As filed September 28, 1998
File No. 70-9345
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM U-1/A
AMENDMENT NO. 1
TO
APPLICATION/DECLARATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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New Century Energies, Inc.
NC Enterprises, Inc.
e prime, inc. and its subsidiaries
1225 17th Street
Denver, Colorado 80202-5533
(Names of companies filing this statement and
addresses of principal executive offices)
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New Century Energies, Inc.
(Name of top registered holding company parent)
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Teresa S. Madden
Controller
New Century Energies, Inc
1225 17th Street, Suite 900
Denver, Colorado 80202-5533
(Name and address of agents for service)
The Commission is requested to send copies of all notices, orders and
communications in connection with this Application or Declaration to:
William M. Dudley, Esq. William T. Baker, Jr., Esq.
New Century Energies, Inc. Thelen Reid & Priest LLP
1225 17th Street, Suite 600 40 West 57th Street
Denver, Colorado 80202-5533 New York, New York 10019
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The Applicants hereby amend and restate in its entirety the
Application/Declaration heretofore filed in this proceeding to read as follows:
Item 1 Description of Proposed Transaction.
1.1. Background. New Century Energies, Inc. ("NCE") is a registered
holding company under the Public Utility Holding Company Act of 1935, as amended
(the "Act").1 Its public utility subsidiaries are Public Service Company of
Colorado ("PSCo"), Southwestern Public Service Company, and Cheyenne Light, Fuel
and Power Company. These subsidiaries together serve approximately 1.6 million
electric customers in parts of Colorado, Texas, Wyoming, New Mexico, Oklahoma,
and Kansas and approximately 1 million gas customers in parts of Colorado and
Wyoming.
NCE also engages through subsidiaries in various other energy-related
and non-utility businesses. NC Enterprises, Inc. ("Enterprises"), a wholly-owned
non-utility subsidiary of NCE, serves as an intermediate holding company for
certain of NCE's non-utility subsidiaries and investments. Enterprises owns all
of the common stock of e prime, inc. ("e prime"), which provides energy-related
products and services, including brokering, marketing and trading of electricity
and natural gas. In March 1996, e prime received the authorization of the
Federal Energy Regulatory Commission ("FERC") to act as a power marketer, and,
in September 1996, acquired Texas-Ohio Gas, Inc. ("TOG"), a gas marketer with
headquarters in Houston, Texas. Subsequently, the operations of e prime and TOG
were combined. Together, e prime and TOG now provide value added energy-related
products and services to over 2,200 end-use customers and utilities nationwide.
In addition, e prime owns the stock of a small gas pipeline company (Texas-Ohio
Pipeline, Inc.), which owns a pipeline located in Kentucky connecting two major
interstate pipelines, and indirectly owns a 47.5% general partnership interest
in Young Gas Storage Company, Ltd., which owns and operates an underground gas
storage facility and provides storage services to both PSCo and unrelated third
parties.2 For the year ended December 31, 1997, e prime had consolidated
operating revenues of $196.7 million.
1.2 Summary of Proposed Transaction. Enterprises and e prime are now
seeking authorization to acquire or construct in one or more transactions from
time to time through December 31, 2003 (the "Authorization Period"), non-utility
energy assets in the United States, including, without limitation, natural gas
production, gathering, processing, storage and transportation facilities and
equipment, liquid oil reserves and storage facilities, and associated facilities
(collectively, "Energy Assets"), that would be incidental to and would assist e
prime and its subsidiaries (or any other energy marketing and brokering
subsidiary hereafter acquired
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1 See New Century Energies, Inc., 65 SEC Docket 277 (August 1, 1997).
2 In its order approving the formation of NCE, supra n. 1, the
Commission made findings permitting NCE to retain its interests in e prime and
e prime's subsidiaries on the basis that the businesses of these companies were
substantially similar to those that the Commission had approved in other cases.
