[Federal Register: June 9, 2004 (Volume 69, Number 111)]
[Notices]
[Page 32374-32385]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09jn04-102]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 35-27852]
Filings Under the Public Utility Holding Company Act of 1935, as
Amended (``Act'')
June 2, 2004.
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
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 25, 2004, 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 25, 2004, the application(s) and/or
declaration(s), as filed or as amended, may be granted and/or permitted
to become effective.
Northeast Utilities, et al. (70-9755)
Northeast Utilities (``NU''), a registered holding company; Western
Massachusetts Electric Company (``WMECO''), a wholly owned, direct
public-utility company subsidiary of NU, both located at 174 Brush Hill
Ave., West Springfield, Massachusetts 01090-0010; Public Service
Company of New Hampshire (``PSNH''), a wholly owned, direct public-
utility company subsidiary of NU; and North Atlantic Energy Corporation
(``NAEC''), a wholly owned, direct nonutility subsidiary of NU, both
located at Energy Park, 780 North Commercial Street, Manchester, NH
03101; Yankee Energy System, Inc. (``YES''), a wholly owned, direct
holding company subsidiary of NU that claims exemption under section
3(a)(1) by rule 2; Northeast Utilities Service Company (``NUSCO''), a
direct, wholly owned service company subsidiary of NU; The Connecticut
Light and Power Company (``CL&P''), a wholly owned, direct public-
utility company subsidiary of NU; Northeast Nuclear Energy Company
(``NNECO''), a wholly owned, direct nonutility company subsidiary of
NU; Yankee Gas Services Company (``Yankee Gas'') a wholly owned, direct
public-utility company subsidiary of YES; The Rocky River Realty
Company (``RR''), a wholly owned, direct nonutility subsidiary of NU;
The Quinnehtuk Company (``Quinnehtuk''), a wholly owned, direct
nonutility subsidiary of NU, Properties, Inc. (``Properties''), a
wholly owned, direct nonutility subsidiary of PSNH; Yankee Energy
Financial Services Company (``Yankee Financial''), a wholly owned,
direct nonutility subsidiary of YES; Yankee Energy Services Company
(``YESCO''), a wholly owned, direct nonutility subsidiary of YES;
NorConn Properties, Inc. (``NorConn''), a wholly owned, direct
nonutility subsidiary of YES; NU Enterprises, Inc. (``NUEI''), a wholly
owned, direct nonutility subsidiary of NU; Northeast Generation Company
(``NGC''), a wholly owned, direct nonutility subsidiary of NUEI;
Northeast Generation Services Company (``NGS'') a wholly owned, direct
nonutility subsidiary of NUEI; E.S. Boulos Company (``Boulos''), a
wholly
[[Page 32375]]
owned, direct nonutility subsidiary of NGS; Woods Electrical Company,
Inc. (``Woods''), a wholly owned, direct nonutility subsidiary of NGS;
Woods Network Services, Inc. (``Woods Network''), a wholly owned,
direct nonutility subsidiary of NUEI; Select Energy, Inc. (``Select
Energy''), a wholly owned, direct nonutility subsidiary of NUEI; Mode 1
Communications, Inc. (``Mode 1''), a wholly owned, direct nonutility
subsidiary of NUEI; and Select Energy New York, Inc. (``SENY''), a
wholly owned, direct nonutility subsidiary of Select Energy, all
located at 107 Selden Street, Berlin, Connecticut 06037; Holyoke Water
Power Company (``HWP''), a public-utility subsidiary of NU, One Canal
Street, Holyoke, Massachusetts 01040; and Select Energy Services, Inc.
(``SESI''), a wholly owned, direct nonutility subsidiary of NUEI, 24
Prime Parkway, Natick, MA 01760, (collectively, ``Applicants'') have
filed, under sections 6(a), 7, 9(a), 10 and 12 of the Act, and rules
43, 45 and 54 under the Act, a post-effective amendment to a previously
filed application.
I. Background
A. The NU System
NU is the parent company of four electric utility companies and one
gas utility company. For the twelve months ended December 31, 2003,
NU's consolidated gross revenues and net income were approximately $6.1
billion and $116.4 million, respectively. As of December 31, 2003, NU's
consolidated capitalization consisted of: 33.5% common equity, 1.7%
preferred stock, 25.6% of rate reduction bonds, and 39.2% long-term and
short-term debt.\1\ Applicants state that the current corporate credit
rating for NU is BBB+ by Standard and Poor's and Baa1 by Moody's, and
that the ratings issued by Moody's and Standard and Poor's for NU's
Senior Unsecured Debt were Baa1 and BBB, respectively.
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\1\ Excluding the rate reduction bonds, NU's consolidated
capitalization consisted of: 45% common equity, 2.3% preferred stock
and 52.7% debt.
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CL&P, an electric utility company, provides retail electric service
to approximately 1.2 million customers in Connecticut. As of December
31, 2003, CL&P's consolidated capitalization consisted of: 24.4% common
equity, 4.1% preferred stock, 39.3% of rate reduction bonds, and 32.2%
of long-term and short-term debt.\2\ Applicants state that the
corporate credit rating for CL&P is BBB+ by Standard and Poor's and A3
by Moody's, and that the credit rating for its senior secured debt is
A-by Standard and Poor's and Fitch and A2 by Moody's. Its senior
unsecured debt has a rating of BBB from Standard and Poor's, A3 from
Moody's and BBB+ from Fitch. CL&P's preferred stock has a rating of
BBB--by Standard and Poor's and Baa2 by Fitch.
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\2\ Excluding the rate reduction bonds, CL&P's consolidated
capitalization consisted of: 40.2% common equity, 6.7% preferred
stock and 53.1% debt.
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WMECO, an electric utility company, provides retail electric
service to approximately 206,000 customers in Massachusetts. As of
December 31, 2003, WMECO's consolidated capitalization consisted of:
31.4% common equity, 27.5% of rate reduction bonds, and 41.1% of long-
term and short-term debt.\3\ Applicants state that the corporate credit
rating for WMECO is BBB+ by Standard and Poor's and A3 by Moody's, and
that the credit rating for its senior unsecured debt is BBB+ by
Standard and Poor's and Fitch and A3 by Moody's. WMECO has no preferred
stock outstanding.
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\3\ Excluding rate reduction bonds, WMECO's consolidated
capitalization consisted of: 43.4% common equity and 56.6% debt.
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PSNH, an electric utility company, provides retail electric service
to approximately 456,000 customers in New Hampshire. As of December 31,
2003, PSNH's consolidated capitalization consisted of: 28.8% common
equity, 35.8% of rate reduction bonds, and 35.4% of long-term and
short-term debt.\4\ Applicants state that the corporate credit rating
for PSNH is BBB+ by Standard and Poor's and Baa1 by Moody's, and that
the credit rating for its senior secured debt is BBB+ by Standard and
Poor's and Fitch and A3 by Moody's. PSNH has no preferred stock
outstanding.
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\4\ Excluding rate reduction bonds, PSNH's consolidated
capitalization consisted of 45% common equity and 55% debt.
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Yankee Gas, a gas utility company, is wholly owned by YES.\5\
Yankee Gas provides natural gas distribution service to approximately
192,000 customers in Connecticut. As of December 31, 2003, Yankee Gas'
consolidated capitalization consisted of: 67.5% common equity and 32.5%
of long-term and short-term debt. Applicants state that the corporate
credit rating for Yankee Gas is BBB+ by Standard and Poor's and Baa1 by
Moody's. Yankee Gas has no preferred stock outstanding.
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\5\ As of December 31, 2003, YES' consolidated capitalization
consisted of: 67.8% common equity and 32.2% long-term and short-term
debt. Applicants state that YES is not currently rated by Standard
and Poor's, Moody's or Fitch.
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HWP, an electric utility company, currently sells all of the output
of its electricity generating station to its affiliate, Select Energy.
As of December 31, 2003, HWP's consolidated capitalization consisted
of: 33.1% common equity and 66.9% long-term and short-term debt. HWP is
not rated by any rating agency.
NU also owns, directly or indirectly, Properties, RR, Quinnehtuk
and NorConn, which are real estate companies, NUSCO, the system's
principal service company, NUEI, the system's nonutility holding
company, NGC, an exempt wholesale generator, SESI, an energy services
company acquired pursuant to Commission Order, Mode 1 and Woods
Network, each exempt telecommunications companies, Yankee Financial, a
financial services company and Select Energy, SENY, NGS, Woods, Boulos
and YESCO, each companies formed or acquired pursuant to rule 58. HWP
sells the output of its electricity generating station directly to its
affiliate, Select Energy.
