[Federal Register Volume 66, Number 169 (Thursday, August 30, 2001)]
[Notices]
[Pages 45877-45878]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-21887]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27433]


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

August 24, 2001.
    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(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 September 18, 2001, 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 September 18, 2001, the application(s) and/or 
declaration(s), as filed or as amended, may be granted and/or permitted 
to become effective.

Energy East Corporation, et al. (70-9875)

    Energy East Corporation (``Energy East''), a registered holding 
company, and its public utility subsidiary, New York State Electric & 
Gas Company (``NYSEG''), both located in Albany, New York 12212-2904 
(together, ``Applicants''), have filed a declaration under section 
12(d) and rules 44 and 54 of the Act.
    Applicants propose that NYSEG sell its eighteen percent interest in 
the Nine Mile Point Unit No. 2 nuclear generating station (``NPM2'') 
(``Assets''),\1\ located in Scriba, New York, to Constellation Nuclear, 
LLC (``CNLLC''), a subsidiary of Constellation Energy Group, Inc. 
(``CEGI''), a nonaffiliate. Upon closing, CNLLC will transfer the 
Assets to Nine Mile Point Nuclear Station, LLC (``NMPNS''), a wholly 
owned subsidiary company of CNLLC.\2\ NYSEG is divesting all of its 
generating assets in accordance with the New York state electric 
restructuring law.
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    \1\ Assets include: (a) Real property, buildings and 
improvements; (b) all spent nuclear fuel, high-level waste, low-
level waste, source and by product material at the site, and fuel-
related inventory; (c) all machinery, equipment, such as computer 
hardware and software and communications equipment, vehicles, tools, 
spare parts, fixtures, furniture and furnishings and other personal 
property relating to or used in the ordinary course of business to 
operate the facilities, other than property used primarily as part 
of the transmission assets, or that is otherwise excluded from the 
sale; (d) the material agreements, listed on schedules to the APA 
and other non-material contracts; (e) all transferable permits; (f) 
all books, operating records and other documents relating to the 
facilities (subject to the right of NYSEG to retain copies of same 
for its use) other than general ledger accounting records; and (g) 
all unexpired, transferable warranties and guarantees from third 
parties with respect to any item of real property or personal 
property constituting part of the purchased assets.
    \2\ NMPNS was formed by CNLLC to hold the Assets.
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    NYSEG is a regulated public utility company engaged in transmitting 
and distributing electricity and transporting, storing and distributing 
natural gas. NYSEG generates electricity from its eighteen percent 
share of NMP2 and from its several hydroelectric stations. NYSEG 
provides delivery services to approximately 824,000 electricity 
customers and 248,000 natural gas customers. NYSEG's service territory 
is in the central, eastern and western parts of New York, has an area 
of approximately 20,000 square miles and a population of 2,500,000.
    CEGI is a diversified energy company and an exempt holding company 
under section 3(a)(1) of the act by rule 2 of the Act. CNLLC is a 
direct, wholly owned subsidiary of CEGI. CNLLC, which is the parent of 
NMPNS, is the party to each of the other transaction documents. CNLLC 
will transfer its rights and obligations under some or all of the 
transaction documents to NMPNS prior to purchasing the Assets. NMPNS 
will own the Assets upon closing.
    NYSEG's interest in NMP2 will be sold for a total of approximately 
$128 million under an asset purchase agreement (``APA'') entered into 
by NYSEG and CNLLC on December 11, 2000. Under the APA, CNLLC will pay 
fifty percent of the purchase price to NYSEG at closing and the 
remaining balance annually for five years in equal installments. The 
sale price and the purchaser of the Assets were determined by an 
auction process managed by J.P. Morgan and Navigant Consulting, Inc. As 
part of the APA, NYSEG and CNLLC also entered into a power purchase 
agreement (``PPA'') and a revenue sharing agreement (``RSA'') on 
December 11, 2000.
    The PPA provides that NYSEG will purchase 16.2 percent of the 
capacity and energy from NMP2 at certain prices set forth in the PPA. 
The PPA's terms take effect on the closing date of the transaction and 
continue for ten years. After completion of the PPA's ten-year term, 
NMPNS, as CNLLC's assignee, will pay NYSEG eighty percent of the amount 
by which actual market prices exceed a schedule of floor prices as set 
forth in the RSA. To the extent floor prices exceed actual prices, 
eighty percent of the negative differences will be credited against 
future payment obligations under the RSA. Under no circumstances will 
NYSEG be required to make payments under the RSA.

[[Page 45878]]

GPU, Inc. et al. (70-9885)