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by Enterprises or e prime) in connection with energy marketing, brokering and
trading.3 The Applicants request authorization to invest up to $400 million (the
"Investment Limitation") during the Authorization Period in such Energy Assets
or in the equity securities of companies substantially all of whose physical
properties consist of such Energy Assets ("Permitted Subsidiaries").4 Such
Energy Assets (or equity securities of Permitted Subsidiaries) may be acquired
for cash or in exchange for common stock or other securities of NCE,
Enterprises, or e prime, or any combination of the foregoing. If common stock of
NCE is used as consideration in connection with any such acquisition, the market
value thereof on the date of issuance will be counted against the proposed
Investment Limitation. The principal amount or stated amount of any other
securities issued by the Applicants as consideration will be counted against the
proposed Investment Limitation. Under no circumstances will Enterprises or e
prime acquire, directly or indirectly, any assets or properties the ownership or
operation of which would cause such companies to be considered an "electric
utility company" or "gas utility company" as defined under the Act.
As this Commission has recognized in SEI Holdings, Inc., 62 SEC Docket
2493 (September 26, 1996) and other decisions, a successful marketer of energy
commodities must be able to control some level of physical assets that are
incidental and reasonably necessary in its day-to-day operations. Gas marketers
today must be able to offer their customers a variety of value-added, or
"bundled," services, such as gas storage and processing, that the interstate
pipelines offered prior to FERC Order 636.5 In order to provide such value-added
services, many of the leading gas marketers have invested in production,
gathering, processing, and storage capacity at or near the principal gas
producing areas and hubs and market centers in the U.S. Similarly, in order to
compete with both interstate pipelines and local distribution companies for
industrial and electric utility sales, marketers must have the flexibility to
acquire or construct such supply facilities. In fact, most of the large
marketers today with which e prime competes own substantial physical assets of
the type described herein.
To illustrate how the Energy Assets would support the marketing
activities of e prime, the acquisition of production, gathering, processing, and
storage capacity provide energy marketers the opportunity to hedge the price of
future supplies of natural gas against changes in demand brought about due to
weather, increased usage requirements by end use customers, or other
volatilities imposed by the market. Storage and pipeline assets allow energy
marketers to "bank" low cost supplies for use during periods of high volatility
or take advantage of differential price
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3 Specifically, it is contemplated that Enterprises or e prime may
acquire the securities of one or more companies engaged in energy marketing,
brokering, and trading pursuant to Rule 58.
4 Permitted Subsidiaries may also be currently engaged in energy (gas or
electric or both) marketing activities. To the extent necessary, Applicants
request authorization to continue such activities in the event they acquire such
companies.
5 See FERC Order 636, FERC Stats. & Regs. Paragraph 30,939,
"Pipeline Service Obligations and Revisions to Regulations Governing
Self-Implementing Transportation; and Regulation of Natural Gas Pipelines After
Partial Wellhead Decontrol," 57 Fed. Reg. 13,270 (April 16, 1992).
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spreads between different markets. Energy marketers with strong and balanced
physical asset portfolios are able to originate tolling or reverse tolling of
gas and electric commodities, whereby the payment is made in one or the other
commodity. The integration of production, gathering, and storage assets offer
energy marketers the opportunity to provide either gas or electric products and
services to energy users, at their discretion, depending on user requirements
and needs. Finally, the physical assets underlying an energy marketer's balance
sheet may provide substantial credit support for the financial transactions
undertaken by the marketer.
It is the intention of Enterprises and e prime to add to e prime's and
its subsidiaries' existing base of non-utility, marketing-related, assets as and
when market conditions warrant, whether through acquisitions of specific assets
or groups of assets that are offered for sale, by constructing such assets, or
by acquiring existing companies (for example, other gas marketing companies
which own significant physical assets in the areas of gas production,
processing, storage, and transportation). At the current time, Enterprises and e
prime are investigating several opportunities to acquire upstream assets that
are being offered for sale by integrated gas companies and other marketers.
Ultimately, it is Enterprises' and e prime's objective to control a substantial
portfolio of Energy Assets that would provide the NCE system with the
flexibility and capacity to compete for sales in all major markets in the United
States and, in the future, possibly Canada.
