[Federal Register Volume 68, Number 225 (Friday, November 21, 2003)]
[Notices]
[Pages 65747-65750]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-29086]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27762]


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

November 14, 2003.
    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 8, 2003, 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 8, 2003, 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.

[70-10100]

    Allegheny Energy, Inc. (``Allegheny''), a registered holding 
company, and

[[Page 65748]]

Allegheny Energy Supply Company LLC (``AE Supply''), a registered 
holding company and public utility company subsidiary of Allegheny 
(collectively, ``Applicants''), 10435 Downsville Pike, Hagerstown, 
Maryland 21740, have filed a post-effective amendment (``Amendment'') 
to a previous application-declaration under sections 6(a), 7, 9, and 12 
of the Act and rules 46, 52 and 54 under the Act.
    Applicants seek a continuation through December 31, 2004 of the 
relief granted by previous order described below from the Commission's 
requirement that they maintain a common equity ratio of at least 30 
percent. Applicants also seek a continuation through December 31, 2004, 
of certain revised financing conditions authorized in earlier financing 
orders described below. In addition, Applicants seek continuation of 
authority for AE Supply to pay dividends out of capital and unearned 
surplus through December 31, 2004 and authority to make certain changes 
to Allegheny's debt financing.
    By order dated December 31, 2001 (Holding Co. Act Release No. 
27486) (``Original Financing Order''), Applicants received 
authorization to engage in a broad range of financing transactions 
through December 31, 2005. This order was supplemented by the following 
orders: Holding Co. Act Release No. 27521 (April 17, 2002) (``April 
Order''), Holding Co. Act Release No. 27579 (October 17, 2002) 
(``Supplemental Order'', and together with the Original Financing Order 
and the April Order, ``Financing Order''), Holding Co. Act Release No. 
27652 (Feb. 21, 2003) (``Capitalization Order''), and Holding Co. Act 
Release No. 27701 (July 23, 2003) (``Trust Preferred Securities 
Order:''). The Financing Order grants, among other things, the 
following authorizations to Allegheny and its subsidiaries:
    1. Allegheny to issue up to $1 billion in equity securities at any 
time outstanding;
    2. Allegheny and/or AE Supply,\1\ in the aggregate, to issue and 
sell to non-associated third parties up to $4 billion in short-term 
debt at any time outstanding and up to $4 billion in unsecured long-
term debt at any time outstanding, provided that total debt and equity 
authority under (1) and (2) shall not exceed $4 billion at any time 
outstanding; \2\
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    \1\ AE Supply is the principal electric generating company for 
the Allegheny system.
    \2\ The Original Financing Order reserves jurisdiction over the 
issuance of secured long-term debt under the $4 billion cap. Under 
the Financing Order, the Capitalization Order, and the Trust 
Preferred Securities Order, Allegheny currently has $564 million of 
unsecured debt outstanding and AE Supply currently has $1.927 
billion of secured debt and $131 million of unsecured debt 
outstanding (assuming all AE Supply letters of credit were converted 
into debt). Allegheny has not issued any equity securities to date 
under the authorization of the Financing Order.
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    3. Allegheny and/or its subsidiaries to enter into guarantees, 
obtain letters of credit, extend credit, enter into guarantee-type 
expense agreements or otherwise provide credit support with respect to 
the obligations of an associate company (collectively, ``Guarantees''), 
in the aggregate amount not to exceed $3 billion any time outstanding;
    4. Allegheny to exceed the Rule 53 aggregate investment limitation 
and to utilize a portion of the proceeds of the equity issuances, 
short-term debt, long-term debt and Guarantees in any combination to 
increase its ``aggregate investment'' (as defined in rule 53(a)) up to 
$2 billion in exempt wholesale generators (``EWGs'') and foreign 
utility companies (``FUCOs'') under the Act;
    5. Allegheny and certain other subsidiaries \3\ to form one or more 
direct or indirect special purpose financing subsidiaries that will, 
