[Federal Register Volume 70, Number 106 (Friday, June 3, 2005)]
[Notices]
[Pages 32678-32684]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-2862]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27975]


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

May 31, 2005.
    Notice is hereby given that the following filings 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) 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 June 21, 2005, to the Secretary, Securities and Exchange 
Commission, Washington, DC 20549-0609, and serve a copy on the 
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 fact 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 June 21, 2005, the application-declaration, as filed or 
as amended, may be granted and/or permitted to become effective.

Cinergy Corp. (70-10281)

    Cinergy Corp. (``Cinergy''), a registered holding company, 139 East 
Fourth Street, Cincinnati, Ohio 45202, has filed an Application-
Declaration, as amended, (``Application'') under sections 6(a), 7, 
9(a), 10, 12, 32 and 33 of the Public Utility Holding Company Act of 
1935, as amended and rules 45 and 53 under the Act.

Background

    Cinergy directly or indirectly owns all the outstanding common 
stock of public utility companies operating in Ohio, Indiana and 
Kentucky, the most significant of which are PSI Energy, Inc. (``PSI'') 
and The Cincinnati Gas & Electric Company (``CG&E''). PSI is a 
vertically integrated electric utility operating in Indiana, serving 
more than 700,000 customers in 69 of the state's 92 counties. CG&E is a 
combination gas and electric public utility holding company exempt from 
registration pursuant to rule 2(b) and provides gas and electric 
service in the southwestern portion of Ohio. CG&E's principal 
subsidiary is The Union Light, Heat and Power Company (``ULH&P'') which 
provides gas and electric service in northern Kentucky. Cinergy's three 
utility companies are jointly referred to as the ``Operating 
Companies.''
    Cinergy also owns numerous nonutility subsidiaries engaged in 
businesses authorized under the Act, by Commission order or otherwise, 
including ``exempt wholesale generators'' (``EWGs'') as defined in 
Section 32 of the Act, ``foreign utility companies'' (``FUCOs'') as 
defined in Section 34 of the Act, ``exempt telecommunications 
companies'' as defined in Section 34 of the Act and ``energy-related 
companies'' as defined in rule 58.

Requested Authorization

Summary of Transactions
    Cinergy requests authorization to engage in the transactions 
summarized below,\1\ and described in more detail in section -- of this 
Notice, during the period from the effective date of the order issued 
in this filing through the period ending the earlier of (a) 
consummation of the pending merger between Cinergy and Duke Energy 
Corporation,\2\ and (b) the expiration of 12 months from the date of 
the Commission's order in this matter granting and permitting to become 
effective some or all of the transactions requested in the underlying 
Application, (``Authorization Period'') and to replace and supersede 
the authority granted under the Prior Orders with the financing 
authority sought in the Application. Among other things, Cinergy 
requests authority to:
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    \1\ By prior orders Cinergy is authorized to engage in various 
financing transactions through June 23, 2005 and to issue and sell 
up to 50 million shares of its common stock under its stock-based 
employee benefit plans through December 8, 2010. Specifically, these 
orders are dated June 23, 2000, HCAR No. 27190 (the ``Financing 
Order''); December 8, 2000, HCAR No. 27295 (the ``Stock Plans 
Order'') and May 18, 2001, HCAR No. 27400 (the ``EWG/FUCO Order) 
Collectively, the three orders are referred to as the ``Prior 
Orders''.
    \2\ On May 8, 2005 Cinergy filed a Current Report on Form 8-K 
with the Commission announcing the proposed merger with Duke Energy 
Corporation.
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    (1) Increase total capitalization by $5.0 billion through the 
issuance and sale of any combination of equity and debt securities as 
more fully described below; \3\
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    \3\ As of September 30, 2004, Cinergy's total capitalization 
(excluding retained earnings and accumulated other income) was 
approximately $3.7 billion.
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    (2) Provide guarantees in an aggregate amount not to exceed $3.0 
billion; \4\
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    \4\ As of September 30, 2004, the aggregate amount of Cinergy's 
outstanding guarantees was $705 million.
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    (3) Form and utilize special-purpose financing subsidiaries to 
issue and sell equity and debt securities;
    (4) Enter into transactions to manage interest rate and foreign 
currency exchange risk;
    (5) Invest financing proceeds in EWG/FUCO projects in an amount not 
to exceed 100% of Cinergy's consolidated retained earnings plus $2.0 
billion (the ``EWG/FUCO Projects Limit''); Cinergy request that the 
Commission reserve jurisdiction over investments subject to the 
Restructuring Limit; and
    (6) Invest financing proceeds in certain EWG associate companies, 
in the event of a transfer of part or all of certain CG&E generating 
facilities to one or more EWG associate companies, in an amount not to 
exceed the net book value of the generating facilities at the time of 
transfer.

