[Federal Register Volume 69, Number 54 (Friday, March 19, 2004)]
[Notices]
[Pages 13076-13078]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-6169]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27813]


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

March 12, 2004.
    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 April 5, 2004, 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 April 5, 2004, the application(s) and/or 
declaration(s), as filed or as amended, may be granted and/or permitted 
to become effective.

Allegheny Energy, Inc. (70-10201)

Notice of Proposed Amendments to Charter and Bylaws; Order Authorizing 
Solicitation of Proxies

    Allegheny Energy, Inc. (``Allegheny''), a Maryland corporation and 
a registered holding company under the Act, 10435 Downsville Pike, 
Hagerstown, Maryland 21740, has filed this declaration 
(``Declaration'') under sections 6(a) and 12(e) of the Act and rules 62 
and 65 under the Act.
    Allegheny requests authority to: (1) Amend its charter to eliminate 
the requirement of cumulative voting in the election of directors; (2) 
require simple majority voting on all matters to be submitted for 
stockholder approval and, specifically, to (a) amend its bylaws or 
Charter to opt out of the Maryland Control Share Acquisition Act, (b) 
institute a simple majority vote of stockholders for removal of 
directors, and (c) eliminate the application of provisions of the 
Maryland Business Combination Act to the extent these provisions 
require super-majority approval of certain business combinations; (3) 
declassify the Board of Directors (items (1) through (3) are referred 
to below as the ``Proposed Amendments''), and (4) solicit proxies in 
connection with (a) the implementation of the Proposed Amendments, (b) 
a stockholder proposal to make the adoption or extension of any 
stockholder rights agreement (poison pill) subject to a stockholder 
vote, and (c) other routine matters and certain stockholder proposals.
I. Requested Authority
    The Proposed Amendments cover a number of matters related to 
stockholder rights that have been proposed by Allegheny's management or 
stockholders and all of which will be submitted for stockholder 
approval at Allegheny's 2004 annual meeting of stockholders. 
Specifically, the Proposed Amendments include:
    A. Elimination of Cumulative Voting. The Allegheny Board of 
Directors (``Board'') has approved for submission to stockholders an 
amendment to Article VII.A of Allegheny's Articles of Restatement of 
Charter of the Company (``Charter'') that would eliminate the 
requirement of cumulative voting in the election of directors. The 
Charter currently provides that in the election of directors, each 
holder of shares of stock entitled to vote shall be entitled to as many 
votes as shall equal the number of shares of stock held multiplied by 
the number of directors to be elected. The stockholder may cast all of 
these votes for a single director or may distribute them among the 
number of directors to be elected or any two or more of them as the 
stockholder may see fit. The Maryland General Corporation Law does not 
require cumulative voting in elections of directors.
    The Board believes that the benefits of cumulative voting are much 
less relevant today than they were when cumulative voting was 
originally included in the Charter. At that time, minority stockholders 
had few federal and state remedies to protect them from overreaching by 
majority stockholders and, therefore, had a greater need for board 
representation. Today, the Board believes that the disadvantages of 
cumulative voting outweigh the advantages for large, extensively 
regulated and widely held companies. Cumulative voting may allow a 
minority of stockholders to obtain representation on the Board against 
the wishes of the majority. Allegheny states that for the Board to work 
effectively for all of the stockholders, each director should feel a 
responsibility to the stockholders as a whole and not to any special 
group of minority stockholders. If the proposed amendment is passed and 
cumulative voting is eliminated, Allegheny maintains that the holders 
of a majority of shares entitled to vote in an election of directors 
will be able to elect all of the directors being elected at that time, 
and no director will be elected by any

