1 Section numbers in italic type, if any, refer to the Trust Indenture Act of 1939, title III of Securities Act of 1933. 2 Section numbers in italic type, if any, refer to the Investment Advisers Act of 1940. 15 S. E. C. [No. 1958] IN THE MATTER OF CONSOLIDATED ELECTRIC AND GAS COMPANY File No. 70-788. Promulgated December 16, 1943 (Public Utility Holding Company Act of 1935-Sections 9, 10, and 12) ISSUE AND SALE OF SECURITIES OF REGISTERED HOLDING COMPANY OR SUBSIDIARY. Declaration regarding proposed issue and sale of first mortgage bonds and common stock of a public utility company which is also a registered holding company and a subsidiary of a registered holding company, permitted to become effective. SALE OF SECURITIES TO AN AFFILIATE. Acquisition of Securities of Affiliate and Pledge Thereof. Applications and declarations filed by registered holding company and subsidiary holding company pursuant to Sections 9, 10, and 12 of the Act regarding the sale by the subsidiary of additional common stock to its parent and the acquisition and pledge of such common stock by the parent, granted and permitted to become effective, the Commission finding that such acquisition has the tendency required by Section 10 (c) (2) and that the transactions are otherwise consistent with the requirements of Sections 10 and 12. APPEARANCES: Ralph C. Binford, of the Public Utilities Division of the Commission. G. B. Pidot and Edgar P. Baker, of Milbank, Tweed and Hope, for applicants and declarants. FINDINGS AND OPINION OF THE COMMISSION Consolidated Electric and Gas Company ("Consolidated”), a registered holding company, and Maine Public Service Company ("Maine"), a registered holding company and a public utility subsidiary of Consolidated, have filed declarations and an application and amendments thereto relating to the following transactions: Maine proposes to acquire the electric utility properties, franchises, and business of Caribou Water, Light and Power Company ("Caribou") for a cash consideration of $500,000 (subject to certain adjustments). To finance the acquisition Maine proposes to issue $300,000 principal amount of first mortgage 30-year 3% bonds, dated September 30, 1943 and due September 30, 1973 and 2,000 additional shares of its common stock, $100 par value. It is proposed that the bonds will be sold to three insurance companies at 102 and accrued interest to date of delivery and that the common stock will be sold for a cash consideration of $200,000 to Consolidated. Consolidated proposes to acquire such stock and to pledge it under a trust indenture agreement dated August 1, 1932 securing the collateral trust bonds of Consolidated, under which indenture all of the outstanding stock of Maine is now pledged. Maine's acquisition of the Caribou properties has been approved by the Maine Public Utilities Commission and, as to such transaction, Section 9 (b) (2) grants an exemption from the provisions of Section 9 (a) requiring our approval of the acquisition of utility assets. The proposed issuance of securities by Maine and the proposed acquisition and pledge by Consolidated of Maine's common stock are, however, subject to Sections 6, 9, 10, and 12 of the Act. After appropriate notice, a public hearing was held upon said joint application and declarations and, having examined the record, we make the following findings: THE COMPANIES INVOLVED Consolidated, a Delaware corporation, is exclusively a holding company controlling, directly or indirectly, some 44 subsidiary companies, which, excluding certain interurban bus subsidiaries, operate in 18 States, Puerto Rico, the Philippine Islands, and in 4 foreign countries. Maine, a corporation organized under the laws of Maine, is engaged in the purchase, generation, distribution, and sale of electricity in the counties of Aroostook, Penobscot, and Piscataquis, Maine. Maine has one subsidiary company, Maine and New Brunswick Electrical Power Company, Limited ("New Brunswick"), a New Brunswick corporation, which owns and operates hydroelectric generating properties in the Province of New Brunswick. Most of the electricity generated by New Brunswick is sold to Maine, the remainder being distributed in the Province of New Brunswick. Caribou is a Maine corporation engaged in the generation, purchase, and distribution of electric energy. Its service area is entirely in Aroostook County, Maine, where it serves at retail the town of Caribou and a number of