As filed with the Securities and Exchange Commission on April 10, 2000
File No. 70-9635
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM U-1
APPLICATION-DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
New Century Energies, Inc. Northern States Power Company
Public Service Company of Colorado Energy Masters International, Inc.
New Century Services, Inc. Seren Innovations, Inc.
WestGas InterState, Inc. Ultra Power Technologies, Inc.
NC Enterprises, Inc. Eloigne Company
New Century International, Inc. First Midwest Auto Park, Inc.
PS Colorado Credit Corporation United Power and Land Company
Colorado Natural Fuels LLC Reddy Kilowatt Corporation
Natural Station Equipment LLC NSP Financing I
P.S.R. Investments, Inc. Nuclear Management Company
Green and Clear Lakes Company 414 Nicollet Mall
1480 Welton, Inc. Minneapolis, Minnesota 55401
The Planergy Group, Inc.
New Century-Cadence, Inc. Northern States Power Company
New Century WYCO, Inc. (a Wisconsin corporation)
New Century O&M Services, Inc. 100 North Barstow Street
1225 Seventeenth Street Eau Claire, Wisconsin 54701
Denver, Colorado 80202-5533
Viking Gas Transmission Company
Cheyenne Light, Fuel and Power Company 825 Rice Street
108 West 18th Street St. Paul, Minnesota 55117
Cheyenne, Wyoming 82003
NRG Energy, Inc.
Southwestern Public Service Company 1221 Nicollet Mall, Suite 700
Tyler at Sixth Minneapolis, Minnesota 55403
Amarillo, Texas 79101
<PAGE>
Utility Engineering Corporation
Amarillo National's Plaza 2
Lobby Box 239
500 South Taylor
Amarillo, Texas 79101
Quixx Corporation
Amarillo National's Plaza 2
Suite 1100, Lobby Box 254
500 South Taylor
Amarillo, Texas 79101
e prime, inc.
1099 Eighteenth Street, Suite 3000
Denver, Colorado 80202
(Name of companies filing this statement and
address of principal executive offices)
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Xcel Energy Inc.
414 Nicollet Mall
Minneapolis, Minnesota 55401
(Name of registered holding company parent of each applicant or declarant)
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Wayne H. Brunetti James J. Howard
Vice Chairman of the Board, President Chairman of the Board, President
and Chief Operating Officer and Chief Executive Officer
New Century Energies, Inc. Northern States Power Company
1225 Seventeenth Street 414 Nicollet Mall
Denver, Colorado 80202 Minneapolis, Minnesota 55401
(Name and addresses of agents for service)
----------------------------------
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The Commission is requested to send copies of all notices, orders and
communications in connection with this Application-Declaration to:
Paul J. Bonavia Gary R. Johnson
Senior Vice President and General Counsel Vice President and General Counsel
William M. Dudley Scott M. Wilensky
Associate General Counsel Senior Attorney
New Century Energies, Inc. Northern States Power Company
1225 Seventeenth Street 414 Nicollet Mall
Denver, Colorado 80202 Minneapolis, Minnesota 55401
Joanne C. Rutkowski Peter D. Clarke
LeBoeuf, Lamb, Greene & MacRae, L.L.P Gardner, Carton & Douglas
1875 Connecticut Avenue, N.W. 321 North Clark Street, Suite 3400
Washington, D.C. 20009 Chicago, Illinois 60610
<PAGE>
Table of Contents
Item 1. Description of Proposed Transaction...................................1
A. General.............................................................1
B. Overview of Request.................................................1
1. Introduction......................................................1
2. Overview of the Companies.........................................2
3. Summary of Requested Authorization................................5
4. Other Pending Applications........................................6
5. Financing Parameters..............................................6
6. Use of Proceeds...................................................6
C. Description of External Financing Program...........................7
1. Xcel External Financings..........................................7
(a) Common Stock and Long-Term Debt of Xcel; Securities of
Financing Subsidiaries Guaranteed by Xcel....................7
(b) Short-Term Debt..............................................9
(c) Other Securities............................................10
2. Utility Subsidiary Financing.....................................10
(a) Short-Term Financing of Cheyenne and BMG....................10
(b) Other Securities............................................11
3. Non-Utility Subsidiary Financings................................11
D. Intra-System Financings and Guarantees.............................11
E. Employee Benefit Plans and Dividend Reinvestment Plan..............13
1. Benefit Plans....................................................13
2. Dividend Reinvestment Plan.......................................15
F. Hedge Transactions.................................................15
1. Interest Rate Hedging Program....................................15
2. Anticipatory Hedges..............................................15
G. Existing Financing Arrangements....................................16
1. NCE..............................................................16
(a) Financings Entered into in Accordance with
the NCE Financing Order.....................................16
(b) NC Enterprises Note to SPS Relating to UE and Quixx.........16
(c) NC Enterprises Note to PSCo Relating to NCI.................17
2. NSP..............................................................18
3. Xcel.............................................................18
H. Financing Subsidiaries.............................................19
I. Intermediate Subsidiaries and Reorganization Authority.............19
J. Payment of Dividends Out of Capital and Unearned Surplus...........21
K. Financing of EWGs and FUCOs........................................23
1. Nature of Request and Prior Investments..........................23
(a) Request.....................................................23
(b) Prior Investments...........................................24
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2. Capital Allocation And Review Process............................25
(a) The Project Review Process..................................25
(b) Risk Mitigation.............................................26
3. Proposed Increase in Investment Authority........................28
(a) The Proposed Transactions Will Not Have a Substantial
Adverse Impact Upon the Financial Integrity
of the Xcel System..........................................29
(i) Key Financial Ratios/Benchmarks.......................29
(ii) Market Assessment of Xcel.............................32
(b) The Proposed Transactions Will Not Have an Adverse
Impact on Any Utility Subsidiary of Xcel, or its
Customers, or on the Ability of Xcel's State Public
Utility Commissions to Protect Such Customers...............33
(i) Insulation From Risk..................................33
(ii) Utility Subsidiary Financial Integrity................34
(iii) Utility Subsidiaries' Capital Needs...................36
(iv) Adequacy Of State Commission Oversight................37
4. Compliance with Rule 54..........................................37
L. Filing of Certificates of Notification.............................38
Item 2. Fees, Commissions and Expenses........................................40
Item 3. Applicable Statutory Provisions.......................................40
A. General............................................................40
B. Rule 54 Analysis...................................................40
Item 4. Regulatory Approvals..................................................41
Item 5. Procedure.............................................................41
Item 6. Exhibits and Financial Statements....................................42
Item 7. Information as to Environmental Effects..............................45
<PAGE>
This Pre-effective Amendment No. 1 revises and replaces in their entirety
the Form U-1 Application/Declaration and Exhibit H in this proceeding,
originally filed with the Securities and Exchange Commission on February 23,
2000 in File No. 70-9635.
Item 1. Description of Proposed Transaction
A. General
New Century Energies, Inc. ("NCE") and Northern States Power Company
("NSP") have previously filed with the Securities and Exchange Commission (the
"Commission") an Application/Declaration on Form U-1, File No. 70-9539 (the
"Merger Application") under the Public Utility Holding Company Act of 1935, as
amended (the "Act" or "1935 Act") seeking approvals related to the proposed
combination of NCE and NSP. NCE is currently a registered holding company under
the 1935 Act1 and NSP is an exempt holding company under Section 3(a)(2) of the
1935 Act. NCE and NSP entered into an Agreement and Plan of Merger, dated as of
March 24, 1999 (the "Merger Agreement"), which provides for a strategic business
combination involving NCE and NSP in a "merger-of-equals" transaction. Pursuant
to the Merger Agreement, NCE will merge with and into NSP. NSP, as the surviving
corporation, will change its name to Xcel Energy Inc. ("Xcel"). Also, as part of
the Merger, NSP is expected to transfer its existing utility operations that are
being conducted directly by NSP at the parent company level to a newly-formed,
wholly-owned subsidiary ("New NSP") of Xcel. In addition, Xcel will transfer
certain of the existing non-utility subsidiaries of NSP to New NSP. Upon
completion of the Merger, Xcel will have as public-utility subsidiary companies
New NSP and certain of the existing public-utility subsidiaries of NCE and NSP.2
Xcel also will continue to own certain of NSP's existing non-utility
subsidiaries and will acquire all of the outstanding capital stock of the
non-utility subsidiaries of NCE.
The Merger is structured as a tax-free, stock for stock exchange, with each
outstanding share of NCE Common Stock being converted into 1.55 shares (the
"Conversion Ratio") of NSP Common Stock. Based on the capitalization of NCE and
NSP on March 24, 1999 (the date the Merger Agreement was signed) and the
Conversion Ratio, NCE shareholders would own 54% and NSP shareholders would own
46% of the common equity of Xcel if the Merger had been consummated as of such
date. A more complete description of the Merger and related transactions is
contained in the Merger Application, which is incorporated by reference herein.
This Application seeks authority with respect to the financing
arrangements, ongoing financing arrangements, and other matters pertaining to
Xcel and its subsidiaries after giving effect to the Merger.
B. Overview of Request
1. Introduction
NCE, as a registered holding company under the 1935 Act, has previously
received authorizations from the Commission to engage in a number of different
financing transactions. Most recently in File No. 70-9397, the Commission issued
an order approving an omnibus financing
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1 See New Century Energies, Inc., Holding Company Act Release No. 26748
(August 1, 1997).
2 As explained below, Black Mountain Gas Company, which currently operates as
a division of NSP, will also become a public-utility subsidiary of Xcel.
1
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application for the NCE system, approving various financing arrangements for an
authorization period extending through December 31, 2001. See New Century
Energies, Inc., Holding Company Act Release No. 27000 (April 7, 1999) (the "NCE
Financing Order").3 The additional financing for which authorization is
requested herein is, in large part, substantially similar to the financing
transactions for which the Commission has previously granted authority to NCE.
Xcel, however, will upon consummation of the Merger be approximately twice the
size of NCE. Therefore, the amounts of specific authorizations requested herein
are generally greater than the levels previously authorized for NCE so as to
provide sufficient flexibility to meet the financial needs of the larger Xcel
system. In addition, the specific types of financings requested herein are
slightly different than those that NCE requested in the past. Applicants have
modified the NCE request to reflect the greater flexibility that the Commission
has granted other registered systems in orders issued subsequent to the NCE
Financing Order. Applicants are also requesting that the Commission exempt it
from the requirements of Rule 53(a)(1), with respect to the investing by Xcel of
proceeds from its financings and the issuance of guarantees as requested herein,
by allowing Xcel to have an aggregate investment in exempt wholesale generators
("EWGs") and foreign utility companies ("FUCOs"), as calculated in accordance
with Rule 53(a)(1)(i), in an amount up to Xcel's consolidated retained earnings
as determined in accordance with Rule 53(a)(1)(ii).4 This authority is the same
as that granted by the Commission to NCE. See New Century Energies, Inc.,
Holding Company Act Release No. 26982 (February 26, 1999) (the "NCE 100%
Order").
The approval by the Commission of this filing will give the Applicants the
flexibility to respond quickly and efficiently to their financing needs and to
changes in market conditions, which, in turn, should make them more competitive
with other utility companies that are not subject to the jurisdiction of the
1935 Act. At the same time, the Commission will continue to have oversight over
financings by the Applicants through the regular disclosures under the
Securities Act of 1933, as amended (the "1933 Act"), and under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), through the notification
system established pursuant to this Application, and through other reports
requested by the Commission under its rules under the Act.
2. Overview of the Companies
NCE is a registered public utility holding company formed in 1997 pursuant
to Commission order. New Century Energies, Inc. Holding Co. Act Release No.
26748 (August 1, 1997) (herein, the "NCE Merger Order"). NCE's public utility
subsidiaries are Public Service Company of Colorado ("PSCo"), Southwestern
Public Service Company ("SPS"), and Cheyenne Light, Fuel and Power Company
("Cheyenne") (collectively the "NCE Utility Subsidiaries"). The NCE Utility
Subsidiaries together serve approximately 1.6 million electric customers in
parts of Colorado, Texas, New Mexico, Wyoming, Oklahoma, and Kansas, and
approximately 1.1 million gas customers in parts of Colorado and Wyoming.
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3 The Commission previously granted the NCE system financing authorizations
on a blanket basis in two releases issued in File No. 70-9007. See New
Century Energies, Inc., Holding Company Act Release Nos. 26750 (August 1,
1997) and 26872 (May 14, 1998).
4 The terms "exempt wholesale generator" and "foreign utility company" are
defined, respectively, in Sections 32(a) and 33(a) of the Act.
2
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NCE also engages through subsidiaries in various other energy-related and
non-utility businesses (collectively, the "NCE Non-Utility Subsidiaries"). The
NCE Non-Utility Subsidiaries that are directly owned are: NC Enterprises, Inc.
("NC Enterprises"), which serves as an intermediate holding company for certain
of NCE's non-utility subsidiaries and investments; New Century Services, Inc.
("NCS"), a subsidiary service company,5 and WestGas InterState Inc., a gas
pipeline that operates in Colorado and Wyoming. The NCE Non-Utility Subsidiaries
that are indirectly held through NC Enterprises include: New Century
International, Inc. ("NCI"), which indirectly holds NCE's interest in Yorkshire
Electricity Group plc, a regional electric distribution company serving parts of
England; e prime, inc., which directly and indirectly through other subsidiaries
sells energy-related products and services and engages in energy marketing and
trading; Utility Engineering Corporation ("UE"), which provides general
engineering, development, design, construction and other services to both
associate and non-associate companies, and through its subsidiary, Quixx
Corporation and its subsidiaries, is engaged in development activities relating
to EWGs and exempt FUCOs, "qualifying facilities" ("QFs"), as defined under the
Public Utility Regulatory Policies Act of 1978, as amended ("PURPA"), and other
energy related projects; The Planergy Group, Inc., which engages exclusively in
activities permitted under Rule 58; New Century-Cadence, Inc., which engages in
energy related activities in the United States and in Canada6; New Century WYCO,
Inc., which owns and leases certain gas transportation and related facilities;
New Century O&M Services, Inc., which engages in the business of acquiring,
owning, and operating facilities presently owned by the Federal government on
military enclaves used for the distribution of electricity, natural gas, water,
and other energy products7; and Natural Station Equipment LLC, which engages in
the packaging and marketing of compressed natural gas fueling facility
equipment.8 Certain of the NCE Non-Utility Subsidiaries are also held through
PSCo. These subsidiaries generally operate in support of PSCo's operations. They
include PS Colorado Credit Corporation ("PSCCC"), which is engaged in financing
and factoring of PSCo's fuel inventories and accounts receivable. NCE through
PSCo also owns an 100% interest in Colorado Natural Fuels LLC,9 which is engaged
in the commercialization of compressed natural gas as a motor fuel.
NSP, which was incorporated in 1909, is a public-utility company and a
holding company exempt from registration pursuant to Commission order under
Section 3(a)(2) of the Act. Northern States Power Company, Holding Co. Act
Release No. 22334 (December 23, 1981). NSP owns all of the outstanding common
stock of Northern States Power Company, a Wisconsin corporation ("NSP-W"), which
is a public-utility company under the Act. NSP and NSP-W together serve
approximately 1.5 million electric customers in parts of Minnesota, Michigan,
North Dakota, South Dakota and Wisconsin and approximately 500,000 gas customers
in parts of the same five states and Arizona.
NSP also engages through subsidiaries in various other energy-related and
non-utility businesses (collectively the "NSP Non-Utility Subsidiaries"). The
NSP Non-Utility Subsidiaries that are directly owned by NSP are: Viking Gas
Transmission Company ("Viking"), an interstate natural
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5 NCS will be the service company for the Xcel system, although it is
expected to be renamed Xcel Energy Services Inc.
6 Cinergy Corp. and New Century Energies, Inc., Holding Company Act Release
No. 27124 (January 11, 2000).
7 See New Century Energies, Inc., Holding Company Act Release No. 27048 (July
9, 1999).
8 See New Century Energies, Inc., Holding Company Act Release No. 27116
(December 22, 1999).
9 See id.
3
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gas pipeline that operates in Minnesota, Wisconsin and North Dakota; NRG Energy,
Inc. ("NRG"), a holding company for many of NSP's non-utility businesses,
including significant investments in independent power projects and foreign
operations; Energy Masters International, Inc. ("EMI"), an energy services
company; Seren Innovations, Inc. ("Seren"), a company that provides cable,
telephone and high-speed internet access systems10; Ultra Power Technologies,
Inc. ("Ultra Power"), a company that markets power cable testing technology;
Eloigne Company ("Eloigne"), an investor in projects that qualify for low-income
housing tax credits; NSP Financing I, a special purpose business trust; First
Midwest Auto Park, Inc. ("FMAP"), an owner of a parking garage and a parking
lot; United Power and Land Company ("UP&L"), a real estate investment company;
Reddy Kilowatt Corporation ("Reddy Kilowatt"), the owner of certain intellectual
property rights; Natrogas, Inc., a provider of propane services; and Nuclear
Management Company ("NMC"), a limited liability company that will provide
services to the nuclear operations of its members. NSP owns 100% of all of the
foregoing businesses, except that NSP owns 25% of the membership interests in
NMC. Upon consummation of the Merger, Xcel will transfer to New NSP its
ownership interests in FMAP, UP&L, NSP Financing I, and NMC. A further
description of the non-utility subsidiaries of NSP is included in the Merger
Application.
Through NSP-W, NSP also indirectly owns all of the outstanding common stock
of the following non-utility subsidiary companies: Clearwater Investments, Inc.
("Clearwater"), an investor in housing projects that qualify for low-income
housing tax credits, and NSP Lands, Inc. ("NSP Lands"), a real estate investment
company. NSP-W also owns 75.86% of Chippewa and Flambeau Improvement Company
("C&F"), a company that builds and operates dams and reservoirs for
hydro-electric plants. A further description of the non-utility subsidiaries of
NSP-W is included in the Merger Application.
As noted above, as part of the Merger, NSP is expected to transfer its
existing utility operations that are being conducted at the parent company level
to New NSP, which will be a newly-formed, wholly-owned subsidiary of Xcel. As a
result, Xcel will have the following public-utility subsidiary companies upon
completion of the Merger: PSCo, SPS, Cheyenne, New NSP and NSP-W. Black Mountain
Gas Company ("BMG"), which currently provides retail gas utility service in
Arizona and operates as a division of NSP, will also become a public-utility
subsidiary of Xcel.11 The foregoing public-utility subsidiaries are hereinafter
referred to as the Utility Subsidiaries.
Following the Merger, Xcel will own, directly and indirectly, the NCE
Non-Utility Subsidiaries and the NSP Non-Utility Subsidiaries. As used herein,
the term "Non-Utility Subsidiaries" means each of the NCE Non-Utility
Subsidiaries and NSP Non-Utility Subsidiaries, as well as any future direct or
indirect non-utility subsidiaries of NCE, NSP or Xcel whose equity securities
may be acquired in accordance with the Commission's authorization in this
proceeding or in accordance with an exemption provided under the Act or the
Commission's rules thereunder. As
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10 Applicants expect to qualify Seren as an "exempt telecommunications
company" under Section 34 of the Act. Accordingly, Xcel may be able to
finance Seren's activities and provide guarantees and other credit support
to Seren on an exempt basis.
11 Presently pending before the Commission is NSP's application for approval
to transfer the assets and operations of BMG to a subsidiary of NSP (File
No. 70-09337). NSP's intent is to accomplish the transfer of such assets
promptly upon receipt of the necessary regulatory approvals, either prior
to or following the Merger.
4
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used herein, the term "Subsidiaries" means the Utility Subsidiaries and the
Non-Utility Subsidiaries collectively.
The expected corporate structure of the Xcel system was filed as an exhibit
to the Merger Application.
3. Summary of Requested Authorization
The Applicants request authority with respect to the financing
arrangements, ongoing financing activities and other matters pertaining to Xcel
and the Subsidiaries. The Applicants request such authorization generally for
the period beginning with the effective date of the Merger through December 31,
2004 and, with respect to the issuance of stock under employee benefit plans and
dividend reinvestment plans, through December 31, 2008 (the "Authorization
Period").
Set forth below is a summary of the financing authority which the
Applicants are seeking pursuant to this Application. The following table also
shows the current financing authority for the NCE system pursuant to the NCE
Financing Order.
<TABLE>
<CAPTION>
Category Current Authorization of NCE Requested Authority
<C> <C> <C>
Xcel:
Common stock and long-term debt Common Stock: $1.25 billion Aggregate amount of $2.0
of Xcel and long-term debt and Long-Term Debt: $300 million billion.
preferred securities of Finance Finance Subsidiaries: N/A
Subsidiaries established by Xcel
Short-Term Debt $600 million, less Long-Term Debt $1.5 billion
Employee Benefit Plans and Additional 30 million shares of Additional 30 million shares of
Dividend Reinvestment Plan common stock common stock
Utility Subsidiaries:
Short-Term
Cheyenne $40 million $40 million
BMG N/A $40 million
Intra-system Financings and Intra-system Financings: $500 million Aggregate amount of $2.5 billion
Guarantees by Parent and Parent Guarantees: $800 million
Subsidiaries Subsidiary Guarantees: $100 million
</TABLE>
In addition, the Applicants request authorization, similar to the
authorization given to NCE and its subsidiaries in the NCE Financing Order, to
(i) enter into hedging transactions, (ii) acquire Financing Subsidiaries12,
(iii) acquire intermediate Subsidiaries for the purpose of investing in EWGs or
FUCOs, Rule 58 Subsidiaries, ETCs or other non-exempt Non-Utility Subsidiaries,
and (iv) pay dividends out of capital and unearned surplus, as more fully
described below. Finally, Applicants
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12 In the NCE Financing Order, the Commission reserved jurisdiction over the
issue of whether or not NCE, as a registered holding company, can establish
Financing Subsidiaries directly. Applicants are requesting authorization
for Xcel to have such authority in light of the Commission's recent order
in The Southern Company, Holding Company Act Release No. 27134 (February 9,
2000).
