[Federal Register Volume 64, Number 73 (Friday, April 16, 1999)]
[Notices]
[Pages 18949-18952]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-9585]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27005]


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

April 12, 1999.
    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 May 4, 1999, to the Secretary, Securities and Exchange 
Commission, Washington, DC 20549-0609, and serve a copy on the relevant 
applicant(s) and/or declarants(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 May 4, 1999, the applicant(s) and/or declaration(s), as 
filed or as amended, may be granted and/or permitted to become 
effective.

Interstate Energy Corporation (79-9455)

    Interstate Energy Corporation (``Interstate''), a registered 
holding company, and its nonutility subsidiary, Alliant Energy 
Resources, Inc. (``Alliant'' and, together with Interstate, 
``Applicants''), both of 222 West Washington Avenue, Madison, Wisconsin 
53703, have filed an application-declaration under sections 6(a), 7, 
9(a), 10, 12(b), 12(c), 13(b), 32 and 33 of the Act and rules 45, 46, 
53, 54, 58, 87, 90 and 91 under the Act.

Background

    Interstate's four public-utility subsidiaries are Wisconsin Power & 
Light Company, South Beloit Water, Gas and Electric Company, Interstate 
Power Company, and IES Utilities, Inc. (collectively, ``Operating 
Companies''). Together, the Operating Companies provide public-utility 
service to approximately 895,000 electric and 378,000 retail gas 
customers in parts of Wisconsin, Iowa, Minnesota, and Illinois.
    Alliant serves as the holding company for substantially all of 
Interstate's nonutility investments and subsidiaries, which include 
interests in companies engaged in: environmental consulting and 
engineering services; the development, ownership and management of 
affordable multi-unit housing properties; the sale of various financial 
services, including the origination and sale of mortgages for tax-
advantaged affordable housing; energy-related businesses, including, 
among others, the brokering and marketing of electricity and natural 
gas, gas supply and fuel management services, oil and gas production, 
steam production and sale, and energy-management services; ownership 
and/or operation of foreign utility systems; transportation; and 
management of investments in telecommunications.

Proposed Transactions

    Each of Interstate and Alliant, on behalf of itself and its 
respective current and future direct and indirect nonutility 
subsidiaries (``Nonutility Subsidiaries''), seek approval for a program 
of external financing, credit support arrangements,

[[Page 18950]]

