As filed with the Securities and Exchange Commission on August 3, 2000
File No. 70-9539
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 3
TO
FORM U-1 APPLICATION-DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
New Century Energies, Inc. Northern States Power Company
1225 Seventeenth Street 414 Nicollet Mall
Denver, Colorado 80202 Minneapolis, Minnesota 55401
(Name of companies filing this statement and address of principal
executive offices)
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New Century Energies, Inc.
1225 Seventeenth Street
Denver, Colorado 80202
(Name of registered holding company parent of each applicant or declarant)
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Wayne H. Brunetti James J. Howard
Chairman of the Board, Chairman of the Board, President and
President and Chief Executive Officer 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 Vice President and General Counsel
General Counsel Scott M. Wilensky
William M. Dudley Senior Attorney
Associate General Counsel Northern States Power Company
New Century Energies, Inc. 414 Nicollet Mall
1225 Seventeenth Street Minneapolis, Minnesota 55401
Denver, Colorado 80202
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>
Item 1. Description of Proposed Transaction...................................1
A. Introduction.......................................................1
B. Overview of the Transaction........................................3
C. Description of the Parties to the Merger...........................4
1. NCE and its Subsidiaries.......................................4
2. NSP and its Subsidiaries.......................................8
D. Description of the Merger.........................................12
E. Operations of the Combined Company................................14
Item 2. Fees, Commissions and Expenses.......................................14
Item 3. Applicable Statutory Provisions......................................15
A. Merger Analysis -- Overview.......................................16
1. Introduction..................................................16
2. Section 9(a)(2)...............................................17
B. Section 10(b).....................................................18
1. Section 10(b)(1)..............................................18
2. Section 10(b)(2)..............................................23
3. Section 10(b)(3)..............................................25
C. Section 10(c).....................................................28
1. Section 10(c)(1)..............................................28
(a) The Merger will be lawful under Section 8...............28
(b) The Merger will not be detrimental to carrying out
the provisions of Section 11..........................28
(i) Integration of Electric Operations.................30
(a) Interconnection.........................................50
(b) Coordination............................................54
(c) Single Area or Region...................................59
(d) Size....................................................63
(ii) Retention of Combined Gas System..................66
(iii) Coordinated Operations of Combined Gas Properties.71
(a) Loss of economies.......................................73
(b) Same state or adjoining states..........................78
(c) Size....................................................78
(iv) Retention of Other Businesses...................81
2. Section 10 (c)(2).............................................84
D. Section 10(f).....................................................88
<PAGE>
E. Intra-system Transactions.........................................88
1. New Century Services, Inc. (to be renamed Xcel Energy
Services Inc.)............................................88
2. Services, Goods, and Assets Involving the Utility Operating
Companies.................................................91
3. Non-Utility Sale of Goods and Services to EWGs, FUCOs,
and QFs...................................................94
F. Capitalization of New NSP.........................................95
Item 4. Regulatory Approvals.................................................96
A. Antitrust.........................................................96
B. Federal Power Act.................................................96
C. Atomic Energy Act.................................................97
D. State Public Utility Regulation...................................97
E. Other.............................................................99
Item 5. Procedure............................................................100
Item 6. Exhibits and Financial Statements....................................101
A. Exhibits.........................................................101
B. Financial Statements.............................................105
Item 7. Information as to Environmental Effects..............................106
<PAGE>
New Century Energies, Inc. and Northern States Power Company hereby amend and
restate in its entirety their Application-Declaration in File No. 70-9539, as
previously amended, and file additional exhibits thereto.
Item 1. Description of Proposed Transaction
A. Introduction
This Application-Declaration seeks approvals relating to the proposed
combination (the "Merger") of New Century Energies, Inc., a Delaware corporation
("NCE"), and Northern States Power Company, a Minnesota corporation ("NSP").
Upon receipt of all necessary approvals, NCE will be merged with and into NSP,
which will be renamed Xcel Energy Inc. ("Xcel"). Also as part of the Merger, NSP
intends to transfer all of its existing electric and natural gas utility
facilities and operations currently conducted directly by NSP at the parent
company level to a newly formed, wholly-owned subsidiary (referred to herein as
"New NSP"). Following the consummation of the Merger, Xcel will register with
the Securities and Exchange Commission (the "Commission") as a holding company
under the Public Utility Holding Company Act of 1935, as amended (the "1935 Act"
or the "Act")./1
The combination of NSP and NCE, two well-run, mid-sized, mid-continent
energy companies, will result in a financially strong and competitive regional
energy company. A key motivating factor for the proposed transaction is the
shared vision by the senior managements of both NSP and NCE (the "Applicants")
concerning the changes that are occurring in the utility industry and the
actions needed to respond effectively to those changes. The Merger will produce
substantial benefits to the public, consumers and investors and will meet all
applicable standards of the Act. Among other things, the Applicants believe that
the Merger offers significant strategic and financial benefits to each company
and to their respective shareholders, as well as to their employees, customers
and the communities in which they do business. These benefits include, among
others:
(i) increased scope, providing an infrastructure capable of
supporting more efficient utility operations, non-utility
business activities and corporate services;
(ii) increased stability and competitiveness of rates resulting
from fuel diversification and operating efficiencies, thus
improving Applicants' ability to meet the challenges of the
increasingly competitive environment in the utility
industry;
(iii integration of corporate and administrative functions and
programs, including centralized management and coordination
and operation of utility systems;
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1 Prior to completion of the Merger, NSP and NCE expect to file one or more
additional applications-declarations under the Act with respect to ongoing
activities (including financing activities) and other matters pertaining to
Xcel after the Merger.
