[Federal Register Volume 60, Number 213 (Friday, November 3, 1995)]
[Notices]
[Pages 55875-55877]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-27315]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 35-26401; 70-8411]
Allegheny Power System, Inc., Supplemental Order Authorizing
Acquisition of Nonutility Subsidiaries; Issuance of Securities; and
Provision of Services to Associates
October 27, 1995.
Allegheny Power System, Inc. (``APS''), a registered holding
company, AYP Capital, Inc. (``AYP''), a nonutility subsidiary company
of APS, and Allegheny Power Service Corporation (``APSC''), all of New
York, New York, have filed a post-effective amendment to an
application-declaration under sections 6(a), 7, 9(a), 10, 12(b), 13(b),
32 and 33 of the Public Utility Holding Company Act of 1935, as amended
(``Act''), and rules 45, 53, 87, 90 and 91 thereunder. The Commission
issued a notice of the filing of the post-effective amendment on July
7, 1995 (HCAR No. 26327).
By order dated July 14, 1994 (HCAR No. 26085), APS was authorized
to organize and finance AYP to invest in: (i) Companies engaged in new
technologies related to the core utility business of APS and (ii)
companies for the acquisition and ownership of exempt wholesale
generators (``EWGs'').
By order dated February 3, 1995 (HCAR No. 26229), AYP was
authorized to engage in the development, acquisition, construction,
ownership and operation of EWGs and in development activities with
respect to: (i) Qualifying cogeneration facilities and small power
production facilities (``SPPs''); (ii) nonqualifying cogeneration
facilities, nonqualifying SPPs and independent power production
facilities (``IPPs'') located within the service territories of APS
public utility subsidiary companies; (iii) EWGs; (iv) companies
involved in new technologies related to the core business of APS; and
(v) foreign utility companies (``FUCOs''). AYP was also authorized to
consult for nonaffiliate companies. APS was authorized to increase its
investment in AYP from $500,000 to $3 million.
The post-effective amendment, as amended, seeks Commission
authorization to allow APS and AYP to engage in several activities. A
total of $300 million in financing also is sought.
First, the post-effective amendment seeks Commission authorization
to allow AYP or a special-purpose subsidiary (``NEWCO'') to provide
energy management services (``EMS'') and demand side management
(``DSM'') services to nonassociates at market prices and to associate
companies at cost. The amended application states that the EMS would
include: (i) Identification of energy cost reduction and efficiency
opportunities; (ii) design of facility and process modifications to
realize such efficiencies; (iii) management of or the direct
construction or installation of energy conservation equipment; (iv)
training of client personnel in operation of equipment; (v) maintenance
of energy systems; (vi) design, management, construction and
installation of energy management systems and structures; (vii)
performance contracts; (viii) identifying energy conservation or
efficiency programs; (ix) system commissioning; (x) reporting system
results; and (xi) other similar or related energy management
activities.
The DSM services would include: (i) Design of energy conservation
programs; (ii) implementation of energy conservation programs; (iii)
performance contracts for DSM work; (iv) monitoring and evaluating DSM
programs; and (v) other similar or related DSM activities.
With respect to EMS and DSM services, AYP and the NEWCO would
finance, either through direct loans or leases of EMS and DSM
facilities and equipment purchased by AYP and the NEWCO, EMS and DSM
equipment provided to EMS and DSM customers. AYP and the NEWCO might
retain title to the EMS and DSM facilities and equipment. Loans would
enable customers to purchase goods and services from third parties on
their own terms and conditions. Loans would be evidenced by promissory
notes.
