[Federal Register Volume 63, Number 196 (Friday, October 9, 1998)]
[Notices]
[Pages 54507-54509]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-27119]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-26924]


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

October 2, 1998.
    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 amendments 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 October 27, 1998, 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 
should 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 October 27, 1998, the application(s) and/or 
declaration(s), as filed or as amended, may be granted and/or permitted 
to become effective.

GPU, Inc., et al. (70-9201)

    GPU, Inc. (``GPU''), a registered holding company, its service 
company, GPU Service, Inc. (``GPUS''), both of 300 Madison Avenue, 
Morristown, New Jersey 07962, and its operating companies, Jersey 
Central Power & Light Company (``JCP&L''), Metropolitan Edison Company 
(``Met-Ed'') and Pennsylvania Electric Company (``Penelec'') 
(collectively, ``Public Utility Companies''), each of P.O. Box 16001, 
Reading, Pennsylvania 19640, 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, 87(b)(1), 90 and 91 under the Act.
    By order of the Commission GPUS was authorized to perform certain 
management, planning, engineering, coordinating and administrative 
services for the Public Utility Companies.\1\ In 1996, certain GPUS 
personnel providing various services \2\ related to the energy services 
and delivery businesses of the Public Utility Companies were 
functionally realigned to report to the Public Utility Companies' 
management team.\3\ GPUS also employs personnel performing services 
used across the GPU system, such as legal services and consolidated 
accounting services.
---------------------------------------------------------------------------

    \1\ See Holding Co. Act Release No. 17112 (Apr. 29, 1971).
    \2\ These services included: library services, graphic 
resources, forms management, general books and plant accounting, 
payroll and accounts payable, interconnected transmission services, 
power services, procurement, facilities management, materials and 
supplies, transportation, information technology services, human 
resources, communications and environmental affairs.
    \3\ By 1996, GPU had functionally combined the energy services 
and delivery businesses of the Public Utility Companies. As a result 
of this realignment, a single management team became responsible for 
the combined energy services and delivery businesses of the Public 
Utility Companies.
---------------------------------------------------------------------------

    The Public Utility Companies and GPUS now propose to enter into an 
amended services agreement (``New Services Agreement'') which will 
permit GPUS to perform expanded functions for the Public Utility 
Companies as discussed below. The expanded functions constitute several 
of the components of the proposed consolidation of the GPU system.

New Integrated Core Information System

    The Public Utility Companies intend to replace most of their 
existing information systems with a new integrated core information 
system developed by SAP America, Inc. (``SAP'').\4\ The aggregate cost 
of implementing the SAP system, estimated between $108 million and $115 
million,\5\ will be allocated among the Public Utility Companies using 
the multiple factor formula discussed below.\6\ The Public Utility 
Companies will use internally generated funds to pay for the SAP 
system. The applicants represent that implementation of the SAP system 
is expected to result in labor-related savings to the Public Utility 
Companies of approximately $20 million annually.
---------------------------------------------------------------------------

    \4\ The Public Utility Companies anticipate that implementation 
of the SAP system will: (i) replace the major existing systems and 
provide a single integrated information system for all major Public 
Utility Company activities; (ii) standardize and align work 
processes; (iii) avoid the difficult and expensive integration of 
existing systems; and (iv) provide for the operation of the 
information systems beyond 1999. The applicants state that the 
single service company approach, discussed below, will allow for the 
most effective use of the SAP system and will minimize the need for 
costly and complex customization of the core components of the SAP 
system.
    \5\ This amount will cover the costs of process redesign, 
hardware, software, data conversions, testing and training.
    \6\ The applicants represent that the Public Utility Companies 
are the only GPU system companies currently receiving any 
significant benefit from the SAP system. However, if in the future 
other GPU system companies use the SAP system in any significant 
manner, GPU will allocate to these other companies an equitable 
share of the costs and savings based on the facts and circumstances 
existing at that time.
---------------------------------------------------------------------------

Personnel Realignment

    In order to maximize the benefits, efficiencies and effectiveness 
of the SAP system, the Public Utility Companies have concluded that it 
is necessary to combine their human, technical, material and operation 
resources into a single service company. Accordingly, in order to 
implement the single service company approach, the Public Utility 
Companies intend to transfer substantially all of their personnel, 
including the union personnel, to GPUS.\7\ The personnel transfers are 
not expected to involve the physical relocation of a substantial number 
of employees.
---------------------------------------------------------------------------

