As filed with the Securities and Exchange Commission on
June 1, 2005
File No. 70-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________________________
APPLICATION-DECLARATION
ON FORM U-1
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
_________________________________________________
UNITIL CORPORATION
FITCHBURG GAS AND ELECTRIC LIGHT COMPANY
UNITIL ENERGY SYSTEMS, INC.
UNITIL POWER CORP.
UNITIL REALTY CORP.
UNITIL RESOURCES INC.
UNITIL SERVICE CORP.
6 Liberty Lane West
Hampton, New Hampshire 03842-1720
________________________________________________
(Name of companies filing this statement and
address of principal executive offices)
UNITIL CORPORATION
6 Liberty Lane West
Hampton, New Hampshire 03842-1720
_________________________________________________
(Name of top registered holding company parent)
Mark H. Collin
Senior Vice President, Chief Financial Officer & Treasurer
UNITIL CORPORATION
6 Liberty Lane West
Hampton, New Hampshire 03842-1720
_________________________________________________
(Name and address of agent for service)
The Commission is requested to mail copies of
all orders, notices and communications to:
Sheri E. Bloomberg, Esq.
LeBoeuf, Lamb, Greene & MacRae LLP
125 West 55th Street
New York, New York 10019
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTIONS
Unitil Corporation, a New Hampshire corporation ("Unitil") and a
registered holding company under the Public Utility Holding Company Act of 1935,
as amended (the "Act"), and its wholly owned subsidiary companies, Fitchburg Gas
and Electric Light Company ("Fitchburg"), Unitil Energy Systems, Inc. ("Unitil
Energy"), Unitil Power Corp. ("Unitil Power"), Unitil Realty Corp. ("Unitil
Realty"), Unitil Resources, Inc. ("Unitil Resources") and Unitil Service Corp.
("Unitil Service" and, together with Fitchburg, Unitil Energy, Unitil Power,
Unitil Realty and Unitil Resources, the "Subsidiaries"),/1 hereby submit this
application-declaration on Form U-1 (the "Application-Declaration") with the
Securities and Exchange Commission (the "Commission") for the authorization and
approval under Sections 6(a), 7 and 12(b) of the Act and the Rules 45 and 52
thereunder for certain hedging transactions with respect to existing
indebtedness of Unitil or the Subsidiaries in order to manage and minimize
interest rate costs, and certain hedging transactions with respect to
anticipatory debt issuances in order to lock-in current interest rates and/or
manage interest rate risk exposure.
(a) Interest Rate Hedges. Unitil, and to the extent not exempt
pursuant to Rule 52, the Subsidiaries, request authorization to enter into
interest rate hedging transactions with respect to existing indebtedness
("Interest Rate Hedges"), subject to certain limitations and restrictions.
Interest Rate Hedges would be used as a means of prudently managing the risk
associated with outstanding debt issued pursuant to, and subject to the
limitations of, financing authority granted to the Applicants by the Commission
under the Act or an applicable exemption therefrom by, in effect, synthetically
(i) converting variable-rate debt to fixed-rate debt, (ii) converting fixed-rate
debt to variable-rate debt, and (iii) limiting the impact of changes in interest
rates resulting from variable-rate debt. In no case will the notional principal
amount of any interest rate swap exceed the face value of the underlying debt
instrument and related interest rate exposure. Transactions will be entered into
for a fixed or determinable period. Thus, the Applicants will not engage in
leveraged or speculative derivative hedging transactions. Interest Rate Hedges
(other than exchange-traded Interest Rate Hedges) would only be entered into
with counterparties ("Approved Counterparties") whose senior unsecured debt
ratings, or the senior unsecured debt ratings of the parent companies providing
a guarantee of the counterparties, as published by Standard & Poors Rating
Services, are equal to or greater than BBB, or an equivalent rating from Moody's
Investors Service or Fitch Inc.
