(As filed June 24, 2003)
File No.70-10119
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDED AND RESTATED
FORM U-1 APPLICATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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Energy East Corporation
P.O. Box 12904
Albany, NY 12212-2904
(Name of company filing this statement and
address of principal executive offices)
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Energy East Corporation
(Name of top registered holding company parent)
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Kenneth M. Jasinski
Executive Vice President and Chief Financial Officer
Energy East Corporation
P.O. Box 12904
Albany, NY 12212-2904
(Name and address of agent for service)
The Commission is requested to send copies of all notices, orders and
communications in connection with this Application/Declaration to:
Frank Lee, Esq. Tia S. Barancik
Huber Lawrence & Abell LeBoeuf, Lamb, Greene & MacRae, L.L.P.
605 Third Avenue 125 West 55th Street
New York, New York 10158 New York, NY 10019-5389
Telephone: (212) 682-6200 Telephone: (212) 424-8455
Facsimile: (212) 424-8500
TABLE OF CONTENTS
Page
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION...................................1
A. REQUEST1
B. DESCRIPTION OF THE PARTIES TO THE TRANSACTION.....................1
1. Energy East.............................................1
2. Public Utility Operations of Energy East................2
3. Non-Utility Affiliates of Energy East...................3
C. PROVISION OF SERVICES BY SHARED SERVICES..........................3
D. SHARED SERVICES AND EEMC CONTRASTED...............................7
ITEM 2. FEES, COMMISSIONS AND EXPENSES........................................9
ITEM 3. APPLICABLE STATUTORY PROVISIONS.......................................9
ITEM 4. REGULATORY APPROVALS.................................................11
A. NEW YORK PUBLIC SERVICE COMMISSION ("NYPSC").....................11
B. MAINE PUBLIC UTILITIES COMMISSION ("MPUC").......................11
C. MASSACHUSETTS DEPARTMENT OF TELECOMMUNICATIONS
AND ENERGY ("MDTE").......................................12
D. CONNECTICUT DEPARTMENT OF PUBLIC UTILITY CONTROL
("DPUC")..................................................12
ITEM 5. PROCEDURE............................................................13
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS....................................13
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS..............................13
i
Energy East Corporation, a New York corporation ("Energy East"), a
registered holding company under the Public Utility Holding Company Act of 1935,
as amended (the "Act") hereby amends and restates its Application in File no.
70-10119 in its entirety to read as follows.
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION
A. REQUEST
This Application seeks the authorization and approval of the
Commission with respect to the provision of certain intra-system services.
Specifically, Energy East requests that the Commission approve the designation
of a to-be-formed wholly-owned subsidiary Energy East Shared Services
Corporation, a Delaware corporation ("Shared Services"), as a subsidiary service
company in accordance with the provisions of Rule 88 under the Act and find that
Shared Services will be so organized and will conduct its operations as to meet
the requirements of Section 13 of the Act and the Commission's rules under the
Act.
B. DESCRIPTION OF THE PARTIES TO THE TRANSACTION
1. Energy East
Energy East is currently a registered public utility holding company.
Through its subsidiaries, Energy East is a super-regional energy services and
delivery company with operations in New York, Connecticut, Massachusetts, Maine
and New Hampshire serving approximately 1.8 million electricity customers and
900,000 natural gas customers. Energy East has corporate offices in New York and
Maine. Energy East's common stock is publicly traded on the New York Stock
Exchange under the symbol "EAS." On May 1, 1998, Energy East became the parent
of New York State Electric & Gas Corporation ("NYSEG")./1 On February 8, 2000,
Energy East became the parent of Connecticut Energy Corporation,/2 and on
September 1, 2000, Energy East became the parent of CMP Group, Inc., CTG
Resources, Inc. and Berkshire Energy Resources./3
On June 27, 2002, the Commission issued an order authorizing the
acquisition of RGS Energy Group. Inc. ("RGS") by Energy East, File No. 70-9901,
pursuant to which RGS became a direct subsidiary of Energy East (the
"Merger")./4 As described in the Merger Order, Energy East acquired the common
shares of RGS for cash and Energy East common stock. A more complete description
of the acquisition of RGS is contained in the Merger U-1 Application,
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1 Energy East Corp., et al., HCAR No. 26834 (Mar. 4, 1998).
2 Energy East Corp., et al., HCAR No. 27128 (Feb. 2, 2000).
3 Energy East Corp., et al., HCAR No. 27224 (Aug. 31, 2000).
4 Energy East Corp., et al., HCAR No. 35-27546 (June 27, 2002) (the "Merger
Order").
