**Exhibit 99(an) Pages O1 – O10**

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

 

WELCH, Chairman; NUGENT and DIAMOND,Commissioners

 

**I.              SUMMARY**

 

In this Order,we approve a stipulation entered into between Maine Public Service Company (MPSor Company) and the Office of the Public Advocate (OPA), and thus, approve withconditions, MPS’s request for approval of a reorganization of the Company intoa holding company structure along with MPS’s request for a limited exemptionfrom the requirements of 35-A M.R.S.A. § 708. As part of our approval of the Stipulation, we also approve MPS’sRevised Management and Support Services Agreement (MSSA) and Cost Manual filedwith the Commission on March 10, 2003. We find that all of our conditions for approval have been met here, andthus, approve the stipulation.

 

 

# **II.**                                     BACKGROUND

 

On October 31,2002, MPS filed a request for Commission approval of a restructuring into aMaine based holding company structure. Under this structure MPS, Energy Atlantic as well as other affiliateswhich might be created at a later date, will become subsidiaries of a holdingcompany (HoldCo).  In its application,MPS states that the corporate restructuring will be accomplished through a“reverse triangular merger”, similar to the one employed in *Central Maine Power Company, Application for Approvalof Reorganization of Transaction with Affiliated Interests and Transfer ofAssets,*Docket No. 97-930. The proposed restructuring constitutes a reorganization requiringCommission approval pursuant to the provisions of 35-A M/R.S.A. § 708.

 

In addition tothe proposed reorganization, MPS also requests the approval of certain stockissuances and affiliated interest transactions.  Specifically, MPS requests Commission approval of the followingtransactions and arrangements:

 

1.                                       thecreation of a corporation (HoldCo) that will become the parent company of MPSthrough its ownership of all outstanding company stock of MPS;

 

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2.                                       thecreation of a corporation (MergeCo) whose only purpose will be to facilitatethe corporate reorganization and which when organized will be a wholly ownedsubsidiary of HoldCo and which will cease to exist once it has served itspurpose;

 

3.                                       theconversion and exchange of all the outstanding shares of HoldCo’s common stockto the degree 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.                                       themerger of MergeCo into the Company, with the Company as the survivingcorporation, and the resulting conversion of the outstanding shares of MergeCocommon stock into a number of  shares ofthe common stock of the Company equal to the number of shares of the Compnay’scommon stock outstanding immediately prior to the share conversion described initem 3 above, which will be deemed issued by the Company for this purpose;

 

5.                                       thedividend by MPS of its limited liability company interests in Energy Atlanticto HoldCo pursuant to 35-A M.R.S.A. §§ 708, 901 and 902;

 

6.                                       theexecution and delivery of the Managerial and Support Services Agreement andapproval of the cost manual submitted in conjunction therewith pursuant to 35-AM.R.S.A. § 707;

 

7.                                       thewinding up and dissolving of M&NB at such future time as MPS might deemappropriate pursuant to 35-A M.R.S.A. § 708; and,

 

8.                                       thetransfer, after the Merger Date, (i) of assets that are not “necessary oruseful” within the meaning of Section 1101 of title 35-A, from MPS to any MPSaffiliate, and (ii) the transfer of all other assets from MPS to HoldCo or anynon-MPS HoldCo subsidiary in the total amount of up to $1,000,000 over thethree-year period beginning 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 requested that theCommission authorize the creation of HoldCo and MergeCo within thirty days ofthe date of its filing.  This “interimapproval” would be for the limited purpose of making necessary filing with theSecurities and 

 

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Exchange Commission (SEC) underthe Public Utility Holding Company and for executing a registration statementunder federal securities law.  OnDecember 3, 2002, the Commission granted MPS’s request for interim approval toincorporate HoldCo and MergeCo for the limited purpose of making filings withthe SEC and American Stock Exchange.

 

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 exemption to theexemption granted to Central Maine Power Company in *Central Maine Power Company, et. al., Request for Waiver from theReorganization Approval Requirements in 35-A M.R.S.A. Section 708,*DocketNo. 2001-447, Order (Dec. 20, 2001)

 

Technical conferences on the Company’s filing were held on January 8,2003 and January 17, 2003.  Followingthese conferences, the parties and our Staff engaged in a number of settlementconferences.  Based on the discussionsat these conferences, MPS filed a revised Management and Support ServicesAgreement and Cost Manual on March 10, 2003 and on March 12, 2003, the OPA andMPS filed a Stipulation which proposed to resolve all issues in this matter.(1)

 

# **III.**                                 DESCRIPTIONOF THE STIPULATION

 