B. Current Authority
By order dated December 28, 2000 (HCAR No. 27328) (``2000 Order''),
the Commission authorized Applicants, through June 30, 2003 (``Prior
Authorization Period'') and subject to certain conditions, to: (1)
Continue participating in the NU system money pool (``NU Money Pool'');
and (2) to the extent not exempt under rules 45(b) and 52, enter into
short-term debt transactions through the NU Money Pool, borrowing from
and extending credit to (and acquiring promissory notes from) each
other. Additionally, by the 2000 Order, the Commission authorized NU
and its utility subsidiaries to issue notes or commercial paper to
unaffiliated third parties to evidence short-term debt up to specified
limits (identified below) through the Prior Authorization Period.
By order dated June 30, 2003 (HCAR No. 27693) (``2003 Order''), the
Commission: (1) Extended the Prior Authorization Period for the
issuance of short-term debt by NU, CL&P, WMECO, PSNH, YES, and Yankee
Gas through June 30, 2006; (2) authorized companies to enter into
interest rate hedging transactions related to short-term debt
transactions through June 30, 2006; and (3) extended the authorization
period for participation by the Applicants (other than Properties) in
the NU Money Pool through June 30, 2004, pending the submission by the
Applicants of a feasibility study concerning the creation of a separate
money pool for nonutility subsidiaries of NU.
II. Requests for Authority
Applicants request authority for NU, YES, CL&P, WMECO, and Yankee
Gas to
[[Page 32376]]
issue and sell short-term debt securities to unaffiliated third parties
through June 30, 2007 (``Authorization Period'') up to the following
aggregate outstanding principal amounts: NU, $450 million; YES, $50
million, CL&P, $450 million; WMECO, $200 million; and Yankee Gas, $150
million (each limit, ``Aggregate Short-Term Debt Limit'').
Applicants also request authority for CL&P, WMECO, HWP and Yankee
Gas to issue and sell short-term debt securities to affiliates through
the NU Money Pool through the Authorization Period in the following
aggregate outstanding principal amounts: CL&P, $450 million; WMECO,
$200 million; HWP, $10 million; and Yankee Gas, $150 million. These
Money Pool borrowings would be subject to the applicable Aggregate
Short-Term Debt Limit, if any.
Authority is requested for Applicants other than Properties to
continue participating in the NU Money Pool, and for Properties to
participate in the NU Money Pool both as borrower and lender. They also
request that the Commission release jurisdiction over the removal of
limits on the NU Money Pool borrowings by Properties, RR, Quinnehtuk,
Yankee Financial, YESCO, NorConn, NUEI, NGS, Boulos, Woods, Select
Energy, SENY and SESI (collectively, ``Nonutility Subsidiaries'').
Further, Applicants request authority for NU and certain of its
public-utility company subsidiaries--CL&P, WMECO, and Yankee Gas
(collectively, ``Utility Borrowers'')--to enter into Interest Rate
Hedges (described below) through the Authorization Period.
A. General Terms and Conditions
The proposed securities would be subject to the following financing
parameters. Apart from the securities issued for the purpose of funding
money pool operations, no securities would be issued in reliance upon
the requested order, during the Authorization Period, unless: (1) The
security to be issued, if rated, is rated investment grade; (2) all
outstanding securities of the issuer that are rated are rated
investment grade; and (3) all outstanding securities of NU and YES that
are rated, are rated investment grade. For purposes of this condition,
a security would be considered investment grade if it is so rated by at
least one nationally recognized statistical rating organization, as
that term is used in paragraphs (c)(2)(vi)(E), (F) and (H) of Rule
15c3-1 under the Securities Exchange Act of 1934. NU and the Utility
Borrowers request that the Commission reserve jurisdiction over the
issuance by NU and the Utility Borrowers of any securities that do not
meet these conditions.
At all times during the Authorization Period, YES, NU and their
utility subsidiaries (with the exception of CL&P and PSHH) \6\ would
maintain common equity of at least 30% of its consolidated
capitalization (common equity, preferred stock, long-term debt and
short-term debt) as reflected in the most recent form 10-K or form 10-Q
filed with the Commission, adjusted to reflect changes in
capitalization since the balance sheet date.
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\6\ By Commission order dated March 7, 2000 (HCAR No. 35-27147),
the Commission allowed CL&P and PSNH to maintain their common
equities below 30% of their consolidated capitalizations taking into
account their respective rate reduction bonds through December 31,
2004. Applicants state that a separate application/declaration will
be filed seeking extension of this authority.
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The proceeds from the short-term debt of NU, YES and the Utility
Borrowers would be used for: (1) General corporate purposes, including
investments by and capital expenditures of NU and its subsidiaries,
including, without limitation, the funding of future investments in
exempt wholesale generators (``EWG''), foreign utility companies
(``FUCO'') (each to the extent permitted under the Act or Commission
order), rule 58 subsidiaries (to the extent permitted under the Act or
Commission order), and exempt telecommunications companies (``ETCs'');
(2) the repayment, redemption, refunding or purchase by NU or any
subsidiary of any of its own securities from non-affiliates pursuant to
rule 42; and (3) financing working capital requirements of NU and its
subsidiaries. No financing proceeds would be used to acquire the
securities of, or other interests in, any company unless the
acquisition has been approved by the Commission in this or a separate
proceeding or is in accordance with an available exemption under the
Act or rules under the Act.
B. External Short-Term Debt of NU and YES
Applicants request authority for NU and YES to issue and sell
during the Authorization Period unsecured short-term debt in an
aggregate principal amount at any time outstanding not to exceed $450
million and $50 million. This short-term debt would take a variety of
forms, including commercial paper issuances and/or unsecured notes with
banks or other institutional lenders under credit facilities on terms
that are generally available to borrowers with comparable credit
ratings. All short-term debt securities issued and sold by NU and YES
would have maturities of less than one year from the date of issuance.
Commercial paper issued by NU and YES may be issued manually or
through The Depository Trust Company in the form of book entry notes in
denominations of not less than $50,000 of varying maturities.
Applicants state that, typically, the commercial paper would be sold to
dealers at the discount rate prevailing at the date of issuance for
commercial paper of comparable quality and maturities sold to
commercial paper dealers generally. It is expected that the dealers
acquiring the commercial paper would re-offer it at a discount to
corporate and institutional investors. No commercial paper would be
issued by NU or YES unless the issuer believes that the effective
interest cost would be equal to or less than the effective interest
rate at which it could issue short-term notes in an amount at least
equal to the principal amount of commercial paper. The commercial paper
would be publicly issued and sold without registration under the
Securities Exchange Act of 1933 in reliance upon one or more applicable
exemptions from registration.
Applicants request authority through the Authorization Period for
NU and YES to continue or establish and maintain back-up credit lines
with banks or other institutional lenders to support their commercial
paper program(s), and other credit arrangements and/ or borrowing
facilities generally available to borrowers with comparable credit
ratings, providing for revolving credit or other loans. All amounts
drawn and outstanding under these agreements and facilities would have
maturities less than one year from the date of draw and would be
counted against the applicable Aggregate Short-Term Debt Limit.
The effective cost of money on all external short-term debt of NU
and YES would not exceed competitive market rates available at the time
of issuance for securities having the same or reasonably similar terms
and conditions issued by companies of comparable credit quality,
provided that in no event would the effective cost of capital exceed
500 basis points over the comparable term London Interbank Offered Rate
(``LIBOR''). Issuance expenses in connection with any non-competitive
offering of short-term debt would not exceed 5% of the principal
amount. Specific terms of any short-term debt would be determined by NU
at the time of issuance. A copy of any new note or loan agreement
executed pursuant to this Authorization would be filed under cover of
the next quarterly report under rule 24. Subject to the applicable
[[Page 32377]]
Aggregate Short-Term Debt Limit, NU and YES intend to renew and extend
outstanding short-term debt as it matures, to refund short-term debt
with other similar short-term debt, to repay short-term debt or to
increase the amount of their short-term debt from time to time.
C. External Short-Term Debt of Utility Borrowers
Applicants request authority for the Utility Borrowers to issue and
sell short-term debt during the Authorization Period up to the
following aggregate outstanding principal amounts: CL&P, $450 million;
WMECO, $200 million; and Yankee Gas, $150 million. The short-term debt
for the Utility Borrowers would take a variety of forms, including
commercial paper issuances and/or secured or unsecured notes with banks
or other institutional lenders under credit facilities on terms that
are generally available to borrowers with comparable credit ratings.
