File No. 70-8787
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________
PRE-EFFECTIVE AMENDMENT NO. 1
TO THE
FORM U-1 APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
_________________________________
New Century Energies, Inc.
1225 Seventeenth Street
Denver, Colorado 80202
__________________________________
(Name of company filing this statement
and address of principal executive offices)
None
__________________________________
(Name of top registered holding company)
Richard C. Kelly Doyle R. Bunch II
President and Treasurer Chairman and Secretary
1225 Seventeenth Street Tyler at Sixth
Denver, Colorado 80202 Amarillo, Texas 79101
(Names and addresses of agents for service)
The Commission is requested to send copies of all notices, orders and
communications in connection with this Application- Declaration to:
William S. Lamb, Esq. Gary W. Wolf, Esq.
LeBoeuf, Lamb, Greene & MacRae, L.L.P. Cahill Gordon & Reindel
125 West 55th Street 80 Pine Street
New York, New York 10019 New York, New York 10005
Patricia T. Smith, Esq.
William M. Dudley, Esq.
Public Service Company of Colorado
1225 Seventeenth Street
Denver, Colorado 80202
New Century Energies, Inc. ("NCE") hereby amends its
Application/Declaration on Form U-1 (File No. 80-8787), as follows:
1. By amending and restating Item I.B.1.c. as follows:
SPS
SPS wholly owns two direct non-utility subsidiaries, UE and Quixx. No
assets of Quixx or UE are presently, or will following the consummation of the
Transaction be, included in the rate base of any public utility company within
the NCE system. UE is a wholly owned subsidiary formed in 1986. It is engaged
in a variety of engineering, design, construction, management and other
miscellaneous services, employing approximately 120 employees. UE's assets at
December 31, 1995, were approximately $43.4 million and total revenues for
calendar year 1995 were $29.8 million. SPS is one of UE's major clients. UE is
also involved in other projects for nonaffiliate customers, providing general
engineering, development, design and rehabilitation services and management,
construction, maintenance, operation and other related services. UE also works
jointly with Quixx on cogeneration and other independent power and related
projects.
Quixx is a wholly owned subsidiary formed in 1986. Its primary
business is investing in and developing cogeneration and energy-related
projects. Quixx also holds water rights and certain other non-utility assets.
Quixx employs approximately 70 employees. Quixx's assets at December 31, 1995
were approximately $86.o million and total revenues for calendar year 1995 were
$19.7 million.
UE has two affiliates as follows: S.A. Garza Engineers, Inc.
("SAGE"), in which UE holds a 39% convertible preferred stock interest and a 12%
common stock interest, is involved in municipal water and wastewater projects,
civil works and surveying services and may in the future provide services to
NCE's utility subsidiaries and non-utility subsidiaries and affiliates; and
Vista Environmental Services, L.L.C., 49% of which is owned by UE, performs
environmental consulting services, client-regulatory interfacing, site
assessments, due diligence, waste management planning, remedial action design
and implementation, groundwater valuation, mineral surveys, and on-site field
supervision in both the private and governmental sectors and is providing site
remediation services, and will continue to provide site remediation and other
services, to SPS and may in the future provide such services to NCE's utility
subsidiaries and non-utility subsidiaries and affiliates.
UE currently has one wholly owned subsidiary, Utility Engineering
Carolina Corporation ("UE Carolina"), and intends to create two additional
subsidiaries, Utility Services Corporation ("Utility Services") and Key Resource
Management Corporation ("KRM").
UE Carolina provides engineering, design and construction related
services to the North Carolina energy projects (described below). UE Carolina
was formed as a special purpose subsidiary to comply with North Carolina
requirements with respect to its qualification to do business in such state.
UE plans to create Utility Services as a new, wholly-owned
subsidiary. Utility Services will provide services related to the
engineering, design, and construction of cooling towers for power
plants, as well as plant construction, distribution, operation
and maintenance activity, resource recovery, plant and facility
ownership and leasing, and wood product fabrication. Such
services may be provided to utility and non-utility subsidiaries
and affiliates.
UE also plans to create KRM as a new, wholly-owned subsidiary. KRM
will provide a resource database service. The database will be comprised of
names of people who can be dispatched to provide temporary services to various
projects. Such services may be provided to utility and non-utility subsidiaries
and affiliates.
Quixx has five wholly owned subsidiaries, four of which hold
partnership interests in various energy-related limited partnerships. In
addition, Quixx directly holds interests in five other entities. The following
is a description of Quixx's subsidiaries and affiliates:
Quixx holds a 25% limited partnership interest in BCH Energy Limited
Partnership ("BCH"), which is constructing a waste-to-energy cogeneration
facility located near Fayetteville, North Carolina to provide steam to a Du Pont
De Nemours & Company ("Du Pont") plant near Fayetteville and electric power to
Carolina Power & Light.
Quixx holds a 95% interest in Vedco Louisville L.L.C., which owns a
facility consisting of two gas-fired boilers providing steam to a Du Pont plant
in Louisville, Kentucky.
Quixx Jamaica, Inc., a wholly owned subsidiary of Quixx, holds a 99%
limited partnership interest in KES Jamaica, L.P. which owns a 42.3 megawatt
oil-fired combustion turbine power plant located in Montego Bay, Jamaica, W.I.
and sells electricity to Jamaica Power Services.
