File No. 70-10025
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
PRE-EFFECTIVE
AMENDMENT NO. 4
TO
FORM U-1
APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
National Grid Group plc
15 Marylebone Road
London NW1 5JD
United Kingdom
National Grid USA
25 Research Drive
Westborough, MA 01582
New England Power Company
25 Research Drive
Westborough, MA 01582
Vermont Yankee Nuclear Power Corporation
185 Old Ferry Road
Brattleboro, VT 05703
(Names and principal executive offices of companies filing this statement)
NATIONAL GRID GROUP plc
(Names of top registered holding company)
Richard P. Sergel
Group Director - North America
National Grid Group plc
c/o National Grid USA
25 Research Drive
Westborough, MA 01582
(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:
Hemmie Chang, Esq. Kirk L. Ramsauer, Esq.
Ropes & Gray National Grid USA
One International Place 25 Research Drive
Boston, MA 02110 Westborough, MA 01582
Denise Redmann, Esq. Nancy S. Malmquist, Esq.
Entergy Corporation Downs, Rachlin & Martin
639 Loyola Avenue P.O. Box 99
New Orleans, LA 70113 90 Prospect Street
St. Johnsbury, VT 05819-0099
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The Application/Declaration in File No. 70-10025 hereby is amended by
deleting the additional paragraphs added to Item 1.C by Amendment No. 3 and
inserting in place thereof the following:
National Grid's aggregate investment, as defined in Rule 53(a), in
FUCOs as of March 31, 2002, was $3.104 billion.(8) The authorization sought
herein will not increase National Grid's authorized level of investment in EWGs
or FUCOs and will not have a direct effect upon National Grid's investment in
EWGs or FUCOs. National Grid has no EWG investments. As of March 31, 2002,
National Grid's consolidated retained earnings calculated in accordance with
U.S. GAAP was $2.976 billion. Consequently, National Grid's aggregate investment
in FUCOs as a percentage of its consolidated retained earnings was 104% as of
March 31, 2002. In the January Order National Grid was authorized to issue and
sell securities for the purpose of financing investments in FUCOs in an amount
up to $5.406 billion.
National Grid does not qualify for the safe harbor in Rule 53(a)
because National Grid's aggregate FUCO investment exceeds 50% of its
consolidated retained earnings. In addition, as provided in Rule 53(b)(3),
relief under Rule 53(a) is not available because write-downs of $1,140.9 million
associated with National Grid's telecommunications investments, held indirectly
by National Grid's FUCO, National Grid Holdings Limited, contributed to reported
operating losses of $186.3 million for National Grid on a consolidated basis in
the fiscal year ended March 31, 2002. Because such operating losses exceed 5% of
National Grid's consolidated retained earnings for the year (5% of $2.976
billion is $148.8 million), the threshold in Rule 53(b)(3) is triggered.
The requirements of Rule 53(c) are currently satisfied by National
Grid. First, as provided in Rule 53(c)(1), the proposed transaction "will not
have a substantial adverse impact upon the financial integrity of the registered
holding company system." National Grid's capitalization is currently sound and
should continue to be sound post-transaction. Its ratio of 31.7% equity to total
capitalization is in compliance with the conditions set forth in the January
Order. National Grid's consolidated capitalization (on a U.S. GAAP basis) over
the recent past is shown in the table below.
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(8) Aggregate investment is defined in Rule 53 under the Act to include all
amounts invested, or committed to be invested, in EWGs and FUCOs, for which
there is recourse, directly or indirectly to National Grid. This limit is
applied on a net basis and to the extent National Grid's previous investments or
guarantees have been repaid or have expired, those investments are netted from
the total aggregate investment.