[[Page 13077]]

special interest group of minority stockholders.
    B. Simple Majority Vote Requirement. An Allegheny stockholder 
proposes to submit for stockholder approval a proposal that would 
require simple majority approval for all matters submitted for 
stockholder approval. If this proposal is approved, Allegheny would 
take the following specific actions.
    1. Exemption from Control Share Act. The Board proposes to opt out 
of the Maryland Control Share Acquisition Act (``Control Share Act''), 
which would remove a super-majority stockholder vote requirement for 
the approval of control share voting rights. The Control Share Act 
provides that control shares of a Maryland corporation acquired in a 
control share acquisition have no voting rights except to the extent 
approved by a vote of two-thirds of the votes entitled to be cast on 
the matter. Shares owned by the acquiror, by officers or by directors 
who are employees of the corporation are excluded from shares entitled 
to vote on the matter. Control shares are voting shares of stock which, 
if aggregated with all other shares of stock owned by the acquiror or 
in respect of which the acquiror is able to exercise or direct the 
exercise of voting power (except solely by virtue of a revocable 
proxy), would entitle the acquiror to exercise voting power in electing 
directors within certain statutorily-defined ranges (one-tenth but less 
than one-third, one-third but less than a majority, and more than a 
majority of the voting power). The Control Share Act also does not 
apply to the voting rights of shares of stock if the acquisition of 
those shares has been approved or exempted by the charter or bylaws of 
the corporation or to shares acquired in a merger, consolidation, or 
share exchange in which the corporation is a party. Allegheny's Charter 
and bylaws do not currently contain any approval or exemption from 
these provisions of Maryland law.
    At the 2003 annual meeting of stockholders, a majority of 
stockholders voted in favor of eliminating super-majority voting 
requirements. In light of the level of stockholder support for this 
change, the Board's Nominating and Governance Committee reviewed the 
matter in January 2004 and recommended that the Board take action 
consistent with Maryland law to effect this change. Under Maryland law, 
opting out of the Control Share Act requires an amendment to either 
Allegheny's Charter or its bylaws. If the proposal to require majority 
voting on all matters submitted for a stockholder vote is approved by 
the stockholders, the Board intends to amend the bylaws or the Charter 
to exempt Allegheny from the Control Share Act. If the proposal is 
approved and the Board takes the action described, the Board will also 
take appropriate actions necessary under Maryland law to require 
stockholder approval to opt back into the requirements of the Maryland 
Control Share Act.
    2. Simple Majority Vote for Removal of Directors. The Board 
proposes to take action under Maryland law to permit the removal of 
directors upon approval by a majority of votes entitled to be cast 
generally in the election of directors. Under an election made by the 
Board in July 1999, Allegheny currently is subject to provisions of the 
Maryland General Corporation Law that provide that directors may only 
be removed by the affirmative vote of at least two-thirds of all votes 
entitled to be cast by stockholders generally in the election of 
directors. At the 2003 annual meeting of stockholders, a majority of 
stockholders voted in favor of eliminating super-majority voting 
requirements. In light of the level of stockholder support for this 
change, the Board's Nominating and Governance Committee reviewed the 
matter in January 2004 and recommended to the Board that the two-thirds 
requirement for removal of directors be eliminated. If the proposal is 
