ilarps:er, Director of Licer. sing Services, at (603) 474 9521, extension 276f.
Very truly yours, f((,,f
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W Ted C. Feig nbaum 1-FCF:Jillilact Enclosure i
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4 UnitId States Nuclear llegulatory Comminnion July 6,1992 Attention:
Document Control Desl l' age two 1
cc:
Mr. Thomas T. Martin llegional Administrator U.S. Nuclear llegulatory f'ommission llegion 1 475 Allendale lload King of Prussia, PA 19406 Mr. Gordon IL Edison, Sr. Project Manager Project Directorate 13 -
Division of lleactor Projects U.S.: Nuclear llegulatory Corn *nission Washington, DC 20555
_Mr. Noel Dtidley l
-NitC Senior Itcsident int,pector l_
.I'.O. flox 1149 Seabrook, Nil 03874 Mr. Gectge L. Iverson, Director New llampshire. Office of Emergency Management 107 Pleasant Street Concord, Nil 03301 3
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North Atlantic
.l ely 6,1992 11NCLCSURl! TO NYN 92095
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,06/29r92 15t43 U 202 272 7650 SEC MAIL ROOM m2 --- DAY, BERRY --> 3 Z002 H
SECURITIES AND EXCHANGE COW.ISSION (Release No.
- 70-7787)
Northeast Utilities, 11 11 Memorandum opinion and order Authorizing Acquisition of subsidiary Service and public Utility Company and Related Financing; Approving Service Agreements and Indemnification Agreement; and Denying Request for Hearing June 29, 1992 Northeast Utilities (" Northeast"), West Springfield, Massachusetts, a registered holding company, its service company eubsidiary, Northeast Utilities Service Ccmpany ('NUScoa),
Berlin, Connecticut, and two of its electric public. utility subsidiary companies, Connecticut Light E Fower Ccmpany ("CL&P"),
Berlin, Connecticut, and Yankee Atomic Electric Certpany
(" Yankee Atomic ), Bolton, Massachusetts, have filed an application-a declarstion, as amended, under sectiono 6 (a), 7, 9 (a), 10, 12 (b),
13 (b) and 13 (f' of the Public Utility. Holding Company Act of 1935
(*Act") and rules 43, 4S, 86 through 91, and 93 through 95 thereunder,, n :ennection with the proposed formation of North Atlantic 'tnergy Service Corporation ("NAESC0"), a wholly owned subsidiary company of Northeast that will assume operating responsibility for the Seabrook Nuclear Power Project (SScabrook') in Sea. brook, New Hampshire. 1/
1/
The Seabrook Nuclear Power Project is a two-unit nu:: lear.
fueled electric generating facility.
Seabrcok Unit No. 1 received its full power operating license from the Nuclear Regulatory Commission.("NRC") and bega,n cormercial operations on August 17, 1990.
Unit No. 2 bas been ca nce,11ed.
In addition to its operating responsibility for Unit No. 1, NAESCO will supervise the disposition of Unit No. 2.
(continued...)
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2-The Comission issued a notice of the ap%; cation on June 7, i
1991- (Holding Co. Act Release No. 25329) and received one request for a hearing from the Office of the Light and Power uepartment, Town of Hudsen, Massachusetts (aHudson'). 2/
Coments were received from the Taunten Municipal Ligh ing Plant ('Taunton')
and the Massachusetts Municipal Wholesale Electric Company
(' mmh'EC'). 1/
BACK0ROUND Northeast, through its wholly owned public. utility subsidiary companies, provides electric service at retail in Connecticut and western Massachusetts. 1/
NUSCO provideJ centralized management, engineering and other support services to Il' 1/(... continued)
Four-amendments to the application have been filed, the last on June-4, 1992.
2/
Mudson is a municipal electric utility serving the towns of Hudson and Stow, Massachusetts, and surrounding areas.
Hudson holds a joint ownership interest of approximately 0.08% in Saabrook, and an entitlement to purchase an t
l additional 1.59% of Seabrook power.
l 1/
Taunton, a consumir owned electric system and a municipality, has a joint ownership interest of I
L approxirrately 0.1% in Seabrook.
MMWEC,-a Massachusetts jes.nt action electric power agency, has a-joint ownership interest of approxiruttely 11.6% in Seabrook.
1/
At present, Northeast has three whol'ly owned public utility subsidiary companics, CL&P, Western Massachusetts Electric Company and Holyoke Water Pcwsr Company.
CL&P holds a joint ownership interest of approximately 4.1% in Seabrook.
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'M Q e92 25t45 3202 273 7050 SEC MIL Ro0M m2 -o-DAY. BERRY -o 3 2 004 the Northeast system ec=panica. 1/ ' Yankee Attmic, a partially owned electric utility subsidiary company, providos engineering and technical services to its sponsoring owners, including Northeast, through its Nuclear services Divisien. 1/
The proposed formation of NAESCO is part of the recrganization of the Public Service Company of New Hampshire
('PSNH').
PSNH is New Hampshire's largest electric utility company, supplying electricity at retail to approxirately three-quarters of the state's population.
Of interest here, PSNH holds a 35.6% joint ownership intereet in Seabrook, 2/ and, through its 5/
The Commission authorized the preposed organization and conduct of business of NUSCO in Mrlhust Utile. 9ervice C2, Wolding Co. Act Release No. 15319 (June 30, 1966).
f/
Yankee Atomic was organized by CL&P and eleven other eponsoring New England utility companies to construct and operate an atomic pcwer plant.
Egg Yankee Atemic Eiee.