MARCH 31, 2000 MARCH 31, 2001 MARCH 31, 2002
------------------ -------------- -----------------
NATIONAL GRID AS AT: ($ mm) (%) ($ mm) (%) ($ mm) (%)
-------------------- ------------------ -------------- -----------------
Debt, preferred stock
and minority interests 6,120 62% 5,955 59% 11,502 68.3%
Common stock equity 3,753 38% 4,146 41% 5,338 31.7%
Total 9,873 100% 10,101 100% 16,840 100.0%
National Grid's financial integrity and the soundness of its capital
structure is further demonstrated by its high credit rating and National Grid's
sound management and investment practices. National Grid is currently rated A2
by Moody's. A review of basic financial measures over time also indicates
National Grid's record of financial stability; a product of its sound
management. National Grid's equity market value to book value ratios and stock
price to earnings ratios over recent years are provided below:
MARKET TO BOOK VALUE
As at: Mar. 31, 1999 Mar. 31, 2000 Mar. 31, 2001 Mar. 31, 2002
------------- ------------- ------------- -------------
$mm $mm $mm $mm
------------- ------------- ------------- -------------
Market value of equity 11,084 13,611 11,468 11,689
Book value of equity (under U.S. GAAP) 2,416 3,753 4,146 5,338
Ratio of market to book value (times) 4.6x 3.6x 2.8x 2.2x
PRICE/EARNINGS RATIOS
12 months ended: Mar. 31, 1999 Mar. 31, 2000 Mar. 31, 2001 Mar. 31, 2002
------------- ------------- ------------- -------------
$ $ $ $
------------- ------------- ------------- -------------
Basic earnings per share (U.S. GAAP)(9) 1.13 1.10 0.78 (0.15)*
Ratio of price to earnings 6.6x 8.4x 9.9x -43.3x
(*) The full write down and provision for all expected related liabilities for
telecoms investments in Latin America, Energis and Energis Polska and a non-cash
charge to reflect the impact in Argentina of the devaluation of the peso were
exceptional items contributing to the loss in the 12 months ended March 31,
2002. Before exceptional items and goodwill amortization, earnings per share
increased by 61% over the prior 12 month period.
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(9) Unadjusted for the net income arising on the sale of Energis shares in the
year ended March 31, 1999 of $1,149.8 million. Unadjusted for the net income
arising on the reduction in National Grid's interest in Energis in the year
ended March 31, 1998 of $184.5 million.
The growth in National Grid's consolidated common stock equity is shown
below:
As at: Mar. 31, Mar. 31, Mar. 31, Mar. 31, Mar. 31, Mar. 31,
1997 1998 1999 2000 2001 2002
-------- -------- -------- -------- --------- --------
$mm $mm $mm $mm $mm $mm
-------- -------- -------- -------- --------- --------
Capital stock 283 286 287 280 248 252
Capital stock premium 304 384 407 440 393 2,276
Treasury stock 0 (17) (18) (26) (14) (65)
Retained earnings 1,270 443 1,829 3,111 3,589 2,976
Shareholder's equity 1,839 1,022 2,416 3,753 4,146 5,338
Growth per period -- (44)%(10) 136% 55% 10% 29%
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Growth rate over last 5 years 190%
-------
Annualized growth rate 24%
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These tables demonstrate that on a book and market basis National Grid has been
soundly capitalized in the past and that it should continue to be financially
stable. A review of National Grid's liquidity and capital resources also
indicates that the company is financially sound. Net cash inflow from operations
was (pound)1,255.4 million ($1,807.8 million) in the fiscal year ended March 31,
2002, compared with (pound)810.6 million ($1,167.3 million) in the prior fiscal
year. Cash flow is used to support National Grid's cash obligations such as
principal and interest payments on debt and capital expenditures. National
Grid's net debt increased from (pound)3,918.2 million ($5,642.2 million) at
March 31, 2001 to (pound)8,240.7 ($11,866.6 million) at March 31, 2002,
primarily as a result of the acquisition of Niagara Mohawk. Interest cover (the
number of times the net interest charge is covered by total operating profit
excluding goodwill amortization and exceptional items), which is considered a
more relevant indicator of the borrowing capacity of the National Grid group,
was 3.0 times (compared with 2.9 times at March 31, 2001 and 8.2 times at March
31, 2000). Capital expenditures of (pound)593.3 million ($854.4 million) for the
year ended March 31, 2002, were steady compared to (pound)535.8 million ($771.6
million) for the year ended March 31, 2001. The strong cash flow and
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(10) A special dividend of $1.23 billion was paid during the year ended
March 31, 1998, which distorts the historical trend in growth of shareholder's
equity.
interest cover numbers demonstrate National Grid's ability to meet its current
and future obligations.
In contrast, the write downs of the past year represented unique events
that principally recognize a change in value of sunk investments as recorded on
National Grid's balance sheet.(11) The Latin American telecommunications
businesses, Energis and Energis Polska will not adversely affect National Grid's
financial condition in the future because they have been written-down fully,
including provisions for associated liabilities. The write downs reflect
National Grid's conservative view that, based on current economic prospects, the
affected businesses are not likely to produce substantial future value.
Nevertheless, it is appropriate in this context to recognize that overall
National Grid's investments in the telecommunications industry have generated
over (pound)1 billion ($1.44 billion) of net value for National Grid
shareholders.
