[Federal Register Volume 64, Number 93 (Friday, May 14, 1999)]
[Notices]
[Pages 26467-26470]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-12232]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 35-27017]
Filings Under the Public Utility Holding Company Act of 1935, as
Amended (``Act'')
May 7, 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
applications(s) and/or declaration(s) for complete statements of the
proposed transactions(s) summarized below. The application(s) and/or
declarations(s) and any amendments 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
applications(s) and/or declaration(s) should submit their views in
writing by June 1, 1999, to the Secretary, Securities and Exchange
Commission, Washington, DC 20549-0609, and serve a copy on the relevant
application(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 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 1, 1999, the application(s) and/or declaration(s),
as filed or as amended, may be granted and/or permitted to become
effective.
West Pen Power Company (70-9469)
West Pen Power Company (``West Penn''), 800 Cabin Hill Drive,
Greensburg, Pennsylvania 15601, a wholly owned utility subsidiary of
Allegheny Energy, Inc., (``Allegheny''), a registered holding company,
10435 Downsvills Pike, Hagerstown, MD 21740-1766, has filed an
application-declaration with this Commission under sections 6(a), 7,
9(a), 10, 12(b), and 13(b) of the Act and rules 45, 54, 90 and 91 under
the Act.
The Electricity Generation Customer Choice and Competition Act of
1996 (``Competition Act'') provides for the restructuring of the
electric utility industry in Pennsylvania. The Competition Act requires
the unbundling of electric services into separate supply, transmission,
and distribution services with open retail competition for supply. The
Competition Act requires utilities to submit restructuring plans to the
Pennsylvania Public Utility Commission (``PUC''), including transition
costs which result from competition. Transition costs include
regulatory assets, long-term purchased power commitments, and other
costs, including investment in generating plans, spend-fuel disposal,
retirement costs and reorganization costs, for which an opportunity for
recovery is allowed in an amount determined by the PUC to be just and
reasonable. The Competition Act also authorizes the PUC to adopt
Qualified Rate Orders (``QRO'') to approve the issuance of debt
securities (``Transition Bonds'') by a utility as a mechanism to
mitigate transition costs and reduce customer rates. Under the
Competition Act, proceeds of Transition Bonds are required to be used
principally to reduce qualified stranded costs and the related
capitalization of the utility. To the extent a QRO and the rates and
other charges authorized are declared to be irrevocable, the
irrevocable QRO issued by the PUC will create Intangible Transition
Property (``ITP'') by contract which can be used to secure the
transition bonds. The Transition Bonds are repayable from irrevocable
Intangible Transition Charges (``ITC'').\1\
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\1\ ITCs are generally defined as amounts authorized to be
imposed on all customer bills, under an irrevocable QRO, for the
purpose of recovering the principal and interest on the Transition
Bonds, costs to cover credit enhancements, cost of retiring existing
debt and equity, costs of defeasance, servicing fees and other
related fees, taxes, costs and expenses (``Qualified Transition
Expenses'' or ``QTEs''). ITCs are collected through non-bypassable
charges imposed by an electric utility that provides electric
transmission and distribution services to a customer located in its
certificated territory, regardless of whether that customer
continues to purchase electricity from that electric utility.
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West Pen filed its restructuring plan, which unbundled generation
from transmission and distribution, with the PUC. On November 19, 1998
the PUC adopted a final QRO in response to West Penn's application and
authorized the recovery of transition costs by West Penn of $670
million (or $630 million in the event of a merger with DQE, Inc.).\2\
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\2\ Allegheny has a pending application with the Commission
regarding a proposed merger with DQE, Inc. in File No. 70-9147.
However, the merger is now the subject of litigation.
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In connection with the November 19, 1998 QRO, West Penn request
authority to form a new, wholly owned subsidiary (``Newco'').\3\ Newco
will be organized under the laws of a state other than
[[Page 26468]]
Pennsylvania, as a new, wholly owned subsidiary of West Penn. Newco
will issue and West Penn will acquire all of Newco's stock. West Penn
will then transfer the ITP and associated ITC revenue stream created by
the QRO to Newco in exchange for the Newco stock, which will be treated
as a capital contribution or a true sale, but not as a secured
financing for bankruptcy purposes.
