[Federal Register Volume 66, Number 236 (Friday, December 7, 2001)]
[Notices]
[Pages 63569-63572]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-30324]



[[Page 63569]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27471]


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

November 30, 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 December 26, 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 December 26, 2001, the application(s) and/or 
declaration(s), as filed or as amended, may be granted and/or permitted 
to become effective.

Allegheny Energy, Inc., et al. (70-9897)

    Allegheny Energy, Inc. (``Allegheny''), a registered holding 
company; Allegheny Ventures, Inc. (``Ventures''), a direct wholly owned 
nonutility subsidiary company of Allegheny, both located at 10435 
Downsville Pike, Hagerstown, Maryland 21740; Allegheny Energy Supply 
Company, L.L.C. (``AE Supply''), 4350 Northern Pike, Monroeville, 
Pennsylvania 15146-2841, a direct wholly owned generating subsidiary 
company of Allegheny; and Allegheny Energy Global Markets, L.L.C. (``AE 
Global''), 10435 Downsville Pike, Hagerstown, Maryland 21740, a direct 
wholly owned subsidiary of AE Supply that will cease to exist upon 
completion of the requested transactions, (``Applicants''), have filed 
an application-declaration (``Application'') under sections 3(a)(2), 
6(a), 7, 9(a), 10, 12(b), 12(c), 12(d), 32 and 33 of the Act, and rules 
43, 44, 45, 46, 53, 54, 90 and 91 under the Act.

I. Background

A. Summary

    Applicants request financing authority and request authority to 
increase its investment in exempt wholesale generators (``EWGs'') and 
foreign utility companies (``FUCOs''). In addition, Applicants seek 
authority to restructure AE Supply, which includes among other things: 
reincorporating AE Supply in Maryland; merging AE Global,\1\ an energy 
trading subsidiary formed under rule 58, into the restructured AE 
Supply (``New AE Supply''); and transferring some of Allegheny's 
membership interests in generation to New AE Supply. New AE Supply also 
seeks a section 3(a)(2) exemption from registration.
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    \1\ AE Supply formed AE Global to acquire Global Energy markets 
from Merrill Lynch in S.E.C. File No. 70-9833.
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B. The Allegheny System

    Allegheny is a diversified energy company. The Allegheny companies 
consist of three regulated electric public utility companies, West Penn 
Power Company (``West Penn''), Monongahela Power Company (``Monongahela 
Power'') and The Potomac Edison Company (``Potomac Edison''), and a 
regulated public utility natural gas company, Mountaineer Gas Company, 
which is a wholly owned subsidiary of Monongahela Power (collectively, 
``Operating Companies and d/b/a, ``Allegheny Power''). The subsidiaries 
of Allegheny, other than the Operating Companies and AE Supply are 
referred to as (``Other Subsidiaries'').
    AE Supply is an electric generating company for the Allegheny 
system. AE Supply is a public utility company within the meaning of the 
Act. AE Supply is not a utility for purposes of state regulation nor is 
it subject to regulation as an electric public utility in any of the 
states in which it operates. It also manages and operates electric 
generation owned by the regulated utilities d/b/a Allegheny Power. AE 
Supply owns, operates, and markets competitive retail and wholesale 
electric generation.
    Allegheny Ventures, a nonutility subsidiary of Allegheny, actively 
invests in and develops energy-related projects through its wholly 
owned subsidiary Allegheny Energy Solutions. Allegheny Ventures also 
invests in and develops telecommunications projects through Allegheny 
Communications Connect, Inc., an exempt telecommunications company 
(``ETC'') under section 34 of the Act.