Interest Rate Hedges will involve the use of financial instruments
commonly used in today's capital markets, such as exchange-traded interest rate
futures contracts and over-the-counter interest rate swaps, caps, collars,
floors, options, forwards, and structured notes (i.e., a debt instrument in
which the principal and/or interest payments are indirectly linked to the value
of an underlying asset or index), or transactions involving the purchase or
sale, including short sales, of U.S. Treasury Securities or U.S. government
agency (e.g., Fannie Mae) obligations, or LIBOR-based swap instruments and
similar products designed to manage interest rate or credit risks. The
transactions would be for fixed periods and stated notional amounts.
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1\ For purposes of this Application-Declaration, Unitil and the Subsidiaries are
collectively referred to as the "Applicants."
(b) Anticipatory Hedges. In addition, Unitil and the Subsidiaries
request authorization to enter into interest rate hedging transactions with
respect to anticipated debt offerings (the "Anticipatory Hedges"), subject to
certain limitations and restrictions. Such Anticipatory Hedges (other than
exchange-traded Anticipatory Hedges) would only be entered into with Approved
Counterparties, and would be utilized to fix and/or limit the interest rate risk
associated with any new issuance through (i) a forward sale of exchange-traded
U.S. Treasury futures contracts, U.S. Treasury Securities and/or a forward-dated
swap (each a "Forward Sale"), (ii) the purchase of put options on U.S. Treasury
Securities (a "Put Options Purchase"), (iii) a Put Options Purchase in
combination with the sale of call options on U.S. Treasury Securities (a "Zero
Cost Collar"), (iv) transactions involving the purchase or sale, including short
sales, of U.S. Treasury Securities, or (v) some combination of a Forward Sale,
Put Options Purchase, Zero Cost Collar and/or other derivative or cash
transactions, including, but not limited to structured notes, caps and collars,
appropriate for the Anticipatory Hedges.
Anticipatory Hedges may be executed on-exchange ("On-Exchange Trades")
with brokers through (i) the opening of futures and/or options positions traded
on the Chicago Board of Trade, the New York Mercantile Exchange or other
financial exchange, (ii) the opening of over-the-counter positions with one or
more counterparties ("Off-Exchange Trades"), or (iii) a combination of
On-Exchange Trades and Off-Exchange Trades. Unitil will determine the optimal
structure of each Anticipatory Hedge transaction at the time of execution.
(c) General. The Applicants will comply with Statement of Financial
Accounting Standards ("SFAS") 133 ("Accounting for Derivative Instruments and
Hedging Activities"), SFAS 138 ("Accounting for Certain Derivative Instruments
and Certain Hedging Activities") and SFAS 149 ("Amendment of Statement 133 on
Derivative Instruments and Hedging Activities") or other standards relating to
accounting for derivative transactions as are adopted and implemented by the
Financial Accounting Standards Board ("FASB"). The Applicants represent that
each Interest Rate Hedge and each Anticipatory Hedge will qualify for hedge
accounting treatment under the current FASB standards in effect and as
determined as of the date such Interest Rate Hedge or Anticipatory Hedge is
entered into. The Applicants will also comply with any future FASB financial
disclosure requirements associated with hedging transactions.
Fees, commissions and other amounts payable to the counterparty or
exchange (excluding, however, the swap or option payments) in connection with an
interest rate risk management arrangements will not exceed those generally
obtainable in competitive markets for parties of comparable credit quality.
By order dated June 30, 2003 (Holding Co. Act Release No. 27691, (the
"Short Term Debt Order")), the Applicants are currently authorized to make
unsecured short-term borrowings in the amount of $55 million for Unitil and $35
million for Fitchburg and to operate a Money Pool. Applicants may enter into
Interest Rate Hedges and/or Anticipatory Hedges with respect to borrowings under
the bank lines authorized in the Short Term Debt Order or any future order
issued by the Commission with respect to debt financing by the Applicants. To
the extent that the borrowed funds subject to the relevant authorized hedging
instrument are contributed to the Money Pool, the related benefits of the
hedging instrument will be passed through to the
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Subsidiary borrowing the funds through the Money Pool. Similarly, in such cases,
the costs and fees of the hedging instrument will be allocated to the borrowers
of the funds from the Money Pool as part of, and pursuant to the same allocation
formula as, interest charges under the existing Cash Pooling and Loan Agreement.
