UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT
TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 15, 2015
(Exact name of registrant as specified in its charter)
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Connecticut |
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1-15052 |
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06-1541045 |
(State or other jurisdiction
of Incorporation) |
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(Commission
File Number) |
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(IRS Employer
Identification No.) |
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157 Church Street,
New Haven, Connecticut |
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06506 |
(Address of principal executive offices) |
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(Zip Code) |
Registrants Telephone Number, Including Area Code (203) 499-2000
Not Applicable
(Former
name or former address, if changed since last report)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240 14d-2(b)) |
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Pre-commencement communications pursuant to Rule eye-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 8.01 Other Events
Massachusetts Department of Public Utilities Issues Final Decision on Merger
On December 15, 2015, the Massachusetts Department of Public Utilities issued a final decision in D.P.U. 15-26 (the Final
Decision) approving the merger transaction involving UIL Holdings Corporation (UIL), Iberdrola USA, Inc. (Iberdrola USA) and Green Merger Sub, Inc., a wholly-owned subsidiary of Iberdrola USA. A copy of the Final
Decision is attached hereto as Exhibit 99.1. All required regulatory and shareowner approvals for the merger have now been obtained.
For
further information regarding the transaction, please refer to the Definitive Proxy Statement filed by UIL with the Securities and Exchange Commission (SEC) in connection with the merger on November 12, 2015 and the other documents
filed by UIL and Iberdrola USA with the SEC.
Item 9.01 Financial Statements and Exhibits.
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99.1 |
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Final Decision of the Massachusetts Department of Public Utilities in D.P.U. 15-26, dated December 15, 2015. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
Date: December 15, 2015
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UIL HOLDINGS CORPORATION |
Registrant |
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By |
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/s/ Sigrid Kun |
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Sigrid Kun |
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Vice President |
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and Corporate Secretary |
Exhibit 99.1
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DEPARTMENT OF PUBLIC UTILITIES |
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D.P.U. 15-26 |
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December 15, 2015 |
Joint Petition of UIL Holdings Corporation, Iberdrola USA, Inc., and Green Merger Sub, Inc. for Approval of a Change of
Control of UIL Holdings Corporation, a Holding Company of The Berkshire Gas Company pursuant to G.L. c. 164, § 96.
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APPEARANCES: |
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James M. Avery, Esq. |
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Nicholas P. Brown, Esq. Pierce Atwood
LLP |
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100 Summer Street, Suite 2250 |
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Boston, MA 02110
and |
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Linda L. Randell, Esq. Sigrid E. Kun,
Esq. |
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UIL Holdings Corporation |
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157 Church Street, P.O. Box 1564 New Haven, CT
06506 |
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FOR: UIL HOLDINGS CORPORATION |
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Petitioner |
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Paul Afonso, Esq. Jed M. Nosal, Esq.
Brown Rudnick LLP One Financial Center
Boston, MA 02111 |
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and |
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David L. Schwartz, Esq. Natasha Gianvecchio,
Esq. David E. Pettit, Esq. Latham & Watkins
LLP |
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555 11th Street NW, Suite 1000 |
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Washington D.C. 20004 |
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FOR: IBERDRDROLA, S.A., IBERDRDROLA USA,
INC., AND GREEN MERGER SUB, INC. |
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Petitioner |
Maura Healey, Attorney General
Commonwealth of Massachusetts
By: Donald W. Boecke
Joseph W.
Rogers
Assistant Attorneys General
Office of Ratepayer Advocacy
One Ashburton Place
Boston,
Massachusetts 02108
Intervenor
Rachel Graham Evans, Esq.
Michael Altieri, Esq.
100
Cambridge Street, Suite 1020
Boston, MA 02114
FOR: DEPARTMENT OF ENERGY RESOURCES
Intervenor
TABLE OF CONTENTS
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I. |
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INTRODUCTION |
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1 |
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II. |
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PROCEDURAL BACKGROUND |
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1 |
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III. |
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DESCRIPTION OF THE MERGER TRANSACTION |
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A. The Companies |
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B. The Proposed Merger |
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1. Change of Control |
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2. Financial Terms |
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3. Governmental Approvals |
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C. Internal Reorganization |
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IV. |
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DESCRIPTION OF THE PROPOSED SETTLEMENT |
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A. Introduction |
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B. Distribution Rate Freeze |
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C. Rate Credit |
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D. Public Benefit |
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E. Ring-Fencing and Special Purpose Entity |
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1. Special Purpose Entity |
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2. Ring-Fencing (Non-Consolidation) |
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3. Separate Corporate Existence |
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4. Golden Share |
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F. Financial Integrity of Berkshire |
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G. Post Merger Local Management and Employment |
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1. Local Management |
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2. Employment |
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H. Transaction Costs/ Goodwill/Acquisition Premium/Pushdown Accounting |
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I. Charitable Contributions |
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J. Confirmation of Franchise Rights |
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V. |
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STANDARD OF REVIEW |
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VI. |
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ANALYSIS AND FINDINGS |
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A. Introduction |
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B. Potential Rate Changes |
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C. Long-Term Strategies |
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D. Anticipated Interruptions in Service |
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E. Other Factors that May Negatively Impact Customer Service |
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F. Societal Cost and Effect on Economic Development |
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G. Effect on Customer Service |
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H. Reporting to the Department |
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I. Distribution of Resulting Benefits |
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J. Internal Reorganization |
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K. Confirmation of Franchise Rights |
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VII. |
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CONCLUSION |
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VIII. |
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ORDER |
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31 |
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On March 25, 2015, UIL Holdings Corporation (UIL)
together with Iberdrola USA, Inc. (IUSA), Iberdrola, S.A. (Iberdrola), and Green Merger Sub, Inc. (Merger Sub) (collectively Joint Petitioners), submitted a joint petition (Joint Petition)
to the Department of Public Utilities (Department) for approval, pursuant to G.L. c. 164, § 96(c) (§ 96(c)), of the change of control of UIL and The Berkshire Gas Company (Berkshire) as a result of the
merger of UIL with Merger Sub (Proposed Transaction).1 UIL wholly owns the shares of Berkshire Energy Resources (BER), which owns 100 percent of the common stock of
Berkshire (Joint Petition at 2). Berkshire is a gas company organized under G.L. c. 164 and subject to the jurisdiction of the Department.2 Following the closing of the Proposed Transaction, the
Joint Petitioners also propose an internal reorganization (Internal Reorganization) whereby, among other things, Berkshire will become indirectly and wholly owned by Iberdrola USA Networks, Inc. (Networks) (Joint Petition at
2). The Department docketed this matter as D.P.U. 15-26.
II. |
PROCEDURAL BACKGROUND |
On April 3, 2015, the Attorney General of the Commonwealth
of Massachusetts (Attorney General) filed a notice of intervention pursuant to G.L. c. 12, § 11E(a) and a notice of retention of experts and consultants, pursuant to G.L. c. 12, § 11E(b). On May 1, 2015, comments on the
Joint Petitioners filing were filed by Rudy Perkins of Amherst, Massachusetts, and by the Attorney General.3 On May 5, 2015, the Department accorded intervenor status to the Department
of Energy Resources (DOER).
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Merger Sub will be the surviving entity of the merger and, subsequently, it will be renamed UIL Holdings Corporation (Exh. JP-1, at 11). |
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As a result of the Internal Reorganization, Berkshire will be a subsidiary of the new UIL Holdings Corporation, IUSA, and Iberdrola (Exh. JP-1, at11). |
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Mr. Perkinss comments expressed concern that the merger would place important investment and management decisions distant from the community. Mr. Perkins encouraged the Department to condition approval
of the merger on taking advantage of Iberdrolas experience in diversification and its stronger financial profile. |
Pursuant to notice duly issued, the Department conducted a public hearing and a procedural
conference on May 6, 2015. On May 11, 2015, the Department approved the Attorney Generals retention of experts and consultants. UIL Holdings Corporation et al, D.P.U. 15-26 (May 11, 2015).