Quixx holds a 32-1/3% limited partnership interest and, through Quixx
Carolina, Inc., a wholly owned subsidiary of Quixx, a 1% general partnership
interest in Carolina Energy, Limited Partnership ("Carolina Energy"), which is
developing, and will own and operate solid waste fueled cogeneration facilities
in Wilson and Lenoir Counties, North Carolina, which will provide steam to a Du
Pont plant and will sell electric power to Carolina Power & Light.
Quixx holds a 24.67% limited liability partnership interest and,
through Quixx WPP94, Inc., a wholly owned subsidiary of Quixx, a 0.33% general
partnership interest in Windpower Partners, 1994, L.P., which owns a 35 megawatt
windplant in Texas and sells the electricity to the City of Austin and the Lower
Colorado River Authority.
Quixx Power Services, Inc. ("QPS"), a wholly owned subsidiary of
Quixx, will operate and maintain generation facilities in various locations,
including the BCH and Carolina Energy cogeneration facilities.
Amarillo Railcar Services, a railcar maintenance facility owned and
operated by Quixx, provides inspection, light and heavy maintenance and storage
for unit trains. A majority of these services are provided for railcars that
transport coal for use by SPS.
Quixx holds a 50% general partnership interest in Lindsay Cogeneration
Limited Partnership, which intends to construct and operate an on site
cogeneration facility to be utilized to remediate brine contamination of
groundwater as mandated by California.
Quixx holds a 1% general partnership interest and, through Quixx
Resources, Inc., a wholly owned subsidiary of Quixx, a 99% limited partnership
interest in Quixx WRR, L.P., which will hold all of Quixx's water rights located
in Roberts, Gray, Hutchinson and Carson Counties, Texas.
In addition, Quixx has royalty interests in coal and other minerals
produced and to be produced from certain New Mexico properties owned by the
Pittsburgh and Midway Coal Mining Company. Quixx also finances sales of heat
pumps and markets other non-utility goods and services.
Together, SPS's non-utility subsidiaries constituted approximately 13
percent of the consolidated book value of the assets of SPS and it subsidiaries
at August 31, 1995.
A corporate chart of SPS and its subsidiaries, showing their
non-utility interests, is filed as Exhibit E-5.
2. By amending and restating Item 3.A.1.b. as follows:
Section 10(b)(2) -- Fairness of Consideration
Section 10(b)(2) requires the Commission to determine whether the
consideration to be given by NCE to the holders of PSCo Common Stock and SPS
Common Stock in connection with the Transaction is reasonable and whether it
bears a fair relation to investment in and earning capacity of the utility
assets underlying the securities being acquired.<F11> Market prices at
which securities are traded have always been strong indicators as to values. As
shown in the table below, most quarterly price data, high and low, in the years
1994 and 1995, for PSCo and SPS Common Stock provide support for this conversion
ratio.
PSCo SPS*
High Low Dividends High Low Dividends
1994
First $ 32 1/8 $ 28 1/2 $ 0.50 $ 30 7/8 $ 27 5/8 $ 0.55
Quarter
Second 29 3/4 25 3/8 0.50 29 1/8 23 3/4 0.55
Quarter
Third 27 7/8 24 3/4 0.50 27 1/4 24 7/8 0.55
Quarter
Fourth 30 1/8 25 7/8 0.50 28 25 3/8 0.55
Quarter
1995
First 31 1/2 29 0.51 29 3/8 26 1/2 0.55
Quarter
Second 32 7/8 29 1/4 0.51 29 7/8 27 3/4 0.55
Quarter
Third 34 1/2 30 5/8 0.51 32 7/8 28 5/8 0.55
Quarter
Fourth 35 7/8 33 3/8 0.51 33 7/8 32 0.55
Quarter
* The information is provided for calendar quarters. Fiscal quarters for SPS
end on the last day of each November, February, May and August.
On August 22, 1995, the last full trading day before the public
announcement of the execution and delivery of the Merger Agreement, the closing
price per share on the NYSE Consolidated Tape of (i) PSCo Common Stock was $31
1/2 and (ii) SPS Common Stock was $29 3/8, a ratio of 1 to 0.93.
The fairness of the Transaction's consideration is also evidenced by
the fact that the Transaction is a pure stock-for-stock exchange and qualifies
for treatment as a pooling of interests for accounting purposes.<F12> As
set forth more fully above, each share of PSCo Common Stock will be converted
into the right to receive one share of NCE Common Stock, and each share of SPS
Common Stock will be converted into the right to receive 0.95 of one share of
____________________
<F11> The shares of PSCo preferred stock and SPS preferred stock outstanding
at the time of the consummation of the Transaction will remain
outstanding preferred stock of PSCo and SPS, respectively.
