**Exhibit 99(ao)**

 
| STATE OF MAINE                   |   | Docket No.  2002-676 |
|----------------------------------|--------|---------------------------|
| PUBLIC UTILITIES COMMISSION      |   |                      |
|                             |   | March 26, 2003       |
|                             |   |                      |
| MAINE PUBLIC SERVICE COMPANY     |   | ORDER APPROVING           |
| Request for Approval of          |   | STIPULATION               |
| Reorganization of the Company    |   |                      |
| Into a Holding Company Structure |   |                      |

 

WELCH, Chairman; NUGENT and DIAMOND,Commissioners

 

# **I.**                                         SUMMARY

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In this Order, we approve a stipulation entered into between MainePublic Service Company (MPS or Company) and the Office of the Public Advocate(OPA), and thus, approve with conditions, MPS’s request for approval of areorganization of the Company into a holding company structure along with MPS’srequest for a limited exemption from the requirements of 35-A M.R.S.A.§ 708.  As part of our approval ofthe Stipulation, we also approve MPS’s Revised Management and Support ServicesAgreement (MSSA) and Cost Manual filed with the Commission on March 10,2003.  We find that all of ourconditions for approval have been met here, and thus, approve the stipulation.

 

 

# **II.**                                     BACKGROUND

# ** **

On October 31, 2002, MPS filed a requestfor Commission approval of a restructuring into a Maine based holding companystructure.  Under this structure MPS,Energy Atlantic as well as other affiliates which might be created at a laterdate, will become subsidiaries of a holding company (HoldCo).  In its application, MPS states that thecorporate restructuring will be accomplished through a “reverse triangularmerger”, similar to the one employed in *CentralMaine Power Company, Application for Approval of Reorganization of Transactionwith Affiliated Interests and Transfer of Assets,*Docket No.97-930.  The proposed restructuringconstitutes a reorganization requiring Commission approval pursuant to theprovisions of 35-A M/R.S.A. § 708.

 

In addition to the proposed reorganization,MPS also requests the approval of certain stock issuances and affiliatedinterest transactions.  Specifically,MPS requests Commission approval of the following transactions andarrangements:

 

1.                                       the creation ofa corporation (HoldCo) that will become the parent company of MPS through itsownership of all outstanding company stock of MPS;

 

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2.                                       the creation ofa corporation (MergeCo) whose only purpose will be to facilitate the corporatereorganization and which when organized will be a wholly owned subsidiary ofHoldCo and which will cease to exist once it has served its purpose;

 

3.                                       the conversionand exchange of all the outstanding shares of HoldCo’s common stock to thedegree that the conversion and exchange of MPS stock to be  effected in that transaction is deemed toconstitute as issuance of utyility stock within the meaning of 35-A M.R.S.A.§§ 901 and 902;

 

4.                                       the merger ofMergeCo into the Company, with the Company as the surviving corporation, andthe resulting conversion of the outstanding shares of MergeCo common stock intoa number of  shares of the common stockof the Company equal to the number of shares of the Compnay’s common stockoutstanding immediately prior to the share conversion described in item 3above, which will be deemed issued by the Company for this purpose;

 

5.                                       the dividend byMPS of its limited liability company interests in Energy Atlantic to HoldCopursuant to 35-A M.R.S.A. §§ 708, 901 and 902;

 

# **6.**                                       the execution and delivery of the Managerial andSupport Services Agreement and approval of the cost manual submitted inconjunction therewith pursuant to 35-A M.R.S.A. § 707;

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7.                                       the winding upand dissolving of M&NB at such future time as MPS might deem appropriatepursuant to 35-A M.R.S.A. § 708; and,

 

8.                                       the transfer, afterthe Merger Date, (i) of assets that are not “necessary or useful” within themeaning of Section 1101 of title 35-A, from MPS to any MPS affiliate, and(ii) the transfer of all other assets from MPS to HoldCo or any non-MPS HoldCosubsidiary in the total amount of up to $1,000,000 over the three-year periodbeginning upon the Merger Date.