In support of its filing, the Joint Petitioners sponsored the testimony of four witnesses: (1) Karen L. Zink, president and chief operating
officer of Berkshire; (2) James P. Torgerson, president and chief executive officer of UIL; (3) Robert D. Kump, chief corporate officer of IUSA; and (4) Pedtro Azagra Blázquez, chief development officer of Iberdrola. On
August 6, 2015, the Joint Petitioners filed supplemental joint testimony of the four witnesses above as well as that of Richard J. Nicholas, executive vice president and chief financial officer of UIL and Berkshire. The Joint Petitioners also
responded to information requests from the Department and the Attorney General.
On October 19, 2015, the Joint Petitioners, the
Attorney General, and DOER (collectively, Settling Parties) filed a Joint Motion for Approval of Settlement Agreement (Settlement Motion) and a Settlement Agreement (Settlement). The Settling Parties state that
the Settlement Agreement resolves all the issues in this proceeding, and, therefore, they seek an order from the Department by December 18, 2015, finding that the approval of the Proposed Transaction, in accordance with the terms and conditions
set forth in the Settlement Agreements, is consistent with the public interest.
The Settling Parties moved that the initial filing, supplemental filing, and all of the Joint
Petitioners responses to information requests be entered into the record as evidence (Settlement Motion at 1-2). The Department grants the Joint Petitioners motion for this evidentiary matter. Thus, the evidentiary record consists of the
Joint Petitioners initial filing, its supplemental filing, and 334 additional exhibits. No parties filed comments regarding the Settlement.
III. |
DESCRIPTION OF THE MERGER TRANSACTION |
UIL is a Connecticut corporation, headquartered in New Haven,
Connecticut, with both electric and gas subsidiaries that include The United Illuminating Company, Connecticut Natural Gas Corporation, The Southern Connecticut Gas Company, and Berkshire (Exh. JP-1, at 8).4 Berkshire provides gas distribution service to approximately 39,000 customers in 20 cities and towns in western Massachusetts (Exh. JP-1, at 8). Iberdrola is a global utility holding company
organized under the laws of the Kingdom of Spain (Exh. JP-1, at 10).5 IUSA is a New York Corporation that is a direct, wholly owned subsidiary of Iberdrola (Exh. JP-1, at 9). IUSA directly and
wholly owns Merger Sub, a Connecticut corporation formed solely for the purpose of the Proposed Transaction ( Exh. JP-1, at 9). Networks is a wholly owned subsidiary of IUSA and holds Iberdrolas regulated electric and gas utilities in the
United States (Exh. JP-1, at 9).
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The subsidiaries of UIL serve more than 725,000 gas and electric customers in 67 communities across Connecticut and Massachusetts (Exh. JP-1, at 8). |
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Iberdrolas shares are publicly traded on the Spanish Stock Exchange (Exh. JP-1, at 10). |
Pursuant to an Agreement and Plan of Merger dated February 25,
2015 (Merger Agreement), UIL and Merger Sub will merge, with the surviving entity being Merger Sub (Exh. JP-1, at 11). Merger Sub will then be renamed UIL Holdings Corporation (New UIL) (Exh. JP-1, at 11). Berkshire will
become a subsidiary of New UIL, IUSA, and, by virtue of Iberdrolas ownership of Merger Sub, will become an indirect subsidiary of Iberdrola (Exh. JP-1, at 11).
Upon the closing of the proposed transaction, UIL common stock will be
converted to IUSA common stock (Exh. JP-1, at 12). Current UIL shareholders will receive one share of UIL common stock and a one-time cash payment of $10.50 per share (Exh. JP-1, at 12). As of the closing of the Proposed Transaction, IUSA will
become a publicly traded company on the New York Stock Exchange (NYSE) and it is anticipated that IUSA will change its name (Exh. JP-1, at 12).
Current UIL shareholders will receive 18.5 percent of the outstanding voting securities in IUSA, and Iberdrola will continue to hold 81.5
percent as of the closing of the Proposed Transaction (Exh. JP-1, at 12). Approximately $3 billion in total consideration is expected to be paid by IUSA, based on the number of UIL shares outstanding as of February 25, 2015 (Exh. JP-1, at 12).
Neither Berkshire nor BER will incur any debt as a result of the Proposed Transaction (Exh. JP-1, at 12).
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3. |
Governmental Approvals |
The Proposed Transaction is required to receive the following
federal and state regulatory approvals: (1) approval from the Federal Energy Regulatory Commission (FERC) under Section 203 of the Federal Power Act;6 (2) expiration of
the waiting period required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976 after UIL and IUSA make filings with the United States Department of Justice and the Federal Trade
Commission;7 (3) approval from the Federal Communications Commission (FCC) for upstream change of control to radio licenses issued to Berkshire;8 (4) voluntary notice of filing to the Committee on Foreign Investment in the United States under the Exon-Florio Amendment;9 and
(5) approval of the Connecticut Public Utilities Regulatory Authority (Exh. JP-1, at 12-13).10
The Proposed Transaction is also required to fulfill the following conditions: (1) Declaration of Effectiveness by the United States
Securities and Exchange Commission (SEC) of IUSAs registration statement on Form S-4 containing a proxy statement to UILs shareholders;11 (2) approval by UILs
current shareholders; and (3) authorization of the listing of IUSA stock on the NYSE (Exh. JP-1, at 13).12
6 |
FERC approved the Proposed Transaction in Iberdrola, S.A. et al., 151 FERC ¶ 62,148 (June 2, 2015). |
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The Joint Petitioners received notice of early expiration of the waiting period required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976 on April 7, 2015 (Exh. AG-1-25). |
8 |
The FCC approved the upstream change of control of radio licenses issued to Berkshire on May 22, 2015 (Exh. AG-1-25). |
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A closing letter was issued by the Committee on Foreign Investment in the United States under the Exon-Florio Amendment on June 16, 2015 (Exh. AG-1-25). |
10 |
The Connecticut Public Utilities Regulatory Authority issued a final decision on December 9, 2015, approving the Proposed Transaction. See Joint Application of Iberdrola, S.A. et al, and UIL Holdings
Corporation, Docket No. 15-03-45 (December 9, 2015). |
11 |
The SEC issued a Notice of Effectiveness on November 12, 2015 (Central Index Key No. 0001634997, SEC File No. 333-205727). |
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UIL and IUSAs Board of Directors have approved the Merger Agreement (Exh. JP-1, at 14). |
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C. |
Internal Reorganization |
Following the Proposed Transaction, there will be an Internal
Reorganization where IUSA will transfer 100 percent ownership in New UIL to Networks, thereby making New UIL a direct, wholly owned subsidiary of Networks (Exh. JP-1, at 7; Exh. AG 1-10, Att.). As a result of the Internal Reorganization, Berkshire
will be a subsidiary of Networks, and ultimately a subsidiary of Iberdrola; Berkshire will continue to be directly and wholly owned by BER (Exh. JP-1, at 7, 11; Exh. AG 1-10, Att.). IUSA, Networks, and Berkshire will submit an informational filing
with the Department promptly following the consummation of the Internal Reorganization (Exh. JP-1, at 7). The Joint Petitioners assert that the Internal Reorganization is a corporate reorganization under G.L. c. 164, § 96(d), does
not result in the acquisition of control of an electric or gas company, and, thus, the Internal Reorganization is not subject to the requirements of § 96 (Joint Petition at 1-2; Exh. JP-1, at 7).