5
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request authority for: (i) NCE, NSP and their subsidiaries to maintain in place
certain existing financing arrangements, (ii) Xcel to have flexibility in the
future to restructure its non-utility interests, and (iii) Xcel to use the
proceeds of financing transactions in an amount equal to 100% of the Xcel
system's consolidated retained earnings for investment in EWGs and FUCOs as and
to the same extent the Commission previously granted such authority to NCE in
the NCE 100% Order.
4. Other Pending Applications
File No. 70-9539: NCE and NSP are seeking approval for the Merger and
related transactions.
File No. 70-9345: NCE, NC Enterprises, and e prime are requesting
authorization to construct or acquire from time to time through
December 31, 2003, certain types of non-utility energy assets (or the
securities of companies substantially all of whose physical properties
consist of such assets), subject to an investment limitation of $400
million.13
File No. 70-09337: NSP is requesting authority to transfer the assets
and operations of its Black Mountain Gas division to a new
wholly-owned subsidiary.
5. Financing Parameters
The following general conditions will be applicable where appropriate to
the financing transactions requested to be authorized hereby:
Effective Cost of Money on Borrowings. The effective cost of money on debt
financings authorized by this Application will not exceed competitive market
rates for securities with similar terms and features;
Maturity of Debt. The maturity of authorized indebtedness will not exceed
50 years;
Rating of Long-Term Debt. Any long-term debt to be issued by Xcel will, at
the time of original issuance, be rated at least investment grade by a
nationally recognized credit rating organization; and
Capitalization Ratios. Xcel's common equity, as reflected on its most
recent Form 10-K or Form 10-Q and as adjusted to reflect subsequent events that
affect capitalization, will be at least 30% of consolidated capitalization.
6. Use of Proceeds
The proceeds from the financings authorized by the Commission pursuant to
this Application will be used for general corporate purposes, including (i)
financing, in part, capital expenditures of Xcel and its Subsidiaries, (ii) the
repayment, redemption, refunding or purchase by Xcel or any of its Subsidiaries
of securities issued by such companies without the need for prior Commission
approval pursuant to Rule 42 or a successor rule, (iii) financing working
capital requirements of Xcel and
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13 NCE expects to amend its application in File No. 70-9345 to extend the
requested authority to the Xcel system.
6
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its Subsidiaries, and (iv) other lawful general purposes. Any use of proceeds to
make investments in Rule 58 Subsidiaries will be subject to the investment
limitation of such rule, and any use of proceeds to make investments in any EWG
or FUCO will be subject to the investment limitation requested herein.14 See "K.
Financing of EWGs and FUCOs" below.
In consideration for its purchase from PSCo of the stock of NCI, which
indirectly holds a 50% interest in Yorkshire Power Group Limited, NC Enterprises
issued a note payable to PSCo for $292.6 million, representing the purchase
price. See New Century Energies, Inc., Holding Company Act Release No. 26871
(May 14, 1998). It is expected that Xcel International Group (formerly NCI) will
assume NC Enterprises' obligations to PSCo under that note. Among other uses of
the proceeds of the financings proposed herein, Xcel plans to make advances,
loans or cash capital contributions to Xcel International Group to enable it to
prepay that note to PSCo by December 31, 2004.15
The Applicants represent that no financing proceeds will be used to acquire
the equity securities of any new subsidiary unless such acquisition has been
approved by the Commission in this proceeding or in a separate proceeding or in
accordance with an available exemption under the Act or the rules thereunder.
C. Description of External Financing Program
It is contemplated that Xcel will obtain funds externally through sales of
common stock and long-term and short-term debt financing, including the sale of
commercial paper. It is further contemplated that Xcel will finance the
operations of certain of its Subsidiaries with a combination of debt, equity and
credit support. It is contemplated that the operations of the Utility
Subsidiaries (other than Cheyenne) will be largely self-funding.
1. Xcel External Financings
(a) Common Stock and Long-Term Debt of Xcel; Securities of Financing
Subsidiaries Guaranteed by Xcel
It is contemplated that Xcel may issue and sell common stock and/or
long-term debt securities for the uses set forth under Use of Proceeds above,
provided that the aggregate proceeds received upon issuance of such common stock
(exclusive of the issuance of common stock described below under "E. Employee
Benefit Plans and Dividend Reinvestment Plan") and long-term debt, as well as
long-term debt or preferred securities issued by Financing Subsidiaries
established by Xcel as described below under "H. Financing Subsidiaries", during
the Authorization Period shall not exceed $2 billion. The Commission has
previously approved the issuance by NCE of up to $1.25 billion of NCE common
stock and $300 million of NCE debentures pursuant to the NCE Financing Order.
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14 Absent Commission approval of such request, the investment limitation of
Rule 53(a) would apply.
15 In its application in File No. 70-9193, NCE and NC Enterprises indicated
that they expected that NC Enterprises would prepay the existing note by
the end of 1999. That schedule proved not to be feasible. It is now
expected that Xcel International Group will prepay the note by December 31,
2004, as described below.
7
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Common Stock. Subject to the limits described above and the other
conditions described in this Application, Xcel may issue and sell common stock
pursuant to underwriting agreements of a type generally standard in the
industry. Public distributions may be pursuant to private negotiation with
underwriters, dealers or agents, as discussed below, or effected through
competitive bidding among underwriters. In addition, sales may be made through
private placements or other non-public offerings to one or more persons. All
such common stock sales will be at rates or prices and under conditions
negotiated or based upon, or otherwise determined by, competitive capital
markets.
Specifically, Xcel may sell common stock covered by this Application in any
of the following ways: (i) through underwriters or dealers; (ii) through agents;
(iii) directly to a limited number of purchasers or a single purchaser; or (iv)
directly to employees (or to trusts established for their benefit) and other
shareholders through its employee benefit plans or its dividend reinvestment
plan. If underwriters are used in the sale of the securities, such securities
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. The securities may be offered to the public either through
underwriting syndicates (which may be represented by a managing underwriter or
underwriters designated by Xcel) or directly by one or more underwriters acting
alone. The securities may be sold directly by Xcel or through agents designated
by Xcel from time to time. If dealers are utilized in the sale of any of the
securities, Xcel will sell such securities to the dealers, as principal. Any
dealer may then resell such securities to the public at varying prices to be
determined by such dealer at the time of resale. If common stock is being sold
in an underwritten offering, Xcel may grant the underwriters thereof a "green
shoe" option permitting the purchase from Xcel at the same price additional
shares then being offered solely for the purpose of covering over allotments.
Xcel may also issue common stock in public or privately-negotiated
transactions in exchange for the equity securities or assets of other companies,
provided that the acquisition of any such equity securities or assets has been
authorized in this proceeding or in a separate proceeding or is exempt under the
Act or the rules thereunder.
Long-Term Debt. Xcel proposes to issue long-term debt securities from time
to time during the Authorization Period. Xcel's long-term debt (a) may be
convertible into any other securities of Xcel, (b) will have maturities ranging
from one to 50 years, (c) may be subject to optional and/or mandatory
redemption, in whole or in part, at par or at various premiums above the
principal amount thereof, (d) may be entitled to mandatory or optional sinking
fund provisions, (e) may provide for reset of the interest rate pursuant to a
remarketing arrangement, and (f) may be called from existing investors by a
third party. In addition, Xcel may have the right from time to time to defer the
payment of interest on all or a portion of its long-term debt (which may be
fixed or floating or "multi-modal", i.e., where the interest is periodically
reset, alternating between fixed and floating interest rates for each reset
period). Xcel's long-term debt securities will be issued under an indenture (the
"Indenture") to be entered into between Xcel and a national bank, as trustee
(the "Trustee," including any successor trustee appointed pursuant to the
Indenture), with a supplemental indenture to be executed in respect of each
separate offering of one or more series of such securities (each a "Supplemental
Indenture").
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Xcel contemplates that long-term debt securities would be issued and sold
directly to one or more purchasers in privately-negotiated transactions or to
one or more investment banking or underwriting firms or other entities who would
resell such securities without registration under the 1933 Act in reliance upon
one or more applicable exemptions from registration thereunder, or to the public
either (i) through underwriters selected by negotiation or competitive bidding
or (ii) through selling agents acting either as agent or as principal for resale
to the public either directly or through dealers.
The maturity dates, interest rates, redemption and sinking fund provisions
and conversion features, if any, with respect to the long-term debt securities
of a particular series, as well as any associated placement, underwriting or
selling agent fees, commissions and discounts, if any, will be established by
negotiation or competitive bidding and reflected in the applicable Supplemental
Indenture and Purchase Agreement or underwriting agreement setting forth such
terms; provided, however, that Xcel will not issue and sell any such securities
at interest rates in excess of those generally obtainable at the time of pricing
or repricing thereof for securities having the same or reasonably similar
maturities and having reasonably similar terms, conditions and features issued
by utility companies or utility holding companies of the same or reasonably
comparable credit quality, as determined by the competitive capital markets.
Finally, Xcel undertakes that without further Commission authorization it
will not issue any long-term debt securities that are not at the time of
original issuance rated at least investment grade by a nationally recognized
statistical rating organization.
Securities of Financing Subsidiaries. As described below under "H.
Financing Subsidiaries", Xcel requests authorization for a Financing Subsidiary
to issue preferred securities and/or long-term debt securities the proceeds of
which may be loaned to Xcel or a Subsidiary. The aggregate proceeds received
upon the issuance of such securities by a Financing Subsidiary established by
Xcel will be counted against the $2 billion limitation described above.
(b) Short-Term Debt
The Applicants request authorization for Xcel to have outstanding at any
time during the Authorization Period short-term debt in an aggregate principal
amount of up to $1.5 billion to be used as set forth in the following two
paragraphs. Pursuant to the NCE Financing Order, the Commission has previously
granted NCE authority for debt issuances, including short-term debt and
unsecured debentures, in an aggregate principal amount not to exceed $600
million outstanding at any time. The effective cost of money on short-term debt
authorized in this proceeding will not exceed the competitive market rates
available to companies with comparable credit ratings.
To provide financing for general corporate purposes, including working
capital requirements and capital expenditures, Xcel may sell commercial paper,
from time to time, in established domestic or European commercial paper markets.
Such commercial paper would typically be sold to dealers at the discount rate
per annum prevailing at the date of issuance for commercial paper of comparable
quality and maturities sold to commercial paper dealers generally. It is
expected that the dealers acquiring commercial paper from Xcel will reoffer such
paper at a discount to corporate, institutional and, with respect to European
commercial paper, individual investors. It is anticipated that Xcel's
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commercial paper will be reoffered to investors such as commercial banks,
insurance companies, pension funds, investment trusts, foundations, colleges and
universities, finance companies and nonfinancial corporations.
Xcel proposes to establish back-up bank lines that could be used to make
short-term borrowings that in an aggregate principal amount do not exceed the
authorized amount of short-term debt. Short-term debt under these lines will
have a maturity date not more than one year from the date of each borrowing.
Xcel may engage in other types of short-term financing generally available to
borrowers with investment grade credit ratings as it may deem appropriate in
light of its needs and market conditions at the time of issuance.
(c) Other Securities
In addition to the specific securities for which authorization is sought
herein, Xcel may also find it necessary or desirable in order to minimize
financing costs or to obtain new capital under then existing market conditions
to issue and sell other types of securities from time to time during the
Authorization Period. The Applicants request that the Commission reserve
jurisdiction over the issuance by Xcel of additional types of securities and the
amount thereof. Xcel also undertakes to file a post-effective amendment in this
proceeding which will describe the general terms of each such security and the
amount thereof to be issued and request a supplemental order of the Commission
authorizing the issuance thereof by Xcel.
2. Utility Subsidiary Financing
The Applicants seek authority for Utility Subsidiary financings to the
extent such financings are not exempt pursuant to Rule 52. Rule 52 provides an
exemption from prior authorization requirements of the 1935 Act for most
issuances and sales of securities by the Utility Subsidiaries. However, certain
external financings by the Utility Subsidiaries for which authorization is
requested below are outside the scope of the Rule 52 exemption. The Applicants
request authority to undertake the following external financings by the Utility
Subsidiaries:
(a) Short-Term Financing of Cheyenne and BMG
Cheyenne. All securities of Cheyenne, except for securities with maturities
of less than 12 months, are approved by the Wyoming Public Service Commission
(the "Wyoming Commission"). Accordingly, authority is requested for Cheyenne to
issue short-term debt to one or more associate or non-associate lenders in an
aggregate principal amount of short-term debt to be outstanding at any one time
during the Authorization Period not to exceed $40 million. This level of
short-term financing for Cheyenne is the same as that authorized by the
Commission in the NCE Financing Order.
BMG. All securities of BMG, except for securities with maturities of less
than 12 months, are approved by the Arizona Corporation Commission. Accordingly,
authority is requested for BMG to issue short-term debt to one or more associate
or non-associate lenders in an aggregate principal amount of short-term debt to
be outstanding at any one time during the Authorization Period not to exceed $40
million.
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Each of Cheyenne and BMG may engage in short-term financing as each may
deem appropriate in light of its needs and market conditions at the time of
issuance. Such short-term financing could include, without limitation,
commercial paper sold in established domestic or European commercial paper
markets in a manner similar to Xcel, bank lines, and debt securities issued
under its indentures and note programs. Borrowings under bank lines, and other
borrowings shall have a maturity of not more than one year from the date of each
borrowing.
(b) Other Securities
In addition, the Utility Subsidiaries may find it necessary or desirable to
issue other types of securities during the Authorization Period that are not
exempt from prior Commission approval. The Utility Subsidiaries request that the
Commission reserve jurisdiction over the issuance of such additional types of
securities and the amount thereof except to the extent the same are exempt
pursuant to Rule 52. Each Utility Subsidiary also undertakes to have a
post-effective amendment filed in this proceeding that will describe the general
terms of each such security and the amount thereof of such Utility Subsidiary
and request a supplemental order of the Commission authorizing the issuance
thereof.
3. Non-Utility Subsidiary Financings
The Non-Utility Subsidiaries are engaged in and expect to continue to be
active in the development and expansion of their existing energy-related,
telecommunications-related or otherwise functionally-related, non-utility
businesses in the Xcel system. They will be competing in different sectors of
the energy and other industries. In order to finance investments in such
competitive arenas, it will be necessary for the Non-Utility Subsidiaries to
have the ability to engage in financing transactions which are commonly accepted
for such types of investments. It is believed that, in almost all cases, such
financings will be exempt from prior Commission authorization pursuant to Rule
52(b). The Non-Utility Subsidiaries request that the Commission reserve
jurisdiction over the issuance of any other securities with respect to which the
exemption under Rule 52(b) would not apply. They also undertake to cause a
post-effective amendment to be filed in this proceeding which will describe the
general terms of each such non-exempt security and the amounts thereof and
request a supplemental order of the Commission authorizing the issuance thereof
by the subject Non-Utility Subsidiary.
D. Intra-System Financings and Guarantees
The Applicants request authorization for (i) Xcel to finance certain of the
Subsidiaries and certain of the Subsidiaries to finance other Subsidiaries and
(ii) Xcel and the Subsidiaries to enter into guarantees, obtain letters of
credit, enter into expense agreements or otherwise provide credit support with
respect to the obligations of Subsidiaries as may be appropriate to enable such
Subsidiaries to carry on in the ordinary course of their respective businesses,
in an aggregate principal amount not to exceed $2.5 billion outstanding at any
one time during the Authorization Period. The $2.5 billion excludes any such
financings, guarantees or other credit arrangements that are exempt pursuant to
Rules 45(b) and 52. The Commission, pursuant to the NCE Financing Order, has
previously authorized NCE to engage in intra-system financings in an amount not
to exceed $500 million outstanding at any one time and guarantees and credit
arrangements in an amount not to exceed $800 million at the NCE level and $100
million at the NCE subsidiary level, in each case, exclusive of
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financing that is exempt pursuant to Rules 45(b) and 52. The limits on
guarantees and other credit support obligations described above are not to be
included in the aggregate respective limits applicable to external financings
requested elsewhere herein.
Intra-system financings would generally be in the form of cash capital
contributions, open account advances, inter-company loans, and/or capital stock
purchases. Intra-system financing will provide funds for general corporate
purposes, including working capital requirements, investments and capital
expenditures. Xcel or the lending Subsidiary will determine, at its discretion,
how much financing to give each borrowing Subsidiary as its needs dictate during
the Authorization Period. Generally, Xcel or the lending Subsidiary's loans to,
and purchase of capital stock from, such borrowing Subsidiaries will be exempt
under Rule 52, and capital contributions and open account advances without
interest will be exempt under Rule 45(b).
Loans by Xcel or a Non-Utility Subsidiary to a Non-Utility Subsidiary
generally will have interest rates and maturity dates that are designed to
parallel the lending company's effective cost of capital, in accordance with
Rule 52(b). To the extent that any intra-system loans or extensions of credit
are not exempt under Rule 45(b) or Rule 52, as applicable, the company making
such loan or extending such credit may charge interest at the same effective
rate of interest as the daily weighted average effective rate of commercial
paper, revolving credit and/or other short-term borrowings of such company,
including an allocated share of commitment fees and related expenses. If no such
borrowings are outstanding, then the interest rate shall be predicated on the
Federal Funds' effective rate of interest as quoted daily by the Federal Reserve
Bank of New York. In the limited circumstances where the Non-Utility Subsidiary
effecting the borrowing is not wholly-owned by Xcel, directly or indirectly,
authority is requested under the Act for Xcel or a Non-Utility Subsidiary to
make such loans to such subsidiaries at interest rates and maturities designed
to provide a return to the lending company of not less than its effective cost
of capital. If such loans are made to a Non-Utility Subsidiary, such Non-Utility
Subsidiary will not provide any services to any associate Non-Utility Subsidiary
except a company which meets one of the conditions for rendering of services on
a basis other than "at cost", as described in the Merger Application. In the
event any such loans are made, Xcel will include in the next certificate filed
pursuant to Rule 24 substantially the same information as that required on Form
U-6B-2 with respect to such transaction. In addition, the principal amount of
any such loans will be included in the $2.5 billion aggregate authorization
requested herein for intra-system financings. See Entergy Corp., Holding Co. Act
Release No. 27039 (June 22, 1999).
With respect to guarantees, it is expected that Xcel will charge each
Subsidiary a fee for each guarantee provided on behalf of such Subsidiary that
is determined by multiplying the amount of any such guarantee by Xcel by the
cost of obtaining the liquidity necessary to perform the guarantee (for example,
bank line commitment fees or letter of credit fees) for the period of time the
guarantee remains outstanding. Subsidiaries may also charge each Subsidiary a
fee for each guarantee provided on its behalf determined in the same manner as
specified above.
The Subsidiaries may issue and Xcel or other Subsidiaries may acquire other
types of securities which do not qualify for use of Rule 52 but which are
considered appropriate during the Authorization Period. Xcel and the
Subsidiaries request that the Commission reserve jurisdiction over the issuance
of such additional types of securities and the amounts thereof. They also
undertake
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to cause a post-effective amendment to be filed in this proceeding which will
describe the general terms of each such security and the amounts thereof and
request a supplemental order of the Commission authorizing the issuance thereof
by the subject Subsidiary.
E. Employee Benefit Plans and Dividend Reinvestment Plan
The Applicants request authorization during the Authorization Period for
Xcel to issue and/or acquire up to 30 million shares of Xcel common stock under
employee benefit plans and the dividend reinvestment plan described below. Xcel
may also buy back shares of common stock or such options during the
Authorization Period in accordance with Rule 42. Pursuant to the NCE Financing
Order, the Commission authorized NCE to issue up to 30 million shares of its
common stock pursuant to its employee benefit plans and dividend reinvestment
plans.
1. Benefit Plans
The number of shares of Xcel common stock to be issued and sold under
benefit plans pursuant to the authority requested herein shall be subject to the
limitation set forth above relating to benefit plans and the dividend
reinvestment plan.
NSP maintains for it and its Subsidiaries the NSP Employee Stock Ownership
Plan (the "ESOP"). NSP makes discretionary contributions in cash or stock based
on the estimated tax savings derived from using employees' dividends to repay
loans taken out by the plan to acquire NSP stock. These contributions may be
reduced at NSP's option to reflect ESOP-related costs and any past contributions
that failed to produce a tax savings. Non-exempt employees who are not "highly
compensated employees" can make after-tax contributions to the ESOP. It is
expected that Xcel will continue the ESOP following the Merger.
NSP also maintains a Stock Equivalent Plan for the non-employee directors
of NSP. Under the Stock Equivalent Plan, directors may receive an annual award
of stock equivalent units with each having a value equal to one share of NSP
common stock. Directors also are permitted to defer their retainer and meeting
fees and have them invested in stock equivalent units. Amounts held under the
plan are paid in shares of NSP common stock upon a director's termination of
service. It is expected that Xcel will maintain the Stock Equivalent Plan
following the Merger.
