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<SEC-DOCUMENT>0000898080-04-000261.txt : 20040511
<SEC-HEADER>0000898080-04-000261.hdr.sgml : 20040511
<ACCEPTANCE-DATETIME>20040511161756
ACCESSION NUMBER:		0000898080-04-000261
CONFORMED SUBMISSION TYPE:	POS AMC
PUBLIC DOCUMENT COUNT:		1
FILED AS OF DATE:		20040511

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			EMERA INC
		CENTRAL INDEX KEY:			0001127248
		IRS NUMBER:				868143132
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		POS AMC
		SEC ACT:		1935 Act
		SEC FILE NUMBER:	070-09787
		FILM NUMBER:		04796630

	BUSINESS ADDRESS:	
		STREET 1:		P O BOX 910 CORPORATE SECY GENERAL COUNS
		CITY:			HALIFORC

	MAIL ADDRESS:	
		STREET 1:		P O BOX 910 CORPORATE SECY GENERAL COUNS
		CITY:			HALIFORC
</SEC-HEADER>
<DOCUMENT>
<TYPE>POS AMC
<SEQUENCE>1
<FILENAME>formposamc.txt
<DESCRIPTION>POST-EFFECTIVE AMENDMENT TO FORM U-1 APPLICATION
<TEXT>
                                                                File No. 70-9787
                    U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                ------------------------------------------------
                         POST-EFFECTIVE AMENDMENT NO. 3
                                       TO
                                    FORM U-1
                             APPLICATION-DECLARATION
                                      UNDER
                 THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
                ------------------------------------------------
                               Emera Incorporated
                                  P.O. Box 910
                              Halifax, Nova Scotia
                                     Canada
                                     B3J 2W5

                             Emera US Holdings Inc.
                                BHE Holdings Inc.
                               1209 Orange Street
                        New Castle, Wilmington, DE 19801

                          Bangor Hydro-Electric Company
                               Bangor Var Co. Inc.
                            Bangor Energy Resale Inc.
                                 CareTaker, Inc.
                              Bangor Fiber Co. Inc.
                                 Bangor Line Co.
                     The Pleasant River Gulf Improvement Co.
                               The Sebois Dam Co.
                           East Branch Improvement Co.
                             Godfrey's Falls Dam Co.
                    The Sawtelle Brook & Dam Improvement Co.
                                 33 State Street
                               Bangor, Maine 04401
                ------------------------------------------------
                               Emera Incorporated
                (Name of top registered holding company parent of
                          each applicant or declarant)
                ------------------------------------------------


<PAGE>


                                Richard J. Smith
                     Corporate Secretary and General Counsel
                                   Emera Inc.
                                  P.O. Box 910
                              Halifax, Nova Scotia
                                     Canada
                                     B3J 2W5
                 -----------------------------------------------
                     (Name and address of agent for service)

      The Commission is requested to send copies of all notices, orders and
             communications in connection with this application to:

                                 Markian Melnyk
                     LeBoeuf, Lamb, Greene & MacRae, L.L.P.
                          1875 Connecticut Avenue, N.W.
                                   Suite 1200
                           Washington, D.C. 20009-5728
                              Phone (202) 986-8000
                               Fax (202) 986-8102


                                       2
<PAGE>


     This Post-Effective Amendment No. 3 restates Post-Effective Amendment No.
2, filed on April 10, 2003. The Form U-1 Application/Declaration in this
proceeding was originally filed in File No. 70-9787 on November 6, 2000 and was
amended and restated by Amendment No. 4, filed October 3, 2001. On March 2,
2002, Emera Inc. filed Post-Effective Amendment No. 1 in File No. 70-9787. That
amendment described the proposed arrangements for the provision of services
among the Emera system companies and sought certain relief under Section 13 of
the Public Utility Holding Company Act of 1935 and Rule 83 thereunder. The
subject of Post-Effective Amendment No. 1 is separate and distinct from the
relief requested in Post-Effective Amendment Nos. 2 and 3.

ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION
Introduction

     By order dated October 1, 2001, the Commission granted the
application/declaration of Emera Incorporated ("Emera") to acquire the
outstanding common stock of Bangor Hydro-Electric Company ("BHE") and its
public-utility subsidiary companies (the "Merger") under the Public Utility
Holding Company Act of 1935 (the "1935 Act" or "Act"). Emera Inc., Holding Co.
Act Release No. 27445 (October 1, 2001) ("Merger Order"). In the Merger Order,
the Commission also granted Emera financing, affiliate transaction and other
authorizations necessary to operate a registered holding company system in
accordance with the Act.

     Following issuance of the Merger Order, Emera's indirect wholly-owned
Delaware subsidiary, BHE Holdings Inc. ("BHE Holdings"), acquired the common
stock of BHE. BHE Holdings is a wholly-owned subsidiary of Emera US Holdings
Inc. ("Emera US"), which is wholly-owned by Emera. On October 11, 2001, Emera,
Emera US and BHE Holdings registered as holding companies under the Act.