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(iv) savings from the coordinated dispatch and operation of the
combined generating assets of the Applicants;
(v) enhanced financial stability and strength through increased
market capitalization and a stronger balance sheet,
improving access to capital markets, and capability to
support the growth objectives established for non-utility
businesses, including NSP's largest non-utility subsidiary,
NRG Energy;
(vi) increased geographic diversity of service territories,
reducing exposure to local changes in economic, competitive
and climatic conditions, enabling Xcel to withstand risk and
volatility better than either NSP or NCE on a stand-alone
basis;
(vii) greater purchasing power for items such as fuel and
transportation services, and streamlining of inventories;
(viii) expanded management resources and ability to select
leadership from a larger and more diverse management pool;
(ix) continued ability to play a strong role in the economic
development efforts of the communities that the Applicants
now serve; and
(x) a strong global presence, with operations in the United
Kingdom, Central Europe, Australia and South America.
In summary, Applicants believe the Merger will significantly improve their
competitive positions and create an enhanced platform for growth for all
segments of their businesses. Applicants estimate that efficiencies created by
the Merger will generate cost savings of approximately $1.1 billion (net of
costs to achieve) in the first ten years following the Merger. The expected
Merger benefits are discussed in further detail in Item 3.C.2. below.
The shareholders of NCE and NSP approved the Merger on June 28, 1999, with
more than 83% of the votes cast by the shareholders of each corporation voting
in favor of the Merger. Various aspects of the Merger and the transactions
relating thereto have been submitted for review and approved by: (i) the Arizona
Corporation Commission (the "Arizona Commission"), (ii) the Kansas Corporation
Commission (the "Kansas Commission"), (iii) the Minnesota Public Utilities
Commission (the "Minnesota Commission"), (iv) the New Mexico Public Regulation
Commission (the "New Mexico Commission"), (v) the North Dakota Public Service
Commission (the "North Dakota Commission"), (vi) the Public Utilities Commission
of the State of Colorado (the "Colorado Commission"), (vii) the Public Utility
Commission of Texas (the "Texas Commission"), (viii) the Wyoming Public Service
Commission (the "Wyoming Commission"), (ix) the Federal Energy Regulatory
Commission (the "FERC") and (x) the Nuclear Regulatory Commission (the "NRC").
Completion of the Merger is also subject to the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), which expired on March 1, 2000. Approval will also be necessary from the
Federal Communications Commission (the "FCC") in connection with various
licenses. In addition, NSP possesses various franchises, permits and licenses
granted by local and state authorities that NSP may need to assign, renew or
replace as a result of the Merger. The status of these approvals, including the
approvals by FERC/2 and each state commission, is explained in detail in Item 4
below. Apart from the approval of the Commission under the Act, the foregoing
approvals are the only governmental approvals required for the Merger. In order
to permit timely consummation of the Merger and the realization of the
substantial benefits it is expected to produce, the Applicants request that the
Commission's review of this Application-Declaration commence and proceed as
expeditiously as practicable.
B. Overview of the Transaction
NCE and NSP have 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. 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 New NSP, which
will be a wholly-owned subsidiary of Xcel./3 Upon completion of the Merger, Xcel
will have the following public-utility subsidiary companies: Southwestern Public
Service Company, a New Mexico corporation ("SPS"/)4; Public Service Company of
Colorado, a Colorado corporation ("PSCo"); Cheyenne Light, Fuel and Power
Company, a Wyoming corporation ("Cheyenne"); Northern States Power Company, a
Minnesota corporation ("New NSP"); and Northern States Power Company, a
Wisconsin corporation ("NSP-W"). Black Mountain Gas Company ("BMG"), which
currently operates in Arizona as a division of NSP, is also to become a
public-utility subsidiary of Xcel./5 New Century Services, Inc., the existing
service company for the NCE system, will be the service company for the Xcel
system under Section 13 of the Act, although it is expected to be renamed Xcel
Energy Services Inc. In addition, Xcel will continue to own all of NSP's
existing non-utility subsidiaries and will acquire all of the outstanding
capital stock of the non-utility subsidiaries of NCE. See Exhibit E-12 for the
resulting corporate structure of Xcel./6
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2 Northern States Power Company, 90 FERC P. 61,020 (2000) (herein, the "FERC
Merger Order").
3 The Merger Agreement provides that NSP shall not be obligated to undertake
the above restructuring if it would cause a NSP Material Adverse Effect as
defined in that document, and, if a NSP Material Adverse Effect would
result, the parties must negotiate in good faith an alternative to the
restructuring.
4 As noted below, SPS is required to restructure to comply with restructuring
legislation enacted in Texas and New Mexico. However, it is expected that
such restructuring will take place subsequent to the Commission's action on
this application. Any necessary authorizations of the Commission to
implement the SPS restructuring will be requested at the appropriate time
in a separate application.