In addition, NSP maintains for its officers and key employees the Amended
Long-Term Incentive Plan.16 The Plan permits the granting of non-qualified stock
options, incentive stock options, restricted common stock, stock appreciation
rights and performance awards to participants. To date, awards have consisted of
non-qualified stock options and restricted stock. It is also expected that Xcel
will continue the Amended Long-Term Incentive Plan following the Merger.
NCE currently maintains for its and its subsidiaries' employees three
different benefit plans which provide for the issuance and/or sale of common
stock. Upon the effectiveness of the Merger, all shares held under these plans
will be converted into Xcel common stock at the Conversion Ratio and each of
these plans will be amended to provide for the issuance only of Xcel common
stock.
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16 A detailed description of the Amended Long-Term Incentive Plan is contained
in NSP's Proxy Statement on Form 14A, dated March 20, 1998, File No.
1-3034.
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In addition, NCE has adopted the New Century Energies, Inc. Omnibus
Incentive Plan, which authorizes grants of common stock, stock options and other
stock-based awards to eligible executives and other key employees, and the
Outside Directors' Compensation Plan, under which non-employee directors may
elect to receive director compensation in the form of common stock.17 Upon
completion of the Merger, all outstanding shares of NCE common stock under this
plan will be converted into shares of Xcel common stock at the Conversion Ratio
and each outstanding option issued under the plan to acquire NCE common stock
shall entitle the holder to purchase the number of Xcel shares of common stock
that is equal to the product of (i) the number of NCE shares subject to such
option immediately prior to the effective time of the Merger and (ii) the
Conversion Ratio; and the exercise price per share of Xcel common stock subject
to such option shall be equal to (i) the exercise price per NCE share
immediately prior to the effective time of the Merger divided by (ii) the
Conversion Ratio. Following the Merger, it is not expected that any new awards
will be made under the NCE Omnibus Incentive Plan and that such plan will be
replaced by the current Amended Long-Term Incentive Plan.
Xcel may adopt one or more other plans which will provide for the issuance
and/or sale of Xcel common stock, stock options and stock awards to a group
which has not yet been determined but may include directors, officers and
employees. Xcel may issue shares of its common stock under the authorization,
and within the limitations, set forth herein in order to satisfy its obligations
under such plans.
Shares of common stock for use under the stock plans may either be newly
issued shares, treasury shares or shares purchased in the open market. Xcel will
make open-market purchases of common stock in accordance with the terms of or in
connection with the operation of the plans pursuant to Rule 42. Xcel may also
acquire treasury shares through other open-market purchases. Xcel also proposes
to issue and/or sell shares of common stock pursuant to these existing stock
plans and similar plans or plan funding arrangements hereafter adopted, and to
engage in other sales of its treasury shares for general business purposes,
without any additional prior Commission order. Stock transactions of this
variety would thus be treated the same as other stock transactions permitted
pursuant to this Application.
2. Dividend Reinvestment Plan
Upon consummation of the Merger, the NSP Dividend Reinvestment and Stock
Purchase Plan (the "Dividend Reinvestment Plan") will remain in place and will
include participants in the NCE Dividend Reinvestment and Cash Payment Plan. The
Dividend Reinvestment Plan will enable participants to reinvest their dividends
to acquire shares of Xcel common stock and to make optional cash payments for
such purpose.
The number of shares of Xcel common stock to be issued and sold under the
Dividend Reinvestment Plan pursuant to the authority requested herein shall be
subject to the limitation set forth above relating to benefit plans and the
dividend reinvestment plan. Shares of common stock
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17 A detailed description of the Omnibus Incentive Plan and Outside Directors'
Compensation Plan is contained in NCE's Proxy Statement on Form 14A dated
March 30, 1998, File No. 1-12927.
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for use under the Dividend Reinvestment Plan may either be newly issued shares,
treasury shares or shares purchased in the open market.
F. Hedge Transactions
1. Interest Rate Hedging Program
The Applicants request authorization for Xcel and, to the extent not exempt
pursuant to Rule 52, the Subsidiaries, to enter into interest rate hedging
transactions with respect to existing indebtedness ("Interest Rate Hedges"),
subject to certain limitations and restrictions, in order to reduce or manage
interest rate cost. The Commission has previously approved the use of Interest
Rate Hedges by NCE pursuant to the NCE Financing Order.
Interest Rate Hedges will involve the use of financial instruments commonly
used in today's capital markets, such as interest rate swaps, caps, collars,
floors, and structured notes (i.e., a debt instrument in which the principal
and/or interest payments are indirectly linked to the value of an underlying
asset or index), or transactions involving the purchase or sale, including short
sales, of U.S. Treasury Securities. The transactions would be for fixed periods
and stated notional amounts. Fees, commission and other amounts payable to the
counterparty or exchange (excluding, however, the swap or option payments) in
connection with an Interest Rate Hedge will not exceed those generally
obtainable in competitive markets for parties of comparable credit quality.
Interest Rate Hedges would only be entered into with counterparties ("Approved
Counterparties") whose senior debt ratings, or the senior debt ratings of the
parent companies of the counterparties, as published by Standard and Poor's
Ratings Group, are equal to or greater than BBB, or an equivalent rating from
Moody's Investors Service, Fitch Investor Service or Duff and Phelps.
2. Anticipatory Hedges
In addition, the Applicants request authorization to enter into interest
rate hedging transactions with respect to anticipated debt offerings (the
"Anticipatory Hedges"), subject to certain limitations and restrictions. The
Commission has previously approved the use of Anticipatory Hedges by NCE
pursuant to the NCE Financing Order.
Anticipatory Hedges would only be entered into with Approved
Counterparties, and would be utilized to fix and/or limit the interest rate risk
associated with any new issuance through (i) a forward sale (a "Forward Sale")
on, (ii) the purchase of put options (a "Put Options Purchase") on, (iii) a Put
Options Purchase in combination with the sale of call options (a "Zero Cost
Collar") on, (iv) transactions involving the purchase or sale, including short
sales, on or (v) some combination of a Forward Sale, Put Options Purchase, Zero
Cost Collar and/or other derivative or cash transactions, including, but not
limited to structured notes, caps and collars, appropriate for the Anticipatory
Hedges on, exchange-traded U.S. Treasury futures contracts, U.S. Treasury
securities, and/or any obligation of a U.S. government sponsored agency or
instrumentality.
Anticipatory Hedges may be executed on-exchange ("On-Exchange Trades") with
brokers through the opening of futures and/or options positions traded on the
Chicago Board of Trade ("CBOT"), the opening of over-the-counter positions with
one or more counterparties ("Off-Exchange Trades"), or a combination of
On-Exchange Trades and Off-Exchange Trades. Xcel or
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a Subsidiary will determine the optimal structure of each Anticipatory Hedge
transaction at the time of execution. Xcel or a Subsidiary may decide to lock in
interest rates and/or limit its exposure to interest rate increases. All open
positions under Anticipatory Hedges will be closed on or prior to the date of
the new issuance and neither Xcel nor any Subsidiary will, at any time, take
possession or make delivery of the underlying U.S. Treasury Securities.
The Applicants will comply with the then existing accounting and financial
disclosure requirements of the Financial Accounting Standards Board associated
with hedging transactions.
G. Existing Financing Arrangements
NCE and NSP each have existing financing arrangements that were or will be
entered into prior to the Merger. They request authorization to extend such
arrangements as discussed below.
1. NCE
(a) Financings Entered into in Accordance with the NCE Financing Order
As discussed previously, the Commission in the NCE Financing Order
authorized NCE and its subsidiaries to engage in various financing transactions,
including intra-system arrangements, for an authorization period extending
through December 31, 2001. The NCE system has acted pursuant to that authority.
With respect to existing financing obligations by NCE itself, NCE will to the
extent possible transfer such obligations to Xcel, and will count such
obligations against the applicable authorization limits requested herein as
though Xcel itself had entered into such arrangements. With respect to the
existing financing obligations and arrangements that NCE's subsidiaries have
entered into in accordance with the NCE Financing Order which they are able to
retain post-Merger, such obligations and arrangements will be counted against
the applicable authorization limits requested herein. Xcel will identify all
such obligations and arrangements in its first Rule 24 certificate that it will
file post-Merger.
(b) NC Enterprises Note to SPS Relating to UE and Quixx
In the NCE Merger Order, the Commission approved the formation of NC
Enterprises and its acquisition of the securities of certain of PSCo's and all
of SPS's non-utility subsidiaries. With respect to the SPS direct subsidiaries,
UE and Quixx, the Commission authorized their transfer through the sale by SPS
of all of their outstanding common stock to NC Enterprises in exchange for a
note for $119.1 million issued by NC Enterprises having a thirty-year maturity
(the "SPS Note").18
Applicants request authorization to transfer NC Enterprises' obligation
under the SPS Note to a different entity within the Xcel system. As set out in
the Merger Application, NC Enterprises is expected to be replaced by a series of
intermediate holding companies in the Xcel corporate structure. Applicants'
intent is to group the Non-Utility Subsidiaries engaging in related activities
under new intermediate holding companies, as opposed to under a single
intermediate holding company such as NC Enterprises. In anticipation of that
eventuality, Applicants request authorization
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18 PSCo in contrast dividended the stock of the subsidiaries it transferred to
NCE, which in turn made a capital contribution of the stock to NC
Enterprises.
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to transfer NC Enterprises' obligation under the SPS Note to Xcel Wholesale
Energy Group. Because the SPS Note has been specifically approved by the
Commission, the outstanding balance under the SPS Note will not be counted
towards the intra-system authorization limits requested herein.
(c) NC Enterprises Note to PSCo Relating to NCI
In File No. 70-9193, the Commission authorized PSCo to transfer NCI, which
was previously a wholly-owned subsidiary of PSCo, to NC Enterprises in exchange
for a note issued by NC Enterprises in the amount of $292.6 million (the "PSCo
Note"). New Century Energies, Inc., Holding Company Act Release No. 26871 (May
14, 1998). Although the PSCo Note has a twenty-year maturity, it was initially
anticipated that NC Enterprises would prepay the PSCo Note by year-end 1999 with
funds obtained through capital contributions from NCE. The applicants in File
No. 70-9193 committed that in the event that the PSCo Note was not prepaid on
this schedule, they would notify the Commission of the new payment plan through
the filing of a post-effective amendment.19
For a variety of reasons, the decision was made not to prepay the PSCo Note
in its entirety on the originally contemplated timetable, although NC
Enterprises has prepaid approximately one-third of the balance, reducing the
principal balance to $192.6 million. Xcel International Group intends to prepay
the PSCo Note by December 31, 2004 through internally generated funds, its own
financings or through capital contributions from Xcel. Applicants commit to
notify the Commission through a post-effective amendment if this plan changes.
Xcel may use the proceeds from the financings authorized herein to make capital
contributions to enable the prepayment of the PSCo Note by December 31, 2004.
Applicants further request authority to transfer NC Enterprises'
obligations under the note to a different entity in the Xcel system for the same
reason specified above with respect to the SPS
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19 Applicants are using this Application as the means to inform the Commission
of the new payment plan for the PSCo Note in lieu of the filing of a
post-effective amendment in File No. 70-9193.
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Note. Under the present proposed structure for Xcel, Xcel International Group
will be the intermediate holding company parent of NCI. Because the PSCo Note,
like the SPS Note, has been specifically authorized by the Commission, the
outstanding balance under the PSCo Note will not be counted towards the
intra-system authorization limits requested herein.
2. NSP
The existing non-exempt financing arrangements of the NSP Subsidiaries are
set forth on Annex I attached hereto. Also, it is possible that, prior to
completion of the Merger, NSP will make additional equity investments in and/or
provide additional guarantees or other credit support for or on behalf of the
Non-Utility Subsidiaries of NSP. Prior to completion of the Merger, none of such
additional equity investments and/or additional guarantees or other credit
support will require Commission approval under the 1935 Act.
The Applicants request Commission authorization to maintain in place
through the Authorization Period the existing financing arrangements, and any
other guarantees and other credit arrangements entered into by NSP and its
subsidiaries prior to completion of the Merger and which remain in effect on the
date the Merger is completed. All intra-company financings, and guarantees or
other credit support arrangements with respect to obligations of the
Subsidiaries will be included in the aggregate limits set forth above at "D.
Intra-System Financings".
Xcel will notify the Commission of all equity investments in, and
guarantees or other credit support for or on behalf of, any of its Subsidiaries
made or provided prior to the Merger and which will remain in effect upon
closing of the Merger in its first Rule 24 certificate that it will file
post-Merger.
3. Xcel
NSP has entered into an Indenture dated as of January 30, 1997, as
supplemented (the "NSP Indenture"), between NSP and Norwest Bank Minnesota,
National Association, pursuant to which NSP has issued $206,190,000 aggregate
principal amount of Junior Subordinated Debentures to NSP Financing I which has
in turn issued $200,000,000 aggregate liquidation amount of Trust Originated
Preferred Securities to investors. Proceeds of the issuance of the Trust
Originated Preferred Securities by NSP Financing I were used solely to acquire
the Junior Subordinated Debentures. Payments by NSP on account of the Junior
Subordinated Debentures are used by NSP Financing I to make payments on account
of the Trust Originated Preferred Securities. Amounts in respect of the Trust
Originated Preferred Securities are guaranteed by NSP pursuant to a Preferred
Securities Guarantee Agreement dated as of January 31, 1997 between NSP and
Wilmington Trust Company, as guarantee trustee. Upon consummation of the Merger,
the obligations under the Junior Subordinated Debentures will be assigned to New
NSP, but Xcel will not be released from its liability thereon. Xcel requests
Commission authorization to maintain in effect the above-described financing
arrangement and to not include such obligations under the $2.0 billion
investment limitation described above under "C. Description of External
Financing Program".
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H. Financing Subsidiaries
The Applicants request authority for Xcel and its Subsidiaries to acquire,
directly or indirectly, the equity securities of one or more corporations,
trusts, partnerships or other entities ("Financing Subsidiaries") created
specifically for the purpose of facilitating the financing of the authorized and
exempt activities (including exempt and authorized acquisitions) of Xcel and the
Subsidiaries through the issuance of debt or preferred securities, including but
not limited to monthly income preferred securities, to third parties and the
loaning of the proceeds of such financings to Xcel or such Subsidiaries. The
proceeds of any securities issuance by a Financing Subsidiary would be loaned,
dividended or otherwise transferred to Xcel or the Subsidiary that established
such Financing Subsidiary or to such other entity that they may designate. The
proceeds of any securities issuances by a Financing Subsidiary would count
against any applicable authorization limit of Xcel or a Subsidiary establishing
such Financing Subsidiary as though Xcel or the Subsidiary had undertaken the
issuance directly. Xcel or a Subsidiary may, if required, guarantee all or part
of the obligations of any Financing Subsidiary under any securities issued by
the Financing Subsidiary. Xcel or a Subsidiary also may enter into expense
arrangements in respect of the obligations of any such Financing Subsidiary.
However, the amount of any such guarantee by Xcel or a Subsidiary would not be
counted against the authorization limit proposed in "D. Intra-System Financings
and Guarantees" above. The request for authorization to establish Financing
Subsidiaries is consistent with the authorization granted in the NCE Financing
Order. In the NCE Financing Order, the Commission reserved jurisdiction in
respect of NCE's request to establish Financing Subsidiaries directly. However,
in The Southern Company, Holding Company Act Release No. 35-27134, the
Commission, after careful consideration, granted authorization for a similar
transaction.
Any such long-term debt or preferred securities would be issued with terms
and features negotiated or based upon, or otherwise determined by, competitive
capital markets, and in any event consistent with the general terms set forth
above for Xcel. Any such preferred securities would have dividend rates or
methods of determining the same, redemption provisions, conversion or put terms
and other terms and conditions as Xcel may determine at the time of issuance. In
addition, all issuances of preferred securities will be at rates or prices, and
under conditions negotiated pursuant to, based upon, or otherwise determined by
competitive capital markets.
I. Intermediate Subsidiaries and Reorganization Authority
Xcel and its Non-Utility Subsidiaries propose to acquire the securities of
one or more Intermediate Subsidiaries, which would be organized exclusively for
the purpose of acquiring, holding and/or financing the acquisition of the
securities of or other interest in one or more EWGs or FUCOs, Rule 58
Subsidiaries, ETCs or other non-exempt Non-Utility Subsidiaries, provided that
Intermediate Subsidiaries may also engage in development activities and
administrative activities relating to such subsidiaries. To the extent such
transactions are not exempt from the 1935 Act or otherwise authorized or
permitted by rule, regulation or order of the Commission issued thereunder, the
Applicants request authority for Intermediate Subsidiaries to provide
management, administrative, project development and operating services to such
entities, subject to the limitations described in the Merger Application. This
requested authorization is consistent with the authorization granted to NCE in
the NCE Financing Order.
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There are several legal and business reasons for the use of special-purpose
subsidiaries such as the Intermediate Subsidiaries in connection with making
investments in EWGs and FUCOs, Rule 58 Subsidiaries, ETCs and other non-exempt
Non-Utility Subsidiaries. For example, the formation and acquisition of
special-purpose subsidiaries is often necessary or desirable to facilitate
financing the acquisition and ownership of a FUCO, an EWG or another non-utility
enterprise. Furthermore, the laws of some foreign countries may require that the
bidder in a privatization program be organized in that country. In such cases,
it would be necessary for Xcel, either directly or indirectly through
Non-Utility Subsidiaries, to form a foreign subsidiary as the entity (or
participant in the entity) that submits the bid or other proposal. In addition,
the interposition of one or more Intermediate Subsidiaries may allow Xcel to
defer the repatriation of foreign source income, or to take full advantage of
favorable tax treaties among foreign countries, or otherwise to secure favorable
U.S. income tax treatment that would not otherwise be available. Intermediate
Subsidiaries would also serve to isolate business risks, facilitate subsequent
adjustments to, or sales of, ownership interests by or among the members of the
ownership group, or to raise debt or equity capital in domestic or foreign
markets.
An Intermediate Subsidiary may be organized, among other things, (1) in
order to facilitate the making of bids or proposals to develop or acquire an
interest in any EWG or FUCO, Rule 58 Subsidiary, ETC or other non-exempt
Non-Utility Subsidiary; (2) after the award of such a bid proposal, in order to
facilitate closing on the purchase or financing of such acquired company; (3) at
any time subsequent to the consummation of an acquisition of an interest in any
such company in order, among other things, to effect an adjustment in the
respective ownership interests in such business held by Xcel, either directly or
indirectly, and by non-affiliated investors; (4) to facilitate the sale of
ownership interests in one or more acquired non-utility companies; (5) to comply
with applicable laws of foreign jurisdictions limiting or otherwise relating to
the ownership of domestic companies by foreign nationals; (6) as a part of tax
planning in order to limit Xcel's exposure to U.S. and foreign taxes; (7) to
further insulate Xcel and the Utility Subsidiaries from operational or other
business risks that may be associated with investments in non-utility companies;
or (8) for other lawful business purposes.
Investments in Intermediate Subsidiaries may take the form of any
combination of the following: (1) purchases of capital shares, partnership
interests, member interests in limited liability companies, trust certificates
or other forms of equity interests; (2) capital contributions; (3) open account
advances with or without interest; (4) loans; and (5) guarantees issued,
provided or arranged in respect of the securities or other obligations of any
Intermediate Subsidiaries. Funds for any direct or indirect investment by Xcel
in any Intermediate Subsidiary will be derived from (1) financings authorized in
this proceeding; (2) any appropriate future debt or equity securities issuance
authorization obtained by Xcel from the Commission; and (3) other available cash
resources, including proceeds of securities sales by a Non-Utility Subsidiary
pursuant to Rule 52. To the extent that Xcel provides funds or guarantees
directly or indirectly to an Intermediate Subsidiary which are used for the
purpose of making an investment in any EWG or FUCO or a Rule 58 Subsidiary, the
amount of such funds or guarantees will be included in Xcel's "aggregate
investment" in such entities, as calculated in accordance with Rule 53 or Rule
58, as applicable.
Relatedly, Xcel seeks a general grant of authority to restructure its
non-utility interests from time to time, without the need to apply for or
receive prior Commission approval, on the condition
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that the reorganization will not result in the entry by the Subsidiaries into
new lines of business that have not previously been authorized by the Commission
or that are not permissible on an exempt basis under the Act or Commission rule.
Such restructurings may involve the creation of new, or the elimination of
existing, Intermediate Subsidiaries, the consolidation of Non-Utility
Subsidiaries engaged in similar businesses, the spin-off of a portion of an
existing business of a Non-Utility Subsidiary to another Non-Utility Subsidiary,
the re-incorporation of an existing Non-Utility Subsidiary in a different state,
the transfer of authority from one Non-Utility Subsidiary to another or other
similar type arrangements. NCE had not requested similar authorization in its
prior financing application (File No. 70-9397). However, the requested
authorization would provide Xcel with the flexibility to permit any necessary or
appropriate restructuring in connection with the Merger or post-Merger to
reflect actual operating experience. Applicants also believe that such authority
will relieve burden on the Commission, since without such authority Applicants
may have to obtain Commission authorization for routine reorganizations. The
requested authorization is consistent with the authorization granted to other
applicants in recent Commission orders. See Columbia Energy Group, Holding
Company Act Release No. 27099 (November 5, 1999).
To effect any such consolidation or other reorganization, Xcel may
contribute to such new Intermediate Subsidiary all of the outstanding stock of
other Intermediate Subsidiaries and/or Non-Utility Subsidiaries. To the extent
such transactions are not exempt from the Act or otherwise authorized or
permitted by rule, regulation or order of the Commission issued hereunder, Xcel
requests any requisite authorization under the Act to accomplish such
reorganizations from time to time.