 

A Notice of Proceeding which provided interested persons with anopportunity to intervene was issued on November 12, 2002.  A timely petition to intervene was filed bythe Office of the Public Advocate.  Apetition for discretionary intervention, for the limited purpose of receivingfilings and potential filing a brief, was filed by Central Maine Power Company(CMP).  Bangor Hydro-Electric Company(BHE) filed a request to be added as an interested person, receiving allfilings.  The petitions of the OPA, CMPand BHE were granted by way of a Procedural Order dated December 3,2002.  In its application, MPS requestedthat the Commission authorize the creation of HoldCo and MergeCo within thirtydays of the date of its filing.  This“interim approval” would be for the limited purpose of making necessary filingwith the Securities and

 

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Exchange Commission (SEC) under the Public Utility Holding Company andfor executing a registration statement under federal securities law.  On December 3, 2002, the Commissiongranted MPS’s request for interim approval to incorporate HoldCo and MergeCofor the limited purpose of making filings with the SEC and American StockExchange.

 

As part of its original petition, MPS also requested an exemption ofthe reorganization statute for all future transactions which would otherwiseconstitute a reorganization of MPS except in cases involving the issuance ortransfer of securities of an entity that is, or is intended to become, a Mainepublic utility.  On December 27,2002, MPS amended its petition to conform the Company’s request for exemptionto the exemption granted to Central Maine Power Company in *Central Maine Power Company, et. al., Request forWaiver from the Reorganization Approval Requirements in 35-A M.R.S.A.Section 708,*Docket No. 2001-447, Order (Dec. 20, 2001)

 

# **Technical conferences on the Company’s filing were held onJanuary 8, 2003 and January 17, 2003.  Following these conferences, the parties and our Staff engaged ina number of settlement conferences. Based on the discussions at these conferences, MPS filed a revisedManagement and Support Services Agreement and Cost Manual on March 10,2003 and on March 12, 2003, the OPA and MPS filed a Stipulation whichproposed to resolve all issues in this matter.(1)**

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# **III.**                                 DESCRIPTIONOF THE STIPULATION

# ** **

The parties to the Stipulation propose that the Commission approve thecreation of HoldCo and MPS’s proposal to reorganize into a holding companystructure as described in Section II, **infra.**  The Stipulation also recommends approval ofthe transfer of assets from MPS to any MPS affiliate that are not necessary anduseful within the  meaning ofSection 1101 in an amount not to exceed $150,000 per year up to a total of$450,000 over a three-year period commencing on the closing of the merger.  With respect to future reorganizations, MPSwould be granted a partial exemption from the approval requirements of 35-AM.R.S.A. § 708, except that the following restructurings shall continue torequire Commission approval:

 

 

1.                                       a restructuringof MPS itself;

 

2.                                       a restructuringof a subsidiary of MPS;

 

3.                                       a restructuringresulting in the creation of an affiliated interest of MPS where it is intendedthat the affiliate will either enter into a contract or 

 

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(1)  On March 25, 2003, theCommission received a substitute page 10 to the Stipulation to correct atypographical error.  The correction hasbeen incorporated into the Stipulation as if it were originally filed.

 

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arrangement to furnish services or goods to be used by MPS, or performactivities formerly or simultaneously performed by MPS;

 

4.                                       a restructuringof HoldCo;

 

5.                                       a restructuringresulting in the creation of an affiliated interest of MPS where it is intendedthat the affiliate will act as a competitive energy supplier in Maine as thatterm is defined by 35-A MRSA Section 3201(5); and,

 

6.                                       a restructuringresulting in the creation of an affiliated interest that owns or intend to owngeneration assets whose ownership would be prohibited under the provisions of35-A M.R.S.A. Section 3204 if owned by MPS directly.

 

 

For the purpose of this exemption, a “restructuring” of MPS means thecreation, consolidation, merger, liquidation, transfer of ownership or control,dissolution or termination, in whole or in part, of MPS, or any entitydescribed in subsections 2(b) or (c) above, accomplished by the issue, sale,acquisition, lease, exchange, distribution or transfer of 10% or more of MPS’or the other entity’s voting securities by one person or two or more personsacting in concert.  With respect toHoldCo, a “restructuring” means the consolidation, merger, liquidation,transfer of ownership or control, dissolution or termination, direct orindirect, in whole or in part, of HoldCo, accomplished by the issue, sale,acquisition, lease, exchange, distribution or transfer of 10 % or more of thevoting securities of HoldCo by one person or two or more persons acting inconcert.