A. Parameters for Financing Authorization

    The following general terms would be applicable, as appropriate, to 
the financing transactions requested to be authorized in the 
Application:
    (1) Common Equity Ratio. Cinergy states that, at all times during 
the Authorization Period, it will maintain a common stock equity ratio, 
as reflected in Cinergy's most recent quarterly or annual report on 
Form 10-Q or Form 10-K, equal to at least 30% of Cinergy's consolidated 
capitalization except that, even if common equity falls below that 
level, Cinergy requests authorization to issue common stock at any time 
during

[[Page 32679]]

the Authorization Period without further action by the Commission. 
Consolidated capitalization, for purposes of determining the ratio, is 
comprised of common stock equity (i.e., common stock additional paid-in 
capital, retained earnings and/or treasury stock), minority interests, 
preferred stock preferred securities, equity linked securities, long-
term debt and short-term debt. Cinergy states that, as of September 30, 
2004, its common equity ratio was 41.1% of its consolidated 
capitalization.
    (2) Ratings. Cinergy states that, (i) within two business days 
after the occurrence of any Ratings Event,\5\ Cinergy will notify the 
Commission of its occurrence (by means of a letter via fax, e-mail or 
overnight mail to the staff of the Office of Public Utility 
Regulation), and (ii) within 30 days after the occurrence of any 
Ratings Event, Cinergy will submit to the Commission an explanation (in 
the form of an amendment to this Application) of the material facts and 
circumstances relating to that Ratings Event (including the basis on 
which, taking into account the interests of investors, consumers and 
the public as well as other applicable criteria under the Act, it 
remains appropriate for Cinergy to continue to avail itself of its 
authority to issue the securities for which authorization has been 
requested in this application so long as Cinergy continues to comply 
with the applicable terms and conditions specified in the Commission's 
order authorizing the transactions requested in this application).
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    \5\ For these purposes, (A) a ``Ratings Event'' will be deemed 
to have occurred if during the Authorization Period (i) any 
outstanding rated security of Cinergy is downgraded below investment 
grade, or (ii) any security issued by Cinergy upon original issuance 
is rated below investment grade; and (B) a security will be deemed 
``investment grade'' if it is rated investment grade by any of 
Moody's Investors Service, Standard & Poor's, Fitch Ratings or any 
other nationally recognized statistical rating agency (as defined by 
the Commission in rules adopted under the Securities Exchange Act of 
1934, as amended).
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    (3) Effective Cost of Money on Financings. Cinergy states that the 
effective cost of capital on any series of debt security with a 
maturity of one year or less (``short term debt'') at the time of 
issuance, any series of debt security with a maturity of greater than 
one year (``long-term debt'') at the time of issuance, preferred 
securities or the debt component of equity-linked securities will not 
exceed the competitive market rates available at the time of issuance 
for securities having reasonably similar terms and conditions issued by 
similar companies of comparable credit quality (``Comparable 
Securities''). In no event, according to Cinergy, will the interest 
rate exceed, for short term debt, 300 basis points over the comparable 
term London Interbank Offered Rate; for long term debt, 500 basis 
points over the comparable term U.S. Treasury securities for preferred 
or equity-linked securities, 700 basis points over the comparable term 
Treasury securities.
    (4) Maturity. Cinergy states that the maturity of any preferred 
stock or equity-linked securities (other than perpetual preferred 
stock) will not exceed 50 years and will be redeemed no later than 50 
years after issuance, unless converted into common stock. Cinergy 
states that the maturity of long-term debt securities will not exceed 
50 years.
    (5) Issuance Expenses. According to Cinergy, the underwriting fees 
and commissions paid in connection with the issuance, sale or 
distribution of any securities authorized as a result of this 
Application will not exceed aggregate issuance expenses that are paid 
at the time in respect of Comparable Securities, provided that in no 
event will such issuance expenses exceed five percent (5%) of the 
principal or face amount of the securities issued or gross proceeds of 
the financing.
    (6) Use of Proceeds. Cinergy states that it will use proceeds from 
the sale of securities, issued as a result of an authorization arising 
out of the Application, for any lawful purpose, including (a) financing 
of capital expenditures and working capital requirements of the Cinergy 
System, including by means of loans to participating companies in 
accordance with the terms of the Cinergy System money pool, (b) 
payment, redemption, acquisition and refinancing of outstanding 
securities issued by Cinergy, (c) direct or indirect investments in 
companies or assets the acquisition of which are either exempt under 
the Act or by Commission rule or have been authorized by the Commission 
and (d) general corporate purposes.

B. Description of Specific Types of Financing

    (1) Common Stock and Equity-Linked Securities. Cinergy requests 
authority to issue and sell additional shares of its common stock and 
equity-linked securities, as defined below, from time to time over the 
Authorization Period, subject to the limits and conditions specified in 
the Application.
    Cinergy proposes to issue and sell additional shares of its common 
stock (a) through solicitations of proposals from underwriters or 
dealers, (b) through negotiated transactions with underwriters or 
dealers, (c) directly to a limited number of purchasers or to a single 
purchaser, and/or (d) through agents or other third parties. The price 
applicable to additional shares sold in any such transaction will be 
based on several factors, including the current market price of the 
common stock and prevailing capital market conditions. These 
transactions may also include forward sales of Cinergy common stock.
    Cinergy also proposes to issue and sell from time to time options 
and warrants to acquire its common stock together with other equity-
linked securities (collectively, ``Equity-Linked Securities''), 
including but not limited to contracts (''Stock Purchase Contracts``) 
obligating holders to purchase from Cinergy, and/or Cinergy to sell to 
the holders, a number of shares of Cinergy common stock specified 
directly or by formula at an aggregate offering price either fixed at 
the time the Stock Purchase Contracts are issued or determined by 
reference to a specific formula set forth in the Stock Purchase 
Contracts. The Stock Purchase Contracts may be issued separately or as 
part of units (''Stock Purchase Units``) consisting of a stock purchase 
contract and debt and/or Treasury securities, securing holders' 
obligations to purchase the common stock of Cinergy under Stock 
Purchase Contracts. The Stock Purchase Contracts may require holders to 
secure their obligations under the contracts in a specified manner.
    Cinergy further proposes to issue common stock or Equity-Linked 
Securities as consideration, in whole or in part, for acquisitions of 
securities or assets of businesses of non-affiliates, the acquisition 
of which (a) is exempt under the Act or the rules under the Act or (b) 
has been authorized by prior Commission order issued to Cinergy, 
subject in either case to applicable limitations on total investments 
in any such business. The shares of Cinergy common stock issued (or, 
with respect to Equity-Linked Securities, that may be issued) in 
connection with any such transaction would be valued at market value 
based on (i) the closing price on the day before closing of the sale, 
(ii) average high and low prices for a period prior to the closing of 
the sale, or (iii) some other method negotiated by the parties.
    Finally, Cinergy seeks Commission authorization to issue and sell 
common stock and Equity-Linked Securities in accordance with Cinergy's 
existing 401(k) plans and other stock-based plans for employees, 
officers and/or directors, as well as any additional stock-based plans 
Cinergy may adopt