    \7\ To the extent the personnel realignment involves union 
employees, GPUS will become a successor employer under the various 
collective bargaining agreements (``Union Agreements'') between the 
Public Utility Companies and their union employees. GPUS intends to 
become the employer party to the Union Agreements and adopt the 
terms of these agreements.
---------------------------------------------------------------------------

    In October 1997, the Public Utility Companies announced a plan to 
divest all of their nonnuclear generation facilities in 1999. These 
facilities are currently owned by the Public Utility Companies and 
operated and maintained by GPU Generation, Inc. (``Genco'').\8\ In 
anticipation of this divestiture, the 1,630 employees of the Public 
Utility Companies performing operation and maintenance services for 
GPU's nonnuclear facilities may not initially be transferred to GPUS as 
part of the personnel realignment. The applicants anticipate that if 
any of these employees are not hired by the buyer(s) of GPU's 
nonnuclear generation assets, and remain employed with the Public 
Utility Companies and Genco, they will be transferred to GPUS.
---------------------------------------------------------------------------

    \8\ See Holding Co. Act Release No. 26463 (Jan. 26, 1996).

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

[[Page 54508]]

    GPU's nuclear generating facilities are operated and maintained by 
GPU Nuclear, Inc. (``GPUN'').\9\ In July 1998, GPU announced its 
intention to sell the Three Mile Island Unit 1 nuclear generating 
facility. With respect to Oyster Creek, the other nuclear facility 
operated by GPUN, a decision has not been reached whether to continue 
its operation or effect an early retirement. Pending the final 
disposition of the nuclear generating assets, GPU does not intend to 
transfer the nuclear operating personnel of GPUN or the Public Utility 
Companies to GPUS.
---------------------------------------------------------------------------

    \9\ See Holding Co. Act Release No. 21708 (Sept. 5, 1980).
---------------------------------------------------------------------------

    GPUS currently has 670 employees while Genco has 516 and GPUN has 
219. Approximately 3,075 union and 1,730 nonunion employees, having a 
yearly budget payroll of approximately $265 million are expected to be 
transferred from the Public Utility Companies to GPUS.\10\ Following 
completion of the personnel realignment, but subject to the divestiture 
of nuclear and nonnuclear generating assets discussed above, the only 
employees of the Public Utility Companies will be approximately 80 
personnel responsible for transmission and distribution dispatching, 
1,630 personnel (all union) engaged in nonnuclear generation operations 
and 1,100 personnel (all union) engaged in nuclear generating 
operations. These nontransferred personnel will retain the same job 
responsibilities and duties after the personnel realignment.
---------------------------------------------------------------------------

    \10\ The proposed personnel transfers are intended to, among 
other things, simplify the existing payroll, operational and 
administrative complexities of having functionally-related personnel 
employed by more than one Public Utility Company. Applicants further 
assert that the consolidation will produce a more focused and 
efficient management of human resources, avoid data replication in 
different entities and other similar benefits.
---------------------------------------------------------------------------

    As part of the personnel realignment, GPUS will create an 
Operations Division which will include substantially all of the Public 
Utility Company employees who are to be transferred to GPUS. It is 
expected that officers of the Public Utility Companies will also serve 
as officers of the Operations Division of GPUS. In addition, existing 
GPUS personnel involved in corporate, treasury, legal, accounting and 
certain other functions will continue to perform those services in a 
separate division GPU intends to form as the Corporate Division of 
GPUS.
    Under the proposed New Services Agreement, the Public Utility 
Companies may, from time to time, request that GPUS lease its employees 
to the Public Utility Companies. The applicants presently anticipate 
that only New jersey based employees will be leased. Under this 
proposal, all union personnel formerly employed by JCP&L and then 
transferred to GPUS are expected to be leased to JCP&L on an annual 
basis, subject to automatic renewal unless terminated by JCP&L. The 
cost of leasing will equal the cost of services provided by the 
employees had they not been leased and had the services been provided 
directly to JCP&L.\11\ The applicants state that the leasing program is 
not expected to restrict employees leased to one Public Utility Company 
from providing services to the other Public Utility Companies or the 
allocation of costs among the Public Utility Companies.
---------------------------------------------------------------------------

    \11\ Applicants state that the New Jersey Division of Taxation 
has advised JCP&L that the services performed under the leasing 
proposal will be exempt from New Jersey sales/use tax.
---------------------------------------------------------------------------