All short-term debt would have maturities of less than one year from
the date of issuance. Applicants request that the Commission reserve
jurisdiction over the issuance and sale of secured short-term debt
securities by Yankee Gas, pending completion of the record.
Commercial paper issued by a Utility Borrower hereunder may be
issued manually or through The Depository Trust Company in the form of
book entry notes in denominations of not less than $50,000 of varying
maturities. Typically, this commercial paper would be sold to dealers
at the discount rate prevailing at the date of issuance for commercial
paper of comparable quality and maturities sold to commercial paper
dealers generally. Applicants expect that the dealers acquiring the
commercial paper would re-offer it at a discount to corporate and
institutional investors. No commercial paper would be issued unless the
Utility Borrower issuing commercial paper believes that the effective
interest cost would be equal to or less than the effective interest
rate at which the company could issue short-term notes in an amount at
least equal to the principal amount of commercial paper. The commercial
paper would be publicly issued and sold without registration under the
Securities Exchange Act of 1933 in reliance upon one or more applicable
exemptions from registration.
The Utility Borrowers seek an extension through the Authorization
Period of their authority to continue, or to establish and maintain
back-up credit lines with banks or other institutional lenders to
support their commercial paper program(s), and other credit
arrangements and/or borrowing facilities generally available to
borrowers with comparable credit ratings, providing for revolving
credit or other loans. All amounts drawn and outstanding under these
agreements and facilities would have maturities less than one year from
the date of draw and would be counted against the applicable Aggregate
Short-Term Debt Limit.
The effective cost of money on all external short-term debt of the
Utility Borrowers would be subject to the same financing parameters as
NU (described above). The specific terms of a short-term debt issuance
and sale would be determined by the respective Utility Borrower at the
time of issuance. A copy of any new note or loan agreement executed
pursuant to this authorization would be filed under cover of the next
quarterly report under rule 24. Subject to the applicable short-term
debt limit, the Utility Borrowers intend to renew and extend
outstanding short-term debt as it matures, to refund short-term debt
with other similar short-term debt, to repay short-term debt or to
increase the amount of their short-term debt from time to time.
D. Money Pool
Applicants request authority to continue operating the NU Money
Pool through June 30, 2007, subject to the terms and conditions
previously authorized. Applicants request authority for: (1) All
Applicants, with the exception of NU, YES, NGC, Mode 1, Woods Network
and NUSCO, to participate in the NU Money Pool as both lenders and
borrowers; and (2) NU, YES, NGC, Mode 1 and Woods Network to
participate in the NU Money Pool as lenders only. They request that the
Commission reserve jurisdiction over participation by additional
companies in the NU Money Pool. Applicants request that the Commission
release jurisdiction over Applicants' request that there be no NU Money
Pool borrowing limit imposed on the Nonutility Subsidiaries,\7\ and
they request that no limits be placed on borrowings by NAEC and NNECO,
which are now nonutility companies.
The NU Money Pool would continue to be administered on behalf of
Applicants by NUSCO on an ``at cost'' basis,\8\ under the direction of
an officer of NUSCO. The NU Money Pool would consist principally of
surplus funds received from the Applicants. In addition to surplus
funds, funds borrowed by NU through the issuance of short-term notes or
other debt, or by the selling of commercial paper (``External Funds'')
may be a source of funds for making loans or advances to the other
Applicants through the NU Money Pool.
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\7\ By the 2003 Order, the Commission imposed the following
borrowing limits: Quinnehtuk: $10 million; NUEI $100 million; NGS
$25 million; Select $200 million; SENY $10 million; RR: $30 million;
Yankee Financial: $10 million; NorConn: $10 million; YESCO: $10
million; SESI $35 million; Boulos $10 million; Woods $10 million.
\8\ NUSCO would neither lend nor borrow through the NU Money
Pool.
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Applicants do not propose any changes to the operation of the NU
Money Pool as it was approved in the 2003 Order. Transactions under the
NU Money Pool would be designed to match, on a daily basis, the surplus
funds of the pool participants with the short-term borrowing
requirements of the pool participants (other than the pool participants
who are lenders only), thereby minimizing the need for short-term debt
to be incurred by the pool participants from external sources. The pool
participants in the NU Money Pool that are regulated utility
subsidiaries of NU would have priority as borrowers from the NU Money
Pool over those participants that are nonutility companies.
The funds available through the NU Money Pool would be loaned on a
short-term basis to those pool participants that have short-term debt
requirements. If no short-term requirements match the amount of funds
that are available for the NU Money Pool for the period funds are
available, NUSCO would invest the funds, directly or indirectly, in:
(1) Interest-bearing accounts with banks; (2) obligations issued or
guaranteed by the U.S. government and/or its agencies and
instrumentalities, including obligations under repurchase agreements;
(3) obligations issued or guaranteed by any state or political
subdivision thereof, provided that obligations are rated not less than
``A'' (or ``A-1'' or ``P-1'' or their equivalent for short term debt)
by a nationally recognized rating agency; (4) commercial paper rated
not less than ``A-1'' or ``P-1'' or their equivalent by a nationally
recognized rating agency; (5) money market funds; (6) bank certificates
of deposit; (7) Eurodollar funds; and (8) other investments as are
permitted by section 9(c) of the Act and rule 40 under the Act and,
with respect to contributions of WMECO, and other investments approved
by the Massachusetts Department of Telecommunications and Energy
(``MDTE'') under Massachusetts law. NUSCO would allocate the interest
earned on investments among the pool participants providing funds on a
pro rata basis according to the amount of the funds provided.
All borrowings from and contributions to the NU Money Pool
[[Page 32378]]
would be documented and evidenced on the books of those participants.
Any pool participant contributing funds to the NU Money Pool may
withdraw those funds at any time without notice to satisfy its daily
need for funds. All short-term debt through the NU Money Pool (other
than from NU's External Funds) would be payable on demand, may be
prepaid by any borrowing pool participant at any time without penalty
and would bear interest for both the borrower and lender, payable
monthly, at a rate equal to the daily Federal Funds Effective Rate
(``Fed Funds Rate'') as quoted by the Federal Reserve Bank of New York.
Short-term debt of pool participants derived from the proceeds of
External Funds of NU would bear interest at the same rate paid by NU on
External Funds, and no short-term debt may be prepaid by the pool
participant unless NU is made whole for any additional costs that it
may incur because of prepayment. NU would be fully reimbursed for all
costs that it incurs in relation to loans made through the NU Money
Pool to the pool participants.
E. Interest Rate Hedges
NU, YES and the Utility Borrowers request authority, through the
Authorization Period, to enter into interest rate hedging transactions
with respect to its outstanding short-term indebtedness (``Interest
Rate Hedges''). Interest Rate Hedges, designed to reduce or manage the
effective interest rate cost, would be entered into only with
counterparties (``Approved Counterparties'') whose senior debt ratings,
or the senior debt ratings of any credit support providers who have
guaranteed the obligations of the Approved Counterparties, as published
by S&P, are equal to or greater than BBB, or an equivalent rating from
Moody's or Fitch, or through on-exchange transactions.
Interest Rate Hedges would involve the use of financial instruments
commonly used in the capital markets, as options, interest rate swaps,
locks, caps, collars, floors, exchange-traded futures and options, and
other similar appropriate instruments. The transactions would be for
fixed periods and stated notional amounts as are generally accepted as
prudent in the capital markets. In no case would the notional principal
amount of any Interest Rate Hedge exceed that of the underlying debt
instrument. Neither NU nor the Utility Borrowers would engage in
speculative transactions within the meaning of the term in the
Statement of Financial Accounting Standard 133, as amended (``FAS
133''). Transaction fees, commissions and other amounts payable to
brokers in connection with an Interest Rate Hedge would not exceed
those generally obtainable in competitive markets for parties of
comparable credit quality.
Each Interest Rate Hedge would qualify for hedge accounting
treatment on a continuing basis under generally acceptable accounting
practices (``GAAP''). NU would comply with the then existing financial
disclosure requirements of the Financial Accounting Standards Board
associated with hedging transactions.\9\
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\9\ Currently, FAS 133 is the applicable standard.
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Entergy Corporation (70-10202)
Entergy Corporation (``Entergy''), a registered holding company and
Delaware corporation, 639 Loyola Avenue, New Orleans, Louisiana 70113,
has filed an application-declaration (``Application-Declaration'')
under sections 6(a), 7, 9(a), 10 and 12(c) of the Act, and rules 46,
53, and 54 under the Act.