The parties tothe Stipulation propose that the Commission approve the creation of HoldCo andMPS’s proposal to reorganize into a holding company structure as described inSection 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 of Section1101 in an amount not to exceed $150,000 per year up to a total of $450,000over 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.                                       arestructuring of MPS itself;

 

2.                                       arestructuring of a subsidiary of MPS;

 

3.                                       arestructuring resulting in the creation of an affiliated interest of MPS whereit is intended that 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 tobe used by MPS, or perform activities formerly or simultaneously performed byMPS;

 

4.                                       arestructuring of HoldCo;

 

5.                                       arestructuring resulting in the creation of an affiliated interest of MPS whereit is intended that the affiliate will act as a competitive energy supplier inMaine as that term is defined by 35-A MRSA Section 3201(5); and,

 

6.                                       arestructuring resulting in the creation of an affiliated interest that owns orintend to own generation assets whose ownership would be prohibited under theprovisions of 35-A M.R.S.A. Section 3204 if owned by MPS directly.

 

 

For thepurpose of this exemption, a “restructuring” of MPS means the creation,consolidation, merger, liquidation, transfer of ownership or control,dissolution or termination, in whole or in part, of MPS, or any entity describedin 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 otherentity’s voting securities by one person or two or more persons acting inconcert.  With respect to HoldCo, a“restructuring” means the consolidation, merger, liquidation, transfer ofownership or control, dissolution or termination, direct or indirect, in wholeor in part, of HoldCo, accomplished by the issue, sale, acquisition, lease,exchange, distribution or transfer of 10 % or more of the voting securities ofHoldCo by one person or two or more persons acting in concert.

 

The approvalof the reorganization, and the exemption from future reorganization approvalsare subject to the following seventeen conditions set out in the Stipulation:

 

(1)                                  Accessto books and records.  TheCommission will continue to have reasonable access to books, records anddocuments of MPS, of HoldCo, and of non-utility affiliates in which HoldCodirectly or indirectly holds a majority interest.  HoldCo will use its best efforts to produce books, records anddocuments of non-utility affiliates in which HoldCo has less than a majorityinterest.

 

(2)                                  SECfilings.  HoldCo shall provide theCommission with its annual, quarterly, current and transitional reports filedpursuant to Section 13 and 15(d) of the Securities and Exchange Act of 1934, atthe same time it files those reports with the Securities and ExchangeCommission.

 

(3)                                  Financialstatements.  To the extent not coveredby Item (2), HoldCo will provide to the Commission quarterly and annualfinancial statements.  The

 

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annual consolidated balance sheets of HoldCoand its subsidiaries will be 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)                                  Loansand liabilities.  MPS will not makeany loan 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)                                  Dividendpolicy.  The Board of Directors ofthe Company will continue to set dividend policy for the Company with dueregard for the financial performance, needs and health of the Company and themaintenance of a safe, efficient and reasonable capital structure.  Commencing on July 1, 2003, if at any timeMPS’s common dividend payout ratio (dividends per share divided by earnings pershare) exceeds 1.0 (i.e. 100%) on a two year rolling average basis, MPS shallnotify the Commission in writing within thirty (30) days of the end of thecalendar quarter (assuming a dividend is paid on July 1, 2003, the initial twoyear period 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)                                  Utilitysecurities (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)                                  PriorCommission Orders:

 

a)             Asa result of the protections inherent in the holding company structure and theconditions set forth herein, the parties believe the ratepayers will beadequately protected from the financial and business risks and costs ofnon-utility activities; therefore, the ratemaking caps and presumptionsestablished 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)            TheCommission in Docket No. 98-138 amended by the Commissions Order in WPS *EnergyService, Inc., Complaint Requesting Commission Action to Amend or AlterCommission Order of September 2, 1998 in Docket No. 1998-138 and DetermineWhether Maine Public Service Co. and/or Energy Atlantic has Violated theRequirements of the Order of the Provisions of Chapters 301, 304 or 322,*DocketNo. 2000-894 (April 29, 2002), granted certain conditional exemptions to MPSand EA of the employee sharing prohibitions of Chapter 304.  On February 21, 2003, MPS announced that itintended to exit the Northern Maine market and requested an exemption from therequirements of Chapter 304. *Maine Public Service Company, Application forExemption of Chapter 304,*Docket No. 2003-122.  The issue of whether the conditions ofexemption set forth in the Commission Orders in Docket Nos. 1998-138 and2000-894, including the question of whether such conditions if found to beappropriate should be at the MPS level or be transferred up to HoldCo will beconsidered in Docket No. 2003-122.

 

(10)                            Methodologyfor Determining Cost of Capital. Maine Public’s cost of capital shall, following the closing on thereorganization, be determined based on the “divisional cost of capital”approach, without making a “double leverage” adjustment, as discussed in CentralMaine Power Company, Re: Application for Approval of Reorganization, MainePUC Docket No. 97-930, Order dated May 1, 1998 at 5-6.