1.3 Summary of Financing Proposals. As indicated, Enterprises and e
prime wish to have the flexibility to acquire Energy Assets or the equity
securities of Permitted Subsidiaries in cash transactions or in transactions in
which the seller may wish to receive common stock or other securities of NCE,
Enterprises, or e prime. A seller of Energy Assets or of a Permitted Subsidiary
may, for example, wish to arrange a tax-free transaction in which it receives
common stock of NCE. From the perspective of Enterprises and e prime, having the
flexibility to arrange a tax-free transaction may lower the seller's overall
sales price. By orders dated August 1, 1997 and May 14, 1998 in File No. 70-9007
(Holding Company Act Release Nos. 26750 and 26872) (the "NCE Financing Orders"),
NCE is currently authorized to issue common stock, short-term debt and
guarantees in specified amounts and, to the extent not exempt, to engage in
intra-system financing, from time to time through December 31, 1999. NCE
proposes to use the proceeds of securities issuances and guarantees as
authorized in File No. 70-9007 in the NCE Financing Orders or in subsequent
orders for the purpose of financing the construction of or investments in Energy
Assets or the securities of Permitted Subsidiaries, as described herein, subject
to the limitations and restrictions contained in the NCE Financing Orders or
subsequent orders.
In turn, to the extent not exempt under Rule 52 and/or Rule 45(b),
Enterprises, e prime and its subsidiaries, or any special purpose financing
subsidiary, also propose to issue debt or equity securities of any type,
including guarantees as appropriate, from time to time during the Authorization
Period to finance the acquisition or construction of Energy Assets or purchase
of equity securities of Permitted Subsidiaries. Such financings in aggregate
with any NCE financings and any financings performed on an exempt basis under
Rule 52 will not exceed the Investment Limitation -- i.e., $400 million. Any
debt security issued to NCE to evidence loans by NCE will comply with the
requirements of Rule 52(b)(2).
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1.4 Other Matters. Pursuant to Rule 24, the Applicants propose to report
on a quarterly basis the amount of Energy Assets purchased or constructed and
the amount of any equity securities of any Permitted Subsidiaries in the
preceding period and a brief description thereof. It is also proposed that the
amount, type, and, if a debt security, the maturity and interest rate, of
securities issued by NCE, Enterprises, e prime and its subsidiaries, or any
special purpose financing subsidiary in connection with the acquisition of
Energy Assets or equity securities of any Permitted Subsidiaries be made a part
of such quarterly report filed pursuant to Rule 24, and that such reporting also
be in lieu of any separate report on Form U-6B-2 for those financings that are
performed on an exempt basis under Rule 52.
Item 2. Fees, Commissions and Expenses.
The fees, commissions and expenses incurred or to be incurred in
connection with the transactions proposed herein are estimated at $15,000.
Item 3. Applicable Statutory Provisions.
3.1 Sections 9(a) and 10 of the Act are applicable to the acquisition by
Enterprises, e prime or any subsidiary of e prime of any interest in Energy
Assets or of the equity securities of any Permitted Subsidiaries.
The issuance and sale of debt securities, equity securities or
guarantees by Enterprises, e prime, or any subsidiary of e prime or any special
purpose finance subsidiary for the purpose of financing the acquisition or
construction of Energy Assets or purchase of equity securities of any Permitted
Subsidiaries are subject to Sections 6(a) and 7 of the Act, and the issuance of
any guarantee is subject to Section 12(b) and Rule 45, but may be exempt
pursuant to Rule 52(b) or Rule 45(b), as applicable.
3.1.1 Standards of Approval under Section 10. The transactions
proposed herein involve an acquisition of securities, as well as an acquisition
of an interest in an other (i.e., non-utility) business, and are therefore
subject to the approval of this Commission under Section 10. The relevant
standards for approval under Section 10 are set forth in subsections (b), (c),
and (f). In this case, the requirements of Section 10(c) are met and there is no
basis for the Commission to make any negative findings under Section 10(b).
As applied to interests in non-utility businesses, Section 10(c)(1) of
the Act provides that the Commission shall not approve an acquisition that is
"detrimental to the carrying out of the provisions of section 11." Section
11(b)(1), in turn, directs the Commission to limit the operations of a holding
company system to a single integrated public-utility system, provided that,
subject to making certain specified findings, the Commission may permit a
registered
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holding company to control one or more additional public-utility systems.6
Further, the Commission may permit the retention by a registered holding company
of an interest in any non- utility business that is "reasonably incidental, or
economically necessary or appropriate to the operations" of its integrated
system or systems. The Commission has interpreted Sections 10(c)(1) and
11(b)(1), read together, as expressing a Congressional policy against
non-utility acquisitions that bear no functional relation to a holding company's
utility operations.7
As previously indicated, Enterprises, e prime, and e prime's
subsidiaries are seeking approval to acquire non-utility, energy-related, assets
that will be used in connection with the existing energy marketing operations of
e prime and its subsidiaries and will be of the same general type as other
assets that e prime and certain of its subsidiaries already own. In addition,
the Commission has previously authorized SEI Holdings, Inc., a subsidiary of The
Southern Company, to acquire or construct substantially similar kinds of assets
in connection with its marketing operations.
3.1.2 Rule 54 Analysis. The transactions proposed herein are also
subject to Section 32(h)(4) of the Act and Rule 54 thereunder. Rule 54 provides
that, in determining whether to approve any transaction that does not relate to
an "exempt wholesale generator" ("EWG") or "foreign utility company" ("FUCO"),
the Commission shall not consider the effect of the capitalization or earnings
of any subsidiary which is an EWG or FUCO upon the registered holding company
system if paragraphs (a), (b) and (c) of Rule 53 are satisfied.
Initially, NCE has complied or will comply with the record-keeping
requirements of Rule 53(a)(2), the limitation under Rule 53(a)(3) on the use of
the NCE system's domestic public- utility company personnel to render services
to EWGs and FUCOs, and the requirements of Rule 53(a)(4) concerning the
submission of copies of certain filings under the Act to retail regulatory
commissions. Further, none of the circumstances described in Rule 53(b) has
occurred or is continuing. Rule 53(c) is inapplicable by its terms because the
proposals contained herein do not involve the issue and sale of securities
(including any guarantees) to finance an acquisition of an EWG or FUCO.
Rule 53(a)(1) limits a registered holding company's financing of
investments in EWGs if such holding company's "aggregate investment" in EWGs and
FUCOs exceeds 50% of its "consolidated retained earnings." NCE's "aggregate
investment" (as defined in Rule 53(a)(1)(i)) in all EWGs and FUCOs, pro forma to
include NCE's indirect investment in Yorkshire Electricity Group plc
("Yorkshire") and Independent Power Corporation plc ("IPC"), is currently equal
to 55.0% of NCE's "consolidated retained earnings" (as defined in Rule
53(a)(1)(ii)) for
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6 In its order approving the formation of NCE, supra n. 1, the
Commission made findings under Section 11(b)(1) permitting the retention of
PSCo's gas utility business as an additional integrated system.
7 See Michigan Consolidated Gas Co., 44 S.E.C. 361, 363-65 (1070),
aff'd 444 F.2d 913 (D.C. Cir. 1971).
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the four quarters ended June 30, 1998.8 At the present time, therefore, NCE does
not satisfy all of the requirements of Rule 53(a).
However, even if the Commission were to take into account, on a pro
forma basis, the effect of the capitalization and earnings of EWGs and FUCOs
(including, on a pro forma basis, Yorkshire and IPC) in which NCE has invested,
it would have no basis for denying the transactions proposed herein. The
transactions proposed herein relate solely to an investment, through Enterprises
or e prime or its subsidiaries in assets that will be incidental and necessary
to the conduct of e prime's existing energy marketing and trading operations in
the United States.
Moreover, there has been no material impact on NCE's consolidated
capitalization by reason of the inclusion therein of the capitalization and
earnings of EWGs and FUCOs (including on a pro forma basis Yorkshire and IPC) in
which NCE has an interest. Additionally, NCE believes that its capitalization
ratios and income levels are within acceptable ranges. Finally, although NCE's
consolidated earnings for the year ended December 31, 1997, were negatively
affected by its investment in Yorkshire, this was solely as the result of the
imposition by the United Kingdom of a one-time, non-recurring, windfall tax on
Yorkshire. Importantly, this tax did not affect earnings from ongoing
operations, and, therefore, would not have any negative financial impact on
earnings in future periods.