and other related proposals for the period through December 31, 2001 
(``Authorization Period''), as follows:
Common Stock
    Interstate proposes to issue and sell from time to time during the 
Authorization Period up to 15 million shares of its common stock, $.01 
par value per share (``Common Stock''). Interstate may issue and sell 
Common Stock or options exercisable for Common Stock and issue Common 
Stock upon the exercise of options. Interstate proposes to issue and 
sell Common Stock under underwriting agreements of a type generally 
standard in the industry or through private placements or other non-
public offerings to one or more persons. All Common Stock sales would 
be at rates or prices and under conditions negotiated or based upon, or 
otherwise determined by, competitive capital markets.
Debentures
    Interstate proposes to issue and sell from time to time during the 
Authorization Period up to $400 million principal amount of Debentures 
in one or more series, provided that the aggregate principal amount of 
short-term indebtedness issued by Interstate under the terms of prior 
Commission authorization \1\ and the Debentures at any time outstanding 
would not exceed $1.1 billion (``Interstate Debt Limitation''). The 
Debentures (a) may be convertible into any other securities of 
Interstate, (b) would have maturities ranging from one to 40 years, (c) 
may be subject to optional and/or mandatory redemption, in whole or in 
part, at par or at various premiums above their principal amount, (d) 
may be entitled to mandatory or optional sinking fund provisions, (e) 
may provide for reset of the coupon under a remarketing arrangement, 
and (f) may be called from existing investors by a third party. 
Interstate proposes that the maturity dates, interest rates, redemption 
and sinking fund provisions and conversion features, if any, for the 
Debentures of a particular series, as well as any associated placement, 
underwriting or selling agent fees, commissions and discounts, if any, 
be established by negotiation or competitive bidding and reflected in 
the applicable transaction documents. Interstate undertakes that 
without further Commission authorization it would not issue any 
Debentures that are not at the time of original issuance rated at least 
investment grade by a nationally recognized statistical rating 
organization.
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    \1\ See Interstate Energy Corporation, HCAR No. 26956 (December 
18, 1998). Under this order, Interstate and Alliant are authorized 
to, among other things, issue notes and/or commercial paper from 
time to time through December 31, 2000 and to establish and utilize 
separate money pools for intrasystem borrowings for Interstate's 
utility and non-utility subsidiaries. Sepcifically, Interstate is 
authorized to issue and sell notes and/or commercial paper in an 
aggregate principal amount at any time outstanding not to exceed 
$750 million.
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Other Securities
    In addition to the specific securities for which authorization is 
sought in the application-declaration, Interstate proposes to issue and 
sell other types of securities from time to time during the 
Authorization Period, in order to minimize financing costs or to obtain 
new capital under then existing market conditions.
Nonutility Subsidiary Financings
    Alliant states that it and its subsidiaries are engaged in and 
expect to continue to be active in the development and expansion of 
their existing energy-related, transportation, telecommunications and 
other nonutility businesses in the Interstate holding company system. 