1
which description is hereby incorporated by reference herein. The Merger was
completed on June 28, 2002.
2. Public Utility Operations of Energy East
As described below, Energy East holds direct or indirect interests in
the following public utility companies (the "Utility Subsidiaries"), each of
which is wholly owned by companies within the Energy East system/5:
o NYSEG, a New York corporation and a wholly-owned direct subsidiary
of RGS, which purchases, transmits and distributes electricity and
purchases, transports and distributes natural gas in parts of New
York;
o RG&E, a New York corporation and a wholly-owned subsidiary of RGS,
which generates, purchases, transmits and distributes electricity and
purchases, transports and distributes natural gas in parts of New
York;
o The Southern Connecticut Gas Company ("Southern Connecticut Gas"), a
Connecticut corporation and a wholly-owned subsidiary of Connecticut
Energy, which is engaged in the retail distribution and transportation
of natural gas in parts of Connecticut;
o Central Maine Power Company ("Central Maine Power"), a Maine
corporation and a public utility holding company exempt from all
provisions of the Act except Section 9(a)(2), by order issued under
Section 3(a)(2), the common stock of which is wholly-owned by CMP
Group, which is primarily engaged in purchasing, transmitting and
distributing electricity in Maine;
o Connecticut Natural Gas Corporation ("Connecticut Natural Gas"), a
Connecticut corporation and a wholly-owned subsidiary of CTG
Resources, which is primarily engaged in the retail distribution and
transportation of natural gas to parts of Connecticut; and
o The Berkshire Gas Company ("Berkshire Gas"), a Massachusetts
corporation and a wholly-owned subsidiary of Berkshire Energy, which
is engaged in the sale and distribution of natural gas in western
Massachusetts.
o Maine Natural Gas Corporation ("Maine Natural Gas"), a Maine
corporation which distributes gas in Maine and which is a wholly-owned
subsidiary of Energy East
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5 Energy East also owns indirect interests in the following public utility
companies: MEPCo, a Maine corporation, which owns and operates a 345kV
transmission interconnection between the Maine - New Brunswick, Canada
international border at Orient, Maine - Central Maine Power presently owns
a 78.3% voting interest in MEPCo with the remaining interests owned by two
other Maine utilities; NORVARCO, a Maine corporation, which holds a 50%
general partnership interest in Chester SVC Partnership, a general
partnership which owns a static var compensator located in Chester, Maine,
adjacent to MEPCo's transmission interconnection - NORVARCO is presently a
wholly-owned subsidiary of Central Maine Power.
2
Enterprises, Inc. ("Energy East Enterprises"), a Maine corporation, a
wholly-owned subsidiary of Energy East and a public utility holding
company exempt from all provisions of the Act except Section 9(a)(2),
by order issued under Section 3(a)(1);
3. Non-Utility Affiliates of Energy East
Energy East also has a number of direct and indirect subsidiaries that
are not "public utility companies" under the Act. With certain minor exceptions,
the Commission determined that these non-utility interests could be retained by
Energy East following its registration as a public utility holding company./6
Energy East's direct non-utility subsidiaries include: (1) RGS, the parent of
NYSEG and RG&E; (2) Berkshire Energy, the parent of Berkshire Gas; (3) CMP
Group, whose subsidiaries include Central Maine Power and Mainecom Services, a
telecommunications service provider; (4) Connecticut Energy, the parent of
Southern Connecticut Gas; (5) CTG Resources, the parent of Connecticut Natural
Gas; (6) The Energy Network, Inc., whose subsidiaries focus on peaking
generation, energy services and telecommunications; (7) Energy East Enterprises,
Inc., which owns natural gas and propane air distribution companies and is
developing gas storage in upstate New York;/7 (8) Energy East Management
Corporation ("EEMC"), an SEC-authorized service company for the Energy East
holding company system which owns no public utility assets; and (9) Energy East
Capital Trust I, a statutory business trust formed for the purpose of issuing
trust preferred securities.
In addition, RGS, Berkshire Energy, CMP Group, Connecticut Energy, CTG
Resources, and Energy East Enterprises are all public utility holding companies
exempt from all provisions of the Act except Section 9(a)(2), by order issued
under Section 3(a)(1) and Central Maine Power is a public utility holding
company exempt from all provisions of the Act except Section 9(a)(2), by order
issued under Section 3(a)(2). All of Energy East's subsidiaries are listed and
described in its Annual Report on Form U5S.