In addition, as needed to accommodate such proposed transactions and to
provide for future issues, request is made for authority to change the terms of
any such wholly-owned Non-Utility Subsidiary's authorized capital stock
capitalization as deemed appropriate by Xcel or other immediate parent company
in the instant case. The portion of an individual Non-Utility Subsidiary's
aggregate financing to be effected through the sale of stock to Xcel or other
intermediate parent company during the Authorization Period pursuant to Rule 52
and/or pursuant to an order issued pursuant to this filing cannot be ascertained
at this time. It may happen that the proposed sale of capital stock may in some
cases exceed the then authorized capital stock of such Non-Utility Subsidiary.
In addition, the Non-Utility Subsidiary may choose to use capital stock with no
par value or a different par value. Also, a wholly-owned Non-Utility Subsidiary
may wish to engage in a reverse stock split to reduce franchise or other taxes.
J. Payment of Dividends Out of Capital and Unearned Surplus
Xcel also proposes, on behalf of the direct and indirect Non-Utility
Subsidiaries, that such companies be permitted to pay dividends with respect to
the securities of such companies, from time to time through the Authorization
Period, out of capital and unearned surplus (including revaluation reserve), to
the extent permitted under applicable corporate law.
Xcel anticipates that there will be situations in which one or more of its
direct or indirect Subsidiaries will have unrestricted cash available for
distribution in excess of any such company's current and retained earnings. In
such situations, the declaration and payment of a dividend would have to be
charged, in whole or in part, to capital or unearned surplus. As an example, if
an
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Intermediate Subsidiary purchases all of the stock of an EWG or FUCO, and
following such acquisition, the EWG or FUCO incurs non-recourse borrowings some
or all of the proceeds of which are distributed to such Intermediate Subsidiary
as a reduction in the amount invested in the EWG or FUCO (i.e., return of
capital), the Intermediate Subsidiary (assuming it has no earnings) could not,
without the Commission's approval, in turn distribute such cash to its parent
for possible distribution to Xcel.20
Similarly, using the same example, if an Intermediate Subsidiary, following
its acquisition of all of the stock of an EWG or FUCO, were to sell part of that
stock to a third party for cash, the Intermediate Subsidiary would again have
substantial unrestricted cash available for distribution, but (assuming no
profit on the sale of the stock) would not have current earnings and therefore
could not, without the Commission's approval, declare and pay a dividend to its
parent out of such cash proceeds.
Further, there may be periods during which unrestricted cash available for
distribution by a first-tier Non-Utility Subsidiary of Xcel or a direct or
indirect Subsidiary exceeds current and retained earnings due to the difference
between accelerated depreciation allowed for tax purposes, which may generate
significant amounts of distributable cash, and depreciation methods required to
be used in determining book income.
Finally, even under circumstances in which an Intermediate Subsidiary or
other downstream Subsidiary has sufficient earnings, and therefore may declare
and pay a dividend to its immediate parent, such immediate parent may have
negative retained earnings, even after receipt of the dividend, due to losses
from other operations. In this instance, cash would be trapped at a Subsidiary
level where there is no current need for it.
Xcel, on behalf of each of its current and future direct and indirect
Subsidiaries, represents that it will not declare or pay any dividend out of
capital or unearned surplus in contravention of any law restricting the payment
of dividends. In this regard, it should be noted that all U.S. jurisdictions
limit to one extent or another the authority of corporations to make dividend
distributions to shareholders. Most state corporations statutes contain either
or both an equity insolvency test or some type of balance sheet test. Xcel also
states that its Subsidiaries will comply with the terms of any credit agreements
and indentures that restrict the amount and timing of distributions to
shareholders.
K. Financing of EWGs and FUCOs
Upon consummation of the Merger, Xcel will own indirect interests in EWGs
and FUCOs. Assuming the Merger were effective as of December 31, 1999, aggregate
investment in these entities would total approximately $0.9 billion or 41.9% of
Xcel's consolidated retained earnings, as defined in Rule 53. This percentage
does not include commitments associated with various pending transactions by
NRG, which are described in Annex II hereto, and which are subject to various
closing conditions. If such projects were included, the percentage would be at
or above 60%.
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20 The same problem would arise where an Intermediate Subsidiary is
over-capitalized in anticipation of a bid which is ultimately unsuccessful.
In such a case, Xcel would normally desire a return of some or all of the
funds invested.
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Sections 32 and 33 of the 1935 Act permit a registered holding company to
acquire and maintain interests in one or more EWGs or FUCOs without the need to
apply for or receive approval from the Commission. To the extent that funds for
one or more projects are required in excess of internally generated funds, Xcel
hereby requests Commission authorization to invest proceeds from the financings
authorized hereby in EWGs and FUCOs and to guarantee the obligations of an EWG
or FUCO in compliance with Rule 53(a)(1) such that Xcel's aggregate investment
at any one time during the period covered by this Application, including any
such guarantees of an EWG or FUCO at that time outstanding, will not exceed 100%
of its "consolidated retained earnings," as defined in Rule 53(a)(1)(ii).
As set forth more fully herein, Xcel will establish that the proposed
increase in financing authority for investments in EWGs and FUCOs: (1) will not
have a substantial adverse impact upon the financial integrity of the Xcel
system, and (2) will not have an adverse impact on any utility subsidiary of
Xcel, or its customers, or on the ability of the state commissions to protect
such subsidiary or customers.
Xcel also undertakes not to seek recovery through higher rates to customers
of Utility Subsidiaries to compensate it for any losses or inadequate returns it
may sustain from the proposed investments.
1. Nature of Request and Prior Investments
(a) Request
Recently, the Commission issued the NCE 100% Order in which it authorized
NCE, notwithstanding the 50% safe harbor contained in Rule 53(a)(1), to use the
proceeds of financing transactions, in an amount equal to 100% of the system's
consolidated retained earnings as determined in accordance with Rule
53(a)(1)(ii) under the Act, for investments in EWGs and FUCOs for which there is
recourse, directly or indirectly, to NCE. NCE, as part of its
Application/Declaration on Form U-1, Docket No. 70-9341, requesting such order
(the "NCE 100% Application"), obtained certifications under Section 33(a)(2) of
the Act from each state utility commission having jurisdiction over the retail
electric or gas rates of its three public-utility subsidiaries (i.e., PSCo, SPS
and Cheyenne). NSP, in connection with its prior and future investments in
certain FUCOs, obtained certification in 1996 and 1998 under Section 33(a)(2) of
the Act from each state utility commission then regulating its electric or gas
rates and from each state utility commission regulating the electric or gas
rates of NSP-W, its only public-utility company subsidiary. Copies of the
certifications obtained by NSP from the state commissions are attached hereto as
Exhibits D-1 through D-10.
Under the Merger Agreement and as noted previously, NCE will merge with and
into NSP and NSP will change its name to Xcel. This corporate structure was
chosen for various regulatory and other reasons, even though the former NCE
shareholders upon effectiveness of the Merger will own more than 50% of the
outstanding common stock of Xcel. As a result, with NCE ceasing to exist,
Applicants do not believe that Xcel can rely on the NCE 100% Order without
Commission authorization. It is for this reason that Applicants request that the
Commission authorize Xcel to use
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the net proceeds of current and subsequently authorized financings, to invest in
and to enter into guarantee arrangements, and to provide other forms of credit
support for investments in EWGs and FUCOs, subject to the requirement that
Xcel's "aggregate investment" in EWGs and FUCOs not exceed an amount equal to
100% of Xcel's "consolidated retained earnings," as those terms are defined in
Rule 53. This financing and investment authority will provide Xcel the
flexibility necessary to respond in a timely fashion to possible investments.
Certainty of execution is often important in negotiating for an investment. In
addition, lead-time for investments varies greatly. Sometimes the process of
evaluating and developing projects takes many months or years; other times there
may be only a few weeks from the date a company learns of an investment
opportunity to the time the deal is completed. Furthermore, confidentiality
concerns often exist that make it more difficult to seek Commission approval.
With respect to its request for EWG and FUCO financing authority, as
demonstrated herein, Xcel satisfies the standards that have been established in
earlier decisions, including the NCE 100% Order. See American Electric Power
Company, Holding Co. Act Release No. 26864 (April 27, 1998); Cinergy Corp.,
Holding Co. Act Release No. 26848 (March 23, 1998); GPU, Inc., Holding Co. Act
Release No. 26779 (Nov. 17, 1997); Central and South West Corp., Holding Co. Act
Release No. 26653 (Jan. 24. 1997); Southern Company, Holding Co. Act Release No.
26501 (April 1, 1996).
(b) Prior Investments
As described in the NCE 100% Application, NCE has various investments in
FUCOs and EWGs. NC Enterprises, Inc. ("NC Enterprises") is an intermediate
holding company formed by NCE to hold the non-regulated subsidiaries within the
NCE system, including New Century International, Inc. ("NCI") and Quixx
Corporation ("Quixx"). NCI owns all of NCE's investments in FUCOs and certain
EWGs, while Quixx holds other investments by NCE in EWGs. The significant
existing investments of NCI and Quixx in FUCOs and EWGs have previously been
described to the Commission21. As of December 31, 1999, NCE's aggregate
investment in FUCOs and EWGs under Section 32 at the Act represented 48% of
NCE's consolidated retained earnings.
All of NSP's investments in EWGs and FUCOs are held under NRG, a first-tier
wholly-owned subsidiary of NSP. The significant investments by NRG in FUCOs and
EWGs are described in Annex II hereto and all investments by NRG in FUCOs and
EWGs are summarily described in Appendix D to the Merger Application. NSP has
not directly or indirectly guaranteed any of the investments by NRG in FUCOs or
EWGs. All investments by NRG in FUCOs and EWGs have been funded through capital
contributions by NSP to NRG, financings at the NRG level without recourse to
NSP, and financings at the project level without recourse to NRG or NSP. As of
December 31, 1999, NSP's aggregate investments in FUCOs and EWGs under Section
32 of the Act represented 38% of NSP's consolidated retained earnings.
2. Capital Allocation And Review Process
Investment in EWGs and other independent power production facilities,
particularly foreign projects and FUCOs, involve a variety of risks that
historically have not been present in the
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21 See NCE's application on Form U-1 in File No. 9341 and NCE's Report on Form
U5S for 1998.
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traditional, regulated, electric utility industry in the United States. NCE,
through NCI and Quixx, and NSP through NRG have been successfully engaged for
numerous years in owning and operating EWGs and FUCOs. The process utilized by
NCE in making investments in such projects was described in detail in the NCE
100% Application. The process utilized by NSP and NRG in the past is comparable.
In particular, NSP established various investment restrictions guidelines to be
utilized in evaluating a potential investment in an EWG or FUCO. These
guidelines require that the project must demonstrate: (i) consistency with NSP's
overall generation strategy, (ii) existence of quality customers, (iii)
availability of quality partners, particularly local partners, (iv) ability to
produce electricity at a low cost, (v) ability of NRG to own between 25% to 50%
of the project and have operating control, (vi) expected earnings above a
specified level, and (vii) compliance with minimum risk requirements and risk
tolerance guidelines. The risk tolerance guidelines were adopted in 1994 and
1995. Factors include equity size, Euromoney risk factor and a country
correlation coefficient. The Euromarket risk factor includes an assessment of a
country's economic performance, political climate and creditworthiness, with no
investments in countries with Euromoney risk factor of less than 50 unless
strong mitigating circumstances are present.
Following completion of the Merger, Applicants expect that the procedures
utilized in investing in EWGs and FUCOs will be a composite of the best prior
practices of NCE and NSP. At a minimum, these practices are expected to include
the following.
(a) The Project Review Process
Every potential project opportunity will be subjected to a series of formal
reviews to ensure the project's soundness. The process will begin with a
consideration of the strategic plans of Xcel generally and, in particular, of
the Xcel Wholesale Energy Group (together, the "Group") and the Xcel
International Group, which will be updated periodically. Any project that is
considered must be consistent with these strategic plans. The review will also
serve a screening function; many projects will be rejected for each one that
proceeds.
Before any company in the Group makes any investment in a project, an
analysis of that opportunity, including the specific country risk, where
applicable, will be subjected to a series of independent internal and external
reviews, both at the subsidiary level and Xcel parent level.
For all projects, the analysis will include consideration of business,
financial, regulatory, environmental and legal risks. Foreign projects will be
subject to an additional level of scrutiny concerning the political and economic
stability of the particular country, the government's commitment to private
power, the availability of quality local partners, the legal and regulatory
framework for private investment in utility facilities, the local business
support for long-term investment of private capital, the economic viability of
the project, the technology and fuel supply, the environmental impact, the
financial controls on currency conversion and repatriation and the potential for
future partial sales of the investment interest to other investors. Before any
company in the Group can invest in a foreign country, the Board of Directors
will approve that country for investments by the Group.
Once a preliminary decision is made to move forward with a given project,
project teams will be required to identify the major technical, financial,
commercial and legal risks associated with their
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particular projects and whether and how those risks have been mitigated. The
members of the project team will be responsible for the due diligence
investigation of those risks that have been identified and must present their
findings to an officer of Xcel or the relevant subsidiary with functional
oversight of the relevant risk factor subject matter.
Each project will be subject to increasing levels of management review.
Depending upon the amount of projected financial exposure in a particular
project, the proposed investment will be approved successively by the executive
management group of the relevant subsidiary, the board of directors of the Xcel
Wholesale Energy Group or the Xcel International Group, as applicable, and the
Xcel's board of directors.
Significantly, the final project review process, in many cases, will be to
a large extent replicated by the lenders who agree to provide construction or
permanent debt financing on a non-recourse basis, since repayment of that debt
will depend solely upon the success of the project. Project debt documents
customarily require the establishment of plant overhaul or utility system
maintenance, debt service and other funded reserves, all of which are designed
to preserve the asset and protect the financial performance of the project
against interruptions in revenues and other contingencies. The past ability of
NCI, Quixx and NRG to arrange non-recourse financing for its independent power
projects is evidence of the success of the review process outlined above.
(b) Risk Mitigation
Xcel and the Subsidiaries will carefully evaluate the potential risks of an
independent power project or foreign utility company before committing funds.
Operating Risks. Due diligence with respect to operating assumptions will
be carried out by Group employees with experience in the technology being
evaluated and by outside technical consultants. Many operating risks will be
covered by equipment warranties and by casualty, business interruption and other
forms of insurance.
Construction Risks. Construction risks are commonly addressed under
fixed-price contracts with milestones and performance guarantees, backed by
appropriate liquidated damages provisions. The creditworthiness and track record
of the construction contractor is a key consideration in this regard. In those
matters in which a Xcel subsidiary company serves as the general construction
contractor, provision can be made, in the form of pre-negotiated cost and damage
clauses from sub-contractors including, without limitation, equipment vendors,
to protect against performance shortfalls, cost overruns and schedule delays.
Commercial Risks. In the past, many independent power projects have relied
upon the "off-take" commitment of a single power purchaser, normally the local
utility company or governmental agency, to eliminate all or substantially all of
the risk of variation in revenues. With the move toward open access and merchant
power plants, long-term off-take contracts are not always available, and
electricity prices may be determined by supply and demand. Indeed, in
competitive markets outside the United States, such contracts are the exception,
rather than the rule. Before committing to a project, therefore, Xcel will
conduct investigations to ensure the viability of long-term demand, and
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will seek projects that will be capable of producing electricity at or below
long-run marginal costs in the region, thus seeking to ensure that the project
will be a competitive supplier.
Financial Risks. Xcel will address the financial risks of its projects in a
number of ways. First and foremost, Xcel will seek to obtain the maximum amount
of permanent financing that is available for such projects at a reasonable cost
and for which there is no recourse, directly or indirectly, to Xcel. The
non-recourse debt of each project thus will be secured solely by the assets and
revenues of that project, and creditors will have no ability to seek repayment
from Xcel or any of its public-utility company subsidiaries. This method of
financing is intended to limit Xcel's exposure to the amount of its equity
commitment to a given project and so ensure that a Subsidiary and its customers
will not bear the risk of a project's failure or financial distress. Xcel may
provide guarantees, in certain unique circumstances, in connection with the
projects. Such financial support, however, will be carefully monitored and
treated as part of Xcel's aggregate investment as defined in Rule 53 in the
event the project is an EWG or FUCO, or other applicable limit. As noted above,
no guarantees have been given to date by NSP in connection with the numerous
projects of NRG.
Foreign Currency Exchange Risk. In connection with foreign projects, there
are several ways in which Xcel could address the foreign currency exchange risk
element, depending on the status of the host country of a foreign project. In
countries which do not have a history of stability in the management of their
exchange policy, part or all of the revenue from a project may be payable in
hard currency (almost invariably U.S. dollars). Back-up guarantees or other
undertakings by the central government treasury may be available to ensure that
the U.S. dollar payments due under an off-take contract will be actually made
available by the central bank or the ministry of finance. In other cases, the
non-recourse project debt will be borrowed in the same currency as the project's
revenues, thereby ensuring a match between debt service obligations and
operating income. In more developed countries, long-term currency swaps are
available to provide further hedging for the equity component of the investment.
Legal Risks. Legal risks will be addressed by careful review of any
investment by legal counsel, including local and international counsel where
foreign projects are concerned. Such legal reviews will address regulatory and
permitting risks, environmental risks, the adequacy and enforceability of
guarantees or other contractual undertakings of third parties, the status of
title to utility property and the obligations inherent in the financing
arrangements.
In addition to the specific risks mentioned above, investment outside of
the United States can entail country-specific risks related to political or
economic performance. In this regard, it is contemplated that, at the outset of
development work in a foreign country, Xcel will seek local partners who are
experienced in doing business in the host country. Local partners can be an
effective means of reducing the risk of future expropriation or unfair
regulatory treatment. Another mitigating factor is the participation of official
or multilateral agencies in a project. When funds for the project are supplied
by government-sponsored export credit agencies or other governments or
institutions such as the World Bank through its International Finance
Corporation affiliate, the host country has strong incentives not to take
actions which would harm a project's viability.
Most political risk can be addressed through political risk insurance
obtained from the Overseas Private Investment Corporation, a United States
agency, or the Multilateral Investment
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Guaranty Agency, a World Bank affiliate, or in the commercial insurance market.
Political risk insurance is available to insure the project debt or the return
of an investor's equity. One can also insure against outright expropriation,
acts of civil violence or even "creeping" nationalization brought about by
punitive regulation. Xcel will analyze the perceived risk and its costs and
compare that with the cost of obtaining such insurance, and, when such costs
associated with such risks exceed the costs of insurance coverage therefor, Xcel
plans to procure such insurance.
Xcel shall not seek recovery through higher rates to its domestic utility
customers to compensate it for any possible loss that it might sustain by reason
of the proposed investments in EWGs and FUCOs. Xcel's indirect investments in
EWGs and FUCOs will not in any way diminish the ability of the various state
commissions to protect the interests of consumers in their respective states.
3. Proposed Increase in Investment Authority
For the reasons stated above, Xcel hereby requests that the Commission
exempt it from the requirements of Rule 53(a)(1) under the 1935 Act so that Xcel
can, directly or indirectly, invest an amount equal to its consolidated retained
earnings in EWGs and FUCOs.
Rule 53(c) states that, in connection with a proposal to issue and sell
securities to finance an investment in any EWG, or to guarantee the securities
of any EWG, a registered holding company that is unable to satisfy the
requirements of paragraph (a) of Rule 53 must "affirmatively demonstrate" that
such proposal:
(a) will not have a substantial adverse impact upon the financial
integrity of the registered holding company system; and
(b) will not have an adverse impact on any utility subsidiary of the
registered holding company, or its customers, or on the ability of
State commissions to protect such subsidiary or customers.
The Commission has performed an analysis of the requirements of Rule 53(c)
with respect to application-declarations filed by NCE, The Southern Company,
Central and South West Corporation, GPU, Inc., Cinergy Corp., and American
Electric Power Company. In each of those matters, the applicant sought relief
from the safe-harbor requirements of Rule 53(a)(1) to allow investments in an
amount equal to the applicant's consolidated retained earnings. The Commission
found that the applicants in each matter had demonstrated successfully, through
the use of certain financial indicators, that investing in EWGs and FUCOs in an
amount not to exceed their consolidated retained earnings would not have a
substantial adverse impact on the financial integrity of the holding company
system. A comparison with Xcel of those financial indicators used by those
applicants, considering the size and market position of Xcel relative to those
applicants, demonstrates that the financial integrity of Xcel is substantially
similar to the financial integrity of the applicants in matters in which the
Commission has previously granted exceptions to the 50% requirement of Rule 53.
Applicants addresses each of the requirements of Rule 53(c) as follows:
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<PAGE>
(a) The Proposed Transactions Will Not Have a Substantial Adverse Impact
Upon the Financial Integrity of the Xcel System
The use of proceeds from the issuance of debt and equity securities of Xcel
to make aggregate investments in EWGs and FUCOs, and the issuance of, or
provision for, guarantees in connection therewith by Xcel, in amounts of up to
Xcel's consolidated retained earnings will not have a "substantial adverse
impact" on the financial integrity of the Xcel System.