IV. |
DESCRIPTION OF THE PROPOSED SETTLEMENT |
The Settlement is expressly conditioned on the Departments
acceptance of all provisions therein, without change or condition, on or prior to December 18, 2015 (Requested Approval Date) (Settlement, Art. III, ¶ 50).13 Below is a
summary of the key provisions of the Settlement that the Department will evaluate in determining whether the Settlement and the Proposed Transaction are consistent with the public interest and produce a reasonable result. No party to the proceeding
commented on any particular provisions aside from joining the Settlement.
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The Settlement also states that the Requested Approval Date may be extended upon mutual consent of the Settling Parties and notification of such extension to the Department (Settlement, Art. III, ¶ 50).
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B. |
Distribution Rate Freeze |
Under the Settlement, Berkshires current distribution
rates will remain in effect (Settlement, Art. II, ¶ 6). The Settlement further provides that no change in distribution base rates will go into effect prior to June 1, 2018 (Settlement, Art. II, ¶ 6).
The Settlement requires Joint Petitioners to provide Berkshire customers
with $5.0 million in public interest benefits (Settlement, Art. II, ¶ 5). Part of this $5.0 million public interest benefit provides for customer rate credits totaling $4,000,000 (Rate Credit) (Settlement,
Art. II, ¶ 5; Exh. DPU 5-1). This Rate Credit will be applied in equal monthly amounts per customer to firm service customer bills during the six billing months of two consecutive winter heating seasons (November through April), commencing the
winter of 2016- 2017 (Settlement, Art. II, ¶ 5; Exh. DPU 5-1).
The Settlement provides that the Joint Petitioners will allocate the
remaining $1,000,000 of the public interest benefit for jobs, economic development, or alternative heating programs for municipal-owned buildings, low-income and moderate income residential consumers, or residences or businesses impacted
by the Berkshire moratorium on new gas service interconnections (Settlement, Art. II, ¶ 5; Exh. DPU 4-1).14 DOER will determine the specific manner for use of these funds (Settlement, Art.
II, ¶ 5; Exh. DPU 4-1). None of the $1,000,000 set aside for alternative heating programs will be recovered through Berkshires rates (Settlement, Art. II, ¶ 5).15
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See Berkshire Press Release, March 27, 2015, regarding moratorium. |
15 |
The Settlement is silent on any rate recovery for funds expended for jobs or economic development under Article II, ¶ 5. We consider this slight omission to be a drafting oversight and will treat the entire
$1,000,000 as non-recoverable from Berkshires customers, whether expended for jobs, economic development, or alternative heating programs. See Section VI.F., below. |
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E. |
Special Purpose Entity and Ring-Fencing |
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1. |
Special Purpose Entity |
The Settlement calls for the creation of a tax-neutral special
purpose entity (SPE) following the closing of the Proposed Transaction (Settlement, Art. II, ¶ 17). The SPE will be a direct, wholly-owned subsidiary of Networks and will have four directors appointed by IUSA (Settlement, Art. II
,¶ 17).16 One director will be an independent director and an employee of an administration company in the business of protecting SPEs (Settlement, Art. II, ¶ 17). This independent
director will be required to meet independence criteria provided for in the SPE governing documents (Settlement, Art. II, ¶ 17). Another of the four directors will be appointed from among the officers or employees of New UIL or a New UIL
subsidiary (Settlement, Art. II, ¶ 17).17
16 |
Networks will have a seven-person board, three of whom will be independent. New UIL will elect the trustees of BER, and BER will elect the board of directors of Berkshire, who in turn will choose Berkshires
officers (Settlement, Art. II, ¶ 30). |
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The other two directors will be officers or employees of IUSA or its affiliates (Settlement, Art. II, ¶ 17). |
The Settlement provides that the SPE will be an intermediate holding company separating New
UIL and its subsidiaries from IUSA affiliates, and will directly hold 100 percent of the ownership interests in New UIL (Settlement, Art. II, ¶ 17). The SPE is intended to protect New UIL and Berkshire from bankruptcy proceedings involving
other IUSA affiliates (Settlement, Art. II, ¶ 17). None of the cost of establishing, operating or modifying the SPE will be recovered through Berkshires rates (Settlement, Art. II, ¶ 33).
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2. |
Ring-Fencing (Non-Consolidation) |
The Settlement provides that IUSA will seek to obtain
a legal opinion that states that as a result of ring-fencing measures,18 in the event of an IUSA bankruptcy, a court would not consolidate the assets and liabilities of the SPE with those of IUSA;
or in the event of a bankruptcy of the SPE or IUSA, would not consolidate the assets and liabilities of New UIL or its subsidiaries with those of the SPE or IUSA (Settlement, Art. II, ¶ 32). If such an opinion cannot be obtained, IUSA will
promptly implement those measures found necessary to obtain such an opinion (Settlement, Art. II, ¶ 32). The costs of obtaining the opinion of legal counsel regarding its ring-fencing measures, now or in the future, will not be recovered
through Berkshires rates (Settlement, Art. II, ¶ 33).
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Ring-fencing measures are corporate organization and governance provisions that are intended to protect companies from adverse situations involving other affiliates, such as bankruptcy (Exhs. JP-3, at 3; AG 6-29).
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3. |
Separate Corporate Existence |
The Settlement requires that the SPE maintain a separate
existence as a separate corporate subsidiary of Networks, that New UIL maintain a separate corporate existence as a separate corporate subsidiary of the SPE, and that Berkshire maintain its separate existence as a separate corporate subsidiary of
New UIL with separate utility franchises, obligations, and privileges (Settlement, Art. II, ¶ 18; Exh. DPU 4-3). The Settlement also requires that New UIL, Berkshire, and the SPE each maintain separate books, records, bank accounts, and
financial statements and provide the Department and the Attorney General access to New UIL and Berkshires original books and records maintained in the ordinary course of business (Settlement, Art. II, ¶ 19).
The Settlement states that the SPE will issue a non-economic interest
(Golden Share) in the SPE to an administration company that protects special purpose entities and would be different than the administration company retained to provide the person to serve as the independent director for the SPE
(Settlement, Art. II, ¶ 31.a; Exh. DPU 5-2(b)). The holder of the Golden Share will have the right to vote on matters provided for in the SPE governing documents (Settlement, Art. II, ¶ 31.a).
The Settlement states that a voluntary petition for bankruptcy by the SPE will require the affirmative consent of the holder of the Golden
Share and the affirmative vote of the SPEs board of directors, including the vote of the independent director on the SPEs board of directors (Settlement, Art. II, ¶ 31.b; Exh. DPU 5-2(d)). Also, the Settlement stipulates that a
voluntary petition for bankruptcy by New UIL will require the affirmative consent of the holder of the
Golden Share, the unanimous vote of the SPEs board of directors (including the independent director), and the unanimous vote of New UILs board of directors (Settlement, Art. II,
¶ 31.b; Exh. DPU 5-2(a)). Further, the Settlement states that a voluntary petition for bankruptcy for Berkshire will require the unanimous vote of both the New UIL board of directors and the Berkshire board of directors (Settlement, Art. II,
¶ 31.b).
Additionally, the affirmative vote of the SPEs board of directors and affirmative vote of the holder of the Golden
Share will be required for any amendment to the organizational documents of the SPE that would remove or alter the voting or other ring-fencing requirements set forth in the Settlement paragraphs 17 through 35 (Settlement, Art. II, ¶ 31.c).