<F12> Twelve specific conditions must be met to qualify as a pooling. The
Transaction should meet those criteria as follows: (1) Both PSCo and
SPS were autonomous and were not a subsidiary or division of another
corporation within two years before the plan of combination was
initiated; (2) At the date of the merger initiation and at the date of
consummation SPS and PSCo are independent of each other; (3) SPS and
PSCo will undertake a course of action which will attempt to complete
the transaction within one year in accordance with a specific plan, or
completed in a single transaction. Litigation or proceedings of a
governmental authority that delay the completion of a plan are
excepted from the one-year rule, provided they are beyond the control
of the combining companies; (4) At the consummation date of the plan,
NCE will offer and issue its majority class of stock (voting rights)
for no less than 90% of the voting common stock interests of SPS and
PSCo. The 90%, or more of the voting common stock interests being
acquired is determined at the date the plan is consummated; (5) No
changes in the equity interests of the voting common stock of SPS or
PSCo were to be made in contemplation of a pooling of interests. This
restriction is for a period beginning two years prior to the
initiation date of the plan of combination and for the period between
the initiation date and the consummation date; (6) SPS and PSCo will
not reacquire any of its voting common stock in substance or form to
effect a business combination. Any reacquisition must be a normal
amount as evidenced by both companies' patterns of reacquisition prior
to the merger; (7) Each SPS and PSCo common stockholder will receive a
voting common stock interest exactly in proportion to his or her
voting common stock interest prior to the combination; (8) The SPS and
PSCo common shareholders will receive the rights they are entitled to
and will not be deprived or restricted in any way from exercising
those rights; (9) The entire merger agreement will be effected on the
date of consummation; (10) Subsequent to consummation the combined
corporation, NCE will not agree to reacquire or retire any of the
stock which was issued to effect the transaction; (11) NCE will not
enter into any agreements to the benefit of the former shareholders of
SPS or PSCo, such as loan guarantees; (12) NCE will not plan to
dispose of substantial amounts of the assets of SPS or PSCo within two
years of the date of the combination other than routine transactions
in the ordinary course of business or to eliminate excess capacity.
NCE Common Stock. The Transaction will therefore involve no "acquisition
adjustment" or other write-up of the assets of SPS or PSCo.
In addition, the Conversion Ratios are the product of extensive and
vigorous arms-length negotiations between PSCo and SPS. These negotiations were
preceded by months of due diligence, analysis and evaluation of the assets,
liabilities and business prospects of each of the respective companies. See NCE
Registration Statement on Form S-4 (Exhibit C-1 hereto).
Finally, nationally-recognized investment bankers for each of PSCo and
SPS have reviewed extensive information concerning the companies and analyzed
the Conversion Ratios employing a variety of valuation methodologies, and have
opined that the Conversion Ratios are fair, from a financial point of view, to
the respective holders of PSCo Common Stock and SPS Common Stock. The
investment bankers' analyses and opinions are attached as Annexes II and III to
NCE's Registration Statement on Form S-4 and are described on pages 33-43 of the
Form S-4 (Exhibit C-1 hereto).
In light of these opinions and an analysis of all relevant factors,
including the benefits that may be realized as a result of the Transaction, NCE
believes that the Conversion Ratios fall within the range of reasonableness, and
the consideration for the Transaction bears a fair relation to the sums invested
in, and the earning capacity of, the utility assets of PSCo and SPS.
3. By amending and restating Item 3.A.4. as follows:
Other Applicable Provisions - Section 9(a)(1)
NCE is also requesting authorization from the Commission under
Section 9(a)(1) of the Act for the acquisition by it of the voting securities of
NC Services and NC Hold as part of the Transaction. Section 9(a)(1) of the Act
requires a registered holding company or any subsidiary thereof to obtain
authorization from the Commission before acquiring "any securities or utility
assets or any other interest in any business." In order to approve an
acquisition under Section 9(a)(1), the Commission must find that such
acquisition meets the standards of Section 10 of the Act, which in turn requires
compliance with Section 8 and 11 of the Act. Although NCE will not become a
registered holding company until consummation of the Transaction and thus
Section 9(a)(1) is not applicable to it until that time, because NCE will become
subject to Section 9(a)(1) and the exact chronology of the formation of NC Hold
and NC Services has not been determined, NCE is requesting the Commission's
authorization for these transactions.
The acquisition by NCE of the common stock of NC Services, making it a
wholly owned subsidiary of NCE, will allow NCE to create a subsidiary service
company and capture economies of scale from the centralization of administrative
and general services to be provided to system companies. Since the cost of such
services are considered in rate cases, the benefits realized as a result of NC
Services will accrue to NCE's ratepayers. Virtually every registered holding
company has a subsidiary service company performing many of the same functions
as NC Services will perform. The acquisition of NC Services is in the public
interest, will not unduly complicate the capital structure of NCE and will not
cause the NCE system to violate any other provision of the Act. NC Services'
only class of authorized stock will be its common stock, all of which will be
owned by NCE. The operation of NC Services, and the allocation of cost for its
operation, is discussed in detail in Item 3.B below.
NCE is also requesting authorization to acquire all of the issued and
outstanding common stock of NC Hold, which will serve as an intermediate holding
company for certain of the system's non-utility subsidiaries. NCE believes that
an intermediate holding company provides a clearer separation between the
system's utility and non-utility operations of the system and allows for
centralization of the operation of the non-utility operations. Although NC Hold
will have issued and outstanding debt to SPS (in connection with NC Hold's
acquisition of UE and Quixx) as part of the Transaction, this should not unduly
complicate the NCE system's capital structure. While NC Hold will have a board
of directors, appointed officers and, possibly, employees, it also will receive
services from NC Services. Costs for any work performed for NC Hold by NC
Services will be charged to NC Hold in accordance with the appropriate
allocation method set forth in the Non-Utility Service Agreement.