C. Existing Financing Authority

    Under a series of orders (``Money Pool and Financing Orders''),\2\ 
the Allegheny system companies were authorized to engage in certain 
financing transactions and to establish and participate in a money 
pool, among other things. Also, by order dated April 20, 2001, HCAR No. 
27383, the Commission authorized Allegheny and/or AE Supply to issue to 
unaffiliated third parties guarantees, short-term debt, and long-term 
debt through July 31, 2005, up to an aggregate amount of $430 million.
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    \2\ HCAR No. 25462 (January 29, 1992); HCAR No. 25481 (February 
28, 1992); HCAR No. 25581 (July 14, 1992); HCAR No. 25919 (November 
5, 1993); HCAR No. 26418 (November 28, 1995); HCAR No. 26506 (April 
18, 1996); HCAR No. 26804 (December 23, 1997); HCAR No. 27030 (May 
19, 1999); HCAR No. 27084 (October 8, 1999); and HCAR No. 27199 
(July 14, 2001).
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II. Requested Financing Authority

A. Summary

    Applicants state that increased financing authority is needed to 
build new electric generation facilities and to purchase existing 
generation facilities. Allegheny states that its plans to acquire and/
or build additional generating facilities, if consummated, would bring 
Allegheny's aggregate investment in EWGs and FUCOs in excess of 50% of 
its consolidated retained earnings.
    Through July 31, 2005 (``Authorization Period''), Applicants seek 
authority for: Allegheny to issue up to $1 billion in equity 
securities; Allegheny and AE Supply to issue short-term debt and long-
term debt in an aggregate amount up to $4 billion; and Allegheny and/or 
its subsidiaries to issue up to $3 billion in guarantees. The total 
debt and equity authorization requested is $4 billion with the option 
to utilize up to $1 billion for equity issuance. Also, Applicants 
request authorization to form capital investment subsidiaries 
(``Capital Corps''), and for Applicants to engage in intrasystem 
financings with each other, with the Other Subsidiaries, and between 
the Other Subsidiaries in an aggregate amount not to exceed $4 billion 
outstanding during the Authorization Period (``Intrasystem Financing 
Limit''). The aggregate amount of financing obtained by Allegheny 
during the Authorization Period from issuance and sale of preferred 
securities, when combined with the amount of common stock, short-term 
debt, long-term debt, and guarantees, issued and then outstanding, 
shall not exceed $7 billion (``Aggregate Financing Limit'').

[[Page 63570]]

    The proceeds will be used for general corporate purposes, 
including: (1) Payments, redemptions, acquisitions and refinancing of 
outstanding securities issued by Applicants; (2) acquisitions of and 
investments in EWGs and FUCOs, provided that Allegheny's aggregate 
investment in these projects does not exceed the requested limit;\3\ 
(3) loans to, and investments in, other system companies; and (4) other 
lawful corporate purposes permitted under the Act. Proceeds may also be 
used to invest in, or acquire interests under rule 58 to the extent 
permitted by rule 58 (``Rule 58 Companies'').
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    \3\ Allegheny seeks authority to apply the proceeds of equity 
issuances, short-term debt, long-term debt and guarantees to 
increase its ``aggregate investment'' in EWGs and FUCOs up to $2.0 
billion, or 207% of its consolidated retained earnings. Applicants 
state that Allegheny's aggregate investment in EWGs and FUCOs as of 
March 31, 2001 was approximately $462 million, or 49% of its 
consolidated retained earnings.
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B. Financing Parameters