C. PROVISION OF SERVICES BY SHARED SERVICES
As stated above, Shared Services will be a wholly-owned direct
subsidiary of Energy East. Shared Services capitalization will consist of 200
shares of common stock, par value $.01 per share. Initially, Shared Services
working capital needs will be met through intercompany borrowings from Energy
East pursuant to Rule 52(b). Shared Services proposes to provide the companies
in the Energy East system with a variety of administrative and operations
services. The services provided by Shared Services would be provided to the
Utility Subsidiaries, but a limited number of services in the human resources
area (payroll processing and benefits administration) and information technology
services would also be provided to EEMC and to a limited extent Energy East,
where appropriate and consistent with the economical and efficient performance
of services at cost. Shared Services' activities would be conducted in
accordance with service agreements (the "Service Agreements") that Shared
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6 Id. The Commission has retained jurisdiction pending completion of the
record over certain non-utility interests currently owned by RGS. Energy
East Corp., et al., HCAR No. 35-27224 (June 27, 2002).
7 Energy East Corp., et al., HCAR No. 26976 (Feb. 12, 1999).
3
Services will enter into with each of the companies that it serves. The form of
these agreements is filed herewith as Exhibit B-1. An appendix entitled "Service
Company Policy and Procedures" is filed herewith as Exhibit B-2.
The presidents of each of the Utility Subsidiaries will serve on the
Board of Directors of Shared Services, in addition to other persons as may be
elected from time to time. Shared Services will be staffed by employees who will
be transferred over time from other Energy East system companies or who will be
hired externally. The decision regarding the initial movement of positions from
the utility companies to Shared Services will be made function by function and
position by position with a view towards maximizing system-wide efficiency as
Shared Services takes on new service activities for companies in the Energy East
system. The determinative factor with respect to whether a position is moved to
the Shared Services payroll would be whether the employee in that position would
spend the majority of his or her time on group-wide activities (and allocate
his/her time between a number of companies) or company-specific activities (and
allocate virtually all of his/her time to a single company). If the former, that
position would generally be transferred to Shared Services. In the latter case,
greater efficiency, control and cost accountability would be achieved by leaving
the position at the single company that utilizes the majority, or all, of the
services performed by the employee in that position. This minimizes the
unnecessary creation of additional affiliate transactions and minimizes the risk
of cross-subsidies between companies in the Energy East system. To the extent
that employees of system companies other than Shared Services are collecting
data or information for use by Shared Services and/or assisting in the
performance of functions by Shared Services, Shared Services management will
provide the necessary direction to other system company employees and oversight
as to the functions they perform to ensure proper coordination and efficient
integration of the Energy East system.
For example, in two of the proposed Shared Services functions, supply
chain and information technology, careful consideration has been given to align
the appropriate functions with the service being provided to the utility
clients. As a result, it was determined that the day-to-day activities of
certain employees were solely and exclusively for the benefit of a single
utility client and more effectively and efficiently performed at the client
utility's location. The proper at cost determination and billing for these
positions would be applied directly to the utility client and only for that
utility client. Thus, while these activities would be performed under the
direction of Shared Services (in order to ensure consistency across the system),
it was determined there was no reason to move the position and the employee into
Shared Services. Moving these positions would have created an unnecessary
affiliate transaction (with associated accounting and billing) because each
employee's role is solely centered on providing service to only one utility. An
organizational chart diagramming the positions in the supply chain function as
well as organizational charts diagramming the positions in the information
technology and human resources functions are included in Exhibit B-3.
To ensure adequate oversight and realize economies of scale, certain
administrative and operating functions for the companies in the Energy East
system will be consolidated and provided through Shared Services. Because the
principal operations of the Energy East system are conducted by its Utility
Subsidiaries it is expected that these companies will provide the greatest
opportunities for the efficient consolidation of administrative and
4
operating activities within Shared Services. As a general rule, the individual
system companies will continue to perform services that can benefit from
individualized application at the company level, with Shared Services performing
functions that can be more economically and efficiently performed in a
centralized manner. In particular, it is anticipated that, subject to the
requirements or limitations of state and federal law, the following classes of
services may be offered by Shared Services to the Energy East system companies:
Accounting Services:
Shared Services may provide customary accounting services at the
Utility Subsidiary level. These activities include the maintenance of the books
and records, Utility Subsidiary annual capital and operating budget preparation
(on a per company basis), analysis and interpretation of the companies'
operating results, preparation of financial reports required for regulatory
filings, preparation of reports to support corporate financial consolidation,
fixed asset accounting and supervision of compliance with applicable laws and
regulations.