The lack of any "substantial adverse impact" on Xcel's financial integrity
as a result of increased levels of investments in EWGs and FUCOs can be
demonstrated in several ways, including the analysis of historic trends on a pro
forma basis in Xcel's consolidated capitalization ratios and retained earnings
and the market view of NCE's and NSP's securities. Consideration of these and
other relevant factors supports the conclusion that the issuance of securities
and guarantees by Xcel to finance investments in EWGs and FUCOs exceeding the
50% consolidated retained earnings limitation in Rule 53(a)(1) will not have any
"substantial adverse impact" on the financial integrity of Xcel.
(i) Key Financial Ratios/Benchmarks
CAPITALIZATION RATIOS
Aggregate investments in EWGs and FUCOs (as defined in Rule 53(a)) in
amounts up to 100% of Xcel's consolidated retained earnings22 ($2.3 billion as
of December 31, 1999) would still represent a relatively small commitment of
Xcel capital, based on various key financial ratios at December 31, 1999. For
example, investments of this amount would be equal to only 18.1% of Xcel's total
consolidated capitalization (excluding non-recourse project debt) ($12.4
billion), 17.6% of consolidated net plant ($12.8 billion), 12.5% of total
consolidated assets ($18.0 billion), and 34.4% of the market value of Xcel's
outstanding common stock ($6.6 billion) as of December 31, 1999. The following
table shows how these compare to the same percentages for Southern, CSW, GPU,
Cinergy, AEP and NCE, as reflected in each system's respective 100% Orders.
Investments in EWGs and FUCOs (assuming equal to 100% of consolidated
retained earnings) as a percentage of:
- ---------------
22 All ratios and numbers for Xcel are on a pro forma basis assuming the
Merger had occurred prior to the period being presented unless otherwise
indicated.
29
<PAGE>
<TABLE>
<CAPTION>
Total Market Value
Consolidated Consolidated Consolidated Assets of Outstanding
Company Capitalization Net Plant Common Stock
<S> <C> <C> <C> <C>
Southern 16.3% 15.4% 11.0% 20.4%
CSW 23.0% 23.0% 14.0% 31.0%
GPU 24.9% 34.2% 19.4% 49.8%
Cinergy 16.0% 16.0% 11.0% 19.0%
AEP 16.0% 13.8% 9.8% 18.5%
NCE 13.7% 11.8% 9.1% 12.5%
Average of above 18.3% 16.8% 12.4% 25.2%
Xcel 18.1% 17.6% 12.5% 34.4%
</TABLE>
This comparison verifies that an aggregate investment of 100% of Xcel's
consolidated retained earnings would involve a relatively small commitment of
capital for a company of Xcel's size. Moreover, in every category, the Xcel
percentage is comparable to the applicable percentage for the other registered
systems that have 100% Orders.
NCE's credit rating is currently BBB+ by Standard & Poor's and Baa1 by
Moody's, while NSP's ratings from the same agencies are AA by Standard & Poor's
and Aa3 by Moody's. Xcel's consolidated capitalization and interest coverage
ratios for 1998 and 1999 (pro forma for the Merger and excluding the effects of
the U.K. Windfall Tax23 and non-recourse project debt) are within industry
ranges set by independent debt rating agencies for A-rated and BBB-rated
companies, as shown below:
Xcel Pro Forma Consolidated Debt to Capitalization and Interest Coverage
Ratios (Excluding Effects of U.K. Windfall Tax and Non-Recourse Project
Debt) for the Years Ended December 31, 1998 and December 31, 1999*:
1998 1999
---- ----
Total Debt/Capital 47.3% 52.6%
Pre-Tax Interest Coverage 3.6x 3.1x
_____________________
* Consistent with rating agency treatment, mandatorily redeemable preferred
securities are not included in debt and related interest coverage ratios.:
- ---------------
23 For more information regarding the U.K. Windfall Tax, see the NCE Financing
Application.
30
<PAGE>
Average Industry Ratios for BBB-Rated and A-Rated Investor-Owned Utilities
for the Year Ended December 31, 1998**:
BBB A
Total Debt/Capital 52.2% 48.6%
Pre-Tax Interest Coverage 2.6x 3.5x
_____________________
** Standard & Poor's Utility Financial Statistics - June 1999.
Xcel's pro forma consolidated capitalization ratios as of December 31, 1999
were 43.5% equity (including common and preferred equity, but excluding the
effects of the U.K. Windfall Tax), 52.6% debt (including approximately $1.4
billion of short-term debt, but excluding non-recourse project debt) and 3.9%
Subsidiary-obligated mandatorily redeemable preferred securities. No
non-recourse debt of the EWGs and FUCOs of NCE is consolidated for financial
reporting purposes. Approximately $1.1 billion of non-recourse debt of the EWGs
and FUCOs of NRG is consolidated on the financial statements of NSP as of
December 31, 1999. These ratios are within industry ranges set by independent
debt rating agencies for BBB-rated companies.
CONSOLIDATED RETAINED EARNINGS
Again, using pro forma numbers for the Merger and eliminating the effects
of the U.K. Windfall Tax, Xcel's consolidated retained earnings have grown on
average almost 4.7% per year for the period from December 31, 1995 through
December 31, 1999. Consolidated retained earnings increased $128 million during
1996, a 6.4% increase; increased $21 million during 1997, a 1.0% increase;
increased $149.4 million during 1998, a 7.0% increase and increased $80 million
in 1999, a 3.5% increase.
Although it is not possible to compare on a consistent basis, Xcel's pro
forma average annual retained earnings growth rate is within the range of growth
rates for those other systems that have obtained 100% Orders.
RULE 53(b) FACTORS
With respect to the relevant financial benchmarks specifically contemplated
by Rule 53(b), none is applicable: (1) there has not been a bankruptcy of an
associate company of NCE and NSP (Rule 53(b)(1)); (2) the average consolidated
retained earnings for the four most recent quarterly periods of NCE and NSP have
not decreased by 10% from the average for the preceding four quarterly periods
(Rule 53(b)(2)); and (3) in the previous fiscal year, neither NCE nor NSP
reported operating losses attributable to its direct or indirect investments in
EWGs and FUCOs that exceeded an amount equal to 5% of consolidated retained
earnings (Rule 53(b)(3)).
Applicants undertake to notify the Commission by filing a post-effective
amendment in this proceeding in the event that any of the circumstances
described in Rule 53(b) arise during the Authorization Period.
31
<PAGE>
OTHER INDICATORS
Other financial indicators show the anticipated financial strength of Xcel.
For example, on a pro forma basis to reflect the Merger and eliminating the
effects of the U.K. Windfall Tax, Xcel's basic and diluted earnings per share
and return on equity were $1.91 and 12.3%, respectively, for the year ended
December 31, 1998 and $1.70 and 10.7%, respectively, for the year ended December
31, 1999.
(ii) Market Assessment of Xcel
ASSESSMENT OF GROWTH AND EARNINGS
The market's assessment of Xcel's future growth and earnings also compares
favorably to other electric utility issuers (again using pro forma figures
reflecting the Merger and eliminating the effects of the U.K. Windfall Tax).
This can be shown by comparison of the price-earnings ratio, market-to-book
ratio and return-on-equity of NCE and NSP as of December 31, 1998 and 1999, as
compared to industry averages. These measures indicate investor confidence in
NCE and NSP.
1998 1999
---- ----
P/E Ratio:
- ---------
NCE 15.9x 10.1x
NSP 15.1x 13.6x
Electric Industry* 16.6x 12.5x
Market-to-Book Percent:
- ----------------------
NCE 205% 124%
NSP 171% 119%
Electric Industry* 195% 148%
Return-on-Equity:
- ----------------
NCE 13.2% 12.4%
NSP 11.4% 8.7%
Electric Industry* 11.6% 11.7%
_______________________
* Industry averages taken from Regulatory Research Associates, Inc. - Utility
Focus 1998 Data - January 6, 1999; 1999 Data - January 6, 2000.
Applicants believe that the P/E ratio and market-to-book percentage shown
above for 1998 is a better measure than the data for 1999. The market prices of
both the NCE and NSP common stock dropped significantly during the week
following the announcement of the Merger and have stayed at those lower levels
relative to the utility industry as a whole. These depressed market prices have
been attributed by many commentators to the regulatory uncertainty and time
associated with consummating a merger of two electric utility companies. Also,
NSP's return on equity for 1999 of 8.7% (which lowered the Xcel pro forma return
on equity to 10.7%) was adversely impacted by several non-recurring items which
lowered NSP's earnings by approximately $43 million or $.28 per share. These
non-recurring items included a write-down of investments, the write-off of
goodwill from a prior acquisition and a $35 million charge following the
Minnesota Public Utilities Commission
32
<PAGE>
reversal of its prior practice to allow NSP to recover through its rates various
impacts of state-mandated programs for energy conservation.
DIVIDEND PAYOUT RATIO
NCE's indicated annual dividend rate at December 31, 1999 was $2.32 per
share, while NSP's indicated annual dividend rate at such date was $1.45 per
share. When calculated against NCE's earnings per share of $3.01 for 1999, and
NSP's earnings per share of $1.43 for 1999, the payout ratios are close to the
electric utility average.
1998 1999
---- ----
NCE Payout Ratio 75.8% 77.1%
NSP Payout Ratio 77.7% 101.4%
Electric Industry* 75.0% 72.0%
_______________________
* Regulatory Research Associates, Inc. - Utility Focus January 6, 2000.
Absent the non-recurring items described above for NSP in 1999, its payout ratio
would have been 84.7%.
(b) The Proposed Transactions Will Not Have an Adverse Impact on Any
Utility Subsidiary of Xcel, or its Customers, or on the Ability of
Xcel's State Public Utility Commissions to Protect Such Customers
The request in this Application/Declaration to raise Xcel's investment
limits in EWGs and FUCOs to 100% of consolidated retained earnings will not have
an "adverse impact" on any Utility Subsidiaries, their respective customers, or
on the ability of the State commissions having jurisdiction over the Utility
Subsidiaries to protect such Utility Subsidiaries or such customers.
The conclusion that the Utility Subsidiaries and their customers will not
be adversely impacted by increased levels of investment by Xcel in projects is
well supported by (i) the insulation of the Utility Subsidiaries and their
customers from potential direct adverse effects of investments in EWGs and
FUCOs; (ii) analyses of the Utility Subsidiaries' financial integrity (including
ability of the Utility Subsidiaries to issue senior securities); and (iii) the
proven effectiveness of state commission oversight together with the prior
affirmation by the state commissions having jurisdiction over the Utility
Subsidiaries that they have authority and jurisdiction, and will exercise such
authority, to protect ratepayers in their respective states from any adverse
impact.
(i) Insulation From Risk
All of Xcel's investments in EWGs and FUCOs will be segregated from the
Utility Subsidiaries. Specifically, each of Utility Subsidiaries will be a
first-tier wholly-owned subsidiary of Xcel, while all investments in EWGs and
FUCOs will be held indirectly by Xcel through one or more other first-tier
subsidiaries. Thus, the Utility Subsidiaries will be insulated from the direct
effects of investments by Xcel and its Non-Utility Subsidiaries in EWGs and
FUCOs. In connection with any entity that is presently an EWG or FUCO, no
Utility Subsidiary owes indebtedness or has extended credit or sold or pledged
its
33
<PAGE>
assets, directly or indirectly, in connection with any EWG or FUCO. Any losses
that may be incurred by such EWGs and FUCOs would have no effect on domestic
rates of any Utility Subsidiary (because of the Applicants' undertaking not to
seek recovery in rates). Applicants represent that recovery through higher rates
to the Utility Subsidiaries' utility customers will not be sought in order to
compensate Xcel for any possible losses that it or any non-regulated subsidiary
may sustain on investments in EWGs and FUCOs or for any inadequate returns on
such investments.
Moreover, to the extent that there may be indirect impacts on the Utility
Subsidiaries from Xcel's EWG and FUCO investments through effects on Xcel's
capital costs, the state commissions regulating the Utility Subsidiaries can set
the cost of capital for the utilities by comparison with selected groups of
domestic utilities, which may exclude any utilities with adverse impacts due to
EWGs and FUCOs. Therefore, the states have the authority and the mechanism to
prevent any adverse effects on the cost of capital due to investments in EWGs
and FUCOs from being passed on to ratepayers.
NCE has complied, and Xcel will comply, with the requirements of Rule
53(a)(3) regarding the limitation on the use of Utility Subsidiary employees in
connection with providing services to EWGs and FUCOs. Increased levels of
investment in EWGs and FUCOs are not anticipated to have any impact on
utilization of Utility Subsidiary employees. The Utility Subsidiaries have not
and will not increase staffing levels to support the operations of EWGs and
FUCOs. Xcel expects that project development, management, and home office
support functions for EWGs and FUCOs will largely be performed by NCS,
Non-Utility Subsidiaries of the Xcel Wholesale Energy Group, and by outside
consultants (e.g., engineers, investment advisors, accountants, and attorneys)
engaged by Xcel or one of its Non-Utility Subsidiaries. It is expected that UE
will also be called upon to provide such consulting services. Accordingly, the
need for the support of personnel provided by the Utility Subsidiaries is
expected to be minimal.
Finally, NCE has complied, and Xcel will comply, with the other applicable
conditions of Rule 53(a) providing specific protections to customers of the
Utility Subsidiaries and their state commissions, in particular, the
requirements of Rule 53(a)(1) regarding the preparation and making available of
books and records and financial reports regarding EWGs and FUCOs, and the
requirements of Rule 53(a)(4) regarding filing of copies of applications and
reports with other regulatory commissions.
(ii) Utility Subsidiary Financial Integrity
The Utility Subsidiaries are in excellent financial health, as indicated by
such factors as debt/equity ratios of the Utility Subsidiaries, earnings
coverages, and security ratings.
DEBT/CAPITAL RATIOS
Debt (including short-term debt) to total capital ratios of the major
Utility Subsidiaries of Xcel (i.e. PSCo, SPS, NSP and NSP-W, but excluding
Cheyenne) are consistent with the industry range for A-rated electric utilities.
The industry average as of December 31, 1998 for A-rated electric utilities was
approximately 49%. 24
- ---------------
24 Standard & Poor's Utility Financial Statistics (June, 1999).
34
<PAGE>
Debt as % of Capitalization 1996 1997 1998 1999
- --------------------------- ---- ---- ---- ----
PSCo 50.6% 50.4%* 52.0%* 51.7%*
SPS 45.3% 50.1% 46.0% 47.6%
NSP 42.0% 35.9% 37.5% 41.4%
NSP-W 45.2% 45.0% 45.4% 46.8%
_______________________
* Restated to eliminate effect of the extraordinary $111 million U.K.
Windfall Tax that applied to NCI's subsidiary, Yorkshire Electricity Group
plc.
EARNINGS COVERAGES
The major Utility Subsidiaries' ability to issue debt and equity securities
in the future depends upon their financial strength at the time such securities
are issued. The ratio of earnings to fixed charges for the year ended December
31, 1999 for the Utility Subsidiaries were approximately 3.50 for SPS, 2.28 for
PSCo, 3.16 for NSP and 4.12 for NSP-W. Accordingly, the Utility Subsidiaries
should have more than adequate earnings coverages for financing requirements in
the foreseeable future.
SECURITY RATINGS
The major Utility Subsidiaries continue to show adequate financial
statistics as measured by the rating agencies. The coverage of the more
significant Utility Subsidiaries' coverages have generally been within the AA/A
ranges set by the major rating agencies in recent years.
SECURED DEBT RATINGS (as of 12/31)
S&P Rating: 1996 1997 1998 1999
- ---------- ---- ---- ---- ----
PSCo A- A A A
SPS AA A A A
NSP AA- AA AA AA
NSP-W AA AA AA AA
Moody's Rating: 1996 1997 1998 1999
- -------------- ---- ---- ---- ----
PSCo A3 A3 A3 A3
SPS Aa2 Aa2 Aa2 Aa2
NSP A1 Aa3 Aa3 Aa3
NSP-W A1 Aa3 Aa3 Aa3
35
<PAGE>
PREFERRED STOCK RATINGS
PSCo, SPS and NSP-W do not have any outstanding traditional preferred
stock. The ratings for NSP's outstanding preferred stock are as follows.
1996 1997 1998 1999
---- ---- ---- ----
S&P A+ A+ A+ A
Moody's Rating A2 A2 A A1
In addition, the rating agencies consider the Utility Subsidiaries as
having relatively favorable competitive positions, with Standard & Poor's
ranking PSCo "average" and SPS "reasonably strong", NSP "above average", and
NSP-W "above average" business position. See Standard & Poor's Global Sector
Review - Utility, December, 1999.25
NCE and NSP do not believe that investments made in EWGs and FUCOs have
negatively affected the first mortgage bond ratings of PSCo, SPS, NSP or NSP-W.
None of the ratings of the Utility Subsidiaries has been downgraded as a result
of investments in an EWG or FUCO.
(iii) Utility Subsidiaries' Capital Needs
Additional investments in EWGs and FUCOs will not have any negative impact
on the Utility Subsidiaries' ability to fund operations and growth. As indicated
above, present projections indicate that the Utility Subsidiaries will continue
to fund their operations and their construction expenditures primarily from
internal sources of cash and from sales of securities and other borrowings.
Moreover, there is no reason to believe that the Utility Subsidiaries cannot
access capital markets as needed.
Utility Subsidiaries - Construction Expenditures: actual (1997-1999) and
projected (2000) expenditures, including Allowance for Funds Used During
Construction ($ million):
1997 1998 1999 2000
---- ---- ---- ----
$843 $1,010 $1,129 $968
Percent internally generated:
1997 1998 1999 2000
---- ---- ---- ----
72.5% 80.4% 60.0% 95.5%
(iv) Adequacy Of State Commission Oversight
In the opinion of NCE and NSP, the twelve state commissions having
jurisdiction over the Utility Subsidiaries, namely Arizona, Colorado, Kansas,
Michigan, Minnesota, Oklahoma, New Mexico, North Dakota, South Dakota Texas,
Wisconsin and Wyoming (collectively, "State Commissions") are able to protect
utility customers within their respective states. The State
- ---------------
25 The rating agencies do no formal rating of Cheyenne.
36
<PAGE>
Commissions have not raised objections to NCE's or NSP's current investments in
EWGs or FUCOs.26 To provide the Commission with added assurances,
representatives of NCE as part of the NCE 100% Application met with each of the
State Commissions having jurisdiction over the Utility Subsidiaries and obtained
a letter to the Commission certifying that such State Commission has
jurisdiction over the applicable Utility Subsidiary and that such State
Commission can protect ratepayers from any adverse effect or costs that might
result from NCE's investments in EWGs and FUCOs. Similarly, NSP obtained in 1996
and in 1998 the certifications under Section 33(a)(2) from the Minnesota, North
Dakota, South Dakota, Michigan and Wisconsin Commissions in connection with
various investments in FUCOs. Additionally, with respect to certain State
Commissions, the Utility Subsidiaries will, among other things, have to comply
with certain reporting requirements and covenant that such investments in EWGs
will not result in any obligation by the Utility Subsidiaries. The Utility
Subsidiaries have been subjected to numerous audits by the Federal Energy
Regulatory Commission. Such audits have not raised any issue relative to
affiliate transactions generally.
Finally, as noted above, the State Commissions will have authority to make
adjustments in an Utility Subsidiary's cost of capital to take into account any
negative effect from Xcel's investments in EWGs and FUCOs.
For all of these reasons, the State Commissions will have adequate
authority to protect Utility Subsidiary ratepayers from any adverse effect
associated with Xcel's or its non-utility subsidiaries.
4. Compliance with Rule 54
Rule 54 provides that the Commission, in determining whether to approve the
issue or sale of a security by a registered holding company for purposes other
than the acquisition of an EWG or FUCO, or other transactions by such registered
holding company or its subsidiary other than with respect to EWGs and FUCOs,
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
the provisions of Rule 53(a), (b) and (c) are satisfied. If the transactions
contemplated hereby are consummated and Xcel's aggregate investment in EWGs and
FUCOs exceeds 50% of its consolidated retained earnings, the provisions of Rule
53(a) will not be satisfied. However, to enable the Commission to monitor the
impact of the transactions for which authority is sought hereby, Xcel proposes
to report the following additional information in the quarterly Rule 24
certificates it is undertaking to file as part of this Application as described
below under "L. Filings of Certificates of Notification:"
(a) A Rule 53(a) computation - that is a calculation of the ratio of
Xcel's aggregate investment in EWGs and FUCOs to Xcel's average
consolidated retained earnings (both as determined in accordance with Rule
53(a));
(b) A statement of aggregate investment as a percentage of the
following: total capitalization, net utility plant, total consolidated
assets, and market value of common equity, all as of the end of that
quarter;
- ---------------
26 Section 33(c)(2) provides that the State commissions may make
recommendations to the Commission regarding a registered holding company's
relationship to FUCOs, and that the Commission shall "reasonably and fully
consider" such recommendations.
37
<PAGE>
(c) Consolidated capitalization ratios as of the end of that quarter;
(d) The market-to-book ratio of Xcel's common stock at the end of that
quarter;
(e) An analysis of the growth in consolidated retained earnings, which
segregates total earnings growth attributable to EWGs and FUCOs from that
attributable to other Xcel subsidiaries; and
(f) A statement of revenues and net income of the Xcel International
Group and Xcel Wholesale Energy Group for the twelve months ended as of the
end of that quarter.
This information is the same as that required by the Commission with
respect to NCE and other registered systems that have obtained 100% Orders. The
Applicants believe that such reporting requirements will assist the Commission
in its determinations concerning the effect of EWGs and FUCOs on other
transactions for which Xcel and other system companies will require Commission
authorization.