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F. |
Financial Integrity of Berkshire |
The Settlement includes a number of provisions
intended to safeguard the financial integrity of Berkshire and insulate Berkshire and its affiliates from one another. Berkshire will not include a condition in its debt agreements that would cause a default as a result of the default of an
affiliates debt (Settlement, Art. II, ¶ 20).19 Berkshire will maintain separate debt so that it will not become responsible for the debts of affiliated companies (Settlement, Art. II,
¶ 23). Additionally, neither New UIL nor Berkshire will incur or assume any debt, including the provision of guarantees, pledges, or collateral support related to an acquisition by any affiliated company related to the Proposed Transaction, or
related to any future IUSA or Iberdrola acquisition (Settlement, Art. II, ¶ 24). The SPE also will not incur or assume any debt, including the provision of guarantees, pledges, or collateral support, unless approved by the Department
(Settlement, Art. II, ¶ 24).20
19 |
The Settlement qualifies this provision by excluding those existing limited provisions (or similar successor provisions) as required by bondholders related to compliance with the Employee Retirement Income Security Act
of 1974 (ERISA) (Settlement, Art. II, ¶ 20; Exh. DPU 4-7). |
20 |
Settlement, Art. II, ¶ 24 does not alter Berkshires obligation under G.L. c. 164, § 17A, which prohibits a gas company from making any guarantee or assumption of debt without Department approval and, in
fact further prohibits Berkshire from making a similar commitment to facilitate any acquisition by an affiliated company (Exh. DPU 4-9). |
The Settlement states that New UIL, Berkshire, and the SPE will maintain arms-length
relations and observe all necessary, appropriate, and customary company formalities in their dealings with their affiliates (Settlement, Art. II, ¶ 21). The SPE will not comingle its funds or other assets with the funds or other assets of any
other entity and, further, will not maintain any funds or other assets in a manner that will be costly or difficult to segregate, ascertain, or identify its individual funds or other assets from those of its owners or any other person (Settlement,
Art. II, ¶ 22). The Settlement states that Berkshire, unless otherwise authorized by the Department, may only participate in money pools where the other participants are other regulated utility affiliates of Berkshire in the United States; New
UIL may participate in such money pools as a lender but not as a borrower (Settlement, Art. II, ¶ 25).21
The Settlement requires IUSA and Berkshire to register with at least two of the three major nationally and internationally recognized rating
bond agencies and states their intention to maintain at least an investment grade credit rating (Settlement, Art. II, ¶ 26). Presentations made to credit rating agencies by IUSA or its affiliates that relate to New UIL or Berkshire are to be
provided to the Department and the Attorney General within ten business days of the presentation (Settlement, Art. II, ¶ 27).
21 |
Pursuant to The Berkshire Gas Company, D.P.U. 12-43 (2012), Berkshire is authorized to participate in the UIL Money Pool, whose participants are limited to UIL Holdings and UIL Holdings regulated electric
and gas distribution subsidiaries. D.P.U. 12-43 at 4, 27. All participants can invest in the UIL Money Pool, and all participants except for UIL Holdings may borrow from the UIL Money Pool. D.P.U. 12-43 at 4, 27. |
The Settlement requires a number of dividend limitations. Berkshire cannot make any
distribution to its parent if its corporate issuer or senior unsecured credit rating, or equivalent, is rated below investment grade by any of the three major credit rating agencies (Settlement, Art. II, ¶ 35.a). If a Ratings Event
occurs, Berkshire shall not issue any dividend to its parent (Settlement, Art. II, ¶ 35.b).22 The Settlement establishes a minimum common equity ratio for Berkshire for purposes of further
limiting Berkshires payment of a dividend (Minimum Common Equity Ratio). The Minimum Common Equity Ratio is a percentage that is no lower than 300 basis points (three percent) below the equity percentage used to set rates in
Berkshires most recent distribution rate proceeding (measured using a trailing 13-month average calculated as of the most recent quarter end),23 exclusive of goodwill (Settlement, Art. II,
¶ 34). If Berkshires common equity percentage falls below the Minimum Common Equity Ratio, Berkshire may not pay any dividend (Settlement, Art. II, ¶ 34). Berkshire is required to file with the Department twice a year an
officers certificate certifying that, for that six-month period, for each dividend payment, Berkshires common equity ratio did not fall below the Minimum Common Equity Ratio (Settlement, Art. II, ¶ 35.c). Berkshire will file its
calculations pertaining to the Minimum Common Equity Ratio with its officers certificate (Settlement, Art. II, ¶ 35.c).
22 |
A Ratings Event occurs if Berkshires corporate issuer or senior unsecured credit rating, or its equivalent, falls to the lowest investment grade rating and there is a negative watch or review downgrade
notice for the company as determined by two of the three major credit rating agencies or, alternatively, if such credit rating falls below investment grade without such notice (Settlement, Art. II, ¶ 35.b). |
23 |
The Department used a common equity percentage of 41.98 percent to set rates in Berkshires last distribution rate proceeding. The Berkshire Gas Company, D.T.E. 01-56 (2002). |
|
G. |
Post Merger Local Management and Employment |
The Settlement provides that there will be no changes in the
day-to-day management and operation of Berkshire, and that Berkshires local management will retain its current authority and decision-making with respect to utility operations, in accordance with UILs current delegations of authority as
set forth in its governance documents (Settlement, Art. II, ¶ 16).24 The Settlement also states that Berkshires headquarters will remain in Massachusetts (Settlement, Art. II, ¶
16). Further, IUSA and Networks will include Massachusetts among the regular locations for IUSAs board and shareholder meetings and regular, periodic management meetings (Settlement, Art. II, ¶¶ 16, 41, 42).
The Settlement requires Berkshire to honor existing collective bargaining
agreements for at least three years following the closing of the Proposed Transaction (Settlement, Art. II, ¶ 8). The Settlement also provides that there will be no involuntary terminations of UIL or Berkshire employees in Massachusetts, except
for cause or performance (Settlement, Art. II, ¶ 8).
24 |
The Settlement provides that after the closing of the Proposed Transaction, UILs current role in Berkshires management will be conducted either through New UIL or through Networks (Settlement, Art. II,
¶ 16). |
|
H. |
Transaction Costs/ Goodwill/Acquisition Premium/Pushdown Accounting |
The Settlement
provides that the following will not be recorded on Berkshires books, reflected in Berkshires rates, or otherwise passed onto Berkshires customers: (1) transaction costs associated with the Proposed Transaction;25 (2) goodwill resulting from the Proposed Transaction; and (3) acquisition premium from the Proposed Transaction (Settlement, Art. II, ¶¶ 9, 10, 11). If the SEC requires that
goodwill be recorded on Berkshires books, the Settlement requires that the Joint Petitioners ensure that goodwill has no effect on either Berkshires rates or its capital structure for rate purposes (Settlement, Art. II, ¶ 12).
|
I. |
Charitable Contributions |
The Settlement provides that UIL and Berkshire will maintain
their current charitable giving and corporate philanthropy programs in Massachusetts for at least four years following the closing of the Proposed Transaction, (Settlement, Art. II, ¶ 7).26
In addition, the Settlement requires the Joint Petitioners to commit additional charitable contributions of $80,000 in the first year following the closing for the benefit of charities that provide services within Berkshires service territory
(Settlement, Art. II, ¶ 7).