Shared Services may provide routine treasury services including the
coordination of activities relating to cash management, bank reconciliation and
administering insurance programs, and tax services for the coordination of
income, property and revenue tax compliance and tax accounting at the Utility
Subsidiary level.
Shared Services may provide routine accounts payable services
including the accurate and timely payment of invoices and employee expense
reports, allocation of expenses to the proper general ledger accounts,
production of annual reports to the IRS, maintenance of vendor information and
source documents, processing checks and wire transfers, and performing bank
reconciliations.
Human Resources Services:
Shared Services may implement and administer system-wide employee
policies at the Utility Subsidiary level. Shared Services' responsibilities
would include the supervision of compliance with legal requirements in the areas
of employment, compensation, benefits and employee health, welfare, and safety
and contract negotiation and relations management with labor unions; and
employee performance management program. Shared Services may also maintain the
employee master files relating to each employee as well as manage recruiting,
training and promotions.
Shared Services may provide payroll services including the supervision
and coordination of the calculations, records and control requirements necessary
to generate payment of employee salaries and wages and to maintain relevant
employee information.
Shared Services may perform records retention services such as
coordinating and maintaining a program for ensuring safe on- and off-site
records retention in accordance with applicable regulations.
Regulatory Services:
5
Shared Services may assume responsibility for coordination of the
Utility Subsidiaries' rates and regulatory economics departments including
rate-related compliance matters.
Legal Services:
Shared Services may provide legal support for all of the Utility
Subsidiaries, including managing litigation, contract review and negotiation,
and participating in state and federal regulatory proceedings.
Transmission and Energy Supply Services:
Shared Services may provide services for the coordination of electric
and/or gas transmission, storage, and supply functions for the Utility
Subsidiary companies in compliance with system-wide policies provided by EEMC.
Information Technology Services:
Shared Services may supply centralized information technology services
for the Utility Subsidiaries, such as Data Center Operations, IS Networking and
Telecommunications systems operations and maintenance, software applications
development and maintenance, technology development, end user support, and
printing and mailing of utility customer bills.
Supply Chain Services:
Shared Services may provide centralized purchasing services such as
procurement of materials and supplies, fleet services, contract administration
and materials management for the Utility subsidiaries.
Customer Services:
Shared Services may assume responsibility for providing Call Center
Operations, which would include responding to the client entity's customer
calls, customer billing, accounts receivable, credit and collections services,
customer satisfaction monitoring and management of low income programs.
Engineering Services:
Shared Services may supply centralized customary engineering services
for Energy East system companies, including design engineering, general
engineering, construction engineering and GIS technology development, meter
services and testing, and operations.
The Service Agreements will provide methodologies to ensure that all
client companies pay to Shared Services the cost of all services, computed in
accordance with the applicable rules and regulations (including, but not limited
to Rules 90 and 91) under the Act and appropriate accounting standards. Where
more than one client company is involved in, or has received benefits from, a
service performed by Shared Services, the Service Agreements will
6
provide that client companies will pay their fairly allocated pro rata share in
accordance with the methods set out in appendices to the Service Agreements.
Thus, charges for all services provided by Shared Services to Energy East system
companies will be on an "at cost" basis as determined under Rules 90 and 91
under the Act.
Shared Services will maintain its accounts, cost-accounting procedures
and other records in accordance with the requirements of the Commission's
Uniform System of Accounts for Mutual Service Companies and Subsidiary Service
Companies utilizing, however, the chart of accounts specified in the FERC
Uniform System of Accounts for Public Utilities and Licensees (18 C.F.R. Part
101) . Exhibit B-2 hereto summarizes the policies and procedures that will be
used to implement the Service Agreements. Shared Services will file annual
reports on Form U-13-60 in accordance with Rule 94, commencing with the report
for calendar year 2003.
No material change in the organization of Shared Services, the methods
of allocating cost to associate companies, or in the scope or character of the
services to be rendered by Shared Services, subject to Section 13 of the Act, or
any rule, regulation or order thereunder, shall be made unless and until Shared
Services shall first have given the Commission written notice of the proposed
change not less than 60 days prior to the proposed effectiveness of any such
change. If, upon the receipt of any such notice, the Commission shall notify
Shared Services within the 60-day period that a question exists as to whether
the proposed change is consistent with the provisions of Section 13 of the Act,
or of any rule, regulation or order thereunder, then the proposed change shall
not become effective unless and until Shared Services shall have filed with the
Commission an appropriate declaration regarding such proposed change and the
Commission shall have permitted such declaration to become effective.
