DF 98-194
Northern Utilities, Inc.
Petition for Approval to Issue Securities
Order NISI Approving an Increase in the Credit Limit of the
Revolving Credit Agreement and the Fuel Purchase Agreement
O R D E R N O. 23,079
December 8, 1998
On November 2, 1998, Northern Utilities, Inc.
(Northern), a public utility organized and existing under the
laws of the State of New Hampshire and primarily engaged in the
business of distributing natural gas in certain cities and towns
in New Hampshire and Maine, filed with the New Hampshire Public
Utilities Commission (Commission) a Petition for Approval to
Issue Securities. Northern requests authority, pursuant to: (1)
RSA 369:1 and 369:4, to amend its current Revolving Credit
Agreement (Revolver) to allow for an increase in the amount
available for borrowing by an additional $5,000,000 for a total
of $25,000,000 and (2) RSA 366:3 and 366:5, to increase the
commitment amount available to Northern under its fuel financing
arrangement with BayNor Energy, Inc. (BayNor) by $7,000,000 for a
total amount available of $10,000,000.
Commission Order No. 20,768 (February 22, 1993)
approved Northern's petition to enter into the Revolver for an
amount not to exceed $20,000,000 over a four year term.
Commission Order No. 22,504 (February 18, 1997) granted authority
to extend the term an additional four years and to decrease the
borrowing rate. The proposed $5,000,000 increase available to
Northern under the Revolver would be applied toward the reduction
of short-term debt.
The basic terms and conditions of the Revolver remain
unchanged. The interest rate is based on the London Interbanks
Offered Rates (LIBOR) plus 0.3% and the Revolver expires March
17, 2001. A flat rate of 0.125% will be charged on the
$5,000,000 increase in credit available to Northern, resulting in
an annual cost of $6,250. The estimated financing rate
associated with the additional credit is 5.825% (LIBOR-based rate
plus 0.3% plus 0.125%). This compares to Northern's current
financing rate of 5.875% for short-term debt and 6.34% for
long-term debt and results in an estimated annual savings of
$2,500. Under the Revolver, Northern also has the option to lock
in fixed rates at its discretion.
The proposed transaction will have no appreciable
effect on Northern's debt-to-equity ratio and would reduce its
overall cost of capital from 9.26% to 9.20%. Common equity
constitutes 50.62% of Northern's current capital structure and
would increase to 52.60% under the proposed financing.
Currently, long-term debt and short-term debt represent 40.87%
and 8.51%, respectively, of the capital structure. Under the
proposed financing, long-term debt would represent 47.40% of the
capital structure and there would be no outstanding short-term
debt.
Commission Order No. 16,002 (November 22, 1982)
approved Northern's petition to enter into a fuel inventory trust
financing mechanism with BayNor (BayNor Arrangement). The
creation of the inventory trust fund removed fuel inventory from
Northern's rate base, thereby reducing base rates.
The trust's purchase of storage fuel from Northern is
financed by an unaffiliated third party, BayNor, established to
finance Northern's as well as Bay State Gas Company's (Northern's
parent company) fuel inventory. When Northern determines it has
a need for stored gas to serve its customers, it draws the amount
of gas necessary out of storage and BayNor invoices Northern for
the amounts withdrawn. Northern has the right on demand to
purchase from BayNor whatever quantities of gas it requires to
meet the needs of its customers from inventories that Northern
has transferred to BayNor. The price paid to BayNor for such
purchases is made up of two components: (1) the cost that was
paid for the fuel, including transportation or storage costs paid
to third parties which are billable under the cost of gas
adjustment clause, and (2) an increment that represents the costs
incurred by BayNor in performing its duties under the contract,
including financing costs and associated fees.