 

(11)                            Dischargeof EA Guarantee.  MPS shall bedischarged of the EA Guarantee.

 

(12)                            InvestmentLevel.  HoldCo’s total non-utilityinvestment, excluding accumulated unregulated retained earnings, shall notexceed fifty million dollars (US$50,000,000) and such amount shall excluderetained earnings from Energy Atlantic, LLC., provided that MPS may at any timeseek an enlargement of this limitation for good cause shown.

 

(13)                            Pledgeor Transfer of Common Stock. Without prior Commission approval, HoldCo willnot sell, pledge or otherwise transfer any common stock of the Company.

 

(14)                            CommonEquity Ratio.  To protect andmaintain the financial integrity of the regulated T & D utility, MPS andHoldCo agree to maintain the common equity ratio of MPS at a level of not lessthan forty eight percent (48%) of the total capital at all times, provided thatthe Commission may establish, for good cause shown, a lower ratio in connectionwith its authorization of  a future debtissuance proposed by MPS. Total capital is 

 

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defined as the sum of the followingcomponents: common equity, preferred equity, long-term debt, current maturitieslong-term debt (CMLTD), long-term capital leases, current maturities long-termcapital leases, and short-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)                            TaxEffects.  During the course of thisproceeding MPS has represented that the proposed reorganization will not resultin any negative tax consequences for MPS. To the extent that any such negative tax effects occur, MPS ratepayerswill not bear any of the costs of such negative tax effects.

 

(17)                            Reservationof Commission Authority.  As setforth in 35-A M.R.S.A. § 708(2-a), approval of this reorganization does notlimit or restrict the Commission powers in determining and setting MPS’s ratesor charges.  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 nowstated on numerous occasions, to approve a stipulation the Commission must findthat:

 

1.                                       theparties joining the stipulation represent a sufficiently broad spectrum ofinterests that the Commission can be sure that there is no appearance orreality of disenfranchisement;

 

2.                                       theprocess that led 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 alsorecognized that we have an obligation to ensure that the overall stipulatedresult is in the public interest.  See *Northern Utilities, Inc., Proposed EnvironmentalResponse Cost Recovery,*Docket No. 96-678, Order Approving

 

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Stipulation (Me. P.U.C. April28, 1997).  We find that the proposedStipulation in this case meets all the above criteria.

 

TheStipulation before us was entered into between the Company and the OPA.  In past cases, we have found that these twoentities, representing often opposite views in the ratemaking process,constitute a sufficiently broad spectrum of interests to satisfy the firstcriterion.  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 therecord before us, we find that the process that led to this Stipulation wasfair and open.  We, therefore, concludethat the second criterion for approval has also been satisfied.

 

Finally, weconclude that the result of the Stipulation is reasonable, not contrary tolegislative mandate and consistent with the public interest.  The Stipulation would allow the Company topursue its corporate objectives of going to a holding company structure and ofpursuing non-utility business opportunities. We find that the conditions for approval set forth in the stipulationare sufficient to protect MPS’s ratepayers from harm should MPS’s investmentsprove non-profitable.  In particular, wefind that the investment limit, minimum equity ratio and dividend reportingconditions provided in the Stipulation are particularly effective tools insafeguarding MPS’s ratepayers.

 

In approvingthe Stipulation, we also approve MPS’s proposed Management Support ServicesAgreement and Cost Manual.  Under theManagement Support Services Agreement, the services of individuals transferredto HoldCo will continue to be available to MPS.  In addition, HoldCo will be able to obtain services from MPS suchas accounting and information technology services again subject to theManagement Support Services Agreement.  Whereapplicable, the charges for such services shall be determined by reference tothe Cost Manual.  With one exception theManagement Support Services Agreement and the Cost Manual are in accordancewith Chapter 820 of the Commission’s Rules. The Stipulation proposes that the Commission conditionally waive Section4(E) of Chapter 820 to allow MPS affiliates to charge MPS for services using afully distributed cost methodology when the affiliate does not otherwiseprovide services to non-affiliates and no readily available market rateexists.  As part of its annual report,filed in accordance with Chapter 820 § 4(H), MPS is to indicate the instancesin which an affiliate charged MPS for services, facilities, equipment orpersonnel using the fully distributed cost methodology.  Again we find, the stipulated result here tobe reasonable, consistent with the public interest and with all relevantlegislative mandates.