Finally, NC Hold requests authorization under Section 9(a)(1) of the
Act to acquire all of the issued and outstanding common stock of e prime, UE,
Quixx, Young Gas and Natural Fuels. As discussed in Item 3.A.2.a.ii above, each
of these businesses may be retained by the NCE system under the Act. NCE
believes that the reorganization of these non-utility businesses as subsidiaries
of NC Hold instead of as subsidiaries of either PSCo or SPS directly, will be
beneficial to ratepayers by insulating the operating utilities from the results
of operations of these entities. NC Hold will directly or indirectly acquire
the securities of certain current PSCo subsidiaries via an equity contribution
from NCE. In order to maintain the current equity capitalization of SPS, NC Hold
will issue debt to SPS in exchange for the securities of UE and Quixx. The
acquisitions of Quixx and UE are proposed to be consummated as sales for debt in
order to preserve the capital structure of SPS. The equity of the two
subsidiaries at December 31, 1995 was valued at $93.4 million, or approximately
13% of SPS's equity of $720.8 million. Transferring the subsidiaries by payment
of a dividend of their stock would cause a reduction of SPS's equity by this
same amount. This would be viewed negatively from a regulatory and rating
agency point of view. Selling the subsidiaries eliminates this adverse impact
on SPS.
The debt issued by NC Hold will have a twenty year maturity and bear
interest at a fixed rate, with interest payments to be made semi-annually. The
interest rate will be determined at the time of issuance based on the then
prevailing rate which would be charged by an unaffiliated third party. The
principal will be repaid in twenty equal annual installments. NC Hold will have
the option to prepay the entire obligation, including accrued and unpaid
interest, at any time without any prepayment premium. The form of note to be
used to evidence the debt of NC Hold is attached as Exhibit J-5. NC Hold
expects to have sufficient earnings to service the debt based on the expected
earnings of UE and Quixx. See Exhibit J-4. If necessary, NC Hold will also
have available the earnings of its other subsidiaries.
4. By amending and restating Item 3.B as follows:
Intra-System Provision of Services
In addition to its request that the Commission find NC Services and UE
to be so organized and conducting their businesses as to meet the requirements
of Section 13(b) for subsidiary service companies, NCE also is requesting
exemptions from the provisions of Rules 90 and 91, and the at-cost requirements
contained therein, in connection with services provided by NC Services, UE,
Quixx, QPS, UE Carolina, Utility Services, KRM and e prime to certain affiliated
QFs, IPPs, EWGs and FUCOs, and for e prime to continue to provide services at
market-based rates to the partnership owning the facility in which Young Gas
holds a general partnership interest. As described in more detail below, NCE
believes these exemptions will help the above-named companies compete more
effectively for the provision of services to such entities, which are either
majority-owned by unaffiliated third parties eliminating the potential for
abusive affiliate transactions, are otherwise adequately regulated with respect
to affiliate transactions or do not otherwise present the concerns for which the
at-cost standards were developed. The Commission has indeed granted similar
exemptions to existing registered holding companies.<F43> At this point in
time, the companies who would be purchasing services pursuant to this exemption
are as follows: Young Gas Storage Co., Ltd. and the two facilities in which
Quixx has invested that are located in North Carolina, BCH and Carolina Energy.
In addition, NCE may also need an exemption from the at-cost requirements of
Rules 90 and 91 in connection with certain services provided by PSCo to
e prime. These exemptions would involve situations where e prime is marketing
a product or service some component of which will involve products or
services received from PSCo. As discussed in more detail below, such
exemptions may be required in order to make the products or services viable
for marketing to non-affiliates, are consistent with Commission precedent
and would be beneficial to both the service provider and service purchaser.
<F44> All other services provided by NCE system companies to other NCE
system companies will be in accordance with the requirements of Section 13
of the Act, unless otherwise exempted by the Commission or the rules
promulgated under the Act.
NC Services
As described in Item 1.B.1.c.v, NC Services will provide PSCo, SPS and
Cheyenne, pursuant to the Services Agreement, and the non-utility subsidiaries
of the NCE system, pursuant to the Non-Utility Services Agreement, with a
variety of administrative, management and support services, including services
relating to electric power planning, transportation, materials management,
facilities and real estate, accounting, budgeting and financial forecasting,
finance and treasury, rates and regulation, legal, internal audit, corporate
communications, environmental, fuel procurement, corporate planning, investor
relations, human resources, marketing and customer services, information systems
and general administrative and executive management services. In accordance
with the Service Agreement, services provided by NC Services will be directly
assigned, distributed or allocated by activity, project, program, work order or
other appropriate basis. To accomplish this, employees of NC Services will
record transactions utilizing the existing data capture and accounting systems
of each client company. Costs of NC Services will be accumulated in accounts of
NC Services and directly assigned, distributed and allocated to the appropriate
client company in accordance with the guidelines set forth in the Service
Agreement. SPS and PSCo are currently developing the system and procedures
necessary to implement the Service Agreement.
