[Federal Register Volume 66, Number 217 (Thursday, November 8, 2001)]
[Notices]
[Pages 56580-56583]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-28079]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27462]


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

November 2, 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 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 November 26, 2001, to the Secretary, Securities and Exchange 
Commission, Washington, D.C. 20549-0609, and serve a copy of 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 November 26, 2001, the application(s) and/or 
declaration(s), as filed or as amended, may be granted and/or permitted 
to become effective.

Reliant Energy, Inc., et al. [70-9895]

    Reliant Energy Incorporated (``REI''), a Texas public-utility 
holding company exempt by order under section 3(a)(2) of the Act,\1\ 
and its wholly owned Texas subsidiary company formed for purposes of 
the transactions described in this filing, CenterPoint Energy, Inc. 
(``Regco''), 1111 Louisiana, Houston, TX 77002, have filed an 
application under sections 3(a)(1), 9(a)(2) and 10 of the Act in 
connection with a corporate restructuring (``Restructuring'') of REI.
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    \1\ Houston Industries, Holding Co. Act Release No. 26744 (July 
24, 1997).
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    REI is a Texas electric utility company and a combination electric 
and gas public-utility holding company. Through its unincorporated HL&P 
division (the ``HL&P Division''), REI generates, purchases, transmits 
and distributes electricity to approximately

[[Page 56581]]

