[Federal Register Volume 61, Number 234 (Wednesday, December 4, 1996)]
[Notices]
[Pages 64402-64405]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-30811]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-26615]


Filings Under the Public Utility Holding Company Act of 1935, as 
Amended (``Act'')

November 27, 1996.
    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 thereunder. 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 amendments thereto is/are available for public 
inspection through the Commission's Office 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 December 23, 1996, to the Secretary, Securities and Exchange 
Commission, Washington, D.C. 20549, 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 case of an attorney at law, by 
certificate) should be filed with the request. Any request for hearing 
shall identify specifically the issues of fact 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 said date, the application(s) and/or declaration(s), as 
filed or as amended, may be granted and/or permitted to become 
effective.

Cinergy Corp., et al. (70-8933)

    Cinergy Corp. (``Cinergy''), a registered holding company, its 
wholly-owned nonutility holding company subsidiary, Cinergy 
Investments, Inc. (``Investments''), and Cinergy's wholly-owned service 
company subsidiary, Cinergy Services, Inc. (``Cinergy Services''), all 
located at 139 East Fourth Street, Cincinnati, Ohio 45202, have filed 
an application-declaration under sections 6(a), 7, 9(a), 10, 12(b) and 
13(b) of the Act and rules 45, 54, 90 and 91 thereunder.
    Cinergy and Investments request authorization to form and provide 
guaranties in respect of a new wholly-owned nonutility subsidiary, 
expected to be named Cinergy Solutions, Inc. (``Solutions''), which 
will market a wide variety of energy-related products and services 
exclusively to nonassociate commercial/industrial customers (including 
governmental, institutional and utility companies) and residential 
customers. Applicants state that Solutions will offer an integrated 
package of ``value-added'' energy-related products and services to 
enable customers to reduce energy costs, improve energy efficiency and 
increase productivity. Such services/products will be marketed to 
nonassociates on a local, regional, nationwide and, as opportunities 
develop, international basis. The services would be priced based on 
competitive market rates. Solutions will also develop, acquire, own and 
operate certain energy-related projects.
    Applicants request authorization to conduct its proposed business 
activities directly through Solutions, wholly-owned subsidiaries of 
Solutions, and subsidiaries of Solutions jointly owned with joint 
venture nonassociates. As part of Solutions' project development and 
ownership activities, Applicants further request authority for 
Solutions to acquire, directly or indirectly through subsidiaries, 
securities or assets of nonassociate companies that derive 
substantially all their revenues from the development, ownership or 
operation of such projects. Finally, in connection with the formation 
of Solutions and its contemplated business activities, Cinergy Services 
requests authorization to provide an expanded range of support services 
to Solutions (including any subsidiary thereof) and other system 
nonutility companies pursuant to an amendment to the existing Cinergy 
system nonutility service agreement (``NUSA'').
    Solutions intends to offer a complete menu of energy management and 
efficiency services and related consulting services, often on a turnkey 
basis. These activities (collectively, ``Energy Management Services'') 
may also entail the marketing, installation, operation and maintenance 
of various products and services designed to implement the solutions 
recommended in the course of providing these services. Solutions will 
market Energy Management Services primarily to commercial/industrial 
customers, but also on a smaller scale to residential customers. 
Specifically, Energy Management Services will include: (1) 
Identification (through energy audits or otherwise) of energy and other 
resource (water, labor, maintenance, materials, etc.) cost reduction or 
efficiency opportunities; (2) design of facility and process 
modifications or enhancements to realize such opportunities; (3) 
management, or direct construction and instillation, of energy 
conservation or efficiency equipment; (4) training of client personnel 
in the operation of equipment; (5) maintenance of energy systems; (6) 
design, management or direct construction and installation of new and 
retrofit heating, ventilating, and air conditioning (``HVAC''), 
electrical and power systems, motors, pumps, lighting, water and 
plumbing systems, and related structures, to realize energy and other 
resource efficiency goals or to otherwise meet a customer's energy-
related needs; (7) system commissioning (i.e., monitoring the operation 
of an installed system to ensure that it meets design specifications); 
(8) reporting of system results; (9) design of energy conservation 
programs; (10) implementation of energy conservation programs; (11) 
provision of conditioned power services (i.e., services designed to 
prevent, control or mitigate adverse effects of power disturbances on a 
customer's electrical system to ensure the level of power quality 
required by the customer, particularly with respect to sensitive 
electronic equipment); and (12) other similar or related activities.
    Solutions also proposes to market comprehensive asset management 
services (``Asset Management Services'') on a turnkey basis or 
otherwise, in respect of energy-related systems, facilities and 
equipment (e.g., electric utility systems and assets, including 
distribution systems and substations; transmission facilities; electric 
generation facilities, including standby generation facilities and 
self-generation facilities; boilers; chillers, i.e., refrigeration and 
coolant equipment; HVAC; and lighting systems) located on or adjacent 
to premises of commercial/industrial customers and used by such