Following the issuance by the Commission of any approval pursuant to this
Application-Declaration, Applicants intend to amend the Cash Pooling and Loan
Agreement to provide for the allocation of hedging instrument costs and fees as
described above.
Applicants are requesting the proposed authority in order to be able
to more efficiently and flexibly manage their financial risk using techniques
commonly used by utility holding company systems. Indeed, the proposed terms and
conditions of the Interest Rate Hedges and Anticipatory Hedges are substantially
the same as the Commission has approved in other cases (see, PNM Resources,
Inc., Holding Co. Act Release No. 27943 (Dec. 30, 2004); Black Hills Corporation
Holding Co. Act Release No. 27933 (Dec. 29, 2004); Alliant Energy Corporation,
Holding Co. Act Release No. 27930 (Dec. 28, 2004); Ameren Corporation, Holding
Co. Act Release No. 27860 (June 18, 2004), NiSource Inc., Holding Co. Act
Release No. 27789 (Dec. 30, 2003)).
The proposed transactions may be subject to Rules 53 and 54 under the
Act. Neither Unitil nor any Subsidiary thereof presently has, or as a
consequence of the proposed transactions will have, an interest in any exempt
wholesale generator ("EWG") or foreign utility company ("FUCO"), as those terms
are defined in Sections 32 and 33 of the Act, respectively. None of the proceeds
from the proposed transactions will be used to acquire any securities of, or any
interest in, an EWG or FUCO. Consequently, all applicable requirements of Rule
53(a)-(c) under the Act are satisfied as required by Rule 54 under the Act.
The authorization sought herein shall be conditioned on Unitil, Unitil
Energy and Fitchburg maintaining a common equity level (as reflected in the most
recent 10-K or 10-Q filed with the Commission under the Securities and Exchange
Act of 1934, as amended, ("1934 Act") adjusted to reflect changes in
capitalization since the balance sheet date therein) of at least 30% of its
consolidated capitalization (composed of common equity, preferred stock,
short-term and long-term debt) during the period of authorization. As of March
31, 2005, 40% of Unitil's consolidated capitalization was common equity; 42% of
Unitil Energy's capitalization was common equity; and 35% of Fitchburg's
consolidated capitalization was common equity, in each case calculated as set
forth above.
No securities (apart from securities issued for the purpose of funding
money pool operations) may be issued in reliance upon any order granted
hereunder, unless: (i) all outstanding securities of the issuer that are rated
are rated investment grade; and (ii) all outstanding securities of Unitil that
are rated are rated investment grade. For purposes of this condition, a security
will be considered rated investment grade if it is rated investment grade by at
least one nationally recognized statistical rating organization, as that term is
used in paragraphs (c)(2)(vi)(E), (F) and (H) of Rule 15c3-1 under the 1934
Act./2 Applicants request
______________
2\ Applicants note that none of the outstanding debt securities of Unitil,
Fitchburg or Unitil Energy have been issued in a public offering and none are
currently rated by a nationally recognized statistical ratings organization.
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that the Commission reserve jurisdiction over the issuance of any securities at
any time that the conditions set forth in clauses (i) and (ii) above are not
satisfied.