Rule 88 (b) provides that "[a] finding by the Commission that a
subsidiary company of a registered holding company . . . is so organized and
conducted, or to be conducted, as to meet the requirements of Section 13(b) of
the Act with respect to reasonable assurance of efficient and economical
performance of services or construction or sale of goods for the benefit of
associate companies, at cost fairly and equitably allocated among them (or as
permitted by [Rule 90], will be made only pursuant to a declaration filed with
the Commission on Form U-13-1, as specified in the instructions for that form,
by such company or the persons proposing to organize it." Notwithstanding the
foregoing language, the Commission has on other occasions made findings under
Section 13(b) based on information set forth in an application on Form U-1,
without requiring the formal filing on a Form U-13-1. See UNITIL Corp., 51 SEC
Docket 562 (Apr. 24, 1992); CINergy Corp., 57 SEC Docket 2353 (Oct. 21, 1994).
In this Application, Energy East has submitted substantially the same
application information as would have been submitted in a Form U-13-1.
Accordingly, it is appropriate to find that Shared Services will be so organized
and its business will be so conducted as to meet the requirements of Section
13(b), and that the filing of a Form U-13-1 is unnecessary, or, alternatively,
that this Application should be deemed to constitute a filing on Form U-13-1 for
purposes of Rule 88.
D. SHARED SERVICES AND EEMC CONTRASTED
Energy East notes that each of Shared Services and EEMC would have
different foci of operations which are distinct from the scope of activities to
be engaged in by the other.
7
Shared Services' clients will be the Utility Subsidiaries and, indirectly, each
utility's customers and its local regulatory commission (and EEMC and Energy
East only with respect to certain human resources functions (payroll processing
and benefits administration) and information technology services). Shared
Services' mission will be to apply economies of scale and best practices across
all the utility operations of the Energy East system to serve these clients
better and at a lower cost. As noted above, Shared Services seeks to provide
supply chain, information technology, accounting, human resources, customer
service, payroll, engineering, regulatory services and numerous other day-to-day
operating and administrative services that all Utility Subsidiaries require to
operate reliably and efficiently.
The focus of Shared Services on making the Energy East Utility
Subsidiaries more efficient, safer, reliable and coordinated is reflected in its
board of directors which will be comprised of the presidents of each of the
Utility Subsidiaries. The influence of these chief executives, with their
collective experience in the utility industry and bottom line responsibility
over their respective Utility Subsidiaries, should help to ensure that Shared
Services provides the most cost effective and relevant services to its clients.
Other employees of Shared Services are also likely to come from the Energy East
Utility Subsidiary ranks as functions are centralized at Shared Services.
Accordingly, from the outset Shared Services' mission and its employees will be
focused on serving the needs of its utility clients.
In contrast to Shared Services, EEMC's focus is strategically managing
the Energy East system as a whole with a view towards achieving growth and
benefits for the system as a whole. EEMC will have a national and regional focus
for its activities and will be principally engaged in general management and
providing strategic services to the Energy East System. These services would
include overall corporate supervision of the Energy East system, strategic
advice, investor relations, corporate finance, corporate governance and related
activities associated with maintaining a publicly-held holding company that is a
regional energy services provider, such as corporate financial consolidation and
reporting. EEMC will emphasize corporate strategy and tactics in its activities
and establish the overall framework within which a multitude of corporate
functions will be performed and managed on a day-to-day basis by Shared
Services. In contrast, Shared Services will be engaged in the details of
operations, for example, determining how to procure electric transformers at the
best price, how to efficiently run a call center, or how to distribute
inventories of spare parts across the system to facilitate rapid storm recovery.
EEMC's customers are really the public stakeholders of Energy East and its
subsidiaries; shareholders, bond holders, institutional investors, rating
agencies, the financial community generally, and the customers and their
political representatives in each state where Energy East operates and
nationally.
EEMC's staff, which will be much smaller than Shared Services' staff,
is expected to be composed of relatively senior-level personnel drawn from
throughout the Energy East system. Shared Services, in contrast, will be focused
on the enhanced provision of administrative and operational services that can be
efficiently and economically performed on a centralized basis within the Energy
East system. The operations focus of Shared Services means that it will be a
principal component of the economical and efficient development of an integrated
Energy East utility system as it rationalizes the many operating functions that
are currently distributed throughout the Energy East system's many utility and
non-utility subsidiaries. Shared Services
8
would be focused on becoming a class leader in the provision of administrative
and operating services to its Utility Subsidiary clients.