- Co_,
Holding Co. Act Release No. 13048 (Nov. 28, 1955).
The Commission subsequently parmitted Yankee Atomic to organize and conduct business as a service company through a new Nuclear Services Division.
Yankee Atemic Elec.
Co._,
Holding Co. Act Release No. 16141 (Aug. 20, 196b).
At present, Yankee Atomic acts as Disbureing Agent for the participants in Seabrook under an Agreement for Scabrook l
Project Disbursing Agent dated May 23, 1984, as amended
(= Disbursing Agent Agreementa).
2/
Twelve New England investor owned and municipal utilities
(" Joint owners ) participate in the ownership of Seabrook a
under an Agreement for Joint ownership, construction and Operation of New Hampshire Nuclear Units dated May 1,
- 1973, as amended (" Joint ownership Agreement') :
Ovnershio Porcentaer 31r L owner 35.56942 PSNH The United Illuminating Ccapany 17.50000 EUA Power Corporation 12.13240 (continued... )
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New Hampshire Yankee Division !" HEY"), manages ScAbrook for the Joint Owners. A/
On January 2b, 1966, PSFH filed a petition for reorganization under Chapter 11 of the Bankruptcy Code.
On January 2, 1990, NUSCO filed a proposed plan of reorganizatien (aPlan"), on behalf of Northeast, the official committees representing PSNH's unsecured creditors and equity security holders, and various berdholders, with the support of the State of New Hampshire.
The Bankruptcy Court confirmed the Plan on April 20, 1990 1/
2/ (... continued)
MMWIC 11.59340 New England Power Company 9.95766 CL&P 4.05985 Canal Electric Company 3.52317 Montaup Electric Company 2.89989 New Hampshire Bloctric Cooperative, Inc.
2.17391 Vermont Electric Generation and Transmission Cooperativo 0.41259 Taunton 0.10034 Hudson 0.07737 l
100.00000 i
Under the Joint Ownership Agreement, cach Joint Owner is entitled to a percentage of Seabrook capacity and output i
corraapending to its ownership interest.
Cperating and maintenance expensos, as well as any uninsured liability, are similarly shared in proportion to ownership intereoc.
The Joint ownership Agroen.ont states that the obligations of the-Joint owners aan several and not joint.
1/
PSNH acts as Managing Agent pursuant to the Joint Ownership Agreement.
g/
Order Confirnino Third Amendep Joint Plan of Reorcanization<
l Public 9erv. Oc. of N.M., No. 90 0043 (Bankr. D. N.H.).
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'e6/20/92 1B:46 R 202 272 7050 SEC Mall ROOM 22 a - DAY. PERRY --> 3 0 006 5-4 The Plan provided, inter AllA, for (1) the emergence of PSim from bank 1Vptcy, (ii) the acquipition by Northeast of all of PSNH's co:rmon stock, (iii) the transfer of PSim's 35.6% ownership interest in Seabrook to North Atlantic Energy Corporation
( =NAEC a ), a wholly cwned public. utility subsidiary corr.pany of Northeast, and (iv) the assumption by a Northeast subsidiary of the Seabrook operating responsibility.
-On May 16, 1991, PSNM : merged from bankruptcy pursuant to the Plan, as a stand alone company cubject to a merger agreement with NUSCO and a special purpose subsidiary of Northeast
(" Acquisition Subsidiary').
Once certain conditions are met, the Act.iisition Subsidiary will be merged with and into PSNH, with PSNH ac the surviving corporation (anew PS!G'). M/
New PSNH will be a wholly owned subsidiancy company of Northeast.
On or after the merger date, New PS!G will transfer its Saabrook interest to NAEC.
At the same time, New PSNX will transfer all of the assets, liabilities and employees of tmY to NAISCO, which will assume operating responsibility for Seabrook. M/
M/
na Com:nission approved the proposed acquisition of PSNH by
.Rrtheast by orders dated Docus er 21, 1990 and March 15, 1991.
Northeast Utils., Holding Co. Act Release No. 25221 (Dec.
2',
1990)
(" Northeast order'), supplemented, Holding Co. Act Release No. 25273 (Mar. 15, 1991), areaal docketed g m City of Molveke Gas te Tlac. Dert. v.
SEo, No. 91-1001- (D.C. Cir. Feb. 19, 1991).
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PSNH will assign to NAESCO its rights and obligations under various contracts entered into on behalf of the Joint Owners with respect to the management and operatien of Seabrook.
(continued...)
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l Me29/92 15:47 C203 872 7050 SEC Mall. ROOM #2 -" DAY. BERRY --> 3 3 007 6-PROPOSED TRANSACTIONS To effect the transfer of operating responskility for Scabrook, Northeast requests authority to organi:e and acquire NAESCO through the issuance and sale to Northeast of up to :,,000 shares of NAESCO's authorized but unissued comen stock, $1 par value, for an aggrugate purchase price of $10,000. M /
As described belew, NAISCO has entered into agreements with associate companies for services to be provided at cost. n /
The applicants request authority to censumate the proposed transactions within twelve months from the date of the requested order of the Comission.
The role that NAESCO will assume in the Seabrook project is generally outlined in an agreement dated July 19, 1990
(' July 19 1990 Agreementa) among NUSCO and certain Joint Cwners with an aggregate ownership intorost of approximately 70.6% (aMajority n/ (... continued)
NAESCO will aise replace Yankee Atemic as Disbursing Agent for Seabrook.
n /
The applicants do not currently anticipate any need for NAESCO to raise additional capital, since NA2.cCO will be entitled to advance payment by the Seabrook participants for the costs it will incur in performing its duties.