It is anticipated that NC Services will be staffed by transfer of
personnel from PSCo, SPS and their subsidiaries. NC Services' accounting and
cost allocation methods and procedures are structured so as to comply with the
Commission standards for service companies in registered holding-company
systems. NC Services' billing system uses the "Uniform System of Accounts for
Mutual Service Companies and Subsidiary Service Companies" established by the
Commission for service companies of registered holding-company systems.
As compensation for services, the Service Agreement provides for the
client companies to: "pay to [NC Services] all costs which reasonably can be
identified and related to particular services performed by [NC Services] for or
on its behalf." Where more than one company is involved in or has received
benefits from a service performed, the Service Agreement provides that "costs
will be directly assigned, distributed or allocated, between or among such
companies on a basis reasonably related to the service performed to the extent
reasonably practicable," in accordance with the methods set forth in Appendix A
to the Service Agreement. Thus, charges for all services provided by NC
Services to affiliated utility companies will be on an "at cost" basis as
determined under Rules 90 and 91 of the Act. The Non-Utility Service Agreement
contains provisions similar to those of the Service Agreement, except as set
forth in detail below in this Item 3.B. The Non-Utility Service Agreement also
permits charges for certain services to be at fair market value to the extent
authorized by the Commission. Thus, except for the requested exceptions
discussed below, services provided by NC Services to non-utility affiliates
pursuant to the Non-Utility Service Agreement will also be charged on an "at
cost" basis as determined under Rules 90 and 91 of the Act.
Section 13(b) of the Act allows the Commission to exempt transactions,
by rule, regulation or order, from the provisions of Section 13(b) and the rules
promulgated thereunder if such transactions:
(1) are with any associate company which does not derive, directly or
indirectly, any material part of its income from sources within the
United States and which is not a public utility company operating
within the United States or (2) involve special or unusual
circumstances or are not in the ordinary course of business.
The Commission has utilized this exemptive power in the past under certain
circumstances<F45> and recently with some frequency to generally allow non-
utility subsidiaries of registered holding companies to provide services to
certain FUCOs, EWGs and QFs at market-based rates.<F46> In addition, in
the 1995 Report, the Division recommended that "the SEC should also issue
exemptive orders under Section 13 allowing more nonutility subsidiaries to
charge market rates to nonutility affiliates."<F47> The Commission's
principal concern under Section 13 of the Act is to protect the utility
companies in a holding company system from abusive cross-subsidization
transactions with affiliates. Exemptions from Rules 90 and 91 for purely non-
utility transactions will not interfere with this mandate as all services to
utility subsidiaries will be at cost in accordance with Rules 90 and 91, but
will benefit the holding company system by allowing it to offer competitively
priced services based on market considerations. Thus, NC Services hereby
requests that the Commission grant an exemption from the provisions of Rules 90
and 91, and the at-cost requirement contained therein, for the following
transactions: Services provided to associate FUCOs and EWGs that derive no part
of their income, directly or indirectly, from the generation, transmission or
distribution of electric energy for sale or the distribution of natural gas at
retail in the United States; and services provided to an associated EWG, QF or
IPP, provided that the purchaser of the electricity sold by such entity is not
an associate company of NCE. No services will be provided at market-based rates
to a QF, IPP or EWG selling electricity to PSCo, SPS or Cheyenne unless
authorized by the Act or the Commission.
No change in the organization of NC Services, the type and character
of the companies to be serviced, the methods of allocating costs to associate
companies, or in the scope or character of the services to be rendered subject
to Section 13 of the Act, or any rule, regulation or order thereunder, shall be
made unless and until NC Services shall first have given the Commission written
notice of the proposed change not less than 60 days prior to the proposed
effectiveness of any such change. If, upon the receipt of any such notice, the
Commission shall notify NC Services within the 60-day period that a question
exists as to whether the proposed change is consistent with the provisions of
Section 13 of the Act, or of any rule, regulation or order thereunder, then the
proposed change shall not become effective unless and until NC Services shall
have filed with the Commission an appropriate declaration regarding such
proposed change and the Commission shall have permitted such declaration to
become effective.
NCE believes that the Service Agreement and the Non-Utility Service
Agreement are structured so as to comply with Section 13 of the Act and the
Commission's rules and regulations thereunder.
Rule 88: Rule 88 provides that "[a] finding by the Commission that a
subsidiary company of a registered holding company . . . is so organized and
conducted, or to be conducted, as to meet the requirements of Section 13(b) of
the Act with respect to reasonable assurance of efficient and economical
performance of services or construction or sale of goods for the benefit of
associate companies, at cost fairly and equitably allocated among them (or as
permitted by Rule 90), will be made only pursuant to a declaration filed with
the Commission on Form U-13-1, as specified" in the instructions for that form,
by such company or the persons proposing to organize it. Notwithstanding the
foregoing language, the Commission has on at least two recent occasions made
findings under Section 13(b) based on information set forth in an Application/
Declaration on Form U-1, without requiring the formal filing of a Form U-13-1.