    Financings by the Applicants will be subject to the following 
conditions (``Financing Conditions''): (1) During the Authorization 
Period, the common stock equity of Allegheny, on a consolidated basis, 
and of each of the Operating Companies, individually, will not fall 
below 30% of its total capitalization; (2) Allegheny will maintain its 
senior unsecured long-term debt rating at investment grade level, as 
established by a nationally recognized statistical rating organization; 
(3) the effective cost of money on long-term debt borrowings will not 
exceed the greater of (a) 400 basis points over comparable term U.S. 
Treasury securities and (b) the gross spread over U.S. Treasuries that 
is consistent with similar securities of comparable credit quality and 
maturities issued by other companies; (4) the effective cost of money 
on short-term debt borrowings will not exceed the greater of (a) 300 
basis points over the comparable term London Interbank Offered Rate 
(``LIBOR'') and (b) a gross spread over LIBOR that is consistent with 
similar securities of comparable credit quality and maturities issued 
by other companies; (5) the dividend rate on any series of preferred 
securities will not exceed the greater of (a) 500 basis points over the 
yield to maturity of a comparable term U.S. Treasury security and (b) a 
rate that is consistent with similar securities of comparable credit 
quality and maturities issued by other companies; (6) the underwriting 
fees, commissions, and other similar remuneration paid in connection 
with the non-competitive issue, sale or distribution of a security will 
not exceed 5% of the principal or total amount of the security being 
issued; (7) the maturity of long-term debt will be not less than one 
year and not exceed thirty years; and (8) short-term debt will have a 
maturity of not less than one day and not more than 364 days.

C. Short-Term and Long-Term Debt

    Allegheny and AE Supply request authorization, through the 
Authorization Period, to issue and sell an aggregate of up to $4 
billion of short-term debt and/or long-term debt at any time 
outstanding to non-associate banks and/or other parties. Debt of AE 
Supply may be nonrecourse to Allegheny. Also, through the Authorization 
Period, Allegheny seeks authorization to transfer some or all of the 
debt proceeds into AE Supply in the form of contributions or interest-
bearing loan(s).

D. Common and Preferred Stock

    Allegheny proposes to issue, through the Authorization Period, up 
to $1 billion at any time outstanding of equity securities. Allegheny 
may issue common stock or options, warrants or other stock purchase 
rights exercisable for common stock in public or privately negotiated 
transactions for cash or as consideration for the equity securities or 
assets of other companies, provided that the acquisition of any such 
equity securities or assets has been authorized in this proceeding or 
in a separate proceeding or is exempt under the Act or the rules under 
the Act. Allegheny common stock issued in connection with acquisitions 
of companies shall be valued, for purposes of determining compliance 
with the Aggregate Financing Limit, at its market value as of the date 
of issuance (or if appropriate at the date of a binding contract 
providing for the issuance).
    Allegheny seeks to have the flexibility to issue its authorized 
preferred stock or other types of preferred securities (including, 
without limitation, trust preferred securities or monthly income 
preferred securities) directly or indirectly through one or more 
special-purpose financing subsidiaries organized by Allegheny. 
Preferred stock or other types of preferred securities may be issued in 
one or more series with such rights, preferences, and priorities as may 
be designated in the instrument creating each series, as determined by 
Allegheny's board of directors. Dividends or distributions on preferred 
securities will be made periodically and to the extent funds are 
legally available for this purpose, but may be made subject to terms 
which allow the issuer to defer dividend payments for specified 
periods. Preferred securities may be convertible or exchangeable into 
shares of Allegheny common stock or unsecured indebtedness.
    Stock financings may be affected in accordance with underwriting 
agreements of a type generally standard in the industry. Public 
distributions may be made through private negotiation with 
underwriters, dealers or agents or effected through competitive bidding 
among underwriters. In addition, sales may be made through private 
placements or other non-public offerings to one or more persons. All 
stock sales will be at rates or prices and under conditions negotiated 
or based upon, or otherwise determined by, competitive capital markets.