Any need for additional capital will be the subject of an application with the Commission.
n /
NAESCO will be a public utility company within the meaning of section 2 (a) D) of the Act solely as a result of its,
operation of Seabrook Unit No. 1.
NAESCO will not acquire any ownership interest in Seabrook or in any electric energy produced by the plant, nor will it have any role in the marketing of such energy.
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06<.29 92 15:48 O 202 272 7050 SEC MAIL kOOM 22=== DAY. EERRY --> 3 2e06 Owne rs "). 11/
Among other things, the July 19, 1990 Agreenent appointed NAESCO as Managing Agent and as Diebureing Agent for Seabrook. 11/
As centemplated by the July 19, 1990 Agreement, the Majority owners approved a Managing Agent operating Agreement Popera ting Agreement") on January 9, 1991.
The Operating Agreement establishes the powers, duties, responsibilitics, term of employment and compensation of NAESCO as Managing Agent.
On the same date, the Majority owners also approved an amended Disburning Agent Agretrant reflecting tho designation of NAESCO as Diobureing Agent and in.corporating certain previsiene from the li/
Tho July 19, 1990 Agreement states that 'the (Majority owners) accept each of the terma and ccnditions set forth in (the agreement) and agree to be bound thereby, unless they are precluded from do.ng so by those (Joint owners) which are not signatories hereto."
The Majority Owners are CL&P, PSNH, New England Power Company, The United Illuminating Ccmpany and Canal Electric Corpany.
Hudson, MMWEC and Taunton were not signatories to the July 19, 1990 Agreement.
Generally, tho Joint Ownership Agreemant can be amended only with the approval of 80% or more of the ovnership interests, although specified actions can be taken with the approval of S1% of the ownership interests.
All Joint ownero emst consont to changes that would change the relationship of the
' Joint Owners.
11/
The July 19, 1990 Agreement also set forth the Majority owners' understandings and co=mitments concerning the tranei~ ion to the new' operational arrangements and provided t
specific terms and conditions to be included in one or more of the Joint ownership Agreement, a new managing agent operating agreement and an amended Diebursing Agent Agr6erent.
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July 19, 1990 Agreement. If,/
Both the Operating Agreement and the amended Disbursing Agent Agreement will tu e effect upon consu.T:r.ation of Northeast's acquisition of PSNH. M /
Also as contemplated by che July 19, 1990 Agree.ent, NAESCO t
han entered into sgrecif.onts with associato companies for services to be provided at cost. M/
These agreements, with NVSCO, Yanken Atomic and New PSNH, respectively, will also take affeet upon consu;nmation of the acquisition of PStiH. H/
M/
Under the Disbursing Agene Agreement, NAESCO will assume the duties Yankee Atomic currently perfoms, including the preparation of monthly bills to the Joint Owners for all project costs and expensa,s incurred by NAESCO pursuant to the Joint Ownership Agreement.
NAISCO will establish and maintain an escrow account or acc.2nts into which it will deposit the funds it receives from the Joint. Owners in payment of its expenses.
12/
Although Taunton was not a signa:ory to the July 19, 1990 Agreement, the applicants represent that Taunton has signed the operating Agreement and the Diebursing Agent Agreement.
M/
As previously noted, NAESCO will assume the role of operator of Seabrock with the same staff and contractor support resources that the NRC has previously evaluated and approved in connection with the technical qualificatiens of PSNN, including the engineering and technical resources supplied under the Yankee Atomic service contract.
NAESCO, in the exercise of its trAnagement responsibility and discretion, will thereafte*: have the ficxibility to determine how these existing resources can best be integrated with other available resources, including those of the No cheast system.
Under the July 19, 1990 Agree. ment, NARSCO may elect to appoint or retain an affiliated service company or agent to perform certain of its responsibilities under the Operating Agreement and the Joint Ownership Agreement.
The Majority owners approved the proposed service contracts H/
with NUSCO and Yankco Atomic on January 9, 1991, and the 1991.
proposed service contract with Now PANH on March 28,
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Under thcee agreements, hTSCO will provide NAESCO, as requested, with administrative, general and technical support services similar to those hTSCO now provides to four nuclear plants operated by the Northeast system. M/
Yankee Atomic will provide engineering and technical servicen similar to those it now provides to PSh1.
Finally, to facilitate the transition to the new Managing Agent, New PSim, if and as requested by NAISCO and for an initial term of two years, Will provide certain limited administrative and general services that PS!G now provides to the Joint owners. n/
NAESCO will bill the Joint Owners at cost for the expenses it incurs in performing its duties under tne Diebursing Agent Agreement, the Operating.Agrament and the Joint ownership Agreer.ent.
With respect to its service contracts with associate companies, NAESCO will be billed directly for costs incurred on its behalf or for its sole benefit.
The applicants state that all other costs will be allocated among the Northeast system companics fairly and equitably, in accordance with tho requircments of the Act.
The Executive Committee of the Joint l
At present, NUSCO renders management and itdminircrative M/
services to PSim, at cost, pending conourcation of the 'PStG acquisition by Northeast, Ett Fortheast Order at n'.
6.
Citing the potential for cconomies of scalo, the applicants H/
anticipate that these contracts vill result in costs of service lower than those which NAESCO would incur if it rendered such services itself.