 

The approval of the reorganization, and the exemption from futurereorganization approvals are subject to the following seventeen conditions setout in the Stipulation:

 

(1)                                  Access to booksand records.  The Commission willcontinue to have reasonable access to books, records and documents of MPS, ofHoldCo, and of non-utility affiliates in which HoldCo directly or indirectlyholds a majority interest.  HoldCo willuse its best efforts to produce books, records and documents of non-utilityaffiliates in which HoldCo has less than a majority interest.

 

(2)                                  SEC filings.  HoldCo shall provide the Commission with itsannual, quarterly, current and transitional reports filed pursuant to Section 13and 15(d) of the Securities and Exchange Act of 1934, at the same time it filesthose reports with the Securities and Exchange Commission.

 

(3)                                  Financialstatements.  To the extent notcovered by Item (2), HoldCo will provide to the Commission quarterly and annualfinancial statements.  The

 

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annual consolidated balance sheets of HoldCo and its subsidiaries willbe certified by an independent public accountant.

 

(4)                                  Confidentiality.  The Commission will afford all appropriateprotections, including the issuance of protective orders, for the business,financial and proprietary information designated by HoldCo or any of itsaffiliates as confidential.(2)

 

(5)                                  Loans andliabilities.  MPS will not make anyloan to, or guarantee or assume any obligation of, HoldCo or any of itsaffiliates without prior Commission approval.

 

(6)                                  Reorganizationcosts.  All costs arising from thereorganization of the Company to a holding company system will be borne byshareholders.

 

(7)                                  Dividend policy.  The Board of Directors of the Company willcontinue to set dividend policy for the Company with due regard for thefinancial performance, needs and health of the Company and the maintenance of asafe, efficient and reasonable capital structure.  Commencing on July 1, 2003, if at any time MPS’s commondividend payout ratio (dividends per share divided by earnings per share)exceeds 1.0 (i.e. 100%) on a two year rolling average basis, MPS shall notifythe Commission in writing within thirty (30) days of the end of the calendarquarter (assuming a dividend is paid on July 1, 2003, the initial two yearperiod shall be April 1, 2001 through March 31, 2003).  The required notification should explain thecircumstances (extraordinary or not) of this event and the financial conditionof MPS.  The Commission reserves theright in the future, should financial circumstances warrant, to imposelimitations on the dividend policy of MPS, the regulated transmission anddistribution company.

 

(8)                                  Utility securities(debt or equity) issuances. Securities issuances by the Company will be done independently of HoldCoand subject to such Commission approvals as required.  The proceeds of any securities issued by the Company will be usedexclusively by the Company for its business.

 

(9)                                  Prior CommissionOrders:

 

a)   As a result of the protections inherent in theholding company structure and the conditions set forth herein, the partiesbelieve the ratepayers will be adequately protected from the financial andbusiness risks and costs of non-utility activities; therefore, the ratemakingcaps and presumptions established in Maine Public Service Company, Re:Request for Approval

 

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(2)  We interpret the term“appropriate” here to mean “in accordance with usual Commission practice.”

 

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of Reorganization,Docket 98-138, Order dated September 2, 1998 (the “EA Order”) (at 5-6) areremoved.

 

b)   The Commission in Docket No. 98-138 amended by theCommissions Order in WPS *Energy Service, Inc., Complaint Requesting CommissionAction to Amend or Alter Commission Order of September 2, 1998 in DocketNo. 1998-138 and Determine Whether Maine Public Service Co. and/or EnergyAtlantic has Violated the Requirements of the Order of the Provisions ofChapters 301, 304 or 322,*Docket No. 2000-894 (April 29, 2002),granted certain conditional exemptions to MPS and EA of the employee sharingprohibitions of Chapter 304.  OnFebruary 21, 2003, MPS announced that it intended to exit the NorthernMaine market and requested an exemption from the requirements of Chapter 304. *Maine PublicService Company, Application for Exemption of Chapter 304,*DocketNo. 2003-122.  The issue of whether theconditions of exemption set forth in the Commission Orders in Docket Nos.1998-138 and 2000-894, including the question of whether such conditions iffound to be appropriate should be at the MPS level or be transferred up toHoldCo will be considered in Docket No. 2003-122.