[[Page 64403]]

customers in connection with their business activities. Likewise, these 
services would be marketed to other owners of utility assets or systems 
such as municipalities and electric cooperatives. Additionally, these 
services would be marketed to developers, owners and operators of 
nonassociate independent power production facilities (``IPPs''), 
including both qualifying and non-qualifying cogeneration or small 
power production facilities within the meaning of the Public Utility 
Regulatory Policies Act of 1978, as amended (``PURPA'') (such 
qualifying facilities, ``QFs'') and exempt wholesale generators and 
foreign utility companies within the meaning of the Act, as well as to 
developers, owners and operators of nonassociate district thermal 
energy systems, i.e., energy systems consisting of central production 
plants that distribute steam, hot water and/or chilled water through 
underground pipes to customer buildings.
    In particular, Asset Management Services will include development; 
engineering; design; construction and construction management; pre-
operational start-up testing and commissioning; long-term operations 
and maintenance, including system overhaul; load control and network 
control; fuel procurement, transportation and storage; fly-ash and 
other waste disposal; management and supervision; technical, training 
and administrative support; and any other managerial or technical 
services required to operate, maintain and manage energy-related assets 
physically associated with customer premises or to operate, maintain 
and manage municipality or electric cooperative-owned utility systems, 
IPPs and district thermal energy systems. Without obtaining the prior 
approval of the Commission in a separate filing, Solutions will not 
undertake any Asset Management Service if, as a result thereof, 
Solutions would become a ``public utility company'' within the meaning 
of the Act.
    Solutions further proposes; to market to nonassociates, primarily 
commercial/industrial customers, general technical consulting services 
with respect to energy-related matters (``Consulting Services''). 
Specifically, the Consulting Services will include technical and 
consulting services involving technology assessments, power factor 
correction and harmonics mitigation analysis, commercialization of 
electro-technologies, meter reading and repair, rate schedule analysis 
and design, environmental services, engineering services, billing 
services including conjunctive billing, summary billing for customers 
with multiple locations and bill auditing, risk management services, 
communications systems, information systems/data processing, system 
planning, strategic planning, finance, feasibility studies, and other 
similar or related services.
    Solutions also proposes to develop, acquire, own and operate 
``Projects,'' i.e.: (a) QFs and facilities necessary or incidental 
thereto, including thermal energy utilization facilities purchased or 
constructed primarily to enable the QF to satisfy the useful thermal 
output requirements under PURPA; and (b) district thermal energy 
systems and other facilities used for the production, conversion and 
distribution of thermal energy products, such as steam, heat, hot water 
and chilled water. Project development activities will include Project 
due diligence and design review; market studies; site inspection; 
preparation of bid proposals (including posting of bid bonds, cash 
deposits and the like); applications for required permits or regulatory 
approvals; acquisitions of site options and options on other necessary 
rights; negotiation and execution of contractual commitments with 
owners of existing facilities, equipment vendors, construction firms, 
power purchasers, thermal ``host'' users, fuel suppliers and other 
Project contractors; negotiation and execution of related financing 
commitments and agreements; engineering and construction of Projects; 
and similar activities antecedent to the acquisition, ownership and 
operation of a Project. In connection with its Project development and 
ownership activities, Applicants request authorization for Solutions to 
acquire securities or assets of nonassociate companies that derive 
substantially all their revenues from the development, ownership or 
operation of Projects.
    Solutions would also market energy-related services and products 
(``Consumer Services'') exclusively to residential and small commercial 
customers: (1) Service lines repair/extended warranties--repair of 
underground utility service lines owned by and located on the 
customer's property and extended service warranties covering the cost 
of such repairs; (2) surge protection--meter-based and plug-in 
equipment to protect customer household appliances and electronic 
equipment from power surges, including due to lightning; (3) appliances 
merchandising/repair/extended warranties--marketing of HVAC and other 
energy-related household appliances and, in connection therewith or 
separately, marketing of appliance inspection and repair services and 
extended service warranties covering the cost of repairing customers' 
appliances; (4) utility bill insurance--utility bill payment 
protection, for a monthly fee for a specified number of months, in the 
event the customer becomes unemployed, disabled or dies; (5) gas pilot 
lighting of pilot lights for customers; and (6) other similar or 
related services.
    Applicants further propose that Solutions furnish its own or broker 
nonassociate third-party financing to commercial, industrial and 
residential customers, both to support sales to customers of goods and 
services included within Energy Management Services, Asset Management 
Services and Consumer Services and in connection with sales of energy-
related equipment where the customer is not otherwise purchasing goods 
and services promoted by Solutions. Customer financing will take the 
form of direct loans, installment purchases, operating or finance lease 
arrangements (including sublease arrangements) and loan guarantees.\1\ 
Interest on loans and imputed interest on lease payments will be based 
on prevailing market rates. The obligations will have terms of one to 
thirty years and will be secured or unsecured. Solutions also may 
assign obligations acquired from customers to banks, leasing companies 
or other financial institutions, with or without recourse.
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    \1\ As discussed below, Cinergy and Investments expect to invest 
up to $100 million in Solutions (and its subsidiaries) to finance 
the proposed activities. The amount of funds that may be made 
available for the proposed customer financing activities is included 
in the $100 million.
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    Applicants request authorization for Solutions to undertake the 
proposed business activities on its own, either directly or through one 
or more wholly-owned direct or indirect subsidiaries of Solutions, 
formed as corporations, partnerships, limited liability companies or 
other legal entities. Applicants state that the decision in particular 
cases whether to conduct specific business activities directly through 
Solutions or indirectly through one or more wholly-owned subsidiaries 
of Solutions will hinge on applicable business, legal, tax, accounting 
and strategic considerations. In addition, to mitigate risk or access 
skills and relationships that Solutions may require, applicants expect 
that Solutions will pursue proposed business activities in certain 
instances through alliances with nonassociates. Certain of these 
alliances may be relatively informal, not