 

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Accordingly,it is

 

O R D E R E D

 

1.             That theStipulation entered into between Maine Public Service Company and the Office ofthe Public Advocate and filed with the Commission on March 12, 2003 ascorrected by the March 25, 2003 filing by Maine Public Service company isapproved.  The Stipulation is attachedhereto as Appendix One.

 

2.             That the approvalsset out in the Stipulation and the conditions for approval are incorporated byreference herein.

 

 

Datedat Augusta, Maine, this 26th day 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 OR APPEAL

 

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

 

1.             Reconsideration of theCommission’s Order may be requested under Section 1004 of the Commission’sRules of Practice and Procedure (65-407 C.M.R.110) within 20 days of the dateof the Order by filing a petition with the Commission stating the grounds uponwhich reconsideration is sought.

 

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

 

3.             Additional court review ofconstitutional issues or issues involving the justness or reasonableness ofrates may be had by the filing of an appeal with the Law Court, pursuant to35-A M.R.S.A. § 1320(5).

 

Note:                   The attachment of this Notice to a document does not indicate theCommission’s view that the particular document may be subject to review orappeal.  Similarly, the failure of theCommission to attach a copy of this Notice to a document does not indicate theCommission’s view that the document is not subject to review or appeal.

 

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**Exhibit 99(an) Pages O11 – O21**

 
| **STATE OF MAINE**                                                                            |   | **Docket No. 2002-  676** |
|-----------------------------------------------------------------------------------------------|--------|---------------------------|
| **PUBLIC UTILITIES  COMMISSION**                                                              |   |                      |
|                                                                                          |   |                      |
| **Re: MAINE PUBLIC  SERVICE COMPANY,**                                                        |   |                      |
| **Request for  Approval of Reorganization of the   Company into a Holding Company Structure** |   | **STIPULATION**           |

 

**A.  Introduction and Procedural History. **On November 1,2002, Maine Public Service Company (“MPS,” “Maine Public,” “the Company”) filedan Application seeking, *inter alia*, authority to reorganize into aholding company structure.  CentralMaine Power Company (“CMP”) and the Office of the Public Advocate (“OPA”) filedPetitions to Intervene, and Bangor Hydro-Electric Company filed a Petition toIntervene as an interested party.  Allsuch petitions were granted.(1)

 

On December23, 2002, the Commission, acting pursuant to Section 708(2) (the“Reorganization Statute”) issued an Order permitting MPS to form HoldCo, theentity that will eventually become the holding company in the newly-reorganizedentity, and MergeCo, an entity formed for the sole purpose of accomplishing themerger that will establish the reorganized corporate structure.  The Commission permitted the formation ofthese entities so as to enable MPS to proceed with its federal approvals andwith the understanding that both entities would be dissolved in the event thatthe Commission declined to give its consent to the proposedreorganization.  HoldCo and MergeCo willbe formed in connection with the contemplated reorganization.

 

In accordancewith Procedural Orders entered by the Hearings Examiner, MPS filed responses toExaminer and OPA Data Requests on December 24, 2002.  Certain of these responses were filed pursuant to the HearingsExaminer’s Protective Order entered on December 20, 2002.

 

On December27, 2002, MPS filed an amendment to its Application regarding the scope of theReorganization Statute exemption sought by the Company.  As amended, the exemption granted to MPSwould be largely congruent with that granted to CMP in *Central Maine Power Company, et al.,Request for Waiver from the Reorganization Approval Requirements in 35-A MRSASection 708*, Docket No. 2001-447, Order dated December 20, 2001 (the“2001 CMP Order*”*).

 

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(1) CMPintervened on the basis that it might be affected by any substantial change tothe State’s transmission grid, and only for the limited purpose of receivingfilings and potentially filing a brief. Neither BHE nor CMP have filed briefs or otherwise actively participatedin the proceedings.  BHE and CMP are notasked to join in this Stipulation.            

(2) Unlessotherwise noted, all statutory references are to Title 35-A, MRSA. 

 

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Following aTechnical Conference held on January 8, 2003, the Examiner and the OPA issued asecond series of Data Requests on January 13, 2003.  MPS provided responses to these Data Requests, as well as certainoral Data Requests issued in the course of the January 8 Technical Conference,on January 17 and 21, and a Status Conference was held on January 21,2003.  In line with requests made at theJanuary 21 Status Conference, MPS supplemented a Data Response on January 31,2003.

 

Thereafter,the parties and the Hearings Examiner held a settlement conference on February12, 2003, and the parties have now arrived at a Stipulation, embodied herein,which, if accepted by the Commission, will fully and finally dispose of all mattersraised in this Docket.  The partiestherefore jointly recommend that the Commission accept and adopt thisStipulation as its final disposition of this case.