25 |
According to the Settlement, transaction costs include, but are not limited to: (a)consultant, investment bank, and legal fees; (b) change in control or retention payments; (c) costs associated with the
shareholder meetings and proxy statement/registration statements related to the Proposed Transaction; (d) costs for UIL Restricted Stock Units and other stock-based compensation that is triggered by the Proposed Transaction including, but not
limited to, Change in Control Plan payments; (e) UIL and Berkshire executive severance costs associated with the Proposed Transaction; and (f) costs associated with Shareholder litigation related to the Proposed Transaction (Settlement, Art.
II, ¶ 9). |
26 |
The Settling Parties represent that Berkshires historical annual contribution level is between $50,000 and $75,000 (Settlement, Art. II, ¶ 7). |
J. Confirmation of Franchise Rights
The Joint Petitioners state that upon approval of the Proposed Transaction, Berkshire will operate as an indirect subsidiary of UIL with its
separate utility franchises, obligations, and privileges (Settlement, Art. II, ¶ 18). Therefore, the Joint Petitioners request that the Department confirm that no separate authorization under G.L. c. 164, § 21 is required to consummate the
Proposed Transaction (Joint Motion at 2).
In assessing the reasonableness of an offer of settlement, the
Department reviews all record evidence to ensure that the settlement is consistent with Department Precedent and the public interest. Boston Edison Company, Cambridge Electric Light Company, Commonwealth Electric Company, and NSTAR Gas
Company, D.T.E. 05-85, at 15 (2005). A settlement among the parties does not relieve the Department of its statutory obligation to conclude its investigation with a finding that a just and reasonable outcome will result. Bay State Gas
Company, D.P.U. 95-104, at 15 (1995); Boston Edison Company, D.P.U. 88-28/88-48/89-100, at 9 (1989). The fact that settling parties have filed settlement in resolution of a proposed merger does not diminish, and cannot supplant, the
Departments responsibility of ensuring that the merger meets the statutory requirements of § 96. NEES/EUA Merger, D.T.E. 99-47, at 15, 20 (2000).
Section 96 sets forth the Departments authority to review and approve a merger, consolidation, sale of substantially all assets,
and change of control, and, as a condition for approval, requires the Department to find that the proposed transaction is consistent with the public interest. Pursuant to NSTAR/Northeast Utilities, D.P.U. 10-170 Interlocutory
Order on Standard of Review (2012), in order to satisfy the statutory requirement that a transaction is
consistent with the public interest, petitioners must demonstrate that the benefits of a merger,
consolidation, sale of substantially all assets, or change of control outweigh the costs. D.P.U. 10-170, Interlocutory Order on Standard of Review at 21-22, 27. To determine whether petitioners have satisfactorily met this burden, the Department
continues to consider the special factors surrounding an individual proposal. D.P.U. 10-170, Interlocutory Order on Standard of Review at 26-27.
The Department has held that various factors may be considered in determining whether a proposed transaction is consistent with the public
interest pursuant to § 96. Traditionally, the Department has considered the following factors: (1) effect on rates; (2) effect on the quality of service; (3) resulting net savings; (4) effect on competition;
(5) financial integrity of the post- merger entity; (6) fairness of the distribution of resulting benefits between shareholders and ratepayers; (7) societal costs; (8) effect on economic development; and (9) alternatives to
the merger or acquisition. Guidelines and Standards for Mergers and Acquisitions, D.P.U. 93-167-A at 7-9 (1994) (Mergers and Acquisitions). The Department has held that this list of factors is illustrative and not
exhaustive, and the Department may consider other factors, or a subset of these factors, when evaluating a § 96 proposal. D.T.E. 99-47, at 17-18; BEC Energy/ComEnergy Acquisition, D.T.E. 99-19, at 11-12 (1999); Eastern/
Colonial Acquisition, D.T.E. 98-128, at 6 (1999). No one factor is controlling.
As amended in 2008, § 96(c) expressly requires
the Department to consider, at a minimum, the following four factors: (1) proposed rate changes, if any; (2) long-term strategies that will assure a reliable, cost-effective energy delivery system; (3) any anticipated interruptions
in service; and (4) other factors that may negatively impact customer service.27 The second factor, regarding long-term strategies, is the only one not previously addressed in the so-called nine-factor test established in Mergers and Acquisitions.28
Although § 96 mandates that the Department consider the specific factors
enunciated in the statute, the Department is not foreclosed from considering the nine factors, or a subset of those factors, established in Mergers and Acquisitions. Furthermore, depending upon the nature of the transaction, in determining
whether the transaction is consistent with the public interest, the Department may consider additional factors not delineated in the statute or established in Mergers and Acquisitions. D.T.E. 99-47, at 17-18; D.T.E. 99-19, at 11-12; D.T.E.
98-128, at 6.
The Departments determination as to whether the transaction meets the requirements of § 96 must rest on a record
that quantifies costs and benefits, to the extent such quantification can be made. The Department also may undertake a more qualitative analysis of those aspects that are hard to measure. D.P.U. 10-170, Interlocutory Order on Standard of Review at
27; Boston Edison Company/Cambridge Electric Light Company/Commonwealth Electric Company/Canal Electric Company, D.T.E. 06-40, at 16-17 (2006); D.T.E. 99-47, at 18; Mergers and Acquisitions, at 7. A § 96 petition that
expects to avoid an adverse result cannot rest on generalities, but must instead demonstrate benefits that outweigh the costs, including the cost of
27 |
These same four factors are provided in both § 96(b) regarding a merger, consolidation, or sale of substantially all assets and in § 96(c) regarding a
change in control. |
28 |
The remaining statutory factors correspond to factors established in Mergers and Acquisitions. Specifically, the first factor in § 96 is subsumed by the
first factor established in Mergers and Acquisitions, the effect of the proposed transaction on rates. The third and fourth factors delineated in § 96 correspond to the second factor established in Mergers and Acquisitions, the
effect on the quality of service. |
any acquisition premium sought. D.P.U. 10-170, Interlocutory Order on Standard of Review at 21-22, 27; D.T.E.
99-47, at 18; D.T.E. 99-19, at 12; D.T.E. 98-128, at 7; NIPSCO/Bay State Acquisitions, D.T.E. 98-31, at 11 (1998); Eastern/Essex Acquisition, D.T.E. 98-27, at 10 (1998); Mergers and Acquisitions, at 7.
VI. |
ANALYSIS AND FINDINGS29 |
The Department will analyze the Settlement and the Proposed Transaction
under the four factors set forth in § 96(c), to determine whether the Proposed Transaction is consistent with the public interest and whether the Settlement produces a reasonable result. We also will consider factors previously established by
the Department for analyzing transaction under G.L. c. 164, § 96.
|
B. |
Potential Rate Changes |
In determining whether the Settlement and the Proposed
Transaction are consistent with the public interest, the Department must consider potential rate changes, if any. G.L. c. 164, § 96(c). The Settlement includes one provision that will reduce Berkshire customers rates and
several provisions that would result in no changes in customers rates.
First, the Rate Credit totaling $4,000,000 will be applied
in equal monthly amounts, per customer to Berkshires firm service customer bills during the six months of two consecutive winter heating seasons, November through April, commencing with the winter of 2016-2017
29 |
The Department finds that the evidentiary record and the comments in D.P.U. 15-26 provide an adequate basis to address the issues raised by the Joint Petitioners filing, the Joint Petitioners supplemental
filing, and the Settling Parties Settlement without the need for an adjudicatory hearing. |
(Settlement, Art. II, ¶ 5). The Joint Petitioners estimate that based on 39,298 firm customers as of December 31, 2014, the monthly credit will be approximately $8.48 per month per
customer, and over the two heating seasons the average cumulative credit per customer will be approximately $101.79 (Exh. DPU 5-1). Also, the key provision of the Settlement that results in no change in rates for Berkshire customers is the base rate
freeze (Settlement Art. II, ¶ 6). Under the base rate freeze, Berkshires current distribution rates will remain in effect, with no new distribution rates to take effect prior to June 1, 2018 (Settlement Art. II, ¶ 6).