[[Page 64404]]

involving the formation of any new entities.
    Others may encompass formal joint ventures, possibly involving the 
formation of one or more wholly- or partly-owned subsidiaries of 
Solutions. Applicants also request authorization for Solutions to form 
any such joint venture subsidiaries, as in the preceding case solely 
for the purpose of implementing Solutions' proposed business 
activities. As noted above, as part of Solutions' proposed Project 
development and ownership activities, applicants request authority for 
Solutions to acquire securities or assets of nonassociate companies 
deriving substantially all their revenues from the development, 
ownership or operation of Projects.
    In connection with its incorporation and initial capitalization, 
Solutions is expected to issue and sell up to 100 shares of no par 
value common stock to Investments for nominal cash consideration (not 
to exceed $1,000). Thereafter, from time to time through December 31, 
2001, in order to assist in the financing of Solutions' proposed 
business activities, Cinergy and Investments do not expect to invest 
more than $100 million in Solutions (including any subsidiaries of 
Solutions), either by acquiring securities of Solutions or making cash 
capital contributions to Solutions, in exempt transactions pursuant to 
rules 52 and 45(b)(4).
    Cinergy and Investments request authority through December 31, 2001 
to guarantee debt and other obligations of Solutions (including any 
subsidiaries of Solutions) incurred in the ordinary course of business 
in a maximum principal amount at any one time outstanding not to exceed 
$250 million. Debt financing of Solutions proposed to be guaranteed by 
Cinergy or Investments (a) will not exceed a term of 15 years, and (b) 
will bear interest (1) at a floating rate not in excess of 200 basis 
points over the prime rate, London Interbank Offered Rate or other 
appropriate index in effect from time to time, or (2) at a fixed rate 
not in excess of 250 basis points above the yield at the time of 
issuance of U.S. Treasury obligations of a comparable maturity. Any 
commitment and other fees on the debt will not exceed 75 basis points 
per annum on the total amount of debt financing. Other obligations 
incurred by Solutions in the ordinary course of its business as to 
which Cinergy and Investments propose to guarantee or otherwise act as 
indemnitor or surety are expected often to involve Solutions' 
obligation to perform under contracts with customers to which it is a 
party. Guarantees issued by Cinergy or Investments in these 
circumstances may take the form of procuring bid bonds and the like or 
guaranteeing Solutions' performance or other similar direct or indirect 
guarantees of Solutions' contractual or other obligations. Applicants 
anticipate that these parent company ``backstops'' will be required to 
establish Solutions' financial credibility to certain customers as a 
prerequisite to obtaining the customer's business and/or on the most 
favorable terms.
    Cinergy states that it will not seek recovery through higher rates 
to customers of Cinergy's utility subsidiaries in order to compensate 
it or Investments for any potential losses they may sustain, or 
inadequate returns they may realize, resulting from investments in 
Solutions or guarantees of Solutions' debt or other obligations.
    Initially, Solutions is expected to have limited full-time staff, 
primarily executive, management, and administrative personnel. 
Applicants expect that Solutions will make extensive use of outside 
contractors and consultants in performing its proposed business 
activities.
    Applicants propose that Cinergy Services render an expanded range 
of support services to Solutions (including any subsidiaries thereof) 
and the other Cinergy system nonutility companies. Pursuant to the 
NUSA, which was authorized by the Commission in its 1994 order 
approving the merger that created Cinergy and certain ancillary 