The Commission previously has authorized registered holding
companies to form and finance special-purpose subsidiaries to engage in
EMS and DSM services.\1\ For example, the Commission authorized in
December 1992 the formation by Entergy Corporation of a non-utility
subsidiary to acquire an interest in Systems and Service International,
Inc. for $6.4 million and to engage in DSM in Arkansas, Louisiana, and
Mississippi.\2\ The Commission also previously has authorized such
subsidiaries to engage in construction activities relative to EMS and
DSM services.\3\ Finally, it previously has authorized loans from
special-purpose subsidiaries to EMS and DSM customers for EMS and DSM
services.\4\ Specifically, it has authorized Southern Development and
Investment Group, Inc. (``Development'') to invest up to ``$40 million
to finance the costs of equipment or provide customer financing of
equipment in connection with energy management and efficiency services
provided by Development.''\5\
\1\EUA Cogenex Corp., Holding Co. Act Release No. 25697 (Dec. 9,
1992) (acquisition of New England Sun Control, Inc.); Northeast
Utilities, Holding Co. Act Release No. 25114-A (July 27, 1990)
(acquisition of HEC Energy Corp.); Eastern Utilities Associates,
Holding Co. Act Release No. 24273 (Dec. 19, 1986) (acquisition of
Citizens Heat and Power Corp.); Central and South West Corp.,
Holding Co. Act Release No. 23818 (Sept. 4, 1985) (joint venture
with Time Energy Management System Southwest, Inc.).
\2\Entergy Corp., Holding Co. Act Release No. 25718 (Dec. 28,
1992).
\3\HEC, Inc., Holding Co. Act Release No. 26108 (Aug. 19, 1994).
\4\Southern Co., Holding Co. Act Release No. 26221 (Jan. 25,
1995).
\5\See also Central and South West Corp., Holding Co. Act
Release No. 26367 (Sept. 1, 1995).
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Although the Commission previously has imposed limitations on EMS
and DSM services offered by special-purpose subsidiaries, it has
recently departed from this practice in appropriate cases.\6\
\6\Eastern Utilities Associates, Holding Co. Act Release No.
26232 (Feb. 15, 1995); Central and South West Corp., Holding Co. Act
Release No. 26367 (Sept. 1, 1995).
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Second, the post-effective amendment seeks Commission authorization
to allow AYP to engage in activities related to the development,
acquisition, ownership, construction and operation of FUCOs and to
invest in FUCOs through various types of investment vehicles, including
limited partnerships or other types of funds, the sole objective of
which is to make investments in one or more FUCOs.
The Commission previously has authorized investments in FUCOs
through various types of investment vehicles. For example, the
Commission has authorized TriStar Ventures Corporation (``TriStar''), a
nonutility subsidiary company of Columbia Gas System, to form, acquire,
finance and own securities or interests in FUCOs directly or indirectly
through special-purpose domestic corporations, foreign corporations,
partnerships, limited liability companies, and joint ventures.\7\
\7\Columbia Gas System, Holding Co. Act Release No. 26209 (Dec.
29, 1994). See also Southern Co., Holding Co. Act Release No. 26069
(Aug. 3, 1994) (authorization for acquisition of capital shares,
partnership interests, or trust certificates in NEWCOs that own
FUCOs or EWGs).
[[Page 55876]]
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Third, the post-effective amendment seeks Commission authorization
to allow APS and AYP to acquire the securities of NEWCOs that own FUCOs
or EWGs (``Project NEWCOs''). Project NEWCOs might be organized to
facilitate bids or proposals to acquire interests in FUCOs and EWGs,
after awards of bid proposals to facilitate closing on the purchases,
or subsequent to acquisitions of interests to effect adjustments in the
ownership interests of unaffiliated co-investors, to facilitate partial
sales of interests, to comply with applicable laws of foreign
jurisdictions, or to limit exposure to U.S. and foreign taxes as part
of tax planning.\8\
\8\The Commission previously has authorized the formation of
NEWCOs for these purposes. Southern Co., Holding Co. Act Release No.
26069 (Aug. 3, 1994).
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Fourth, the post-effective amendment seeks Commission authorization
to factor the accounts receivable of associate companies and of
nonassociate companies whose primary revenues are derived from the sale
of electric power.
AYP (or one NEWCO engaged in this activity) will limit the
acquisition of receivables from nonassociate companies so that the
trailing twelve-month average amount of nonassociate company
receivables held as of the end of any calendar month will be less than
the trailing twelve-month average amount of receivables acquired from
APS associate companies and held as of the end of such calendar month.