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\3\ Newco initially will be capitalized, in an amount of at
least 0.5% of the total principal amount of the Transition Bonds,
through some form of capital contribution by West Penn.
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West Penn also requests authority to form a wholly owned limited
liability subsidiary of Newco (``Special Purpose LLC'').\4\ Special
Purpose LLC will issue and Newco will acquire all of the limited
liability interest in Special Purpose LLC. Newco will then transfer the
ITP and associated ITC revenue stream to its newly created, bankruptcy
remote, wholly owned Special Purpose LLC company.
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\4\ Special Purpose LLC will be capitalized, in an amount of at
least 0.5% of the total principal amount of the Transition Bonds,
through some form of a capital contribution by Newco.
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West Penn, through the Special Purpose LLC, requests authority to
issue up to $670 million in Transition Bonds, secured by the ITP and
the associated ITC revenue stream. The Special Purpose LLC may issue
Transition Bonds in the form of debt securities in one or more series,
and each series may be issued in one or more classes. The
characteristics of the Transition Bonds will be substantially similar
to bonds issued by other issuers in similar contexts. Each series will
be entitled to recover, through the ITC approved by one or more QROs,
QTEs (each as defined below), based on a specified principal amount of
Transition Bonds for the series, including interest at the coupon rate
or rates applicable to the series. There will be a date on which each
of the Transition Bonds is expected to be repaid and a legal final
maturity date by which the Transition Bonds must be repaid. Neither the
expected final maturity nor the legal final maturity will be later than
January 2, 2010. The expected final maturity date may vary from the
legal final maturity date due to the fact that the ITC is calculated by
taking into account variables such as the anticipated level of
chargeoffs, delinquencies, and usage, which may differ from the amounts
actually incurred or achieved.
Newco requests authority to loan West Penn up to $670 million and
West Penn request authority to issue a note of up to $670 million to
Newco. The loan will have interest rates and maturities that are
designed to parallel Newco's effective cost of capital.
When Penn proposes to enter into a Servicing Agreement with the
Special Purpose LLC, whereby West Pen will act as the servicer of the
ITCs revenue stream as part of normal utility collections. In this
capacity, West Penn, among other things would: (1) bill customers and
make collections on behalf of the Special Purpose LLC; and (2) file
with the PUC for adjustment to the ITC's to achieve a level which
allows for full recovery of QTEs in accordance with the amortization
schedule for each series of Transition Bonds. West Penn may subcontract
with other companies to carry out some of its servicing
responsibilities, so long as the ratings of the Transition Bonds are
neither reduced nor withdrawn. West Penn would be entitled to
compensation, in the form of a servicing fee, for its servicing
activities and reimbursement for certain of its expenses in the manner
described in the documentation applicable to each series. In order to
satisfy the rating agency requirements for a bankruptcy remote entity,
the servicing fee must be an arms-length fee, which would be reasonable
and sufficient for a third party performing similar services. The
servicing fee would be set at an annual level of not more than two
percent of the outstanding amount of the Transition Bonds.
Any successor to West Penn under any merger, consolidation,
bankruptcy, reorganization or other insolvency proceeding would be
required to assume West Penn's obligations.
Wheeling Power Company (70-9487)
Wheeling Power Company (``Wheeling''), 51 16th Street, Wheeling,
West Virginia 26003, an electric public utility subsidiary company of
American Electric Power Company, Inc., a registered holding company,
has filed a declaration under sections 6(a) and 7 of the Act and rule
54 under the Act.
Wheeling proposes to issue and sell or place from time to time,
through June 30, 2000, unsecured promissory notes (``Notes'') in an
aggregate outstanding principal amount of not more than $10 million.
The Notes will have terms of not less than nine months nor more than
ten years from the date of borrowing. The Notes will be sold to, or
placed through, one or more commercial banks, financial institutions or
other institutional investors (``Lender''). The Notes will be issued
under one or more term loan agreements with the Lenders.