See CINergy Corp., HCAR No. 26146 (Oct. 21, 1994); UNITIL Corp., HCAR No. 25524
(April 24, 1992). In this Application/Declaration, NCE has submitted
substantially the same applicable information as would have been submitted in a
Form U-13-1.
Accordingly, it is submitted that it is appropriate to find that NC
Services is so organized and its business will be so conducted as to meet the
requirements of Section 13(b), and that the filing of a Form U-13-1 is
unnecessary, or, alternatively, that this Application/Declaration should be
deemed to constitute a filing on Form U-13-1 for purposes of Rule 88.
UE
NCE also requests that the Commission find that UE is so organized and
to be conducted as to meet the requirements of Section 13(b), and that the
filing of a Form U-13-1 is unnecessary, or, alternatively, that this
____________________
<F43> See infra notes 45 and 46 and accompanying text.
<F44> See note 53 and accompanying text.
<F45> See, e.g., New England Electric System, HCAR No. 22309 (Dec. 9, 1981)
(utility permitted to enter into lease with affiliated joint venture
with lease payments based on market price); EUA Cogenex Corporation,
HCAR No. 263731 (Sept. 14, 1995) (authorizing service companies of two
registered holding companies to provide services to affiliated joint
venture at market based rates in certain circumstances).
<F46> See, e.g., Entergy Corporation, HCAR No. 26322 (June 30, 1995);
General Public Utilities Corporation, HCAR No. 26307 (June 14, 1995)
and The Southern Company, HCAR No. 26212 (Dec. 30, 1994).
<F47> 1995 Report at 102.
Application/Declaration should be deemed to constitute a filing on Form U-13-1
for purposes of Rule 88.
As previously discussed, following consummation of the Transaction, UE
will be an engineering, development, design and rehabilitation services and
management, construction, maintenance and operation and other related services
subsidiary of NC Hold directly, and indirectly of NCE. It is anticipated that
virtually all services provided for PSCo, SPS and Cheyenne by UE will be on an
"at cost" basis as determined under Rules 90 and 91 of the Act and as further
described in the form of UE Service Agreement between UE and its utility
affiliates attached hereto as Exhibit B-4. UE will also provide services to
non-utility affiliates and the form of UE Non-Utility Service Agreement between
UE and its non-utility affiliates, attached hereto, as Exhibit B-5, contains a
cost allocation formula designed to ensure compliance with such rules. The
procedural methods relating to UE's provision of services to affiliates are set
forth in Exhibit B-7 hereto. UE will provide such services to unaffiliated
companies on market-based rates.
The UE Non-Utility Services Agreement also permits charges for certain
services at fair market value to the extent authorized by the Commission. Thus,
except for certain requested exceptions discussed below, services provided by UE
to non-utility affiliates pursuant to the UE Non-Utility Services Agreement will
be charged on an "at cost" basis as determined under Rules 90 and 91 of the Act.
NCE hereby requests that the Commission grant an exemption from the
provisions of Rules 90 and 91, and the at-cost requirement contained therein,
for services provided by UE to associated QFs, IPPs, EWGs and FUCOs meeting the
criteria set forth above in Item 3.B. UE intends to provide the following
services to these entities: operations and management services, which include
development, permitting, environmental, engineering, design, resource
management, construction and construction management, pre-operational start-up,
testing and commissioning, long-term operations and maintenance, fuel
procurement, management and supervision, technical training, administrative
support, and any other managerial or technical services required to design,
build, operate and maintain electric power facilities, to developers, owners and
operators of domestic and foreign power projects, including power projects that
Quixx, its subsidiaries, or other associated companies may develop on its own or
in collaboration with third parties, and to other associated companies, except
as described below.<F48>
If, as a result of a minority investment by Quixx or other NCE
associated company, the entities for which UE will provide services do not meet
the requirements set forth in Item 3.B., UE should be allowed an exemption for
the "at-cost" standard because these situations involve special or unusual
circumstances. The Commission has granted such exemption in similar situations
based upon a consideration of what is necessary or appropriate for the public
interest and in light of the abuses the Act was intended to prevent.<F49>
In joint venture situations where one of NCE's associated companies owns an
interest of less than a majority and one or more of the other partners owns an
interest equal to or greater than the interest owned by the NCE associated
company, despite the interest such associated companies may have in the
ventures, the terms of UE's provisions of services will be made freely and
openly by parties dealing at arms' length and subject to the checks and balances
of a competitive system. In each case, the partners will have economic and
competitive incentive to negotiate their own best possible price. Consequently,
situations in which abusive cross-subsidization could occur will not exist.
Thus, the concern of the Act with abusive affiliate transactions will not be an
issue.
No services will be provided at market-based rates to entities or
associated companies which sell electricity to PSCo, SPS or Cheyenne unless
authorized by the Act or the Commission.