I. Background
Entergy is a registered holding company under the Act. Its public
utility subsidiaries include Entergy Arkansas, Inc., Entergy Gulf
States, Inc., Entergy Louisiana, Inc., Entergy Mississippi, Inc., and
Entergy New Orleans, Inc. (collectively, ``Entergy Operating
Companies''). The Entergy Operating Companies provide public utility
service to approximately 2.6 million electric customers in portions of
Arkansas, Louisiana, Mississippi, and Texas and 238,000 retail gas
customers in Louisiana. Entergy also owns all of the voting stock of
System Energy Resources, Inc. (``SERI'') which owns and leases an
aggregate 90% undivided interest in Grand Gulf Steam Electric
Generating Station (nuclear) and sells all of the capacity and energy
from that interest at wholesale to its only customers, Entergy
Arkansas, Inc., Entergy Louisiana, Inc., Entergy Mississippi, Inc., and
Entergy New Orleans, Inc. Entergy Power Inc. (``EPI''), a public
utility company for purposes of the Act, but not for state regulatory
purposes, is principally engaged in the business of marketing and
selling bulk power at wholesale from its own generating resources.
Entergy also engages through other subsidiaries in various energy-
related and nonutility businesses. Other subsidiaries include ``exempt
wholesale generators'' (``EWGs''), ``foreign utility companies''
(``FUCOs''), ``exempt telecommunication companies'' (``ETCs'')
``energy-related companies'' within the meaning of rule 58 (``Rule 58
Companies''), and other nonregulated subsidiaries that Entergy is
authorized by order of the Commission to acquire or own under the Act,
(including certain subsidiary companies known as ``O&M Subs'' that
provide operations and maintenance services for power projects to
associate and non-associate power project, certain subsidiary companies
known as ``New Subsidiaries'' that engage in service and project
development activities and/or acquire or finance the acquisition of the
securities of other subsidiary non-utility companies).
By order dated April 3, 2001 (HCAR No. 27371) (``April 2001
Order'') and supplemented by order dated November 25, 2002 (HCAR No.
27608) (``November 2002 Order''), Entergy was authorized through June
30, 2004 to: (1) Issue and sell common stock (``Common Stock'') (in
addition to any separate authority relating to benefit and dividend
reinvestment plans) and, issue directly or indirectly through one or
more special purpose finance subsidiaries, unsecured long-term debt and
preferred or equity-linked securities in an aggregate amount not
exceeding $2 billion; (2) issue and sell short-term debt in the form of
notes to banks or commercial paper that in the aggregate, including
then existing authority to issue short-term notes, would not exceed an
outstanding principal amount of $2.5 billion; (3) enter into hedging
transactions regarding its own debt and that of its special purpose
finance subsidiaries or the Nonutility Companies; (4) form one or more
special purpose finance subsidiaries; and (5) guarantee the securities
issued by the special purpose finance subsidiaries.
II. Current Requests
Entergy requests approval for a program of external financing and
related proposals through June 30, 2007 (Authorization Period'').
A. Financing Parameters
1. Common Equity. Entergy represents that at all times during the
Authorization Period, Entergy and each of the public utility subsidiary
companies will maintain common equity of at least 30% of total
capitalization (based upon the financial statements filed with the most
recent quarterly report on Form 10-Q or annual report on Form 10-K).
2. Investment Grade. Entergy represents that no guarantees or other
securities will be issued in reliance upon the authorization to be
granted by the Commission in this Application-Declaration, unless: (a)
The security to
[[Page 32379]]
be issued, if rated, is rated investment grade; and (b) all outstanding
securities of Entergy that are rated are rated investment grade
(together, the ``Investment Grade Ratings Criteria''). For purposes of
this provision, a security will be deemed to be rated ``investment
grade'' if it is rated investment grade by Moody's Investors Service,
Standard & Poor's, Fitch Ratings or any one other nationally recognized
statistical rating organization (``NRSRO''), as that term is used in
paragraphs (c) (2) (vi) (E), (F) and (H) of rule 15c3-1 under the
Securities Exchange Act of 1934. Entergy further requests that the
Commission reserve jurisdiction over the issuance of any guarantee or
other security at any time that one or more of the Investment Grade
Ratings Criteria are not satisfied.
3. Effective Cost of Money. The interest rate on long-term debt
will not exceed at the time of issuance the greater of (a) 500 basis
points over U.S. Treasury securities having a remaining term comparable
to the term of the series, if issued at a fixed rate, or 500 basis
points over the London Interbank Offered Rate (``LIBOR'') for the
relevant interest rate period, if issued at a floating rate, and (b) a
gross spread over U.S. Treasury securities that is consistent with
similar securities of comparable credit quality and maturities issued
by other companies. The dividend rate on any series of equity-linked
securities or preferred securities will not exceed at the time of
issuance the greater of (a) 500 basis points over the yield to maturity
of a U.S. Treasury security having a remaining term comparable to the
term of the series, if issued at a fixed rate, or 500 basis points
LIBOR for the relevant interest rate period, if issued at a floating
rate, and (b) a rate that is consistent with similar securities of
comparable credit quality and maturities issued by other companies. The
effective cost of money on short-term debt authorized in this
proceeding will not exceed the greater of (a) 500 basis points over
LIBOR for the relevant interest rate period, and (b) rates that are
consistent with similar loans of comparable maturities to companies of
comparable credit quality.
4. Issuance Expenses. The fees, commissions and expenses, including
underwriting fees, arrangement fees and up-front fees, incurred or to
be incurred in connection with the transactions proposed will not
exceed 5% of the proceeds of the transactions in the case of Common
Stock, Equity-linked Securities, Preferred Securities and Long-term
Debt and will not exceed 5% of the commitments of the lenders in the
case of Short-term Debt.
5. Use of Proceeds. Entergy proposes to use the proceeds from the
above financings for general corporate purposes, including: (a)
Financing, in part, investments by and capital expenditures of Entergy
and its subsidiaries; (b) the repayment, redemption, refunding or
purchase by Entergy of any of its securities pursuant to rule 42; and
(c) financing working capital requirements of Entergy and its
subsidiaries. Entergy represents that no financing proceeds will be
used to acquire the equity securities of any company unless the
acquisition has been approved by the Commission in this proceeding or
in a separate proceeding or is in accordance with an available
exemption under the Act or rules, including sections 32 and 33 and rule
58. A portion of the proceeds of the financings authorized under this
Application-Declaration may be used to make investments in: (a) certain
energy-related non-utility assets, which are authorized pursuant to
Commission Order, dated January 5, 2001 (HCAR No. 27334) (``Energy
Asset Order'') and (b) certain Energy Assets and/or Energy Asset
Companies for which Entergy has filed a post-effective amendment to the
Energy Asset Order. Further, Entergy represents that proceeds of
financing to fund investments in rule 58 companies will be subject to
the applicable limitations of that rule. Entergy states that, unless
otherwise authorized by the Commission, the aggregate amount of
proceeds of financing approved by the Commission in this proceeding
which are used to fund investments in EWGs and FUCOs will not, when
added to Entergy's ``aggregate investment'' (as defined in rule 53) in
all the entities at any point in time, exceed 100% of Entergy's
``consolidated retained earnings'' (also as defined in rule 53).
Lastly, Entergy represents that it will not seek to recover through
higher rates of any of the Entergy Operating Companies losses
attributable to any operations of its nonutility companies.
Specifically, related to Long-term Debt, Equity-linked Securities and
Preferred Securities, the proceeds from these financings would enable
Entergy to replace Short-term Debt with more permanent capital and
provide an important source of future financing for the operations of,
and for investments in, non-utility businesses that are exempt under
the Act.
B. Financing Requests
Entergy requests authority to issue and sell from time to time: (1)
Common stock (``Common Stock'') (in addition to any separate authority
relating to benefit and dividend reinvestment plans);\10\ (2)
indirectly through one or more finance subsidiaries (``Finance
Subsidiaries''), unsecured long-term indebtedness (``Long-term Debt'')
and equity-linked securities (``Equity-linked Securities'') having
maturities of up to 50 years, including units consisting of a
combination of incorporated options, warrants and/or forward equity
purchase contracts with debt, preferred stock or preferred securities;
(3) directly or indirectly through one or more Finance Subsidiaries,
preferred securities, including specifically trust preferred securities
or monthly income preferred securities (``Preferred Securities'')
having maturities of up to 50 years; and (4) unsecured short-term
indebtedness having maturities of 364 days or less (``Short-term
Debt'') in an aggregate principal amount at any time outstanding
(including the aggregate outstanding principal amount of any short-term
notes and commercial paper issued under the November 2002 Order) not to
exceed $2.5 billion (``Short-term Debt Limit''). The aggregate amount
of all other securities listed in 1 through 3 above not to exceed $2
billion (``All Other Securities Limit''). In addition, Entergy requests
authority to enter into various hedging transactions and for Finance
Subsidiaries to pay dividends to Entergy.
