Northern Utilities, Inc., 072820 NHPUC, 26, 385

Docket Nº:ORDER 26, 385
Opinion Judge:Dianne Martin, Chairwoman
Judge Panel:Kathryn M. Bailey, Commissioner, Michael S. Giaimo, Commissioner
Case Date:July 28, 2020


ORDER No. 26, 385

DG 20-078

New Hampshire Public Utilities Commission

July 28, 2020

Petition for Authority to Issue Securities

Order Approving Financing Petition

Dianne Martin, Chairwoman

This order approves Northern Utilities' request to borrow up to $50 million and to issue corresponding unsecured long-term debt securities. Northern Utilities intends to use the money to pay off short-term debt incurred to complete capital projects and to fund 2020 capital expenditures. Excess cash, if any, will be used for other appropriate corporate purposes.



Northern Utilities, Inc. (Northern or the Company), is a public utility that supplies natural gas in Maine and in the seacoast region of New Hampshire. Northern's New Hampshire Division serves approximately 34, 000 customers.1 The Company filed a petition on May 21, 2020, pursuant to RSA 369 seeking Commission approval to borrow up to $50 million from institutional investors. Northern proposed issuance of promissory notes with a long-term maturity of up to 30 years and a coupon rate not to exceed 5.25 percent. Based on credit spreads for comparably rated utilities, Northern anticipates an all-in coupon rate that is considerably lower at 4.07 - 4.27 percent. Northern projected financing costs of $375, 000 if the Company borrows the full $50 million.

The petition and subsequent docket filings, other than any information for which confidential treatment is requested of or granted by the Commission, are posted at



A. Northern

1. Financing

Northern supported its petition with the pre-filed testimony of Todd R. Diggins, Director of Finance for Unitil Service Corp. (USC), and Andre J. Francoeur, Senior Financial Analyst for USC. Like Northern, USC is a subsidiary of Unitil Corporation. See Petition (May 21, 2020), Testimony of Diggins and Francoeur at 2-3. If the Company's request is approved, Northern will issue and sell up to $50 million in institutional investor senior notes evidencing unsecured long-term debt with a maturity of up to 30 years at interest rates no higher than 5.25 percent. Id. at 4-12. Northern intends to sell the notes directly to institutional investors. Id. at 4, 7, 10.

Northern said that it will use the loan proceeds to repay outstanding short-term debt, secure fixed interest rates to reduce interest rate volatility, and fund 2020 capital expenditures; and that remaining funds, if any, shall be used for general corporate expenses. Id. at 5, 7. The Company expects its short-term borrowings to increase to approximately $77 million by the end of 2020. Id. at 6. In New Hampshire and Maine, Northern collectively spent $69.6 million on distribution system capital expenditures in 2019. Id. at 5. The Company also has more than $57 million of capital expenditures budgeted for calendar year 2020. Id; see also Order 26, 269 (July 2, 2019) (Docket DG 19-090).

Funding to meet capital expenditures is derived primarily from internally generated funds, which consist of net cash flows including depreciation from operating activities. Northern supplements internally generated funds through short-term borrowings. When the Company's short-term balance builds to sufficient levels, it seeks long-term financing to reduce short-term debt and match long-term utility lives with long-term funding. See Petition (May 21, 2020), Testimony of Diggins and Francoeur at 6.

Northern stated that with the reduction of short-term debt, the Company will have a stronger balance sheet to finance its ongoing capital construction program. Id. at 11. The proposed financing at the maximum amount and rate would change Northern's weighted cost of long-term debt from 5.16 percent to 5.19 percent. Id. Northern expects a favorable reception by the private placement market for its proposed debt issuance. Id. at 13. The Company estimated that approximately $375, 000 in financing and issuance-related costs will be incurred. Id. at 11-12.

2. Motions for Confidential Treatment

Northern requested confidential treatment for several Company exhibits and responses to Staff data requests pursuant to RSA 91-A and N.H. Admin R., Puc 203.08. The Company contends that the documents at issue constitute confidential, and in some cases, commercial, financial, or proprietary, information.

In its first motion for confidential treatment, Northern requested confidential treatment for Exhibit NU-4, the Company's unaudited balance sheet as of March 31, 2020; Exhibit NU-5, the Company's unaudited income statement for the twelve months ending March 31, 2020; and Exhibit NU-11, the Company's unaudited financial statements for the first quarter of 2020, because the documents have not been audited. See Petition (May 21, 2020) [First] Motion for Confidential Treatment.

Northern argued that making the unaudited financial information public could have a negative impact on the markets in which the Company's securities are traded. The Company asserted that keeping the information confidential, until such time as the statements are audited and released to all Company debt-holders, will protect the integrity and proper functioning of markets in which Northern's offerings compete. The Company stated that the public will have full access to the exhibits at issue no later than March 31, 2021.

In its second motion for confidential treatment, the Company requested confidential treatment for the letter of agreement between the Company and the placement agent selected to participate in the securities offering. See [Second] Motion for Confidential Treatment (July 1, 2020). The letter of agreement was provided to Staff as Confidential Attachment 1 in response to Staff Data Request 1-5. Northern represented that the placement agent was selected through a competitive process and stated that the letter provides details of the terms under which the placement agent provides various functions. Northern asserted that disclosure of the letter would put the placement agent at a competitive disadvantage by divulging the terms and conditions for the work it was awarded. Northern further argued that the Company itself would be adversely affected because placement agencies would be discouraged from working with the Company if doing so would result in the release of confidential business information in future financings.

In its second motion for confidential treatment the Company also sought confidential treatment for S&P and Moody's credit reports, including the analyses and credit ratings in both documents. Those reports were provided to Staff as Confidential Attachment 1 (S&P) and Confidential Attachment 2 (Moody's) to the Company's response to Staff Data Request 1-4. Northern claimed that the credit reports, including the analyses and credit ratings, are confidential, commercial, financial, and proprietary documents, and exempt from disclosure because the reports constitute copyrighted information. The Company asserted that the reports, in their entirety, are "provided only on a paid subscription basis and are not otherwise made publically available." Id. at 2. The Company noted that "[w]hile the overall credit ratings for the Unitil companies may be public, the underlying analyses supporting the ratings are not … [w]ere the Company to disclose the reports publicly, parties that would otherwise have to pay a fee to the ratings agencies to receive the reports would instead have free and unrestricted access to them. Such disclosure would render the reports essentially valueless to the [credit] agencies. The agencies have a clear privacy interest in these reports." Id. at 2-3. Northern also argued that it does not have permission or the discretion to disclose the credit reports, including the ratings, and that S&P and Moody's provided the reports to Northern with the understanding that the documents would not be made public in any way. Id. at 3.

B. Commission Staff

1. Financing

Commission Staff (Staff) filed a memorandum recommending that the Commission approve Northern's request to finance up to $50 million. See Memorandum of Stephen Frink, Director, Gas and Water Division, and Mary Schwarzer, Staff Attorney, dated July 2, 2020 (Staff Recommendation). After review of Northern's filing and responses to data requests, and based on the Company's decision to only issue $40 million of 20-year senior unsecured notes at a rate of 3.78 percent, Staff calculated that the financing would result in a more balanced capital structure. The debt-to-equity ratio is currently 46 percent debt and 54 percent equity; it would become 51 percent debt to 49 percent equity with an additional $40 million debt. Id.


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