National Grid has re-focused its telecommunications strategy and is in
the process of withdrawing from its investments in alternative
telecommunications networks. However, National Grid's Directors believe that
there remain attractive opportunities to leverage the group's infrastructure
skills and assets in the UK and US to provide sites and related infrastructure
services to the wireless communications industry. The risk profile of these
opportunities is more closely aligned with the group's core businesses. GridCom,
for example, uses National Grid's project management skills and electricity
infrastructure (i.e., its network of transmission towers across England and
Wales) to capitalize on demand for new base station sites by mobile phone
operators. This demand is principally driven by the need of second and
third-generation operators to install new infrastructure and the sensitivity of
the public to new masts. The combination of these factors makes National Grid's
transmission network valuable for mobile phone operators. In the US, National
Grid is developing the capability to offer similar services, leveraging National
Grid USA's infrastructure assets.
National Grid's core UK electricity transmission business and its US
electricity and gas business are sound and have performed well over the prior
fiscal year. Total operating profit before exceptional costs in the UK for the
twelve months ended March 31, 2002 was (pound)544.5 million ($784.1 million),
reflecting the strong performance of National Grid's core UK electricity
transmission business, and the total operating profit, before exceptional costs
and goodwill amortization of National Grid USA (representing the consolidated US
utility and nonutility operations) was (pound)378.3 million ($544.8 million). As
a whole, National Grid's operating profit has increased by 18% and earnings per
share, before exceptional items and goodwill amortization, increased by 61% over
the fiscal year ended March 31, 2001.
National Grid's successful operation of both UK and US businesses
indicates that the company has sound management skills and expertise in the
utility industry, whether foreign or domestic. National Grid's core skills are
in design, construction, system operation, regulatory management and customer
service activities associated with operating complex networks. Its primary focus
on regulated electricity
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(11) Except for a possible pay-out by National Grid as a guarantor on a bank
loan to Energis Polska, all the write-downs are non-cash in nature.
networks provides a stable financial base.
National Grid has put in place a framework to guide its activities to
ensure that its business is sustainable and managed in a responsible manner.
This includes standards of business conduct that encourage open and constructive
dialogue with all of National Grid's stakeholders and the maintenance of high
standards of integrity and professionalism. The framework consists of three
goals, each of which is aligned to the achievement of business objectives:
- Sustainable growth: National Grid recognizes that for its
growth to bring long-term value to shareholders and others, it
must be achieved in a responsible manner.
- Profits with responsibility: National Grid recognizes that for
its business to be sustainable, it must be profitable, but
increasing profitability at any cost is neither sustainable
nor acceptable to society. National Grid must be responsible,
therefore, in the way it generates profits.
- Investing in the future: National Grid recognizes that the
physical presence of its lines, poles and pipes links it
closely to the communities that it serves and in which it
operates. National Grid therefore plays a wider role in
society than just the provision of its services. Commercial
success will enable National Grid to continue to invest in the
future in ways that benefit shareholders, the environment,
employees and society, and National Grid's willingness to do
so reflects its desire to be a long-term business.
National Grid's system of corporate governance plays a key role in
assuring that its business is conducted appropriately within the framework
outlined above and with the additional standards set forth in The Combined Code
of Corporate Governance ("Combined Code"). The Combined Code, which is appended
to the Listing Rules of the U.K. Listing Authority, sets out Principles of Good
Governance and specific provisions relating to governance with which listed
companies, including National Grid, are required to comply or to explain the
reasons for any areas of non-compliance.
National Grid has complied with all of the provisions of the Combined
Code throughout the year except for that requiring the appointment of a senior
non-executive director. National Grid considers that the independent
Non-executive Chairman is the appropriate point of contact for shareholders with
concerns about the management of the group, and for this reason does not think
it necessary to appoint a separate senior non-executive director.
National Grid has a separate independent Non-executive Chairman. The
National Grid Board consists of the Chairman, the Group Chief Executive and also
includes five other Executive Directors and five independent Non-executive
Directors. The Board meets at least eight times a year, holding additional
meetings when necessary. The Board must approve certain decisions such as the
start-up of the acquisition of a new company or any activity in a new territory.
The Board also monitors environmental and safety matters throughout the group.
Board members each receive regular and ad hoc
reports about group activities and have the right and duty to make further
inquiries if they think it necessary.
The Directors are responsible for making sure that the annual report
and accounts give a balanced and understandable presentation of the group's
position and prospects. The Audit Committee of the Board considers the scope and
extent of internal audit and reports annually to the Board on this function. The
Audit Committee meets at least four times a year and the Group Chief Executive
and Group Finance Director are invited to attend. The Audit Committee has at
least one private meeting with the external auditors with management excluded.