In accordance with the terms of the Short Term Debt Order, the
Applicants file, and will continue to file, with the Commission reports on
short-term borrowings and Money Pool transactions on a quarterly basis within 30
days after the end of each calendar quarter, which contain, for each company,
(i) the maximum principal amount of short-term borrowings outstanding, (ii) the
average interest rate for the Money Pool borrowings for the period, (iii) the
maximum amount outstanding during the period for each source of outside
borrowings and (iv) the common equity capital as a percent of total
capitalization (composed of common equity, preferred stock, long-term and
short-term debt) for each of Unitil (on a consolidated basis), and Fitchburg and
Unitil Energy . Following the issuance by the Commission of any approval
pursuant to this Application-Declaration, the Applicants undertake to also
include in such rule 24 certificates information as to the notional amount and
principal terms of any Interest Rate Hedges or Anticipatory Hedges entered into
during the quarter and the identify of the other parties to the transaction
which shall also separately show the outstanding amount of Interest Rate Hedges
or Anticipatory Hedges previously reported.
ITEM 2. FEES, COMMISSIONS AND EXPENSES
The fees, commissions and expenses of the Applicants expected to be paid or
incurred, directly or indirectly, in connection with the transactions described
above are estimated as follows:
Legal fees....................................... $6,000
Miscellaneous.................................... $2,000
Total...................................... $8,000
ITEM 3. APPLICABLE STATUTORY PROVISIONS
Sections 6(a), 7, and 12(b) of the Act, and Rules 45 and 52 thereunder, are
directly applicable to this Application-Declaration.
ITEM 4. REGULATORY APPROVALS
The entry into Interest Rate Hedges and Anticipatory Hedges by Unitil
Energy Services, Inc. will require approval of the New Hampshire Public Service
Commission and therefore may be exempt from Commission approval under Rule 52.
No state or federal agency other than the Commission has jurisdiction with
respect to any of the proposed transactions other than as described in this
item.
ITEM 5. PROCEDURE
It is requested that the Commission issue and publish no later than June
17, 2005 the requisite notice under Rule 23 with respect to this
Application-Declaration; and such notice to specify a date not later than July
12, 2005 as the date after which an order granting and
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permitting this Application-Declaration to become effective may be entered by
the Commission. Applicants are unaware of any comments having been timely filed
with the Commission regarding this Application-Declaration. Applicants request
that the Commission enter not later than July 15, 2005, an appropriate order
granting and permitting this Application-Declaration to become effective.
No recommended decision by a hearing officer or other responsible officer
of the Commission is necessary or required in this matter. The Division of
Investment Management of the Commission may assist in the preparation of the
Commission's decision in this matter. There should be no thirty-day waiting
period between the issuance and effective date of any order issued by the
Commission in this matter, and it is respectfully requested that any such order
be made effective immediately upon the entry thereof.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
(a) Exhibits
Exhibit No. Description of Exhibit
----------- ----------------------
F-1 Opinion of Counsel (to be filed by Amendment).
F-2 "Past Tense" Opinion of Counsel (To be filed by
Amendment).
G-1 Proposed Form of Notice
(b) Financial Statements
No. Description of Financial Statement
--- ----------------------------------
FS-1 Unitil Corporation and Subsidiary Companies
Consolidated Actual Balance Sheet and Statement
of Earnings, December 31, 2004 and Unaudited
Actual Balance Sheet and Statement of Earnings,
March 31, 2005 (Filed with the Commission with
Unitil's 10-K for the year ended December 31,
2004 and 10-Q for the quarter ended March 31,
2005, and incorporated by reference herein).
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ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
None of the matters that are the subject of this Application-Declaration
involve a "major federal action" nor do they "significantly affect the quality
of the human environment" as those terms are used in Section 102(2)(C) of the
National Environmental Policy Act. None of the proposed transactions that are
the subject of this Application-Declaration will result in changes in the
operation of the Applicants that will have an impact on the environment. The
Applicants are not aware of any federal agency which has prepared or is
preparing an environmental impact statement with respect to the transactions
proposed herein.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the Applicants have duly caused this Application-Declaration to be signed
on their behalf by the undersigned thereunto duly authorized.
Dated: June 1, 2005
UNITIL CORPORATION
By: /s/ Mark H. Collin
-----------------------------------------
Name: Mark H. Collin
Title: Senior Vice President, Chief Financial
Officer & Treasurer
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