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Ovners of the Seabrook project will also riaview and approve the methods of cost allocation. 22/
The New Hampshire Public Utilities come.iesion has authorized NAESCO to issue and sell its co=on stock to Northeast. 11/
The NRC has issued an amendment to the Seabreok operating license pemitting the transfor of the license to NAESCO. 21/
1 ANALYSIS The Comission has reviewed the proposed tran9acticns and finds the applicable standards satinfied. Zi/
We wish to address, in particular, the arguments raised by the intervenors.
g1/
On July 2, 1991, the Executive Com.ittee approved the cost allocation methodologies for the services to be provided by NUSCO, Yankee Atomic and New PSNH.
21/
North Aclantic Enerev serv. Com. and Northenet Utilem, Decket No. 91-1% (Aug. 2 7, 1991).
The New Hampshire Public Utilities Comission approved the creation of NAESCO as a public utility sor the purpose of managing and maintaining Seabrook in 1990.
D. ra Northeast Utils. /99NH Recreanintion Proceedine, Cocket No.89-244 (July 20, 1990).
21/
North Atlag1,q Enerov Suv. Co., Docket No. 50-441 (May 29, 1992) (nmendment to facility operating license, authorizing
~
transfer of responsibilit.y for construction, operation and maintenance of Seabrcok Unic Nem 1, from PSNH to NAESCO).
25/
The issuance and osle of the NAISCO ccmon stock requires Commission approval under sectione 6 and 7 of the Act.
Northeastis acquisitien of the stock is, subject to sections 9 and 10.
The Operating Agreement and the Dieburning Ag,at Agreement between NAESCO and the Majority owners, anc the service agreements between NASSCO and NUSC0; Yankee Atomic and New PSNN, respectively, are governed by section 33 and rules B6 through 91.
Section 12 (b) and rule 45 thereunder govern the indemnifi':ation of Yankee Atomic under its service agreement with NAESCO.
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Hudson Hudson, in its request for hearing, has raised various issues relating to NAESCO's proposed capitalization, as well,xs to the company's intended role in the management and operation of Seabrook.
Hudson does not expressly object to Northeast's acquisition of PSNH and operatie" d seabrook but, instead, voices concern that t."o p ~;posec ^;. national arrangements will adversely af fect the rdnerity owners by insulating Northeast from liability. 21/
Hudson argues that a well cepit111 zed subsidiary of Northeast such as CL&P or New PSNH should r.anage Seabrook, or, alternatively, Northeast should guarantee NAESCO's perfomance of its obligations. 12/
We ha'h considered Hudson's argwnents in light of the provisions and purposes of the Act.
Many of the contentiene concern a possible abrogation of the rights of the minority Joint Indeed, Hudson generally focuses upon the centractual Owners.
arrangements among the Joint Owners rather than the (indings the Commission must make under the Act, 21/
To the er mt Hudson 25/
Hudson complains that the cost overruns associa:ed with Seabrook have more than doubled Hudson's average power Northeast suggests that " Hudson's hearing request costs.
and objections represent one more effort to find a litigated solution to its Seabrook related grievances. '
22/
This argument is discussed ingIA at pageo 20-n.
jilt /
Hudson cites various provisions in the Service Agreements adopted pursuant to the July 19, 1990 Agreement to which it was not a party.
(continued...)
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addressan the provisions of the Act, its challenges consist of summary conclusions that the staturery requirements are not met.
Hudson contends, under section 6(a), that the proposed capitalization of NAESCO would be detrimental to the public d
interest or the interest of investers or consumers ('protecte interests").
In its review under sections 6 and 7, the Commission considers the capital structure of the company istuing the securities and the effect on the capital structure of the holding company system. 11/
NAEsco, in its capacity as service company, is similar to other subsidiary companies formed under the Act to perform services in connection with the operation of 1/(... continued)
Under these provisions, NAESCO and its associate companics are liable only for willful misconduct.
Furtnor, the Joint Owners have no right of set-off under the agreements.
In the NUSCO, Y&nkee Atomic and New PSNH service
- addition, agreements warrant only that services will be performed in accordance with " Prudent Utility Practice," and tho Yankee Atomic agreement requires NAESCO to meet certain insurance and indemnification obligations.
The commission's findings, however, are directed to those issues which are within our jurisdiction.
To the extent that Hudson seeks resolution of potential contractual disputes, the Commission considers enly those aspects of the proposed transactions that are relevant to the issuee properly b^ fore us.
Egg Mississinei Vallev Generatine Co,,
36 S.E.C. 159, 160, 167 (1955) '. Commission's findings confined to issues within the jurisdiction conferred by the Act).
Section 6(a) prohibits the issuance or sale of securities by 22/
a registered holding ecmpany or its subsidiary, absent Commission authorization under ocction 7.
Section 7 (d) (1),
in turn, bars approval of the issue or sale of a security that the Co= mission finds "not reasonably adapted to the security structure of the declarant and other companies in the same holding company system."
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the nuclear facilities of a registered holding company system 12/
Because NAESCO vill not have any debt, its proposed equity base is satiafactory.
We note that the Joint ownership Agreement requires the Joint Owners to reimburse NAESCO in advance for all ecsts to be incurred in operating Seabrook 11/
Under this NAESCO should maintain an adequate cash flow and arrangement, have no need for additional working capital. H /
Finally, the proposed issuance and sale of the NAESCO comon stock will have a da minimis p,I.g fema ef fect on the NortLJast system's capital structure after consolidation. 11/
Accordingly, it does not In determining whether a special purpose operating company 1.Q/
is adequately capitalized, the Commission considers, ex.cng other things, the business purpose of the company.
- Sag, hq, F.alg rey core., Holding Co. Act Release No. 25100 (Jun.