Inventory and Procurement Functions

    As part of this consolidation, the purchasing and inventory 
functions for the transmission and distribution systems of the Public 
Utility Companies will be assumed by GPUS so that equipment and 
materials will be acquired and inventories by GPUS and sold to an 
Public Utility Company, at cost,\12\ when needed. GPUS may also 
purchase fuel, including natural gas, for resale, at cost, to an Public 
Utility Company for an owned generation plant or for a nonutility 
generator with which an Public Utility Company has a power supply 
agreement. GPUS will use the facilities and properties of the Public 
Utility Companies in carrying out its responsibilities. Any agreements 
with nonaffiliated entities will be entered into either directly by the 
Public Utility Companies which own the respective generation facilities 
or by GPUS as agent for the affected Public Utility Company.
---------------------------------------------------------------------------

    \12\ Applicants state that at cost will be calculated at the 
average unit prices by storeroom location and will be charged only 
for materials and fuel actually delivered to the site.
---------------------------------------------------------------------------

    In connection with the assumption by GPUS of these inventory and 
purchasing functions, the Public Utility Companies propose to sell to 
GPUS up to $60 million aggregate book value of existing transmission 
and distribution inventory to GPUS, at cost,\13\ under rules 90 and 91 
under the Act. The inventories consist of approximately 22,000 
categories of items that fall into four groups: materials and supplies, 
meters, substation items and transformers.\14\ These items are used in 
all facets of the operation and maintenance of the GPU transmission and 
distribution system. The inventories are primarily located in one of 
four storeroom locations, located in either New Jersey or Pennsylvania. 
It is expected that inventory purchased by a Public Utility Company 
from GPUS will come from the storeroom located in the purchaser's 
service territory. Consequently, the ``repurchase'' price paid by the 
Public Utility Company and the sale price of the item to GPUS will be 
the same for items comprising the initial inventory.
---------------------------------------------------------------------------

    \13\ The at cost determination will be based on the actual book 
cost of the Operating Companies at December 31, 1998.
    \14\ Applicants state that the initial inventory owned by the 
Operating Companies will be acquired by GPUS with the proceeds of 
loans from the Operating Companies. These loans will be payable upon 
demand and will bear interest at the rate equal to each Operating 
Company's average short-term interest for 1997. Thus, JCP&L will 
charge interest at 5.82% while Met-Ed will charge 5.70% and Penelec 
will charge 5.78%.
---------------------------------------------------------------------------

    The applicants state that GPUS will not engage in the sale of 
inventory to persons other than the Public Utility Companies, except in 
cases of emergency or when inventory levels are substantially in excess 
of the Public Utility Companies' requirements. Any transactions with 
(x) other associates will be effected at cost and (y) nonassociates 
will be at current market prices or at prices achieved through arms 
length bargaining (provided that sales of excess inventory would also 
be made at prices not less than GPU's cost, unless otherwise authorized 
by the Commission). Any profits derived from sales to nonassociates 
will be applied to offset the cost of capital to be charged to the 
Public Utility Companies as required under 17 C.F.R. 256.01-2.
    The applicants state that the consolidation of purchasing and 
inventory functions will produce an expected one-time benefit of $8 
million in year 2000 (reflecting a reduction in inventory required in 
year 2000). In addition, savings in the form of reduced carrying 
charges associated with inventory reduction are estimated at 
approximately $1.2 million annually starting in year 2000.
    Another component of GPU's consolidation is GPU's decision to 
change from its current departmental and functional alignment to a 
process-based managed approach. GPU states that its business activities 
should focus on three core business processes: Managing and Servicing 
Delivery Assets; Providing Customer Service; and Managing Energy Risk. 
Similarly, GPU plans to concentrate on providing three support 
functions: Providing Support Services; Managing Financial Performance; 
and Developing Business Opportunities.