The Notes will bear interest at a fixed rate, a fluctuating rate or
some combination of the two. Fixed interest rates will not be greater
than 300 basis points about the yield, at the time of issuance of the
Notes, to maturity of United States Treasury obligations with
comparable maturities. Fluctuating interest rates will not be greater
than 200 basis points above the periodically announced base or prime
rate of a major bank.
Proceeds from the sale of the Notes will be used to repay
Wheeling's long- and short-term debt. At December 31, 1998, Wheeling's
outstanding short-term indebtedness was approximately $5.2 million.
Sempra Energy (70-9489)
Sempra Energy (``Sempra''), 101 Ash Street, San Diego, California
92101, a California public utility holding company exempt from
registration under section 3(a)(1) of the Act from all provisions of
the Act except section 9(a)(2), has filed an application under sections
9(a)(2) and 10 of the Act, in connection with a proposed acquisition of
K N Energy (``K N''), a ``gas utility company'' within the meaning of
section 2(a)(4) of the Act, that is directly engaged in retail natural
gas distribution operation in three states (``Transaction'').
Sempra indirectly owns all of the issued and outstanding common
stock of Southern California Gas Company (``SoCalGas''), a gas utility
company, and San Diego Gas and Electric Company (``SDG&E''), a
combination gas and electric utility company.
SoCalGas distributes gas at retail to approximately 4.8 million
customers within a service territory of 23,000 square miles in central
and southern California. The SoCalGas system includes approximately
2,900 miles of transmission and storage pipeline, 44,000 miles of
distribution pipeline 43,000 miles of service pipeline, and 10
compressor stations, as well as five underground storage reservoirs
with a combined working capacity of about 116 billion cubic feet
(``Bcf'').
SDG&E is engaged in the generation, transmission, distribution, and
sale of electricity and the distribution and sale of natural gas. SDG&E
services approximately 1.2 million electricity customers within a
franchised service territory that includes San Diego County and
southern Orange County, California. SDG&E currently operates fossil
fuel-fired generating units with an aggregate capacity of 1,924 MW.
This generation consists of two steam stations, Encina (965 MW) and
South Bay (706 MW), and 17 non-power plant combustion turbines (253
MW).\5\ SDG&E also owns
[[Page 26469]]
a 20% share (430MW) of the San Onofre Nuclear Generating Station
(``SONGS''). SDG&E has announced its intention to divest itself of
SONGS, but has not yet concluded any agreement to do so.
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\5\ In November 1997, SDG&E committed itself to divesting all of
its fossil fuel-fired generating capacity by the end of 1999. SDG&E
was subsequently required to divest its Encina and South Bay plants
by the terms of a Stipulation and Order entered into with the
Department of Justice in March 1998. On December 11, 1998, SDG&E
concluded separate agreements for the sale of the South Bay station,
the Encina station and the 17 combustion turbines.
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In addition to providing electric service, SDG&E provides natural
gas service to more than 700,000 customers in San Diego County. SDG&E's
natural gas facilities include 164 miles of transmission pipeline,
6,843 miles of distribution pipeline, and two compressor stations. All
of the gas delivered to SDG&E by its suppliers is transported through
the SoCalGas pipeline system.
SoCalGas and SDG&E derive substantially all of their gas
requirements from sources outside of California. In 1998, SoCalGas and
SDG&E purchased approximately 49% of their combined system gas
requirements from production in the San Juan Basin, which is located
primarily in New Mexico and Colorado, approximately 20% in the Permian
Basin, which is located in west Texas, approximately 18% in the Western
Canada Sedimentary Basin, which is located primarily in western Alberta
and most of the balance from marketers at the California border. A
substantial volume of gas produced in the Rocky Mountain region basins
\6\ is also delivered into the SoCalGas transmission system for
redelivery to SoCalGas's transportation-only customers.