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\10\ By order of the Commission dated March 25, 1997 (HCAR No.
26693), as supplemented by order of the Commission dated December
15, 2000 (HCAR No. 27300), Entergy has authority to issue and sell
up to 30 million shares of its common stock through June 30, 2006
under its Dividend Reinvestment and Stock Purchase Plan. Proceeds
from the issuance and sale of shares under this plan are to be used
for general corporate purposes, and subject to any requisite
Commission approval, such purposes may include, but are not limited
to, investments in subsidiaries, repayment of debt and payment of
dividends and interest.
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1. Common Stock. Entergy requests authority to issue and sell
Common Stock, or options, warrants or other stock purchase rights
exercisable for Common Stock in accordance with the Financing
Parameters set forth above. Public distributions may be pursuant to
private negotiation with underwriters, dealers or agents, as discussed
below, or effected through competitive bidding among underwriters. In
addition, sales may be made through private placements or other non-
public offerings to one or more persons. All Common Stock sales will be
at rates or prices and under conditions negotiated or based upon, or
otherwise determined by, competitive capital markets. Entergy seeks
authority to issue Common Stock or options, warrants or other stock
purchase rights exercisable for Common
[[Page 32380]]
Stock in public or privately-negotiated transactions as consideration
for the equity securities or assets of other companies, provided that
the acquisition of any equity securities or assets has been authorized
in a separate proceeding or is exempt under the Act or the rules, such
as rule 58.
2. Long-term Debt, Equity-linked and Preferred Securities. In
connection with the issuance of Long-term Debt, Equity-linked
Securities or Preferred Securities by the Finance Subsidiaries, Entergy
requests authority to issue unsecured subordinated debentures,
unsecured promissory notes or other unsecured debt instruments
(``Notes'') to the extent of the related issuance of the Long-term
Debt, Equity-linked Securities or Preferred Securities in an aggregate
amount not to exceed during the Authorization Period the All Other
Securities Limit and in accordance with the described Financing
Parameters. Entergy also seeks to have the flexibility to issue Long-
term Debt and/or Equity-linked Securities, indirectly through one or
more special-purpose Finance Subsidiaries, and to issue Preferred
Securities, indirectly through the Financing Subsidiaries.
The Long-term Debt proposed to be issued by Entergy: (a) May be
convertible into any other securities of Entergy; (b) may be subject to
optional and/or mandatory redemption, in whole or in part, at par or at
premiums above the principal amount; (c) may be entitled to mandatory
or optional sinking fund provisions; (d) may provide for reset of the
coupon pursuant to a remarketing arrangement; and (e) may be called
from existing investors by a third party. The maturity dates, interest
rates, redemption and sinking fund provisions and conversion features,
if any, with respect to Long-term Debt of a particular series, as well
as any associated placement, underwriting or selling agent fees,
commissions and discounts, if any, will be established by negotiation
or competitive bidding.
The Equity-linked Securities and Preferred Securities may be issued
in one or more series with rights, preferences, and priorities as may
be designated in the instrument creating each series, as determined by
Entergy's board of directors. Dividends or distributions on Equity-
linked Securities and Preferred Securities will be made periodically
and to the extent funds are legally available for the purpose, but may
be made subject to terms which allow the issuer to defer dividend
payments for specified periods. Equity-linked Securities will be
exercisable or exchangeable for or convertible, either mandatorily or
at the option of the holder, into Entergy Common Stock or indebtedness
or allow the holder to surrender to the issuer or apply the value of a
security issued by Entergy as approved by the Commission to the
holder's obligation to make a payment on another security of Entergy
issued as permitted by the Commission. For example, Entergy may issue
Common Stock or Common Stock warrants linked with debt securities. The
holder will be obligated to pay to Entergy an additional amount of
consideration at a specified date for the Common Stock but is
authorized to surrender the linked debt security to or for the benefit
of Entergy in lieu of the cash payment. Any convertible or Equity-
linked Securities will be convertible into or linked to Common Stock,
Preferred Securities or unsecured debt that Entergy is otherwise
authorized to issue by Commission order directly, or indirectly,
through Financing Subsidiaries on behalf of Entergy. Any Preferred
Securities may be convertible or exchangeable into Common Stock or
unsecured debt that Entergy is otherwise authorized to issue by
Commission order and may be issued in the form of shares or units.
3. Finance Subsidiaries. Entergy requests authority to: (a) Acquire
the equity securities of one or more special-purpose subsidiaries,
organized solely to facilitate financing; (b) to guarantee the
securities issued by the Finance Subsidiaries, to the extent not exempt
pursuant to rule 45(b) and rule 52; and (c) to have the Finance
Subsidiaries pay dividends out of capital to Entergy.
Entergy also requests continued authority to acquire, directly or
indirectly, the equity securities of one or more Finance Subsidiaries,
which may be organized as corporations, trusts, partnerships or other
entities, created specifically for the purpose of facilitating the
financing of the authorized and exempt activities (including exempt and
authorized acquisitions) of Entergy through the issuance of Long-term
Debt, Equity-linked Securities or Preferred Securities, and any other
type of security authorized by rule or order, to third parties. Entergy
requests authority for Finance Subsidiaries to dividend (including
dividends out of capital), loan or otherwise transfer the proceeds of
the financings to Entergy. In the event that the Finance Subsidiaries
loan the proceeds of the financings to Entergy, Entergy will issue
Notes to evidence the borrowings. If required, Entergy proposes to
guarantee, provide support for or enter into expense agreements to the
extent of the obligations of any Finance Subsidiary that it organizes.
Entergy states that the amount of any Long-term Debt, Equity-linked
Securities or Preferred Securities issued by any Finance Subsidiary
shall be counted against the All Other Securities Limit to the extent
that Entergy guarantees the securities. Entergy further represents that
the Finance Subsidiaries authorized under this Application-Declaration
will not be merged or consolidated with any previously authorized
finance subsidiary created by Entergy Louisiana, Inc., Entergy
Mississippi, Inc., or Entergy Gulf States, Inc. under Commission orders
dated December 29, 2003 (HCAR No. 27783) (as supplemented by order
dated January 8, 2004 (HCAR No. 27783A), December 29, 2003 (HCAR No.
27787) and December 29, 2003 (HCAR No. 27786).
4. Short-term Debt. Entergy proposes to issue and sell unsecured
Short term Debt in an aggregate principal amount at any time
outstanding not to exceed $2.5 billion in any combination of notes to
banks and commercial paper (including the aggregate principal amount of
any notes and/or commercial paper issued and outstanding under the
November 2002 Order).
Entergy proposes to sell commercial paper, from time to time, in
established domestic or European commercial paper markets. Commercial
paper would typically be sold to dealers at the discount rate per annum
prevailing at the date of issuance for commercial paper of comparable
quality and maturities sold to commercial paper dealers generally.
Entergy expects that the dealers acquiring commercial paper from
Entergy will reoffer the paper at a discount to corporate,
institutional and, with respect to European commercial paper,
individual investors. It is anticipated that Entergy's commercial paper
will be reoffered to investors as commercial banks, insurance
companies, pension funds, investment trusts, foundations, colleges and
universities, finance companies and nonfinancial corporations. In
connection with the sale of the commercial paper, Entergy may obtain
letters of credit from one or more banks in support of the commercial
paper obligations.
Entergy also proposes to increase its currently established bank
lines and establish additional bank lines as necessary to have bank
lines in an aggregate principal amount not to exceed the proposed
aggregate Short-term Debt Limit. Loans under these lines (which
terminate no later than five years from the establishment of the
facility) will have maturities not more
[[Page 32381]]
than 364 days from the date of each borrowing. Entergy proposes to
engage in other types of short-term financing generally available to
borrowers with comparable credit ratings as it may deem appropriate in
light of its needs and market conditions at the time of issuance.
5. Hedging. Entergy requests authority to enter into hedging
transactions (``Interest Rate Hedges'') with respect to indebtedness of
Entergy, and the Finance Subsidiaries in order to manage and minimize
interest rate costs. Entergy also requests authority to enter into
hedging transactions (``Anticipatory Hedges'') with respect to
anticipatory debt issuances of Entergy and the Finance Subsidiaries in
order to lock-in current interest rates and/or manage interest rate
risk exposure, with the Interest Rate Hedges and Anticipatory Hedges to
be entered into with respect to debt issuances in aggregate principal
amount not to exceed $2 billion.