The Proposed Tax Allocation Agreement

     In the Merger Order, the Commission reserved jurisdiction over a proposed
Tax Allocation Agreement ("TAA"), provided as Exhibit M-1 to the Application and
restated in this amendment, pending completion of the record. Emera, Emera US,
BHE Holdings and the other applicants identified below (collectively, the
"Applicants") are filing this post-effective


                                       3
<PAGE>


     amendment to supplement the record with regard to the proposed TAA and to
request that the Commission release jurisdiction over this matter and authorize
the proposed TAA. The agreement and the statutory basis for its authorization
are discussed in detail in Item 3, below.

     In the Merger Order the Commission also reserved jurisdiction, pending
completion of the record, over (1) the proposal to form an Emera service company
subsidiary, (2) the proposed acquisition by BHE of a 50% interest in a joint
venture that will develop a second 345 kilovolt transmission line to New
Brunswick, Canada, and (3) the retention of the gasoline products business of
Emera Fuels Inc. Emera requests that the Commission continue to reserve
jurisdiction over these items, pending completion of the record.

The Applicants

     The Applicants are the companies in the Emera system organized in the U.S.
All the Applicants are wholly owned directly or indirectly by Emera, unless
otherwise noted. The Applicants include Emera US and BHE Holdings, registered
holding company subsidiaries, BHE, an electric public utility company
subsidiary, Bangor Var Co., an exempt electric utility holding company, and
several non-utility subsidiaries. The non-utility subsidiary applicants are
identified below: (1) Bangor Energy Resale Inc., a subsidiary of BHE, permits
BHE to use a power sales agreement as collateral for a bank loan; (2) CareTaker,
Inc., a subsidiary of BHE, provides security alarm services; (3) Bangor Fiber
Company, Inc., a subsidiary of BHE, owns and leases fiber optic communications
cable; (4) Bangor Line Company, a subsidiary of BHE, constructs and maintains
transmission and distribution lines and provides engineering services; (5) The
Pleasant River Gulf Improvement Company, an inactive subsidiary of BHE, was
engaged in water improvement; (6) The Sebois Dam Company, an inactive subsidiary
of BHE, improved the navigation of certain of the Sebois waters entering the
Piscataquis River; (7) East Branch Improvement Company ("EBIC"), a 60% owned
inactive subsidiary of BHE, formerly provided water storage services for
hydroelectric facilities; (8) Godfrey's Falls Dam Company, an inactive
wholly-owned subsidiary of EBIC, holds rights that would permit future water
storage development in the basin of the East Branch of the Penobscot River; and
(9) The Sawtelle Brook Dam & Improvement Company, an inactive wholly-owned
subsidiary of EBIC, controls certain water rights in the basin of the East
Branch of the Penobscot River.


                                       4
<PAGE>


Rule 54 Analysis

     The proposed transaction is also subject to Rule 54, which refers to Rule
53. Under Rule 53, a registered holding company may not issue any security
(including any guarantee) for the purpose of financing the acquisition of the
securities of or other interest in an exempt wholesale generator ("EWG") unless
certain conditions are satisfied. Rule 54 provides that the Commission shall not
consider the effect of the capitalization or earnings of any subsidiaries of a
registered holding company that are EWGs or foreign utility companies ("FUCOs")
in determining whether to approve other transactions if Rule 53(a), (b) and (c)
are satisfied. These standards are met.

     Rule 53(a)(1): Emera's "aggregate investment" in Nova Scotia Power Inc.
("NSPI"), its FUCO subsidiary, was approximately CDN $830.6 million (US $642.7
million), or approximately 272.9% of Emera's "consolidated retained earnings"
(as defined in Rule 53(a)) at December 31, 2003 (CDN $365.3 million, US $235.5
million). Emera has no other FUCO or EWG investments.

     Rule 53(a)(2): Emera maintains books and records enabling it to identify
investments in and earnings from each EWG and FUCO in which it directly or
indirectly acquires and holds an interest. Emera will cause each US-organized
EWG in which it acquires and holds an interest to maintain its books and records
and prepare its financial statements in conformity with U.S. generally accepted
accounting principles ("GAAP"). Emera will cause each foreign-organized EWG and
FUCO that is a majority-owned subsidiary to maintain its financial statements in
accordance with US GAAP or Canadian GAAP and will reconcile Canadian GAAP
statements to US GAAP in the same manner as required by Form 20-F if these
statements are provided to the Commission. All of such books and records and
financial statements will be made available to the Commission, in English, upon
request.

     Rule 53(a)(3): No more than 2% of the employees of the BHE will, at any one
time, directly or indirectly, render services to EWGs and FUCOs.

     Rule 53(a)(4): Emera will submit copies of filings made with the Commission
seeking authorization to invest in EWGs or FUCOs to the Maine Public Service
Commission, the state regulatory commission having jurisdiction over the retail
rates of BHE.


                                       5
<PAGE>


     In addition, as explained below, none of the adverse conditions specified
in Rule 53(b) exists. Emera provided a detailed explanation of its compliance
with Rule 53(c) in its application in SEC File No. 70-9787, Pre-effective
Amendment No. 3 (filed August 31, 2001) which is hereby incorporated by
reference. An update of certain of that information is provided below.