In order to finance investments in these businesses, Applicants state 
that it will be necessary for the Nonutility Subsidiaries to engage in 
financing transactions, almost all of which are expected to be exempt 
under rule 52(b) of the Act. Alliant requests that the Commission 
reserve jurisdiction over the issuance by any Nonutility Subsidiary of 
any non-rule 52 exempt securities, pending completion of the record.
    Applicants state that any promissory note, bond or other evidence 
of indebtedness issued by a Nonutility Subsidiary that is guaranteed as 
to principal or interest by Interstate (each, a ``Guaranteed Note'') 
would mature no more than 40 years after the date of issuance and bear 
interest at a fixed or floating rate which, in the case of a fixed 
rate, would be no greater than 300 basis points over the yield to 
maturity of a United States Treasury obligation having a remaining term 
approximately equal to the average life of the Guaranteed Note at the 
time issued, and, in the case of a floating rate, would be not greater 
than 300 basis points over the rate of interest announced publicly by a 
major money center bank as its base or prime rate. In addition, a 
Nonutility Subsidiary may agree to pay a commitment fee not to exceed 
1.5% of the average daily unused balance under any committed line of 
credit and/or maintain compensating balances not to exceed 20% of the 
amount of any committed line.
Interstate Guarantees
    Interstate requests authorization to enter into guarantees, obtain 
letters of credit, enter into expense agreements or otherwise provide 
credit support (collectively, ``Interstate Guarantees'') with respect 
to the obligations of Alliant, any Operating Company or any Nonutility 
Subsidiary (collectively, ``Subsidiaries'') as may be appropriate to 
enable the Subsidiary to carry on in the ordinary course of its 
business, in an aggregate principal amount not to exceed $600 million 
outstanding at any one time. Interstate proposes to charge each 
Subsidiary a fee for each guarantee provided on its behalf that is 
determined by multiplying the amount of the Interstate Guarantee 
provided by the cost of obtaining the liquidity necessary to perform 
the guarantee (for example, bank line commitment fees or letter of 
credit fees, plus other transactional expenses) for the period of time 
the guarantee remains outstanding.
Nonutility Subsidiary Guarantees
    In addition, Alliant and other Nonutility Subsidiaries request 
authority to provide to other Nonutility Subsidiaries guarantees and 
other forms of credit support (``Nonutility Subsidiary Guarantees'') in 
an aggregate principal amount not to exceed $300 million outstanding at 
any one time. The Nonutility Subsidiary providing the credit support 
may charge its associate company a fee for each guarantee provided on 
its behalf determined in the same manner as the Interstate Guarantees.
Hedging Transactions
    Interstate and the Nonutility Subsidiaries request authorization to 
enter into interest rate hedging transactions with respect to existing 
indebtedness (``Interest Rate Hedges''), subject to certain limitations 
and restrictions, in order to reduce or manage interest rate cost. 
Interest Rate Hedges would 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 
Investors Service or Duff and Phelps. Applicants state that Interest 
Rate Hedges would involve the use of financial instruments commonly 
used in today's capital markets, such as interest rate swaps, caps, 
collars, floors, and structured note (i.e., a debt instrument in which 
the principal and/or interest