[[Page 32680]]

during the Authorization Period. A summary of the material terms and 
conditions of Cinergy's existing stock-based plans is set forth in 
Exhibit H attached to the Application.
    (2) Preferred Securities. Cinergy proposes to issue and sell 
preferred securities in one or more series, subject to the limitations 
and conditions specified in the Application.
    According to Cinergy, the preferred securities of any series (a) 
will have a specified par or stated value or liquidation value per 
security, (b) will carry a right to periodic cash dividends and/or 
other distributions, subject among other things, to funds being legally 
available, (c) may be subject to optional and/or mandatory redemption, 
in whole or in part, at par or at various premiums above the par or 
stated or liquidation value, (d) may be convertible or exchangeable 
into common stock of Cinergy, (e) and may bear such further rights, 
including voting, preemptive or other rights, and other terms and 
conditions, as set forth in the applicable certificate of designation, 
purchase agreement or similar instrument governing the issuance and 
sale of such series of preferred securities.
    Cinergy proposes to issue preferred securities in private or public 
transactions. With respect to private transactions, Cinergy proposes to 
issue and sell preferred securities of any series directly to one or 
more purchasers in privately negotiated transactions or to one or more 
investment banking or underwriting firms or other entities who would 
resell the preferred securities without registration under the 
Securities Act of 1933, as amended (the ``Securities Act'') in reliance 
upon one or more applicable exemptions from registration under the 
Securities Act. From time to time Cinergy also proposes to issue and 
sell preferred securities of one or more series to the public through 
(i) underwriters selected by negotiation or competitive bidding or (ii) 
selling agents acting either as agent or as principal for resale to the 
public either directly or through dealers.
    According to Cinergy, the liquidation preference, dividend or 
distribution rates, redemption provisions, voting rights, conversion or 
exchange rights, and other terms and conditions of a particular series 
of preferred securities, as well as any associated placement, 
underwriting, structuring or selling agent fees, commissions and 
discounts, if any, will be established by negotiation or competitive 
bidding and reflected in the applicable certificate of designation, 
purchase agreement, underwriting agreement or other instrument setting 
forth such terms.
    (3) Debt Securities. a. Short-Term Notes. Cinergy proposes, subject 
to the terms and conditions specified in the Application, from time to 
time within the Authorization Period, to make short-term borrowings 
from banks or other financial institutions. Cinergy states that such 
borrowings from banks or other financial institutions will be evidenced 
by (a) ``transactional'' promissory notes to be dated the date of such 
borrowings and to mature not more than one year after the date thereof 
or (b) ``grid'' promissory notes evidencing all outstanding borrowings 
from the respective lender, to be dated as of the date of the first 
borrowing, with each borrowing maturing not more than one year 
thereafter. Any such note may or may not be subject to prepayment, in 
whole or in part, with or without a premium in the event of prepayment.
    b. Commercial Paper. Cinergy proposes to issue and sell commercial 
paper through one or more dealers or agents or directly to purchasers 
from time to time during the Authorization Period, subject to the 
limits and conditions specified in the Application.
    Cinergy proposes to issue and sell the commercial paper at market 
rates with varying maturities not to exceed 364 days. According to 
Cinergy, the commercial paper will be in the form of book-entry 
unsecured promissory notes with varying denominations of not less than 
$1,000 each. Also, for commercial paper sales effected on a discount 
basis, no commission or fee will be payable in connection with those 
sales; however, the purchasing dealer will re-offer the commercial 
paper at a rate less than the rate to Cinergy. Further, the discount 
rate to dealers will not exceed the maximum market clearing discount 
rate per annum prevailing at the date of issuance for commercial paper 
of comparable quality and the same maturity and any purchasing dealer 
will re-offer the commercial paper in such a manner as not to 
constitute a public offering within the meaning of the Securities Act.
    c. Long-Term Notes. Cinergy proposes to issue and sell long-term 
debt securities (``Notes'') in one or more series from time to time 
within the Authorization Period, subject to the limits and conditions 
specified in the Application.
    Cinergy proposes to issue and sell Notes of any series as either 
senior or subordinated obligations of Cinergy. According to Cinergy, if 
issued on a secured basis, Notes would be secured solely by common 
stock, or other assets or properties, of one or more of Cinergy's 
nonutility subsidiaries (exclusive of any nonutility subsidiary held by 
CG&E or PSI).\6\ Notes of any series (i) will have maturities greater 
than one year, (ii) may be subject to optional and/or mandatory 
redemption, in whole or in part, at par or at various premiums above 
the principal amount of the notes, (iii) may be entitled to mandatory 
or optional sinking fund provisions, and (iv) may be convertible or 
exchangeable into common stock of Cinergy. Interest accruing on Notes 
of any series may be fixed or floating or ``multi-modal'' (i.e., where 
the interest is periodically reset, alternating between fixed and 
floating interest rates for each reset period, with all accrued and 
unpaid interest together with interest on that interest becoming due 
and payable at the end of each such reset period). Under Cinergy's 
proposal, Notes may be issued under one or more indentures to be 
entered into between Cinergy and financial institution(s) acting as 
trustee(s); supplemental indentures may be executed in respect of 
separate offerings of one or more series of Notes.
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    \6\ According to Cinergy, the nonutility subsidiaries in 
question consist of one or more direct, wholly-owned nonutility 
subsidiaries of Cinergy, which currently comprise the following: 
Cinery Investments, Inc., which holds Cinergy's nonutility wholesale 
gas marketing business and cogeneration business, among others; 
Cinergy Global Resources, Inc., which holds most of Cinergy's 
foreign utility investments; CinTec LLC, which holds certain ETC 
investments; Cinergy Technologies, Inc., which holds certain ETC 
investments and nonutility energy-related businesses; and Cinergy 
Wholesale Energy, Inc., which holds certain currently inactive 
nonutility businesses. None of these nonutility subsidiaries (or 
their subsidiaries) has any material relationships with Cinergy's 
utility companies, other than with respect to certain Commission-
approved and/or state public utility commission-approved affiliate 
contracts.
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    Cinergy states that Notes may be issued in private or public 
transactions. With respect to the former, Notes of any series may be 
issued and sold directly to one or more purchasers in privately 
negotiated transactions or to one or more investment banking or 
underwriting firms or other entities who would resell the Notes without 
registration under the Securities Act in reliance upon one or more 
applicable exemptions from registration under the Securities Act. From 
time to time Cinergy may also issue and sell Notes of one or more 
series to the public either (i) through underwriters selected by 
negotiation or competitive bidding or (ii) through selling agents 
acting either as agent or as principal for resale to the public either 
directly or through dealers.
    Finally, according to Cinergy, the maturity dates, interest rates, 
redemption and sinking fund provisions, and conversion features, if