     The Merger Order authorized Emera to invest up to $2 billion in EWGs and
FUCOs through June 30, 2004 in addition to its pre-existing investment in NSPI.
Emera has not made any investment in EWGs and FUCOs since the issuance of the
Merger Order. In addition, Emera's financial condition has remained stable.
Accordingly, there should be no adverse conclusions drawn from Emera's current
level of EWG and FUCO investment.

     Any EWG and FUCO investments would not have a substantial adverse impact
upon the financial integrity of Emera and will not have an adverse impact on any
utility subsidiary of Emera or on the ability of the Maine Public Utilities
Commission ("MPUC") to protect the customers of such subsidiaries. The general
financing commitments incorporated into the Merger Order assure that Emera will
remain financially sound, in particular the 30% minimum capitalization standard
and the investment grade debt rating standard assure that any securities issued
for purposes of financing an EWG or FUCO investment would be consistent with an
appropriate capital structure. In addition, BHE has also committed to maintain a
minimum 30% equity capitalization ratio. Further, the MPUC has full authority to
monitor BHE and its relationship with Emera and to take corrective action should
it find that the affiliation has an adverse impact on BHE or its customers.

     Various financial indicators demonstrate Emera's financial strength.
Emera's financial condition is largely attributable to the performance of its
single largest asset, the stock of NSPI. Emera and NSPI's long-term debt are
rated investment grade, BBB+ and BBB+, by Standard & Poor's, respectively.
Emera's capital structure as of December 31, 2004 included 39.0% equity, 7.4%
non-controlling interest (reflecting the consolidated preferred stock of NSPI
and BHE), 49.9% long-term debt and 3.7% short-term debt. BHE's capital structure
as of December 31, 2004 included 52.8% equity, 0.2% preferred stock, 46.0%
long-term debt and 1.1% short-term debt.


                                       6
<PAGE>


     The table below compares the net income of Emera and NSPI over the last 3
years.


<TABLE>
<CAPTION>
- ------------- --------------------------- ----------------------------- ---------------------------------
                        Emera                         NSPI                     NSPI as % of Emera
                      ($CDN mm)                    ($CDN mm)
- ------------- --------------------------- ----------------------------- ---------------------------------
As of           2001     2002      2003      2001      2002      2003      2001       2002        2003
Dec. 31
- ------------- ------- --------- --------- --------- --------- --------- --------- ----------- -----------
<S>            <C>        <C>      <C>       <C>        <C>      <C>       <C>        <C>          <C>
Net Income     114.2      83.6     129.2     105.1      86.1     112.1     92.0%      103.0%       86.8%
- ------------- ------- --------- --------- --------- --------- --------- --------- ----------- -----------
</TABLE>


The table illustrates that NSPI has a history of stable earnings and that, as
Emera's principal subsidiary, NSPI has contributed significantly to the
financial soundness of the Emera group. Further, none of the conditions in Rule
53(b) exist. Neither Emera nor any of its subsidiaries with assets having a book
value exceeding an amount equal to 10% or more of Emera's consolidated retained
earnings, has been the subject of a bankruptcy or similar proceeding. The
average consolidated retained earnings for the four most recent quarterly
periods has not decreased by 10% from the average for the previous four
quarterly periods. And lastly, in the previous fiscal year, Emera has not
reported operating losses, exceeding 5% of Emera's consolidated retained
earnings, attributable to its direct or indirect investments in EWGs and FUCOs.


     The market data provided below demonstrates that the securities markets
share the view that Emera is financially sound.


- --------------------------------------------------------------------------------
                          Emera's Market to Book Value
- --------------------------------------------------------------------------------
At:                       December 31, 2003 December 31, 2002 December 31, 2001
- ------------------------- ----------------- ----------------- -----------------
                               $CDN mm           $CDN mm           $CDN mm
- ------------------------- ----------------- ----------------- -----------------
Market value of equity             1,932.4           1,730.2           1,629.7
- ------------------------- ----------------- ----------------- -----------------
Book value of equity               1,312.6           1,332.0           1,181.4
- ------------------------- ----------------- ----------------- -----------------
Ratio of market to book               1.47              1.30              1.38
value (times)
- ------------------------- ----------------- ----------------- -----------------


                                       7
<PAGE>


- --------------------------------------------------------------------------------
                          Emera's Price/Earnings Ratio
- --------------------------------------------------------------------------------

At:                        December 31, 2003 December 31, 2002 December 31, 2001
- -------------------------- ----------------- ----------------- -----------------
                                  $CDN             $CDN               $CDN
- -------------------------- ----------------- ----------------- -----------------
Basic earnings per share               1.20              0.85              1.20
- -------------------------- ----------------- ----------------- -----------------
Ratio of price to earnings            14.88             18.88             13.86
- -------------------------- ----------------- ----------------- -----------------

For all the foregoing reasons, Rule 53(c) is therefore satisfied.

ITEM 2. FEES, COMMISSIONS, AND EXPENSES

     The incremental fees, commissions and expenses incurred or to be incurred
in connection with this Amendment are estimated at not more than $15,000.