1.7 million customers in Texas. REI primarily serves a 5,000-square 
mile area on the Texas Gulf Coast, including the Houston metropolitan 
area. All of REI's electric generation and operating properties are 
located in Texas. For the six months ended June 30, 2001, HL&P reported 
operating income of $528 million on total operating revenues of $2.9 
billion.
    As an electric utility, the HL&P Division is subject to regulation 
by the Public Utility Commission of Texas (the ``Texas Commission'') 
and to the provisions of the Texas Act, as that term is defined below. 
REI is a member of the Electric Reliability Council of Texas, Inc. 
(``ERCOT''), which provides the function of Independent System Operator 
for its member utilities.\2\
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    \2\ ERCOT represents a bulk electric system located entirely 
within Texas. Because of the intrastate status of their operations, 
the primary regulatory authority for the HL&P Division and ERCOT is 
the Texas Commission, although the Federal Energy Regulatory 
Commission exercises limited authority.
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    REI conducts natural gas distribution operations through three 
unincorporated divisions of its wholly owned gas utility subsidiary, 
Reliant Energy Resources Corp. (``GasCo''): (1) The Entex Division, 
which serves approximately 1.5 million customers, located in Texas 
(including the Houston metropolitan area), Louisiana and Mississippi; 
(2) the Arkla Division, which serves approximately 740,000 customers 
located in Texas, Louisiana, Arkansas, and Oklahoma; and (3) the 
Minnegasco Division, which serves appropriately 680,000 customers in 
Minnesota. The largest communities served by Arkla are the metropolitan 
areas of Little Rock, Arkansas and Shreveport, Louisiana. Minnegasco 
serves the Minneapolis metropolitan area.
    The Entex Division is subject to regulation by the Texas Railroad 
Commission, the Louisiana Public Service Commission (the ``Louisiana 
Commission'') and the Mississippi Public Service Commission (the 
``Mississippi Commission''). The Arkla Division is subject to 
regulation by the Texas Railroad Commission, the Louisiana Commission, 
the Arkansas Public Service Commission (the ``Arkansas Commission'') 
and the Corporation Commission of the State of Oklahoma (the ``Oklahoma 
Commission''). The Minnegasco Division is subject to regulation by the 
Minnesota Public Utilities Commission (the ``Minnesota Commission'').
    For the six months ended June 30, 2001, the Entex, Arkla, and 
Minnegasco Divisions reported combined net operating income of $66.8 
million. At June 30, 2001, reported net property, plant and equipment 
were $1.551 million.
    REI conducts its nonutility operations, including merchant power 
generation and energy trading and marketing, largely through its 
partially owned nonutility subsidiary company, Reliant Resources, Inc. 
(``Unregco''), and Unregco's subsidiary companies. These nonutility 
subsidiaries include wholesale power, trading and communications 
operations. As discussed below, REI plans to spin off Unregco.
    REI's existing structure resulted from the acquisition by Houston 
Industries Incorporated (``Houston Industries'') of NorAm Energy Corp. 
(``NorAm'') in August 1997.\3\ Prior to the acquisition, Houston 
Industries' principal utility operations were conducted through its 
electric utility subsidiary, Houston Light & Power Company (``HL&P''). 
NorAm engaged in gas distribution operations. In the merger, Houston 
Industries merged into HL&P (which then adopted the name Houston 
Industries Incorporated). HL&P became a division of the holding 
company, Houston Industries, and NorAm become a first tier, wholly 
owned subsidiary of the holding company.
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    \3\ See Houston Industries, supra note 1.
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    In 1999, the name of the holding company was changed from Houston 
Industries to Reliant Energy, Incorporated, referred to herein as REI, 
and the electric utility company became Reliant Energy HL&P, a division 
of REI referred to herein as the HL&P Division. NorAm became Reliant 
Energy Resources Corp., referred to herein as GasCo.
    In June, 1999, S.B. 7, known as the Texas Electric Choice Plan (the 
``Texas Act''), substantially amended the regulatory structure 
governing electric utilities in Texas to provide for full retail 
competition beginning on January 1, 2002. Under the Texas Act, 
traditionally vertically integrated electric utility companies are 
required to separate their generation, transmission and distribution, 
and retail activities.
    On March 15, 2001, the Texas Commission approved a business 
separation plan (the ``Business Separation Plan'') under which REI's 
existing electric utility operations would be separated into three 
businesses: a power generation company (``PGC''), a transmission and 
distribution utility (``T&D Utility'') and a retail electric provider 
(``REP''). Full implementation of the Business Separation Plan will 
occur over a period of four years.
    Under the Business Separation Plan, Unregco will be the successor 
to REI as the retail electric provider (``REP'') to customers in the 
Houston metropolitan area when the Texas market opens to competition in 
January 2002. Unregco will become the REP for all of REI's customers in 
the Houston metropolitan area that do not take action to select another 
retail electric provider.\4\
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    \4\ Unregco will provide these services through one or more 
subsidiary REPs. Applicants state that the REPs will not be electric 
utility companies for purposes of the Act because they will not own 
or operate physical facilities used for the generation, transmission 
or distribution of electric energy for sale.
    As noted below, REI plans to spin off Unregco. Once the spin-off 
is completed, Unregco will cease to be an affiliate of REI or Regco 
for purposes of the Act. Unregco will nonetheless continue to be 
deemed to be an affiliate of Regco for certain purposes under the 
Texas Act. Under the statute, REPs such as Unregco that are 
affiliated with an incumbent utility will be required to sell 
electricity to residential and small commercial customers within the 
utility's service territory at a specific price, referred to in the 
Texas law as the ``price to beat.'' Electric services provided to 
large commercial and industrial customers may be provided at any 
negotiated price. In contrast, new REPs may sell electricity to 
REI's former retail and small commercial customers at any price.
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    As a preliminary step toward the Restructuring, REI formed Unregco 
as a subsidiary and transferred to it, or its subsidiaries, 
substantially all of REI's nonutility operations, including merchant 
power generation, energy trading and marketing, and communications 
operations. On May 4, 2001, Unregco completed an initial public 
offering (``IPO'') of approximately 20% of its common stock. REI 
expects that the IPO will be followed within twelve months by a tax-
free distribution of the remaining Unregco common stock to the 
shareholders of REI or its successor. As a result of the distribution, 
Unregco will cease to be an affiliate of REI or Regco for purposes of 
the Act and will become a separate publicly traded corporation.
    The Restructuring itself will proceed in two stages.

1. The Electric Restructuring

    In the first stage, Regco will form Texas Genco Holdings, Inc. 
(``Texas Genco Holdings'') as a Texas indirect wholly owned limited 
partnership PGC subsidiary. REI will contribute its regulated assets 
used to generate electric power and energy for sale within Texas and 
the liabilities associated with those assets (the ``Texas Genco 
assets'') to Texas Genco Holdings. Texas Genco Holdings, in turn, will 
contribute the Texas Genco assets to two newly formed limited liability 
companies, which, in