Moreover, Xcel will report to the Commission any non-recourse debt incurred
by the Xcel International Group and Xcel Wholesale Energy Group in financing any
acquisition of an interest in an EWG or FUCO in its periodic financial reports
and other required reports (including those on Form U-6B-2 and Rule 24
certificates).
L. Filing of Certificates of Notification
It is proposed that, with respect to Xcel, the reporting system of the 1933
Act and the 1934 Act be integrated with the reporting system under the 1935 Act.
This would eliminate duplication of filings with the Commission that cover
essentially the same subject matters, resulting in a reduction of expense for
both the Commission and Xcel. To effect such integration, the portion of the
1933 Act and 1934 Act reports containing or reflecting disclosures of
transactions occurring pursuant to the authorization granted in this proceeding
would be incorporated by reference into this proceeding through Rule 24
certificates of notification. The certificates would also contain all other
information required by Rule 24, including the certification that each
transaction being reported on had been carried out in accordance with the terms
and conditions of and for the purposes represented in this Application. Such
certificates of notification would be filed within 60 days after the end of each
of the first three calendar quarters, and 90 days after the end of the last
calendar quarter, in which transactions occur. It is also proposed that such
certificates, which will include information with respect to all securities
issuances that are exempt under Rule 52, be in lieu of any separate certificates
required on Rule U-6B-2 pursuant to Rule 52.
The Rule 24 certificates will contain, in addition to the information
described above at paragraph 4 under "K. Financing of EWGs and FUCOs", the
following information:
(a) If sales of Common Stock by Xcel are reported, the purchase price per
share and the market price per share at the date of the agreement of
sale;
38
<PAGE>
(b) The total number of shares of Common Stock issued during the quarter,
under (i) Xcel's dividend reinvestment plan and (ii) Xcel system
employee benefit and executive compensation plans, including any such
plans hereinafter adopted;
(c) If a guarantee or other form of credit support is issued during the
quarter, the name of the parent or issuing company, the name of the
subsidiary and the amount, terms and purpose of the guarantee;
(d) The amount and terms of any short-term debt issued by Xcel during the
quarter;
(e) The amount and terms of any financings consummated by any Utility
Subsidiary during the quarter, which financings are not exempt under
Rule 52;
(f) The amount and terms of any financings consummated by any Non-Utility
Subsidiary during the quarter, which financings are not exempt under
Rule 52;
(g) The amount and terms of any financings consummated by any Utility
Subsidiary during the quarter pursuant to the exemption provided under
Rule 52;
(h) The amount and terms of any financings consummated by any Non-Utility
Subsidiary during the quarter pursuant to the exemption provided under
Rule 52;
(i) The notional amount and principal terms of any Interest Rate Hedge or
Anticipatory Hedge entered into during the quarter and the identity of
the parties to such instruments;
(j) The name, parent company and amount invested in any new Intermediate
Subsidiary or Financing Subsidiary during the quarter;
(k) Consolidated balance sheets as of the end of the quarter, and separate
balance sheets as of the end of the quarter for each company,
including Xcel, that has engaged in financing transactions during the
quarter; and
(l) Future registration statements filed under the 1933 Act with respect
to securities that are the subject of the Application will be filed
(or incorporated by reference) as exhibits to the next certificate
filed pursuant to Rule 24.
Item 2. Fees, Commissions and Expenses
The fees, commissions and expenses incurred or to be incurred in connection
with the transactions proposed herein will be supplied by amendment. The fees
will not include underwriting fees and all other expenses incurred in
consummating financings covered hereby.
39
<PAGE>
Item 3. Applicable Statutory Provisions
A. General
Sections 6(a) and 7 of the Act are applicable to the issuance and sale of
common stock, long-term debt securities and short-term debt by Xcel and to the
issuance and sale of certain securities by the Subsidiaries that are not exempt
under Rule 52. In addition, Sections 6(a) and 7 of the 1935 Act are applicable
to Interest Rate Hedges, except to the extent that they may be exempt under Rule
52, and to Anticipatory Hedges. Sections 6(a), 7, 9(a), 10, 12(b) and 12(f) and
Rules 43, 45 and 52 are applicable to the program of intra-system financings and
guarantees described herein, to the extent not exempt under Rules 45(b) and 52.
Sections 9(a)(1), 10 and 12(f) of the 1935 Act are applicable to the acquisition
by Xcel or any Subsidiary of any securities issued by an associate company,
except to the extent that such transaction are exempt under Rule 52. Sections
9(a)(1) and 10 of the Act are also applicable to Xcel's or any Subsidiary's
acquisition of the equity securities of any Financing Subsidiary or Intermediate
Subsidiary. Section 12(c) of the 1935 Act and Rule 46 are applicable to the
payment of dividends from capital and unearned surplus by any direct or indirect
Rule 58 Subsidiary or Non-Utility Subsidiary of Xcel. Sections 32 and 33 and
Rules 53 and 54 are also deemed applicable to the proposed transactions. To the
extent that the proposed transactions are considered by the Commission to
require authorization, approval or exemption under any Section of the Act or
rule thereunder, other than those specifically referred to above, request for
such authorization approval or exemption is hereby made.
B. Rule 54 Analysis
The transactions proposed herein relate to a program of external and
intra-system financings for a variety of corporate purposes, including
investment in EWGs and FUCOs. Accordingly, the transactions proposed herein are
also subject to Section 32(h)(4) of the 1935 Act and Rule 54 thereunder. Rule 54
provides that, in determining whether to approve any transaction that does not
relate to an EWG or 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. Compliance with paragraphs (a), (b) and (c) of Rule 53 was described
above in detail under "K. Financing of EWGs and FUCOs" and, for this reason,
will be discussed in summary form here.
Xcel will comply with the record-keeping requirements of Rule 53(a)(2), the
limitation under Rule 53(a)(3) on the use of the Xcel 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 1935 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 to the transactions proposed herein that do
not involve the issue and sale of securities (including any guarantees) to
finance an acquisition of an EWG or FUCO. To the extent that the transactions
proposed herein do involve the issue and sale of securities to finance an
acquisition of an EWG or FUCO, the conditions of Rule 53(c) have been addressed
in detail above.
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." Xcel's "aggregate
investment" (as defined in Rule 53(a)(1)(i)) in all EWGs and
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FUCOs as of December 31, 1999, pro forma to take into account the Merger, is
equal to 41.9% of Xcel's "consolidated retained earnings" (as defined in Rule
53(a)(1)(ii)) for the four quarters ended December 31, 1999 ($2.2 billion).27 If
the Applicants' request herein to permit Xcel's "aggregate investment" in EWGs
and FUCOs to equal 100% of its consolidated retained earnings is granted, it is
likely that the conditions of Rule 53(a)(1) will not be met. However, even if
the Commission were to take into account the effect of the capitalization and
earnings of EWGs and FUCOs in which NCE and NSP has invested, it would have no
basis for denying the transactions proposed herein. As explained in detail
above, such prior investments and the proposed future investments being
requested by Xcel herein will not have a substantial adverse impact on the
financial integrity of Xcel or an adverse impact on any Utility Subsidiary, its
customers or on the ability of any state commission to protect such subsidiary
or customers.
Item 4. Regulatory Approvals
No state commission, and no federal commission, other than the Commission,
has jurisdiction over the proposed transactions.
Item 5. Procedure
The Commission is requested to publish a notice under Rule 23 with respect
to the filing of this Application/Declaration as soon as practicable. The
Applicants request that the Commission's Order be issued no later than the date
on which an order of the Commission granting and permitting the Merger
Application to become effective is entered by the Commission. The Applicants
hereby waive 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 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. (To be filed by amendment unless otherwise indicated)
A None.
B-1 Form of Commercial Paper Note.
B-2 Form of Standard Purchase Agreement - Common Stock.
B-3 Form of Standard Purchase Agreement - Long-Term Debt.
B-4 Form of Debentures.
B-5 Form of Debenture Indenture.
- ---------------
27 As noted previously, the calculation excludes commitments associated with
various pending projects by NRG that have not closed and, if included, the
percentage would be at or above 60%.
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B-6 Form of Supplemental Indenture.
B-7 Form of Debenture Purchase Agreement.
B-8 Form of Xcel Dividend Reinvestment Plan (incorporated by
reference to the Registration Statement on Form S-3 of NSP, File
No. 333-90727).
D-1 Order of the Michigan Public Service Commission, dated May 23,
1996, pursuant to Section 33(a)(2) of the 1935 Act (filed as
Exhibit 99.01 to Form U-57 of NRG Energy, Inc., dated June 6,
1996 and incorporated herein by reference).
D-2 Order of the Minnesota Public Utilities Commission, dated June 3,
1996, pursuant to Section 33(a)(2) of the 1935 Act (filed as
Exhibit 99.01 to Form U-57 of NRG Energy, Inc., dated June 6,
1996 and incorporated herein by reference).
D-3 Letter of the North Dakota Public Service Commission, dated April
22, 1996, pursuant to Section 33(a)(2) of the 1935 Act (filed as
Exhibit 99.01 to Form U-57 of NRG Energy, Inc., dated June 6,
1996 and incorporated herein by reference).
D-4 Letter of the South Dakota Public Utilities Commission, dated
April 23, 1996, pursuant to Section 33(a)(2) of the 1935 Act
(filed as Exhibit 99.01 to Form U-57 of NRG Energy, Inc., dated
June 6, 1996 and incorporated herein by reference).
D-5 Letter of Public Service Commission of Wisconsin, dated May 21,
1996, pursuant to Section 33(a)(2) of the 1935 Act (filed as
Exhibit 99.01 to Form U-57 of NRG Energy, Inc., dated June 6,
1996 and incorporated herein by reference).
D-6 Order of the Michigan Public Service Commission, dated January 8,
1998, pursuant to Section 33(a)(2) of the 1935 Act.
D-7 Order of the Minnesota Public Utilities Commission, dated March
10, 1998, pursuant to Section 33(a)(2) of the 1935 Act.
D-8 Letter of the North Dakota Public Service Commission, dated
February 11, 1998, pursuant to Section 33(a)(2) of the 1935 Act.
D-9 Letter and order of the South Dakota Public Utilities Commission,
dated January 21, 1998, pursuant to Section 33(a)(2) of the 1935
Act.
D-10 Letter of Public Service Commission of Wisconsin, dated February
24, 1998, pursuant to Section 33(a)(2) of the 1935 Act.
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F Opinion of Counsel.
G Financial Data Schedule (incorporated by reference to the
Quarterly Reports on Form 10-Q of NCE and NSP for the quarter
ended September 30, 1999 (File No. 1-12929 and File No. 1-3034,
respectfully).
H Proposed Form of Federal Register Notice. (Filed herewith).
B. FINANCIAL STATEMENTS.
1.1 Unaudited Pro Forma Condensed Consolidated Balance Sheet of
Xcel, as of December 31, 1999 (incorporated by reference to
the Annual Report on Form 10-K of NCE for the year ended
December 31, 1999, File No. 1-12927).
1.2 Unaudited Pro Forma Condensed Consolidated Statements of
Income of Xcel for each of the three years in the period
ended December 31, 1999 (incorporated by reference to the
Annual Report on Form 10-K of NCE for the year ended
December 31, 1999, File No. 1-12927).
2.1 Balance Sheet of NSP and consolidated subsidiaries, as of
December 31, 1999 (incorporated by reference to the Annual
Report on Form 10-K of NSP for the year ended December 31,
1999, File No. 1-3034).
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2.2 Statement of Income of NSP and consolidated subsidiaries for
the year ended December 31, 1999 (incorporated by reference
to the Annual Report on Form 10-K of NSP for the year ended
December 31, 1999, File No. 1-3034).
3.1 Balance Sheet of NSP-W and consolidated subsidiaries, as of
December 31, 1999 (incorporated by reference to the Annual
Report on Form 10-K of NSP-W for the year ended December 31,
1999, File No. 10-3140).
3.2 Statement of Income of NSP-W and consolidated subsidiaries
for the year ended December 31, 1999 (incorporated by
reference to the Annual Report on Form 10-K of NSP-W for the
year ended December 31, 1999, File No. 10-3140).
4.1 Balance Sheet of NRG and consolidated subsidiaries, as of
December 31, 1999 (incorporated by reference to the Annual
Report on Form 10-K of NRG for the year ended December 31,
1999, File No. 333-33397).
4.2 Statement of Income of NRG and consolidated subsidiaries for
the year ended December 31, 1999 (incorporated by reference
to the Annual Report on Form 10-K of NRG for the year ended
December 31, 1999, File No. 333-33397).
5.1 Balance Sheet of NCE and consolidated subsidiaries, as of
December 31, 1999 (incorporated by reference to the Annual
Report on Form 10-K of NCE for the year ended December 31,
1999, File No. 1-12927).
5.2 Statements of Income of NCE and consolidated subsidiaries
for the years ended December 31, 1999 (incorporated by
reference to the Annual Report on Form 10-K of NCE for the
year ended December 31, 1999, File No. 1-12927).
6.1 Balance Sheet of PSCo and consolidated subsidiaries, as of
December 31, 1999 (incorporated by reference to the Annual
Report on Form 10-K of PSCo for the year ended December 31,
1999, File No. 1-3280).
6.2 Statements of Income of PSCo and consolidated subsidiaries
for the year ended December 31, 1999 (incorporated by
reference to the Annual Report on Form 10-K of PSCo for the
year ended December 31, 1999, File No. 1-3280).
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7.1 Balance Sheet of SPS, as of December 31, 1999 (incorporated
by reference to the Annual Report on Form 10-K of SPS for
the year ended December 31, 1999, File No. 1-3789).
7.2 Statements of Income of SPS for the year ended December 31,
1999 (incorporated by reference to the Annual Report on Form
10-K of SPS for the year ended December 31, 1999, File No.
1-3789).
Item 7. Information as to Environmental Effects
None of the matters that are the subject of this Application 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/Declaration 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 prepared or is preparing an environmental
impact statement with respect to the transactions that are the subject of this
Application.
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SIGNATURES
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, as amended, the undersigned companies have duly caused this Application
filed herein to be signed on their behalf by the undersigned thereunto duly
authorized.
New Century Energies, Inc.
Public Service Company of Colorado
New Century Services, Inc.
NC Enterprises, Inc.
e prime, inc.
Green and Clear Lakes Company
The Planergy Group, Inc.
New Century-Cadence, Inc.
Southwestern Public Service Company
By: /s/ Richard C. Kelly Date: 4/10/2000
--------------------------- -------------
Richard C. Kelly
Executive Vice President of New Century
Energies, Inc., Public Service Company of
Colorado, New Century Services, Inc.,
NC Enterprises, Inc., and Southwestern
Public Service Company; President and
Chief Executive Officer of e prime, inc.;
Treasurer of Green and Clear Lakes
Company; Vice President of The Planergy
Group, Inc.; Chairman of the Board of
New Century-Cadence, Inc.
Cheyenne Light, Fuel and Power Company
WestGas InterState, Inc.
New Century International, Inc.
PS Colorado Credit Corporation
1480 Welton, Inc.
P.S.R. Investments, Inc.
New Century WYCO, Inc.
New Century O&M Services, Inc.
By: /s/ Cathy J. Hart Date: 4/10/2000
--------------------------- -------------
Cathy J. Hart
Secretary
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Colorado Natural Fuels LLC
By: /s/ Don Basler Date: 4/10/2000
--------------------------- -------------
Don Basler
Managing Director
Natural Station Equipment LLC
By: /s/ Paul Nelson Date: 4/10/2000
--------------------------- -------------
Paul Nelson
General Manager
Quixx Corporation
Utility Engineering Corporation
By: /s/ Nancy E. Felker Date: 4/10/2000
--------------------------- -------------
Nancy E. Felker
Assistant Treasurer
Northern States Power Company
Energy Masters International, Inc.
Seren Innovations, Inc.
Ultra Power Technologies, Inc.
Eloigne Company
First Midwest Auto Park, Inc.
United Power and Land Company
Reddy Kilowatt Corporation
NSP Financing I Northern States Power Company
(a Wisconsin corporation)
Viking Gas Transmission Company
NRG Energy, Inc.
Nuclear Management Company
By: /s/ E. J. McIntyre Date: 4/10/2000
--------------------------- -------------
E. J. McIntyre
Vice President and Chief Financial Officer
Date: February 22, 2000
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ANNEX I
Existing Non-Exempt Financings of NSP Subsidiaries
Credit arrangements with and guarantees in support of NSP Non-Utility
Subsidiaries.
First Midwest Auto Park, Inc.
NSP provided a comfort letter to U.S. Bank, the lender in a $5 million term loan
dated December 31, 1998 to FMAP, a wholly-owned subsidiary. The loan is for five
years and requires quarterly principal amortization of $100,000. The principal
balance as of December 31, 1999 was $4.6 million. The purpose of the loan is to
provide funding for operation of FMAP's parking garage and surface parking lot.
The letter states that NSP will retain direct ownership of all of the voting
stock of FMAP and will ensure FMAP maintains, calculated for each quarter-end,
an interest coverage ratio (including mandatory debt retirements) of at least
1.05 to 1.00 during which time any principal amount is outstanding.
This support letter will be revised as needed and assigned to and assumed by New
NSP Utility in connection with the merger.
United Power & Land Company
NSP provided a comfort letter to U.S. Bank, the lender in a $10 million term
loan dated May 17, 1994 to UP&L, a wholly-owned subsidiary. Principal and
interest payments in the amount of $208,333 are made quarterly, commencing June
30, 1994. The loan matures March 31, 2000. The principal balance as of December
31, 1999 was $5.2 million.
The letter states that NSP will retain direct ownership of all of the voting
stock of UP&L and will ensure UP&L maintains, calculated for each quarter-end,
an interest coverage ratio (including mandatory debt retirements) of at least
1.05 to 1.00 during which time any principal amount is outstanding.
A new support agreement will be negotiated by New NSP Utility as part of the
anticipated UP&L debt refinancing to occur on or before March 31, 2000.
Energy Masters International, Inc.
EMI, a wholly-owned subsidiary of NSP, has entered into various energy
performance contracts. EMI's total exposure for performance guarantees currently
in place is approximately $3 million.
NSP provided a comfort letter, dated January 28, 2000 to induce U.S. Bank to
provide a line of credit to EMI up to $25 million. The letter states that NSP
will retain direct ownership of all of the voting stock of EMI and will ensure
EMI maintains, calculated for each quarter-end, an interest coverage
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ratio (including mandatory debt retirements) of at least 1.05 to 1.00 during
which time any principal amount is outstanding.
NSP also provided a comfort letter, dated January 28, 2000 to Hannon Armstrong &
Company ("HAC"), a financial intermediary in energy savings performance. The
letter supports EMI's Master Purchase Agreement with HAC, dated February 2,
2000. The letter states NSP has approved equity investment necessary to support
EMI's performance guarantees.
This obligation is expected to be retained by Xcel and not transferred to New
NSP Utility.
NRG Energy, Inc.
NSP is the holder of a note issued by NRG as part of the purchase price for the
acquisition of a waste management facility from NSP financed with bonds issued
by Ramsey and Washington counties. The balance of the note outstanding at
December 31, 1999 was $6.5 million at a varying rate of interest. This note will
be assigned to and assumed by New NSP Utility in connection with the merger.
Employee Stock Ownership Plan
NSP has three outstanding bank loans, aggregating approximately $11.6 million as
of December 31, 1999, related to the Employee Stock Ownership Plan. NSP makes
mirror loans to the ESOP with interest rates and payment terms identical to
NSP's obligations under the external bank loans. These loans will be assumed by
Xcel.
These agreements are all in the nature of contractual undertakings on the part
of NSP to maintain ownership levels in the specified subsidiary and to cause the
specified subsidiary to maintain specified financial ratios (or similar
undertakings).
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ANNEX II
Investments by NSP in EWGs and FUCOs
A list of the Subsidiaries of NSP which are exempt wholesale generators or
foreign utility companies is contained in Appendix D to the Merger Application.
The following is a brief description of the more significant investments by NSP.
DOMESTIC OPERATIONS
NRG Northeast Assets. NRG has acquired through its affiliates, in four separate
transactions, certain generating assets from Niagara Mohawk Corporation
("NiMo"), The Consolidated Edison Company of New York, Inc. ("ConEd") and
Montaup Electric Company ("MEC"), a wholly-owned subsidiary of Eastern Utilities
Association ("EUA"), for a total cost of US$1.2 billion. NRG has aggregated
these assets into a regional generating company, NRG Northeast Generating LLC
("NRG Northeast") and has financed the purchase of the assets on a portfolio
basis.
Huntley and Dunkirk. In June 1999, NRG completed its acquisition of the Huntley
and Dunkirk generating stations from NiMo for US$355 million. The two coal-fired
power generation facilities are located near Buffalo, New York, and have a
combined summer capacity rating of 1,360 MW.
Oswego Generating Station. In April 1999, NRG reached an agreement to purchase
the 1,700 MW oil and gas-fired Oswego generating station from NiMo and Rochester
Gas and Electric Company for US$91 million. The acquisition closed on October
22, 1999.
The Oswego station is situated on a 93-acre site in Oswego, New York, along the
south shore of Lake Ontario. The plant consists of two 850 MW oil-fired units,
one of which can generate up to 150 MW using natural gas. Oswego Station also
includes the South Oswego Tank Farm, a remote facility consisting of storage
capacity for 3,050,000 barrels of No. 6 fuel oil and a rail terminal facility.