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\6\ The Rocky Mountain region describes a producing area that is
generally understood to include, in whole or in part, the Unita/
Piceance Basin in eastern Utah and western Colorado, the Denver/
Julesberg Basin in Colorado, and the Powder River, Green River, and
Wind River Basins in Wyoming.
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SoCalGas and SDG&E are subject to regulation by the California
Public Utilities Commission (``California PUC'').
Sempra also owns approximately 90% of Frontier Energy, LLC
(``Frontier Energy''), a North Carolina limited liability company that
is completing construction of a new gas utility distribution system in
a four-county area of western North Carolina.\7\
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\7\ See Sempra Energy, Holding Co. Act Release No. 26971
(February 1, 1999).
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Sempra's principal nonutility subsidiaries include: Sempra Trading,
which is a marketer of natural gas, electricity, and other energy
products; Enova Energy, Inc. which is a marketer of electricity; Sempra
Energy Resources, which is an unregulated subsidiary engaged in the
business of acquiring and developing power plants and natural gas
storage, production, and transportation assets in support of other
Sempra subsidiaries; Sempra Energy Solutions, which is a retail
marketing subsidiary providing energy services and products at retail
to competitive energy markets in California and throughout the United
States; Sempra Energy International, which is engaged in the
construction, ownership and operation of natural gas distribution and
power generation projects outside the United States; Sempra Energy
Financial, which participates in tax-advantaged investments such as
affordable housing and alternative fuels; and Sempra Energy Utility
Ventures, which engages in the acquisition, development and operation
of regulated energy utilities in the eastern United States and Canada.
For the year ended December 31, 1998, Sempra reported consolidated
operating revenues of $5.525 billion, of which $2.772 billion
represented gas utility revenues (including revenues from transporting
customer-owned gas) and $1.865 billion represented electric revenues.
At December 31, 1998, Sempra had total assets of $10.465 billion, of
which $5.441 billion represented net utility (electric and gas) plant.
During 1998, the total gas delivered on the Sempra system was 962 Bcf,
of which 521 Bcf (or about 54%) represented deliveries of customer-
owned gas for which the company provides only transportation service.
Electric sales in 1998 totaled 17,955 kwhrs.
K N and its subsidiaries engage in natural gas gathering,
processing, storage, transportation, distribution, and marketing of
natural gas, natural gas liquids and electric power in 16 central and
western states, with the majority of its operations in Texas, Oklahoma,
Kansas, Nebraska, Colorado, Wyoming and Illinois.\8\
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\8\ K N and its subsidiaries operate more than 26,000 miles of
interstate, intrastate and offshore transmission pipelines,
approximately 11,000 miles of gathering and processing pipelines,
approximately 7,000 miles of local gas distribution pipelines, 16
storage facilities, and 19 natural gas processing plants with a
total processing capacity of approximately 1.7 Bcf per day.
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K N is directly engaged in the distribution of natural gas at
retail to more than 210,000 customers in mostly rural areas of
Nebraska, Colorado, and Wyoming through a system of 7,200 miles of
distribution pipelines. It distributes gas in these three states
directly through a corporate division that is referred to as the
``Retail Gas Division.'' In Colorado, the Retail Gas Division provides
retail service to approximately 47,400 residential, commercial,
industrial, irrigation and grain drying customers in more than 30 towns
in the western slope of Colorado, 4 towns north of Denver in the Front
Range area, and 11 towns in the northeast corner of the state.
In Wyoming, the Retail Gas Division provides gas service to
approximately 64,700 residential, commercial and irrigation customers
in 40 towns in the eastern and central parts of the state. In Nebraska,
the Retail Gas Division serves approximately 99,700 residential,
commercial, industrial and agricultural customers in 180 towns
throughout much of the state.
The Retail Gas Division purchases all of its gas supplies from gas
marketers, including K N Services, Inc. (``K N Services''), K N's
principal gas marketer. Most of this gas is produced in the Rocky
Mountain region basins (currently about 61%) and the Anadarko/Arkoma
Basin (currently about 29%). The company also purchases gas that is
produced in the San Juan Basin, the Western Canada Sedimentary Basin,
and in producing areas in Montana, Kansas and western Nebraska.
For the year ended December 31, 1998, the Retail Gas Division
reported total operating revenues of $222.8 million, net operating
revenues of $104.7 million, and net income of $11.9 million,
respectively. At December 31, 1998, the Retail Gas Division had total
assets of $290.2 million, including $165.5 million in net utility plant
and equipment, $37.5 million in advances to associate companies, and
$51.1 million in current assets. During 1998, the Retail Gas Division
delivered only 50 Bcf of gas.
K N conducts its other business activities through its nonutility
subsidiaries. K N is principally engaged in interstate and intrastate
pipeline transportation, gathering and production, and marketing, among
other nonutility businesses.
For the year ended December 31, 1998, K N reported consolidated
operating revenues of $4.388 billion, of which $222.8 million (or about
5.1%) were derived from the distribution of gas at retail. At December
31, 1998, K N had total assets of $9.612 billion, including $7.023
billion of net property, plant and equipment, of which $165.5 million
(or about 2.4% of the total) consists of net plant associated with K
N's retail gas distribution business.
In accordance with an Agreement and Plan of Merger dated February
20, 1999 (``Merger Agreement''), among Sempra , K N and Cardinal
Acquisition Corp.
[[Page 26470]]
(``Cardinal''), a wholly owned, special purpose California corporation
organized by Sempra for the purpose of carrying out the Transaction, K
N will be merged with and into Cardinal.\9\ Upon completion of the
merger, Cardinal will be renamed ``K N Energy, Inc.'' All of the
property, rights, privileges, immunities, powers and franchises of K N
before the merger will vest in Cardinal and all of the debts,
liabilities and duties of K N before the merger will become the debts,
liabilities and duties of Cardinal.
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\9\ The approval and adoption of the Merger Agreement requires
the affirmative vote of the holders of a majority of the shares of K
N common stock and the affirmative vote of the holders of a majority
of the shares of Sempra common stock. Consummation of the
Transaction is also subject to various regulatory approvals in
addition to the approval of this Commission, including the Colorado
Public Utilities Commission, the Wyoming Public Service Commission
and the Federal Energy Regulatory Commission. The Transaction is
also subject to the filing of Pre-Merger Notification Report Forms
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and
the expiration or early termination of the required waiting period.
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On the effective date of the merger, each share of K N's common
stock
(``K N Shares'') will be converted, at the election of the holder
thereof, into the right to receive 1.115 shares of Sempra's common
stock (``Sempra Shares''), or $25.00 in cash, or a combination of
Sempra Shares and cash, for each K N Share. This ratio represents a
blended premium of 24 percent to the market price of K N Shares, based
on the average closing price of the stock of each company during the
week immediately preceding conclusion of the Merger Agreement.
Shareholders of K N have the option to choose cash, Sempra Shares, or a
combination of the two, subject to proration, such that at least 70% of
the K N Shares outstanding will be converted into Sempra Shares and not
more than 30% of the K N Shares will be converted into cash. As a
result of the Transaction, K N will become a wholly owned subsidiary of
Sempra, and the former K N shareholders will own approximately 19% of
Sempra's outstanding common stock after the merger, based on the number
of shares of Sempra's common stock and K N's common stock outstanding
on March 16, 1999. Under the terms of the Merger Agreement, three
members of K N's board of directors will become members of Sempra's
board, which will have 17 members.
Applicant contends that, after giving effect to the Transaction,
Sempra will remain predominantly an intrastate (i.e., California)
holding company that will not derive any material part of its income
from any non-California public-utility operations. Applicant states
that the utility operations of Sempra in California are substantially
larger than those of K N's Retail Gas Division and Frontier Energy
combined. Accordingly, Sempra requests an order under section 3(a)(1)
of the Act declaring Sempra, after consummation of the Transaction, to
be exempt from all sections of the Act except section 9(a)(2).
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-12232 Filed 5-13-99; 8:45 am]
BILLING CODE 8010-01-M