[[Page 18951]]

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 Securities. The transactions would 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 
would not exceed those generally obtainable in competitive markets for 
parties of comparable credit quality.
Anticipatory Hedges
    In addition, Interstate and the Nonutility Subsidiaries request 
authorization to enter into interest rate hedging transactions with 
respect to anticipated debt offerings (``Anticipatory Hedges''), 
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 (i) a forward sale of exchange-traded U.S. 
Treasury futures contracts, U.S. Treasury Securities and/or a forward 
swap (each, a ``Forward Sale''), (ii) the purchase of put options on 
U.S. Treasury Securities (``Put Options Purchase''), (iii) a Put 
Options Purchase in combination with the sale of call options on U.S. 
Treasury Securities (``Zero Cost Collar''), (iv) transactions involving 
the purchase or sale, including short sales, of U.S. Treasury 
Securities, or (v) some combination of a Forward Sale, Put Options 
Purchase, Zero Cost Collar and/or other derivative or cash 
transactions, including structured notes, caps and collars, appropriate 
for the Anticipatory Hedges. Anticipatory Hedges may be executed on-
exchange (``On-Exchange Trades'') with brokers by opening futures and/
or options positions traded on the Chicago Board of Trade, 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. Interstate or a Nonutility Subsidiary would determine 
the optimal structure of each Anticipatory Hedge transaction at the 
time of execution. Interstate or a Nonutility Subsidiary would 
determine the optimal structure of each Anticipatory Hedge transaction 
at the time of execution. Interstate or a Nonutility Subsidiary may 
decide to lock in interest rates and/or limit its exposure to interest 
rate increases. All open positions under Anticipatory Hedges would be 
closed on or prior to the date of the new issuance and neither 
Interstate nor any Nonutility Subsidiary would, at any time, take 
possession or make delivery of the underlying U.S. Treasury Securities.
Financing Subsidiaries
    Interstate and Alliant request authority to acquire, directly or 
indirectly, the equity securities of one or more 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 Interstate and the 
Nonutility Subsidiaries by issuing long-term debt or equity securities, 
including monthly income preferred securities, to third parties and the 
transfer of the proceeds of these financings to Interstate or the 
Nonutility Subsidiaries. Applicants request that the Commission reserve 
jurisdiction over the transfer of proceeds of these financings to 
Interstate, pending completion of the record.
    Interstate may, if required, guarantee or enter into expense 
agreements in respect of the obligations of any Financing Subsidiaries. 
If the direct parent company of a Financing Subsidiary is authorized in 
this proceeding or any future proceeding to issue long-term debt or 
similar types of equity securities, then the amount of the securities 
issued by that Financing Subsidiary would count against the limitation 
applicable to its parent for those securities. In these cases, however, 
the guaranty by the parent of that security issued by its Financing 
Subsidiary would not be counted against the limitations on Interstate 
Guarantees or Nonutility Subsidiary Guarantees, as the case may be. In 
other cases, in which the parent company is not authorized in this 
proceeding or in a future proceeding to issue similar types of 
securities, the amount of any guarantee not exempt under rules 45(b)(7) 
and 52 that is entered into by the parent company with respect to 
securities issued by its Financing Subsidiary would be counted against 
the limitation on Interstate Guarantees or Nonutility Subsidiary 
Guarantees, as the case may be.
Intermediate Subsidiaries
    Interstate and Alliant propose to acquire, directly or indirectly, 
the securities of one or more Intermediate Subsidiaries, which would be 
organized exclusively for the purpose of acquiring, holding and/or 
financing the acquisition of the securities of or the interest in one 
or more (a) ``exempt wholesale generators'' (as defined in section 32 
of the Act, ``EWGs'') or ``foreign utility companies'' (as defined in 
section 33 of the Act, ``FUCOs''), (b) companies whose securities are 
acquired under rule 58 of the Act (``Rule 58 Subsidiaries''), (c) 
``exempt telecommunications companies'' (as defined in section 34 of 
the Act, ``ETCs''), or (d) other non-exempt Nonutility Subsidiaries (as 
authorized in this proceeding or in a separate proceeding), provided 
that Intermediate Subsidiaries may also engage in development 
activities and administrative activities relating to these 
subsidiaries. Intermediate Subsidiaries may also provide management, 
administrative, project development and operating services to these 
entities. An Intermediate Subsidiary may be organized, among other 
things, (1) in order to facilitate the making of bids or proposals to 
develop or acquire an interest in any EWG or FUCO, Rule 58 Subsidiary, 
ETC or other non-exempt Nonutility Subsidiary; (2) after the award of 
the bid proposal, in order to facilitate closing on the purchase or 
financing of the acquired company, (3) at any time after the 
consummation of an acquisition of an interest in any acquired company 
in order, among other things, to effect an adjustment in the respective 
ownership interests in the business held by Interstate or Alliant and 
non-affiliated investors; (4) to facilitate the sale of ownership 
interests in one or more acquired nonutility companies; (5) to comply 
with applicable laws of foreign jurisdictions limiting or otherwise 
relating to the ownership of domestic companies by foreign nationals; 
(6) as a part of tax planning in order to limit Interstate's exposure 
to U.S. and foreign taxes; (7) to further insulate Interstate and the 
Operating Companies from operational or other business risks that may 
be associated with investments in nonutility companies; or (8) for 
other lawful business purposes.
Investments in Energy Assets
    Alliant and other Nonutility Subsidiaries request authority to 
acquire or construct in one or more transactions from time to time 
during the Authorization Period, nonutility energy assets in the United 
States, including natural gas production, gathering, processing, 
storage and transportation facilities and equipment, liquid oil 
reserves and storage facilities, and associated facilities 
(collectively, ``Energy Assets''), that would be incidental to the oil 
and gas exploration and production and energy marketing, brokering and 
trading operations of Alliant's subsidiaries. Alliant requests 
authorization to invest up to $125 million (``Investment Limitation'')