transactions including the formation of Cinergy Services (HCAR 26146, 
Oct. 21, 1994), Cinergy Services may provide certain services, 
primarily administrative and management-type services, to Cinergy's 
nonutility subsidiaries, priced at cost for the domestic nonutility 
subsidiaries, as determined pursuant to rule 90 under the Act, and at 
fair market value for certain foreign subsidiaries of Cinergy pursuant 
to section 13(b)(1) and rule 83, and otherwise in accordance with 
applicable rules and regulations promulgated by the Commission pursuant 
to Section 13(b) of the Act. Specifically, the services that Cinergy 
Services may currently render to its nonutility associates are as 
follows: (1) Information systems, (2) transportation, (3) human 
resources, (4) facilities, (5) accounting, (6) public affairs, (7) 
legal, (8) finance, (9) internal audit, (10) investor relations, (11) 
planning and (12) executive. Under the Cinergy system Utility Service 
Agreement (``USA''), also approved in the Commission's 1994 merger 
order and pursuant to which Cinergy Services renders services at cost 
to Cinergy's utility subsidiaries, a much broader range of services are 
made available. In addition to the same 12 services made available to 
the client companies under the NUSA, the following additional services 
may be provided by Cinergy Services to the utility subsidiaries: (1) 
Electric system maintenance, (2) marketing and customer relations, (3) 
electric transmission and distribution engineering and construction, 
(4) power engineering and construction, (5) materials management, (6) 
power planning, (7) rates, (8) rights of way, (9) environmental affairs 
and (10) fuels.
    Applicants request authorization for Cinergy Services to provide 
certain additional services under the NUSA, priced in accordance with 
the Commission's 1994 merger order and otherwise rendered in 
conformance with Section 13(b) of the Act and the applicable rules and 
regulations thereunder. Applicants state that the proposed additional 
services are in general very similar to those additional services under 
the USA (enumerated above) that are not currently available under the 
NUSA and that the proposed additional services are intended to 
accommodate the scope of Solutions' proposed business activities as 
well as that of the Cinergy system's other nonutility subsidiaries.
    Specifically, the proposed additional services (collectively, 
``Additional NUSA Services'') are as follows: (1) Energy-related 
facility maintenance, (2) engineering and construction, (3) marketing 
and customer relations, (4) materials management, (5) fuels, (6) 
environmental affairs, (7) rates, (8) rights of way and (9) energy-
related system operations.
    Applicants state that the Additional NUSA Services would be 
implemented by means of a restatement of existing Appendix A to the 
NUSA (which lists and describes the currently available services under 
the NUSA). Applicants do not otherwise in any respect propose to amend 
the NUSA.
    Applicants state that the Additional NUSA Services are roughly 
parallel to the additional functions already made available to 
Cinergy's utility subsidiaries under the USA. Consequently, applicants 
do not anticipate a need to add any new employees to Cinergy Services 
solely to implement the Additional NUSA Services. Applicants represent 
that the provision of the Additional NUSA Services will not impair 
Cinergy Services' ability to provide the full range of services that it 
currently provides to the system utility companies under the USA. All 
costs associated

[[Page 64405]]

with Cinergy Services personnel rendering any Additional NUSA Services 
(including compensation, benefits and overhead) will be fully 
reimbursed by Solutions and other system companies that request and 
receive such services in accordance with section 13(b) of the Act and 
the applicable rules and regulations thereunder, including rules 90 and 
91.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-30811 Filed 12-3-96; 8:45 am]
BILLING CODE 8010-01-M