[[Page 32681]]

any, with respect to the Notes of a particular series, as well as any 
associated placement, underwriting, structuring or selling agent fees, 
commissions and discounts, if any, will be established by negotiation 
or competitive bidding and reflected in the applicable indenture or 
supplement to the indenture in addition to any purchase agreement or 
underwriting agreement setting forth these terms.
    (4) Financing Entities. In addition to issuing any of the foregoing 
debt or equity securities directly, Cinergy requests approval to form 
one or more subsidiaries that, subject to the limits and conditions of 
the Application, would (a) issue and sell any of the foregoing 
securities, (b) lend, distribute or otherwise transfer the proceeds of 
those securities to Cinergy or an entity designated by Cinergy and (c) 
engage in transactions incidental to issuance or sale of those 
securities.
    Cinergy states that its proposed subsidiaries will comprise one or 
more financing subsidiaries (each, a ``Financing Subsidiary'') and one 
or more special-purpose entities (each, a ``Special-Purpose Entity'', 
and together with Financing Subsidiaries, ``Financing Conduits''). In 
either case the subsidiaries' businesses will be limited to issuing and 
selling securities on behalf of Cinergy and transactions incidental to 
issuing or selling those securities; the subsidiaries will have no 
substantial physical assets or properties. Any securities issued by the 
Financing Conduits may be guaranteed by Cinergy, either directly or 
ultimately.
    Cinergy proposes to acquire shares of common stock or other equity 
interests of a Financing Subsidiary for an amount not less than the 
minimum required by applicable law. The business of a Financing 
Subsidiary will be limited to effecting financing transactions with 
third parties for the benefit of Cinergy and its subsidiaries. As an 
alternative in a particular instance to Cinergy directly issuing debt 
or equity securities, or through a Special-Purpose Entity, Cinergy may 
determine to use a Financing Subsidiary as the normal issuer of the 
particular debt or equity security. In that circumstance, Cinergy may 
provide a guarantee or other credit support with respect to the 
securities issued by the Financing Subsidiary, the proceeds of which 
would be lent, distributed or otherwise transferred to Cinergy or an 
entity designated by Cinergy. In passing it is worth noting that 
Section 13(b) of the Act and rules 87 and 90 under the Act provide for 
such services as long as the charge for those services does not exceed 
a market price.
    According to Cinergy, one of the primary strategic reasons behind 
the use of a Financing Subsidiary is to segregate financings for the 
different businesses conducted by Cinergy, distinguishing between 
securities issued by Cinergy to finance its investments in nonutility 
businesses and those issued to finance its investments in the core 
utility business. A separate Financing Subsidiary may be used by 
Cinergy with respect to different types of nonutility businesses. 
Cinergy proposes to use Special-Purpose Subsidiaries in connection with 
certain financing structures for issuing debt or equity securities, in 
order to achieve a lower cost of capital, or incrementally greater 
financial flexibility or other benefits, than would otherwise be the 
case.
    (5) Hedging Transactions and Certain Risk Management Instruments. 
Cinergy requests authority to manage interest rate and foreign currency 
exchange risk through the entry into, purchase and sale of various risk 
management instruments commonly used in capital markets, such as 
interest rate and currency swaps, caps, collars, floors, options, 
warrants, forwards, forward issuance agreements and similar products 
designed to manage those risks (collectively, ``Derivative 
Instruments'').
    Cinergy requests authorization to enter into Derivative Instruments 
(either directly or through Financing Conduits) for the purpose of 
managing interest rate and foreign currency exchange risk only with 
counterparties (``Authorized Counterparties'') whose senior debt, at 
the date of entry into the Derivative Instrument, is rated investment 
grade by at least one nationally recognized credit rating agency. 
Cinergy states that the Derivative Instruments will be for fixed 
periods and the notional principal amount will not exceed the principal 
amount of the underlying security, except to the extent necessary to 