Astoria Gas Turbines and Arthur Kill. In June 1999, NRG completed its
acquisition of the Arthur Kill generating station and the Astoria gas turbines
facility from Consolidated Edison Company of New York, Inc. for US$505 million.
These facilities, which are located in New York, have a combined summer capacity
rating of 1,456 MW.
Somerset Power Station. In April 1999, NRG completed the acquisition of the
Somerset power station for approximately US$55 million from MEC, a wholly-owned
subsidiary of EUA. The Somerset station includes two coal-fired base-load
generating facilities supplying a total of 181 MW and two aeroderivative
combustion turbine peaking units supplying a total of 48 MW. In addition, a
total of 69 MW is on deactivated reserve. It is located on the west bank of the
Taunton River in Somerset, Massachusetts and is interconnected with the NEPOOL
market.
CL&P Assets. In July 1999, NRG executed a binding agreement to purchase four
fossil fuel electric generating stations and numerous remote gas turbines
totalling 2,235 MW from Connecticut Light
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& Power Company (CL&P") for US$460 million. The acquisition closed in the fourth
quarter of 1999.
The assets acquired from CL&P (collectively the "CL&P assets") are comprised of
the Middletown, Montville, Devon and Norwalk Harbor gas and oil-fired steam
generating stations totaling 2,108 MW and 127 MW of remote gas turbines at
Branford, Torrington and Cos Cob, Connecticut.
Middletown Station, a 856 MW steam-powered plant located beside the Connecticut
River in Middletown, Connecticut, consists of two gas or oil-fired units, one
active and one retired oil-fired unit and one gas turbine. The 498 MW Montville
Station on the Thames River in Uncasville, Connecticut is composed of one gas or
oil-fired unit, one oil-fired unit and two diesel generators. Norwalk Station,
with 353 MW of capacity from two oil-fired units and one gas turbine, is located
on Manresa Island at the mouth of Norwalk Harbor. Devon Station, consisting of
401 MW of generation capacity derived from two gas or oil-fired units and five
gas turbines, is located on the Housatonic River in Milford, Connecticut.
West Coast Power Assets. In May 1999, Dynegy Power Corp. ("Dynegy") and NRG
formed West Coast Power LLC ("WCP" or "West Coast Power"), a Delaware limited
liability company, 50% owned by affiliates of each sponsor. WCP serves as a
holding company for a portfolio of operating companies which own generating
assets in southern California. These assets are currently comprised of the El
Segundo Generating Station, the Long Beach Generating Station, the Encina
Generating Station and 17 combustion turbines in the San Diego area (the "Encina
Combustion Turbines"). The purchase price for the 2,768 MW of assets was
approximately US$561 million.
El Segundo Generating Station. The El Segundo Generating Station ("El Segundo")
is a 1,020 MW plant consisting of four units: two units at 175 MW each and two
units at 335 MW each. El Segundo was purchased from Southern California Edison
Company ("SCE") through a competitive bid process for US$87.7 million on April
3, 1998. El Segundo sells electricity through the California power exchange.
Long Beach Generating Station. The Long Beach Generating Station ("Long Beach")
is a 560 MW (nominal) plant with seven 60 MW gas turbine generators and two 70
MW steam turbine units. The Long Beach plant was purchased from SCE on March 31,
1998 through a competitive bid process for US$29.8 million. Long Beach sells
electricity and ancillary services through the California power exchange and
through bilateral contracts.
Encina Generating Station. The Encina Generating Station ("Encina") is located
in Carlsbad, California and consists of five steam-electric generating units and
one combustion turbine with net generating capacity of 965 MW. Encina was
purchased from San Diego Gas & Electric ("SDG&E") on May 21, 1999 at a purchase
price of US$290.5 million.
Encina Combustion Turbines. The Encina Combustion Turbine assets consist of 17
combustion turbine generator sets (the "CTs") with an aggregate capacity of 253
MW, located on seven different sites in San Diego County. On May 21, 1999, NRG
and Dynegy purchased the CTs from SDG&E through a competitive bid process. The
CTs' acquisition had a purchase price of US$69.1 million. The CTs have the
ability to provide spinning reserve, black start capability, quick start
capability,
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voltage support and quick load capability for the ancillary services market.
Like the Encina Generating Station, these CTs have been designated as must-run
by the California ISO.
Rocky Road Project. In December 1999, NRG acquired a 50% member interest in
Rocky Road Power LLC ("Rocky Road") from Dynegy. Rocky Road owns a 250 MW
natural gas-fired generating facility located in East Dundee, Illinois. NRG paid
approximately US$60 million for its 50% interest in Rocky Road.
INTERNATIONAL OPERATIONS
Loy Yang Power. NRG has a 25.4% interest in Loy Yang Power ("Loy Yang") which
owns and operates a 2,000 MW brown coal fired thermal power station (the "Power
Station") and the adjacent Loy Yang coal mine (the "Mine") located in Victoria,
Australia. The Power Station has four generating units, each with a 500 MW
boiler and turbo generator, which commenced commercial operation between July
1984 and December 1988. In addition, Loy Yang manages the common infrastructure
facilities which are located on the Loy Yang site, which services not only the
Power Station, but also the adjacent Loy Yang B 1000 MW power station, a
pulverized dried brown coal plant, and several other nearby power stations.
NRG's partners in Loy Yang are CMS Energy, which owns approximately 50% of Loy
Yang, and Horizon Energy, an Australian-based investment company, which owns the
remaining 25% interest in the project.
Gladstone Power Station. In March 1994, NRG became the operator of, and a 37.5%
joint venture equity participant in, the Gladstone Power Station ("Gladstone")
in Queensland, Australia. This coal-fired facility, previously owned by the
Queensland Electricity Commission, has a design capacity of 1,680 MW of which
NRG has a 630 MW interest. Electricity generated by the station is sold to the
Queensland Power Trading Corporation and also to Boyne Smelters Limited located
at Boyne Island, Queensland pursuant to long-term power purchase agreements.
NRG, though an Australian subsidiary, operates the Gladstone plant.
Other participants in the Gladstone joint venture are of Comalco Limited,
Marubeni Corporation, Sumitomo Corporation and Sumitomo Light Metal Industries,
Mitsubishi Corporation and Mitsubishi Materials Corporation, and Yoshida Kogyo.
Collinsville Power Station. The Collinsville Power Station ("Collinsville") is a
192 MW coal-fired power generation facility located in Collinsville, Australia.
In March 1996, NRG acquired a 50% ownership interest in Collinsville when it was
privatized by the Queensland State government. NRG's partner in this acquisition
is Transfield Holdings Pty Ltd ("Transfield"), an Australian infrastructure
contractor, with which NRG formed an unincorporated joint venture to refurbish
this plant. The joint venture contracted with an affiliate of Transfield to
complete the refurbishment of the facility under a turn-key contract. The
operation and maintenance of the facility is handled by Collinsville Operations
Pty Ltd. ("COPL"), a 50% owned subsidiary of NRG. COPL has entered into a
maintenance contract with Transfield to perform required maintenance on the
facility and a technical services agreement with NRG for staffing and assistance
with certain operational functions.
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Energy Development Limited. On February 6, 1997, NRG signed a subscription
agreement with Energy Development Limited ("EDL") to acquire up to 20% of its
common stock and an additional 15% of its preference shares at a $2.20/share
(Australian currency). EDL is a publicly traded Australian company engaged in
independent power generation from landfill gas, coal seam methane and natural
gas. It is the largest generator of power from coal seam methane in the world
and operated over 200 MW of generation throughout Australia. It also has
projects in the United Kingdom, Asia and New Zealand. On February 11, 1997, NRG
made an initial purchase of 7.02% (4.5 million shares) of EDL's common stock. In
April 1998, NRG exercised its option to acquire 16.8 million convertible,
non-voting preference shares of EDL for U.S. $24.8 million, bringing NRG's total
investment in EDL to $44.5 million or approximately a 34% ownership interest.
Energy Center Kladno ("ECK") and Energy Center Kladno Generating ("ECKG"). The
Energy Center Kladno project, located in Kladno, the Czech Republic, consists of
two distinct phases - an existing plant requiring refurbishing and a large
expansion, ECKG. In 1994, NRG acquired an interest in the existing coal-fired
electricity and thermal energy generation facility that can supply 28 Mwe of
electrical energy, and 150 MWt of steam and heated water. NRG and its partners
announced the Financial Close of this US$401 million project in May 1997.
NRG's partners in the ECKG project include El Paso Energy, Nations Energy, TECO
Power Services, Mosbacher Power Group and STE. STE, the Czech electric utility,
also purchases power from ECKG under a long-term power purchase agreement.
Full commercial operation of ECKG is expected in the first quarter of 2000.
Schkopau Power Station. In 1993, NRG and PowerGen plc of the United Kingdom each
acquired a 50% interest in a German limited liability company, Saale Energie
GmbH ("Saale"). Saale then acquired a 41.9% interest in a 960 MW coal-fired
power plant that was under construction in the city of Schkopau, which is
located in the former East Germany. PreussenElecktra Kraftwerke Ag ("PE"), a
German energy company, owns the remaining 58.1% interest in Schkopau and
operates the plant. The partnership of Saale and PE that owns the plant is
called Kraftwerk Schkopau GbR.
MIBRAG. In 1993, NRG, through a wholly-owned foreign subsidiary, agreed to
acquire a 33% interest in the coal mining, power generation and associated
operations of Mitteldeutsche Braunkohlengesellschaft mbH ("MIBRAG"), located
south of Leipzig, Germany. MIBRAG is a German corporation formed by the German
government to hold two open-cast brown coal (lignite) mining operations, a lease
on an additional mine, the associated mining rights and rights to future mining
reserves, two small industrial power plants and circulating fluidized bed power
plant, a district heating system and coal briquetting and dust production
facilities. The coal mines have estimated reserves of approximately 789 million
metric tons of lignite. Under the acquisition agreement, Morrison Knudsen
Corporation and PowerGen plc also each acquired a 33% interest in MIBRAG, while
the German government retained one-percent interest in MIBRAG. The investment
partners began operating MIBRAG effective January 1,1994, and the legal closing
occurred August 11, 1994. In December 1996, each of the investor parties
purchased one third of the remaining one percent interest held by the German
government.
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Enfield. In December 1996, NRG reached an agreement with Indeck Energy Services
(Europe) ("Indeck") to sell a 50% interest in the Enfield Energy Center, a 350
MW gas-fired project in the North London borough of Enfield. The power station
was scheduled to commence operations in November of 1999 but due to problems
with the turbine blades the power station completion date has been pushed back
until mid-2000. Discussions are underway with the EPC contractor to negotiate a
settlement that will compensate NRG for the delay in completion of the power
station. In December 1998, NRG sold one-half of its 50% interest in the Enfield
project to an affiliate of El Paso International.
COBEE. In December 1996, NRG acquired an interest in Compania Boliviana de
Energia Electrica S.A.-Bolivian Power Company Limited (COBEE), the second
largest generator of electricity in Bolivia. The acquisition was consummated
through a Netherlands corporation, Tosli Investments B.V. ("Tosli"), which is
equally owned by subsidiaries of NRG and Vattenfall AB of Sweden ("Vattenfall").
In December 1996, Tosli completed a successful tender offer for the shares of
COBEE, which were listed on the New York Stock Exchange, acquiring 96.6% of
COBEE's outstanding common shares for a total purchase price of US$175 million.
COBEE shares were delisted in January 1997. In November 1999, Tosli completed a
second tender offer for the remaining shares of COBEE. As a result of that
tender offer, Tosli acquired an additional 2.3% of the shares of COBEE, giving
Tosli a 98.9% ownership interest in the company.
Scudder Latin America Trust for Independent Power ("SLAP"). NRG owns a 25%
interest in the SLAP, an investment fund formed to make equity investments in
Latin America. Through SLAP, NRG owns the following projects:
o Mamonal is a 90 MW natural gas fired plant located in Cartagena,
Colombia. NRG's net ownership interest is 6.45%.
o Termotasajero is a 150 MW coal fired plant located in Cucuta,
Colombia. NRG's net ownership interest is 10.03%.
o Aguaytia is a 155 MW natural gas fired plant located in Pucallpa,
Peru. NRG's net ownership interest is 3.28%.
o ELCOSA is a 80 MW heavy oil fired plant located in Puerto Cortes,
Honduras. NRG's net ownership interest is 7.65%.
o Orzunil is a 24 MW geothermal plant located in Zunil, Guatemala. NRG's
net ownership interest is 12.25%.
o Jamaica Energy Partners (Dr. Bird) is a 74 MW diesel plant located in
Old Harbour, Jamaica. NRG's net ownership interest is 8.86%.
o Termovalle is a 199 MW natural gas fired plant located in Cali,
Columbia that is currently not operating. NRG's net ownership interest
is 4.88%.
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Kingston Cogeneration. Kingston is a 110 MW combined cycle gas turbine project
in Ontario, Canada. The project commenced operation in 1996. It sells power to
Ontario Hydro under s 20-year power purchase agreement, which provides for a
fixed capacity payment and a variable energy payment, provided the plant meets
certain operating targets. Up to 150,000 lbs./hr. of thermal energy is sold to
Hoechst-Celanese and gas is supplied under a 20-year agreement with Pan-Canadian
Petroleum Limited. NRG has a 25% general partnership interest in this project,
though the project is operated by AES. The project was financed with a C$193.6
million construction and term loan led by Bank of Nova Scotia and Credit Suisse,
which will mature in March 2013.
Bulo Bulo. Bulo Bulo is a partnership among NRG, Vattenfall and Pan American
Energy to build an 80 MW gas-fired plant in Bolivia. NRG and Vattenfall invested
through a jointly held holding company, Tosli Investments B.V., which also owned
NRG's and Vattenfall's ownership of COBEE. Pan American Energy, a subsidiary of
BP Amoco, sells fuel to the project. NRG will invest approximately US$16 million
into Bulo Bulo throughout the construction period. Construction began in October
1999 and is expected to be completed in the second quarter of 2000.
PENDING ACQUISITIONS
Cajun. Cajun is non-profit, member-owned electric generation and transmission
cooperative which supplies wholesale electric power to its members/owners (the
"Members") through long-term wholesale power contracts. Collectively, the
Members serve over one million people throughout 56 of Louisiana's 64 parishes.
This represents a service area of almost 40,000 square miles, or 75 percent of
Louisiana's land area. Cajun is one of the largest generation and transmission
cooperatives in the nations. The company is headquartered in Baton Rouge,
Louisiana.
In December 1994, Cajun Electric Power Cooperative, Inc. ("Cajun") filed for
protection under Chapter 11 of the Bankruptcy Code largely as a result of an
ill-fated nuclear investment in River Bend. During the latter part of 1995, a
Bankruptcy Trustee was selected. NRG has been involved in an effort to acquire
these assets since summer 1995, and had been part of the Trustee's proposed plan
of reorganization since early 1996.
On August 18, 1999, the federal district court issued a settlement agreement
order. As part of that agreement SWEPCO, which had submitted a competing plan of
reorganization, withdrew its plan before the bankruptcy court. On September 15,
1999, the LPSC approved the settlement agreement and agreed to a schedule, which
will grant Louisiana Generating's request to remove the assets from the rate
base. NRG has developed a schedule for FERC review and approval that should
enable NRG to reach financing closing during the first quarter of 2000.
Estonia. The Estonia project is a 3,000 MW oil shale-fired plant in which NRG
seeks to purchase a 49% interest from the current owner, the state-owned Eesti
Engergia ("EE"). In December 1996, representatives of the Estonian Government,
EE and NRG signed a development and cooperation agreement ("DCA"). The DCA
defines the terms under which the parties are to establish a plan to develop and
refurbish the Balti and Eesti Power Plants. Pursuant to the DCA, a business plan
for the joint project was submitted in June 1997. In September 1997, the
Estonian Government rejected NRG's business plan. However, early in 1998 the
Estonian Government and EE agreed to work on
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a new business plan with NRG, which was submitted in May 1998. NRG has stated
its willingness to invest up to $67.25 million of equity into the project and to
assist the joint project in obtaining non-recourse debt to fund the required
capital improvements to the Balti and Eesti Power Plants. A commission has been
established to negotiate all terms and agreements between NRG, EE and the
Estonian Government relating to the purchase of the Balti and Eesti Power
Plants. The negotiation process is expected to be complete by the end of the
third quarter of 2000.
Seyitomer. NRG, with its partners Peabody Group, Koc Holding, Demir Export and
EGEM Energy won the bid to acquire the 600 MW lignite-fired plant. The plant
consists of four, 150 MW units. Power from the Seyitomer station will be sold to
TEAS, the Turkish national power company, under a 20-year power sales agreement.
Seyitomer is expected to close in the second quarter of 2000. NRG will hold
31.75% ownership and expects to contribute approximately US$30 million in equity
into the project.
Kangal. In 1998, NRG signed an agreement to acquire the 450 MW coal-fired Kangal
plant in central Turkey with its partners Peabody Group, Koc Holding and Demir
Export. Kangal is expected to close in the second quarter of 2000.
Killingholme. In November 1999, NRG agreed to purchase the 556 MW Killingholme A
station form National Power plc. Killingholme A was commissioned in 1994 and is
a combined-cycle, gas-turbine power station located in England. The purchase
price for the station will be approximately 410 million pounds sterling
(approximately US$664 million at current exchange rates), subject to commercial
adjustments. The purchase price includes 20 million pounds sterling
(approximately US$32 million at current exchange rates) that is contingent upon
the successful completion of negotiations regarding NRG's purchase of National
Power's Blyth generating facilities. The Blyth assets consist of two coal-fired
stations totaling 1,140 MW of generation capacity located in England.
Conectiv Assets. In January 2000, NRG agreed to purchase 1,875 MW of fossil
fueled electric generating capacity and other assets from Conectiv of
Wilmington, Delaware for US$800 million. The fossil-fueled generating facilities
consist of Conectiv's wholly-owned BL England, Deepwater, Indian River and
Vienna steam stations plus Conectiv's interest in the Conemaugh and Keystone
steam stations. Other assets in the purchase are the 241-acre Dorchester site
located in Dorchester County, Maryland, certain Merrill Creak Reservoir
entitlements in Harmony Township, New Jersey and certain excess emission
allowances. NRG will sell 500 MW of energy around the clock to Delmarva (a
subsidiary of Conectiv) under a five-year power purchase agreement. The
remaining energy and capacity will be sold in PJM and neighboring markets.
The BL England Steam Station is a 447 MW coal and oil-fired generating facility
in Beesley's Point, New Jersey. The Deepwater steam station is a 239 MW gas, oil
and coal facility near Pensville, New Jersey. The Indian River Steam Station is
a 784 MW coal fired facility near Millboro, Delaware. The Vienna Steam Station
is a 170 MW oil-fired generating station located in the town of Vienna,
Maryland. Of the 1,711 MW coal-fired Conemaugh Steam Station, located near
Pittsburgh, Pennsylvania, NRG will acquire a 7.55 percent ownership or 129 MW of
generation. NRG will also acquire a 6.17 percent ownership or 160 MW in the
1,711 MW coal-fired Keystone Steam Station also located near Pittsburgh,
Pennsylvania.
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Other Ongoing Development. NRG continues to pursue other acquisition and
greenfield development opportunities. These opportunities are at various stages
of the due diligence process. NRG, however, is precluded by the terms of the
respective confidentiality agreement from disclosing the identity and nature of
the acquisition or development opportunities.
Because of the many complexities inherent in the acquisition, development and
financing of projects, there can be no assurance that any of NRG's pending
acquisitions and projects under development, including those described above,
will be consummated.
EXHIBIT H
FORM OF FEDERAL REGISTER NOTICE
New Century Energies, Inc. ("NCE"), a registered holding company under the
Public Utility Holding Company Act of 1935, as amended (the "Act"), whose
principal business address is at 1225 17th Street, Denver, Colorado 80202-5533,
Northern States Power Company ("NSP"), a public utility and holdings company
exempt from registration pursuant to an order of the Securities and Exchange
Commission (the "Commission") under Section 3(a)(2) of the Act, whose principal
business address is at 414 Nicollet Mall, Minneapolis, Minnesota 55401 and
certain of their respective direct and indirect subsidiaries identified below
have filed an Application/Declaration requesting authority under sections 6(a),
7, 9(a), 10, 12(b), 12(c), 32 and 33 of the Act and rules 43, 45, 46, 53 and 54
under the Act.
NCE and NSP have previously filed with the Securities and Exchange
Commission (the "Commission") an Application/Declaration on Form U-1, File No.
70-9539 (the "Merger Application") under the Act seeking approvals related to
the proposed combination of NCE and NSP. Pursuant to an Agreement and Plan of
Merger, dated as of March 24, 1999 (the "Merger Agreement"), NCE will merge with
and into NSP. NSP, as the surviving corporation, will change its name to Xcel
Energy Inc. ("Xcel"). Also, as part of the Merger, NSP is expected to transfer
its existing utility operations that are being conducted directly by NSP at the
parent company level to a newly-formed, wholly-owned subsidiary ("New NSP") of
Xcel.
This Application seeks authority with respect to the financing
arrangements, ongoing financings and other matters pertaining to Xcel and its
subsidiaries after giving effect to the Merger. The Applicants include NCE's
utility subsidiaries: Public Service Company of Colorado ("PSCo"), Southwestern
Public Service Company ("SPS"), and Cheyenne Light, Fuel and Power Company
("Cheyenne"), and certain of NCE's non-utility subsidiaries, including New
Century Services, Inc., NC Enterprises, Inc. ("NC Enterprises"), WestGas
Interstate Inc., New Century International, Inc., e prime, inc., Utility
Engineering Corporation, Quixx Corporation, The Planergy Group, Inc., New
Century-Cadence, Inc., WYCO Development LLC, Natural Fuels Corporation, P.S.R.