E. Guarantees

    Allegheny proposes to enter into Guarantees from time to time with 
respect to the obligations of the Operating Companies, AE Supply and 
the Other Subsidiaries of Allegheny (``Allegheny Guarantees'') during 
the Authorization Period in an aggregate principal amount, together 
with the Subsidiary Guarantees (as defined below), not to exceed $3 
billion (``Aggregate Guarantee Limitation''), based on the amount at 
risk, outstanding at any one time, exclusive of (1) any guarantees or 
credit support arrangements authorized by the Commission in separate 
proceedings and (2) any guarantees exempt under rule 45(b). Allegheny 
seeks to provide credit support in connection with AE Supply's purchase 
and operation of generation assets and in connection with the trading 
by AE Global in the ordinary course of AE Global's energy marketing and 
trading activities and for other purposes.
    In addition, the Applicants request authorization for AE Supply and 
the Other Subsidiaries to enter into Guarantees from time to time, with 
respect to the obligations of any of the Other Subsidiaries, as may be 
appropriate, to enable AE Supply and/or the Other Subsidiaries to carry 
on their respective businesses (``Subsidiary Guarantees'') in an 
aggregate principal amount, together with the Allegheny Guarantees, not 
to exceed the Aggregate Guarantee Limitation, based on the amount at 
risk, outstanding at any one time. The Aggregate Guarantee Limitation 
excludes: (1) Any such guarantees or credit support arrangements 
authorized by the Commission in separate proceedings and (2) any such 
guarantees exempt under rule 45(b).

[[Page 63571]]

    Allegheny, AE Supply, or the Other Subsidiaries which issues a 
guarantee may charge a fee for each guarantee it provides, which fee 
will not exceed the cost of obtaining the liquidity necessary to 
perform the guarantee.

F. Capital Corporations

    Applicants seek authorization to form one or more Capital Corps as 
direct or indirect subsidiaries. Capital Corps will be limited 
liability companies, corporations, trusts, partnerships or other 
entities formed to engage in tax efficient and financially efficient 
transactions with Applicants or any of their respective subsidiaries 
for the acquisition of EWGs and FUCOs, Rule 58 Companies, and other 
general corporate purposes permitted under the Act.
    Applicants seek authorization through the Authorization Period to: 
(1) Make capital contributions to the Capital Corps in exchange for 
equity ownership; (2) have Capital Corps make interest-bearing loan(s) 
of up to $4 billion to AE Supply evidenced by note(s); and (3) permit 
Capital Corps, as the loan(s) are repaid, to make additional borrowings 
available to AE Supply and its subsidiaries from the interest and 
principal payments it receives. Any intrasystem loans will count 
against the Intrasystem Financing Limit. These borrowings will be used 
for authorized acquisitions, EWGs and FUCOs, Rule 58 Companies, or 
other corporate purposes. The Applicants state that the loans will not 
affect Applicants' debt-equity ratio and will provide for a tax 
efficient capital structure.
    Applicants also request authorization for Capital Corps to serve as 
financing entities and to issue debt and equity securities, including 
trust preferred securities, to third parties in the event the issuances 
are not exempt under rule 52. Specifically, Applicants request 
authorization to: (1) Issue debentures or other evidences of 
indebtedness to financing entities in return for the proceeds of the 
financing; (2) acquire voting interests or equity securities issued by 
the financing entities to establish ownership of the financing 
entities; and (3) guarantee financing entities' obligations.
    Applicants and the Other Subsidiaries may enter into expense 
agreements with their respective financing entity, and they would agree 
to pay all expenses of the financing entity.
    Any amounts issued by the financing entities to third parties under 
these authorizations will count against the Aggregate Financing Limit. 
However, the underlying intrasystem mirror debt and guarantee will not 
count against any applicable Intrasystem Financing Limit or the 
separate guarantee limits applicable to Allegheny or the subsidiary.

G. Intrasystem Financings

    Applicants request authorization to engage in intrasystem 
financings with each other, with the Other Subsidiaries, and between 
the Other Subsidiaries in an aggregate amount not to exceed $4 billion 
outstanding during the Authorization Period. Financings will be in the 
form of cash capital contributions, open account advances and/or loans. 
The interest rate on intrasystem loans payable by a borrowing company 
will parallel the cost of capital of the lending company. This request 
excludes: (1) Financings that are exempt under rules 45(b) and 52, as 
applicable; and (2) amounts outstanding from time to time under the 
Money Pool and Financing Orders. Loans made by the Capital Corps to AE 
Supply and its subsidiaries will count against this Intrasystem 
Financing Limit to the extent described.