EEMC has a role in managing the development of Shared Services into a
first-in-class service provider. EEMC's concern with system-wide development and
managing the system's assets for the benefit of shareholders and other
stakeholders will help it to apply market discipline to its examination of
Shared Services' performance with a critical eye for efficiency, reasonableness
and appropriateness. For example, although Shared Services will be engaged in
benchmarking and other periodic internal reviews to determine whether its
services are provided efficiently, the separate management oversight provided by
EEMC should provide an extra check on the decisions made by Shared Services and
the effectiveness of their execution. The different activities, responsibilities
and ultimate consumers of the services provided by Shared Services and EEMC,
accordingly, give each service company a separate mission within the Energy East
organization and a substantial reason for each to be authorized as a subsidiary
service company under the Act. Rather than being a source of duplication and
waste, the separate roles of Shared Services and EEMC should help to promote the
economical and efficient performance of services for the benefit of the
associate companies served consistent with the requirements of the Act.
ITEM 2. FEES, COMMISSIONS AND EXPENSES
The fees, commissions and expenses incurred or to be incurred in
connection with this Application are estimated not to exceed $__(*)__.
(*) To be filed by amendment.
ITEM 3. APPLICABLE STATUTORY PROVISIONS
Section 13 of the Act and Rules 87, 88, 90 and 91 are considered
applicable to the proposed transactions.
To the extent that the proposed transactions are considered by the
Commission to require authorization, exemption or approval under any section of
the Act or the rules and regulations other than those set forth above, request
for such authorization, exemption or approval is hereby made.
Under Rule 87, a subsidiary of a registered holding company may
perform services or construction for, or sell goods to, associate companies
thereof, if the subsidiary providing the services is principally engaged in the
business of an operating electric or gas utility company, or any business or
businesses other than that of selling goods to associate companies, that of
performing services or construction, that of a holding company or fiscal or
financing agency of a holding company, or that of an investment company or
investment trust; and which, incidentally to such business, performs such
services, or construction, or sells such goods. Rule 87(a)(3).
Accordingly, a public utility company that is not also a holding
company or other entity restricted under the rule may provide services when the
utility's principal business is that of a public utility company and its service
activities are incidental to its utility business. The utility
9
must comply with the pricing provisions of Rule 90 under the Act in the
provision of services to associate companies. In particular, Rule 90 generally
requires that services should be provided at not more than cost as determined
under Rule 91.
Except as heretofore specifically authorized by the Commission, Energy
East does not anticipate or expect that its public utility subsidiaries will
provide services to Shared Services except on an incidental; i.e.,
non-recurring, short-term project specific or emergency, basis, in compliance
with applicable rules of the Commission, including Rule 87(a)(3). It is
possible, however, that as functions are transitioned to Shared Services some
services may be performed for a limited period of time by utility company
personnel until they and their positions are formally transferred to Shared
Services. To the extent that Rule 87(a)(3) does not apply, Energy East requests,
on behalf of the utility subsidiaries, authority for them to provide services to
Shared Services.
The transactions proposed herein are also subject to Rule 54, which
provides that the Commission shall not consider the effect of the capitalization
or earnings of any subsidiary of a registered holding company that is an "exempt
wholesale generator" ("EWG") or a "foreign utility company" ("FUCO") in
determining whether to approve any transaction that is unrelated to the
financing of any EWG or FUCO if Rule 53(a), (b) and (c) are satisfied. These
standards are met.
Rule 53(a)(1): As of June 30, 2002, Energy East's "aggregate
investment" in EWGs and FUCOs is approximately $21.8 million, or approximately
2.1% of Energy East's "consolidated retained earnings" at June 30, 2002
(approximately $1.1 billion).
Rule 53(a)(2): Energy East will maintain books and records enabling it
to identify investments in and earnings from each EWG and FUCO in which it
directly or indirectly acquires and holds an interest. Energy East will cause
each domestic EWG in which it acquires and holds an interest, and each foreign
EWG and FUCO that is a majority-owned subsidiary, to maintain its books and
records and prepare its financial statements in conformity with U.S. generally
accepted accounting principles ("GAAP"). All of such books and records and
financial statements will be made available to the Commission, in English, upon
request.
Rule 53(a)(3): No more than 2% of the employees of the Utility
Subsidiaries will, at any one time, directly or indirectly, render services to
EWGs and FUCOs.