Entergy seeks to enter into Interest Rate Hedges with respect to
indebtedness of Entergy and the Finance Subsidiaries, subject to
certain limitations and restrictions, in order to reduce or manage
interest rate cost or risk. Interest Rate Hedges would only be entered
into with counterparties (``Approved Counterparties'') whose senior
debt ratings, or whose parent companies' senior debt ratings, as
published by Standard and Poor's Ratings Group, are equal to or greater
than BBB, or an equivalent rating from Moody's Investors' Service,
Fitch Investor Service, or Duff and Phelps.
Interest Rate Hedges will involve the use of financial instruments
and derivatives commonly used in today's capital markets, such as
interest rate futures, swaps, caps, collars, floors, and structured
notes (i.e., a debt instrument in which the principal and/or interest
payments are indirectly linked to the value of an underlying asset or
index), or transactions involving the purchase or sale, including short
sales, of U.S. Treasury or agency (e.g. FNMA) obligations or LIBOR-
based swap instruments. The transactions would be for fixed periods and
stated notional amounts. In no case will the notional principal amount
of any Interest Rate Hedge exceed that of the underlying debt
instrument and related interest rate exposure. Entergy will not engage
in speculative transactions. Fees, commissions and other amounts
payable to the counterparty or exchange (excluding, however, the swap
or option payments) in connection with an Interest Rate Hedge will not
exceed those generally obtainable in competitive markets for parties of
comparable credit quality.
In addition, Entergy requests authorization to enter into
Anticipatory Hedges with respect to anticipated debt offerings of
Entergy and the Finance Subsidiaries, subject to certain limitations
and restrictions. Anticipatory Hedges would only be entered into with
Approved Counterparties, and would be utilized to fix and/or limit the
interest rate risk associated with any new issuance through: (a) A
forward sale of exchange-traded U.S. Treasury futures contracts, U.S.
Treasury obligations and/or a forward swap (each a ``Forward Sale'');
(b) the purchase of put options on U.S. Treasury obligations (a ``Put
Options Purchase''); (c) a Put Options Purchase in combination with the
sale of call options on U.S. Treasury obligations (a ``Zero Cost
Collar''); (d) transactions involving the purchase or sale, including
short sales, of U.S. Treasury obligations; or (e) some combination of a
Forward Sale, Put Options Purchase, Zero Cost Collar and/or other
derivative or cash transactions, including, but not limited to
structured notes, options, caps and collars, appropriate for the
Anticipatory Hedges.
Anticipatory Hedges may be executed on-exchange (``On-Exchange
Trades'') with brokers through the opening of futures and/or options
positions traded on the Chicago Board of Trade or the Chicago
Mercantile Exchange, the opening of over-the-counter positions with one
or more counterparties (``Off-Exchange Trades''), or a combination of
On-Exchange Trades and Off-Exchange Trades. Entergy will determine the
optimal structure of each Anticipatory Hedge transaction at the time of
execution. Entergy may decide to lock in interest rates and/or limit
its exposure to interest rate increases.
Entergy will comply with Statement of Financial Accounting Standard
(``SFAS'') 133 (Accounting for Derivative Instruments and Hedging
Activities) and SFAS 138 (Accounting for Certain Derivative Instruments
and Certain Hedging Activities) or other standards relating to
accounting for derivative transactions as are adopted and implemented
by the Financial Accounting Standards Board (``FASB''). Entergy
represents that each Interest Rate Hedge and each Anticipatory Hedge
will qualify for hedge accounting treatment under the current FASB
standards in effect and as determined as of the date such Interest Rate
Hedge or Anticipatory Hedge is entered into. The Applicants will also
comply with any future FASB financial disclosure requirements
associated with hedging transactions.
American Transmission Company, LLC, et al. (70-10214)
American Transmission Company, LLC (``ATC''), an electric
transmission public utility company subsidiary of Alliant Energy
Corporation (``Alliant''), a registered holding company, and ATC
Management, Inc. (``ATCMI''), a public utility company, corporate
manager of ATC, and holding company subsidiary of Alliant, claiming
exemption from registration under section 3(a)(1) by rule 2 of the Act,
both located at N19 W23993 Ridgeview Parkway, West Waukesha, Wisconsin
53188 (together, ``Applicants'') have filed a declaration
(``Declaration'') under sections 6(a), 7 and 12(b) of the Act and rule
54 under the Act.
I. Background
In 1999, the state of Wisconsin enacted legislation (``Transco
Legislation'') that facilitated the formation of for-profit
transmission companies (``Transcos''). ATC was created under the
Transco Legislation and ATCMI was created to be the general manager of
ATC. The legislation obligates these Transcos to construct, operate,
maintain, and expand transmission facilities to provide adequate,
reliable transmission services under an open-access transmission
tariff.
By order dated December 29, 2000 (HCAR No. 27331) (``December
Order''), the Commission authorized ATC to acquire the transmission
assets of the subsidiaries of four investor owned public utility
holding companies with service areas in Wisconsin and adjacent areas in
Illinois and Michigan. The following utility companies transferred
ownership and operation of their transmission assets to ATC in exchange
for member interests (``Member Interests'') in ATC: Wisconsin Power and
Light Company (``WPL'') and South Beloit Water, Gas and Electric
Company (``South Beloit''); \11\ Wisconsin Electric Power Company and
Edison Sault Electric Company (``Edison Sault''); \12\ Madison Gas and
Electric Company; \13\
[[Page 32382]]
and Wisconsin Public Service Corp.\14\ Wisconsin Public Power Inc.
(``WPPI''), a Wisconsin municipal electric company, contributed cash in
exchange for an equity interest in ATC proportional to WPPI's load
ratio share in Wisconsin.\15\ These entities together are referred to
as the ``Initial Members.''
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\11\ See December Order. WPL and South Beloit (which are both
subsidiary companies of Alliant) are together treated as a single
member.
\12\ See Wisconsin Energy Corp., HCAR No. 27329 (Dec. 28, 2000).
Wisconsin Electric Power Company and Edison Sault Electric Company
(which are both subsidiaries of Wisconsin Energy Corp., dba We
Energies, an exempt holding company) are together treated as a
single member.
\13\ See Madison Gas and Electric Co., HCAR No. 27326 (Dec. 28,
2000). As a result of the acquisition, Madison Gas and Electric
Company is both a public-utility company and an exempt holding
company.
\14\ See WPS Resources Corporation, HCAR No. 27330 (Dec. 28,
2000). Wisconsin Electric Power Company is a subsidiary of WPS
Resources Corporation, an exempt holding company.
\15\ WPPI is exempt from all provisions of the Act under section
2(c).
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Applicants state that as a limited liability company, ATC may be
formed to be ``member managed'' or ``manager managed'' according to
Wisconsin law. Applicants state that it was decided that ATC would be
``manager managed'' by ATCMI. In the December Order, the Commission
authorized ATCMI to acquire a nominal interest in ATC and operate as
the sole manager of ATC. Due to the extent of the operational control
ATCMI has over the utility assets of ATC, the Commission found that
both ATC and ATCMI were jurisdictional public utilities under the Act.
ATCMI is also an intermediate holding company by virtue of its
ownership interest in ATC and claims exemption from registration by
rule 2 under section 3(a)(1) of the Act.
In June 2001, eighteen more contributors, including twelve
municipal utilities, four cooperatives, one public power entity and one
investor-owned utility invested transmission assets and/or cash in ATC.
Two new members joined ATC on December 31, 2002; and a third member
joined ATC on December 31, 2003. These three members are Alger Delta
Cooperative Electric Association; the Ontonagon County Rural
Electrification Association and the Upper Peninsula Public Power
Agency. These members are referred to collectively as the ``Additional
Members.'' Effective February 1, 2002, ATC transferred operational
control of its facilities to the Midwest Independent Transmission
System Operator, Inc. (``MISO'').
The Initial Members contributed cash and/or transmission assets to
ATC and they or their associate companies received in exchange Member
Interests in ATC proportional to their contributions. They or their
associate companies also purchased a proportionate amount of Class A
shares in ATCMI and one Class B share each of ATCMI.
The Additional Members contributed cash and/or transmission assets
to ATC and received in exchange Member Interests in ATC proportional to
their contributions. They also purchased a proportionate amount of
Class A shares in ATCMI.