approved, the Board will take action so that Allegheny is no longer 
subject to the Maryland law requiring a two-thirds stockholder vote to 
remove a director. It should be noted that if the elimination of 
cumulative voting as discussed above is not approved by the 
stockholders and the Charter continues to provide for cumulative voting 
in the removal of directors, Allegheny will remain subject to the 
mandatory provisions of Maryland law providing that a director may not 
be removed without cause if the votes cast against the director's 
removal would be sufficient to elect him if then cumulatively voted in 
an election of the entire Board (or the class to which the director 
belongs). If this proposal is approved and the Board takes the action 
described above, the Board will also take action necessary under 
Maryland law to require stockholder approval to opt back into the 
provisions of Maryland law requiring a two-thirds majority vote to 
remove a director.
    3. Exemption from Business Combination Voting Requirements. The 
Board of Directors proposes to eliminate the application of certain 
provisions of the Maryland Business Combination Act to the extent these 
provisions require the concurrence of a greater proportion of votes 
than the affirmative vote of a majority of the votes entitled to be 
cast to approve certain business combinations.
    Under Maryland law, ``business combinations'' between a Maryland 
corporation and an interested stockholder or an affiliate of an 
interested stockholder are prohibited for five years after the most 
recent date on which the interested stockholder becomes an interested 
stockholder. These business combinations include a merger, 
consolidation, share exchange, or, in circumstances specified in the 
statute, an asset transfer or issuance or reclassification of equity 
securities. An interested stockholder is defined as: any person who 
beneficially owns 10% or more of the voting power of the corporation's 
shares or an affiliate or associate of the corporation who, at any time 
within the two-year period prior to the date in question, was the 
beneficial owner of 10% or more of the voting power of the then 
outstanding voting stock of the corporation. A person is not an 
interested stockholder under the statute if the board of directors 
approved in advance the transaction by which he otherwise would have 
become an interested stockholder. However, in approving a transaction, 
the board of directors may provide that its approval is subject to 
compliance, at or after the time of approval, with any terms and 
conditions determined by the board.
    After the five-year prohibition, any business combination between 
the Maryland corporation and an interested stockholder generally must 
be recommended by the board of directors of the corporation and 
approved by the affirmative vote of at least: 80% of the votes entitled 
to be cast by holders of outstanding shares of voting stock of the 
corporation and two-thirds of the votes entitled to be cast by holders 
of voting stock of the corporation other than shares held by the 
interested stockholder with whom or with whose affiliate the business 
combination is to be effected or held by an affiliate or associate of 
the interested stockholder. These super-majority vote requirements do 
not apply if the corporation's common stockholders receive a minimum 
price, as defined under Maryland law, for their shares in the form of 
cash or other consideration in the same form as previously paid by the 
interested stockholder for its shares.
    The statute provides for various exemptions from the application of 
its provisions, including for business combinations that are exempted 
by the board of directors prior to the time that the interested 
stockholder becomes an interested stockholder. The Board has not 
granted any exemptions. However, if