The Rate Credit of $4,000,000 provides Berkshires customers with an immediate, tangible benefit of the Proposed Transaction. Absent the
Settlement, ratepayers would not receive any such payments. In the absence of a distribution rate freeze, the Department cannot know today the amount of a rate increase that Berkshire would otherwise request, whether the Department would grant any
rate increase, and if so, the amount of any such increase. Although the savings cannot be determined with any level of precision, it stands to reason that ratepayers would benefit from the certainty of no increases in base rates for an 18-month
period of time when compared to the possibility of a base rate increase occurring during that time period. See New England Gas Company et al, D.P.U. 13-07-A at 42 (2013); D.T.E. 98-31, at 16 & n.22. The Department finds
that Berkshires ratepayers will benefit from the Rate Credit and will likely benefit from the distribution rate freeze. Accordingly, we find that the Settlement will not adversely affect the rates of Berkshires customers. See
NSTAR/Northeast Utilities, D.P.U. 10- 170-B, at 17-23 (2012).
Additional Settlement provisions that are designed to produce no change in rates for
Berkshire customers, as set forth in Article II of the Settlement, are: (1) no transaction costs associated with the Proposed Transaction will be included in Berkshires rates (¶ 9); (2) no goodwill resulting from the Proposed
Transaction will be included in Berkshires rates (¶ 10); (3) no acquisition premium resulting from the Proposed Transaction will be included in Berkshires rates (¶ 11); (4) if the SEC does require that goodwill be recorded
on Berkshires books, the Joint Petitioners will ensure that such goodwill does not impact Berkshires rates (¶ 12); and (5) no costs incurred by the Joint Petitioners in establishing or maintaining ring- fencing, SPE, and/or the
creation of Golden Share will be included in Berkshires rates (¶ 14). In addition, to the extent that Berkshire, on a stand-alone basis, qualifies under Internal Revenue Service regulations for accelerated30 or bonus depreciation31 on investment subject either to Berkshires gas system enhancement program32 or its other rate base, Berkshire will design its rates taking all available accelerated or bonus depreciation (Settlement, Art. II, ¶ 15). Also, the Joint Petitioners represent that the
Proposed Transaction will not have the tax consequence of reducing Berkshires accumulated deferred income tax (ADIT) account balance (Settlement, Art. II, ¶ 13).33 Without
reaching the issue of any ratemaking treatment that might be accorded
30 |
The use of accelerated depreciation rates results in higher depreciation expense (and lower tax expense) in the early years of asset life and lower depreciation
expense in the later years of asset life. The Berkshire Gas Company, D.P.U. 14-131, at 98 (April 30, 2015). |
31 |
Bonus depreciation represents additional tax depreciation that may be taken on qualifying capital investments during their first year in service. Massachusetts
Electric Company and Nantucket Electric Company, D.P.U. 11-129, at 88-89, n.61 (2012). |
32 |
See G.L. c. 164, § 145; The Berkshire Gas Company, D.P.U. 14-131 (April 30, 2015). |
33 |
The accrual of ADIT results from the mismatch between the amount of depreciation expense that can be deducted for income tax purposes and the amount that the Department allows to be collected from customers in rates. In
its simplest form, for ratemaking purposes, ADIT serves as a credit to rate base and acts to lower rate base. D.P.U. 13-07-A at n. 11(and cases cited). |
for these categories if cost recovery were sought, the Department finds that these categories where the Joint
Petitioners have committed to no effect on Berkshires rates are likely to benefit Berkshires customers.
C. Long-Term
Strategies
In determining whether the Settlement and the Proposed Transaction are consistent with the public interest, the Department
must consider long term strategies that will assure a reliable, cost effective energy delivery system. G.L. c. 164, § 96(c). Within this category, we apply the Departments factor of considering the financial integrity of the
post-acquisition entity. See D.P.U. 13-07-A at 87 (2013); D.P.U. 10-170-B, at 103-104; D.T.E. 98-128, at 83; D.T.E. 98-31, at 48. The Settlement, within Article II, addresses financial integrity through a number of provisions: (1) the
creation of an SPE with a separate corporate existence (¶¶ 17, 18); (2) SPEs issuance of a Golden Share to another separate, independent entity to aid in the protection of the SPE (¶ 31.a); (3) the affirmative consent
of the holder of the Golden Share is required in the event of a voluntary petition for bankruptcy by the SPE or UIL (¶ 31.b); (4) IUSA will obtain a legal opinion on non-consolidation of assets in the event of a bankruptcy to prove the
efficacy of these ring-fencing measures (¶ 32);34 (5) no cross-default by Berkshire for an affiliates debt default (¶ 20); (6) arms-length relationships among
affiliates (¶ 21); (7) prohibition on the SPEs comingling funds with the funds of any other entity (¶ 22); (8) Berkshire will maintain
34 |
The Joint Petitioners will not alter the ring-fencing requirements provided by the Settlement without first obtaining approval in a written order from the Department
(Settlement, Art. II, ¶ 28). |
separate debt (¶ 23); (9) neither New UIL nor Berkshire will incur or assume any debt related to the Proposed Transaction or any future IUSA or Iberdrola acquisitions (¶ 24);
(10) Berkshire may participate in money pools only where the other participants are other regulated affiliates of Berkshire in the United States (¶ 25); and (11) IUSA and Berkshire intend to maintain at least an investment grade
credit rating (¶ 26).
Many of these provisions are designed to safeguard the financial integrity of Berkshire against financial risk
of certain transactions and activities involving other entities within the Iberdrola system. Without these safeguards, there is the potential that Berkshires ability to make capital investments in support of its obligation to provide safe,
reliable, cost-effective service could be adversely affected. Therefore, the Department finds that Berkshires customers likely will benefit from these provisions of the Settlement.35
|
D. |
Anticipated Interruptions in Service |
Neither the evidentiary record, nor the provisions
of the Settlement, nor the elements of the Proposed Transaction disclose factors that would contribute to interruptions in service for Berkshires customers. Also, the financial integrity provisions discussed above and the commitments to local
management of Berkshire (Settlement, Art. II, ¶ 16) would tend to provide measures to control against interruptions in service.
35 |
In evaluating the Settlement and the Proposed Transaction relating to the financial integrity factor, we have taken into consideration the financial integrity of both
Berkshire and the other closely related affiliates. D.P.U. 10-170-B, at 104-105; D.T.E. 98-31, at 48-49; see Community Utilities/Resort Supply, D.P.U. 16380, at 2-5 (1970) (merger rejected because Department found financial viability of
both the acquiring company and the to-be-acquired company to be in question). |
|
E. |
Other Factors that May Negatively Impact Customer Service |
Neither the evidentiary
record, not the provisions of the Settlement, nor the elements of the Proposed Transaction disclose factors that would contribute to a negative impact on service for Berkshires customers.
|
F. |
Societal Cost and Effect on Economic Development |
In considering whether the Settlement
is consistent with the public interest, the Department may consider the resulting societal costs and effect on economic development, if any. Mergers and Acquisitions, at 7-9; D.P.U. 13-07-A at 91. The Department also has held that proponents
of mergers and consolidations must demonstrate that they have a plan for minimizing the effect of job displacement on employees. D.T.E. 98-27, at 44.