villages; it also sells electric energy to Maine. Caribou's service area is located approximately in the center of the area served by Maine and the physical properties of the two companies are interconnected. The record indicates that there is no affiliation between the Consolidated holding company system and Caribou. SECURITIES TO BE ISSUED The 32% bonds proposed to be issued and sold are to be issued under an indenture supplemental to the indenture securing the $2,000,000 first and collateral trust 334% bonds issued in connection with Maine's acquisition of the securities of New Brunswick. The supplemental indenture has substantially the same provisions as the principal indenture, which provisions were described in our findings and opinion approving the issuance of the $2,000,000 of bonds;1 except for the sinking-fund provisions. The sinkingfund provision contained in the supplemental indenture provides for retirement of $5,000 principal amount of bonds a year, which provision is designed to retire 50% of the issue by maturity. The bonds will be purchased by the same three institutional investors which purchased the prior $2,000,000 issue and the sale of such bonds at 102 will yield the purchasers approximately 3.40% to maturity. There are now outstanding 7,303 shares of $100 par value common stock, all owned by Consolidated. The 2,000 additional shares of common stock to be issued by Maine and purchased by Consolidated, will have the same voting rights and other privileges as the presently outstanding common stock. BALANCE SHEET AND CORPORATE STRUCTURE Corporate and consolidated balance sheets of Maine as at July 31, 1943, actual and pro forma, giving effect to the acquisition and to the issuance of securities are attached hereto as exhibits. The corporate and consolidated capitalization, including surplus, of Maine, actual and pro forma, are shown below: UTILITY PLANT ACCOUNT AND DEPRECIATION RESERVE In connection with the acquisition by Maine of the securities of New Brunswick and the issuance of Maine's first mortgage bonds, 2 Maine stated that its property is recorded at original cost as determined in studies made by the company in accordance with the Uniform System of Accounts for Electric Utilities adopted by the Public Utilities Commission of Maine. The record indicates that the Maine Commission has, however, questioned 1 See Consolidated Electric and Gas Company, et al., 12 S.E.C. 449 (1942). 2 Consolidated Electric and Gas Company, et al., supra, footnote 1. 699455°-49-2 3 whether or not certain items in the property account are properly classifiable in Accounts 107 and 100.5, which items are now stated by the company not to exceed $100,000. An original cost study has not been made of Caribou's property account, but it is stated that the books of the company purport to reflect the electric property at original cost figures. The retirement reserve of Maine, per books, as at July 31, 1943 amounted to $569,400, equivalent to 17.9 percent of gross property. The retirement reserve of Maine as at July 31, 1943, pro forma, after giving effect to the acquisition of Caribou's electric properties, will be increased to approximately $658,818, or 17.5 percent of gross property. EARNINGS The following table shows a condensed income account of Maine, actual and pro forma, for the 12 months ended July 31, 1943, and related ratios: • Adjusted to reflect (a) annual interest on debt now outstanding and on notes and debentures receivable from subsidiary, (b) dividend from subsidiary equivalent to its net income for the period, (c) elimination of nonrecurring interest on debt payable to parent company, (d) Federal income and excess profits taxes computed by applying 1942 rates to the adjusted earnings, and (e) retirement reserve accruals in accordance with indenture requirements. Adjusted for acquisition of electric property of Caribou. 3 In connection with the proceedings relating to the acquisition of the New Brunswick properties and the issuance by Maine of first mortgage bonds, Maine agreed that of its existing earned surplus, $275,000 will not be used by it for any purpose (unless such different use is approved by this Commission), other than for the elimination from its property accounts of such items as may be determined by the Maine Commission to be of a nature which would require classification in Accounts 107 and 100.5. See Consolidated Electric and Gas Company, et al., supra, footnote 1. |