ITEM 3. APPLICABLE STATUTORY PROVISIONS

Introduction

     Emera financed the cash consideration paid to BHE shareholders by issuing
CDN $314 million (US $200 million) of bank debt. Emera used the proceeds of the
bank debt to acquire US $78 million of Emera US common stock and US $122 million
of Emera US debt. These funds were on-loaned to BHE Holdings in exchange for
preferred shares./1 BHE Holdings used the proceeds of the financing to acquire
the common stock equity of BHE from its shareholders. As of December 31, 2003,
the aggregate outstanding principal balance of debt incurred by Emera to finance
the BHE acquisition was US $122.5 million). In the future, the capitalization of
the intermediate holding companies holding BHE (i.e., presently Emera US and BHE
Holdings) may be refinanced or restructured, but the relief requested in this
application is limited to the initial principal amount of the debt incurred by
Emera to acquire BHE ($200 million) plus any related refinancing and
restructuring costs. Applicants expect that the annual interest expense incurred
by Emera US and BHE Holdings in connection with the debt incurred to finance the
BHE acquisition will be approximately CDN $14 million (US $9 million) per year.


- --------
1 The notional amount of the preferred shares is effectively treated as debt for
tax purposes.


                                       8
<PAGE>


     The companies in Emera's US group; Emera US, BHE Holdings, BHE, and BHE's
direct and indirect subsidiary companies (but not including Maine Electric Power
Co.) (the "Group"), will file a consolidated income tax return. The interest
expense on the debt incurred by Emera US and BHE Holdings to fund the
acquisition of BHE ("Acquisition Indebtedness")/2 will offset part of the
Group's consolidated taxable income and, consequently, reduce the overall tax
liability of the Group. It is estimated that financing cost deductions related
to the Acquisition Indebtedness would reduce the Group's consolidated tax
liability by US $3.6 million in each of the years 2002, 2003 and 2004, assuming
a 40% tax rate on the estimated consolidated taxable income of the Group.

     The TAA to be entered into among the Group companies describes the manner
of allocating the benefits and burdens associated with the filing of
consolidated income tax returns. It would apply to consolidated income tax
returns filed by the Group for periods subsequent to the consummation of the
Merger. Because the TAA is an agreement for the allocation of US federal and
state tax liabilities, Emera and its Canadian-organized subsidiaries would not
be parties to the TAA.

     The TAA allocates the benefits and burdens associated with the filing of
consolidated income tax returns by the Group to the members ("Members"). The
allocation method under the TAA is designed to comply with US Treasury
Regulations under the Internal Revenue Code of 1986 as amended (the "Code"), and
with Rule 45(c) under the Act. Notably, Emera US is permitted under the TAA to
be reimbursed for the tax benefit associated with the financing cost deductions
on Acquisition Indebtedness. Because the TAA may be deemed not to comply with
the requirements of Rule 45(c) in that limited respect, specific authorization
for the TAA was sought in Emera's initial application for authorization to
acquire BHE and is now being sought in this post-effective amendment.

The Allocation Methodology of Emera US' Proposed Tax Allocation Agreement

     The TAA specifies the methodology to be followed in allocating tax
liability payments and payments for the use of tax benefits among the Members.
The TAA apportions the federal consolidated tax liability of the Group among the
Members under the method described in


- --------
2 As defined in Section 1.1 of the proposed tax allocation agreement, the term
Acquisition Indebtedness also includes debt incurred by Emera for the purpose of
refinancing the indebtedness related to the acquisition and financing and
refinancing-related costs. 3 In the event that Emera US had net taxable income
rather than the typical case where it would be expected to have a net loss,
Emera US also would pay its tax liability in the manner computed for all other
Members.


                                       9
<PAGE>



Sections 1.1502-33(d)(3) and 1.1552-1(a)(1) of the Code. The general effect of
this method is that the consolidated tax liability of the Group is apportioned
among the members of the Group according to the ratio that each Members
separately computed taxable income, for companies that have a taxable income,
bears to the Group's taxable income. Then the method allocates an additional
amount (the "Tax Benefit Amount") to each Member up to, but not greater than,
the excess, if any, of its separate return tax liability over the amount
allocated to such Member in the first step. The total of the Tax Benefit Amounts
allocated to Members is paid to the Members that had items of deduction, loss or
credits to which such Tax Benefit Amount is attributable.

     A registered holding company will generally have significant expenses from
managing the businesses that it holds (even disregarding acquisition debt
interest expenses) and little offsetting income since it is not directly engaged
in businesses./3 Emera US's expenses create tax benefits that reduce the Tax
Benefit Amount paid by its subsidiaries. For this reason, for all subsidiaries
with separate taxable incomes, the Tax Benefit Amount plus the Member's portion
of the consolidated Group tax liability will generally be less than the Member's
separate tax liability. To make sure that a Member does not pay more than its
separate tax liability as a result of participating in the filing of a
consolidated tax return, the TAA provides that the Tax Benefit Amount allocated
to any Member should be up to, but not greater than, the excess, if any, of the
Member's separate return liability less that Member's share of the consolidated
tax liability.