adjust for differing price movements between the underlying security 
and the Derivative Instrument or to allow for the fees related to the 
transaction. Cinergy states that any fees and commissions that it pays 
in connection with any Derivative Instrument will not exceed the then-
current market level.
    Cinergy states that it will not engage in ``speculative'' 
derivative transactions and will comply with the Statement of Financial 
Accounting Standards (``SFAS'') 133 as amended (``Accounting for 
Derivative Instruments and Hedging Activities'') with respect to all 
Derivative Instruments entered into, purchased or sold together with 
such other standards, if any, relating to accounting for derivative 
transactions as may, over the course of the Authorization Period, be 
adopted and implemented by the Financial Accounting Standards Board 
(``FASB''). Cinergy will designate certain of the Derivative 
Instruments that may be authorized as a result of the Application as 
either fair value or cash flow hedges in accordance with SFAS 133 and 
as determined at the date of entry into the respective Derivative 
Instruments.
    In addition, as explained in Exhibit J attached to the Application, 
Cinergy states that it will enter into certain Derivative Instruments 
that, although accounted for under SFAS 133, will not receive hedge 
accounting treatment under SFAS 133.
    (6) Intra-System Financings and Guarantees. Cinergy requests 
authority, subject to the limits and conditions specified in the 
Application, to guarantee, obtain letters of credit, enter into 
financing arrangements and otherwise provide credit support (each, a 
``Guarantee'') from time to time during the Authorization Period, in 
respect to the debt or other securities or obligations of any or all of 
Cinergy's subsidiary or associate companies (including those formed or 
acquired at any time over the Authorization Period), and otherwise to 
further the business of Cinergy. The terms and conditions of any 
Guarantees, and the underlying liabilities covered by those Guarantees 
would, according to Cinergy, be established at arm's length based upon 
market conditions. Cinergy requests authorization to charge a fee to 
the subsidiary on whose behalf Cinergy issues a Guarantee. Cinergy 
states that this fee will not exceed a reasonable estimate of the 
costs, if any that would have been incurred by the subsidiary in 
obtaining the liquidity necessary to perform under the Guarantee for 
the period it remains outstanding.
    Cinergy states that the total amount of Guarantees outstanding at 
any one time will be limited not only by the Guarantees Limit, but 
also, where issued in respect of EWGs or FUCOs or rule 58 Companies, by 
the investment limitations specified under rules 53 and 58 and 
applicable Commission orders, including the order requested under the 
Application. From time to time Cinergy expects to issue Guarantees in 
respect of obligations that are not, according to Cinergy, susceptible 
to exact quantification. For these cases Cinergy requests authority to 
determine its exposure under the Guarantees, for purposes of measuring 
compliance with the Guarantees Limit (and any applicable investment 
limits under rules 53 and 58), by appropriate means, including 
estimation of exposure based on loss experience or projected potential

[[Page 32682]]

payment amounts under the underlying obligation. Cinergy proposes to 
make these estimates, if appropriate, in accordance with generally 
accepted accounting principles. These estimates will be re-evaluated 
periodically.
    Where, as discussed above, Cinergy may cause debt or equity 
securities to be issued through Financing Conduits authorized as a 
result of this Application, Cinergy requests authorization to provide a 
Guarantee in respect of the payment and other obligations of the 
Financing Conduit under the securities issued by it. Since any 
securities nominally issued by a Financing Conduit are in substance 
securities issued by Cinergy itself, Cinergy intends that any 
securities issued by a Financing Conduit count dollar-for-dollar 
against the Aggregate Financing Limit. Conversely, Cinergy states that 
any Guarantees of securities of Financing Conduits should be excluded 
entirely from the Guarantees Limit, since inclusion of those Guarantees 
would amount to ``double counting,'' in effect reducing Cinergy's 
Aggregate Financing Limit to the extent it used Financing Conduits.