[[Page 18952]]

during the Authorization Period in Energy Assets or in the equity 
securities of existing or new companies substantially all of whose 
physical properties consist or would consist of the Energy Assets.\2\ 
Energy Assets (or equity securities of companies owning Energy Assets) 
may be acquired for cash or in exchange for Common Stock or other 
securities of Interstate, Alliant, or other Nonutility Subsidiary of 
Alliant, or any combination of these forms of compensation. If Common 
Stock of Interstate is used as consideration in connection with an 
acquisition, the market value on the date of issuance would be counted 
against the proposed Investment Limitation. The stated amount or 
principal amount of any other securities issued as consideration in the 
transaction would also be counted against the Investment Limitation. 
Under no circumstances would Alliant or any oil or gas production or 
marketing subsidiary acquire, directly or indirectly, any assets or 
properties the ownership or operation of which would cause the 
companies to be considered an ``electric utility company'' or ``gas 
utility company'' as defined under the Act.
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    \2\ Companies whose physical properties consist of Energy Assets 
may also be currently engaged in energy (gas or electric or both) 
marketing activities. To the extent necessary, Applicants request 
authorization to continue these activities in the event they acquire 
these types of companies.
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Sales of Services and Goods Among Alliant and Other Nonutility 
Subsidiaries
    Alliant and other Nonutility Subsidiaries propose to provide 
services and sell goods to each other at fair market prices determined 
without regard to cost, and therefore request an exemption (to the 
extent that rule 92(b) of the Act does not apply) under section 13(b) 
from the cost standards of rules 90 and 91 as applicable to these 
transactions, in any case in which any of the following circumstances 
may apply:
    (i) The client company is a FUCO or foreign 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) The client company is an EWG which sells electricity at 
market-based rates which have been approved by the Federal Energy 
Regulatory Commission (``FERC'');
    (iii) The client company is a ``qualifying facility'' (``QF'') 
within the meaning of the Public Utility Regulatory Policies Act of 
1978, as amended (``PURPA'') that sells electricity exclusively (a) at 
rates negotiated at arm's length to one or more industrial or 
commercial customers purchasing the electricity for their own use and 
not for resale, and/or (b) to an electric utility company at the 
purchaser's ``avoided cost'' as determined under PURPA regulations;
    (iv) The client company is a domestic EWG or QF 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 is not an Operating Company within the 
Interstate system; or
    (v) The client is an ETC, a Rule 58 Subsidiary, or any other 
Nonutility Subsidiary that does not derive any part of its income from 
sales of goods, services or other property to an Operating Company 
within the Interstate system.
Activities of Rule 58 Subsidiaries Within and Outside the United States
    Alliant, on behalf of any current or future Rule 58 Subsidiaries, 
requests authority to engage in certain business activities permitted 
by rule 58 both within and outside the United States. These activities 
include: (i) the brokering and marketing of electricity, natural gas 
and other energy commodities; (ii) energy management services; and 
(iii) engineering, consulting and other technical support services.
Payment of Dividends Out of Capital and Unearned Surplus
    Alliant also proposes, on behalf of itself and each of its current 
and future non-exempt Nonutility Subsidiaries, that these non-exempt 
Nonutility Subsidiaries be permitted to pay dividends with respect to 
the securities of these companies, from time to time during the 
Authorization Period, out of capital and unearned surplus (including 
revaluation reserve), to the extent permitted under applicable 
corporate law and the terms of any credit agreements and indentures 
that restrict the amount and timing of distributions to shareholders.
Use of Proceeds
    Applicants state that the proceeds from the financing 
authorizations sought in this proceeding would be used for general 
corporate purposes, including (i) financing, in part, investments by 
and capital expenditures of Interstate and its Nonutility Subsidiaries, 
including the funding of future investments in EWGs, FUCOs, and Rule 58 
Subsidiaries, (ii) the repayment, redemption, refunding or purchase by 
Interstate or any Nonutility Subsidiary of any of its own securities 
under rule 42 of the Act, and (iii) financing working capital 
requirements of Interstate and its Nonutility Subsidiaries.
    Applicants represent that no financing proceeds would be used to 
acquire the equity securities of any new subsidiary unless the 
acquisition has been approved by the Commission in this proceeding or 
in a separate proceeding or under an available exemption under the Act 
or rules under the Act, including sections 32 and 33 and rule 58. 
Interstate states that the aggregate amount of proceeds of financing 
and Interstate Guarantees approved by the Commission in this proceeding 
used to fund investments in EWGs and FUCOs would not, when added to 
Interstate's ``aggregate investment'' (as defined in rule 53 of the 
Act) in all these entities at any point in time, exceed 50% of 
Interstate's ``consolidated retained earnings'' (also as defined in 
rule 53). Currently, Interstate's ``aggregate investment'' in EWGs and 
FUCOs is $73 million, or approximately 14% of Interstate's 
``consolidated retained earnings'' for the four quarters ended December 
31, 1998 ($537 million). Further, Interstate represents that proceeds 
of financing and Interstate Guarantees and Nonutility Guarantees 
utilized to fund investments in Rule 58 Subsidiaries would be subject 
to the limitations of that rule. Lastly, Interstate represents that it 
would not seek to recover through higher rates any of the Operating 
Companies losses attributable to any operations of its Nonutility 
Subsidiaries.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 99-9585 Filed 4-15-99; 8:45 am]
BILLING CODE 8010-01-M