5 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. If these
approvals are obtained prior to consummation of the Merger, BMG will be
Xcel's sixth public-utility subsidiary company.
6 In the event that a different corporate structure is adopted, Applicants
will file a revised version of EXHIBIT E-12 by amendment. Moreover, to give
the Xcel system maximum flexibility to reorganize its non-utility
operations in the future and to eliminate unnecessary burden on the
Commission, Applicants intend through a separate application to make a
request for blanket authority to reorganize Xcel's non-utility subsidiaries
and to establish new intermediate holding companies, similar to what the
Commission has authorized for other registered systems. See Columbia Energy
Group, Holding Co. Act Release No. 27099 (Nov. 5, 1999).
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A copy of the Merger Agreement is incorporated by reference as Exhibit B-1.
C. Description of the Parties to the Merger
1. NCE and its Subsidiaries
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 (Aug. 1, 1997) (herein, the "1997 NCE Order"). NCE has three
public-utility subsidiaries, PSCo, SPS and Cheyenne, which are referred to
herein collectively as the "NCE Operating Companies." PSCo serves approximately
1.2 million electric customers and approximately 1.0 million gas customers in
the state of Colorado. SPS serves approximately 385,000 electric customers in
portions of the states of Texas, New Mexico, Oklahoma and Kansas. Cheyenne
serves approximately 35,000 electric customers and 28,000 gas customers in and
around Cheyenne, Wyoming. Maps of the electric and gas service areas of the NCE
Operating Companies are filed as Exhibits E-4.1 and E-4.2.
PSCo's transmission facilities are located in Colorado. PSCo is a member of
the Western Systems Coordinating Council ("WSCC"), an interstate network of
transmission facilities that are owned by public entities and investor-owned
utilities. WSCC is the regional reliability coordinating organization for member
electric power systems in the entire western electric grid (the "Western
Interconnect") of the United States. PSCo is also a member of the Western
Systems Power Pool ("WSPP"), an economic power pool that operates an electronic
bulletin board and acts as a clearinghouse for bulk power transactions among
over 90 member utilities and marketers. The WSPP arrangement provides for
short-term energy and capacity exchanges at market-based prices for most members
and electronic bulletin board posting of available power and energy.
PSCo's transmission system is directly interconnected with Western Area
Power Administration ("WAPA") in the WSCC. PSCo is also directly interconnected
with Basin Electric Power Cooperative, PacifiCorp, Platte River Power Authority
and Tri-State Generation and Transmission Cooperative. Nearby PSCo are the two
high voltage direct current ("HVDC") interconnections between the WSCC and the
eastern electrical grid (the "Eastern Interconnect"): 100 MW at Stegal (owned by
Tri-State) and 200 MW at Sidney (owned by WAPA). For 1999, PSCo's peak load was
4,951 MW at a time when its net capability was 5,259 MW, including 1,856 MW of
long-term purchase contracts. PSCo's 2000 projected peak load is 5,114 MW, and
its net capability, including 2,019 MW of long-term purchase contracts, is 5,704
MW.
Cheyenne's transmission facilities are located in Wyoming. These facilities
are very limited, consisting of two 115 kV transmission line segments that total
25.5 miles in length. The primary purpose of these transmission lines is to
interconnect Cheyenne's distribution system with the WAPA transmission system to
enable Cheyenne to purchase its power requirements from other parties to serve
its retail load. At present, PacifiCorp is Cheyenne's full requirements
supplier. Unlike PSCo and SPC, Cheyenne does not have any wholesale load. Like
PSCo, Cheyenne is a member of the WSCC.
SPS's transmission system is located in parts of Texas, New Mexico,
Oklahoma and Kansas. SPS is a member of the Southwest Power Pool ("SPP"), the
regional reliability council for member electric power systems in an area that
encompasses portions of the South, the Southwest, and the Great Plains. SPS is
also a member of WSPP.
SPS's transmission system is interconnected with two SPP-member utilities,
Public Service Company of Oklahoma (an operating company within the Central and
South West system) and West Plains Energy-Kansas (a division of UtiliCorp United
Inc.), which enables it to purchase or sell energy from power producers in the
Eastern Interconnect. It is also interconnected with the WSCC via a 200 MW HVDC
tie near Clovis, New Mexico (Public Service Company of New Mexico) and a 200 MW
HVDC tie at Artesia, New Mexico (El Paso Electric Company and Texas-New Mexico
Power Company), which allows SPS to purchase and sell energy from power
producers in the Western Interconnect. For 1999, SPS's peak load was 3,946 MW at
a time when its net capability was 4,647 MW, including 396 MW of long-term
purchase contracts. SPS's 2000 projected peak load is 4,332 MW, and its net
capability, including 670 MW of long-term purchase contracts, is 5,024 MW.
In connection with their 1997 merger, PSCo and SPS stated their intent to
construct a new tie line to interconnect their combined electric systems within
five years after the consummation of that merger. Following a joint planning
process that involved input from over fifty participants, the final project was
selected in August 1998. In early January 1999, after further evaluation, PSCo
and SPS announced plans for the phased approach for the implementation of this
project and the construction of additional transmission facilities to alleviate
transmission constraints, increase reliability and provide energy supply
alternatives in SPS's present service territory in anticipation of competition.