Savings under the BayNor Arrangement arise from the
fact that the cost of BayNor's commercial paper is lower than
what Northern would incur through its own short-term lines of
credit, the manner in which it financed its fuel inventory prior
to the BayNor Arrangement. The Union Bank of California provides
BayNor an irrevocable letter of credit in support of the issuance
of BayNor's commercial paper, which means investors in BayNor's
commercial paper look to the superior credit rating of the bank
and not to Northern's credit quality. As a result, the
commercial paper issued by BayNor receives the highest credit
rating and is issued at the lowest cost. Northern experienced
savings of $39,079 in Fiscal Year 1998 due to the interest rate
differential between BayNor and Northern's short-term debt.
With a substantial increase in the fuel inventory proposed to be
financed through the BayNor Arrangement, Northern anticipates
additional annual savings of $139,200. Moreover, because it
utilizes the credit of a third party, Northern's own credit
sources are not used in this financing and are available for
other purposes.
The proposed increase in the availability of credit
from $3,000,000 to $10,000,000 was necessitated by changes in
Northern's supply portfolio which reflects an increase in storage
and a reduction in other gas supply costs. Northern has
restructured its supply portfolio in response to the reconversion
of the Portland Pipe Line Corporation's pipeline from natural gas
back to oil and the coming on-line of the Portland Natural Gas
Transmission System (PNGTS) pipeline in the near future.
Northern has contracted for an additional 5 billion cubic feet of
storage services in conjunction with PNGTS pipeline capacity,
with the storage services to be financed through BayNor. The
increase in the quantity of stored natural gas provides a more
economical supply mix for Northern's heat sensitive load.
After reviewing the merits of the petition as set forth
above, and in accordance with RSA 369 and 366, we find approval
of the petition to be in the public good.
Based upon the foregoing, it is hereby
ORDERED NISI, that the petition of Northern Utilities,
Inc. for authorization to increase the amount available for
borrowing under the terms of: (1) the current Revolving Credit
Agreement from $20,000,000 to $25,000,000 at an additional cost
of 0.125% per annum is APPROVED pursuant to RSA 369:1 and 369:4
and (2) the BayNor Arrangement from $3,000,000 to $10,000,000
under the current terms of the arrangement is APPROVED pursuant
to RSA 366:3 and 366:5; and it is
FURTHER ORDERED, that Northern, within 10 days of the
closing, shall submit a copy of the amended Revolving Credit
Agreement as well as a statement as to the interest rate on the
initial borrowing; and it is
FURTHER ORDERED, that Northern, within 10 days of the
closing, shall submit a copy of the amended BayNor Arrangement as
well as a statement as to the interest rate on the initial
borrowing; and it is
FURTHER ORDERED, that Northern is authorized to take
all steps to deliver and execute all documents necessary or
desirable to implement and carry out the terms of the Revolving
Credit Agreement and the BayNor Arrangement; and it is
FURTHER ORDERED, that on or before January 1st and July
1st of each year, Northern shall file with this Commission a
detailed statement, duly sworn to by its Treasurer, showing the
disposition of proceeds of the Revolving Credit Agreement until
the whole of said proceeds has been fully accounted for; and it
is
FURTHER ORDERED, that pursuant to N.H. Admin. Rules,
Puc 1604.03 or Puc 1605.03, Northern shall cause a copy of this
Order Nisi to be published once in a statewide newspaper of
general circulation or of circulation in those portions of the
state where operations are conducted, such publication to be no
later than December 11, 1998 and to be documented by affidavit
filed with this office on or before December 18, 1998; and it is
FURTHER ORDERED, that all persons interested in
responding to this petition be notified that they may submit
their comments or file a written request for a hearing on this
matter before the Commission no later than December 28, 1998; and
it is
FURTHER ORDERED, that any party interested in
responding to such comments or request for hearing shall do so no
later than December 31, 1998; and it is
FURTHER ORDERED, that this Order Nisi shall be
effective January 4, 1998, unless the Commission provides
otherwise in a supplemental order issued prior to the effective
date.
By order of the Public Utilities Commission of New
Hampshire this eighth day of December, 1998.
Douglas L. Patch Susan S. Geiger Nancy Brockway
Chairman Commissioner Commissioner
Attested by:
Thomas B. Getz
Executive Director and Secretary