H. Interest Rate and Currency Risk Management

    Applicants request authority to enter into, perform, purchase and 
sell financial instruments intended to manage the volatility of 
interest rates and currency exchange rates, including but not limited 
to interest rate and currency swaps, caps, floors, collars and forward 
agreements or any other similar agreements (``Instruments'') in 
connection with the issuance and sale of the short-term debt and long-
term debt described. Applicants will employ Instruments as a means of 
prudently managing the interest rate and currency risks associated with 
any of their outstanding debt issued under this Application or an 
applicable exemption by, in effect, synthetically (1) Converting 
variable rate debt to fixed rate debt, (2) converting fixed rate debt 
to variable rate debt, (3) limiting the impact of changes in interest 
rates resulting from variable rate debt; and (4) hedging currency 
exposures of foreign currency denominated debt. In addition, Applicants 
may utilize Instruments for planned issuances of debt securities in 
order to lock-in current interest rates and or to manage interest rate 
and currency risks in future periods. The notional amount of any 
Instruments will not exceed that of the underlying debt instrument. 
Applicants will not engage in ``speculative'' transactions, and agree 
to only enter into Instruments with counterparties which have, or whose 
obligations are guaranteed by a party with, senior debt ratings, as 
published by Standard & Poor's, that are greater than or equal to 
``BBB+,'' or an equivalent rating from Moody's Investors Service, Inc. 
or Fitch IBCA, Inc. Applicants represent that the Instruments to be 
entered into will qualify for hedge accounting treatment under GAAP. 
Allegheny will comply with the financial disclosure requirements of the 
Financial Accounting Standards Board.

I. Payment of Dividends

    Applicants request authorization for AE Supply and the Other 
Subsidiaries to pay dividends, from time to time through the 
Authorization Period, out of capital and unearned surplus (including 
revaluation reserve), to the extent permitted under applicable 
corporate law. Applicants anticipate that there will be situations in 
which one or more of their respective direct or indirect subsidiaries 
will have unrestricted cash available for distribution in excess of any 
such company's current and retained earnings. In such situations, the 
declaration and payment of a dividend would have to be charged, in 
whole or in part, to capital or unearned surplus.

III. Request To Reorganize AE Supply

    Applicants seek authority to restructure AE Supply 
(``Restructuring''). First, AE Supply will be reincorporated in 
Maryland by forming a new corporation in Maryland (``New AE Supply'') 
and then merging AE Supply with and into New AE Supply. New AE Supply 
is the surviving entity.
    In addition, the proposed Restructuring, will include: (a) The 
transfer from Allegheny to New AE Supply of, and the reorganization of, 
Allegheny Energy Supply Hunlock Creek, LLC (``Hunlock Creek'') \4\ and 
Green Valley Hydro, LLC (``Green Valley''); \5\ (b) the reorganization 
of Allegheny Energy Supply Conemaugh, LLC (``Conemaugh'') \6\ and 
Allegheny

[[Page 63572]]