         Under the TAA, Emera US is entitled to receive payment for tax benefits
attributable to the Acquisition Indebtedness. It is this aspect of the TAA may
be considered to differ from the allocation method specified by Rule 45(c).
Under Rule 45(c)(5), all associate companies with taxable income, and hence a
positive allocation of tax liability, are required to pay the amount allocated.
In addition, subsidiary companies with tax benefits, and hence a negative
allocation, must receive current payment of their corporate tax credits. The
term "associate company" includes a holding company and all of its subsidiaries,
whereas the term "subsidiary company" is


- --------
3 In the event that Emera US had net taxable income rather than the typical case
where it would be expected to have a net loss, Emera US also would pay its tax
liability in the manner computed for all other Members.


                                       10
<PAGE>


generally understood to exclude holding companies. Applicants seek an order
authorizing the TAA to avoid any question about whether it complies with Rule
45(c).

     Emera US will have responsibility for the preparation of consolidated tax
returns and managing payments made under the TAA. Tax Benefit Amount payments
made to Members contributing tax benefits to the consolidated return will be
made at approximately the same time the related payments of consolidated group
tax are made to the appropriate taxing authorities.

Statutory Basis for the Regulation of Tax Allocation Agreements

     Applicants request that the Commission authorize the TAA under Sections
12(b) and 12(f) of the Act. Section 12(b) of the Act states that a registered
holding company or subsidiary company thereof may not "lend or in any manner
extend its credit to or indemnify any company in the same holding company system
in contravention of such rules and regulations or orders as the Commission deems
necessary or appropriate in the public interest or for the protection of
investors or consumers or to prevent the circumvention of the provisions of this
title or the rules, regulations, or orders thereunder."

     Section 12(f) of the Act states that a registered holding company or
subsidiary company thereof may not "negotiate, enter into or take any step in
the performance of any transaction not otherwise unlawful under this title, with
any company in the same holding company system or with any affiliate of a
company in such holding company system in contravention of such rules,
regulations or orders regarding reports, accounts, costs, maintenance of
competitive conditions, disclosure of interest, duration of contracts, and
similar matters as the Commission deems necessary or appropriate in the public
interest or for the protection of investors or consumers or to prevent the
circumvention of the provisions of this title or the rules and regulations
thereunder."

     Rule 45(c) under the Act was adopted under Section 12 to regulate tax
allocation agreements because they could involve implicit loans, extensions of
credit or indemnities/4 and


- --------
4 Adoption of Amendment to Rule Governing Allocation of Consolidated Income
Taxes Among Member Companies of Registered Holding Company Systems, Rule
U-45(b)(6), Holding Co. Act Release No. 12776 (January 12, 1955).


                                       11
<PAGE>


because they had been used by holding companies to exploit utility companies
through the misallocation of consolidated tax return benefits./5 Rule 45(c)
prescribes a method of allocating tax liability and sharing consolidated tax
return savings that is designed to prevent misallocations that would be
detrimental to utility subsidiaries and consumers. As a safe harbor rule, Rule
45(c) does not address all possible situations or allocation methods. It merely
provides an accepted method that the Commission has found to be consistent with
the Act.

     The TAA provides that the tax benefits related to Acquisition Indebtedness
may be retained by Emera US. The Acquisition Indebtedness is non-recourse to BHE
or the other Group members. Because Emera US is legally obligated for the
payment of the interest expense, Emera US should properly retain the related tax
benefits. Accordingly, Emera US seeks an order of the Commission releasing
jurisdiction and authorizing the TAA.

The Commission Should Authorize the Proposed Agreement Under Section 12 of the
Act

     The Commission may authorize a tax allocation agreement by order under
Section 12 of the Act if it finds that the agreement is necessary or appropriate
in the public interest or for the protection of investors or consumers and does
not circumvent the provisions of the Act and the rules thereunder. The TAA
complies with the fundamental principle followed by the Commission in the
regulation of such agreements. In particular, the TAA satisfies the separate
return limitation; that no Member pay more under the agreement than such
Member's separate return tax liability.

     The separate return limitation has been the bedrock of the Commission's
policy in this area for 60 years. In 1941, the Commission adopted an amendment
to Rule U-45 to exempt a loan, extension of credit or an agreement of indemnity
arising out of a joint tax return filed by a holding company and its
subsidiaries./6 Rule U-45(b)(6) conditioned the exemption upon the assumption by
the top company in the group of the primary responsibility for the payment of
any tax liability involved, subject to the right to contribution of the several
members of the group in


- --------
5 Allocation of Consolidated Federal Income Tax Liability By Registered Holding
Companies and their Subsidiaries, Holding Co. Act Release No. 21767 (October 29,
1980) ("Rule 45(c) Proposing Release").

6 Holding Company Act Release No. 2902 (July 23, 1941).


                                       12
<PAGE>


an amount not exceeding as to any company that percentage of the total tax which
the individual tax of such company (if paid under a separate return) would bear
to the total amount of individual taxes for all members of the group, for the
particular tax period. At its inception therefore, Rule U-45(b)(6) established
the fundamental principle of the separate return limitation and did not restrict
holding companies from retaining the benefit of any tax losses that they may
have generated.