AYP or the NEWCO will purchase accounts receivable from associate
or nonassociate companies on the day that such accounts receivable
become due and payable. Purchases from utility subsidiary companies of
APS will be made at discounts which are competitive to those of other
entities providing comparable factoring services. Accounts receivable
will be assigned to AYP or the NEWCO on a nonrecourse basis, except to
the extent that such receivable is invalid, in which instances AYP or
the NEWCO will bear the risk of the uncollectability of the account.
Each company from which accounts receivable are purchased is expected
to be appointed to act as collection agent in respect of such account
receivables.
The Commission previously has authorized the factoring of accounts
receivable of both associate and nonassociate companies.\9\ The
Commission, in July 1986, authorized CSW Credit, a special-purpose
subsidiary of a registered holding company, to process the accounts
receivable of nonassociate companies. As in this application, fifty
percent of the accounts receivable processed by CSW Credit were
required to be from associate companies. In March 1994, the Commission
affirmed the ``fifty-percent'' limitation in a denial of an application
for approval to exceed the standard.\10\
\9\Central and South West Corp., Holding Co. Act Release No.
23767 (July 19, 1985) (associate companies); CSW Credit, Inc.,
Holding Co. Act Release No. 24157 (July 31, 1986) (nonassociate
companies).
\10\CSW Credit, Inc., Holding Co. Act Release No. 25995 (March
2, 1994).
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Fifth, and finally, the post-effective amendment seeks Commission
authorization to allow AYP or a NEWCO, as agent for APS system
companies, to manage the real estate portfolio of APS and its associate
companies, to market excess or unwanted real estate, and to facilitate
the exploitation of resources contained on or in real estate. No real
estate will be purchased by AYP in connection with these activities. In
addition, the net proceeds realized from any sale of real estate or
from the exploitation of resources thereon, which resources include
timber, oil, gas, and coal, will be credited to the company that owns
the subject asset.
The Commission previously has authorized excess or unwanted real
estate to be leased.\11\ The Commission also has authorized holding
companies to form and finance special-purpose subsidiaries to act as
agent for associate public utilities for purposes of, for example, fuel
procurement. For example, in 1978, the Commission authorized the
formulation of Central and South West Fuels, Inc. to engage in fuel
exploration and development ``as agent for'' four electric public
utilities in the Central and south West system.\12\
\11\See, e.g., Pennsylvania Electric Co., Holding Co. Act
Release No. 24716 (Sept. 15, 1988).
\12\Central and South West Corp., Holding Co. Act Release No.
20658 (Aug. 2, 1978).
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APS proposes to invest in AYP and AYP proposes to invest in NEWCOs
and in Project NEWCOs up to an aggregate of $100 million through
December 31, 1999 through loans to finance the activities relative to
EMS and DSM services, accounts receivable, real estate, FUCOs and EWGs.
In addition, AYP, the NEWCOs, and the Project NEWCOs propose to obtain
loans from banks or issue other recourse obligations which could be
guaranteed by APS or AYP. Such third-party borrowings by AYP, the
NEWCOs, and the Project NEWCOs that are guaranteed by APS or AYP would
be subject to the $100 million investment authority. APS and AYP,
through December 31, 1999, would guarantee or act as surety on bonds,
indebtedness and performance and other obligations issued or undertaken
by AYP, the NEWCOs, or the Project NEWCOs subject to the $100 million
investment authority.
Loans from APS would mature by December 31, 2004 and would bear a
fixed interest rate equal to a rate not above the prime rate in effect
on the date of the loan at a bank designated by APS. Loans from third
parties would mature by December 31, 2004 and would bear a fixed
interest rate not above 3% over the prime rate at a U.S. money center
bank to be designated by APS. Notes sold to such parties could be
guaranteed by APS.
In addition to the $100 million in financing requested, APS and AYP
Commission authorization for Project NEWCOs to issue partnership
interests or trust certificates through December 31, 1999 to third
parties to finance EWGs and FUCOs. Such equity interests will not
exceed $200 million.\13\
\13\APS and AYP also intend to issue capital stock and
nonrecourse debt securities to finance FUCOs and EWGs. Such
financing is exempt pursuant to rule 52(b).
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AYP anticipates that NEWCOs and Project NEWCOs might not have paid
employees, in which case personnel employed by APSC, a wholly owned
subsidiary of APS, would provide a wide range of services to such
NEWCOs and Project NEWCOs pursuant to a service agreement. Under these
service agreements, NEWCOs and Project NEWCOs would reimburse APSC for
the cost of services provided.