5, 1990); General pub. Utile. Co m, Holding Co. Act Release No. 21708 (Sept. 5, 1980) (authorizing organization of new wholly owned service company subsidiary to consolddate the operation and management of system nucicar facilities).
Northeast notes that the "substantially capitalized"
.H/
operator sought by Hudsen could increase the costs to the Ceint Owners because rule 91 includes a return on capital in the decemination of " cost. '
As noted gupJr.3 at note 12, any need for additional capital
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vill be the subject,of an application to the Cc= mission.
The NAESCO common stock represents less than 0.0001% of the i
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cystom's current capia.a1 structure, which the Commission apr. roved in the Northeast Order.
Northeast will acquire the secrrities with internally generated funds.
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. appear.that the proposed-capitalization would be detrimental to the protected interests.-M/
Hudson-asserts that:the proposed transactions do not meet the standards of section -10 (b) (1). M/
It appears that Hudson again:is challenging the formation _of NAESCO es a special purpose
~ subsidiary within a registered holding-cempany system.
As noted abose, the Commission has previously recognized the benefits of a 7
-~ single purpost nuclear plant operating company, H / and found L
[
- that such an acquisition'would'not threaten _the protected M/ ~ Under.sectionl1(c),- all provisions of the Act are to.be
' cinterpreted to protect the interests'of " investors,
' consumers,,and the general public."
M/: Under section 10(b) (1), the Cettnission may not approve an acqui'sition that:=
- willDtand-towards
- incerlocking relations..or-the concentration of control of a kind or to an extent detrimental to the public; interest:--
or the interest ofiinvestors or consumers.
Hudson disputes that benefits will actually accrue to the
- protected interests L from NAESCO's "interleeking- (Northeast]
relationship v'. gg American Natural ~ can Ce.,- Holding Co.
Act Release No.- 12991- (Sept. 20,:1955) (commen directers Lamong) associate-companies-of registered; holding company-systems 11s-. permissible; an integrated public-utility holding Accord company system presupposes -interlocking zelations)..
Northeast Order.-
1M/
The neuthern Coe, Holding Co. Act Release-No. 23212 (Dec.
-14, 1990); Enterev Cere., Holding Co. Act Re1ense Nc. 25100 and General Puh. dens. cern., Rolding Co. Act-Release No.
21708:-(authorizing..tfa forttationiof wholly owned service company subsidia::ies to consolidate the operation and management.of nucitar facilities owned in_whole or in part-a by system companies).
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Similarly. we find that no adverse fir. dings are warranted in this matter.
Hudson _ contends that the acquisition will not lead to "the economical and efficient development of an integrated public utility system," as required by section 10 (c) (2). H/
It appears that Hudson is raising two challenges, one unde: section 10 (c) (1), the other under section 10 (c) (2).
=
' Hudsen first: alleges th6;t che proposed transactions will lead to athe_ layering of thinly capitalized corporations," and will allow Northeast-"to do whatever it wants within a hidden
- system. "- l Hudson-appears to suggest that the acquisiticn of NAESCO will result in undue corport ce complexities. n/
The Cornmission has recognized that the addition of a new first tier
-wholly owned subsidiary company, auch as NAISCO, does not unduly complicate _the capital structure of a registered holding-company
)
12/
Entarov cerom, Holding Co. Act Release No. 25100 (findings under section.10 (b) (3) ).
g Section 10(c) (2) ' requires a Commission finding that a
[
M/ _preposed acquisition will serve the public. interest by L
. tending:towards the economical and afficient development of-an integrated public. utility system.".
ha venerany o
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centarier snarev corm, Molding Co. Act Release No. A073 (Apr. - 29, 19 86) (specific dollar forecasts of future savings-are not necessarily regaired; a demonst'ated-p~otential for-r economies will suffice even when these;are not precisely quantifiable).
11/
Section 10 (c) (1)~, by reference to section 11(b) (2),
. prohibits-an acquisicion that.would result in an unduly complicated corporate structure.
l
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system. AA/
Accordingly, no adverse finding is required under section 10 (c) (1).11/
Second, Hudson challenges the projected savings of $500 million to the Joint Owners ce a result of NAESCO's operation of Scabrook.
Hudson characterizes these Bavings as ' purely speculative.'
The Co= mission's review under section 10 (c) (2) is limited to the extent to which an acquisition will tend'to result 1
in' economies and efficiencies for the integrated public utility system. A2/
Northeast forecasts that approxi=ately $19e million in navings, en a cumulative net present value basis, will accrue to the Northeast system from the systam's experience in operating 12/
Entergy Core., Holding Co. Act Release No. 25100 (findings-under sections -10 (b) (3) and 10 (c) (1)).
l 11/
Hudson alleges, without elaboration, that the proposed transactions a [ violate) Section 11(b) (1) of the Act as inconsistent with the requirement of a single 'integratad public. utility systam', as well as sectien 11(b) (2) as
' unduly or unnecessarily' complicating.'
As noted above, we have reviewed the proposed acquisition under section 10 (c) (1), which prohibits approval of an acquisition that would be adetrimental to the carrying out of the provisions of-section 11,a and find that section satisfied.
12/
The economies and efficiencies must be derived "by virtue of the affiliation."
Wiseensin's Enytt. Decade, Inc. v. SEC, 882 F.2d 523, 528 (D.C. Cir. 19 8 9 ), c_i tir.: Union Elee. ce.,
45 9.E.C. 489, 494 (1974).
Specific dollar forecasts of a demonstrated, l
future savings are not necessarily required; potential for economies will suffice even when these are not preciecly quantifiabic.
