[Federal Register: May 14, 2003 (Volume 68, Number 93)]
[Notices]
[Page 25913-25916]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14my03-88]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 35-27676]
Filings Under the Public Utility Holding Company Act of 1935, as
Amended (``Act'')
May 8, 2003.
Notice is hereby given that the following filing(s) has/have been
made with the Commission pursuant to provisions of the Act and rules
promulgated under the Act. All interested persons are referred to the
[[Page 25914]]
application(s) and/or declaration(s) for complete statements of the
proposed transaction(s) summarized below. The application(s) and/or
declaration(s) and any amendment(s) is/are available for public
inspection through the Commission's Branch of Public Reference.
Interested persons wishing to comment or request a hearing on the
application(s) and/or declaration(s) should submit their views in
writing by June 2, 2003, to the Secretary, Securities and Exchange
Commission, Washington, DC 20549-0609, and serve a copy on the relevant
applicant(s) and/or declarant(s) at the address(es) specified below.
Proof of service (by affidavit or, in the case of an attorney at law,
by certificate) should be filed with the request. Any request for
hearing should identify specifically the issues of facts or law that
are disputed. A person who so requests will be notified of any hearing,
if ordered, and will receive a copy of any notice or order issued in
the matter. After June 2, 2003, the application(s) and/or
declaration(s), as filed or as amended, may be granted and/or permitted
to become effective.
UniSource Energy Corporation (70-10116)
UniSource Energy Corporation (``UniSource Energy''), One South
Church Avenue, Suite 100, Tucson, Arizona 85701, an Arizona corporation
and a public utility holding company claiming exemption from
registration under section 3(a)(1) of the Act under rule 2 and from all
other provisions of the Act except section 9(a)(2), has filed an
application (``Application'') for an order under sections 9(a)(2) and
10 of the Act authorizing the proposed acquisition of the operating
electric and gas utility properties (``Assets'') of Citizens
Communications Company (``Citizens'') that are located in Arizona (the
``Transaction''). UniSource also requests an order under section
3(a)(1) of the Act declaring it exempt it from all provisions of the
Act, except section 9(a)(2), following the consummation of the proposed
Transaction.
UniSource proposes alternative structures for the acquisition of
the Assets. UniSource may combine the Assets in one new utility company
or keep the Assets separate in two different utility companies (``New
Utility Companies''). The New Utility Companies will be incorporated
under Arizona law. UniSource will either acquire and hold the common
stock of the New Utility Companies directly, or alternatively, as
direct subsidiaries of a newly formed Arizona corporation (``HoldCo'')
that will be a direct subsidiary of UniSource (referred to as the
``HoldCo Structure''). In the event that the HoldCo Structure is
employed, it is requested that HoldCo be deemed to be an additional
applicant in this proceeding and that the Commission's order granting
UniSource an exemption under section 3(a)(1) of the Act also grant
HoldCo an exemption.
UniSource Energy owns substantially all of the issued and
outstanding common stock of Tucson Electric Power Company (``TEP''), an
Arizona corporation, which provides electric utility service to over
355,000 customers in a 1,155 square-mile area of southeastern Arizona
having a population of approximately 891,000, and two direct nonutility
subsidiaries, Millennium Energy Holdings, Inc. (``Millennium'') and
UniSource Energy Development Company (``UED''). In 2002, TEP,
UniSource's predominant subsidiary, accounted for approximately 94% of
UniSource Energy's total consolidated assets and more than 99% of
UniSource Energy's operating revenues. TEP's retail service area
includes the City of Tucson and adjoining areas of Pima County. TEP
also supplies the power requirements of a military base that is located
in Cochise County, to the east of Tucson, and sells electricity at
wholesale to other utilities and power marketing entities in the
western U.S. UniSource Energy states that in the three-year period of
2000 through 2002, not more than 4% of TEP's total operating revenues
were derived from wholesale sales outside of Arizona. As of December
31, 2002, TEP owned or leased 2,002 MW of net generating capability.
UniSource Energy itself does not engage in any business activities or
have any material assets, other than the stock of its subsidiaries.
TEP has five direct, wholly-owned, nonutility subsidiaries, as
follows: Escavada Company, which is engaged in the business of
maintaining miscellaneous assets and property; San Carlos Resources,
Inc., which holds legal title to Unit No. 2 of the Springerville
Generating Station, and is the lessee, jointly and severally with TEP,
of an undivided one-half interest in certain facilities shared in
common between Unit No. 1 and Unit No. 2 of the Springerville
Generating Station; Sierrita Resources, Inc., which holds investments
in financial assets; Tucson Resources, Inc., which also holds
investments in financial assets; and Tucsonel Inc., which holds an
undivided interest in the Springerville Generating Station coal-
handling facility. TEP also holds minority interests in entities that
provide demand side and energy management services and engage in
development activities relating to technologies that provide pricing
and other related services to consumers for a wide variety of products,
including utility services.