This expansion is expected to be completed in a phased approach and will require
various regulatory approvals. The first phase will involve construction of a
230-mile, 345 kV line from Amarillo, Texas to Holcomb, Kansas (the
"Amarillo-Holcomb line") and is expected to be completed in the third quarter of
2001./7 The second phase will consist of construction of a 100-mile, 345 kV line
from Holcomb, Kansas to Lamar, Colorado and a HVDC facility that would
interconnect the PSCo and SPS systems, as well as the WSCC and SPP regional
transmission grids. This second phase is now scheduled for completion in 2004
and will establish the fifth HVDC interconnection between the Western
Interconnect and Eastern Interconnect./8 While not directly related to the
interconnection of the PSCo and SPS systems, the third phase of this project
will involve construction of an approximately 275-mile, 345 kV line from
Amarillo, Texas to Oklahoma City, Oklahoma. The completion of this line is not
expected before 2004. Further information on the utility assets and operations
of the NCE Operating Companies is included in Annex A.
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7 The phased approach for the tie-line will enable PSCo to comply with the
procedural requirements of the Colorado Commission. In a recent order, the
Colorado Commission has made clear that PSCo must seek its approval to
construct the portion of the tie-line to be located in Colorado in a
certificate of public convenience and necessity proceeding. PSCo
anticipates filing the necessary CPCN application with the Colorado
Commission by September 29, 2000. Applicants have included as Exhibit K to
this Application a memorandum detailing the steps that NCE has taken
towards fulfilling its interconnection obligations under the 1997 NCE
Order, and the steps that NCE expects to take, including those necessary to
meet Colorado regulatory requirements, to achieve an in service date for
the second phase of the tie-line, thereby completing the tie-line project,
by year-end 2004. In the 1997 NCE Order, the Commission noted that: "In the
event that New Century Energies at any time determines not to construct the
tie, or the tie is not substantially completed within five years of the
date of consummation of the [PSCo/SPS] merger, New Century Energies will
file a post-effective amendment concerning the measures it will take to
ensure that the requirements of section 2(a)(29)(A) are satisfied." The
Applicants believe that completion of first phase (the Amarillo Holcomb
line) will result in substantial completion of the tie line. Nevertheless,
NCE intends to file a post-effective amendment in File No. 70-8787 to
update the record regarding the NCE System's plans to complete the tie-line
project.
8 In April 1999, SPS submitted an application to the Kansas Commission
requesting a siting permit in Kansas for construction of both the
Amarillo-Holcomb line and the Holcomb-Lamar line. Kansas is the state where
the longest portion of the two lines will be constructed. SPS has completed
the detailed routing and environmental assessment of the proposed location
of the lines. Public conferences have been held in Colorado, Kansas,
Oklahoma and Texas to present information to affected landowners and
receive their input. Hearings on the Kansas application were held in June
1999 and, on July 16, 1999, the Hearing Examiner in the proceeding
recommended to the Kansas Commission that the location of the lines was
reasonable. The Hearing Examiner recommended approval of the requested
Siting Permit, KCC Docket No. 99-SWPE-764-MIS. The Kansas Commission
recently affirmed the Hearing Examiner's order. In the Matter of the
Application of Southwestern Public Service Company for a Siting Permit,
Docket No. 99-SWPE-764-MIS (KCC July 19, 1999).
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PSCo is subject to regulation as a public utility under the Colorado Public
Utilities Law as to retail electric and gas rates and other matters by the
Colorado Commission. As a public utility under the laws of the states of Texas,
New Mexico, Kansas and Oklahoma, SPS is regulated as to retail electric and
certain other matters by the Texas Commission, New Mexico Commission, Kansas
Commission and Oklahoma Commission, respectively. Cheyenne is subject to
regulation in connection with its electric and gas retail sales and other
matters by the Wyoming Commission. The NCE Operating Companies are also subject
to regulation by FERC pursuant to the Federal Power Act, as amended, with
respect to the classification of accounts, rates for any wholesale sales of
electricity,/9 the interstate transmission of electric power and energy,
interconnection agreements, the licensing of certain hydro-electric facilities,
acquisitions and sales of certain utility properties, and various other matters.
In addition, PSCo and Cheyenne are subject to regulation by FERC under the
Natural Gas Act of 1935, as amended ("NGA") with regard to certain
transportation or sale of natural gas for resale.
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9 As note above, Cheyenne currently makes no wholesale sales of electricity.
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NCE, directly or indirectly, owns all the outstanding common stock of the
following non-utility subsidiary companies: New Century Services, the NCE system
service company under Section 13 of the Act; WestGas InterState, Inc. ("WGI"), a
natural gas company subject to FERC jurisdiction under the NGA; and NC
Enterprises, Inc. ("NC Enterprises"), a holding company for NCE's foreign
operations and most of its non-utility businesses. PSCo also holds various
non-utility subsidiaries. These subsidiaries primarily operate in support of
PSCo's operations. The non-utility operations of the NCE System have all been
previously authorized under the 1935 Act or have been established by rule or
pursuant to statutory exemption. A further description of the non-utility
subsidiaries of NCE is set forth in Annex C.