The Settlement provides for a contribution of $1,000,000 for the creation of jobs, economic development, or alternative heating programs for
municipal owned buildings, low-income and moderate income residential consumers, or residences or businesses impacted by Berkshires gas service moratorium (Settlement, Art. II, ¶ 5). This $1,000,000 contribution may have a positive
societal benefit and positive impact on economic development. Consistent with our statement in footnote 15, the Departments approval of the Settlement includes our consideration that the $1,000,000 contribution will not be recovered through
Berkshires rates.
Further, the Joint Petitioners represent that Berkshires existing collective bargaining agreements will be
honored and, for at least three years after the Proposed Transaction closes, that there will be no involuntary terminations of New UIL or Berkshire employees in Massachusetts as a result of the Proposed Transaction, except for cause or performance
(Settlement, Art. II, ¶ 8; Exhs. AG 3-1; AG 4-46; AG 4-47; AG 4-48; AG 4-49; AG 5-6). The
Joint Petitioners also state that the Proposed Transaction includes no changes to employee compensation or benefits (Exh. AG 4-51). Additionally, the Joint Petitioners state in their commitments
that there will be no changes to the day-to-day management and operation of Berkshire, and that Berkshires local management will retain its current authority and decision-making regarding gas operations, including making local employment
decisions (Settlement, Art. II, ¶¶ 16.a, 16.b; Exhs. DPU 2-34; AG 4-46). Based on a review of these provisions, the Department finds that the Joint Petitioners have demonstrated a plan for minimizing the effect of any job displacements on
employees.
|
G. |
Effect on Customer Service |
The Department recognizes the importance of maintaining
service quality, particularly when the merger of entities and the resultant efforts to achieve cost savings can potentially lead to service quality degradation. Boston Gas Company/ Essex Gas Company, D.P.U. 09-139, at 23 (2000); D.T.E. 98-27,
at 33 n.27. The Joint Petitioners state that Berkshire currently has an excellent reliability and customer service track record, and that they have no plans to change such service quality programs in the near term (Exh. DPU 2-17). Also, as stated
above (Section VI.F), the Joint Petitioners are committed to retaining local managements current authority and decision-making over gas operations (Settlement, Art. II, ¶ 16. b; Exh. DPU 2-31). For the longer term, the Joint Petitioners
state that Berkshires service quality can further benefit from the exchange of best practices with IUSA and its affiliates (Exh. DPU 2-17). The Joint Petitioners point to measurable improvements in key customer service metrics, such as
complaint rate reductions, service call responses, call center quality, and workforce training among IUSA gas distribution affiliates in New York and Maine (Exh. DPU 2-12). Based on a review of the
commitments and representations contained in the Settlement, the Department finds that the Proposed Transaction will not result in any adverse impact on Berkshires customer service or the
quality, and that customers might benefit from the exchange of best practices within the Iberdrola system after the merger.
|
H. |
Reporting to the Department |
The Settlement provides that the Department and Attorney
General, upon request, will have access to New UILs and Berkshires original books and records as maintained in the ordinary course of business within 20 working days after the request is made (Settlement, Art. II, ¶ 19). The Joint
Petitioners state that this provision was intended to ensure comparability to a similar settlement agreement reached in Connecticut, and that it is not intended and should not be interpreted to change or alter any statutory obligation of Berkshire,
including Berkshires obligations under G.L. c. 164, § 80 (Exh. DPU 4-5, Supp.). 36 On its face, Article II, ¶ 19 of the Settlement would limit the Departments authority in
two ways: (1) by setting a 20-working day time for Berkshire or New UIL to respond to a Department request, where no time is set by G.L. c. 164, § 80; and (2) allowing access to books and records maintained in the ordinary
course of business, where G.L. c. 164, § 80 permits Department access to all books, records, etc.37
36 |
The Joint Petitioners state that they are authorized to indicate that the Attorney General and DOER have the same understanding of Article II, ¶ 19 of the Settlement (Exh. DPU 4-5, Supp.). |
37 |
Although we expect that books, records, etc. examined by the Department pursuant to G.L. c. 164, § 80, would be those maintained in the ordinary course of business, there may be instances where a Department
directive requires the preparation of a record not made in the ordinary course of business. |
A regulatory agencys approval of any particular proposal, whether presented by petition
or by settlement motion, cannot trump the requirements of statute. D.T.E. 99-47, at 18-20 ; D.T.E. 98-27, at 14; Boston Gas Company, d/b/a KeySpan Energy Delivery, D.T.E. 03-40, at 497 n. 263 (Statute, of course, governs, and, where
need be, supersedes any regulatory arrangement prescribed by the Department); D.T.E. 05-85, at 29. The Department is, subject to judicial oversight under G.L. c. 25, § 5, the judge of what Chapter 164 requires of it. D.T.E. 05-85, at 29. While
the Department neither would nor should lightly disturb matters established by a settlement approved or a petition allowed, the public interest requirement of Chapter 164 remains paramount. The Department has no authority to impair or ignore its own
statutory authority or obligations, whether by adjudication or by settlement-approval.
The Department has general supervisory authority
of all gas and electric companies, as well as general supervision of every affiliated company. G.L. c. 164, §§ 76, 76A.38 In addition, the Department has the authority to examine all
books, records, contracts, documents, papers, and memoranda of gas and electric utilities and has free access to such documents at any and all reasonable times. G.L. c. 164, § 80. As it relates to Article II, ¶ 19 of the Settlement, the
Departments approval of the Settlement is based on our acceptance of the representations in Exhibit DPU 5-4 Supp., and our determination that this provision of the Settlement, as clarified by the Settling Parties, does not abrogate the
Departments authority under G.L. c. 164, § 80. Particularly as it relates to this discussion, it is important to understand that, in ruling on the Settlement and the Proposed Transaction, the Department has exercised its regulatory
authority under G.L. c. 164, §§ 96, 94, and 76. This Order whereby the Department approves the Settlement, which is an agreement among the Settling Parties, is intended to be, and shall be construed to be, a final Order issued pursuant to
G.L. c. 25, § 5, and does not operate to make the Department a party to the Settlement, and does not form, and may not be construed to form, a contract binding the Department.
38 |
Affiliated company is defined as including any corporation, society, trust, association, partnership or individual (a) controlling a company subject to this chapter, either directly, by ownership
of a majority of its voting stock or of such minority thereof as to give it substantial control of such company, or indirectly, by ownership of such a majority or minority of the voting stock of another corporation or association so controlling such
company; or (b) so controlled by a corporation, society, trust, association, partnership or individual controlling as aforesaid, directly or indirectly, a company subject to this chapter; or (c) standing in such a relation to a company
subject to this chapter that there is an absence of equal bargaining power between the corporation, society, trust, association, partnership or individual and the company so subject, in respect to their dealings and transactions. G.L. c. 164,
§ 86. |
Pursuant to Article II of the Settlement, the Joint Petitioners have agreed to the following
reporting to the Department: (1) copies of all presentations made to credit rating agencies by IUSA or any of its affiliates that relate to New UIL or Berkshire (¶ 27); (2) isolated events that temporarily affect Berkshires
equity (¶ 34); (3) filing of officers certificate twice a year certifying that Berkshire has met the Minimum Common Equity Ratio requirement in making any dividend payments (¶ 35.c); (4) plans to rectify and address the
situation should a Ratings Event occur (¶ 36.b); (5) annual compliance report by New UIL regarding ring-fencing and other Settlement requirements certified by a New UIL executive under penalty of perjury (¶ 46); (6) annual
certification from an officer of IUSA, provided by New UIL, certifying that IUSA maintains the required legal separateness, that the organization structure serves important business purposes for IUSA, and that New UIL and its regulated subsidiaries
will be kept separate to avoid consolidation of New UIL or its regulated subsidiaries of Networks or IUSA(¶ 47); and (7) annual compliance report with respect to ring-fencing requirements (¶ 48). Also, the Joint Petitioners have
agreed to provide the Department with of notice of any change in the name of IUSA (Exh. JP-1, at 12).