[[Page 56582]]

turn, will contribute the assets to a Texas limited partnership, Texas 
Genco LP. Texas Genco LP will be an electric utility company within the 
meaning of the Act. Applicants state that Texas Genco Holdings will be 
a Texas holding company that will qualify for exemption under section 
3(a)(1) of the Act.\5\
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    \5\ Applicants state that the limited liability companies, GP 
LLC and LP LLC, are conduit entities that will exist solely to 
minimize certain Texas franchise tax liability. LP LLC, a Delaware 
limited liability company, will acquire a 99% limited partnership 
interest with no voting rights in Texas Genco LP. Applicants state 
that, because LP LLC will not acquire 10% or more of the voting 
securities of Texas Genco LP, LP LLC will not be a holding company 
for purposes of the Act. GP LLC, a Texas limited liability company, 
will be a holding company because it will acquire the 1% general 
partnership interest in Texas Genco LP. Applicants state that GP LLC 
will qualify for exemption under section 3(a)(1) of the Act.
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    The final steps in the Business Separation Plan relate to the 
determination and recovery of stranded costs associated with the Texas 
Genco assets. The creation of a minority public interest in Texas Genco 
LP will permit the use of the ``partial stock valuation method'' under 
the Texas Act for purposes of determining the stranded costs associated 
with REI's regulated generation assets. Therefore, on or before June 
30, 2002, Regco expects to conduct an IPO of approximately 20% of the 
common stock of Texas Genco Holdings, the holding company for the Texas 
Genco assets or to distribute the stock to Regco's shareholders. The 
market value of the common stock will be used to determine the amount 
of stranded costs that Regco will be allowed to recover if the market 
value of the Texas Genco assets is less than the book value of the 
assets.
    Unregco will hold an option to purchase all of Regco's remaining 
shares of capital stock of Texas Genco (the ``Texas Genco Option'').\6\ 
The Texas Genco Option may be exercised between January 10 and January 
24, 2004. The exercise price will be determined by a market-based 
formula based on the formula employed by the Texas Commission for 
determining stranded costs under the partial stock valuation method 
referenced above.
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    \6\ The retained equity interest will be at least 80%. The Texas 
Genco Option agreement provides that if Unregco purchases the Texas 
Genco shares, it must also purchase all notes and other receivables 
from Texas Genco then held by Regco at their principal amounts plus 
accrued interest.
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    The next steps relate to the formation of Regco as a holding 
company for the regulated operations. Utility Holding LLC, a Delaware 
limited liability company and a newly formed subsidiary of Regco, will 
form a special purpose wholly owned subsidiary company, MergerCo, which 
will merge with and into REI, with REI as the surviving entity. REI 
common stock will be exchanged for Regco common stock in the merger, 
and Regco will become the holding company for Utility Holding LLC, REI 
and its subsidiaries.
    REI then plans to convert to a Texas limited liability company, 
Reliant Energy, LLC (``REI LLC'' or the ``T&D Utility''). The T&D 
Utility will retain REI's existing transmission and distribution 
businesses, which will remain subject to traditional utility rate 
regulation.
    REI LLC plans to distribute the stock of all its subsidiaries to 
Regco, including the stock of GasCo, Texas Genco Holdings and certain 
financing and other subsidiaries.\7\ As noted previously, Regco will 
effect a tax-free distribution to its shareholders of its remaining 
ownership interest in Unregco (approximately 80%). As a result of the 
distribution, Unregco will become a separate, publicly traded 
corporation.
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    \7\ The distribution of the stock of REI's subsidiaries, 
including GasCo and Texas Genco Holdings, will be currently taxable 
under Texas law. To minimize tax inefficiencies, Regco will hold its 
utility interests through Utility Holding LLC. Because Utility 
Holding LLC will be a Delaware company, it will not qualify for 
exemption under section 3(a)(1) of the Act. Applications request the 
Commission to ``look through'' Utility Holding LLC for purposes of 
analysis under section 3(a)(1). Compare National Grid Group plc, 
Holding Co. Act Release No. 27154 (Mar. 15, 2000) (Commission 
disregarded intermediate holding companies for purposes of section 
11(b)(2) analysis).
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2. The GasCo Separation