New Century Services has entered into a separate service agreement with NCE
and each of the NCE Operating Companies (the "Utility Service Agreement"). A
copy of the form of the Utility Service Agreement as well as an appendix
entitled "Description of Services and Determination of Charges for Services" is
filed as Exhibit B-2. PSCo's service agreement has a section and attachment to
reflect state merger commitments made at the time it sought Colorado Commission
approval to merge with SPS. New NSP and NSP-W will also enter into the Service
Agreement with New Century Services. New Century Services has also entered into
separate service agreements (the "Non-Utility Service Agreements") with the
non-utility subsidiary companies of NCE. New Century Services will similarly
enter into one or more separate service agreements with the direct and indirect
non-utility subsidiaries of NSP. A copy of the form of Non-Utility Service
Agreement as well as an appendix entitled "Description of Services and
Determination of Charges for Services" is filed as Exhibit B-3./10
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10 While no changes have been made to the existing Utility Service Agreement
or the existing Non-Utility Service Agreement of New Century Services,
Applicants did make several changes as part of the merger integration
process to the appendix to Exhibit B-2 and Exhibit B-3 entitled
"Description of Services and Determination of Charges for Services."
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The NCE Common Stock is listed on the New York Stock Exchange, Inc.
("NYSE"). The authorized capital stock of NCE consists of 260,000,000 shares of
NCE Common Stock and 20,000,000 shares of NCE preferred stock. As of the close
of business on June 30, 2000, 116,755,134 shares of NCE Common Stock and no
shares of NCE preferred stock were issued and outstanding.
Pertinent financial information regarding NCE's utility operations for the
year ended December 31, 1999 may be summarized as follows ($ in millions):
Electric Utility Revenues Gas Utility Revenues
SPS $926 --
PSCo 1,561 $658
Cheyenne 41 19
The consolidated assets of NCE, as of December 31, 1999, were approximately $8.3
billion, representing $4.9 billion in net electric utility property, plant and
equipment ($1.8 billion for SPS, $3.1 billion for PSCo and $47 million for
Cheyenne); $903 million in net gas utility property, plant and equipment ($877
million for PSCo and $26 million for Cheyenne); $435 million in non-utility
subsidiary property, plant and equipment; and $2.1 billion in other corporate
assets.
Pertinent financial information regarding NCE's utility operations for the
twelve months ended June 30, 2000, may be summarized as follows ($ in millions):
Electric Utility Revenues Gas Utility Revenues
SPS $972 ---
PSCo 1,661 $672
Cheyenne 42 19
The consolidated assets of NCE, as of June 30, 2000, were approximately $8.4
billion, representing $5.2 billion in net electric utility property, plant and
equipment ($1.8 billion for SPS, $3.3 billion for PSCo and $49 million for
Cheyenne); $1.0 billion in net gas utility property, plant and equipment ($1.0
billion for PSCo and $28 million for Cheyenne); $39 million in non-utility
subsidiary property, plant and equipment; and $2.0 billion in other corporate
assets.
NCE and the NCE Operating Companies are all financially strong companies.
The Moody long-term debt ratings of SPS and PSCo are A3 and Aa2, respectively.
More detailed information concerning NCE and its subsidiaries is contained in
(i) NCE's Annual Report on Form 10-K for the year ended December 31, 1999, and
its Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, which
are incorporated by reference as Exhibits H-26 and H-33, respectively; (ii)
PSCo's Annual Report on Form 10-K for the year ended December 31, 1999, and its
Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, which are
incorporated by reference as Exhibits H-29 and H-36, respectively; and (iii)
SPS's Annual Report on Form 10-K for the year ended December 31, 1999 and its
Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, which are
incorporated by reference as Exhibits H-30 and H-31, respectively.
2. NSP and its Subsidiaries
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 (Dec. 23, 1981). NSP owns all of the outstanding common stock
of NSP-W, a Wisconsin corporation, which is a public-utility company under the
Act. Maps of the electric and gas service areas of NSP and NSP-W are filed as
Exhibits E-3.1 and E-3.2.
NSP is engaged primarily in the generation, transmission and distribution
of electricity throughout a 30,000 square mile service area in Minnesota, North
Dakota and South Dakota. NSP also purchases, distributes and sells natural gas
to retail customers and transports customer-owned gas in approximately 118
communities in Minnesota, North Dakota, South Dakota and Arizona. Of the more
than 2.5 million people served by NSP, the majority are in the Minneapolis-St.
Paul metropolitan area. In 1999, more than 73% of the electric retail revenue of
NSP was derived from sales in the Minneapolis-St. Paul metropolitan area, and
more than 67% of its retail gas revenue was derived from sales in the St. Paul
metropolitan area. NSP provides both electric and gas utility service in
Minnesota, North Dakota and South Dakota but only gas utility service in
Arizona. NSP provides retail electric utility service to approximately 1,240,000
customers and gas utility service to approximately 400,000 customers.