Generating Company (``AGC''); \7\ and (c) the merger of AE Global with 
and into New AE Supply.
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    \4\ The transfer of Hunlock Creek will be made as a capital 
contribution in the amount of the book value of approximately $21 
million. New AE Supply will form a new single-member Delaware 
limited liability company to be referred to as Hunlock Creek II. New 
AE Supply proposes to merge Hunlock Creek with and into Hunlock 
Creek II, with Hunlock Creek II as the surviving entity.
    \5\ The transfer of Green Valley will be made as a capital 
contribution in the amount of the book value of approximately $2 
million. New AE Supply will form a new single-member Virginia 
limited liability company to be referred to as Green Valley II. New 
AE Supply proposes to merge Green Valley with and into Green Valley 
II, with Green Valley II as the surviving entity.
    \6\ New AE Supply will form a single-member Delaware limited 
liability company, to be referred to as Conemaugh II. New AE Supply 
proposes to merge Conemaugh with and into Conemaugh II, with 
Conemaugh II as the surviving entity.
    \7\ New AE Supply will form a single-member Virginia limited 
liability company, to be referred to as AGC, LLC. New AE Supply 
proposes to merge AGC with and into AGC, LLC, with AGC, LLC as the 
surviving entity. The purpose of the reorganization of AGC is to 
effect a ``liquidation'' of AGC for tax purposes, which may enhance 
the tax treatment to Allegheny in the future, while maintaining AGC, 
LLC as a separate legal entity.
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    New AE Supply seeks a section 3(a)(2) exemption from registration 
under the Act. As a Maryland corporation, New AE Supply will be 
predominantly a public utility company whose operations do not extend 
beyond the state of organization and states contiguous thereto. New AE 
Supply will operate in Maryland, its state of incorporation, and in 
Virginia, West Virginia, and Pennsylvania, which are all contiguous to 
Maryland.
    New AE Supply will be a holding company solely through its 
ownership of the following public utility companies: (a) Conemaugh; (b) 
Green Valley; and (c) AGC. Each of these entities was formed under the 
laws of Delaware and is exclusively engaged in selling power at 
wholesale.\8\
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    \8\ At an appropriate time, AE Supply will seek to certify each 
entity as an EWG under section 32 of the Act. In the interim, they 
will remain public utility companies under the Act.
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    As part of the restructuring, Allegheny Energy Service Corporation 
(``AESC'') proposes to expand the scope of services to be provided to 
New AE Supply to include energy trading activities. AESC will engage in 
the trading activities solely as agent on behalf of New AE Supply. All 
trades will be booked at New AE Supply, and will not affect the 
financial condition or operations of AESC or the Operating Companies. 
AESC and New AE Supply, as successor to AE Supply, request authority to 
revise the service agreement to provide for AESC to effect trading 
transactions for and on behalf of New AE Supply involving electricity 
and other types of energy commodities, and hedging and/or financial 
transactions, including derivatives, future contracts, options and 
swaps, including, without limitation, electric power, oil, natural and 
manufactured gas, emission allowances, coal, refined petroleum products 
and natural gas liquids and to provide incidental related services, 
such as fuel management, storage and procurement services. All services 
will be provided by AESC at cost computed in accordance with rules 90 
and 91 under the Act.

Alabama Power Company (70-9955)

    Alabama Power Company (``Alabama Power''), 600 North 18th Street, 
Birmingham, Alabama 35291, a wholly owned public utility subsidiary of 
The Southern Company, a registered holding company, has filed a 
declaration under section 12(d) of the Act, and rules 44 and 54 under 
the Act.
    Alabama Power proposes to sell, from time to time prior to December 
31, 2006, distribution line poles located in Alabama to non-affiliated 
telephone and other non-electric utility companies (``Purchasers''). 
Alabama Power would convey the poles to the Purchasers by a bill of 
sale for a negotiated cash sale price that would exceed Alabama Power's 
average book value for the number of distribution poles of each class 
being sold, and the aggregate price of the sales would not exceed $30 
million. The conveyance would include a release of the poles from 
Alabama's first mortgage indenture lien. The $30 million authority 
requested is in addition to any exceptions otherwise provided by rules 
under the Act relating to sales of utility securities or assets.
    Alabama Power and each Purchaser have or will have entered into a 
joint use agreement under which each party may attach facilities to 
poles belonging to the other party, with each party obligated to the 
other for rental of space on poles owned by the other party. The 
proposed sale of poles is for the purpose of equalizing the rental 
payments under those joint use agreements, and it is anticipated that 
there will be no substantial change in the use of the poles.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-30324 Filed 12-6-01; 8:45 am]
BILLING CODE 8010-01-P