The Audit Committee also considers the re-appointment of the auditors each year.
The Audit Committee has the specific task of keeping under review the nature and
extent of non-audit services provided by the external auditors to ensure that a
proper balance is maintained between objectivity and value for the money.
National Grid's system of internal control helps to safeguard
shareholders' investment and the group's assets and is designed to manage,
rather than to eliminate, material risks to the achievement of business
objectives. The Board is responsible for the group's system of internal control
and for reviewing its effectiveness, recognizing that any such system can
provide only reasonable, and not absolute, assurance against material
misstatement or loss. National Grid maintains an ongoing process for
identifying, evaluating and managing the significant risks faced by the group.
Any material matters arising are reported to the Board.
National Grid subjects all project proposals to careful and stringent
reviews.
Statement of Financial Accounting Standards No.121, Accounting for the
impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of,
requires an evaluation of the impairment of all assets of a utility that a
company plans to write down and take as a loss. Other than the
telecommunications interests that were written down as noted above, National
Grid currently has no other assets that would need to be written down under SFAS
121.
Under Rule 53(c)(2) National Grid must demonstrate that the proposed
transaction "will not have an adverse impact on any utility subsidiary of the
registered holding company, or its customers, or on the ability of state
commissions to protect such subsidiary or customers." The Commission should
conclude that the customers of National Grid's U.S. public utility subsidiary
companies will not be adversely impacted by the proposed transaction based on
the following:
(a) The proposed transaction does not involve an issuance
or sale of securities to finance the acquisition of an EWG or FUCO, or the
guarantee of a security of an EWG or FUCO. In connection with the proposed
transaction none of the utility subsidiaries will provide financing for, extend
credit to, or sell or pledge its assets directly or indirectly to any FUCO in
which National Grid owns any interest.
(b) The proposed transaction will not have any negative
impact on the ability of the utility subsidiaries to fund operations and growth.
The utility subsidiaries will continue to have financial facilities in place or
access to National Grid financing facilities that will adequately support their
operations.
(c) National Grid will comply with the requirements of
Rule 53(a)(3) regarding the limitation on the use of the utility subsidiaries'
employees in connection with providing services to FUCOs. National Grid's FUCOs
have experienced and extensive staff resources. Management and support for FUCO
operations will be largely performed by National Grid Holdings One plc and its
subsidiary companies, and by outside consultants (e.g., engineers, investment
advisors, accountants and attorneys) engaged for projects as necessary. National
Grid also will comply with Rule 53(a)(4) regarding the provision of EWG and FUCO
related information to every federal, state and local regulator having
jurisdiction over the retail rates, as applicable, of the utility subsidiaries.
(d) In connection with the increased FUCO investment
level authorized in the January Order, the Commission obtained statements from
the state commissions to support its determination under Rule 53(c). In
particular, the NYPSC, RIPUC, MDTE, Connecticut Department of Public Utility
Control, and the VPSB assured the Commission that they have sufficient authority
and resources to protect their ratepayers from any adverse impacts arising out
of National Grid's proposed increased level of investment. The NHPUC provided
assurance, but noted National Grid's representations that it does not intend to
invest in EWGs. Consequently, the Commission reserved jurisdiction over the
issuance and sale of securities for the purposes of financing investments in
EWGs, pending completion of the record. As noted previously, National Grid has
no EWG investments and does not seek FUCO or EWG investment authorization in
this Application.
National Grid no longer has operations in Connecticut and is
not subject to the jurisdiction of the Connecticut Department of Public Utility
Control.
(e) In addition, National Grid will provide the
information required by Form 20-F to permit the Commission to monitor National
Grid's financial condition.
Consequently, the conditions of Rule 53(c)(2) are satisfied.
Since the authorization sought herein will not increase
National Grid's authorized level of investment in FUCOs and will not have a
direct effect upon National Grid's investment in FUCO's, no adverse findings
under Rule 54 should be made and the Commission should approve the authorization
requested in this application.
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, as amended, the applicants named herein have duly caused this statement
to be signed on their behalf by the undersigned thereunto duly authorized.
NATIONAL GRID USA
By /s/ Kirk L. Ramsauer
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Name: Kirk L. Ramsauer
Title: Deputy General Counsel
NATIONAL GRID GROUP PLC
By /s/ Kirk L. Ramsauer
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Name: Kirk L. Ramsauer
Title: Deputy General Counsel
VERMONT YANKEE NUCLEAR POWER
CORPORATION
By /s/ Bruce W. Wiggett
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Name: Bruce W. Wiggett
Title: Sr. Vice President of Finance & Admin.
Date: July 30, 2002
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