NSP-W is engaged in the generation, transmission, and distribution of
electricity to approximately 210,400 retail customers in an area of
approximately 18,900 square miles in northwestern Wisconsin, to approximately
9,100 electric retail customers in an area of approximately 300 square miles in
the western portion of the Upper Peninsula of Michigan and to 10 wholesale
customers in the same general area. NSP-W purchases, distributes and sells
natural gas to retail customers or transports customer-owned natural gas in the
same service territory to approximately 78,000 customers in Wisconsin and 5,000
customers in Michigan. For the year ended December 31, 1999, NSP-W provided
approximately 15% of NSP's consolidated revenues.
The electric transmission system of NSP and NSP-W (the "NSP System") is
located throughout the service territories that NSP and NSP-W serve in
Minnesota, North Dakota, South Dakota, Michigan and Wisconsin. NSP and NSP-W are
directly connected with each other through numerous transmission lines that they
own, including one 345 kV transmission line, two 115 kV transmission lines and
two 69 kV transmission lines.
NSP and NSP-W are members of the Mid-Continent Area Power Pool ("MAPP"),
the regional reliability council for numerous electric providers in portions of
the Midwest. The NSP System is interconnected with 19 other utility systems,
including utilities in MAPP (Basin Electric Power Cooperative, Great River
Energy, Otter Tail Power Co., WAPA, Southern Minnesota Municipal Power Agency,
Interstate Energy Co., IES Utilities, MidAmerican Energy Co., Minnesota Power
Co., Dairyland Power Cooperative and Manitoba Hydro-Electric Board at the United
States/Canada border) and utilities in Mid-America Interconnected Network
("MAIN") (Ameren, Wisconsin Public Service Corporation, Wisconsin Electric Power
Company and Wisconsin Power and Light). NSP also participates in two 345 kV
lines that give it limited purpose contractual interconnections with six
additional utilities. The "East 345 Line" runs between Minneapolis-St. Paul and
St. Louis and includes as participants operating companies of Alliant Energy,
Inc. (IES Utilities Inc. and Interstate Energy Company), Ameren (Union Electric)
as well as MidAmerican Energy Company and NSP. The "West 345 Line" runs between
Minneapolis-St. Paul and Kansas City and includes as participants Kansas City
Power and Light, Interstate Energy Company, MidAmerican Energy Company, Omaha
Public Power District and St. Joseph Light and Power.
The combined net generating capability (considering purchases and sales) of
NSP and NSP-W is projected to be 8,411 MW in 2000, against a net demand of 7,171
MW./11 Given MAPP's minimum reliability reserve margin requirement of 15
percent, NSP has 164 MW of uncommitted capacity in 2000. In 1998 and in 1999,
NSP was a net purchaser of power, and it anticipates being a significant
purchaser in future years. In the past, NSP relied increasingly on the
short-term energy market to meet increased customer demand for energy. On June
28, 1999, NSP filed a request for proposals ("RFP") with the Minnesota
Commission. In this request, NSP identified a need for a long-term capacity and
energy to meet the increased requirements of customers beginning in 2003. The
RFP identifies the need to have from 200 to 1200 additional MW of generation
resources in service for 2003 or earlier. The range is intended to provide an
opportunity to look at a wide variety of potential future conditions. The RFP
permits both acceleration or delay of the in-service date. Further information
on the utility assets and operations of NSP and NSP-W is included in Annex B.
----------
11 The electric production and transmission costs of NSP and NSP-W are shared
by them. The cost-sharing arrangement between the companies is referred to
as the Interchange Agreement. It is a FERC-regulated agreement and has been
accepted by the Wisconsin Commission and the Minnesota Commission for
determination of costs recoverable by NSP-W and NSP in rate cases.
----------
Retail sales rates, services and other aspects of NSP's retail operations
are subject to the jurisdiction of the Minnesota Commission, the North Dakota
Commission, the South Dakota Commission and the Arizona Commission within their
respective states. The Minnesota Commission also possesses regulatory authority
over aspects of NSP's financial activities, including security issuances,
property transfers when the asset value is in excess of $100,000, mergers with
other utilities, and transactions between NSP and affiliates. In addition, the
Minnesota Commission reviews and approves NSP's electric resource and gas supply
capacity plans for meeting customers' future energy needs. NSP-W is subject to
regulation of similar scope by the Wisconsin Commission and the Michigan
Commission, except that the Michigan Commission does not regulate NSP-W's
issuances of securities. In addition, a state commission generally must certify
the need for new generating plants and transmission lines of designated
capacities to be located within such state before they may be sited and built.
Wholesale rates for electric energy sold in interstate commerce, the
classification of accounts, the interstate transmission of electric power and
energy, interconnection agreements, issuances of securities not regulated by
state commissions, acquisitions and sales of certain utility properties and
certain other activities of NSP and NSP-W (including the licensing of certain
hydro-electric facilities) are subject to the jurisdiction of FERC. The
operation and construction of NSP's Prairie Island and Monticello nuclear
facilities are subject to regulation by the NRC. In addition, NSP and NSP-W are
subject to FERC jurisdiction under the NGA with regards to transportation or
sale of natural gas for resale.