TEP is subject to regulation by the Arizona Corporation Commission
(``ACC'') with respect to retail electric rates, the issuance of
securities, affiliate transactions, the maintenance of books and
records, and other matters and by the Federal Energy Regulatory
Commission (``FERC'') with respect to wholesale electric rates and
electric transmission service.
For the twelve months ended December 31, 2002, UniSource Energy
reported consolidated operating revenues of $856 million, more than 98%
of which were derived from retail and wholesale sales of electricity
and related transmission and distribution services. At December 31,
2002, UniSource Energy had $2.7 billion in total assets, including
total net utility plant of $1.7 billion.
As of March 4, 2003, UniSource Energy had issued and outstanding
33,583,182 shares of common stock, no par value, which are listed and
traded on the New York Stock Exchange and the Pacific Exchange. TEP has
issued and outstanding 32,139,555 shares of common stock, no par value,
of which 32,139,434 are held by UniSource Energy.
Citizens, a Delaware corporation, operates as an electric and gas
utility in Arizona through two operating divisions. Through its Arizona
Electric Division, Citizens provides electric service to approximately
77,500 customers in most of Mohave County in northwest Arizona and in
all of Santa Cruz County in southeast Arizona between TEP's service
area and the U.S.-Mexico border. Through its Arizona Gas Division,
Citizens provides natural gas service to approximately 125,000
customers in most of northern Arizona, including portions of Mohave,
Yavapai, Coconino, Navajo, Greenlee, and Apache Counties, as well as
Santa Cruz County in southeast Arizona. Citizens owns generating units
in Arizona having a total capacity of about 47 MW. Citizens' Arizona
electric transmission and distribution system consists of approximately
56 circuit-miles of 115 kV transmission lines, 229 circuit-miles of 69
kV transmission lines, and 3,116 circuit-miles of underground and
overhead distribution lines. Citizens also owns 38 substations having a
total installed transformer capacity of 1,077,300 kVA. Citizens'
Arizona gas transmission and distribution system consists of
approximately 168 miles of steel transmission mains, 2,459 miles of
[[Page 25915]]
steel and plastic distribution mains, and 127,015 customer service
lines.
Citizens is subject to regulation in Arizona by the ACC with
respect to retail electric and gas rates, the issuance of securities,
affiliate transactions, the maintenance of books and records, and other
matters and by the FERC with respect to wholesale power sales and
interstate transmission service.
Citizens and UniSource Energy have entered into separate Asset
Purchase Agreements, each dated October 29, 2002, relating to the
purchase of Citizens' electric and gas utility businesses in Arizona.
Under the terms of the Asset Purchase Agreement relating to Citizens'
electric utility business, Citizens has agreed to sell and UniSource
Energy has agreed to purchase all of the assets (subject to certain
stated exceptions) used by Citizens in connection with or otherwise
necessary for the conduct of its electric utility business in Arizona
(the ``Electric Assets''). Under the terms of the Asset Purchase
Agreement relating to Citizens' gas utility business, Citizens has
agreed to sell and UniSource Energy has agreed to purchase all of the
assets (subject to certain stated exceptions) used by Citizens in
connection with or otherwise necessary for the conduct of its gas
utility business in Arizona (the ``Gas Assets'').
UniSource Energy has agreed to pay Citizens $92 million in cash for
the Electric Assets and $138 million in cash for the Gas Assets,
subject in each case to adjustment based on the date on which the
Transaction closes and on the amount of certain assets and liabilities
associated with the Assets at the time of closing. In addition, the
base price for the Electric Assets and the Gas Assets will be reduced
by $10 million in the aggregate if the Transaction closes by July 28,
2003. However, whether or not the Transaction closes by July 28, 2003,
UniSource Energy has agreed to reduce rate base for the Gas Assets by
$10 million. UniSource Energy will not assume Citizens' obligations
under existing industrial development revenue bonds that were issued to
finance portions of the purchased assets. Citizens will remain liable
on these obligations.