[[Page 54509]]

Cost Allocation

    Under the proposed New Services Agreement, GPUS will render all 
services on an at cost basis. Each core business or support process in 
the Operations Division will maintain records to accumulate all costs 
of doing business and to determine the cost of service. The factors in 
determining cost of service include: wages and salaries of employees, 
fees and other charges of contractors supplying goods and services, and 
related expenses, like insurance, taxes, pensions and other employee 
welfare expenses. The Corporate Division will maintain records of 
general administrative expenses, including the costs of operating GPUS 
as a corporate entity.
    Whenever possible, charges for services rendered or personnel 
assigned or leased to a particular Public Utility Company and related 
expenses and nonpersonnel expenses incurred for the benefit of a 
particular Public Utility Company will be billed directly to that 
Public Utility Company.
    When an Operations Division service is rendered for the benefit of 
two or more companies and the benefits cannot be directly charged, the 
costs will be shared by the receiving companies in proportion to the 
average of: (1) Gross distribution plant, (2) energy delivered to 
ultimate consumers in KWH, and (3) operating and maintenance expense 
excluding purchased power. This multiple factor formula is currently in 
use and the factors are updated annually. The formula will be applied 
to those functions that provide support services for the operation of 
the Public Utility Companies, GPUN and Genco.
    When a Corporate Division service which is principally used by the 
Public Utility Companies cannot be directly charged, the multiple 
factor formula will be used. In other cases, Corporate Division 
services which cannot be directly charged will be allocated based on 
the direct payroll cost ratio formula. This formula is based on the 
amount of payroll and payroll overheads directly charged to individual 
GPU system companies, including nonutility subsidiaries. The direct 
payroll cost ratio formula will equitably allocate the costs of 
Corporate Division services to all GPU system companies, since the bulk 
of the allocated costs associated with the Corporate Division is 
represented by payroll.
    The applicants represent that all other costs will be fairly and 
equitably allocated in accordance with rules 90 and 91 of the Act.
    Applicants undertake not to change the organization of GPUS, the 
type and character of the companies to be serviced, the methods of cost 
allocation among the Public Utility Companies, the scope or character 
of the services rendered subject to section 13 of the Act, or any 
applicable rule, regulation or order without prior Commission 
authorization by order or under the 60-day letter procedure.
    Applicants represent that the proposed consolidation will not 
involve the formation of any new legal entities, the write-down of any 
rate-based assets or the transfer of any utility assets. GPUS will 
obtain working capital from a working capital account, funded by the 
Public Utility Companies and established under Article 6 of the 
proposed New Services Agreement.

New Century Energies, Inc., et al. (70-9341)

    New Century Energies, Inc. (``New Century Energies''), a registered 
holding company, located at 1225 17th Street, Denver, Colorado, 80202-
5534, has filed an application-declaration under sections 6(a), 7, 
12(b), 32 and 33 of the Act and rules 45, 53, and 54 under the Act.
    New Century Energies is currently authorized under the terms of 
orders dated August 1, 1997 and May 14, 1998 (NCAR Nos. 26750 and HCAR 
Nos. 26872, respectively), among other things, to use the proceeds of 
the issuance of short-term debt and common stock to invest, directly or 
indirectly through one or more special purpose subsidiaries or project 
parents (``Intermediate Subsidiaries''), in exempt wholesale generators 
(``EWGs'') and foreign utility companies (``FUCOs''), and to issue 
guarantees of the obligations of these entities. Under the terms of 
these orders and rule 53(a)(1) under the Act, New Century Energies may 
not use the net proceeds of these issuances for these investments or 
issue guarantees for these obligations if New Century Energies' 
``aggregate investment,'' as defined in rule 53(a) under the Act, in 
all EWGs and FUCOs exceeds 50% of New Century Energies' ``consolidated 
retained earnings,'' as defined in the rule.
    New Century Energies requests that the Commission modify this 
limitation and exempt New Century Energies from the requirements of 
rule 53(a)(1). Specifically, New Century Energies requests an order 
that would allow it to use the net proceeds of common stock sales and 
borrowings to invest in EWGs and FUCOs and to issue guarantees of the 
obligations of these entities \15\ in an aggregate amount that, when 
added to new Century Energies' then existing aggregate investment in 
EWGs and FUCOs, would not at any time exceed 100% of New Century 
Energies' consolidated retained earnings.\16\
---------------------------------------------------------------------------

    \15\ Guarantees may also be issued for the obligations of 
Intermediate Subsidiaries.
    \16\ New Century Energies is currently seeking authority in a 
separate filing to issue certain debt securities, the proceeds of 
which would be used, among other things, to invest in EWGs and 
FUCOs.
---------------------------------------------------------------------------

    New Century Energies' aggregate investment in EWGs and FUCOs as of 
December 31, 1997 (approximately $364.4 million) represents 
approximately 50.9% of its consolidated retained earnings 
(approximately $715.6 million).

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-27119 Filed 10-8-98; 8:45 am]
BILLING CODE 8010-01-M