 

(10)                            Methodology for DeterminingCost of Capital.  Maine Public’scost of capital shall, following the closing on the reorganization, bedetermined based on the “divisional cost of capital” approach, without making a“double leverage” adjustment, as discussed in Central Maine Power Company,Re: Application for Approval of Reorganization, Maine PUC Docket No.97-930, Order dated May 1, 1998 at 5-6.

 

(11)                            Discharge of EAGuarantee.  MPS shall be dischargedof the EA Guarantee.

 

(12)                            Investment Level.  HoldCo’s total non-utility investment,excluding accumulated unregulated retained earnings, shall not exceed fiftymillion dollars (US$50,000,000) and such amount shall exclude retained earningsfrom Energy Atlantic, LLC., provided that MPS may at any time seek anenlargement of this limitation for good cause shown.

 

(13)                            Pledge or Transfer ofCommon Stock. Without prior Commission approval, HoldCo will not sell,pledge or otherwise transfer any common stock of the Company.

 

(14)                            Common Equity Ratio.  To protect and maintain the financialintegrity of the regulated T & D utility, MPS and HoldCo agree to maintainthe common equity ratio of MPS at a level of not less than forty eight percent(48%) of the total capital at all times, provided that the Commission mayestablish, for good cause shown, a lower ratio in connection with itsauthorization of  a future debt issuanceproposed by MPS. Total capital is

 

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defined as the sum of the following components: common equity,preferred equity, long-term debt, current maturities long-term debt (CMLTD),long-term capital leases, current maturities long-term capital leases, andshort-term debt.

 

(15)                            Testimony.  On the reasonable request of the Commission,HoldCo will direct any employee or officer of HoldCo or any subsidiary of otheraffiliate in which HoldCo directly or indirectly holds a majority interest toappear before the Commission for the purpose of giving testimony.

 

(16)                            Tax Effects.  During the course of this proceeding MPS hasrepresented that the proposed reorganization will not result in any negativetax consequences for MPS.  To the extentthat any such negative tax effects occur, MPS ratepayers will not bear any ofthe costs of such negative tax effects.

 

(17)                            Reservation of CommissionAuthority.  As set forth in 35-AM.R.S.A. § 708(2-a), approval of this reorganization does not limit orrestrict the Commission powers in determining and setting MPS’s rates orcharges.  As a last resort, theCommission may, pursuant to the provisions of 35-A M.R.S.A. §708(2)(A)(8),after notice and an opportunity to be heard, order divestiture of MPS by HoldCoupon a determination that no other available remedy is adequate to reasonablyprotect ratepayers from harm.

 

 

# **IV.**                                DECISION

# ** **

As we have now stated on numerous occasions,to approve a stipulation the Commission must find that:

 

1.                                       the partiesjoining the stipulation represent a sufficiently broad spectrum of intereststhat the Commission can be sure that there is no appearance or reality ofdisenfranchisement;

 

2.                                       the process thatled to the stipulation was fair to all parties; and,

 

3.                                       thestipulated result is reasonable and not contrary to legislative mandate.

 

See *Central Maine Power Company,Proposed Increase in Rates,*Docket No. 92-345(II), Detailed Opinionand Subsidiary Findings (Me. P.U.C. Jan. 10, 1995), and *Maine Public Service Company, Proposed Increase inRates (Rate Design),*Docket No. 95-052, Order (Me. P.U.C.June 26, 1996).

 

We have also recognized that we have an obligation to ensure that theoverall stipulated result is in the public interest.  See *Northern Utilities, Inc.,Proposed Environmental Response Cost Recovery,*Docket No. 96-678,Order Approving

 

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Stipulation (Me. P.U.C. April 28, 1997).  We find that the proposed Stipulation in this case meets all theabove criteria.

 

The Stipulation before us was entered into between the Company and theOPA.  In past cases, we have found thatthese two entities, representing often opposite views in the ratemakingprocess, constitute a sufficiently broad spectrum of interests to satisfy thefirst criterion.  See *Public Utilities commission, Investigation ofStranded Cost Recovery, Transmission and Distribution Utility RevenueRequirements and Rate Design of Bangor Hydro-Electric Company (Phase II),*DocketNo. 99-185, Order Approving Stipulation (Maine Public Service Company) at 3(Aug. 11, 2000).