Investments, Inc., Green and Clear Lakes Company, 1480 Welton, Inc., and PS
Colorado Credit Corporation ("PSCCC"). The Applicants also include NSP and its
utility subsidiaries: New NSP, which will be formed in connection with the
Merger, Northern States Power Company, a Wisconsin corporation ("NSP-W"), and
certain of NSP's non-utility subsidiary companies including Viking Gas
Transmission Company, NRG Energy, Inc., Energy Masters International, Inc.,
Seren Innovations, Inc., Ultra Power Technologies, Inc., Eloigne Company, NSP
Financing I, First Midwest Auto Park, Inc., United Power and Land Company, Reddy
Kilowatt Corporation and Nuclear Management Company .
Presently pending before the Commission is NSP's application for approval
to transfer the assets and operations of Black Mountain Gas Company ("BMG"),
which currently operates as a division of NSP, to a subsidiary of NSP (File No.
70-09337). NSP's intent is to accomplish the transfer of such assets promptly
upon receipt of the necessary regulatory approvals.
As used herein, the term "Utility Subsidiaries" means each of the utility
subsidiaries of NCE, New NSP, NSP-W and BMG. As used herein, the term
"Non-Utility Subsidiaries" means each of the direct and indirect non-utility
subsidiaries of NCE and NSP, including those identified above, and their
respective subsidiaries, as well as any future direct or indirect non-utility
subsidiaries of NCE, NSP or Xcel whose equity securities may be acquired in
accordance with the Commission's authorization in this proceeding or in
accordance with an exemption provided under the Act or rules thereunder. As used
herein, the term "Subsidiaries" means the Utility Subsidiaries and the
Non-Utility Subsidiaries collectively.
Requested Approvals. The Applicants request authority for the period
through December 31, 2004 ("Authorization Period"), unless otherwise noted, for
(i) external financings by Xcel, Cheyenne and BMG, (ii) intrasystem financing,
including guarantees, between Xcel and certain of the Subsidiaries, and among
certain of the Subsidiaries, (iii) Xcel and, to the extent not exempt under rule
52, the Subsidiaries to enter into hedging transactions for existing and
anticipated debt in order to manage interest rate costs; (iv) the issuance by
the Subsidiaries of types of securities not exempt under rules 45 and 52; (v)
Xcel and the Subsidiaries to establish, guarantee the obligations of, and borrow
the proceeds of the debt and preferred securities issued by, one or more
financial entities ("Financing Subsidiaries"), (vi) Xcel and any direct or
indirect subsidiary of Xcel to acquire the equity securities of one or more
intermediate subsidiaries organized for the purpose of acquiring, financing, and
holding the securities of one or more Non-Utility Subsidiaries and the
reorganization thereof; (vii) Xcel and any direct or indirect subsidiary of Xcel
to pay dividends out of capital and unearned surplus; and (viii) use of proceeds
of financings to invest in EWGs and FUCOs.
The proceeds from the financings will be used for general corporate
purposes, including (1) investments by and capital expenditures of Xcel and its
Subsidiaries, (2) the repayment, redemption, refunding or purchase by Xcel or
any of its Subsidiaries of securities issued by such companies exempt under Rule
42, (3) working capital requirements of Xcel and its Subsidiaries, and (4) other
lawful general purposes. Any use of proceeds to make investments in Rule 58
Subsidiaries will be subject to the investment limitation of such rule, and any
use of proceeds to make investments in any EWG or FUCO will be subject to the
investment limitation of Rule 53, as it may be modified by order of the
Commission.
In consideration for its purchase from PSCo of the stock of New Century
International, Inc., ("NCI") which indirectly holds a 50% interest in Yorkshire
Power Group Limited, NC Enterprises issued a note payable to PSCo for $292.6
million, representing the purchase price. It is expected that Xcel International
Group (formerly NCI) will assume NC Enterprises' obligations to PSCo under that
note. Among other uses of the proceeds of the financings proposed herein, Xcel
plans to make advances or cash capital contributions to that new intermediate
holding company to enable it to prepay that note in whole or in part to PSCo.
By order dated April 7, 1999 (HCAR No. 27000), NCE and certain Subsidiaries
were authorized to engage in, among other things, various external and
intrasystem financing transactions through December 31, 2001 and by order dated
February 26, 1999 (HCAR No. 26982), NCE was authorized to use proceeds of
financing to invest in EWGs and FUCOs if the aggregate investment in EWGs and
FUCOs does not exceed 100% of the system's consolidated retained earnings. These
companies will relinquish the authority granted in those orders on the effective
date of an order by the Commission in this proceeding approving the proposed
transactions.
1. Xcel External Financing
A. Common Stock and Long-Term Debt of Xcel; Long-Term Debt and Preferred
Securities of Financing Subsidiaries
Xcel requests authority to issue and sell common stock and long-term debt
securities during the Authorization Period, provided that the aggregate proceeds
thereof, together with any long-term and preferred securities issued by
Financing Subsidiaries established by Xcel (as described below), does not exceed
$2.0 billion. All such common stock sales will be at rates or prices and under
conditions negotiated or based upon, or otherwise determined by, competitive
capital markets.
Xcel may also issue common stock in public or privately negotiated
transactions in exchange for the equity securities or assets of other companies,
provided that the acquisition of any such equity securities or assets has been
authorized in a separate proceeding or is exempt under the Act or the rules
thereunder.
The long-term debt of Xcel (a) may be convertible into any other securities
of Xcel, (b) will have maturities ranging from one to 50 years, (c) may be
subject to optional and/or mandatory redemption, in whole or in part, at par or
at various premiums above the principal amount thereof, (d) may be entitled to
mandatory or optional sinking fund provisions, (e) may provide for reset of the
coupon pursuant to a remarketing arrangement, and (f) may be called from
existing investors by a third party.
Xcel will not, without further approval of the Commission, issue any
long-term debt securities that are not at the time of original issuance rated at
least investment grade by a nationally recognized statistical rating
organization.
B. Short-Term Debt
The Applicants request authority to have outstanding at one time during the
Authorization Period short-term debt in an aggregate principal amount of up to
$1.5 billion. To provide financing for general corporate purposes, including
working capital requirements and capital expenditures, Xcel may sell commercial
paper, from time to time, in established domestic or European commercial paper
markets. Xcel also proposes to establish bank lines in an aggregate principal
amount not to exceed the authorized amount of short-term debt. Loans under these
lines will have a maturity date not more than one year from the date of each
borrowing. Xcel may engage in other types of short-term financing generally
available to borrowers with investment grade credit ratings as it may deem
appropriate in light of its needs and market conditions at the time of issuance.
C. Other Securities
Xcel also proposes to issue other types of securities from time to time as
necessary or desirable in order to minimize financing costs or obtain new
capital under then existing market conditions. The Applicants request the
Commission to reserve jurisdiction over the issuance of securities other than
the specific securities described above and undertakes to file a post- effective
amendment in this proceeding which will describe the amount and terms of such
securities and request a supplemental order authorizing the issuance thereof.
2. Utility Subsidiary External Financing
Rule 52 under the Act provides an exemption from the prior authorization
requirements of the Act for most of the issuances and sales of securities by the
Utility Subsidiaries. However, certain external financings by the Utility
Subsidiaries for which authorization is requested herein may be outside the
scope of the Rule 52 exemption.
A. Short-Term Debt of Cheyenne and BMG
All securities of Cheyenne, except for securities with maturities of less
than 12 months, are approved by the Wyoming Public Service Commission (the
"Wyoming Commission"). Accordingly, Cheyenne requests authority to issue
short-term debt to associate or non-associate lenders in an aggregate amount at
any one time outstanding not to exceed $40 million. Cheyenne also proposes to
engage in other short-term financing as it may deem appropriate in light of its
needs and market conditions at the time of issuance.
All securities of BMG, except for securities with maturities of more than
12 months, are approved by the Arizona Corporation Commission. Accordingly,
authority is requested for BMG to issue short-term debt to one or more associate
or non-associate lenders in an aggregate principal amount of short-term debt to
be outstanding at any one time during the Authorization Period not to exceed $40
million.
Such short-term financing could include, without limitation, commercial
paper sold in established domestic or European commercial paper markets in a
manner similar to Xcel, bank lines and debt securities issued under its
indentures and note programs. Borrowings under bank lines and other borrowings
shall have a maturity of not more than one year from the date of each borrowing.
B. Other Securities
The Utility Subsidiaries have requested that the Commission reserve
jurisdiction over the issuance of other types of securities with respect to
which the exemption under Rule 52 would not apply. They also undertake to cause
a post-effective amendment to be filed in this proceeding which will describe
the general terms of each such security and the amounts thereof and request a
supplemental order of the Commission authorizing the issuance thereof by the
subject Utility Subsidiary.
3. Benefit Plans; Dividend Reinvestment Plan
Xcel requests authority to issue an additional 30 million shares of common
stock (subject to adjustment for stock splits) of Xcel from time to time through
December 31, 2008 under its benefit plans and dividend reinvestment plan. Shares
of Common Stock for use under Stock Plans may either be newly issued shares,
treasury shares or shares purchased in the open market. Xcel may make
open-market purchases of common stock or options in accordance with the terms of
or in connection with the operation of the plans pursuant to Rule 42. Xcel may
also acquire treasury shares through other open-market purchases.
4. Nonutility Subsidiary External Financing
The Applicants believe that, in almost all cases, financings by Non-
Utility Subsidiaries will also be exempt from prior Commission authorization
pursuant to Rule 52(b). The Non-Utility Subsidiaries request that the Commission
reserve jurisdiction over the issuance of any other securities with respect to
which the exemption under Rule 52(b) would not apply. They also undertake to
cause a post-effective amendment to be filed in this proceeding which will
describe the general terms of each such non-exempt security and the amounts
thereof and request a supplemental order of the Commission authorizing the
issuance thereof by the subject Non-Utility Subsidiary.
5. Intra-system Financing
The Applicants request authority (i) for Xcel to finance certain of the
Subsidiaries and certain of the Subsidiaries to finance other Subsidiaries and
(ii) Xcel and the Subsidiaries to enter into guarantees, obtain letters of
credit, enter into expense agreements or otherwise provide credit support with
respect to the obligations of Subsidiaries as may be appropriate to enable such
Subsidiaries to carry on in the ordinary course of their respective businesses,
in an aggregate amount not to exceed $2.5 billion outstanding at any one time
during the Authorization Period. The $2.5 billion excludes financing that is
exempt pursuant to Rules 45(b) and 52, as applicable.
Intra-system financings would generally be in the form of cash capital
contributions, open account advances, loans and/or capital stock purchases.
Intra-system financings will provide funds for general corporate purposes and
other working capital requirements, investments and capital expenditures. Xcel
or the lending Subsidiary will determine, at its discretion, how much financing
to give each borrowing Subsidiary as its needs dictate during the Authorization
Period. Generally, Xcel's or the lending Subsidiary's loans to, and purchase of
capital stock from, such borrowing Subsidiaries will be exempt under Rule 52,
and capital contributions and open account advances without interest will be
exempt under Rule 45(b).
The Subsidiaries may issue and Xcel or other Subsidiaries may acquire other
types of securities which do not qualify for use of Rule 52 but which are
considered appropriate during the Authorization Period. Xcel and the
Subsidiaries request that the Commission reserve jurisdiction over the issuance
of such additional types of securities and the amounts thereof. They also
undertake to cause a post-effective amendment to be filed in this proceeding
which will describe the general terms of each such security and the amounts
thereof and request a supplemental order of the Commission authorizing the
issuance thereof by the subject Subsidiary.
6. Existing Financing Arrangements
NCE and NSP each have existing financing arrangements that were or will be
entered into prior to the Merger. They request authorization to extend such
arrangements as discussed below.
The NCE system has entered into various financing transactions based upon
prior Commission orders. With respect to existing financing obligations by NCE
itself, NCE will to the extent possible transfer such obligations to Xcel, and
will count such obligations towards the applicable authorization limits
requested herein as though Xcel itself had entered into such arrangements. With
respect to the existing financing obligations and arrangements that NCE's
subsidiaries have entered into and that they are able to retain post-Merger,
such obligations and arrangements will be counted towards the applicable
authorization limits requested herein.
The Commission has previously approved the formation of NC Enterprises and
its acquisition of the securities of certain of PSCo's and all of SPS's
non-utility subsidiaries. With respect to the SPS direct subsidiaries, UE and
Quixx, the Commission authorized their transfer through the sale by SPS of all
of their outstanding common stock to NC Enterprises in exchange for a note for
$119.1 million issued by NC Enterprises having a thirty-year maturity (the "SPS
Note"). Applicants request authorization to transfer NC Enterprises' obligation
under the SPS Note to a different entity within the Xcel system. Because the SPS
Note has been specifically approved by the Commission, the outstanding balance
under the SPS Note will not be counted towards the intra-system authorization
limits requested herein.
The Commission previously authorized PSCo to transfer NCI, which was
previously a wholly-owned subsidiary of PSCo, to NC Enterprises in exchange for
a note issued by NC Enterprises (the "PSCo Note"). Although the PSCo Note has a
twenty-year maturity, it was initially anticipated that NC Enterprises would
prepay the PSCo Note by year-end 1999 with funds obtained through capital
contributions from NCE. The applicants in File No. 70-9193 committed that in the
event that the PSCo Note was not prepaid on this schedule, they would notify the
Commission of the new payment plan through the filing of a post-effective
amendment. For a variety of reasons, the decision was made not to prepay the
PSCo Note in its entirety on the originally contemplated timetable, although NC
Enterprises has prepaid approximately one-third of the balance, reducing the
principal balance to $192.6 million. Xcel International Group intends to prepay
the PSCo Note by December 31, 2004 through internally generated funds, its own
financings or through capital contributions from Xcel. Applicants commit to
notify the Commission through a post-effective amendment if this plan changes.
Xcel may use the proceeds from the financings authorized herein to make capital
contributions to enable the prepayment of the PSCo Note by December 31, 2004.
Applicants further request authority to transfer NC Enterprises'
obligations under the note to a different entity in the Xcel system for the same
reason specified above with respect to the SPS Note. Because the PSCo Note, like
the SPS Note, has been specifically authorized by the Commission, the
outstanding balance under the PSCo Note will not be counted towards the
intra-system authorization limits requested herein.
The Applicants request Commission authorization to maintain in place
through the Authorization Period the existing financing arrangements of NSP and
its Subsidiaries, and any other guarantees and other credit arrangements entered
into by NSP and its subsidiaries prior to completion of the Merger and which
remain in effect on the date the Merger is completed. All intra-company
financings, and guarantees or other credit support arrangements with respect to
obligations of the Subsidiaries will be included in the aggregate limits set
forth above.
NSP has entered into an Indenture dated as of January 30, 1997, as
supplemented (the "NSP Indenture"), between NSP and Norwest Bank Minnesota,
National Association pursuant to which NSP has issued Junior Subordinated
Debentures to NSP Financing I which has in turn issued Trust Originated
Preferred Securities to investors. Payments by NSP on account of the Junior
Subordinated Debentures are used by NSP Financing I to make payments on account
of the Trust Originated Preferred Securities. Amounts in respect of the Trust
Originated Preferred Securities are guaranteed by NSP. Upon consummation of the
Merger, the obligations under the Junior Subordinated Debentures will be
assigned to New NSP, but Xcel will not be released from its liability thereon.
Xcel requests Commission authorization to maintain in effect the above-described
financing arrangement and to not include such obligations under the $2.0 billion
investment limitation described above.
7. Interest Hedge Transactions
Xcel, and to the extent not exempt pursuant to Rule 52, the Subsidiaries,
request authorization to enter into interest rate hedging transactions with
respect to existing indebtedness ("Interest Rate Hedges"), subject to certain
limitations and restrictions, in order to reduce or manage interest rate cost.
Interest Rate Hedges would only be entered into with counterparties ("Approved
Counterparties") whose senior debt ratings, or the senior debt ratings of the
parent companies of the counterparties, as published by Standard and Poor's
Ratings Group, are equal to or greater than BBB, or an equivalent rating from
Moody's Investors Service, Fitch Investor Service or Duff and Phelps.
Interest Rate Hedges will involve the use of financial instruments commonly
used in today's capital markets, such as interest rate swaps, caps, collars,
floors, and structured notes, or transactions involving the purchase or sale,
including short sales, of U.S. Treasury Securities.
In addition, the Applicants request authorization to enter into interest
rate hedging transactions with respect to anticipated debt offerings (the
"Anticipatory Hedges"), subject to certain limitations and restrictions. Such
Anticipatory Hedges would only be entered into with Approved Counterparties, and
would be utilized to fix and/or limit the interest rate risk associated with any
new issuance through (i) a forward sale (a "Forward Sale") on, (ii) the purchase
of put options (a "Put Options Purchase") on, (iii) a Put Options Purchase in
combination with the sale of call options (a "Zero Cost Collar") on, (iv)
transactions involving the purchase or sale, including short sales, on or (v)
some combination of a Forward Sale, Put Options Purchase, Zero Cost Collar
and/or other derivative or cash transactions, including, but not limited to
structured notes, caps and collars, appropriate for the Anticipatory Hedges on,
exchange-traded U.S. Treasury futures contracts, U.S. Treasury securities,
and/or any obligation of a U.S. government sponsored agency or instrumentality.
8. Financing Subsidiaries
The Applicants request authority for Xcel and its Subsidiaries to acquire,
directly or indirectly, the equity securities of one or more corporations,
trusts, partnerships or other entities created specifically for the purpose of
facilitating the financing of the authorized and exempt activities (including
exempt and authorized acquisitions) of Xcel and the Subsidiaries through the
issuance of debt or preferred securities to third parties and the loaning of the
proceeds of such financings to Xcel or such Subsidiaries. The proceeds of any
securities issuance by a Financing Subsidiary would be loaned, dividended or
otherwise transferred to Xcel or the Subsidiary that established such Financing
Subsidiary or to such other entity that they may designate. The proceeds of any
securities issuances by a Financing Subsidiary would count against any
applicable authorization limit of Xcel or a Subsidiary establishing such
Financing Subsidiary as though Xcel or the Subsidiary had undertaken the
issuance directly. Xcel or a Subsidiary may, if required, guarantee all or part
of the obligations of any Financing Subsidiary under any securities issued by
the Financing Subsidiary. Xcel or a Subsidiary also may enter into expense
arrangements in respect of the obligations of any such Financing Subsidiary.
However, the amount of any such guarantee by Xcel or a Subsidiary would not be
counted against the authorization limit on intra-system financings and
guaranties described above. Such Financing Subsidiaries would issue and sell
securities to third parties pursuant to Rule 52.
9. Intermediate Subsidiaries
Xcel and its Subsidiaries propose to acquire the securities of one or more
Intermediate Subsidiaries, which would be organized exclusively for the purpose
of acquiring, holding and/or financing the acquisition of the securities of or
other interest in one or more EWGs or FUCOs, Rule 58 Subsidiaries, ETCs or other
non-exempt Non-Utility Subsidiaries. The Intermediate Subsidiaries may also
engage in development activities and administrative activities relating to such
subsidiaries. To the extent such transactions are not exempt from the Act or
otherwise authorized or permitted by rule, regulation or order of the Commission
issued thereunder, the Applicants request authority for Intermediate
Subsidiaries to provide management, administrative, project development and
operating services to such entities.
Xcel may determine from time to time to consolidate or otherwise reorganize
all or any part of its direct and indirect ownership interests in Non-Utility
Subsidiaries and/or Intermediate Subsidiaries through which it may hold
investments in Non-Utility Subsidiaries, and activities and functions related to
such investments, under one or more new Intermediate Subsidiaries. To the extent
such transactions are not exempt from the Act or otherwise authorized or
permitted by rule, regulation or order of the Commission issued hereunder, the
Applicants request any requisite authorization under the Act to accomplish such
reorganizations from time to time.
10. Payment of Dividends Out of Capital and Unearned Surplus
Xcel also proposes, on behalf of its direct or indirect Rule 58
Subsidiaries and Non-Utility Subsidiaries, that such companies be permitted to
pay dividends with respect to the securities of such companies, from time to
time through the Authorization Period, out of capital and unearned surplus
(including revaluation reserve), to the extent permitted under applicable
corporate law.
11. EWGs and FUCOs
Xcel hereby requests Commission authorization to invest proceeds from the
financings authorized hereby in EWGs and FUCOs and to guarantee the obligations
of an EWG or FUCO in compliance with Rule 53(a)(1) such that Xcel's aggregate
investment at any one time during the period covered by this Application,
including any such guarantees of the obligations of an EWG or FUCO at that time
outstanding, will not exceed 100% of its "consolidated retained earnings," as
defined in Rule 53(a)(1)(ii).
Under the Merger Agreement and as noted previously, NCE will merge with and
into NSP and NSP will change its name to Xcel. Upon consummation of the Merger,
Xcel will own indirect interests in EWGs and FUCOs. Aggregate investment in
these entities by Xcel, on a pro forma basis taking into account the Merger, as
of December 31, 1999 is approximately $0.9 billion or 41.9% of Xcel's
consolidated retained earnings, as defined in Rule 53.