C. EWG/FUCO Investments Limit

    Cinergy requests authority, subject to the limits and conditions 
specified in the Application, to issue and sell securities for the 
purpose of funding investments in EWGs and FUCOs in an amount not to 
exceed the EWG/FUCO Investments Limit. The EWG/FUCO Investments Limit 
is comprised of two separate investment limits, the EWG/FUCO Projects 
Limit and the Restructuring Limit, permitting respective aggregate 
investments as follows:
    (1) EWG/FUCO Projects Limit. With respect to EWG/FUCO Projects 
other than those subject to the Restructuring Limit, an aggregate 
investment not to exceed (a) 100% of Cinergy's consolidated retained 
earnings, plus (b) $2.0 billion.
    (2) Restructuring Limit. Solely with respect to the potential 
transfer of certain of CG&E's generating facilities to one or more 
Restructuring Subsidiaries, an aggregate investment in such 
Restructuring Subsidiaries not to exceed the net book value of any such 
transferred generating facilities at the date of transfer.
    With respect to the Restructuring Limit, Cinergy states that the 
net book value of CG&E's generating facilities at September 30, 2004 
(excluding certain generating facilities to be transferred to ULH&P) 
\7\ was approximately $1,544 million, including construction work in 
progress of $44 million. Ohio is the only state in the three-state 
region in which Cinergy's utilities operates that has enacted electric 
restructuring legislation. This legislation went into effect in January 
2001, deregulating electric generation and supply and giving Ohio 
retail customers the right to choose electric suppliers. Cinergy states 
that CG&E may determine to transfer one or more of its generating 
facilities to one or more Restructuring Subsidiaries during the 
Authorization Period. In light of this and Ohio's restructuring law 
Cinergy states that it has included the Restructuring Limit as part of 
its overall proposal regarding EWG/FUCO investments. Pending completion 
of the record, however, Cinergy requests that the Commission reserve 
jurisdiction over the Restructuring Limit, including any potential 
investments in Restructuring Subsidiaries.
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    \7\ See HCAR No. 27940, Jan. 21, 2004 (notice with respect to 
declaration filed by Cinergy and CG&E in File No. 70-10254).
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Cinergy Corp., et al. (70-10303)

    Cinergy Corp. (``Cinergy''), a Delaware corporation registered 
under the Act, The Cincinnati Gas & Electric Company (``CG&E''), an 
electric and gas utility company and holding company, and a wholly-
owned subsidiary of Cinergy, and CG&E's wholly-owned subsidiaries The 
Union Light, Heat and Power Company (``ULH&P''), an electric and gas 
utility company, and Miami Power Corporation (``Miami''), an electric 
utility company, and KO Transmission Company (``KO''), a nonutility 
company, and Tri-State Improvement Company (``Tri-State''), a 
nonutility company, each at 139 East Fourth Street, Cincinnati, Ohio, 
together with PSI Energy, Inc., an electric utility company (``PSI'') 
and wholly-owned subsidiary of Cinergy, at 1000 East Main Street, 
Plainfield, Indiana, and Cinergy Services, Inc., a Delaware corporation 
and wholly-owned service company subsidiary of Cinergy, also at 139 
East Fourth Street, Cincinnati, (``Cinergy Services'' and, collectively 
with the foregoing companies, ``Applicants''), have filed an 
application-declaration (``Application'') with the Commission under 
sections 6(a), 7, 9(a) and 10 of the Act and rule 54 under the Act. 
Applicants request authorization to engage in certain short-term 
financing transactions as described below, involving (i) loans and 
borrowings under the ``money pool'' arrangement described below, (ii) 
bank borrowings and (iii) commercial paper sales.
    Cinergy directly holds all the outstanding common stock of CG&E and 
PSI. Cinergy was created as a holding company in connection with the 
1994 merger of CG&E and PSI.\8\ Through CG&E (including its principal 
subsidiary, ULH&P) and PSI, Cinergy provides retail electric and/or 
natural gas service to customers in southwestern Ohio, northern 
Kentucky and most of Indiana. In addition to its Midwestern-based 
utility business, Cinergy has numerous non-utility subsidiaries engaged 
in a variety of energy-related businesses.
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    \8\ See Cinergy Corp., HCAR No. 26146, Oct. 21, 1994 (``1994 
Merger Order'').
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    CG&E is a combination electric and gas public utility holding 
company exempt from registration under the Act in accordance with rule 
2(b) under the Act. CG&E is engaged in the production, transmission, 
distribution and sale of electric energy and the sale and 
transportation of natural gas in southwestern Ohio and, through ULH&P, 
northern Kentucky. The Public Utilities Commission of Ohio (``PUCO'') 
regulates CG&E with respect to retail sales of electricity and natural 
gas and other matters, including issuance of securities.
    A direct wholly-owned subsidiary of CG&E formed under Kentucky law, 
ULH&P is engaged in the transmission, distribution and sale of electric 
energy and the sale and transportation of natural gas in northern 
Kentucky. The Kentucky Public Service Commission (``KPSC'') regulates 
ULH&P with respect to retail sales of electricity and natural gas and 
other matters, including issuance of securities. In addition to ULH&P, 
CG&E has several other subsidiaries. None of these subsidiaries, 
individually or in the aggregate, is material to CG&E's business.
    Miami is an electric utility company whose business is limited to 
ownership of a 138 kilovolt transmission line extending from the Miami 
Fort Power Station in Ohio (in which CG&E owns interests in four 
electric generating units) to a point near Madison, Indiana. KO is a 
nonutility company that owns interests in natural gas pipeline 
facilities located in Kentucky. Tri-State is a nonutility company that 
acquires and holds real estate intended for future use in CG&E's 
utility business.
    PSI is engaged in the production, transmission, distribution and 
sale of electric energy in north central, central, and southern 
Indiana. The Indiana Utility Regulatory Commission (``IURC'') regulates 
PSI with respect to retail sales of electricity and other