     In 1955, in response to the Commission's directive to make further study of
the subject of tax allocation, the SEC staff proposed, and the Commission
adopted, further amendments to Rule 45(b)(6)./7 The amendments required a tax
agreement to allocate the consolidated tax liability by either of two methods
prescribed in the Internal Revenue Code. One method allocated the consolidated
tax based on the proportion of taxable income attributable to each member and
the other method allocated the consolidated tax based on the proportion of each
member's separate return tax to the aggregate separate return tax of all the
group members. The amendment also reaffirmed the principle that the allocations
could not violate the separate return limit and, if excess tax would have been
allocated to a subsidiary company but for the separate return limit, that the
excess liability would be allocated among the other members of the group,
including the holding company, in direct proportion to the tax savings of each
member.

     In 1981, Rule 45(b)(6) was revised for the last time and redesignated Rule
45(c)./8 This revision was meant to eliminate the numerous declarations and
Commission orders which had been necessary because Rule 45(b)(6) did not
adequately address the case in which one or more operating companies in the
system suffers a loss. The allocation methods in Rule 45(b)(6) had been
interpreted to require sharing of tax liabilities and savings exclusively among
group companies with actual separate return tax liabilities or positive income.
Consequently, loss companies had been excluded from receiving the benefit of
their losses.

     The Rule 45(c) Proposing Release observed that oil and gas exploration
subsidiaries often produced substantial losses, especially in the early years of
operation, because large up-front


- --------
7 Holding Company Act Release No. 12776 (Jan. 12, 1955).

8 Holding Company Act Release No. 21968 (Mar. 18, 1981) ("Rule 45(c) Adopting
Release").


                                       13
<PAGE>


development expenses were immediately deductible, while the income producing oil
and gas production occurs significantly later. The Commission considered it
unfair to give the benefit of losses generated by one company to another company
in the group without payment.

     The Commission declined to extend this logic to losses generated by holding
companies because it considered a reimbursement of holding company expenses by a
subsidiary to be inconsistent with Section 13(a) of the Act.

          The corporate relationships required by the Act assure that the
          deductible corporate expenses of the holding company itself will
          always create a consolidated tax saving, since Section 13(a) of the
          Act precludes such expenses being passed on to the subsidiaries,
          through service charge or contract, so as to transform them into
          corporate deductions of the subsidiaries. In light of the legislative
          history referred to, an expense reimbursement of the holding company,
          in the guise of a tax allocation, would seem inconsistent with Section
          13(a). The exclusion in our earlier rule of the holding company from
          sharing in consolidated return savings was intentional and will
          continue. These considerations do not apply to other companies in the
          group that incur losses./9

     The Commission's statement that Section 13(a) prohibits the recovery of all
holding company expenses from subsidiaries in the context of a tax allocation is
overbroad because it is clear that with regard to intrasystem loans it is
appropriate for a holding company to recover financing expenses incurred
consistent with Sections 6, 7, 9, 10 and 12 of the Act from subsidiaries./10 In
addition, Section 13(a) of the Act does not prohibit all holding company
expenses from being passed on to subsidiaries, for example, a holding company
may provide


- --------
9 Rule 45(c) Proposing Release at 6.

10 Section 13 is concerned with fairness of allocation in charges for goods and
service contracts and the economical and efficient performance of such
contracts. Section 13 does not address financing transactions among companies in
a registered holding company system. Sections 6, 7, 9, 10 and 12 of the Act
cover intrasystem financing transactions and provide standards to assure that
such transactions are entered into on terms that are consistent with the public
interest and the interest of investors and consumers. Those provisions of the
Act do not prevent a holding company from charging reasonable and fair interest
on a loan to a subsidiary in connection with financing the subsidiary's
business.


                                       14
<PAGE>


services to nonutility subsidiaries without restriction under the Act./11 It
also is not clear that a tax allocation to a subsidiary that is no greater than
the subsidiary's separate return tax would constitute an expense reimbursement
to the holding company. The Commission's hesitancy to permit holding companies
to retain the benefit of certain tax losses becomes clearer when we understand
the "matching" principle of Rule 45(c).

     In addition to the separate return limitation, Rule 45(c) also embodies a
"matching" principle. "The rule specifies the amount to be allocated, that is,
the difference between the consolidated return and separate return results, and
establishes the principle of allocating to the individual members of the group
the material effects of any particular features of the tax law applicable to
them."/12 The example given above involving the oil exploration subsidiary that
does not benefit from its production expenses illustrates the unfairness that
results from violating the matching principle.

     The matching principle is particularly important when utility subsidiaries
are involved. The Act "deals principally with utility companies, whose rates are
separately regulated under procedures which assign material weight to taxes as
part of the cost of service. Uncompensated use of tax benefits intended for one
utility company, to reduce the costs of another utility company, permanently
assigns those benefits to an entirely different group of consumers, based solely
on the fortuity of the common ownership of the utility companies and the
relative timing of their respective periods of prosperity or distress."/13

     To illustrate, if a utility subsidiary earns investment tax credits from
building a plant, its tax liability should reflect the benefit of the credits
and its rates should also reflect the tax savings from the credits. Similarly,
if the holding company incurs legal expenses from a corporate reorganization
that may not properly be passed through to the subsidiary companies, the holding
company should retain the tax benefit produced by the expenses. The Rule 45(c)


- --------
11 Enron Corp., Holding Co. Act Release No. 27809 (March 9, 2004) at 35, n. 25
("Enron provides services to nonutility associated companies that are not mutual
service companies. Pursuant to section 13(a) of the Act, these services are not
subject to the jurisdiction of the Commission.")