Rule 53(a)(4): Energy East will submit a copy of any Application filed
with the Commission and each amendment thereto, and will submit copies of any
Rule 24 certificates as well as a copy of Energy East's Annual Report on Form
U5S, to each of the public service commissions having jurisdiction over the
retail rates of the Utility Subsidiaries, in each case as required by Rule 53.
In addition, Energy East states that the provisions of Rule 53(a) are
not made inapplicable to the authorization herein requested by reason of the
occurrence or continuance of any of the circumstances specified in Rule 53(b).
Rule 53(c) is inapplicable by its terms.
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ITEM 4. REGULATORY APPROVALS
Each of the public service commissions in New York, Maine,
Massachusetts, and Connecticut exercise some degree of regulatory oversight over
transactions between regulated public utilities and their affiliates and
associate companies.
A. NEW YORK PUBLIC SERVICE COMMISSION ("NYPSC").
Generally, the NYPSC has jurisdiction under Section 110 of the New
York Public Service Law over transactions between public utilities and their
affiliates to the extent of access to the accounts or records of such affiliates
relating to any such transactions. Section 110 also provides, generally, that
all management, construction, engineering or similar contracts between a utility
and an affiliate must be filed with the NYPSC and that any charges under such
contracts may not exceed the reasonable cost of performing such service. NYSEG,
RGE, and their affiliates are subject to the affiliate transaction guidelines
set forth in the Joint Proposal in Case 01-E-0359 and Case 01-M-0404, Appendix B
which was approved by the NYPSC in the Order Adopting Provisions of Joint
Proposal with Modifications dated February 27, 2002. No additional approval of
the NYPSC is required for NYSEG or RG&E to enter into the Service Agreement.
B. MAINE PUBLIC UTILITIES COMMISSION ("MPUC").
The MPUC has jurisdiction under 35-A Maine Revised Statutes ss. 707.3
to review and approve all transactions between Maine public utility companies
and their affiliates under a standard that the transaction is not adverse to the
public interest. Under ss. 707.2, the MPUC may require the production of all
books, records, documents and other information relating to transactions between
a utility and its affiliates. Chapter 820 of the MPUC's Rules establishes
additional provisions governing transactions between a utility and its
affiliates, including pricing provisions relating to the provision of services.
Chapter 820 provides that any utility equipment, facility, service or personnel
used by an affiliate be charged to the affiliate at a tariffed rate if
available, at the market price if no tariffed rate exists, or otherwise at fully
distributed cost. Chapter 820 follows the principles of the rules of the Federal
Communications Commission regarding cost allocations between a utility and its
affiliates. Under Chapter 820, equipment, facilities, services or personnel of a
utility affiliate used by that utility must be priced at the same price charged
non-affiliates, or if such a price is not available, then the affiliate must
charge the market price.
In its order approving the merger of CMP Group with Energy East,
issued January 4, 2000, the MPUC imposed, as a condition of its approval, the
requirement that Energy East and its affiliates, to the extent that their
activities relate to or in any way impact the operations, costs, or revenues of
Central Maine Power in Maine, be subject to the MPUC's jurisdiction for
discovery purposes and that they participate as a party in any proceeding when
deemed necessary by the MPUC. Further, to assure the MPUC that it would also
retain oversight over affiliate transactions for ratemaking purposes after
completion of the CMP Group Merger, CMP Group and Energy East agreed to request
that this Commission include, in any order approving the merger of CMP Group and
Energy East, the following language:
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It is the Commission's intention that the Maine Public Utilities
Commission will retain the right to review and disallow costs of
services rendered by or to any Maine public utility company in the
Energy East Corporation registered holding company system that may be
subject to recovery in rates./8
That request was made in Amendment No. 3 to Energy East's
Application/Declaration on Form U-1 (File No. 70-09569), filed March 3, 2000.
Energy East is presently seeking approval for the formation of Shared
Services from the State of Maine under 35-A, M.R.S.A., Section 708. In addition,
Energy East is seeking Maine approval of the form of service agreement under
35-A, M.R.S.A., Section 707. An application requesting such approval has been
filed with the MPUC which issued a Notice of Proceeding on May 15, 2003. An
initial case conference was held on May 29, 2003 to address petitions to
intervene, as well as discovery procedures and to set a schedule for processing
of the matter. Energy East is awaiting further MPUC action in the proceeding.