Ar.g Centorier Enerev ceru, Molding m
Co. Act Release No. 24073; American Elac. Power Co., 46 S.E.C. 1299 (1978).
06d9/S3 15:56 C302 272 70$0 SEC Mall. ROOM 32 --- D M, BERRY --> S Rols 17 nuclear facilities and the benefits associated with NAISCO's affiliato service contracts. 11/
In its review of the proposed acquisition of PSNX, the Commission corzidered the economies and efficiencies to be realized in the transaction, including the savings attributable te NAISCO's operatien of Scabrook, and found "it is probable that the projected savings would result." 11/
In this matter, the record-demonstrates that the proposed transactions will tend to result in economies and efficiencies for its integrated public.
utility system.
Accordingly, section 10(c) (2) is satisfied.
Hudson objects under section 12(a) to the provision in the service agreement between NAESCO and Yankee Atemic that requires the Joint owners to indemnify Yankee Atomic for any damages resulting from Yankee Atomic's performance under the contract, unless such damagar are caused by willful edsconduct. di/
An indemnification of a subsidiary company by its associato company is subject to section 12 (b) of the Act. 11/
The Commission haa 12/
Sm.g supra note 21.
AA/
SAA Northeast Order at 51-53 and n.84.
AS/
CL&P and NAEC, togeth6r with the other Joint owners, could chus be obligated to indemnify Yankee Atomic for damages.
351 Under section 12 (a), a registered holding company cannot That receive an indemnity from its subsidiary com p.y.
secti'on, by its terms, does not apply in this matter.
06/29/92 15:56 C202 272 7050 SEC MAIL ROOM 22 -
DAY. BERRV --> 3
@els s
18 -
reviewod the indemnification under that provision, and finds the statutory requirements satisfied. 12/
Hudson objects under section 13 (b) to NAESCO's provision of services on behalf of its associated Joint owners.
Hudson centends that the Operating Agreemer.:, the Disbursing Agent Agreement and the service agreements between NAESCO and NUSCO, Yankee Atomic and New PSNH (collectively, " Service Agreements"),
as they affect the Northeast companies, will ' unilaterally waive the rights of Hudson and similarly situated Joint owners and participants, in favor of (Northeast)."
The precise nature of the grievance is unclear.
To the extent that Hudson's complaint goes to the activities of the Northeast corpanies, we have reviewed the Service Agreements, and have considered in particular the. provisions of those agreements concerning the allocation of and accounting for costs, and the requirement in each instance that services be rendered at cost.
We find that the requirements of section 13 (b) of the Act and rules thereunder are satisfied.
Further, Hudson mistakenly contends that the perfomance of services by NUSCO and Yankee Atomic is prohibited by rule under section 13th).
NUSCO and Yankee Atomic (through its Nuclear Services Division) currently perform services pursuant to 12/
1a.g Enterev Cert _, Molding Co. Act Release No. 25136 (Aug.
27, 1990).
06<29/92 15:57 c 202 872 705c SEc MAIL Room x2 --- DAY. BERRY --> 3 toge
. Commission orders under section 13(b) and rule 88. 11/
By this application, they request additional authority to provide similar services to NAESCO.
As we have previously stated, the Service Agreements meet the requiremente of section 13 (b) and rules j
thereunder.
Finally, Hudson argues that the Service Agreements, as they may affect the nonaffiliated Joint Ovners, are unlawful under section 13 (f).11/
The Service Agreements, however, do not is]
jitu stup,rA notes 5 and G.
Under rule 86, a subsidiary company of a registered holding company cast obtain Commission approval by rule, regulation or order before performing any services for an associate ccmpany.
Rule 87 provides that a subsidiary service company, the organization and conduct of business of which the Commission has approved under section 13 of the Act pursuant to rule 68, may perform services for associate companies.
11/
Section 13 (f), in pertinent part, provides:
It shall be unlawful for any person.
. to enter into or take any stop in the performance of any service, sales, or construction centract with any public-utility
.. in contravention of such rules and
- company, regulations or orders regarding reports, accounts, costs, maintenince of competitive conditions, disclosure of interest, duration of contracts and similar matters as the Commission deems necessary or appropriate in the public interest or for the protection of investors or consumers.
Section 13 (!) was intended to complement section 13 (b) with The respect to nonassociate public-utility companies.
legislative history explains:
This provision'is eenential in order that the prohibitions already set forth in (section
- 13) cannot be exceeded under the guise of apparently independant servicing, sales, and construction contracts.
(continued...)
l' esr39 92 15:56 c 202 373 7050 sEc MAIL P.00M 92 --- DAY. BERRY --> 3 0 031 1-l distinguish botween associate and ncnaseccikce Joint Owners.
'The applicante represent that each Northeast company will perform its duties with respect to both in compliance with the rules applicable to intrasystem transactions. 5_q/
Accordingly, no adverse findings are warranted.
Hudson repeatedly Buggests that Northeast or a subsidiary company of Northeast with significant assets should be liable for any failure of NAESCO to perform in accordance with Prudant Utility Practice, as defined in the preposed agreements, or that NortheP.St Should be required to guarantee NAESCO's performanae of its contractual ebligatiens.
In requesting a guaranty, Hudson's underlying concern appears to be that Northeast improperly is atte=pting to limit its exposure with respect to seabrook. R/
Thw Comatission generally han authorized a registered holding ccmpany to guarantee the obligations of its sewice company subsidiary only when the guaranty was co=mercially necessary. R/
11/ (... Continued)
S. Rep. 621, 74th Cong., let Sess. 37 (1935); M.R. Rep.
1318, 74th Cong., let Sess. 19 (1935).
