DE 96-227
Pennichuck East Utility, Inc./Pennichuck Corporation
Sale of Consumers New Hampshire Water's Non-Hudson
Water System to Pennichuck East Utility, Inc.
Order Approving Pennichuck East Utility, Inc.'s
Petition for Financing
O R D E R N O. 22,893
April 6, 1998
On March 26, 1998, Pennichuck Corporation (PC) and its
wholly-owned subsidiary Pennichuck East Utility, Inc. (PEU)
(collectively, Pennichuck) filed a petition with the New
Hampshire Public Utilities Commission (Commission), pursuant to
RSA 369, for authorization to issue and sell $4,500,000 of debt.
The purpose of the debt is to acquire the "Non-Hudson" utility
assets of Consumers New Hampshire Water Company (Consumers) from
the Town of Hudson (Hudson).
The lengthy procedural history of this docket is
described in previous Commission orders. In particular, Order
No. 22,792 (the Order), issued November 21, 1997, describes the
involvement of Pennichuck in the proceeding as a party to Phase 2
of the docket. The Order provided Commission approval for
Pennichuck's acquisition of the utility assets of Consumers
located outside of the Town of Hudson, immediately after their
purchase by Hudson. The purchase price of these assets is
$7,500,000. The Order provided for Pennichuck to charge rates to
the approximately 3,500 customers at a level 10% below those
charged previously by Consumers, on an interim basis for 18 to 24
months until a rate case is filed. The Commission authorized a
capital structure for the new utility, Pennichuck East Utility,
Inc., of 60% debt and 40% equity. The equity amount of
$3,000,000 is to come from PC, which would derive such funds from
a dividend to be paid by an unregulated subsidiary, Southwood
Corporation. It is the 60% debt, or $4,500,000, which is the
subject of the instant petition.
Pennichuck has received a commitment letter from Fleet
Bank-New Hampshire for a loan of $4,500,000, for which Pennichuck
Corporation and Pennichuck East Utility, Inc. will be jointly and
severally liable. The note will also be secured by a first
mortgage on the assets of Pennichuck East Utility, Inc. The note
will initially be structured as a Line of Credit, and after two
years will convert to a term facility for the remaining five
years. Pennichuck requested a fixed rate for the loan, and in
order to accommodate that request Fleet Bank, N.A., the parent of
the lending institution Fleet Bank-New Hampshire, will enter into
a swap agreement with Pennichuck effective at the closing date.
Under the swap agreement, Fleet Bank, N.A. will reimburse
Pennichuck for its variable interest payments paid to Fleet Bank-New Hampshire and, in exchange, Pennichuck will pay Fleet Bank
N.A. a monthly interest payment at a fixed rate of 6.5% over the
seven year term of the note. Pennichuck is to also pay Fleet
Bank-New Hampshire an origination fee of $25,000 at closing.
In our Order No. 22,792 (November 21, 1997), we
approved Pennichuck's purchase of the Non-Hudson assets of
Consumers New Hampshire Water Company as being in the public
interest. Also in that Order, we found that Pennichuck had the
requisite managerial, technical and financial expertise to assume
ownership of the assets. In addition, in our Order No. 22,880
(March 23, 1998), we provided our specific approval for
Pennichuck to engage in business, and for Consumers to terminate
service, consistent with our findings in the November Order. The
only remaining matter, then, for our consideration, is review and
approval of Pennichuck's financing arrangements pursuant to RSA
369.
Our Staff has reviewed the financing proposal presented
by Pennichuck. We have reviewed Staff's recommendation with
respect to that financing and we find that the terms and
conditions of the proposed financing are reasonable, and we will
approve them. We note that the Staff recommendation provides
comment on the source of the equity funds to be infused into PEU,
namely that the parent Pennichuck Corporation, coincident with
the note being executed as contemplated herein, is also borrowing
from Fleet Bank in order to effectuate the purchase of the water
assets from Hudson. We note that, consistent with our Order No.
22,792, we continue to reserve our right to evaluate the capital
structure of the new utility at the time it files a rate case 18
to 24 months after assuming ownership of the assets.
Based upon the foregoing, it is hereby
ORDERED, that Pennichuck East Utility, Inc. And
Pennichuck Corporation, are hereby authorized, pursuant to RSA
369, to execute and deliver its note to Fleet Bank-New Hampshire
in the amount of $4,500,000, together with a security interest in
the assets of Pennichuck East Utility, Inc.; and it is
FURTHER ORDERED, that Pennichuck East Utility, Inc. and
Pennichuck Corporation provide executed copies of the loan
documents following closing.
By order of the Public Utilities Commission of New
Hampshire this sixth day of April, 1998.
Douglas L. Patch Bruce B. Ellsworth Susan S. Geiger
Chairman Commissioner Commissioner
Attested by:
Thomas B. Getz
Executive Director and Secretary