NCE believes that significant advantages can be gained by centralizing
most design and engineering personnel in the NCE system in this special purpose
subsidiary service company as the NCE system will benefit from the economies of
scale that come with centralization in general, while at the same time the pre-
existing reputation and good-will associated with UE will be maintained,
allowing it to continue to compete in the marketplace for third party contracts
on the same basis as prior to the Transaction. The Commission has recognized a
number of special purpose subsidiary service companies in the past.<F50>
QPS and UE Carolina
QPS is a wholly owned subsidiary of Quixx, organized to operate and
maintain generation facilities. QPS will operate and maintain generation
facilities in various locations and is currently under contract to operate and
manage two cogeneration facilities in which Quixx has an interest of less than a
majority: the BCH waste-to-energy cogeneration facility and the Carolina Energy
solid waste fueled cogeneration facility. In both instances, and in future
similar situations, QPS will provide operations and management services to these
"technical" affiliates (i.e., entities which have more than 5% of their voting
securities owned by a NCE subsidiary but which have one or more other non-
affiliated, independent security holders holding a percentage of the voting
power equal to or greater than that held by the applicable NCE subsidiary) which
will include development, engineering design, construction and construction
management, pre-operational start-up, testing and commissioning, long-term
operations and maintenance, fuel procurement, management and supervision,
technical training, administrative support, and any other managerial or
technical services required to operate and maintain electric power facilities.
Also as previously discussed, UE Carolina is a special purpose
subsidiary that provides engineering, design and construction related services
to the North Carolina projects in which Quixx has invested.
NCE hereby requests that the Commission grant an exemption from the
provisions of Rules 90 and 91, and the at-cost requirement contained therein,
for the provision of such services to these "technical" affiliates. The
Commission's principal concern under Section 13 of the Act is to protect the
utility companies in a holding company system from abusive cross-subsidization
transactions with affiliates. The Commission has granted exceptions to allow
for fair market pricing of such services under certain circumstances and NCE
requests an exemption from the provisions of Rules 90 and 91 as described above
in Item 3.B. With respect to the existing contracts and in future instances,
QPS will be providing services to developers, owners and operators of various
power projects, including power projects that Quixx, its subsidiaries or other
associated companies may develop on their own or in collaboration with third
parties, and to other associated companies. UE Carolina will provide
engineering, design and construction related services for the North Carolina
projects in which Quixx has invested. In similar circumstances, the Commission
has authorized exemptions from the at-cost standard of Section 13.<F51>
Even if the entities for which QPS or UE Carolina will provide
services do not meet these requirements, QPS and UE Carolina should be allowed
an exemption for the "at-cost" standard because these situations involve special
or unusual circumstances. The Commission has granted such exemptions in joint
venture situations based upon a consideration of what is necessary or
appropriate for the public interest and in light of the abuses the Act was
intended to prevent.<F52> In the existing contracts and in future ventures
where one of NCE's associated companies owns an interest of less than a majority
and one or more of the other partners owns an interest equal to or greater than
the interest owned by the NCE associated company, despite the interests that
Quixx, its subsidiaries, or other associated companies may have in the ventures,
the terms of QPS's or UE Carolina's provisions of services were and will be made
freely and openly by parties dealing at arms' length and subject to the checks
and balances of a competitive system. In each case, the partners had and will
have economic and competitive incentive to negotiate their own best possible
price. Consequently, a situation in which abusive cross-subsidization could
occur does not exist. No services will be provided at market-based rates to
entities or associated companies which sell electricity to PSCo, SPS or Cheyenne
unless authorized by the Act or the Commission. Thus, the concern of the Act
with abusive affiliate transactions is not an issue in this instance.
Other Services
As previously mentioned, e prime, Utility Services and KRM may provide
intra-system services to associated QFs, IPPs, EWGs, and FUCOs and e prime may
provide administrative and consulting services to Young Gas Storage Co., Ltd.,
the partnership that owns the Young Gas Storage facility and in which Young Gas
holds a 47.5% interest.
NCE hereby requests that the Commission grant an exemption from the
provisions of Rules 90 and 91, and the at-cost requirement contained therein,
for services provided by e prime, Utility Services and KRM to associated QFs,
IPPs, EWGs and FUCOs meeting the criteria set forth above in Item 3.B. No
services will be provided at market-based rates to entities or associated
companies which sell electricity to PSCo, SPS or Cheyenne unless authorized by
the Act or the Commission.
In addition, NCE requests an exemption from the provisions of Rules 90
and 91 for e prime to continue to provide services to Young Gas Storage Co.,
Ltd. at market based rates. Similar to the situation with QPS, the NCE system
will only hold a 47.5% interest in Young Gas Storage Co., Ltd. and must
negotiate on an arms length basis with the majority owner (the Coastal
Corporation) with regard to the provision of such services. Thus, the concern
of the Act with abusive affiliate transactions is not an issue in this instance.