3_q/
3,qn rules B6 through 91.
Section 12 (b) of the Act and rule 45 (a) thereunder require M/
prior Com:nitsion approval for a registered holding ec=pany to " lend or in any ;mnner extend its credit to or indemnify any company in the same holding company system."
g/
ggyg, _e,a.,
A~erican Flee. Pcwer Co., H51 ding Co. Act Release.
No. 24460 (Sept. 15, 1987); Middle 9euth Utile.
Inc.,
Holding Co. Act Release No. 21552 (May 6, 1980); Middle South Utile.. Inc., Holding Co. Act Release No. 19520 (May 10, 1976).
l
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~
21 -
The operating Agreement approved by the Majority Owners does not We have require Northeact to guarantee NAISCO's performance.
previously found that the capitalization of NAESCO meets the requirements of the Act.
Accordingly, no guaranty is necessary. 11/
In analyzing a hearing request, the Commission determines whether the request raises a significant issue of fact or law l
relevant to the findings the Cc= mission must make under the Act. 11/
A summary conclusion that a particular standard is not met is insufficient, 11/
In this-matter, it does not appear that the_ issues _ properly-before the Commission would be further developed in.a hearing. 11/
Although Hudson claims to have documentary evidence supporting its request, it has declined to produce such evidence Fink 11y, Northeast notes that NAESCO, NUSCO, Yankee Atomic 11/
and New PSNH may be expected to provide services to-Seabrook in a careful and efficient manner,-since their associate companics till hold by far the largest ownership interest in Seabrook, approximately 40% following *.he acquisition of PSNH.
Inc.
- v. $FC, 882 F.2d at 526 Egg lWiscernin's Envel. Seende.
11/
(art is well settled that evidentia n hearings are required only when a genuine issue of material fact exists.").
_11/
$1g Connr a icut Bankers Ass'n v. Ecard of Governors, 627 F.2d 245, 251 (D.C. Cir. 19 8 0) (bald or conclusionary allegations insuf ficient to require hearing).
.1E/
Eastern Utile. Aesocs1, Molding Co. Act Release No. 24641 (May 12, 1988), citing City of Lafayette v. SEC1, 454 F,2d 941, 953 (D.C. Cir. 1971) (hearing not required "in matters where the ultimate decision will not be enhanced or assisted by the receipt of evidence").
j0089/92 15:59 R 202 272 7050 SEC MAIL D.00M #3 --- DAY. BERRY --> 3 0923 22 -
auntil submission is approved by appropriate Commission order. "
Hudson states that the " Major Joint Ovners, including (Northeast), assert that these documents are privileged and will not consent to their submission to the Cenmission, even subject to a satisfactory protective order."
Again, Hudson is asking the Commission to resolve a potential contractual dispute, concerning privilege, that is not I
within our jurisdiction.
It appears that these " allegedly privileged documents" have little relevance to the ideues properly before the Comnission and, instead, relate largely to the historical cost overruns associated with Seabrock's design, construction and maintenance.
Accordingly, the request for a hearing is denied.
2.
Taunton Taunton filed commente and proposed language for inclusion in the Commission's order.
First, Taunton requests that the Comnission include language "to ensure that costs will be incurred and allocated in accordance with the Act and the (aervice agreements between NAESCO and NUSCO, Yaakee Atomic and j
New PSNH, respectively).' 12/
In particular Taunton is 12/
Taunton requests the following language Nothing in this Order is intended to require l
the. Joint owners of Seabrook to pay a any c:
l greater snare of allocated costs, either direct or indirect, to NAESCO than (1) would be just and equitable under the Public Utility Holding Company Act of 1935 and the Oc= mission's rules thereunder, or (ii) that(continued...)
06h9/92 16:00
- 202 272 7050 SEC MAlb Ro0M #2 --- DAY, BERRY --> 3 3 024 23 -
concerned that the Northeast system companies could unilaterally reject a cost allocation method approved by the Executivo Cor=,ittee of the Joint Owners of Seabrook. 58/
We
- :e that each of the Service Centracts requires costs thereunder to be fairly allocated and calculated, all consistent with the requirements ef the Act and the rules and regulations and orders thereunder."
Taunton appears to suggest that the Northeast affiliates might not cbserve their contractual obligations.
As we noted previously, the Commission's findings are directed to those issues which are within our jurisdiction.
To the extent that Taunton seeks resolution of a potential E2/ (...centinued) the Joint Owners would otherwise pay pursuant to cost allecatica methods set forth in NAESCO's respective Service Agreements with NUSCO, (Yankee Atomic], and (New PSNH],
1E/
Taunton's concerns focus en a statement in the application that:
NUSCO will not be obligated to perform any services under this service contract if any cost allocation method approved by the Executive Committee would require the
[ Northeast] system companies to bear a disproportionately large portion of thest indirect costs.
Taunton reads this statement to suggest that the Northeast companies could refuse to perform under the Service l
Igreements.
The applicants respond that the statement wcs intended to assure the Cer=ission that "the cost methodologies approv.ed by tne Executive Cemmittee will be fair and equitable and will not allow the Joint Owners to benefit at the expense of (Northeast) and its subsidiaries l
' 0649/92 16:01 C 202 272 7050 SEC MAIL ROOM :2 --- DAY. ER!tY --> 3 2035 L
24 contractual dispute, the Cc=.ission dcas not consider or paa.t upon those aspects of the proposed tzansactions that are not related to the issues properly before us. H /
Second, Taunton urges that the Northeast affiliatos be regaired to make quarterly filings with the C0=J.ssion concerning the incurrence and allocation of costs under the Sc:vico Agree:nents. M/
NAESCO, NUSCO, Yankee Atomic and New PSNH will each file a Forn U-13-60 annually. 11/
The form aquires comprehensive disclosure with respect to servi::es provided during the reporting period.