C. MASSACHUSETTS DEPARTMENT OF TELECOMMUNICATIONS AND ENERGY ("MDTE").
The MDTE has jurisdiction pursuant to Section 94B of Chapter 164 of
the Massachusetts General Laws to review and approve all contracts between
Berkshire Gas and any affiliated company pursuant to which compensation will be
paid for services rendered unless the agreement explicitly subjects the level of
payment to subsequent review by the MDTE in a base rate proceeding. The MDTE has
also adopted Standards of Conduct that include pricing conditions on
transactions between regulated utilities such as Berkshire Gas and affiliated
entities. See 220 C.M.R. ss. 12.00 et seq. The MDTE's Standards of Conduct also
require Berkshire Gas to submit regular reports of its transactions with
affiliates. No additional approval of the MDTE is required for Berkshire Gas to
enter into the Service Agreement.
D. CONNECTICUT DEPARTMENT OF PUBLIC UTILITY CONTROL ("DPUC")
The DPUC has jurisdiction under ss. 16-8c of the Connecticut General
Statutes to review affiliate transactions between a holding company or
subsidiary that is related to a public service company as necessary to protect
customers of the public service company from any adverse impacts. In its order
approving the merger of Energy East with Connecticut Energy Corporation, issued
December 16, 1999, (Docket No. 99-07-20, CNE Merger Docket), the DPUC imposed,
as a condition of its approval, the requirement that any modification to current
cost allocation policies for Southern Connecticut Gas resulting from the Mergers
be filed for approval. The DPUC has previously ordered that any proposed changes
to existing Service Agreements between Connecticut Energy Corporation and its
subsidiaries be filed with the DPUC at least 60 days prior to its effective
date. See Docket No. 77-08-28, Reopening May 21, 1997. In its order approving
the merger of Energy East with CTG Resources, Inc., issued January
----------
8 Order Approving Request for Approval of Reorganization and Affiliated
Interest Transactions, MPUC Docket No. 99-411 at 26 (January 4, 2000).
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19, 2000, (Docket No. 99-08-09, CTG Merger Docket), the DPUC imposed, as a
condition of its approval, the requirement that any modification to current cost
allocation policies for Connecticut Natural Gas resulting from the Mergers be
filed, although without the explicit condition that they be approved. No
additional approvals of the DPUC are required for Connecticut Natural Gas or
Southern Connecticut Gas to enter into the Service Agreement.
Except as stated above, no state or federal regulatory agency other
than the Commission under the Act has jurisdiction over the proposed
transactions.
ITEM 5. PROCEDURE
The Commission is requested to publish a notice under Rule 23 with
respect to the filing of this Application/Declaration as soon as practicable.
The Applicant requests that the Commission's order approving this
Application/Declaration be issued as soon as the rules allow, and that there
should not be a 30-day waiting period between issuance of the Commission's order
and the date on which the order is to become effective. The Applicant hereby
waives a recommended decision by a hearing officer or any other responsible
officer of the Commission and consents that the Division of Investment
Management may assist in the preparation of the Commission's decision and/or
order, unless the Division opposes the matters proposed herein.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
A. EXHIBITS.
A-1 Certificate of Incorporation of Energy East Shared Services
Corporation. (To be filed by amendment).
A-2 By-Laws of Energy East Shared Services. (To be filed by amendment).
B-1 Form of Service Agreement between Energy East Shared Services and
Energy East System Client Company, including Appendix A. (To be filed
by amendment).
B-2 Energy East Shared Services Policies and Procedures. (To be filed by
amendment).
B-3 Organizational Charts for Certain Functions. (Filed under cover of
Form SE).
F-1 Opinion of Counsel. (To be filed by amendment).
F-2 Past Tense Opinion of Counsel. (To be filed pursuant to Rule 24).
H Proposed Form of Notice. (Previously filed).
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
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The transaction will not involve major federal action significantly
affecting the quality of the human environment as those terms are used in
Section 102(2)(C) of the National Environmental Policy Act, 42 U.S.C. Section
4321 et seq. ("NEPA"). First, no major federal action within the meaning of NEPA
is involved. Second, consummation of the transaction will not result in changes
in the operations of Energy East or its subsidiaries that would have any
significant impact on the environment. To the Applicants' knowledge, no federal
agency is preparing an environmental impact statement with respect to this
matter.
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SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned Applicant has duly caused this Application to be signed
on its behalf by the undersigned thereunto duly authorized.
ENERGY EAST CORPORATION
By: /s/ Kenneth M. Jasinski
------------------------
Name: Kenneth M. Jasinski
Title: Executive Vice President and
Chief Financial Officer
Date: June 24, 2003
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Exhibit Index
B-3 Organizational Charts for Certain Functions.
H Proposed Form of Notice.
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