II. Existing Authorization
By order dated May 15, 2003 (Holding Co. Act Release No. 27678), as
modified by an order issued on June 23, 2003 (Holding Co. Act Release
No. 27688) (collectively, ``Prior Financing Order'') the Commission
authorized Applicants to issue debt securities in an aggregate amount
not to exceed $710 million at any one time outstanding, to issue member
interests and ATCMI to issue Class A, Class B and preferred securities
in an aggregate amount of $500 million, and guarantees and other credit
support in an aggregate amount not to exceed $125 million, all at any
one time outstanding through June 30, 2004.
III. Current Request
Applicants now request financing authority from the date of the
issuance of the order in this matter (the ``Order'') through June 30,
2005 (``Authorization Period'') as follows:
A. Applicants seek authority for ATC to issue debt securities in an
aggregate amount not to exceed $710 million at any one time outstanding
during the Authorization Period, provided that the aggregate amount of
short-term debt issued pursuant to the requested authority will not
exceed $200 million at any one time outstanding during the
Authorization Period;
B. ATC seeks authorization to issue Member Interests and ATCMI
seeks authority to issue equity interests and preferred securities in
an aggregate amount of $500 million at any one time outstanding during
the Authorization Period, provided that the aggregate amount of Member
Interests and Class A and Class B Shares outstanding at any one time
during the Authorization Period will not exceed $393 million plus the
value at that time of the Member Interests and Class A and Class B
Shares outstanding as of the date of the order in this matter;
C. Applicants request authority to provide guarantees and other
credit support as described below in an aggregate amount not to exceed
$125 million outstanding at any one time during the Authorization
Period; and
D. Applicants request authority to enter into interest rate hedging
transactions as described below.
IV. Financing Conditions
All requested authorization is subject to the following terms and
conditions: (i) The maturity of short-term debt will not exceed one
year and the maturity of long-term debt will not exceed fifty years;
(ii) any short-term or long-term debt security or credit facility will
have such designation, aggregate principal amount, interest rate(s) or
methods of determining the same, terms of payment of interest,
collateral, redemption provisions, non-refunding provisions, sinking
fund terms, conversion or put terms and other terms and conditions as
ATC and ATCMI might determine at the time of issuance, provided that,
in no event, however, will the effective cost of money on short-term
debt exceed 300 basis points over the London Interbank Offered Rate for
maturities of one year or less in effect at the time; (iii) the
interest rate on long-term debt will not exceed 500 basis points over
the yield-to-maturity of a U.S. Treasury security having a remaining
term approximately equal to the average life of the debt; and (iv) the
underwriting fees, commissions or other similar remuneration paid in
connection with the non-competitive issue, sale or distribution of
securities under this Application will not exceed 7% of the principal
or total amount of the securities being issued.
Applicants represent that at all times during the Authorization
Period, ATCMI and ATC will each maintain common equity of at least 30%
of its consolidated capitalization (common equity, preferred stock,
long-term and short-term debt). Applicants further represent that,
other than Class A and Class B Shares and Member Interests, no security
may be issued in reliance upon this Order, unless: (i) The security to
be issued, if rated, is rated investment grade; (ii) all outstanding
rated securities of the issuer are rated investment grade; and (iii)
all outstanding rated securities of ATCMI are rated investment grade.
For purposes of this condition, a security will be considered rated
investment grade if it is rated investment grade by at least one
nationally recognized statistical rating organization, as that term is
used in paragraphs (c)(2)(vi)(E), (F) and (H) of Rule 15c3-1 under the
1934 Act. Applicants request that the Commission reserve jurisdiction
over the issuance by ATCMI or ATC of any securities that are rated
below investment grade. Applicants further request that the Commission
reserve jurisdiction over the issuance of any guarantee or other
securities at any time that the conditions set forth in clauses (i)
through (iii) above are not satisfied.
V. Specific Financing Requests
A. Short Term Debt
Short-term debt will be unsecured and may include institutional
[[Page 32383]]
borrowings, commercial paper and privately-placed notes. ATC may sell
commercial paper or privately placed notes from time to time, in
established commercial paper markets. Commercial paper may be sold at a
discount or bear interest at a rate per annum prevailing at the date of
issuance for commercial paper of a similarly situated company. ATC may,
without counting against the limit on financing set forth above,
maintain back up lines of credit in connection with one or more
commercial paper programs in an aggregate amount not to exceed the
amount of authorized commercial paper.
Credit lines may also be set up for use by ATC for general
corporate purposes. Credit lines, which will not be counted against the
financing limit, may be utilized to obtain letters of credit or may be
borrowed against, from time to time, as it is deemed appropriate or
necessary.
B. Long-Term Debt
Long-term debt securities may include notes or debentures under one
or more indentures or long-term indebtedness under agreements with
banks or other institutional lenders directly or indirectly. Long-term
debt may be secured or unsecured.\16\ Long-term debt may be convertible
or exchangeable into forms of equity or indebtedness authorized in this
filing, or into other securities or assets the acquisition of which is
either exempt or approved by Commission order. Specific terms of any
borrowings will be determined by ATCMI at the time of issuance and will
comply in all regards with the parameters on financing authorization
set forth above.
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\16\ Debt may be secured by the assets of ATC LLC.
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C. Equity Interests
In the event Applicants determine to seek capital through equity or
to acquire new facilities in exchange for equity interests, ATC seeks
authorization to issue Member Interests and ATCMI seeks authority to
issue Class A and B Shares in an aggregate amount at any one time
outstanding during the Authorization Period of $393 million plus the
value at that time of any Member Interests and Class A and B Shares
outstanding at the time of the Order.
Member Interests may be issued in the form of member interests,
preferred member interests or convertible member interests.
Applicants contemplate that from time to time ATC may require an
additional equity infusion. ATC could reduce the amount of
distributions to Members. Each Member's equity would be increased by
the amount of undistributed earnings on a pro rata basis. In the
alternative, there could be a capital call for Members to make
additional cash contributions on a pro rata basis. If a Member opts not
to make an additional contribution, any other Member could make the
requested contribution. Members do not, however, have the obligation to
make additional contributions. Another possibility, therefore, would be
for ATC to issue preferred securities that are convertible into Member
Interests and/or Class A Shares and/or Class B Shares. The convertible
preferred securities could be issued and sold to Members or third
parties. The securities would have a stated par value and dividend rate
and would be convertible into Member Interests and/or Class A and/or
Class B Shares based on a predetermined ratio or formula. The
conversion rights and terms and conditions for exercise of those rights
would be set forth at the time of purchase. At the end of 2003, ATC
made a capital call for additional contributions in the amount of $68
million to be paid in four quarterly installments in 2004.
ATC would issue Member Interests in exchange for cash or the
transfer of transmission facilities to ATC by current or future
members. The entities transferring transmission assets and their
transferring asset values have not yet been determined. In order to
maintain its 50/50 debt to equity ratio, ATC would reimburse the
contributors for 50% of the net book value of the transmission assets
contributed. In addition, ATCMI will issue to each new member of ATC
Class A Shares in an amount that is proportional to that member's
interest in ATC, with a par value of $0.01 per share and a sales price
of $10 per share.
Additionally, it is anticipated that ATC will issue Member
Interests and ATCMI will issue Class A Shares to Wisconsin Public
Service Corporation or its affiliate in exchange for that company's
contribution of 50% of the ongoing cash requirements of the Arrowhead
to Weston Transmission Line Project. Current cost estimates are
approximately $400 million over the 2002-2008 period.\17\
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\17\ Arrowhead-Weston is a 220-mile transmission line connecting
Duluth, Minnesota, with Wausau, Wisconsin. The line is needed to
accommodate electric load growth in northern Wisconsin and to
improve reliability of the electric transmission system in the
region. The acquisition of utility assets has been approved by the
Public Service Commission of Wisconsin and so is exempt from section
9(a)(1) pursuant to section 9(b)(1) of the Act.
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D. Preferred Stock
ATCMI seeks authority to issue preferred stock or other types of
preferred securities (including convertible preferred securities). It
is contemplated that preferred stock or other types of preferred
securities may be issued in one or more series with rights,
preferences, and priorities as may be designated in the instrument
creating series, as determined by ATCMI's board of directors, or a
pricing committee or other committee of the board performing similar
functions. Preferred securities may be redeemable or may be perpetual
in duration. Dividends or distributions on preferred securities will be
made periodically and to the extent funds are legally available for the
purpose, but may be made subject to terms which allow Applicants to
defer dividend payments for specified periods. Preferred securities may
be convertible into forms of equity or indebtedness authorized in this
filing, or into other securities or assets the acquisition of which is
either exempt or approved by Commission order.