Under the Asset Purchase Agreements, UniSource Energy and Citizens
also agreed to coordinate the overall development of the positions to
be taken and the regulatory actions to be requested regarding the two
utility rate cases that Citizens has pending before the ACC. As part of
the Joint Application of Citizens Communications Company and UniSource
Energy Corporation to the Arizona Corporation Commission (``Joint
Application''), UniSource Energy is seeking approval for a reduced
level of rate increases. On April 1, 2003, UniSource Energy, Citizens,
TEP and the staff of the Utilities Division of the ACC entered into a
Settlement Agreement (``Settlement''), which sets forth the agreement
and understanding of the parties with respect to the settlement of all
issues arising under the Joint Application, the amount of the reduction
in Citizens' proposed gas rate increase, UniSource Energy's forfeiture
of any right to seek recovery of the under-collected balance under
Citizens' purchase power and fuel adjustment clause, and other
matters.\1\ The proposed Settlement is subject to approval by the ACC.
UniSource Energy states that under the proposed Settlement Citizens'
electric and gas customers would save a total of about $29 million per
year, as compared to the amount of rate increases proposed in Citizens'
pending applications. The proposed Settlement also contains the
agreement of the parties with respect to UniSource Energy's plan for
financing the Transaction, as described below.
---------------------------------------------------------------------------
\1\ Under the proposed Settlement, UniSource Energy has agreed
to seek an increase in rates of the new gas utility of approximately
20.9%, versus the 28.9% increase requested by Citizens. In addition,
UniSource Energy has agreed to forfeit its right to seek recovery of
the under-collected balance under Citizens' electric purchase power
and fuel adjuster clause (estimated to be at least $135 million as
of July 28, 2003). As a result, electric rates of the new electric
utility would increase by 22%, rather than the 45% increase proposed
by Citizens.
---------------------------------------------------------------------------
UniSource Energy states that the Transaction is subject to, among
other conditions precedent, receipt by the parties of required
approvals by the ACC, the FERC and this Commission, and filing of pre-
merger notification statements under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and expiration or early
termination of the statutory waiting period. The boards of directors of
UniSource Energy and Citizens have each approved the proposed
Transaction. The Transaction does not require shareholder approval by
either company.
UniSource Energy states that it intends to fund the purchase price
under the Asset Purchase Agreements using a combination of several
sources, including: (1) Available cash at UniSource Energy; (2)
possibly the issuance of new equity by UniSource Energy; (3) a loan
from TEP; and (4) debt issued by the New Utility Companies or HoldCo
(if the HoldCo Structure is utilized), which will be repaid either
directly or indirectly from the cash flows of the New Utility
Companies. The issuance of new debt securities by the New Utility
Companies and the loan from TEP are subject to approval by the ACC.
More specifically, in the Joint Application, UniSource Energy is
requesting the authorization of the ACC for the New Utility Companies
to: (1) Issue or guarantee up to $175 million of debt securities for
the purpose of funding a portion of the purchase price and initial
working capital requirements of the New Utility Companies; (2) issue or
guarantee additional debt securities from time to time under the terms
of a new revolving credit agreement that will provide ongoing liquidity
support to the New Utility Companies; (3) enter into indentures or
security agreements which grant liens on some or all of the properties
held by such companies to secure the debt obligations of such
companies; and (4) issue common stock to UniSource Energy (or to HoldCo
if the HoldCo Structure is used). Additionally, UniSource Energy and
TEP are seeking authority from the ACC to allow TEP to fund up to $50
million of the aggregate purchase price through a loan to UniSource
Energy. Authorization of this loan from TEP would provide financing
flexibility to UniSource Energy in the event that, at the time of the
consummation of the Transaction, UniSource Energy is unable to issue
common stock on reasonable terms in order to fund the purchase price.
Under the proposed Settlement filed with the ACC, the New Utility
Companies are expected to have an initial capital structure of about
40% common equity and 60% long-term debt. UniSource Energy's objective
is to capitalize the New Utility Companies at a level that is
consistent with an investment grade rating, in accordance with current
ratings criteria published by the principal rating agencies. UniSource
Energy has agreed that, until common equity as a percentage of total
capitalization (i.e., common and preferred equity and long-term debt,
including current portion) of each of the New Utility Companies equals
40%, such company will not pay dividends to UniSource or HoldCo, as the
case may be, in an amount exceeding 75% of such company's earnings. The
$50 million loan from TEP would have a maturity not to exceed four
years, would be secured by a pledge of 100% of the common stock of the
New Utility Companies or HoldCo (if the HoldCo Structure is used), and
would bear interest at 383 basis points above the yield-to-maturity of
an equivalent four-year U.S. Treasury security as determined on the
date of the loan. The
[[Page 25916]]
Settlement further specifies that 264 basis points of the interest
income earned by TEP on the TEP loan will be recorded as a deferred
credit and used to offset rates in the future, and that the balance of
the interest income will be used to build the equity capitalization of
TEP.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-11991 Filed 5-13-03; 8:45 am]
BILLING CODE 8010-01-P