The Department further directs the Joint Petitioners to submit copies of the following
documents referenced in Article II of the Settlement to the Department and Attorney General: the Corporate Governance Principles and Delegation of Authority (¶ 40), within 30 days following the closing of the Proposed Transaction or such later
time when these documents are effective; and the non-consolidation legal opinion (¶ 32), within ten days of the Joint Petitioners receipt of the opinion.
|
I. |
Distribution of Resulting Benefits |
The Settlement provides customers with rate-related
savings and benefits including a distribution rate freeze and Rate Credit (Settlement, Art. II, ¶¶ 5, 6). Transaction costs, goodwill, and acquisition premium resulting from the Proposed Transaction will not be recovered from
Berkshires ratepayers (Settlement, Art. II, ¶¶ 9, 10, 11). Additionally, ratepayers may potentially benefit from an exchange of best practices between Berkshire and IUSA and its affiliates (Exh. DPU 2-17). Based on these
considerations, we conclude that the benefits of this transaction are fairly distributed between ratepayers and shareholders.
|
J. |
Internal Reorganization |
As discussed in Section III.C, upon the closing of the Proposed
Transaction, there will be an Internal Reorganization whereby IUSA will transfer 100 percent ownership interests in New UIL to Networks (Exh. JP-1, at 7). As a result, New UIL will become a direct, wholly-owned subsidiary of Networks and Berkshire
would also become a subsidiary of Networks (Exh. JP-1, at 7). The Department has reviewed the Internal Reorganization plan as presented by the Joint
Petitioners and finds that, pursuant to G.L. c. 164, § 96(d), the Internal Reorganization is not subject to § 96. Because this finding is based on the representations contained in the
Joint Petitioners filings, any different factors or conditions might require the Department to reach a different conclusion. The Department directs the Joint Petitioners to make an informational filing on this matter with the Department
following the closing of the Internal Reorganization (Exh. JP-1, at 7).
|
K. |
Confirmation of Franchise Rights |
The operative statute limiting the transfer of utility
franchises is found in G.L. c. 164, § 21, which states A corporation subject to this chapter shall not, except as otherwise expressly provided, transfer its franchise, lease its works or contract with any person, association or
corporation to carry on its works, without the authority of the [G]eneral [C]ourt. The Department has determined that corporate mergers, consolidations, and sales of assets properly approved pursuant to § 96 do not require separate
legislative approval under G.L. c. 164, § 21 for the transfer of franchise rights, because the General Court itself authorized the Department to approve § 96 transactions. D.P.U. 13-07-B at 11-18; D.P.U. 10-170-B at 106-107 ; D.P.U. 09-
139, at 33 (2010); D.T.E. 99-47, at 65; D.T.E. 98-27, at 75-76.
No sale of assets or surrender of Berkshires ability to provide
service is proposed here (Settlement, Art. II, ¶18; Exh. DPU 4-2). Berkshires corporate existence will continue unimpaired after the Proposed Transaction (Settlement, Art. II,¶18; Exh. DPU 4-2). Thus, the Department finds that no
transfer of any franchise rights, whether to Iberdrola, Networks, or any other entity, would result from the Proposed Transaction. D.T.E. 98-27, at 75; Haverhill Gas Company, D.P.U. 1301, at 3-4 (1984). Moreover, the Department finds that, on
the effective day
of the change in control, Berkshire will continue to have and enjoy its own existing powers, rights, locations, privileges, and franchises, and will be subject to all the associated duties,
liabilities, and restrictions (Settlement, Art. II, ¶ 18; Exh. DPU 4-2). Thus, the Department finds that approval of the Proposed Transaction pursuant to § 96 obviates the need in this case for legislative approval under G.L. c. 164,
§ 21. D.P.U. 13-07-B at 11-18; D.P.U. 10-170-B at 106-107; D.P.U. 09-139, at 34; D.T.E. 99-47, at 65-66. Accordingly, the Department hereby ratifies and confirms that all the franchise rights and obligations currently held by Berkshire shall
continue with said company after the consummation of the change in control, and that no further legislative action is required under G.L. c. 164, § 21.
The Department has investigated the Proposed Transaction and examined the
Settlement, which recast the Proposed Transaction by providing additional ratepayer, economic, financial, and public benefits. Based on our evaluation of the Proposed Transaction and the Settlement, in light of the requirements of § 96 and
balancing the applicable factors, the Department finds that the Proposed Transaction in concert with the Settlement provides a net benefit to ratepayers. Accordingly, the Department finds that the Proposed Transaction is consistent with the public
interest and that the change of control outlined by the Joint Petitioners is approved subject to the provisions specified above.
Accordingly, after notice, hearing, comment, and due consideration, it is
ORDERED: That pursuant to G.L. c. 164, § 96, and subject to the terms and conditions in this Order and the Settlement Agreement dated October 19, 2015, entered into and filed by
UIL Holdings Corporation together with Iberdrola USA, Inc., Iberdrola, S.A., and Green Merger
Sub, Inc., the Attorney General of the Commonwealth of Massachusetts, and the Department of Energy Resources, it is hereby determined that the change of control of UIL Holdings Corporation, and the change of control of The Berkshire Gas Company, are
each consistent with the public interest and are hereby APPROVED; and it is
FURTHER ORDERED: That the Settlement Agreement dated
October 19, 2015, entered into and filed by UIL Holdings Corporation together with Iberdrola USA, Inc., Iberdrola, S.A., and Green Merger Sub, Inc., the Attorney General of the Commonwealth of Massachusetts, and the Department of Energy
Resources produces a reasonable result and is hereby APPROVED; and it is
FURTHER ORDERED: That upon consummation of the change of
control approved herein, The Berkshire Gas Company shall have all rights, powers and privileges, franchises, properties, real, personal, or mixed, and immunities held by such company as are necessary to engage in all the activities of a gas company
in all the cities and towns in which such company was engaged immediately prior to the change of control; and that further action pursuant to G.L. c. 164, § 21 is not required to consummate the change of control; and it is
FURTHER ORDERED: That UIL Holdings Corporation, Iberdrola USA, Inc., Iberdrola, S.A.,
and Green Merger Sub, Inc., and The Berkshire Gas Company shall comply with all directives contained in this Order.
|
By Order of the Department, |
|
/s/ |
Angela M. OConnor, Chairman |
|
/s/ |
Jolette A. Westbrook, Commissioner |
|
/s/ |
Robert E. Hayden, Commissioner |
An appeal as to matters of law from any final decision, order or ruling of the Commission may be taken to the
Supreme Judicial Court by an aggrieved party in interest by the filing of a written petition praying that the Order of the Commission be modified or set aside in whole or in part. Such petition for appeal shall be filed with the Secretary of the
Commission within twenty days after the date of service of the decision, order or ruling of the Commission, or within such further time as the Commission may allow upon request filed prior to the expiration of the twenty days after the date of
service of said decision, order or ruling. Within ten days after such petition has been filed, the appealing party shall enter the appeal in the Supreme Judicial Court sitting in Suffolk County by filing a copy thereof with the Clerk of said Court.
G.L. c. 25, § 5.
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