Among other things, service ecmpanies muet itemize all significant a:epenses incurred, as well all costs, M/
Ran aunra ncte 28, citing Missiasipei Vallev Generatinct Co..,
35 S.E.C. 159.
f2/
Taunton requests a condition that NUSCO, Yar.kee Atemic and New PSNEt submit to tha Cotrnission en a quartarly basis a filing containing infomation and data relating to the perforrance of services by
[those compandes) for NAISCO or any other
[ Northeast) system company.
Such filing shall include (i) a statement specifying the ditect and indirect costs incurred and how such costs are :stermined, (ii) a listing of billings and charges, both direct and indirect, stemming from such services, and
((111)) a description of how the allocations of costs are :alculated, including a statement of how the costs are allocated
.among the companies for which the subsidiary service cottpany provides service.
51/
As no:ed above, the Service Agreements are subject to section 13 (b) and, as the agreements affect companies in the Northeast holding corpany system, rulce 68, 93 and 94.
Fo=
U-13-60 is an annual report filed pursua.nt to rulo 94.
l l
1 06/29<92-16:02 c802 272 7050 SEC Mall R00h #2 ~~ DAY, BERM --> 2 0026
. both direct and indirect, charged to associate conpanies.
Companies must also diBClose the cethods of allocation used during the reporting period.
In addition to the information that NAESCO, NUSCO, Yankee Atomic and New PSNE will file on the Form U-13 60, Taunten requests that the ce=panies disclose "how such costs are determined.a The appropriate procedure for obtaining this information would be an audit of NAESCO.
The applicante represent thtt an independent auditor selected by the Joint Owners that are act affiliated with NAISCO will perform an annual audit of NAESCO so long as NAESCO is the Managing Agent. 11/
Although Taunton requests quarterly filings, the Ccmmission is satisfied that disclosure on an annual basis will enable it to monitor effectively the associate transactions under the Service Agreements. 11/
Although the Jcint Ownership Agreement appears to A2/
contemplate an annual audit of the eperator, at the expense of the Joint Owners, the @erating Agreement which was adopted pursuant to tha July 19, 1990 Agreement indicate; th?t an audit of NAESCO is discretionary.
Without the applicants' undertaking to request an annual audit, Taunton could.be required to bear the cost of an audit.
12/
The applicants note that the Operating Agreement and other Service Agreements provide the Joint Owners access to information concerning services under these agreements.
The Operating Agreement requires NASSc0 to keep complete and accurate accounts of all receipts and expenditures under'the agreement in accordance with the rules and regulations of this Commission and the Uniform System of Accounts under the i
Federal Power Act.
i
l ccr29 92 16:e2 C202 278 705e SEC MAIL ROOM m2 - - DAY. BERltY --> 3 2 037 26 -
3.
MMWEC MMWEC has submitted coments asking the comission to address the anticompetitive aspects of (Northeas t 's) :.anagement and operation of Seabrook through NA2SCO."
In particular, W4EC objects to the limitation of liability provisions in the service Agreemonte, and asks the Comicsion to conditicu its approval ato prohibit (Northeast), NAESCO and thcir af f111ates frem f reeing themselves frem liability for negligence or other misconduct.a appears that WJEC is challenging the etfeet of r.3%
It
- 95 provisions which were adopted pursuant to the July 19, Agreement to which it was not a party.
As we noted previously, the Cenmission's findings are directed to those issues which are within our jurisdiction.
To the extent that W4EC seeks resolution of a potantial contractual ' dispute, the Comicsion does not consider or pass upon those aspects of the proposed transactions that are not related to the issues properly before us. 11/.
Feen and expenses in the estimated amount of S 1,068,900, including $614,100 of legal fees, are anticipated in connection with the proposed transactions.
Except as noted above, it is stated that no other state or federal comission, other than this Comission, has jurisdiction over the proposed transactions.
x l
11/
Acn gunrA note 28, citing Mississirei Valley GeogrJLt;ine Cem, 36 S.E.C. 159.
i
,' 06/'29/92 16:03 O 202 372 */050 SEC MAIL ROOM tt2 --- DAY, BERRY --> 3
@ egg 27 -
Due notice of the f111:g of the. application declaration has been given in the manner proscribed in rule 23 premulgated under On the basis of the facts in the record, we conclude the Act.
that the proposed transactions are consistent with the applicabic standards of the Act and rules thereunder, that no adverse findings are neco.:= w and that no hearing is required to develop the facts further.
IT IS ORDERED, pursuant to the applicabic provisions of the Act a.nd rules thereundet, that the application declaration, as amended, be, and it hereby is, granted and permitted to become effective forthwith, subject to the terms and conditions prescribed in rule 24 under the Act, except that applicants way consu.vmate the proposed transactions within twelve months from the date of the order; IT IS FURTHER ORDERED that no material change in a Service shall become offective except upon written notice to Agreement the Co:rmission no later than 60 days prior to the proposed effective date of such change; provided that no material change shall become effective except upon further orde:. upon application if the Co:rmission so notifies the applicants; a,nd IT IS FURTHER ORDERED that the request for a hearing be, and it hereby is, denied.
By the Commission.
Jonathan G. Katz Secretary
.