among other things, issue debt and/or equity securities and loan the 
proceeds to Allegheny, AE Supply, and the Other Subsidiaries; and
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    \3\ The direct and indirect subsidiaries of Allegheny, other 
than the operating companies as defined below and AE Supply, are 
referred to as the ``Other Subsidiaries.''
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    6. Allegheny, AE Supply and the subsidiaries of Allegheny (other 
than the operating companies),\4\ whether now existing or created later 
or acquired, to engage in intra-system financings up to $4 billion.\5\
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    \4\ Allegheny has three regulated electric public utility 
companies, West Penn Power Company (``West Penn''), Monongahela 
Power Company (``Monongahela Power'') (Monongahela Power also has a 
regulated natural gas utility division as a result of its purchase 
of West Virginia Power), 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 (all collectively doing business as Allegheny 
Power and collectively, ``Operating Companies'').
    \5\ The Financing Order also authorized companies in the 
Allegheny system to enter into, perform, purchase and sell financial 
instruments intended to manage the volatility of interest rates and 
currency exchange rates, and the Other Subsidiaries to pay dividends 
out of capital and unearned surplus.
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    The Financing Order established a number of financing parameters 
that are conditions to the financing transactions authorized in that 
order and that are applicable through December 31, 2003. These include 
a requirement that Allegheny maintain, on a consolidated basis, common 
equity of 30 percent of total capitalization and that AE Supply 
individually maintain common equity of 30 percent of total 
capitalization. In the Capitalization Order, the Commission modified 
the financing parameters as follows (``Revised Financing Conditions''):
    1. The common equity of Allegheny, on a consolidated basis, will 
not fall below 28 percent of its total capitalization; and the common 
equity of AE Supply, on a consolidated basis, will not fall below 20 
percent of its total capitalization;
    2. The effective cost of capital on any security issued by 
Allegheny or AE Supply will not exceed competitive market rates 
available at the time of issuance for securities having the same or 
reasonably similar terms and conditions issued by similar companies of 
reasonably comparable credit quality; provided that in no event will 
(a) the interest rate on any debt securities issued under a bank credit 
facility exceed the greater of (i) 900 basis points over the comparable 
term London Interbank Offered Rate (``LIBOR'') \6\ or (ii) the sum of 9 
percent plus the prime rate as announced by a nationally recognized 
money center bank, and (b) the interest rate on any debt securities 
issued to any other financial investor exceed the sum of 12 percent 
plus the prime rate as announced by a nationally recognized money 
center bank; and
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    \6\ It should be noted, however, that the interest rate 
applicable after the occurrence of a default may be increased by an 
additional increment, typically 200 basis points.
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    3. The underwriting fees, commissions and other similar 
remuneration paid in connection with the non-competitive issuance of 
any security issued by Allegheny or AE Supply will not exceed the 
greater of (a) five percent of the principal or total amount of the 
securities being issued or (b) issuances expenses that are paid at the 
time in respect of the issuance of securities having the same or 
reasonably similar terms and conditions issued by similar companies of 
reasonably comparable credit quality;
    4. The respective financing transactions will not be subject to the 
requirement to maintain either unsecured long-term debt or any 
commercial paper that may be issued at investment grade level; and
    5. The Applicants may issue short-term and/or long-term debt under 
circumstances when the debt, upon issuance is either unrated or is 
rated below investment grade.
    Applicants committed in their application seeking the 
Capitalization Order that at any time Allegheny's ratio of common 
equity to total capitalization