12 Rule 45(c) Adopting Release at 2-3.

13 Rule 45(c) Proposing Release at 10.


                                       15
<PAGE>


Proposing Release observed: "The investment tax credit, an important addition to
the tax law subsequent to the adoption of [Rule 45(b)(6)], is similar in
significant respects to the tax loss. It is clearly identifiable to a particular
member of the group, its incidence has no necessary relationship to current
income, and its use in the consolidated return precludes a carryover by the
company entitled to it." When a holding company tax benefit can be identified as
clearly generated by or belonging to the holding company, it too should be
permitted to be retained by the holding company.

     The Acquisition Indebtedness that generated the tax benefits that Emera US
seeks to receive payment for under the TAA is "clearly identifiable to" Emera
US. The Acquisition Indebtedness is clearly an obligation of Emera US. It is not
backed by the credit of the other Members. BHE has not pledged its assets as
collateral to secure the Acquisition Indebtedness, it has not guaranteed the
debt, nor is it obligated to pay interest or principal payments to service the
Acquisition Indebtedness. The Acquisition Indebtedness was used to acquire the
equity securities of BHE. The interest expense incurred by Emera US continues to
accrue whether or not BHE has net income or a net loss. Lastly, if net operating
losses incurred by Emera US as a result of the Acquisition Indebtedness are used
in the consolidated return, Emera US would be precluded from carrying over the
loss to future periods.

     This view of the Acquisition Indebtedness is consistent with the position
taken by the Commission's accounting staff under Staff Accounting Bulletin 54,
Question 3. In that bulletin, the staff was asked how to present subsidiary B's
financial statements where holding company A had borrowed funds to acquire
substantially all of subsidiary B's common stock. Subsidiary B had subsequently
filed a registration statement to issue equity or debt and the question
presented was whether subsidiary B's new basis ("push down") financial
statements should include holding company A's debt related to its purchase of
subsidiary B. The staff responded:

          The staff believes that Company A's debt, related interest expense,
          and allocable debt issue costs should be reflected in Company B's
          financial statements included in the public offering (or an initial
          registration under the Exchange Act) if: (1) Company B is to assume
          the debt of Company A, either presently or in a planned transaction in
          the future; (2) the proceeds of a debt or equity offering of Company B
          will be used to retire all or part of Company A's debt; or (3) Company
          B guarantees or pledges its assets as collateral for Company A's debt.


                                       16
<PAGE>


          Other relationships may exist between Company A and Company B, such as
          the pledge of Company B's stock as collateral for Company A's debt.
          While in this latter situation, it may be clear that Company B's cash
          flows will service all or part of Company A's debt, the staff does not
          insist that the debt be reflected in Company B's financial statements
          providing that there is full and prominent disclosure of the
          relationship between Companies A and B and the actual or potential
          cash flow commitment . . .

     Under these standards, the Acquisition Indebtedness is clearly an
obligation of Emera US and not an obligation of the other Members. Consequently,
the tax benefit related thereto should be permitted to be retained by Emera US.
The Commission reached the same conclusion in its order authorizing the parent
holding company of National Grid's US corporate group to retain the tax benefits
related to acquisition debt incurred in the merger with New England Electric
System ("NEES")./14 "In addition, because the NEES Group has no obligation with
respect to the Merger-Related Debt and the debt does not affect the NEES Group's
financial position or credit, it is not inappropriate to exclude these companies
from the benefits of the tax consequences arising out of the debt. Accordingly,
we approve the use of the Tax Allocation Agreement."/15

     The proposed tax allocation agreement is substantially similar to the tax
allocation agreement authorized by the Commission in the National Grid order
referenced above, and re-authorized in the Commission's order authorizing
National Grid's merger with Niagara Mohawk Holdings, Inc./16 The Commission
staff also issued similar orders by delegated authority permitting Progress
Energy, Inc. (and other registered holding companies) to retain the tax benefit
of acquisition debt incurred in connection with the financing of Progress
Energy's


- --------
14 National Grid Group plc, Holding Co. Act Release No. 27154 (March 15, 2000).

15 Id. at 71.

16 National Grid Group plc, Holding Co. Act Release No. 27490 (January 16,
2002).


                                       17
<PAGE>


acquisition of Florida Progress Corp./17 The extensive precedent in this area
strongly supports a determination by the Commission to release jurisdiction
over, and authorize, the proposed TAA.