All services rendered by AYP, NEWCOs, or Project NEWCOs to
nonaffiliates will be based upon the fair market value thereof. AYP,
NEWCOs, and Project NEWCOs also propose to provide such services and
sell goods at fair market prices to any associate EWG, FUCO or
qualifying facility,\14\ and to NEWCOs which are any of the foregoing,
and request an exemption pursuant to Section 13(b) from the
requirements of Rules 90 and 91, as applicable to such transactions,
if: (i) such associate entity is a FUCO, or is an EWG which derives no
part of its income, directly or indirectly, from the generation,
transmission, or distribution of electric energy for sale within the
United States; (ii) such associate entity is an EWG which sells
electricity at market-based rates which have been approved by the
Federal Energy Regulatory Commission (``FERC'') or the appropriate
state public utility commission, provided that the purchaser of such
electricity is not an associate company of AYP within the
[[Page 55877]]
APS System; (iii) such associate entity is a qualifying facility that
sells electricity exclusively at rates negotiated at arms' length to
one or more industrial or commercial customers purchasing such
electricity for their own use and not for resale or to an electric
utility company, other than any associate company of AYP within the APS
System, at ``avoided cost'' as determined in accordance with FERC
regulations; or (iv) such associate entity is an EWG or qualifying
facility that sells electricity at rates based upon its cost of
service, as approved by FERC or any state public utility commission
having jurisdiction, provided that the purchaser of such electricity is
not an associate company of AYP within the APS System.
\14\Neither APS nor AYP will acquire any interest in any
qualifying facility without further specific Commission
authorization.
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Fees and expenses in the estimated amount of $75,000 are
anticipated in connection with the proposed transactions. It is stated
that no state or federal commission, other than this Commission, has
jurisdiction over the proposed transactions.
Due notice of the filing of the post-effective amendment has been
given in the manner prescribed in Rule 23 promulgated under the Act,
and no hearing has been requested of or ordered by the Commission. Upon
the basis of the facts in the record, it is hereby found that the
applicable standards of the Act and rules thereunder are satisfied, and
that no adverse findings are necessary.
It is ordered, pursuant to the applicable provisions of the Act and
rules thereunder, that the application-declaration, as amended, be, and
it hereby is granted and permitted to become effective, forthwith,
subject to the terms and conditions prescribed in Rule 24 under the
Act, except that:
AYP shall provide, not later than 60 days following the end of each
calendar quarter and 120 days after the end of each calendar year, a
certificate of notification pursuant to Rule 24 that includes: (i) An
unaudited balance sheet and income statement for AYP and one for each
NEWCO, when established;
(ii) a narrative description of activities during the quarter just
ended and a total of expenses organized by segment and, within each
segment, a narrative description of services rendered by project, and
new developments and updates by project type;
(iii) amounts and forms of guarantees of, and similar provisions
and arrangements concerning, performance and undertaking of other
obligations by AYP, or any subsidiary of AYP, which APS has granted and
are currently effective, as well as indemnifications of and with
respect to persons acting as sureties on bonds or other obligations on
behalf of AYP, or any subsidiary of AYP, which APS has granted and are
currently effective;
(iv) a description of services provided to associate companies
which identifies the recipient company, the service, the charge to the
associate and, with respect to FUCOs and EWGs, whether the charge was
computed at cost, market or pursuant to another method, which method
shall be specified; and
(v) in connection with its factoring activities, a balance sheet as
of the end of the year, statement of income for the twelve months then
ended and notes to the financial statements, a listing of principal
amount of borrowings of AYP and each NEWCO outstanding at the end of
each year, which will contain the terms of each obligation, name of
lending institution and effective cost of borrowing, outstanding
accounts receivable as of the end of each month, separated by associate
and nonassociate companies with each nonassociate company listed
separately, a detailed calculation of the annual discount for associate
companies and the methodology used to arrive at that calculation, and a
calculation by month of consolidated earnings coverage.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-27315 Filed 11-2-95; 8:45 am]
BILLING CODE 8010-01-M