[[Page 13078]]

the proposal to require simple majority voting on all matters submitted 
for a stockholder vote is approved by the stockholders, the Board will 
take action consistent with Maryland law to remove the requirement of 
the two super-majority votes discussed above and instead provide that 
these business combinations may be approved by a majority of the votes 
entitled to be cast on the matter. If this proposal is approved and the 
Board takes the action described above, the Board will also take all 
action necessary under Maryland law to require stockholder approval to 
opt back into the super-majority voting provisions of the Maryland 
Business Combination Act.
    C. Declassification of the Board. An Allegheny stockholder proposes 
to present for stockholder consideration a proposal to elect each 
Allegheny director annually, which would have the effect of 
declassifying the Board effective as of the 2005 annual meeting of 
stockholders. In July 1999, the Board made an election under Maryland 
law to subject Allegheny to provisions of the Maryland General 
Corporation Law that provide for a classified board. Under these 
provisions, the Board is currently divided into three classes of 
directors, with each class serving a three-year term and one class 
being elected each year. A majority of stockholders voted in favor of 
eliminating the classified board system at the 2001, 2002 and 2003 
annual meetings of stockholders. In light of the level of stockholder 
support for this change, the Nominating and Governance Committee of the 
Board reviewed this matter in January 2004 and recommended to the Board 
that the classified board system be eliminated. If stockholders approve 
the proposal, the Board intends to take all action required under 
Maryland law to declassify the Board and to take all further action 
necessary to implement the change so that the election of directors 
will be annualized beginning at the 2005 annual meeting of 
stockholders. If this proposal is approved and the Board takes the 
action described, the Board will also take all action necessary under 
Maryland law to require stockholder approval to opt back into the 
provisions of Maryland law to classify the Board.
    D. Proxy Solicitation in Connection with Stockholder Rights 
Agreement. Allegheny's proxy statement will contain a stockholder 
proposal regarding stockholder input on stockholder rights agreements. 
Specifically, this proposal seeks to require that adoption or extension 
of any future stockholder rights agreement be submitted to a 
stockholder vote. Allegheny seeks authorization to solicit proxies in 
connection with the stockholder proposal.\1\
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    \1\ On October 14, 2003, Allegheny filed an application in file 
no. 70-10178 to redeem the rights under its existing stockholder 
rights agreement.
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II. Order for Solicitation of Proxies
    Allegheny has requested that an order be issued authorizing 
commencement of the solicitation of proxies from the holders of 
outstanding shares of common stock for approval of the various Charter 
and bylaw changes discussed in detail above and for the approval of 
changes in stockholder input with regard to stockholder rights 
agreements. It appears to the Commission that Allegheny's Declaration 
regarding the proposed solicitation of proxies should be permitted to 
become effective immediately under rule 62(d).
III. Rule 54 Analysis
    Rule 54 promulgated under the Act states that in determining 
whether to approve the issue or sale of a security by a registered 
holding company for purposes other than the acquisition of an exempt 
wholesale generator (``EWG'') or a foreign utility company (``FUCO''), 
or other transactions by such registered holding company or its 
subsidiaries, other than with respect to EWGs or FUCOs, the Commission 
shall not consider the effect of the capitalization or earnings of any 
subsidiary which is an EWG or a FUCO upon the registered holding 
company system if rules 53(a), (b) or (c) are satisfied.
    Allegheny does not satisfy the requirements of rule 53(a)(1). The 
Commission has authorized Allegheny to invest up to $2 billion in EWGs 
and FUCOs and found that this investment would not have either of the 
adverse effects set forth in rule 53(c). As of September 30, 2003, 
Allegheny's ``aggregate investment,'' as defined in rule 53(a)(l), was 
approximately $185 million. Allegheny is, however, no longer in 
compliance with the financing conditions of its financing orders. As of 
September 30, 2003, Allegheny's common equity ratio was below 28 
percent. As a result, Allegheny is no longer able to make any 
investments in EWGs and FUCOs, without further authorization from the 
Commission.\2\
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    \2\ As of September 30, 2003, Allegheny had a consolidated 
common equity ratio of 20.9 percent and Allegheny Energy Supply 
Company LLC had a consolidated common equity ratio of 15.71 percent.
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    Allegheny currently complies with, and will comply with, rules 
53(a)(2), 53(a)(3), and 53(a)(4). None of the circumstances described 
in 53(b)(1) have occurred. The circumstances described in rule 53(b)(2) 
and (b)(3) have occurred. And, the requirements of rule 53(c) are met.
    Allegheny believes that the requested authorization will not have a 
substantial adverse impact upon the financial integrity of Allegheny 
nor its public utility company subsidiaries (``Operating Companies''). 
Allegheny maintains that the requested relief will not adversely affect 
the Operating Companies and their customers. The ratio of common equity 
to total capitalization of each of the Operating Companies will 
continue to be maintained at not less than 30 percent.\3\ Furthermore, 
the common equity ratios of the Operating Companies will not be 
affected by the proposed transactions.
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    \3\ The common equity ratios of the Operating Companies as of 
September 30, 2003 are as follows: West Penn Power Company: 48 
percent; Potomac Edison Company: 48 percent; and Monongahela Power 
Company: 37 percent.
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    The fees, commissions and expenses incurred or to be incurred in 
connection with this Declaration will not exceed $10,000. Allegheny 
maintains that no state or federal regulatory agency, other than the 
Commission, has jurisdiction over the requested authority.
    It is ordered, under rule 62 of the Act, that the Declaration 
regarding the proposed solicitation of proxies from the holders of 
outstanding shares of Allegheny common stock become effective 
immediately, subject to the terms and conditions of rule 24 under the 
Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-6169 Filed 3-18-04; 8:45 am]
BILLING CODE 8010-01-P