Preferred securities may be sold directly or through underwriters
or dealers in any manner. The dividend rate on any series of preferred
securities issued by ATCMI would not exceed 500 basis points over the
yield to maturity of a U.S. Treasury security having a remaining term
equal to the term of that series of preferred securities at the time of
issuance.
E. Guarantees
Applicants request authorization to enter into guarantees, obtain
letters of credit, enter into expense agreements or otherwise provide
credit support with respect to the obligations of their affiliates or
members in the ordinary course of Applicants' business, in an amount
not to exceed $125 million outstanding at any one time during the
Authorization Period.
Applicants state that certain of the guarantees referred to above
may be in support of obligations that are not capable of exact
quantification. Applicants will determine the exposure under the
guarantee by appropriate means including estimation of exposure based
on loss experience or projected potential payment amounts. As
appropriate, the estimates will be made in accordance with generally
accepted accounting principles and/or sound financial practices.
F. Interest Rate Hedging Transactions
ATC seeks authority to enter into interest rate hedging
transactions with respect to existing indebtedness
[[Page 32384]]
(``Interest Rate Hedges''), subject to certain limitations and
restrictions, in order to reduce or manage interest rate cost. Interest
Rate Hedges will only be entered into with counterparties (``Approved
Counterparties'') whose senior debt ratings, or the senior debt ratings
of the parent companies of the counterparties, as published by Standard
and Poor's Ratings Group, are equal to or greater than BBB, or an
equivalent rating from Moody's Investors Service, Fitch, or Duff and
Phelps. Interest Rate Hedges will involve the use of financial
instruments commonly used in today's capital markets, such as interest
rate swaps, caps, collars, floors, and structured notes (i.e., a debt
instrument in which the principal and/or interest payments are
indirectly linked to the value of an underlying asset or index), or
transactions involving the purchase or sale, including short sales, of
U.S. Treasury obligations. The transactions will be for fixed periods
and stated notional amounts. Fees, commissions and other amounts
payable to the counterparty or exchange (excluding, however, the swap
or option payments) in connection with an Interest Rate Hedge will not
exceed those generally obtainable in competitive markets for parties of
comparable credit quality.
ATC also seeks authority to enter into interest rate hedging
transactions with respect to anticipated debt offerings (the
``Anticipatory Hedges''), subject to certain limitations and
restrictions. Anticipatory Hedges will only be entered into with
Approved Counterparties, and will be utilized to fix and/or limit the
interest rate risk associated with any new issuance through (i) a
forward sale of exchange-traded U.S. Treasury futures contracts, U.S.
Treasury obligations and/or a forward swap (each a ``Forward Sale''),
(ii) the purchase of put options on U.S. Treasury obligations (a ``Put
Options Purchase''), (iii) a Put Options Purchase in combination with
the sale of call options on U.S. Treasury obligations (a ``Zero Cost
Collar''), (iv) transactions involving the purchase or sale, including
short sales, of U.S. Treasury obligations, or (v) some combination of a
Forward Sale, Put Options Purchase, Zero Cost Collar and/or other
derivative or cash transactions, including, but not limited to
structured notes, caps and collars, appropriate for the Anticipatory
Hedges.
Applicants state that they will comply with existing and future
financial disclosure requirements of the Financial Accounting Standards
Board associated with hedging transactions, and that these hedging
transactions will qualify for hedge accounting treatment under
generally accepted accounting principles.
Cinergy Corp. et al. (70-10224)
The Cinergy Corporation (``Cinergy''), a Delaware corporation and a
registered holding company under the Act, its subsidiary public-utility
company Cincinnati Gas & Electric Company, (``CG&E''), an Ohio
corporation, both at 139 East Fourth Street, Cincinnati, Ohio 45202,
and INOH Gas, Inc., an Indiana corporation, 2569 Handyside Avenue,
Cincinnati, Ohio 45208, (``INOH'' and, together with Cinergy and CG&E,
``Applicants''), have filed an application-declaration
(``Application'') with the Commission under sections 3(a)(1) and 12(d)
of the Act and rules 44 and 54 under the Act.
Cinergy and CG&E request authority to sell to INOH all of the
issued and outstanding common stock of CG&E's wholly-owned subsidiary
Lawrenceburg Gas Company (``Lawrenceburg''), an Indiana corporation and
gas utility company. INOH requests an order under section 3(a)(1) of
the Act exempting it from all provisions of the Act, except section
9(a)(2).
CG&E is a public utility company all of whose outstanding common
stock is owned by Cinergy. In addition to CG&E, Cinergy directly holds
all the outstanding common stock of another public utility company, PSI
Energy, Inc., a vertically integrated electric utility that provides
service in north central, central and southern Indiana. Through various
other subsidiaries, Cinergy engages in a variety of energy-related and
other authorized non-utility businesses.
CG&E is a combination electric and gas public utility and holding
company that provides service in the southwestern portion of Ohio and,
through subsidiaries, in nearby areas of Kentucky and Indiana. CG&E's
principal subsidiary is The Union Light, Heat and Power Company, which
provides electric and gas service in northern Kentucky. CG&E's other
utility subsidiaries, Lawrenceburg and Miami Power Corporation, are
insignificant to its results of operations. As of and for the year
ended December 31, 2003, CG&E reported consolidated total operating
revenues of approximately $2.4 billion and consolidated total assets of
approximately $5.8 billion.
Lawrenceburg distributes and sells natural gas to approximately
6,100 residential, commercial, industrial and municipal customers over
a 60-square mile area in southeastern Indiana. Lawrenceburg owns a gas
distribution system located within Indiana consisting of 161 miles of
mains and 26 miles of service lines. Lawrenceburg is connected with and
sells gas at wholesale to the City of Aurora, Indiana, and is also
connected with interstate gas pipeline systems owned by Texas Gas
Transmission Corporation and Texas Eastern Transmission Corporation. As
of and for the year ended December 31, 2003, Lawrenceburg had total
operating revenues of approximately $10.9 million and total assets of
approximately $19.4 million, including net property, plant and
equipment of approximately $16.2 million. As a ``public utility'' under
the laws of Indiana, Lawrenceburg is subject to regulation by the
Indiana Utility Regulatory Commission (``IURC'') with respect to such
matters as retail rates, service and safety standards, accounts,
acquisitions and sales of utility properties and issuance of
securities.
INOH is a privately held Indiana corporation formed to acquire the
common stock of Lawrenceburg. Upon consummation of the proposed
transaction, Lawrenceburg will be a wholly-owned subsidiary of INOH.
INOH owns, and upon consummation of the proposed transaction will own,
no other public utility companies.
CG&E and INOH have entered into a Stock Purchase Agreement, dated
as of February 27, 2004 (``Purchase Agreement''), in accordance with
which CG&E has agreed to sell to INOH, and INOH has agreed to purchase,
all of the outstanding shares (``Shares'') of common stock, $50 par
value per share, of Lawrenceburg. Subject to the terms and conditions
of the Purchase Agreement, at the closing of the proposed transaction
(``Closing''), INOH has agreed to pay CG&E a purchase price of
$16,700,000 in cash for the Shares (``Purchase Price''), subject to
potential increase or decrease to the extent that the working capital
of Lawrenceburg at the Closing exceeds or is less than the adjusted
working capital of Lawrenceburg as of a date shortly before signing of
the Purchase Agreement. CG&E will use the net proceeds from the sale of
Lawrenceburg to reduce outstanding short-term indebtedness and for
general corporate purposes.
Upon consummation of the proposed transaction, INOH, by virtue of
its ownership of all of the outstanding common stock of Lawrenceburg,
will be deemed a ``holding company'' under the Act. INOH asserts that
it will be entitled to the exemption afforded by section 3(a)(1) of the
Act, and accordingly requests that the Commission issue an order under
that section of the Act exempting INOH from all provisions of the Act
except section 9(a)(2). In
[[Page 32385]]
support of that request, INOH states that upon consummation of the
Transaction, Lawrenceburg will constitute its only public utility
subsidiary. Both INOH and Lawrenceburg are incorporated under the laws
of Indiana, the same State in which all of Lawrenceburg's public
utility operations are conducted. All of Lawrenceburg's gas
distribution facilities, which compose substantially all of its
physical assets, are likewise located in Indiana. Following the
consummation of the Transaction, Lawrenceburg, as a ``public utility''
under Indiana law, will remain subject to extensive regulation by the
IURC, with respect to such matters as rates, service and safety
standards, accounting, securities issuances, and acquisitions and sales
of utility property.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-12995 Filed 6-8-04; 8:45 am]
BILLING CODE 8010-01-P