    GPU, Inc. (``GPU''), a registered public-utility holding company, 
300 Madison Avenue, Morristown, New Jersey 07960, and Jersey Central 
Power & Light Company (``JCP&L''), a public-utility subsidiary of GPU, 
2800 Pottsville Pike, Reading, Pennsylvania 19605, have filed an 
application-declaration with the Commission under sections 6(a), 7, 
9(a), 10, 12(f), and 13(b) of the Act and rules 54, 90 and 91 under the 
Act.
    New Jersey's Electric Discount and Energy Competition Act, P.L. 
1999, c. 23 (N.J.S.A. 48:3-49 et seq.) (``Competition Act'') introduced 
competition into the New Jersey electric generation market. Under the 
Competition Act, utilities were required to submit restructing plans to 
the New Jersey Board of Public Utilities (``BPU'') that included their 
claims of stranded costs. In July of 1997, JCP&L filed its restructing 
plan with the Board. The restructuring plan was the subject of 
extensive hearings and negotiations, and a settlement was reached and 
approved by the BPU by a summary order dated May 24, 1999 and a 
detailed final decision and order dated March 7, 2001 (collectively, 
``BPU Orders''). In the BPU Orders, the BPU identified up to $400 
million in recoverable JCP&L stranded costs and $20 million in 
associated transaction costs (collectively, ``Stranded Costs''). The 
Competition Act facilitates restructuring by empowering the BPU to 
authorize a requesting utility to issue transition bonds, directly or 
indirectly, to recover and/or finance a portion of its stranded costs 
and to assist in achieving compliance with the rate reduction 
requirements of the Competition Act.\3\ The Stranded Costs identified 
and approved by the BPU will be recovered from distribution utility 
customers, through a non-bypassable market transition charge.
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    \3\ The Competition Act required electric utilities to reduce 
their rates by at least ten percent by July 31, 2002, as compared to 
rates in effect on April 30, 1997.
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    Applicants request authority for GPU and JCP&L to acquire, 
indirectly and directly, respectively, all of the common equity 
interests in a new company (``SPE'') to be organized for the sole 
purpose of issuing and selling transition bonds. JCP&L will capitalize 
the SPE through direct contribution of capital in an amount equal to at 
least .5% of the total principal amount of the transition bonds.
    Applicants also request authority for the SPE to issue and sell up 
to an aggregate amount of $420 million in transition bonds through 
December 31, 2002 (``Authorization Period''). The transition bonds 
would be debt securities of the SPE, not of the State of New Jersey or 
JCP&L. The interest rate on the proposed bonds would not exceed 300 
basis points over the applicable U.S. mid-market swap benchmark, and 
all of the bonds would mature within seventeen years.
    Applicants request authority for the SPE to, through the 
Authorization Period, enter into interest rate swaps or other 
derivative products (collectively, ``Derivative Transactions'').\4\ 
Derivative Transactions would be used to convert all or a portion of 
the transition bonds bearing a floating interest rate (``Floating Rate 
Transition Bonds'') to fixed rate obligations. The SPE would enter into 
Derivative Transactions with 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, Inc., or Fitch IBCA, Duff & Phelps (``Authorized 
Counterparties''). The notional amount of the swaps and the expected 
average life of the swaps would not exceed that of the underlying 
Floating Rate Transition Bonds.
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    \4\ Derivative Transactions would include interest rate caps, 
interest rate floors and interest rate collars.
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    Applicants also request authority for JCP&L to enter into hedging 
transactions through the Authorization Period with respect to 
anticipatory debt issuances (``Anticipatory Hedges''), including: (1) A 
forward sale of exchange-traded U.S. Treasury futures contracts, U.S. 
Treasury obligations and/or a forward swap (``Forward Sale''); (2) a 
purchase of put options on U.S. Treasury Obligations (``Put Options 
Purchase''); (3) a Put Options Purchase in combination with a sale of 
call options on U.S. Treasury obligations (``Zero Cost Collars''); (4) 
transactions involving the purchase or sale, including short sales, of 
U.S. Treasury obligations; or (5) some combination of a Forward Sale, 
Put Options Purchase, Zero Cost Collar and/or other derivative or cash 
transactions, including, but not limited to structured notes, caps and 
collars, appropriate for the Anticipatory Hedges. JCP&L would enter 
into Anticipatory Hedges with Authorized Counterparties. Anticipatory 
Hedges would be executed on-exchange (``On-Exchange Trades'') with 
brokers through the opening of 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. All open 
positions under Anticipatory Hedges would be closed on or prior to the 
date of the issuance of the transition bonds. JCP&L would comply with 
existing and future financial disclosure requirements of the Financial 
Accounting Standards Board associated with hedging transactions, and 
all Anticipatory Hedges would qualify for hedge accounting treatment 
under generally accepted accounting principles.
    Further, Applicants request authority for JCP&L to enter into a 
service agreement (``Service Agreement'') with the SPE that may not 
comply with the at-cost requirements of section 13(b) of the Act and 
rules 90 and 91 under the Act. The Service Agreement provides for the 
utility to service the transition bonds revenue stream by, among other 
things, billing customers and making collections on behalf of the SPE, 
and obtaining from the BPU periodic adjustments to the TBC that allow 
for payment of all debt service and full recovery of the authorized 
amounts.\5\ For its services, JCP&L will receive a fee and be 
reimbursed for certain of its expenses. The fee, set an amount equal to 
a fixed percentage of the initial principal amount of the transition 
bonds, is approximately $400,000 per year. Applicants state that the 
proposed fee--which approximates the fee that the SPE would have had to 
pay a nonaffiliate to provide these services--is designed to enhance 
the credit rating of the transition bonds and strengthens their 
position that the SPE is a ``bankruptcy remote'' assignee.
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    \5\ Applicants expect that the Servicing Agreement will remain 
in effect until the legal final maturity of the transition bonds, 
which will be no later than seventeen years after the date they are 
issued.
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    Applicants state that none of the proposed transactions will affect 
the pending merger of GPU and FirstEnergy Corp., a public utility 
holding company claiming exemption from registration under section 
3(a)(1) of the Act by rule 2.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-21887 Filed 8-29-01; 8:45 am]
BILLING CODE 8010-01-M