    The second stage of the restructuring entails the reorganization of 
GasCo into three separate corporations (the ``GasCo Separation''). Upon 
receipt of necessary state approvals, GasCo plans to form two new 
subsidiary companies, Arkla, Inc. and Minnegasco, Inc., and to 
contribute to them the Arkla and Minnegasco assets respectively. GasCo 
will then dividend the stock of Arkla, Inc. and Minnegasco, Inc. to 
Utility Holding LLC. GasCo, which will be renamed Entex, Inc. and 
reincorporated in Texas, will own the Entex assets as well as, through 
subsidiary companies, the natural gas pipelines and gathering business. 
Applicants state that upon completion of the GasCo Separation, Regco 
and each of its material utility subsidiaries will qualify for 
exemption under section 3(a)(1) of the Act.
    Regco will not qualify for an intrastate exemption immediately 
after Electric Restructuring. Pending the GasCo Separation, Regco will 
not fully satisfy the standards for exemption under section 3(a)(1) of 
the Act, as interpreted in Commission precedent, because GasCo, a 
material subsidiary with significant out-of-state operations, will not 
be ``predominantly intrastate in character'' and carry on its business 
``substantially in a single state.'' Upon completion of the GasCo 
Separation, however, Applicants anticipate that Regco and each of its 
material utility subsidiaries will be incorporated in Texas and will be 
``predominately intrastate in character and carry on their business 
substantially'' in Texas.
    The Texas Act requires that the Electric Restructuring (the 
separation of REI's regulated electric utility operations into the T&D 
Utility and Texas Genco) must be completed by January 1, 2002. 
Accordingly, to enable them to comply with the Texas Act pending the 
completion of the GasCo Separation, Applicants request an initial order 
approving Regco's acquisition of the Intermediate Holding Companies, 
the T&D Utility, Texas Genco, L.P. and GasCo; reserving jurisdiction 
over the acquisition of the to-be-formed gas utility subsidiaries, 
Entex, Inc., Arkla, Inc. and Minnegasco, Inc.; granting Texas Genco 
Holdings and GP LLC an exemption under section 3(a)(1); and granting 
Regco an exemption under section 3(a)(1) conditioned upon complete 
compliance with the requirements for exemption upon completion of the 
Restructuring within two years of the acquisition by Regco of the 
Intermediate Holding Companies, the T&D Utility, Texas Genco L.P. and 
GasCo.

Progress Energy, Inc., et al. [70-9989]

    Progress Energy, Inc. (``Progress Energy''), a registered holding 
company, Carolina Power & Light Company (``CP&L''), Progress Energy's 
public utility subsidiary company, Rowan County Power, LLC (``Rowan''), 
a wholly owned exempt wholesale generator (``EWG'') subsidiary of CP&L, 
Progress Ventures, Inc. (``Progress Ventures''), a direct intermediate 
holding company subsidiary of Progress Energy, and Progress Genco 
Ventures, LLC (``Genco Ventures''), an indirect intermediate holding 
company subsidiary of Progress Energy, each located at 411 Fayetteville 
Street Mall, Raleigh, North Carolina 27602, (collectively, 
``Applicants''), have filed a declaration under section 12(d) of the 
Act and rules 43, 44, 53, and 54 under the Act.
    Applicants seek authority for CP&L to transfer its interests in 
certain electric generation assets and a related generation facility 
site located in Rowan County, North Carolina (``Rowan Assets'') to 
Rowan. The proposed transfer is a component of a larger

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reorganization of Progress Energy's wholesale operations. The Rowan 
Assets consist of a 480 megawatt gas-fired combustion turbine 
generation facility (``Rowan Facility''); associated electric 
interconnection equipment, fuel storage and handling facilities, and 
other facilities and equipment necessary for the generation of 
electricity and conducting related activities that are consistent with 
being an EWG, as that term is defined in section 32 of the Act. The 
Rowan Assets also include the Rowan Facility site. Applicants state 
that the purpose of this transaction is to permit Progress Energy to 
focus on developing and expanding a portfolio of wholesale generating 
assets in the Southeast.
    Rowan, an EWG and a North Carolina limited liability company, is a 
wholly owned subsidiary of CP&L that has been organized principally for 
the purpose of constructing, owning, and selling power from an electric 
generation facility located in Rowan County, North Carolina. Applicants 
propose that, as part of this reorganization, Progress Ventures will 
acquire from CP&L all of Rowan's limited liability company interests, 
and Progress Ventures will contribute the Rowan interests to Genco 
Ventures.
    CP&L proposes to transfer the Rowan Assets to Rowan at net book 
cost, subject to a possible adjustment by the North Carolina Utilities 
Commission (``NCUC''), in the event the NCUC determines that the market 
value of the Rowan Assets at transfer exceed the net book cost. As of 
September 30, 2001, the Rowan Assets had a net book cost of 
approximately $180 million.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-28079 Filed 11-7-01; 8:45 am]
BILLING CODE 8010-01-M