 

Based on the record before us, we find that the process that led tothis Stipulation was fair and open.  We,therefore, conclude that the second criterion for approval has also beensatisfied.

 

Finally, we conclude that the result of the Stipulation is reasonable,not contrary to legislative mandate and consistent with the publicinterest.  The Stipulation would allowthe Company to pursue its corporate objectives of going to a holding companystructure and of pursuing non-utility business opportunities.  We find that the conditions for approval setforth in the stipulation are sufficient to protect MPS’s ratepayers from harmshould MPS’s investments prove non-profitable. In particular, we find that the investment limit, minimum equity ratioand dividend reporting conditions provided in the Stipulation are particularlyeffective tools in safeguarding MPS’s ratepayers.

 

In approving the Stipulation, we also approve MPS’s proposed ManagementSupport Services Agreement and Cost Manual. Under the Management Support Services Agreement, the services ofindividuals transferred to HoldCo will continue to be available to MPS.  In addition, HoldCo will be able to obtainservices from MPS such as accounting and information technology services againsubject to the Management Support Services Agreement.  Where applicable, the charges for such services shall be determinedby reference to the Cost Manual.  Withone exception the Management Support Services Agreement and the Cost Manual arein accordance with Chapter 820 of the Commission’s Rules.  The Stipulation proposes that the Commissionconditionally waive Section 4(E) of Chapter 820 to allow MPS affiliates tocharge MPS for services using a fully distributed cost methodology when theaffiliate does not otherwise provide services to non-affiliates and no readilyavailable market rate exists.  As partof its annual report, filed in accordance with Chapter 820 § 4(H), MPS isto indicate the instances in which an affiliate charged MPS for services,facilities, equipment or personnel using the fully distributed costmethodology.  Again we find, thestipulated result here to be reasonable, consistent with the public interestand with all relevant legislative mandates.

 

Accordingly, it is

 

O R D E R E D

 

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1.                                       Thatthe Stipulation entered into between Maine Public Service Company and theOffice of the Public Advocate and filed with the Commission on March 12,2003 as corrected by the March 25, 2003 filing by Maine Public Servicecompany is approved.  The Stipulation isattached hereto as Appendix One.

 

2.                                       Thatthe approvals set out in the Stipulation and the conditions for approval areincorporated by reference herein.

 

 

Dated at Augusta, Maine, this 26thday of March, 2003.

 

BY ORDER OF THE COMMISSION

 

 
|                      |    |   |
|---------------------------|---------|--------|
| Dennis L. Keschl          |
| Administrative Director   |
|                      |
|                      |
| COMMISSIONERS VOTING FOR: | Welch   |
|                      | Diamond |
|                      | Nugent  |
|                           |         |        |  |

 

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NOTICE OF RIGHTS TO REVIEW ORAPPEAL

 

5   M.R.S.A. § 9061 requires thePublic Utilities Commission to give each party to an adjudicatory proceedingwritten notice of the party’s rights to review or appeal of its decision madeat the conclusion of the adjudicatory proceeding.  The methods of review or appeal of PUC decisions at theconclusion of an adjudicatory proceeding are as follows:

 

1.                                       Reconsideration of the Commission’s Order may be requestedunder Section 1004 of the Commission’s Rules of Practice and Procedure(65-407 C.M.R.110) within 20 days of the date of the Order by filing a petitionwith the Commission stating the grounds upon which reconsideration is sought.

 

2.                                       Appeal of a final decision of the Commission may be taken to the LawCourt by filing, within 21 days of the date of the Order, a Notice of Appealwith the Administrative Director of the Commission, pursuant to 35-A M.R.S.A.§ 1320(1)-(4) and the Maine Rules of Appellate Procedure.

 

3.                                       Additional court review of constitutional issues or issuesinvolving the justness or reasonableness of rates may be had by the filing ofan appeal with the Law Court, pursuant to 35-A M.R.S.A. § 1320(5).

 

Note:                   The attachment of this Notice to a documentdoes not indicate the Commission’s view that the particular document may besubject to review or appeal.  Similarly,the failure of the Commission to attach a copy of this Notice to a documentdoes not indicate the Commission’s view that the document is not subject toreview or appeal.

 

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