[[Page 65749]]

is not at least 30 percent, neither Allegheny nor any of its 
subsidiaries will invest or commit to invest any funds in any new 
projects which qualify as EWGs or FUCOs under the Act; provided, 
however, that Allegheny may increase its investment in EWGs as a result 
of the qualification of existing projects as EWGs, and Allegheny may 
make additional investments in an existing EWG to the extent necessary 
to complete any project or desirable to preserve or enhance the value 
of Allegheny's investment in the EWG.\7\ Allegheny requested the 
Commission to reserve jurisdiction over any additional investment by 
Allegheny and its Subsidiaries in EWGs and FUCOs during the period that 
Allegheny's common equity ratio is below 30 percent.
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    \7\ The existing EWGs in which Allegheny and its subsidiaries 
have investments as of the date hereof are as follows: Allegheny 
Energy Hunlock Creek, LLC, Hunlock Creek Energy Ventures, AE Supply 
Gleason Generating Facility, LLC, AE Supply Wheatland Generating 
Facility, LLC, AE Supply Lincoln Generating Facility, LLC, Buchanan 
Generation, LLC, Acadia Bay Energy Company and Buchanan Generation, 
LLC.
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    Applicants also committed that at any time Allegheny's ratio of 
common equity to total capitalization is not at least 30 percent, 
neither Allegheny nor any of its subsidiaries will invest or commit to 
invest any funds in any new energy-related company within the meaning 
of rule 58 under the Act (``Rule 58 Company''); provided, however, that 
Allegheny may increase its investment in an existing Rule 58 Company to 
the extent necessary to complete any project or desirable to preserve 
or enhance the value of Allegheny's investment in the company. The 
commitment also stipulated that Allegheny and/or AE Supply may invest 
in one or more new Rule 58 Companies which may be created in connection 
with the restructuring and/or reorganization of the existing energy 
trading business of AE Supply and its subsidiaries. Allegheny requested 
that the Commission reserve jurisdiction over any additional investment 
by Allegheny and its Subsidiaries in Rule 58 Companies during the 
period that Allegheny's common equity ratio is below 30 percent.
    The Capitalization Order also reserved jurisdiction over (i) the 
financing authorizations at a time that the common equity ratio levels 
of Allegheny and AE Supply were below 28 percent and 20 percent, 
respectively, and (ii) the issuance of debt securities at an interest 
rate in excess of the modified interest rates. In the Trust Preferred 
Securities Order, the Commission granted the Applicants' request to 
release jurisdiction over the issuance by Allegheny of up to $325 
million of convertible trust preferred securities.
    In addition, the Capitalization Order authorized AE Supply to pay 
dividends out of capital and unearned surplus up to $500 million 
through December 31, 2003, in order to provide Allegheny with necessary 
liquidity.
    The Capitalization Order required the Applicants to file an 
application with the Commission if they wish to seek relief from the 30 
percent common equity requirement after December 31, 2003 and to extend 
the Revised Financing Conditions. This Amendment seeks that relief and 
extension of the Revised Financing Conditions, including the 28 and 20 
percent common equity requirements applicable to Allegheny and AE 
Supply, respectively.
    This Amendment also seeks continuation of authority for AE Supply 
to pay dividends out of capital and unearned surplus up to $500 million 
through December 31, 2004. Allegheny proposes to use these funds to pay 
debt on outstanding indebtedness and for general corporate purposes. 
Specifically, AE Supply \8\ will declare and pay dividends to Allegheny 
only to the extent required by Allegheny to pay debt service on 
outstanding indebtedness which becomes payable beginning the first 
quarter of 2004 in an aggregate amount of up to $275 million. 
Applicants seek authority for AE Supply to pay dividends out of capital 
and unearned surplus of up to $275 million for this purpose and request 
the Commission to reserve jurisdiction over the remainder of AE 
Supply's $500 dividend authority.
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    \8\ Since AE Supply is a limited liability company, ``dividend'' 
shall include for this purpose any distribution by AE Supply in 
respect of its membership interests.
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    Allegheny commits that any dividends received by Allegheny from AE 
Supply will be used solely to pay the principal of and interest on this 
indebtedness and none of the amounts will be used by Allegheny to pay 
dividends to its stockholders. To the extent that Allegheny does not 
require proceeds of dividends from AE Supply to pay indebtedness of 
Allegheny during 2004, Applicants request that the Commission reserve 
jurisdiction over the declaration and payment of dividends by AE Supply 
out of capital and unearned surplus up to an aggregate amount of $500 
million.
    Applicants state that they continue to make significant progress 
toward the resolution of their financial difficulties. On July 25, 
2003, Allegheny completed its private placement of $300 million of 
convertible trust preferred securities, as authorized by the Trust 
Preferred Securities Order. On July 28, 2003, AE Supply announced that 
its subsidiary, Allegheny Trading Finance Company (``ATF'') had entered 
into an agreement to sell its energy supply contract with the 
California Department of Water Resources (the ``CDWR Contract'') and 
associated hedge transactions (collectively, ``West Book'') to J. Aron 
& Company (``Aron''), a division of The Goldman Sachs Group, for $405 
million, subject to adjustments for market price changes and hedge 
transactions not transferred.
    On September 15, 2003, AE Supply and ATF announced that they 
completed the sale of the West Book to Aron for $354 million. Much of 
the adjustment from the estimated sale price, previously announced on 
July 28, 2003, is attributable to contracts with one counterparty, 
valued at $38.6 million, which were removed from the sale by mutual 
agreement of the parties. Changes in the mark-to-market value of the 
remaining contracts at closing and reduction in the number of remaining 
trades assumed by Aron, account for the rest of the adjustment. The 
proceeds from the sale were applied, in large part, to finance the 
termination of tolling agreements with Williams Companies, Inc. and Las 
Vegas Cogeneration II and certain related hedging arrangements. In 
addition, Allegheny will have deposited, after certain escrow funds are 
released and pursuant to an authorization by certain of its creditors, 
the remainder of the proceeds (estimated to be approximately $75 
million) in a cash collateral account for the benefit of certain of its 
lenders.\9\
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    \9\ As noted in the amendments submitted in this file on August 
19 and September 23, 2003, as a condition to closing, Aron escrowed 
$71 million of the proceeds pending an order from the Commission 
authorizing AE Supply to undertake the guarantees connected with the 
sale of the West Book. A notice of this amendment was issued on 
September 23, 2003 (Holding Co. Act Release No. 27723).
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    Sale of the West Book was described in the Trust Preferred 
Securities Application as, along with the sale of the securities 
authorized by the Trust Preferred Securities Order, one of the major 
components of Allegheny's plan to return to financial health. In 
addition, AE Supply and its subsidiaries Allegheny Energy Supply 
Conemaugh, LLC, Allegheny Energy Supply Hunlock Creek, LLC, and 
Allegheny Energy Supply Development Services, LLC have entered into 
asset sales

[[Page 65750]]

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agreements, which also are an important part of this plan.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-29086 Filed 11-20-03; 8:45 am]
BILLING CODE 8010-01-P