 

**B.  Stipulation.**

** **

The partieshereby agree as follows:

** **

**1.  Description of Transaction. **HoldCo has beenformed with an authorized capital stock of 5 million shares of common stock and500,000 shares of preferred stock. HoldCo issued 100 shares of its common stock to MPS upon its formation.  MergeCo has been formed with an authorizedcapital stock of 1,000 shares of common stock, of which 100 shares was issuedto HoldCo at the time MergeCo was formed.

 

At such timeas all regulatory, non-regulatory and shareholder approvals for the transactionhave been obtained, the Company, HoldCo and MergeCo will enter into anAgreement and Plan of Merger substantially in the form filed as Exhibit 1 toMaine Public’s Application (the “Merger Plan”).  Under the Merger Plan,

 

a.                                       MergeCo willmerge into MPS, with MPS being the surviving corporation.  On the filing of the Articles of Merger withthe Maine Secretary of State or on the date specified in the Articles of Merger(the “Merger Date”), MergeCo will cease to exist.

 

b.                                      On the MergerDate, each outstanding share of MPS’s common stock (excluding shares held bydissenting shareholders who have complied with the requirements of Mainecorporate law(3)) will be exchanged by operation of law(4) into one share ofHoldCo common stock.  Holders of MPScommon stock before the merger will automatically become holders of HoldCocommon stock, holding the same number of shares, and will cease to be owners ofthe Company’s stock

 

c.                                       Also on theMerger Date, the outstanding shares of MergeCo common stock (to be held byHoldCo) will, as a result of the merger of MergeCo into MPS with MPS as thesurviving corporation, be converted by operation of law(5) into a 

 

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(3) See 13-CM.R.S.A. § 1322, as effective July 1, 2003 pursuant to Chapter 640 of thePublic Laws of 2001 (new Title 13-C is hereinafter referred to as the “RBCA”).

(4) See RBCA §1107,1.H.  

(5) See note 3above. 

 

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number ofshares of the common stock of the Company equal to the number of shares of theCompany’s common stock outstanding immediately prior to the share conversiondescribed in part b. above, which will be deemed issued by the Company for thispurpose.

 

d.                                      Each share ofHoldCo common stock outstanding before the Merger Date (i.e., the stockwhich was issued to MPS when HoldCo was formed) will be cancelled by HoldCo.

 

Because the MergeCo sharesconverted to MPS shares will be the same shares originally issued to HoldCo,the merger of MergeCo into the Company will result in the Company becoming asubsidiary of HoldCo.

 

At the closingon the above-described merger, MPS will dividend its interest in itswholly-owned competitive energy provider, Energy Atlantic, LLC, to HoldCo, butwill retain its 100% ownership interest in Maine and New Brunswick ElectricalPower Company, Ltd., a wholly-owned corporation organized under the laws ofCanada (“M&NB”).  M&NB, whichformerly owned the Tinker hydro-electric generating facility, will remaininactive, and MPS will wind up and dissolve M&NB at such time as MPS deems appropriate.

 

Completion ofthe corporate reorganization is subject to shareholder(6) and regulatoryapprovals, listing of HoldCo’s common stock on the American Stock Exchange, anda satisfactory tax ruling or opinion with respect to the tax consequences ofthe transaction.  As of the Merger Date,the common stock of HoldCo will be listed on the American Stock Exchange andthe common stock of the Company will no longer be listed on an exchange sinceit will be owned entirely by HoldCo.

 

Maine Publiccurrently guarantees EA’s obligations, up to a specified amount, under awholesale power agreement (the “EA Guarantee”).  If this guarantee is still operative as of the Merger Date, itwill be transferred to HoldCo, or otherwise disposed of, and MPS shall bedischarged.

 

Maine Publicplans to close on the reorganization on July 1, 2003 (i.e., July 1, 2003is the proposed Merger Date).

 

As of theMerger Date, the new corporate organization will include HoldCo, anon-operating holding company of which MPS will be a subsidiary, with all ofMPS’s common stock outstanding being held by HoldCo.  Maine Public will continue to own all of the voting securities ofM&NB and HoldCo will own EA outright. The Company’s existing debt securities will remain as outstandingsecurities of the Company.  After theMerger Date, the Company will continue to finance its business operations byissuing its own debt (secured and unsecured) and, if necessary, through equityinfusions from HoldCo.  The proceeds ofsecurities issuances by the Company will be used exclusively for its electricutility business, and Commission approval will be required for any newissuances of long-term (and/or secured) debt or equity securities by the

 

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(6) TheCompany intends to present the proposed corporate reorganization to theshareholders at its 2003 Annual Meeting of Shareholders, scheduled for May 13,2003. 