NCE also may need an exemption from the provisions of Rules 90 and 91
with regard to certain services provided by PSCo to e prime. Although e prime's
business is still in early development stages, NCE believes that in situations
where e prime is marketing products and services to non-affiliates which
products and services contain, in part, products or services from PSCo, in order
to competitively market such products or services, some deviation from a strict
interpretation of the at-cost requirements may be needed. For example, e prime
and PSCo may enter into an arrangement whereby e prime could market certain
billing or accounting services to non-affiliates in connection with which it
would use PSCo's computer system (the "CIS System"). A proposed compensation
arrangement under consideration is that e prime would pay PSCo for the use of
the system based on market rates or PSCo's marginal cost for e prime's usage
with some profit participation or some similar formula. To the extent any such
arrangement is put in place, no related deviation from strict at-cost charges
will be undertaken unless the entity providing services first gives written
notice to the Commission of the basis for calculating such charge. As with
changes in NC Services' allocation formula, such charge will not be effective if
within 60 days, the Commission notifies the party providing notice of any
questions until an application for such charge is declared effective. The
parties believe that any such deviation from strict at-cost allocations is
consistent with Commission precedent.<F53>
PSCo, SPS and Cheyenne may also provide to one another services
incidental to their utility businesses, such as power plant maintenance
overhauls, power plant and storm outage emergency repairs and services of
personnel with specialized expertise related to the operation of the utility
(i.e., services by an industrial lighting specialist or waste disposal
specialist). These services will be provided at cost in accordance with the
standards of the Act and the Commission's rules and regulations thereunder.
Moreover, PSCo's CIS System will remain an asset of PSCo following the
transaction. While all required system personnel involved in the operation of
the CIS System will be employees of the service company or outside contractors
and all charges for labor provided by service company employees will be subject
to the terms of the Service Agreement and the Non-Utility Service Agreement,
PSCo will charge other system companies for the use of the CIS System at cost.
5. By amending Item 6 to include the following exhibit filed
herewith:
J-5 Form of NC Hold Note
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned company has duly caused this Pre-Effective Amendment to
the Application/Declaration of New Century Energies, Inc. to be signed on its
behalf by the undersigned thereunto duly authorized.
Date: March 25, 1996
New Century Energies, Inc.
By: /s/
Doyle R. Bunch II
Chairman and Secretary
/s/
Richard C. Kelly
President and Treasurer
____________________
<F48> See, e.g., Entergy Corporation, HCAR No. 26322 (June 30, 1995)
(authorizing operations and management services including design and
long-term operations) and American Electric Power Company, HCAR No.
26267 (April 5, 1995) (authorizing provision of services including
engineering and construction services to certain affiliated and non-
affiliated entities involved in projects relating to the generation,
transmission, and distribution of electric power).
<F49> See, e.g., New England Electric System, HCAR No. 22309 (December 9,
1981) (joint venture).
<F50> See, e.g., American Electric Power Company, HCAR No. 22468 (April 21,
1982) (consulting subsidiary); Entergy Corp., HCAR No. 25718 (Dec. 28,
1992) (subsidiary engaged in energy management services and
development of efficient lighting technology); Northeast Utilities,
HCAR No. 25565 (June 29, 1992) (subsidiary servicing nuclear power
project).
<F51> See, e.g., Entergy Corporation, HCAR No. 26322 (June 30, 1995)
(authorizing fair market prices for the provision of operations and
management services, including long-term operations and maintenance,
to certain power projects, including those developed by associate
companies).
<F52> See, e.g., New England Electric System, HCAR No. 22309 (December 9,
1981).
<F53> See, Entergy Corporation, Hear No. 26322 (June 30, 1995) (allowing
non-utility subsidiary to pay incremental costs plus profit sharing in
connection with marketing and use of products and services from system
operating utilities).
<TABLE> <S> <C>
<ARTICLE> OPUR1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 0
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 200
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 200
<COMMON> 200
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 0
<TOTAL-COMMON-STOCKHOLDERS-EQ> 200
0
0
<LONG-TERM-DEBT-NET> 0
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 0
<TOT-CAPITALIZATION-AND-LIAB> 200
<GROSS-OPERATING-REVENUE> 0
<INCOME-TAX-EXPENSE> 0
<OTHER-OPERATING-EXPENSES> 0
<TOTAL-OPERATING-EXPENSES> 0
<OPERATING-INCOME-LOSS> 0
<OTHER-INCOME-NET> 0
<INCOME-BEFORE-INTEREST-EXPEN> 0
<TOTAL-INTEREST-EXPENSE> 0
<NET-INCOME> 0
0
<EARNINGS-AVAILABLE-FOR-COMM> 0
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
Exhibit J-5
FORM OF PROMISSORY NOTE
$ , 1996
FOR VALUE RECEIVED, NEW CENTURY HOLD CO., a Delaware
corporation ("NC Hold"), hereby promises to pay to the order of
SOUTHWESTERN PUBLIC SERVICE COMPANY ("SPS") in lawful money of
the United States of America in immediately available funds, the
principal amount of U.S. Dollars ($ ) in twenty
equal annual installments on each
NC Hold also promises to pay interest in like money on
the unpaid principal amount hereof from the date hereof until
paid at a rate per annum to %, semi-annually on and
of each year commencing , 199 .
NC Hold may prepay all or any part of the principal
amount of this Note (together with interest accrued through the
date of such payment on the principal amount prepaid) from time
to time and at any time without penalty or premium.
SPS may, at its option, declare the unpaid balance of
this Note, together with interest accrued thereon, to be
immediately due and payable, whereupon this Note will shall
become immediately due and payable, upon the failure of NC Hold
to make any payments hereunder when due.
NC Hold hereby waives presentment, protest or notice of
any kind in connection with this Note.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
NEW CENTURY HOLD CO.
By:
