As filed November 15, 1999
File No. 70-9345
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------------------------------
FORM U-1/A
AMENDMENT NO. 2
TO
APPLICATION/DECLARATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
---------------------------------------------------------
New Century Energies, Inc.
NC Enterprises, Inc.
e prime, inc.
1225 17th Street
Denver, Colorado 80202-5533
(Names of companies filing this statement and
address of principal executive office)
-----------------------------------------------------
New Century Energies, Inc.
(Name of top registered holding company parent)
------------------------------------------------------
Teresa S. Madden
Controller
New Century Energies, Inc
1225 17th Street, Suite 900
Denver, Colorado 80202-5533
(Name and address of agent 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
<PAGE>
The Applicants hereby amend and restate in its entirety the
Application/Declaration filed in this proceeding on August 17, 1998, as
previously amended and restated by Amendment No. 1, filed September 28, 1998, 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.(2) 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.(3) For the year ended December 31, 1998, e prime
had consolidated operating revenues of $255.4 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, 2004 (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
eprime and its subsidiaries (or any other energy marketing and brokering
subsidiary hereafter acquired by Enterprises or e prime) in connection with
energy marketing, brokering and trading.(4) The Applicants request authorization
to invest up to $400 million (the "Investment Limitation") during the
- -------------------
1 See New Century Energies, Inc., 65 SEC Docket 277 (August 1, 1997).
2 e prime has temporarily suspended its wholesale electric power marketing
activities, but expects to resume them in the future.
3 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.
4 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.
2
<PAGE>
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").(5) 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.
The Commission has previously recognized that, to be successful, a 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.(6) 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 the issuance by the Federal Energy Regulatory
Commission ("FERC") of Order 636.(7) 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 volatility 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 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
- -------------------
5 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.
6 See e.g., SEI Holdings, Inc., 62 SEC Docket 2493 (September 26, 1996);
American Electric Power Company, Inc., et al., 68 SEC Docket 1251
(November 2, 1998).
7 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).
3
<PAGE>
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 order dated April 7, 1999 in File No. 70-9397 (Holding Company
Act Release No. 27000) (the "NCE Financing Order"), NCE is currently authorized
to issue common stock, short-term debt, long-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, 2001. NCE proposes to use the
proceeds of securities issuances and guarantees as authorized in File
No. 70-9397 in the NCE Financing Order or in subsequent orders for the purpose
of financing the construction of or investments in Energy Assets or the equity
securities of Permitted Subsidiaries, as described herein, subject to the
limitations, parameters and restrictions contained in the NCE Financing Order or
subsequent orders.
In turn, to the extent not exempt under Rule 52 and/or Rule 45(b),
Enterprises and e prime 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. Guarantees may be
issued by Enterprises or e prime or by any existing or new, direct or indirect,
subsidiary of Enterprises or e prime. Such guarantees could be in respect of
securities issued by any existing or new, direct or indirect, special purpose
financing subsidiary of Enterprises or e prime organized specifically for the
purpose of financing the construction of or investments in Energy Assets or the
purchase of equity securities of Permitted Subsidiaries.
Any borrowings by Enterprises or e prime or any direct or indirect
subsidiary of Enterprises or e prime (including any special purpose financing
subsidiary) that are not exempt under Rule 52 shall be evidenced by notes having
maturities not greater than fifteen years from the date of issue and bear
4
<PAGE>
interest at either a fixed rate not greater than 300 basis points over the yield
to maturity of a U.S. Treasury note having a remaining term approximately equal
to the average life of such note, or at a floating rate not greater than 300
basis points over the reference rate (e.g., prime commercial lending rate,
LIBOR, etc.) used as the basis for determining such rate. Such notes may include
terms that would require the payment of a premium upon prepayment. Any
securities issuances by Enterprises and e prime or any existing or new, direct
or indirect, subsidiary of Enterprises or e prime (including any special purpose
financing subsidiary), 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).
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 subsidiary of e prime 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 guarantees is also 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).
5
<PAGE>
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 holding company to control one or more additional public-utility
systems.(8) 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.(9)
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. As indicated, supra n. 6, the
Commission has previously authorized other registered holding companies to
acquire or construct substantially similar kinds of assets in connection with
their marketing subsidiaries' 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 and 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." However, by order
dated February 26, 1999, the Commission has authorized NCE to finance
investments in EWGs and FUCOs in an amount up to 100% of NCE's "consolidated
retained earnings."(10) NCE's "aggregate investment" (as defined in
- -------------------
8 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.
9 See Michigan Consolidated Gas Co., 44 S.E.C. 361, 363-65 (1070), aff'd 444
F.2d 913 (D.C. Cir. 1971).
10 See New Century Energies, Inc., 69 SEC Docket 646.
6
<PAGE>
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 50.8% of NCE's
"consolidated retained earnings" (as defined in Rule 53(a)(1)(ii)) for the four
quarters ended September 30, 1999.(11) At the present time, therefore, NCE
satisfies all of the requirements of Rule 53(a), as modified by the Commission's
order of February 26, 1999.
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 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
- -------------------
11 By order dated May 14, 1998, the Commission authorized PSCo 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. See New Century
Energies, Inc., et al., 67 SEC Docket 286.
7
<PAGE>
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.
C. None.
D. None.
E. None.
F. Opinion of Counsel. (To be filed by amendment).
G. Financial Data Schedule Per-Book NCE. (Previously filed).
H. Proposed Form of Federal Register Notice. (Previously filed).
B. FINANCIAL STATEMENTS.
--------------------
1.1 Balance Sheet of NCE and consolidated subsidiaries, as of
September 30, 1999 (incorporated by reference to the Quarterly
Report on Form 10-Q of NCE for the quarter ended September 30,
1999) (File No. 1-12927).
1.2 Statement of Income of NCE and consolidated subsidiaries, as of
September 30, 1999 (incorporated by reference to the Quarterly
Report on Form 10-Q of NCE for the quarter ended September 30,
1999) (File No. 1-12927).
2.1 Balance Sheet of NC Enterprises, Inc. and subsidiaries,
consolidated, as of September 30, 1999. (To be filed by
amendment).
2.2 Statement of Income of NC Enterprises, Inc. and subsidiaries,
consolidated, as of September 30, 1999. (To be filed by
amendment).
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
---------------------------------------
The transactions that are the subject of this Application or Declaration do
not 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. Further, such transactions will not
result in changes in the operation of the Applicants that will have an impact on
the environment. The Applicants are not aware of any federal agency that has
8
<PAGE>
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.
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: November 15, 1999
9