 

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Company.  Maine Public will continue to providetransmission and distribution service to its customers after the Merger Date,subject to Commission regulation and control, retaining virtually all of itsassets.(7)  Meanwhile, all non-*de minimis*non-core business activities will be carried on through subsidiaries formed byHoldCo or by entities in which HoldCo has an equity interest.

 

On the Merger Date, certain MPS employees,principally senior managers, will be transferred to HoldCo.  Under the Management and Support ServicesAgreement (“MSSA”) submitted by MPS for approval in this Docket, the servicesof individuals 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,again subject to the MSSA.  Whereapplicable, charges for such services shall be determined by reference to theCost Manual for Non-Regulated Business Activities (the “Cost Manual”) filed byMPS, as described in the Prefiled Direct Testimony of Larry E. LaPlante, MainePublic’s Vice President, Treasurer and Chief Financial Officer, and KurtTornquist, Vice President, Corporate Performance and Development.

 

**2.  Conditions. **The parties recommend that the Commission (a)establish the following conditions for its approval of the proposedreorganization, and (b) find that, with these conditions in place, the proposedreorganization will be consistent with the interests of Maine Public’sratepayers and investors within the meaning of subsection 2(A) of theReorganization Statute.

 

(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.  As set forth in Condition 4 below, anyCommission inspection of non-utility materials shall be subject to reasonableand appropriate protective measures as needed.

 

(2)                                  SEC filings.  HoldCo shall provide the Commission with itsannual, quarterly, current and transitional reports filed pursuant to Section13 and 15(d) of the Securities and Exchange Act of 1934, at the same time itfiles those reports with the Securities and Exchange Commission.

 

(3)                                  Financial statements.  To the extent not covered by Item (2),HoldCo will provide to the Commission quarterly and annual financialstatements.  The annual consolidatedbalance sheets of HoldCo and its subsidiaries will be certified by anindependent 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.

 

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(7) MPS willretain title to its interests in the Maine Electric Power Company and the MaineYankee Atomic Power Company.  

 

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(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 Commission will not place additionalrestrictions, in advance, on the dividend policy of MPS.  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 common dividendpayout ratio (dividends per share divided by earnings per share) exceeds 1.0(i.e. 100%) on a two year rolling average basis, MPS shall notify theCommission 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).(8)  The required notification should explain thecircumstances (extraordinary or not) of this event and the financial conditionof MPS.  Moreover, the Commissionreserves the right in the future, should financial circumstances warrant, toimpose limitations on the dividend policy of MPS, the regulated transmissionand distribution 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.  As a result of theprotections inherent in the holding company structure and the conditions setforth herein, the parties believe the ratepayers will be adequately protectedfrom the financial and business risks and costs of non-utility activities;therefore, the ratemaking caps and presumptions established in Maine PublicService Company, Re: Request for Approval of Reorganization, Docket 98-138,Order dated September 2, 1998 (the “EA Order”) (at 5-6) are removed.  The Commission in Docket No. 98-138 a)amended by the Commissions Order in WPS *Energy Service, Inc., Complaint Requesting CommissionAction to Amend or Alter Commission Order of September 2, 1998 in Docket No.1998-138 and Determine Whether Maine Public Service Co. and/or Energy Atlantichas Violated the Requirements of the Order of the Provisions of Chapters 301,304 or 322,*Docket No. 2000-894 (April 29, 2002), granted certainconditional exemptions to MPS and EA of the employee sharing prohibitions ofChapter 304.  On February 21, 2003, MPSannounced that it intended to exit the Northern Maine market and requested anexemption from the requirements of Chapter 304. *Maine Public Service Company,Application for Exemption of*

 

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(8) The parties recognize thatat such time as MPS’s payment obligations under the Wheelabrator-Sherman PPAagreement end in 2006, the MPS board may consider it prudent to maintain areasonable capital structure by increasing the dividend, which may yield apayout ratio in excess of 100%.

 

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*Chapter 304,*DocketNo. 2003-122.  The parties agree thatthe issue of whether the conditions of exemption set forth in the CommissionOrders in Docket Nos. 1998-138 and 2000-894, including the question of whethersuch conditions if found to be appropriate should be at the MPS level or betransferred up to HoldCo should be considered in Docket No. 2003-122 and thatthis Stipulation does not constitute an agreement of conditions of employeesharing established in Docket Nos. 98-138 and 2000-894.

 

(10)                            Methodology forDetermining Cost of Capital.  MainePublic’s cost 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 defined as the sum of the followingcomponents: common equity, preferred equity, long-term debt, current maturitieslong-term debt (CMLTD), long-term capital leases, current maturities long-termcapital leases, and short-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.

 

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(17)                            The aforementionedconditions have been developed with the understanding that ratepayers will notbe subject to additional costs that may result from the reorganization and anyinvestments that HoldCo may make in unregulated entities pursuant to theprovisions of Section 3 (g)(2).  As setforth in 35-A M.R.S.A. §708(2-a), approval of this reorganization does notlimit or restrict the Commission powers in determining and setting MPS’s ratesor charges.  The parties believe thatthis reservation as well as conditions set forth above should adequatelyprotect ratepayers from harm.  Theparties recognize that as a last resort the Commission may, pursuant to theprovisions of 35-A M.R.S.A. §708(2)(A)(8), after notice and an opportunity tobe heard, order divestiture of MPS by HoldCo upon a determination that no otheravailable remedy is adequate to reasonably protect ratepayers from harm.

 

The partiesagree that adoption of these conditions will be consistent with the interestsof Maine Public’s ratepayers and investors and recommends that the Commissionadopt them.

 

**3.  Approvals. **The parties recommend that the Commission grantthe following specific approvals:

 

a.                                       the conversionand exchange of all of the outstanding shares of the Company’s common stockinto an equal number of shares of HoldCo’s common stock (to the degree that theconversion and exchange of MPS stock to be effected in that transaction isdeemed to constitute an issuance of utility stock within the meaning ofSections 901 and 902);

 

b.                                      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 stock of the Company equal to the number ofshares of the Company’s common stock outstanding immediately prior to the shareconversion described in item a. above, which will be deemed issued by theCompany for this purpose (Section 708, 901 and 902);

 

c.                                       the dividend byMaine Public of its limited liability company interest in Energy Atlantic toHoldCo (Sections 708, 910(B));

 

d.                                      the execution,delivery and use of the Managerial and Support Services Agreement and the CostManual with respect to services provided by MPS and its affiliates to eachother (including the use of an average overhead rate(9))******(Section 707) (by approving the MSSA, theCommission conditionally waives Chapter 820(4)(E) of the Commission’sRules  to allow  MPS affiliates to charge MPS using a fullydistributed cost methodology for the provision of services when the 

 

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(9) MPSrevised and resubmitted the Managerial and Support Services Agreement and MPSCost Manual to reflect the modifications referred to in its responses to datarequests 1-Examiner’s-51, 1-Oral DR 3 and 4. This approval effectively modifies the requirement, in the EA Order,that individual overhead rates be developed in setting charges for workprovided among MPS affiliates.

 

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affiliate doesnot otherwise provide services to non-affiliates and there exists no readilyavailable market rate, subject to  theMSSA provisions requiring reporting thereof to the Commission)(10);

 

e.                                       the winding upand dissolving of M&NB at such future time as MPS might deem appropriate(Section 708).

 

f.                                         the transfer,after the Merger Date, (i) of assets that are not “necessary or useful,” withinthe meaning of Section 1101, from MPS to any MPS affiliate, and (ii) thetransfer of all other assets from MPS to HoldCo or any non-MPS HoldCosubsidiary in the total amount of $150,000 per year up to a total of $450,000over the three-year period beginning upon the Merger Date.  MPS shall report to the Commission any suchtransfer wherein the asset or group of assets exceeds $20,000 in value.  The transferee entity shall pay to MPS themarket value of the asset at time of transfer. No assets that are specific and unique to the conduct of Maine Public’stransmission and distribution business may be transferred pursuant to theauthority granted herein; provided that the foregoing shall not be construed asrestricting the transfer of any property excluded from the Company’s rate baseby Commission order (including the property owned by MPS in connection with theHaynesville Woods right-of-way).  Priorto the expiration of the above-noted three-year period, MPS may apply for afurther extension of this asset transfer authority.  Transfers of assets beyond the scope specified herein areprohibited without express Commission approval.

 

g.                                      the partialexemption of MPS from the Reorganization Statute on terms generally consistentwith that granted to Central Maine Power Company in *Central Maine Power Company, et al.,Request for Waiver from the Reorganization Approval Requirements in 35-A MRSASection 708*, Docket No. 2001-447, Order dated December 20, 2001 (the“CMP Order”), as specified below:

 

1. Except as provided in subsection 2 below, the reorganization of MPS andall entities which presently or in the future are affiliated interests (asdefined in Section 707) of MPS shall be exempt from the requirements of theReorganization Statute (and similar successor statutes).

 

2. The following restructurings (as defined below) shall remain subject tothe Commission approval requirements of the Reorganization Statute:

 

(i)  arestructuring of MPS itself;

(ii) a restructuring of a subsidiary of MPS;

(iii)  a restructuring resultingin the creation of an affiliated interest of MPS where it is intended that theaffiliate will either enter into a contract

 

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(10) Provided however that MPSshall seek prior Commission approval in the event an affiliate intends tocharge MPS for services or facilities on a basis other than the MPS Cost Manualand Chapter 820.

 

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

(iv) a restructuring of HoldCo; and

(v)                                 arestructuring resulting in the creation of an affiliated interest of MPS whereit is intended that the affiliate will act as a competitive energy supplier inMaine as that term is defined by 35-A MRSA Section 3201(5).

(vi)                              arestructuring resulting in the creation of an affiliated interest that owns orintend to own generation assets whose ownership would be prohibited under theprovisions of 35-A M.R.S.A. Section 3204 if owned by MPS directly.

 

3. The exemption created by subsection (1) above shall be subject toprospective termination or limitation upon Commission order, after notice andan opportunity for hearing.

 

4. The limited exemption to be created by subsection 1 applies only to therequirement of the Reorganization Statute that the Commission approvereorganizations.  The exemption does notapply to the requirements in Section 707(3) that a public utility obtainCommission approval to extend or receive credit or to make or receive a loan toor from an affiliated interest or to make any contract or arrangement for thefurnishing of management, supervision of construction, engineering, accounting,legal, financial or similar services, or to furnish any service or real orpersonal property other than those enumerated in Section 707(3) with anyaffiliated interest, or to any other provision of Title 35-A.  The Commission shall retain its powers underSection 707(2) to inspect books, accounts and records of MPS and or of an affiliatedinterest that relates, directly or indirectly, to transactions between MPS andan affiliated interest.

 

5. HoldCo and MPS shall ensure that no restructuring undertaken by MPS,HoldCo, or any subsidiary of either MPS or HoldCo, either individually or inthe aggregate, materially impairs the ability of MPS to obtain capital onreasonable terms.

 

6.  Itshall be a condition of the granting of the exemption described in Subsection(a) that HoldCo and its affiliates shall not take any action pursuant theretothat materially impairs the ability of MPS to obtain capital on reasonableterms.

 

7.  Asalready set forth in Section 2.3 of this Stipulation as a general condition ofapproval of the currently-proposed reorganization, HoldCo shall provide theCommission with its annual, quarterly, current and transitional reports filedpursuant to Section 13 and 15(d) of the Securities and Exchange Act of 1934, atthe same time it files those reports with the Commission.

 

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8. For the purpose of these subsections, 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(ii) or (iii) 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 to HoldCo,a “restructuring” means the consolidation, merger, liquidation, transfer ofownership or control, dissolution or termination, direct or indirect, in wholeor in part, of HoldCo, accomplished by the issue, sale, acquisition, lease,exchange, distribution or transfer of 10 % or more of the voting securities ofHoldCo by one person or two or more persons acting in concert.

 

9. Notwithstanding the foregoing MPS shall be entitled to dissolve, andwind up the affairs of, M&NB at such time as it may deem appropriate.

 

**4.  Standard Stipulation Provisions.**

 

1.  Purpose; Rejection of Portion Constitutes Rejection of Whole.  The parties are entering into thisStipulation for the purpose of finally disposing of all issues raised in thisDocket.  If the Commission does notaccept the entire Stipulation without material modification, then theStipulation shall be null and void, and will not bind the parties in thisproceeding.

 

2.  No Precedent.  Themaking of this Stipulation by the parties shall not constitute precedent as toany matter of fact or law, nor, except as expressly provided otherwise herein,shall it foreclose any party from making any contention or exercising anyright, including the right of appeal, in any other Commission proceeding orinvestigation, or in any other trial or action.

 

3.  Examiner’s Report. The parties agree to waive the provisions of § 752 (b) of theCommission’s Rules of Practice and Procedure, requiring that any Examiner’sReport be in writing and that the parties be afforded an opportunity to fileexceptions or comments thereon.  Theparties thereby intend to permit the Advisors either to provide an oralExaminer’s Report to the Commission at the deliberative session to be held inthis Docket, or, if the Advisors so wish, to provide a written Examiner’sReport to the Commission with the parties waiving the right to file exceptionsor comments thereto.

 

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IN WITNESS WHEREOF, the partieshave caused this Stipulation to be executed and delivered, or have caused theirlack of objection to be noted, by their respective attorneys.

 

 
|   | MAINE PUBLIC SERVICE COMPANY  |
|--------|-------------------------------|
|   |                          |
|   |                          |
| Dated: | March  12, 2003               |   |   | By: |      /s/  Scott L. Sells |
|   |                          |
|   |                          |
|   | OFFICE OF THE PUBLIC ADVOCATE |
|   |                          |
|   |                          |
| Dated: | March  12, 2003               |   |   | By: |      /s/  Wayne Jortner |
|        |                               |  |  |  |  |  |

 

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