NSP is also engaged, directly and through subsidiary companies, in
non-utility businesses. NSP directly provides: (i) an appliance services program
for its residential customers; (ii) construction of natural gas distribution
systems for third parties (primarily end-users and municipal gas systems); (iii)
sale of steam to industrial customers in NSP's service territory; (iv)
installation and maintenance of street lighting for municipalities and other
customers; (v) propane services; (vi) fuel oil services; and (vii) installation
and maintenance of distributed generation on customer's facilities. In addition,
NSP owns directly the interests of the following non-utility subsidiary
companies: Viking Gas Transmission Company ("Viking"), an interstate natural gas
pipeline subject to FERC jurisdiction under the NGA; 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 system; Ultra Power Technologies, Inc. ("Ultra Power"), a company
currently in the process of winding up its affairs and formerly in the business
of marketing 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; 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; Nuclear Management Company ("NMC"), a limited liability
company that will provide services to the nuclear operations of its members; and
NSP Nuclear Corporation, a subsidiary formed to hold NSP's interest in NMC. NSP
owns 100% of all of the foregoing businesses, except that NSP owns 25% of the
membership interests in NMC and, as a result of the issuance of equity by NRG,
currently has an 82% interest in NRG. A further description of the non-utility
subsidiaries of NSP is set forth on Annex D hereto.
NSP-W owns directly all of the outstanding common stock of 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 also set forth on Annex D hereto.
NSP Common Stock is listed on the NYSE and the Chicago and Pacific Stock
Exchanges. As of the close of business on June 30, 2000, there were 157,286,793
shares of NSP Common Stock and 1,050,000 shares of NSP cumulative preferred
stock issued and outstanding. NSP-W does not have any preferred stock
outstanding, and all of its common stock is owned by NSP. Copies of the Articles
of Incorporation of NSP and NSP-W are incorporated by reference as Exhibit A-1
and Exhibit A-2.
Pertinent financial information regarding NSP's utility revenues for the
year ended December 31, 1999, may be summarized as follows (before intercompany
eliminations)/12:
($ in millions)
Electric Gas
NSP $2,267 $372
NSP-W $ 337 $ 82
Consolidated assets of NSP and its subsidiaries as of December 31, 1999 were
approximately $9.8 billion, consisting of $3.6 billion in net electric utility
property, plant and equipment ($2.9 billion for NSP and $637 million for NSP-W);
$476 million in net gas utility property, plant and equipment ($411 million for
NSP and $65 million for NSP-W); $3.9 billion in non-utility subsidiary assets;
and $1.7 billion in other corporate assets.
Pertinent financial information regarding NSP's utility revenues for the
twelve months ended June 30, 2000, may be summarized as follows (before
intercompany eliminations)/13:
($ in millions)
Electric Gas
NSP $2,293 $411
NSP-W $ 343 $ 90
----------
12 In this table, Electric Utility revenues are the revenues derived by NSP
and NSP-W from each company's operations as an "electric utility company"
as defined in Section 2(a)(3) under the Act, and Gas Utility revenues are
the revenues derived by NSP and NSP-W from each company's operations as a
"gas utility company" under Section 2(a)(4) of the Act. These amounts do
not conform to NSP's consolidated financial statements, as the consolidated
financial statements reflect eliminations of intercompany revenues among
NSP and its consolidated subsidiaries, and NSP reports, in its consolidated
financial statements: (i) the revenues of its wholly-owned regulated
natural gas interstate pipeline (Viking) as part of Gas Utility revenues,
(ii) the revenues of its other consolidated subsidiaries as part of "Other
Income (Deductions)," and (iii) the results of the operations of its
non-consolidated subsidiaries under "Equity in Earnings of Unconsolidated
Affiliates."
13 Id.
----------
Consolidated assets of NSP and its subsidiaries as of June 30, 2000 were
approximately $11.9 billion, consisting of $3.6 billion in net electric utility
property, plant and equipment ($2.9 billion for NSP and $611 million for NSP-W);
$484 million in net gas utility property, plant and equipment ($418 million for
NSP and $66 million for NSP-W); $6.0 billion in non-utility subsidiary assets;
and $1.8 billion in other corporate assets.
Like NCE, NSP is a financially strong company. The Moody long-term credit
ratings of NSP and NSP-W are both Aa3. More detailed information concerning NSP
and its subsidiaries is contained in (i) NSP's Annual Report on Form 10-K for
the year ended December 31, 1999, and its Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000, which are incorporated by reference as Exhibits
H-25 and H-32, respectively; (ii) NSP-W's Annual Report on Form 10-K for the
year ended December 31, 1999, and its Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000, which are incorporated by reference as Exhibits
H-27 and H-34, respectively; and (iii) NRG's Annual Report on Form 10-K for the
year ended December 31, 1999, and its Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000, which are incorporated by reference as Exhibits
H-28 and H-35, respectively.
D. Description of the Merger
The Merger Agreement provides for the merger of NCE with and into NSP
pursuant to which: (a) each share of NCE Common Stock issued and outstanding
immediately prior to the effective time of the Merger, together with any NCE
Rights,/14 shall be converted into the right to receive 1.55 shares (the
"Conversion Ratio") of duly authorized, validly issued, fully paid and
nonassessable NSP Common Stock; (b) each issued and outstanding share of NSP
Common Stock and each share of preferred stock of NSP issued and outstanding
immediately prior to the effective time of the Merger shall remain outstanding;
and (c) each share of NCE Common Stock, together with any NCE Rights, that is
owned by NSP or any of its subsidiaries or held in the treasury of NCE will be
canceled and shall cease to exist, and no consideration shall be delivered in
exchange therefor. As noted previously, NSP will change its name to Xcel at or
prior to the Merger. Based upon 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 percent and NSP shareholders would own 46 percent of
the common equity of Xcel if the Merger had been consummated as of such date.