[[Page 32683]]

matters, including issuance of securities.
    Cinergy Services Inc. (``Cinergy Services''), Cinergy's service 
company subsidiary, provides centralized management, administrative and 
other support services to the utility and nonutility associate 
companies in Cinergy's holding company system.
    By order dated August 2, 2001, HCAR No. 27429 (``2001 Order''), the 
Commission authorized the Applicants to engage in various short-term 
financing transactions from time to time through June 30, 2006, as 
follows:
    1. With respect to the Cinergy system ``money pool,'' (``Money 
Pool'') which was established by and among Cinergy, Cinergy Services, 
PSI and CG&E (including its subsidiaries) to help provide for the 
short-term cash and working capital requirements of the latter three 
companies,\9\ PSI, ULH&P and Miami were authorized to make loans to and 
incur borrowings from each other;
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    \9\ Cinergy Corp., et al., HCAR No. 26362, (Aug. 25, 1995) 
authorizing establishment of Money Pool (``1995 Money Pool Order'').
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    2. Cinergy, CG&E, Cinergy Services, Tri-State and KO were 
authorized to make loans to PSI, ULH&P and Miami;
    3. PSI, ULH&P and Miami were authorized to incur short-term 
borrowings from banks and other financial institutions; and
    4. PSI was also authorized to issue and sell commercial paper.
    Under the 2001 Order, the maximum principal amount of short-term 
borrowings that PSI, ULH&P and Miami could incur and have outstanding 
at any one time (whether from (i) the Money Pool, (ii) banks and other 
financial institutions, or (iii) in PSI's case, through sales of 
commercial paper) was as follows: PSI, $600 million; ULH&P, $65 
million; and Miami, $100,000.
    Applicants state that the short-term borrowing limitation 
established in the 2001 Order is no longer appropriate for ULH&P, given 
that company's anticipated capital requirements following the 
consummation of its pending transaction with CG&E, in which it will 
acquire interests in three of CG&E's electric generating stations, with 
1105 megawatts of total capacity. This transaction will significantly 
increase the overall size of ULH&P, with a commensurate impact on its 
ongoing capital requirements, including short-term borrowing needs. 
ULH&P now proposes to increase its short-term borrowing authority from 
$65 million to $150 million for the duration of the Authorization 
Period, as defined below.
    In addition, Applicants propose to engage in the following 
transactions, also in each case through the earlier of (a) consummation 
of the pending merger between Cinergy Corp. (``Cinergy''), a Delaware 
corporation and registered holding company under the Act, and Duke 
Energy Corporation and (b) the expiration of 12 months from the date of 
the Commission's order granting the authorizations requested in the 
Application (``Authorization Period''):
    1. In connection with the continued operation of the Money Pool, 
PSI, ULH&P and Miami (``Nonexempt Subsidiaries'') \10\ propose to make 
loans to and incur borrowings from each other;
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    \10\ Applicants state that the short-term borrowing authority 
requested for PSI, ULH&P and Miami (whether from affiliates, as 
under the Money Pool, or from non-affiliates, as with respect to 
borrowings from banks and other financial institutions and sales of 
commercial paper) is not subject to the securities issuance 
jurisdiction of the applicable state public utility commissions. 
Accordingly, the proposed short-term borrowings for these companies 
are not eligible for the exemption afforded by rule 52(a) under the 
Act. More specifically, neither the IURC nor the KPSC has authority 
over short-term borrowings (defined as (i) in the case of the IURC, 
borrowings with a maturity of one year or less, and (ii) in the case 
of the KPSC, borrowings with a maturity of two years or less). The 
PUCO, however, does have authority over short-term borrowings of any 
maturity; accordingly, short-term borrowings by CG&E are exempt from 
Commission authorization under rule 52(a).
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    2. In connection with the continued operation of the Money Pool, 
Cinergy \11\ Services, CG&E, Tri-State and KO propose to make loans to 
the Nonexempt Subsidiaries thereunder;
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    \11\ Cinergy has Commission authority through June 23, 2005 
(Cinergy Corp. et al., HCAR No. 27190, (June 23, 2000)) to use 
financing proceeds to ``make loans to, and investments in, other 
system companies, including through the Cinergy system money pool 
[citation omitted].'' Cinergy has filed an application (File No. 70-
10281) to extend that authorization.
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    3. The Nonexempt Subsidiaries propose to incur short-term 
borrowings from banks or other financial institutions (collectively, 
``Banks''); and
    4. PSI and ULH&P propose to issue and sell commercial paper.
    The maximum principal amount of short-term borrowings outstanding 
at any time by the Nonexempt Subsidiaries (whether pursuant to the 
Money Pool, Bank loans or sales of commercial paper) would not exceed 
the following amounts (each, a ``Borrowing Cap''): PSI, $600 million; 
ULH&P, $150 million; and Miami, $100,000. (The Borrowing Caps for PSI 
and Miami are unchanged from those set forth in the 2001 Order.)
    Proceeds of short-term borrowings by the Nonexempt Subsidiaries 
(whether under the Money Pool, bank loans or sales of commercial paper) 
would be used by those companies for general corporate purposes, 
including (1) interim financing of capital requirements; (2) working 
capital needs; (3) repayment, redemption, refinancing of debt or 
preferred stock; (4) cash requirements to meet unexpected contingencies 
and payment and timing differences; (5) loans through the Money Pool; 
and (6) other transactions relating to those Applicants' utility 
businesses.