Item 4. Regulatory Approvals.
No state commission has jurisdiction over the proposed transactions. The
pre-notification requirements of the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 may apply to certain acquisitions of Energy Assets or Permitted
Subsidiaries, depending upon, among other factors, the dollar amount of any such
transaction. Also, the FERC may have jurisdiction over acquisitions of Permitted
Subsidiaries under Section 203 of the Federal Power Act if such companies engage
in electric power marketing. The Applicants will not consummate any acquisition
of Energy Assets or of the equity securities of any Permitted Subsidiaries
unless they have complied with such laws, to the extent applicable.
Item 5. Procedure.
The Commission is requested to publish a notice under Rule 23 with
respect to the filing of this Application or Declaration as soon as practicable.
The Applicants request that the Commission's Order be issued as soon as the
rules allow, and that there should not be a 30-day
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8 In a separate proceeding (File No. 70-8787), PSCo obtained Commission
authorization to transfer to Enterprises all of the common stock of New Century
International, Inc. ("NCI"), formerly a wholly-owned subsidiary of PSCo through
which PSCo held, indirectly, a 50% interest in Yorkshire, and IPC. Enterprises
will file with the Commission a Notification of Foreign Utility Company Status
on Form U-57 on behalf of Yorkshire and IPC.
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waiting period between issuance of the Commission's order and the date on which
the order is to become effective. The Applicants hereby waive a recommended
decision by a hearing officer or any other responsible officer of the Commission
and consents that the Division of Investment Management may assist in the
preparation of the Commission's decision and/or order, unless the Division
opposes the matters proposed herein.
Item 6. Exhibits and Financial Statements.
A. Exhibits.
A None.
B None.
F Opinion of Counsel. (To be filed by amendment).
H Proposed Form of Federal Register Notice. (Previously filed.)
27 Financial Data Schedule Per-Book NCE. (Previously filed.)
B. Financial Statements.
1.1 Balance Sheet of NCE and consolidated subsidiaries, as of
June 30, 1998 (incorporated by reference to the Quarterly
Report on Form 10-Q of NCE for the quarter ended June 30,
1998) (File No. 1-12927).
1.2 Statement of Income of NCE and consolidated subsidiaries,
as of June 30, 1998 (incorporated by reference to the
Quarterly Report on Form 10-Q of NCE for the quarter ended
June 30, 1998) (File No. 1-12927).
2.1 Balance Sheet of NC Enterprises, Inc. and subsidiaries,
consolidated, as of June 30, 1998. (Previously filed.).
2.2 Statement of Income of NC Enterprises, Inc. and
subsidiaries, consolidated, as of June 30, 1998.
(Previously filed.)
Item 7. Information as to Environmental Effects.
None of the matters that are the subject of this Application or
Declaration involve a "major federal action" nor do they "significantly affect
the quality of the human environment" as those terms are used in section
102(2)(C) of the National Environmental Policy Act. The transaction that is the
subject of this Application or Declaration will not result in changes in the
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operation of the Applicants that will have an impact on the environment. The
Applicants are not aware of any federal agency that has prepared or is preparing
an environmental impact statement with respect to the transactions that are the
subject of this Application or Declaration.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, as amended, the undersigned companies have duly caused this statement
to be signed on their behalf by the undersigned thereunto duly authorized.
NEW CENTURY ENERGIES, INC.
NC ENTERPRISES, INC.
E PRIME, INC. AND ITS SUBSIDIARIES
By: /s/ Richard C. Kelly
Name: Richard C. Kelly
Title: Executive Vice President,
Chief Financial Officer of
New Century Energies, Inc.;
Executive Vice President of
NC Enterprises; President and
Chief Executive Officer of e
prime, inc.
Date: September 28, 1998
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