[Federal Register Volume 65, Number 73 (Friday, April 14, 2000)]
[Notices]
[Pages 20225-20231]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-9276]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27162]


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

April 7, 2000.
    Notice is hereby given that the following filings(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 amendment(s) 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 
application(s) and/or declaration(s) should submit their views in 
writing by May 2, 2000, to the Secretary, Securities and Exchange 
Commission, Washington, DC 20549-0609, 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 the 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 May 2, 2000, the application(s) and/or 
declaration(s), as filed or as amended, may be granted and/or permitted 
to become effective.

Unitil Corporation (70-8050)

    Unitil Corporation (``Unitil''), 6 Liberty Lane West, Hampton, New 
Hampshire 03842-1720, a registered holding company, has filed a post-
effective amendment under sections 6(a) and 7 of the Act to a 
declaration previously filed under the Act.
    By orders dated November 16, 1992 and February 7, 1997 (NCAR Nos. 
25677 and 26663) (``Orders''), Unitil has authorized, among other 
things, to issue and sell up to 253,654 shares (``DRIP Shares'') of its 
no par value common stock (``Common Stock) under its dividend 
reinvestment and stock purchase plan (``DRIP Plan''). As of February 1, 
2000, 15,030 of the authorized DRIP Shares remained unsold. The Orders 
also authorized Unitil to issue and sell up to 229,636 shares (``401(k) 
Shares'' and, together with DRIP Shares, ``Authorized Shares'') \1\ of 
Common Stock under its tax-deferred savings and investment plan 
(``401(k) Plan''). As of February 1, 2000, 44,393 of the authorized 
401(k) Shares were unsold.
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    \1\ The number of Authorized Shares was adjusted to reflect a 
two-for-one stock split that occurred on December 11, 1992.
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    In addition to the Authorized Shares, Unitil now proposes to issue 
and sell up to 200,000 shares of its Common Stock under its DRIP Plan 
and up to 150,000 shares under its 401(k) Plan. Shares available for 
issuance under each of these plans may come from authorized but 
unissued Common Stock or from Common Stock purchased by Unitil on the 
open market.

Unitil Corporation (70-9633)

    Unitil Corporation (``Unitil''), a registered holding company under 
the Act, and its subsidiary companies, Concord Electric Company, Exeter 
& Hampton Electric Company, Fitchburg Gas and Electric Light Company 
(``Fitchburg''), Unitil Power Corp., Unitil Realty Corp., Unitil 
Resources, Inc. and Unitil Service Corp. (``Unitil Service'') 
(collectively, ``Subsidiaries'' and, together with Unitil, 
``Applicants''), all at 6 Liberty Lane West, Hampton, New Hampshire 
03842, have filed an application-declaration under sections 6(b), 9(a), 
10 and 12(b) of the Act and rules 43 and 45 under the Act.
    By order dated June 30, 1997 (HCAR No. 26737), Applicants were 
authorized to make unsecured short-term borrowings and to operate a 
system money pool (``Money Pool'') through June 30, 2000. The 
Applicants now request authority to make additional short-term 
borrowings and extend the operation of the Money Pool through June 30, 
2003 (``Authorization Period'').
    Specifically, Unitil requests authority to incur short-term 
borrowings from banks in an aggregate amount that will not exceed $25 
million outstanding. In addition, Fitchburg requests authority to incur 
short-term borrowings from third parties and the other Applicants, and 
Unitil and the other Subsidiaries request authority to lend funds to 
Fitchburg under the Money Pool. \2\ Borrowings by Fitchburg under the 
Money Pool and its short-term borrowings from banks would not exceed 
$20 million at any one time outstanding.
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    \2\ Applicants claim that borrowings by the Subsidiaries other 
than Fitchburg are exempt from Commission review under rule 52 under 
the Act.
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    Unitil's existing \3\ and proposed borrowing arrangements will 
provide for borrowings at (1) ``base'' or ``prime''

[[Page 20226]]

rates publicly announced by a bank as the rate charged on loans to its 
most creditworthy business firms; or (2) ``money market'' rates 
(market-based rates that are generally lower than base or prime rates, 
made available by banks on an offering or ``when available'' basis). In 
addition, borrowings may be based on the daily federal funds rate. 
Borrowings under the credit arrangements will mature not more than nine 
months from the date of issue.
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    \3\ As of February 17, 2000, Unitil had three unsecured lines of 
credit totaling $23 million.
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    Unitil expects to use the proceeds from the requested borrowings 
for: (1) loans or advances to subsidiaries through the money pool; (2) 
payment of outstanding indebtedness; (3) short-term cash needs that may 
arise due to payment timing differences; and (4) other general 
corporate purposes.
    Any of the proposed short-term borrowings by Fitchburg from 
commercial banks will be under terms and conditions substantially 
similar to those of the borrowing arrangements between Unitil and its 
commercial bank lenders, described above. Fitchburg will use the 
proceeds from these borrowings to meet working capital requirements, 
provide interim financing for construction expenditures, and to meet 
debt and preferred stock sinking fund requirements.
    The Applicants participate in the Unitil system money pool in 
accordance with a pooling agreement (``Pooling Agreement''). Under the 
Pooling Agreement, Unitil and the Subsidiaries invest their surplus 
funds, and the Subsidiaries borrow funds, from the money pool. Unitil 
Service administers the money pool on an ``at cost'' basis. The purpose 
of the Money Pool is to provide the Subsidiaries with internal and 
external funds and to invest surplus funds of Unitil and the 
Subsidiaries in short-term money market instruments. The Applicants 
state that the Money Pool provides the Subsidiaries with lower short-
term borrowing costs due to elimination of banking fees; a mechanism to 
earn a higher return on interest from surplus funds that are loaned to 
other Subsidiaries; and decreased reliance on external funding sources.

Cinergy Corp., et al. (70-9577)

    Cinergy Corp., a registered holding company (``Cinergy''), and its 
direct wholly owned nonutility subsidiaries Cinergy Global Resources, 
Inc. and Cinergy Investments, Inc., all located at 139 East Fourth 
Street, Cincinnati, Ohio 45202, have filed an application-declaration 
(``Application'') with the Commission under sections 6(a), 7, 9(a), 10, 
12, 32 and 33 of the Act and rules 45, 53 and 54 under the Act.

Background

Cinergy's Public Utility Subsidiaries
    Through its six domestic retail public utility companies--PSI 
Energy, Inc., an Indiana electric utility (``PSI''), the Cincinnati Gas 
& Electric Company, an Ohio electric and gas utility (``CG&E''), the 
Union Light, Heat and Power Company, a Kentucky electric and gas 
utility (``Union Power''), Lawrenceburg Gas Company, an Indiana gas 
utility (``Lawrenceburg''), the West Harrison Gas and Electric Company, 
an Indiana electric utility (``West Harrison'') and Miami Power 
Corporation, an electric utility (``Miami Power'') \4\--Cinergy 
provides retail electric service in north central, central and southern 
Indiana and retail electric and gas service in the southwestern portion 
of Ohio and adjacent areas of Indiana and Kentucky.\5\
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    \4\ The Application states that Miami Power is an electric 
utility company solely by virtue of its ownership of certain 
transmission assets.
    \5\ CG&E and PSI are direct, wholly owned subsidiaries of 
Cinergy. Union Power, Lawrenceburg, West Harrison and Miami Power 
are direct, wholly owned subsidiaries of CG&E and indirect, wholly 
owned subsidiaries of Cinergy.
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    CG&E produces, transmits, distributes and sells electricity and 
sells and transports natural gas in the southwestern portion of Ohio, 
serving an estimated population of 1.6 million people in 10 of the 
state's 88 counties, including the cities of Cincinnati and 
Middletown.\6\ At and for the twelve months ended December 31, 1999, 
CG&E had total consolidated assets of approximately $4.9 billion and 
operating revenues of approximately $2.6 billion.
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    \6\ Union Power transmits, distributes and sells electricity and 
sells and transports natural gas in northern Kentucky, serving an 
estimated population of 328,000 people in a 500 square mile area 
encompassing six counties, including the cities of Newport and 
Covington. Lawrenceburg sells and transports natural gas to 
approximately 20,000 people in a 60 square mile area in southeastern 
Indiana. West Harrison sells electricity over a three square mile 
area with a population of approximately 1,000 in West Harrison, 
Indiana, and bordering rural areas. Miami Power owns a 138 kilovolt 
transmission line running from the Miami Fort Power Station in Ohio 
to a point near Madison, Indiana.
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    PSI produces, transmits, distributes and sells electricity in north 
central, central and southern Indiana, serving as estimated population 
of 2.2 million people located in 69 of the state's 92 counties 
including the cities of Bloomington, Columbus, Kokomo, Lafayette, New 
Albany and Terre Haute. At and for the twelve months ended December 31, 
1999, PSI had total consolidated assets of approximately $3.8 billion 
and operating revenues of approximately $2.1 billion.
Cinergy's Existing Financing Authority
    By order dated March 23, 1998 (Holding Co. Act Release No. 26848) 
(``100% Order''), the Commission amended certain prior orders issued to 
Cinergy and authorized Cinergy to use the proceeds of certain financing 
transactions to invest in exempt wholesale generators (``EWGs'') and 
foreign utility companies (``FUCOs'' and, together with EWGs ``EWG/FUCO 
Projects''), provided that Cinergy's aggregate investment in EWG/FUCO 
Projects does not exceed 100% of Cinergy's consolidated retained 
earnings (``100% Limit''), subject to certain conditions.\7\
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    \7\ The terms ``aggregate investment'' and ``consolidated 
retained earnings'' are defined in rule 53(a)(1) under the Act.
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    At December 31, 1999, Cinergy's aggregate investment in EWG/FUCO 
Projects was approximately $580 million and its consolidated retained 
earnings were approximately $1,023 million, leaving available 
investment capacity under the 100% Order of approximately $443 million 
at that date.
    Under the following Commission orders, Cinergy is authorized to 
issue common stock, debt securities and to provide for general 
corporate purposes including, among other things, investing in EWG/FUCO 
Projects up to the 100% Limit:
    Short-Term Debt; $2 Billion Debt Limit; Common Stock. By order 
dated January 20, 1998 (Holding Co. Act Release No. 26819) (``January 
1998 Order''), as subsequently modified by order dated March 1, 1999 
(Holding Co. Act Release No. 26984) (``March 1999 Order''), the 
Commission authorized Cinergy to issue and sell, from time to time 
through December 31, 2002: (a) short-term notes and commercial paper 
and an aggregate principal amount not to exceed, together with the 
principal amount of long-term debentures referred to below, $2 billion 
at any time outstanding, and (b) up to 30,867,385 shares of Cinergy 
common stock.
    Long-Term Debentures. By order dated August 21, 1998 (Holding Co. 
Act Release No. 26909) (``August 1998 Order''), the Commission 
authorized Cinergy to issue and sell, from time to time through 
December 31, 2002, unsecured debentures with maturities of two of 15 
years in an aggregate principal amount at any time outstanding not to 
exceed $400 million, subject to the $2 billion debt cap described 
above.
    Guarantees; $1 Billion Limit. The March 1999 Order (a) consolidated 
authority granted to Cinergy under prior orders to issue guarantees of 
obligations of system companies, and (b) imposed

[[Page 20227]]

any overall cap of $1 billion (separate from the $2 billion debt cap 
described above) on the amount of Cinergy guarantees issued and 
outstanding from time to time through December 31, 2003. Among other 
things, the March 1999 Order also expanded Cinergy's existing authority 
to create intermediate subsidiaries to hold interests in nonutility 
businesses, including EWG/FUCO Projects.\8\
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    \8\ The March 1999 Order also modified the January 1998 Order by 
removing Cinergy guarantees from the $2 billion debt cap and, 
instead, making the guarantees subject to the $1 billion cap.
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Proposed Financing Authority
    Cinergy asserts its investment capacity remaining under existing 
Commission orders is not sufficient to enable Cinergy to grow its 
business and adapt to industry-wide restructuring. Cinergy therefore 
requests greater authority to invest in EWG/FUCO Projects and general 
revisions to outstanding Commission orders granting Cinergy authority 
to issue debt and equity securities, issue guarantees, and engage in 
other financing transactions. Cinergy's proposed increased financing 
authority, discussed in more detail below (``Proposed Financing 
Transactions''), is intended to enable Cinergy to respond quickly and 
efficiently to its financing needs and available conditions in capital 
markets.
    Proposed Limits on Investments in EWG/FUCO Projects and 
Restructuring Subsidiaries. Over a five-year period beginning with 
issuance of the requested order from the Commission (``Authorization 
Period''), Cinergy proposes to apply proceeds from the proposed 
financing transactions described below to make additional investments 
in EWG/FUCO Projects, subject to the following limitations:
    EWG/FUCO Projects Limit. Cinergy's aggregate investment in EWG/FUCO 
Projects would not exceed the sum of (a) an amount equal to 100% of 
Cinergy's consolidated retained earnings, plus (b) $2 billion 
(together, ``EWG/FUCO Projects Limit''), excluding any investments 
subject to the Restructuring Limit (defined below).\9\
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    \9\ As noted above, based on Cinergy's aggregate investment and 
consolidated retained earnings of approximately $580 million and 
$1,023 million, respectively, at December 31, 1999, Cinergy had 
approximately $443 million of additional investment authority in 
EWG/FUCO Projects remaining under the 100% Order at that date. 
Assuming Cinergy's utilization of all the investment authority under 
the 100% Order and its utilization of all of the additional $2 
billion of investment authority requested for EWG/FUCO Projects, 
these investments would represent approximately 296% of Cinergy's 
consolidated retained earnings at December 31, 1999.
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    Restructuring Limit. With respect to solely to the transfer of 
CG&E's and PSI's generating assets to one or more EWG affiliates 
(``Restructuring Subsidiaries''), Cinergy's aggregate investment in 
Restructuring Subsidiaries would not exceed the net book value of the 
generating assets at the time of transfer (``Restructuring Limit''). 
The net book value of CG&E's and PSI's generating assets at December 
31, 1999 was approximately $2.9 billion.\10\
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    \10\ Together CG&E and PSI own all of or partial interests in 17 
primarily coal-fired, electric generating stations located in Ohio, 
Indiana and Kentucky, having a total installed capacity allocable to 
these ownership interests of approximately 11,200 megawatts and a 
current net book value of approximately $2.9 billion ($1.75 billion 
of which represents CG&E's share).
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    Effect Upon Existing Financing Authority. Cinergy proposes to 
replace the January 1998 Order and the August 1998 Order, each in its 
entirety, and to supersede the March 1999 Order solely to the extent of 
the guarantee authority granted in that order, with new financing 
authority, the terms of which are described below. As with the existing 
authority, the new authority would be used for general corporate 
purposes, including to fund investments in EWG/FUCO Projects.
    Aggregate Financing Limit; Guarantee Limit. Subject to the terms 
and conditions described below, from time to time through the 
Authorization Period, Cinergy proposes (a) to increase its total 
capitalization (excluding retained earnings and accumulated other 
comprehensive income \11\) by $7 billion through issuance and/or sale 
of any combination of debt or equity securities, whether directly or 
through one or more special purpose subsidiaries (``Aggregate Financing 
Limit''), and (b) to increase the level of its guarantees outstanding 
at any time to an aggregate of $2 billion (``Guarantee Limit''), all 
without further authorization from the Commission. At December 31, 
1999, Cinergy's total capitalization (excluding retained earnings and 
accumulated other comprehensive loss) totaled approximately $2 billion, 
and Cinergy's subsidiaries and affiliates had debt or other obligations 
outstanding totaling approximately $515 million supported by Cinergy 
guarantees.
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    \11\ Under Statement of Financial Accounting Standards No. 130, 
Reporting Comprehensive Income, ``accumulated other comprehensive 
income'' includes all components of common stock equity that are not 
included as net income or the result of shareholder transactions 
(e.g., stock issuances or dividends). At December 31, 1999, 
components of Cinergy's accumulated other comprehensive income 
consisted of foreign currency translations, minimum pension 
liability adjustments and unrealized gains and losses on grantor and 
rabbi trusts.
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    General Terms and Conditions Applicable to Proposed Financing 
Authority. The Proposed Financing Transactions are subject to the 
following terms and conditions:
Debt Securities
    Short-Term Notes. From time to time over the Authorization Period, 
subject to the Aggregate Financing Limit and the other conditions 
specified below, Cinergy proposes to make short-term borrowings from 
banks or other financial institutions. These borrowings would be 
evidenced by (a) ``transactional'' promissory notes to mature not more 
than one year after the date of the related borrowing, or (b) ``grid'' 
promissory notes evidencing all outstanding borrowings from the 
respective lender, to be dated as of the date of the first borrowing 
evidenced by the notes, with each borrowing maturing not more than one 
year after that date. Any note may or may not be prepayable, in whole 
or in part, with or without a premium in the event of prepayment.
    Commercial Paper. From time to time over the Authorization Period, 
subject to the Aggregate Financing Limit and the other conditions 
specified below, Cinergy also proposes to issue and sell commercial 
paper through one or more dealers or agents or directly to a limited 
number of purchasers if the resulting cost of money is equal to or less 
than that available from commercial paper placed through dealers or 
agents. Cinergy proposes to issue and sell the commercial paper at 
market rates with varying maturities not to exceed 270 days. The 
commercial paper would be in the form of book entry unsecured 
promissory notes with varying denominations of not less than $25,000 
each. In commercial paper sales effected on a discount basis, no 
commission or fee would be payable; however, the purchasing dealer 
would re-offer the commercial paper at a rate less than the rate to 
Cinergy. The discount rate to dealers would not exceed the maximum 
annual discount rate prevailing at the date of issuance for commercial 
paper of comparable quality and the same maturity. The purchasing 
dealer would re-offer the commercial paper in a manner that would not 
constitute a ``public offering'' under the Securities Act of 1933, as 
amended (``Securities Act'').
    Long-Term Notes. From time to time over the Authorization Period, 
subject to the Aggregate Financing Limit and the other conditions 
specified below, Cinergy also proposes to issue and sell

[[Page 20228]]

long-term debt securities (``Notes'') in one or more series
    Notes of any series may be either senior or subordinated 
obligations of Cinergy. If issued on a secured basis, Notes would be 
secured solely by common stock, or other assets or properties, of one 
or more of Cinergy's nonutility subsidiaries (other than any nonutility 
subsidiary of CG&E or PSI). Notes of any series (a) would have 
maturities greater than one year, (b) may be subject to optional and/or 
mandatory redemption, in whole or in part, at par or at various 
premiums above the principal amount, (c) may be entitled to mandatory 
or optional sinking fund provisions, and (d) may be convertible or 
exchangeable into common stock of Cinergy. Interest accruing on Notes 
of any series may be fixed or floating or ``multi-modal.'' \12\ Notes 
would be issued under one or more indentures to be entered into between 
Cinergy and one or more financial institutions acting as trustee, 
supplemental indentures may be executed for separate offerings of one 
or more series of Notes.
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    \12\ According to the Application, a ``multi-modal'' interest 
rate provides for periodic resetting of the interest rate, which 
alternates between fixed and floating interest rates for each reset 
period, with all accrued and unpaid interest together with interest 
becoming due and payable at the end of each reset period.
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    Notes may be issued in private or public transactions. With respect 
to private issuances, Notes of any series may be issued and sold 
directly to one or more purchasers in privately negotiated transactions 
or to one or more investment banking or underwriting firms or other 
entities who would resell the Notes without registration under the 
Securities Act in reliance upon one or more applicable exemptions from 
registration. From time to time Cinergy may also issue and sell Notes 
of one or more series to the public either (a) through underwriters 
selected by negotiation or competitive bidding, or (b) through selling 
agents acting either as agent or as principal for resale to the public 
either directly or through dealers.
    The maturity dates, interest rates, redemption and sinking fund 
provisions, if any, with respect to the Notes of a particular series, 
as well as any associated placement, underwriting, structuring or 
selling agent fees, commissions and discounts, if any, would be 
established by negotiation or competitive bidding and reflected in the 
applicable indenture or supplement and purchase agreement or 
underwriting agreement.
    Certain Conditions Applicable to Debt Securities. Cinergy 
represents that the interest rate on any series of debt security with a 
maturity of one year or less would not exceed the greater of (a) 300 
basis points over the comparable term London interbank offered rate, or 
(b) a rate that is consistent with similar securities of comparable 
credit quality and maturities issues by other companies.
    Cinergy also represents that the interest rate on any series of 
debt security with a maturity greater than one year would not exceed 
the greater of (a) 300 basis points over the comparable term U.S. 
Treasury securities or other market accepted benchmark securities, or 
(b) a rate that is consistent with similar securities of comparable 
credit quality and maturities issued by other companies.
    Cinergy further represents that, solely with respect to investments 
in EWG/FUCO projects under the EWG/FUCO Projects Limit, Cinergy would 
not issue any additional debt securities to finance these investments 
if upon original issuance Cinergy's senior debt obligations are not 
rated investment grade by at least two of the major ratings agencies 
(i.e., Standard & Poor's Corporation (``S&P''), Fitch Investor Service 
(``Fitch''), Duff & Phelps Credit Rating Co. (``D&P'') and Moody's 
Investor Service (``Moody's'')).
    Interest Rate Risk Management. In connection with the issuance and 
sale of the short- and long-term debt securities described above, 
Cinergy proposes to manage interest rate risk through the use of 
various interest rate management instruments commonly used in today's 
capital markets, such as interest rate swaps, caps, collars, floors, 
options, forwards, futures and similar products designed to manage 
interest rate risks.
    Cinergy would enter into agreements covering these derivative 
transactions with highly rated financial institutions (i.e., whose 
senior secured debt, at the date of execution of the agreement with 
Cinergy, is rated at least ``A-'' by S&P, Fitch or D&P or ``A3'' by 
Moody's). The derivative transactions would be for fixed periods and in 
no case would the notional principal amount exceed the principal amount 
of the underlying debt security. Cinergy would not engage in 
``leveraged'' or ``speculative'' derivative transactions.
    Fees, commissions and annual margins in connection with any 
interest rate management agreements would be no more than 100 basis 
points above the principal or notional amount of the related debt 
securities or interest rate management agreement. In addition, with 
respect to options such as caps and collars, Cinergy may pay an option 
fee which, on a net basis (i.e., when netted against any other option 
fee payable with respect to the same security), would not exceed 10% of 
the principal amount of the debt covered by the option.
Equity Securities
    Common Stock; Stock Purchase Contracts; Stock Purchase Units. At 
December 31, 1999, Cinergy had 600 million shares of common stock 
authorized for issuance, 158,923,399 shares of which were issued and 
outstanding. Cinergy states that it has issued 771,258 shares of common 
stock under the January 1998 Order.
    From time to time over the Authorization Period, subject to the 
Aggregate Financing Limit and the other conditions specified below, 
Cinergy proposes to issue and sell additional shares of its common 
stock (a) through solicitations of proposals from underwriters or 
dealers, (b) through negotiated transactions with underwriters or 
dealers, (c) directly to a limited number of purchasers or to a single 
purchaser, and/or (d) through agents. The price applicable to 
additional shares sold in any of these transactions would be based on 
several factors, including the current market price of the common stock 
and prevailing capital market conditions.
    Cinergy also proposes to issue and sell from time to time stock 
purchase contracts (``Stock Purchase Contracts''), including contracts 
obligating holders to purchase from Cinergy, and/or Cinergy to sell to 
the holders, a specified number of shares or aggregate offering price 
of Cinergy common stock at a future date. The consideration per share 
of common stock may be fixed at the time the Stock Purchase Contracts 
are issued or may be determined by reference to a specific formula. The 
Stock Purchase Contracts may be issued separately or as part of units 
(``Stock Purchase Units'') consisting of a Stock Purchase Contract and 
debt and/or preferred securities of Cinergy and/or debt obligations of 
nonaffiliates, including U.S. Treasury securities, securing holders' 
obligations to purchase the common stock of Cinergy under the Stock 
Purchase Contracts. The Stock Purchase Contracts may require holders to 
secure their obligations.
    Further, Cinergy requests authorization to issue common stock as 
consideration, in whole or part, for acquisitions by Cinergy or any 
nonutility subsidiary of securities of businesses, the acquisition of 
which (a) is exempt under the Act or the rules under the Act, or (b) 
has been authorized by effective Commission order issued to Cinergy or 
any of

[[Page 20229]]

Cinergy's nonutility subsidiaries, subject in either case to applicable 
limitations on total investments in any of these businesses. The shares 
of Cinergy common stock issued in any of these transactions would be 
valued at market value based on the closing price on the day before 
closing of the sale, on average high and low prices for a period prior 
to the closing of the sale, or on some other method negotiated by the 
parties.
    Cinergy represents that, except in the case of the transactions 
covered by the Restructuring Limit, common equity would comprise at 
least 30% of Cinergy's consolidated capitalization (based upon the 
financial statements included in Cinergy's most recent quarterly report 
on Form 10-Q or annual report on Form 10-K filed with the Commission 
under the Securities Exchange Act of 1934, as amended).
    Preferred Securities. From time to time over the Authorization 
Period, subject to the Aggregate Financing Limit and the other 
conditions specified below, Cinergy also proposes to issue and sell 
preferred securities in one or more series. Preferred securities of any 
series (a) would have a specified par or stated value or liquidation 
value per security, (b) would carry a right to periodic cash dividends 
and/or other distributions, subject, among other things, to funds being 
legally available for that purpose, (c) may be subject to optional and/
or mandatory redemption, in whole or in part, at par or at various 
premiums above the par or stated or liquidation value, (d) may be 
convertible or exchangeable into common stock of Cinergy, and (e) may 
bear additional rights, including voting, preemptive or other rights, 
and other terms and conditions, contained in the applicable certificate 
of designation, purchase agreement and/or similar instruments governing 
the issuance and sale of that series of preferred securities.
    Preferred securities may be issued in private or public 
transactions. With respect to private transaction, preferred securities 
of any series may be issued and sold directly to one or more purchasers 
in privately negotiated transactions or to one or more investment 
banking or underwriting firms or other entities who would resell the 
preferred securities without registration under the Securities Act in 
reliance upon one or more applicable exemptions from registration. From 
time to time Cinergy may also issue and sell preferred securities of 
one or more series to the public either (a) through underwriters 
selected by negotiation or competitive bidding, or (b) through selling 
agents acting either as agent or as principal for resale to the public 
either directly or through dealers.
    The liquidation preference, dividend or distribution rates, 
redemption provisions, voting rights, conversion or exchange rights, 
and other terms and conditions of a particular series of preferred 
securities, as sell as any associated placement, underwriting, 
structuring or selling agent fees, commissions and discounts, if any, 
would be established by negotiation or competitive bidding and 
reflected in the applicable certificate of designation, purchase 
agreement or underwriting agreement, and other relevant instruments.
    Cinergy represents that the distribution rate on any series of 
preferred security would not exceed the greater of (a) 400 basis points 
over the comparable term U.S. Treasury securities or other market 
accepted benchmark securities, or (b) a rate that is consistent with 
similar securities of comparable credit quality and structure issued by 
other companies.
    Cinergy represents that the underwriting fees, commissions or 
similar remuneration paid in connection with the issue, sale or 
distribution of any authorized securities (excluding interest rate risk 
management instruments, as to which separate provisions governing fees 
and expenses are proposed below) would not exceed 700 basis points of 
the principal or face amount of the securities issued or gross proceeds 
of the financing.
Financing Conduits
    Cinergy requests approval to form one or more subsidiaries for the 
sole purpose of issuing and selling any of the proposed securities, 
lending, paying dividends or otherwise transferring the proceeds to 
Cinergy or any entity designated by Cinergy, and engaging in incidental 
transactions, subject to the Aggregate Financing Limit and other terms 
and conditions described below.
    The proposed subsidiaries would comprise one or more financing 
subsidiaries (each, a ``Financing Subsidiary'') and one or more special 
purpose entities (each, a ``Special Purpose Entity,'' and, together 
with Financing Subsidiaries, ``Financing Conduits''). In either case 
the subsidiaries' businesses would be limited to issuing and selling 
securities on behalf of Cinergy, the subsidiaries would have no 
substantial physical assets or properties. Any securities issued by the 
Financing Conduits would be fully guaranteed, directly or indirectly, 
by Cinergy.
    Cinergy would acquire all of the outstanding shares of common stock 
or other equity interests of the Financing Subsidiary for an amount not 
less than the minimum required by applicable law. The business of the 
Financing Subsidiary would be limited to effecting financing 
transactions with third parties for the benefit to Cinergy and its 
subsidiaries. As an alternative to Cinergy directly issuing debt or 
equity securities, or through a Special Purpose Entity, Cinergy may 
determine to use a Financing Subsidiary as the nominal issuer of the 
particular debt or equity security. In that circumstances, Cinergy 
would provide a full guarantee or other credit support with respect to 
the securities issued by the Financing Subsidiary, the proceeds of 
which would be lent, paid by dividend or otherwise transferred to 
Cinergy or an entity designated by Cinergy. Cinergy explains that the 
primary reason for the use of a Financing Subsidiary would be to 
segregate financing for the different businesses conducted by Cinergy, 
distinguishing between securities issued by Cinergy to finance its 
investments in nonutility businesses from those issued to finance its 
investments in its core utility businesses. A separate Financing 
Subsidiary may be used by Cinergy with respect to different types of 
nonutility businesses.
    Cinergy would use Special Purpose Subsidiaries in connection with 
certain financing structures for issuing debt or equity securities, in 
order to achieve a lower cost of capital, or incrementally greater 
financial flexibility or other benefits, than would otherwise be the 
case.
Guarantees
    Cinergy also proposes to supersede its existing guarantee 
authority, limited to $1 billion under the March 1999 Order, with 
greater authority intended to accommodate growth in its business.
    Specifically, from time to time through the Authorization Period, 
Cinergy requests authority to guarantee, obtain letters of credit and 
otherwise provide credit support (each, a ``Guarantee'') in respect of 
the debt or other securities or obligations of any or all of Cinergy's 
subsidiary or associate companies (including any formed or acquired at 
any time over the Authorization Period), and otherwise to further the 
business of Cinergy, provided that the total amount of Guarantees at 
any time outstanding does not exceed the Guarantee Limit, and provided 
further, that (a) any Guarantees of EWG/FUCO Projects would also be 
subject to the EWG/FUCO Projects Limit or Restructuring Limit, as 
applicable, and (b) any Guarantees of energy-related companies within 
the

[[Page 20230]]

meaning of rule 58 under the Act (``Rule 58 Companies'') would also be 
subject to the aggregate investment limitation of rule 58.\13\ The 
terms and conditions of any Guarantees would be established at arm's 
length based upon market conditions.
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    \13\ Rule 58(a)(1) limits the aggregate investment by a 
registered holding company in rule 58 subsidiaries to the greater of 
$50 million, or 15% of the consolidated capitalization of the 
registered holding company.
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    In the event that Cinergy issues any authorized debt or equity 
securities by means of any Financing Conduits, Cinergy would provide a 
full Guarantee in respect of the payment and other obligations of the 
Financing Conduit under the securities issued by it. As any securities 
nominally issued by a Financing Conduit are, in substance, securities 
issued by Cinergy itself, any securities issued by a Financing Conduit 
would count dollar-for-dollar against the Aggregate Financing Limit, 
but not against the Guarantee Limit.
Use of Proceeds
    Cinergy proposed to issue the authorized debt and equity securities 
for general corporate purposes, including: (a) payments, redemptions, 
acquisitions and refinancing of outstanding securities issued by 
Cinergy; (b) acquisitions of and investments in EWG/FUCO Projects, 
provided that Cinergy's aggregate investment in these projects does not 
exceed the EWG/FUCO Projects Limit or Restructuring Limit, as 
applicable; (c) acquisitions of, and investments in, Rule 58 Companies, 
provided that Cinergy's aggregate investments in these companies does 
not exceed the aggregate investment limitation of rule 58; (d) loans 
to, and investments in, other system companies, including through the 
Cinergy system money pool \14\; and (e) other lawful corporate 
purposes.
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    \14\ See Holding Co. Act Release Nos. 26362 (Aug. 25, 1995) and 
26723 (May 30, 1997).
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    As previously described, in the event Cinergy utilizes Financing 
Conduits to issue authorized securities, these entities would apply the 
proceeds of securities nominally issued by them to make loans, 
dividends or other transfers to Cinergy or an entity designated by 
Cinergy, which would then be applied for any of the purposes listed 
above.
Intrasystem Transfer of Generating Assets
    Cinergy states that, as a result of state restructuring of the 
electric utility industry, it intends to transfer all or a substantial 
portion of the generating assets owned by CG&E and, eventually, PSI, to 
one or more newly formed Restructuring Subsidiaries and subject to the 
Restructuring Limit. Cinergy has requested authority over the 
Authorization Period to make investments in these Restructuring 
Subsidiaries in an amount not to exceed the net book value of the 
generation assets transferred by CG&E and PSI to these affiliates. 
Cinergy states that the net book value at December 31, 1999 of these 
assets was approximately $2.9 billion.
    CG&E and PSI own significant electric generating facilities. The 
generating assets are either wholly owned by CG&E or PSI or jointly 
owned with other utilities, and are located in Ohio and Indiana, with 
the exception of one plant in Kentucky owned by CG&E. The installed 
capacity and net book value of the generation assets allocable to 
CG&E's and PSI's ownership interests are 11,221 megawatts and $2.892 
billion, respectively, at December 31, 1999, with 5,245 megawatts of 
installed capacity having a net book value of $1.755 billion allocable 
to CG&E, and 5,976 megawatts of installed capacity having a net book 
value of $1.137 billion allocable to PSI. None of Cinergy's other 
utility subsidiaries own any electric generating facilities.
    Comprehensive electric restructuring legislation was passed in Ohio 
in July 1999.\15\ As discussed in the Application, under the new law, 
all retail customers in Ohio can choose their electric supplier 
commencing January 1, 2001.
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    \15\ Ohio Rev. Code Ann. Sec. 4928.01 et seq. (1999).
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    The legislation deregulates electric generation and supply, with 
electric transmission and distribution continuing as regulated utility 
functions. According to Cinergy, although it does not require 
restructuring or divestiture of generating assets, the new Ohio 
legislation encourages that result in order to foster generation 
supplier diversity and curb potential market power of incumbent 
utilities. As an incumbent Ohio electric utility, CG&E is required to 
separate its existing functions pertaining to competitive retail sale 
of generation service from those pertaining to transmission and 
distribution service, and to transfer the generation services into a 
separate legal entity. The legislation requires that utilities devise 
incentives to induce 20% of their electric loads by customer class to 
switch providers by halfway through a ``market development period,'' 
but in no event later than December 31, 2003.
    Other provisions of the law include: (a) A 5% reduction in the 
generation component of rates for every residential customer beginning 
January 1, 2001, (b) the establishment of a ``market development 
period'' (i.e., the transition period to full competition) beginning 
January 1, 2001 and ending no later than December 31, 2005; (c) a 
``freeze'' of utility rates for non-switching customers through the 
market development period: (d) an opportunity for incumbent utilities 
to recover transition costs approved by the Public Utilities Commission 
of Ohio (``PUCO'') over the market development period; (e) an 
opportunity for incumbent utilities to recover regulatory assets 
through December 31, 2010, if approved by the PUCO; (f) a requirement 
that incumbent utilities transfer either ownership or control of their 
transmission assets to an independent transmission entity before 
December 31, 2003; (g) a requirement that incumbent utilities provide 
retail electric service to native load customers who decline to switch 
to different suppliers or who desire to return to service from the 
incumbent utility; and (h) a requirement that incumbent utilities file 
a proposed transition plan by December 31, 1999.
    As required by the legislation, CG&E filed its proposed transition 
plan with the PUCO on December 28, 1999. The transition plan is 
comprised of eight component plans--a rate unbundling plan, corporate 
separation plan, operational support plan, employee assistance plan, 
consumer education plan, application for receipt of transition 
revenues, independent transmission plan and shopping incentive plan. 
The PUCO is required to issue its order on the transition plan of all 
incumbent utilities no later than October 31, 2000.
    In its transition plan, CG&E has proposed to meet its corporate 
separation obligations in part by legally separating the generation 
from the transmission and distribution businesses, transferring all of 
its generating assets to one or more affiliated EWGs. The generation 
assets would be moved as soon as practicable after PUCO approval. The 
asset transfer is contingent on various other factors, including 
receipt from the Ohio, Indiana and Kentucky utility regulatory 
commissions of the findings required under section 32(c) of the 
Act.\16\ Concurrent with the transfer of the generation assets CG&E 
would enter into a power purchase agreement with the

[[Page 20231]]

EWG approved by the Federal Energy Regulatory Commission. The power 
purchase agreement would grant CG&E a first call on all power produced 
by the EWG at embedded cost through the end of the market development 
period, ensuring CG&E sufficient power to meet its electric supply 
obligations to customers who do not switch or who return. Cinergy 
states that it has no current intention of establishing an affiliate of 
CG&E to market competitive generation services to retail customers in 
Ohio, as permitted by the new legislation.
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    \16\ Subject to certain conditions, section 32(c) provides that, 
in order for an existing rate-based facility to be deemed an 
``eligible facility,'' the state commission responsible for 
ratemaking ``must make a specific determination that allowing such 
facility to be an eligible facility (1) will benefit consumers, (2) 
is in the public interest, and (3) does not violate State law.'' See 
15 U.S.C. 79z-5a(c).
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    As part of its proposed transition plan, CG&E filed a request to 
recover transition costs comprised of generation-related regulatory 
assets in the total amount of $364 million (excluding carrying charges) 
and above-market generation costs in the total amount of $563 million 
(excluding carrying charges), in each case beginning January 1, 2001. 
The total carrying costs, for which CG&E has also requested recovery, 
are estimated at $311 million.
    Although comprehensive electric industry restructuring legislation 
has not yet been enacted in Indiana, Cinergy expects that this 
legislation will be enacted before expiration of the Authorization 
Period. Moreover, Cinergy asserts that existing statutory provisions in 
the Indiana Code for ``alternative'' regulation of utilities provide a 
basis for Cinergy to seek approval from the Indiana Utility Regulatory 
Commission to transfer PSI's generating facilities to Restructuring 
Subsidiaries prior to the adoption of state-wide restructuring.
    Cinergy maintains in the Application that it needs the flexibility 
to reposition the generation assets now held by CG&E and PSI to 
maximize the value of those assets in a competitive environment. 
Cinergy states that, like a number of other utilities in states 
undergoing restructuring, it is seeking to achieve asset flexibility 
and optimization by transferring the assets to Restructuring 
Subsidiaries, where they can be used for electric sales back to the 
affiliated transmission and distribution utility or marketed for sale 
to off-system buyers, either with respect to all or some of the 
particular assets. According to the Application, Cinergy's current 
intention is to convert all or a substantial number of CG&E's and PSI's 
power plants to EWG status, since Cinergy believes that corporate 
disaggregation will eventually be required for the entire portfolio of 
generating properties, not merely CG&E's plants. Therefore, Cinergy has 
requested a separate investment ceiling--the Restructuring Limit--with 
a view to restructuring both CG&E's and PSI's generating assets. 
Cinergy further states that, although it likely would not make 
permanent recourse investments equal to the full amount of the book 
value of the transferred assets, Cinergy could be required to make 
investments of that magnitude, on a short-term basis, if ``bridge'' 
financing becomes necessary. Cinergy asserts that the overriding 
purpose of the Restructuring Limit is to afford it sufficient financial 
flexibility under the Act to pursue a variety of alternatives in an 
uncertain and changing regulatory environment.
    Cinergy states that the generating assets would be transferred in 
one or more transactions, as soon as practicable after receipt of 
necessary regulatory approvals and satisfaction of other conditions. 
Cinergy has engaged Donaldson, Lufkin & Jenrette (``DLJ'') to provide 
financial advice in connection with these transactions.
    Cinergy proposes two basic transaction structures by which CG&E and 
PSI (each, a ``Generating Utility'') would transfer their generating 
assets to the Restructuring Subsidiaries. Under the ``Sale Scenario,'' 
the Generating Utility sells generating assets, for case and/or 
promissory notes or other consideration, directly to one or more newly 
created subsidiaries of Cinergy (``Genco''), held either directly by 
Cinergy or indirectly by one or more newly created, special purpose 
intermediate holding companies directly held by Cinergy (``Genco 
Holdco''). Under the ``Spin-Off Scenario,'' the Generating Utility 
contributes its generating assets to Genco for shares of stock or other 
equity securities of Genco. The Generating Utility then distributes its 
investment in Genco to Cinergy by dividend or otherwise, and Cinergy 
then contributes the stock or other equity to Genco Holdco. Genco may 
transfer its generating assets into one or more special purpose 
subsidiaries; for example, Cinergy may establish a separate subsidiary 
for each power plant.
    Under both scenarios, the assets would likely be transferred at net 
book value. The decision to use a particular transaction structure 
would depend, among other factors, on whether the transaction can be 
structured on a tax-deferred basis and other transaction costs. Under 
either scenario, Genco would have an initial capitalization equal to 
the value of the transferred generating assets, approximately $2.9 
billion (assuming transfer of all the generating assets at book value 
at December 31, 1999). Cinergy is considering both potential structures 
discussed above, as well as variations of each.
    Cinergy asserts that, regardless of which particular structure is 
used, there should be no material increase in Cinergy's consolidated 
debt as a result of the restructuring. Any incremental debt at the 
Cinergy or EWG level would be largely offset by reduced debt at the 
Generating Utility level. This is because Cinergy currently owns the 
assets, and would merely transfer direct title of these assets from the 
utility to the nonutility side of Cinergy's business. Cinergy states 
that it and DLJ believe that the asset transfers and associated 
financings should not themselves have any material adverse impact on 
the credit ratings of Cinergy, CG&E or PSI; rather, according to 
Cinergy, any potential impact is a consequence of state deregulation 
generally and Cinergy's resulting loss of monopoly supplier status.

For the Commission by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-9276 Filed 4-13-00; 8:45 am]
BILLING CODE 8010-01-M