     To keep the Commission informed of the effect of the TAA on the Group,
Emera was required in the Commission's order authorizing the Merger to provide
the following supplemental information in its Annual Report on Form U5S:

     a.   The amount of any income tax credit and/or income tax liability
          incurred during the previous fiscal year by Emera (or one of the
          Intermediate Holding Companies): (i) as a result of any Merger-related
          debt, and (ii) as a result of any other income source or expense;

     b.   A description of how the income tax credit and/or income tax
          liability was calculated and allocated to all companies included in
          the consolidated tax return, including BHE and its domestic
          nonutilities, showing all of Emera's interest costs and any
          assumptions used in the calculation;

     c.   A description of how any Merger-related debt flows through all
          Intermediate Holding Companies;

     d.   A description of the amount and character of any payments made
          by each Intermediate Holding Company to any other Emera System company
          during the reporting period; and

     e.   A statement that the allocation of tax credits and liabilities
          was conducted in accordance with the Tax Allocation Agreement in
          effect and filed as an exhibit to the Form U5S.

The foregoing reporting requirement will be eliminated and in its place the
following reporting requirement would be substituted. Emera will include in its
Annual Report on Form U5S, in Exhibit D:


- --------
17 Progress Energy, Inc., Holding Co. Act Release No. 27522 (April 18, 2002).
See also, AGL Resources Inc., Holding Co. Act Release No. 27781 (Dec. 23, 2003);
Energy East Corp., Holding Co. Act Release No. 27643 (Jan. 28, 2003); and Pepco
Holding Inc., Holding Co. Act Release No. 27553 (July 24, 2002).


                                       18
<PAGE>


(1) A detailed analysis provided in tabular form that describes the Acquisition
Indebtedness by issue, amount and maturity date (for example, as applicable, the
table would show the issuer, interest rate, type/name of security, CUSIP, issue
date, maturity, and principal amount of each component of the Acquisition
Indebtedness) and describes any repayment or refinancing of Acquisition
Indebtedness, and

(2) Detailed tax work sheets showing the allocation of the consolidated tax
group's Federal income tax liability among the Emera US consolidated group.

Conclusion

     The proposed TAA is substantially the same in all material respects as the
tax allocation agreements previously authorized by the Commission cited above.
It is consistent with Rule 45(c), even though it allows Emera US to retain the
tax benefit associated with the Acquisition Indebtedness. The TAA is also
consistent with Section 12 of the Act, the general investor, consumer and public
interest standards of the Act, and with the policy reasons underlying the
Commission's adoption of Rule 45(c), in particular, the separate return limit
and the matching principle. The proposed TAA presents no novel issues under the
Act and the Commission staff may release jurisdiction and authorize the TAA by
delegated authority.

     For all these reasons, the Commission should authorize Applicants' proposed
tax allocation agreement.

ITEM 4.  REGULATORY APPROVAL

     BHE is subject to the regulation of the MPUC. The MPUC has jurisdiction
over certain agreements among affiliates, primarily involving the exchange of
goods and services. Because this transaction does not involve the exchange of
goods and services, it does not appear to require MPUC approval. A copy of the
application has been provided to the MPUC for informational purposes. Other than
as stated above, no state commission and no federal commission, other than this
Commission, has jurisdiction over the proposed transaction.


                                       19
<PAGE>


ITEM 5.  PROCEDURE

     The Commission is respectfully requested to issue the authorization
requested herein forthwith. The requisite notice under Rule 23 with respect to
this transaction was published on May 29, 2001 (Holding Co. Act Release No.
27409).

ITEM 6.  EXHIBITS AND FINANCIAL STATEMENTS

     A.  Exhibits

F-4      Opinion of Counsel (previously filed).

M-1      Form of Tax Allocation Agreement (previously filed).

     B.  Financial Statements

Not applicable

ITEM 7.  INFORMATION AS TO ENVIRONMENTAL EFFECTS

     The proposed transaction neither involves a "major federal action" nor
"significantly affects the quality of the human environment" as those terms are
used in Section 102(2)(C) of the National Environmental Policy Act, 42 U.S.C.
Sec. 4321 et seq. No federal agency is preparing an environmental impact
statement with respect to this matter.


                                       20
<PAGE>


                                   SIGNATURES

     Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the undersigned companies have duly caused this post-effective amendment
to their Application to be signed on their behalf by the undersigned thereunto
duly authorized.

- -------------------------------------- ---------------------------------------
Date:  May 7, 2004                     Emera Incorporated


                                       By: /s/ Richard J. Smith
                                       Name: Richard J. Smith
                                       Title: Corporate Secretary and General
                                       Counsel

- -------------------------------------- ---------------------------------------
Date:  May 7, 2004                     Emera US Holdings Inc.
                                       BHE Holdings Inc.


                                       By: /s/ A. Michael Burnell
                                       Name: A. Michael Burnell
                                       Title: President and Secretary

- -------------------------------------- ---------------------------------------
Date:  May 7, 2004                     Bangor Hydro-Electric Company
                                       Bangor Var Co. Inc.
                                       Bangor Energy Resale Inc.
                                       CareTaker, Inc.
                                       Bangor Fiber Co. Inc.
                                       Bangor Line Co.
                                       The Pleasant River Gulf Improvement Co.
                                       The Sebois Dam Co.
                                       East Branch Improvement Co.
                                       Godfrey's Falls Dam Co.
                                       The Sawtelle Brook & Dam Improvement Co.


                                       By: /s/ Richard J. Smith
                                       Name: Richard J. Smith
                                       Title: Corporate Secretary

- -------------------------------------- ---------------------------------------


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