Money Pool

    Subject to their respective Borrowing Caps, from time to time over 
the Authorization Period, the Nonexempt Subsidiaries propose to make 
loans to each other; and Cinergy Services, CG&E, Tri-State and KO 
propose to make loans to the Nonexempt Subsidiaries, in accordance with 
the Money Pool.\12\
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    \12\ Borrowings by Cinergy Services, CG&E, Tri-State and KO from 
each other or from any of the other Money Pool participants under 
the Money Pool (namely, Cinergy and the Nonexempt Subsidiaries) are 
exempt (together with the corresponding loans) under rule 52(a) (in 
the case of CG&E) and rule 52(b) (in the case of Cinergy Services, 
Tri-State and KO).
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    Applicants propose no changes to the Money Pool, the terms of which 
were originally authorized in the 1995 Money Pool Order and are set 
forth in the related Money Pool Agreement. (Cinergy, Cinergy Services, 
CG&E, Tri-State, KO, PSI, ULH&P and Miami are collectively referred to 
as the ``Money Pool Participants.'')

Short-Term Bank Borrowings & Commercial Paper

    Subject to their respective Borrowing Caps, from time to time over 
the Authorization Period, (a) the Nonexempt Subsidiaries propose to 
borrow short-term funds from Banks pursuant to formal or informal 
credit facilities, and (b) PSI and ULH&P propose to issue and sell 
commercial paper, as described below.
    Bank borrowings would be evidenced by promissory notes, each of 
which would be issued no later than the expiration date of the 
Authorization Period and would mature no later than one year from the 
date of issuance (except in the case of borrowings by ULH&P, which 
would mature no later than two years from the date of issuance); would 
bear interest at a rate no higher than the lower of (a) 400 basis 
points over the comparable London interbank offered rate or (b) a rate 
that is consistent with similar securities of comparable credit quality 
and maturities issued by other companies; may require fees to the 
lender not to exceed 200 basis points per annum on the total 
commitment; and, except for borrowings on uncommitted credit

[[Page 32684]]

lines, may be prepayable in whole or in part, with or without a 
premium.
    Subject to the applicable Borrowing Caps, from time to time over 
the Authorization Period, PSI and ULH&P also propose to issue and sell 
commercial paper through one or more dealers or agents (or directly to 
a limited number of purchasers if the resulting cost of money is equal 
to or less than that available from commercial paper placed through 
dealers or agents).
    PSI and ULH&P propose to issue and sell the commercial paper at 
market rates (either on an interest bearing or discount basis) with 
varying maturities not to exceed 270 days. The commercial paper will be 
in the form of book-entry unsecured promissory notes with varying 
denominations of not less than $1,000 each. In commercial paper sales 
effected on a discount basis, the purchasing dealer may re-offer the 
commercial paper at a rate less than the rate to PSI or ULH&P. The 
discount rate to dealers will not exceed the maximum discount rate per 
annum prevailing at the date of issuance for commercial paper of 
comparable quality and the same maturity. The purchasing dealer will 
re-offer the commercial paper in a manner that will not constitute a 
public offering within the meaning of the Securities Act of 1933.
    In addition, solely with respect to the issuance by PSI, ULH&P and 
Miami of Bank debt and by PSI and ULH&P of commercial paper (in each 
case other than for purposes of funding the Money Pool): (i) Within two 
business days after the occurrence of any Ratings Event,\13\ Cinergy 
will notify the Commission of its occurrence (by means of a letter via 
fax, e-mail or overnight mail to the staff of the Office of Public 
Utility Regulation), and (ii) within 30 days after the occurrence of 
any Ratings Event, Cinergy will submit to the Commission an explanation 
(in the form of an amendment to the Application) of the material facts 
and circumstances relating to that Ratings Event (including the basis 
on which, taking into account the interests of investors, consumers and 
the public as well as other applicable criteria under the Act, it 
remains appropriate for PSI, ULH&P and Miami to continue to avail 
itself of its authority to issue the securities for which authorization 
has been requested in the Application so long as each continues to 
comply with the applicable terms and conditions specified in the 
Commission's order authorizing the transactions requested in the 
Application).
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    \13\ For these purposes, (A) a ``Ratings Event'' will be deemed 
to have occurred if during the Authorization Period (i) any 
outstanding rated security of PSI, ULH&P or Miami is downgraded 
below investment grade, or (ii) any security issued by PSI, ULH&P or 
Miami upon original issuance is rated below investment grade; and 
(B) a security will be deemed ``investment grade'' if it is rated 
investment grade by any of Moody's Investors Service, Standard & 
Poor's, Fitch Ratings or any other nationally recognized statistical 
rating agency (as defined by the Commission in rules adopted under 
the Securities Exchange Act of 1934, as amended).

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-2862 Filed 6-2-05; 8:45 am]
BILLING CODE 8010-01-P