----------
14 Each NCE Right entitles the registered holder to purchase from NCE one
one-hundredth of a share of Series A Junior Participating Preferred Stock.
The NCE Rights were distributed as a dividend on each outstanding share of
NCE Common Stock as part of NCE's shareholder rights plan which was
approved by the Commission in New Century Energies, Holding Co. Act Release
No. 26751 (Aug. 1, 1997).
----------
Except as set forth below, if any holder of NCE Common Stock would be
entitled to receive a number of shares of NSP Common Stock that includes a
fraction, then in lieu of a fractional share, such holder will be entitled to
receive a cash payment determined by multiplying the fractional share interest
by the average of the last reported sales price, regular way, per share of NSP
Common Stock on the NYSE Composite Tape for the ten business days prior to and
including the last business day on which NSP Common Stock was traded on the
NYSE, without any interest thereon. Fractional shares of NCE Common Stock held
in accounts under the dividend reinvestment plans and employee benefit plans of
NCE will be converted into the applicable number of shares (or fractional
shares) of NSP Common Stock under corresponding plans of NSP, in accordance with
the Conversion Ratio.
The Merger is subject to customary closing conditions, including the
receipt of the requisite shareholder approvals of NCE and NSP and all necessary
governmental approvals, including the approval of the Commission.
The Merger is designed to qualify as a tax-free reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended. NSP and NCE
believe the Merger will be treated as a "pooling of interests" for accounting
purposes and, as a condition under the Merger Agreement to the closing of the
Merger, each of NSP and NCE must receive a letter of its independent accountants
stating in substance that it is appropriate to account for the Merger as a
pooling of interests under Opinion 16 of the Accounting Principles Board.
The Merger Agreement contains certain covenants relating to the conduct of
business by the parties pending the consummation of the Merger. Generally, the
parties must carry on their businesses in the ordinary course consistent with
past practice, may not increase common stock dividends beyond specified levels
and may not issue capital stock except as specified. The Merger Agreement also
contains restrictions on, among other things, charter and bylaw amendments,
capital expenditures, acquisitions, dispositions, incurrence of indebtedness,
certain increases in employee compensation and benefits, and affiliate Mergers.
The Merger Agreement provides that, after the effectiveness of the Merger,
Xcel's principal corporate office will be located in Minneapolis, Minnesota.
Xcel will also maintain significant operating offices in Denver, Colorado;
Amarillo, Texas; and Eau Claire, Wisconsin. Xcel's board of directors
(classified into three classes) will consist of an even number of up to 14
persons, half of whom will be designated by NSP and half of whom will be
designated by NCE. Mr. James J. Howard, the current Chairman, Chief Executive
Officer and President of NSP, will be entitled to serve as Chairman of the Board
of Xcel until the first anniversary of the effectiveness of the Merger of NCE
and NSP. Mr. Wayne H. Brunetti, the Chairman, Chief Executive Officer and
President of NCE, will be entitled to serve as President and Chief Executive
Officer of Xcel upon the effectiveness of the Merger, and thereafter will assume
the position of Chairman when Mr. Howard ceases to be Chairman. The balance of
the Xcel executive management is expected to consist of current executives of
NCE and NSP as follows: Paul Bonavia (currently NCE General Counsel and
President - International Business), Head of Energy Markets; Dick Kelly
(currently NCE Executive Vice President and Chief Financial Officer), Head of
Corporate Development and Strategy/Unregulated Subsidiaries; Gary Johnson
(currently NSP Senior Vice President and General Counsel), General Counsel;
Cyndi Lesher (currently NSP President - Gas Utility Operations), Chief
Administrative Officer; James McIntyre (currently NSP Senior Vice President and
Chief Financial Officer), Chief Financial Officer; Toni Petillo (currently NCE
President - Retail Services), Head of Retail Operations; Larry Taylor (currently
NSP President - Delivery Services), Head of Energy Delivery; and David Wilks
(currently SPS President and Head of the Delivery Business Unit), Head of Energy
Supply.
E. Operations of the Combined Company
As explained more fully in Item 3.C.1(b), the gas operations of Xcel will
constitute a single, integrated gas-utility system, and the electric operations
(with the exception of Cheyenne, which the Commission has already found to be a
permissible additional system) will similarly form a single, integrated
electric-utility system. There will be significant savings and synergies as a
result of these integrated operations. As noted previously and as described in
Item 3.C.2 below, the benefits are estimated to exceed $1.1 billion over the
next ten years.
Item 2. Fees, Commissions and Expenses
The fees, commissions and expenses to be paid or incurred, directly or
indirectly, in connection with the Merger, including the solicitation of
proxies, registration of securities of Xcel under the Securities Act of 1933,
and other related matters, are estimated as follows:
Commission filing fee for the Joint Registration Statement
on Form S-4........................................................$1,145,707.50
Accountants' fees........................................................243,000
Legal fees and expenses relating to the Act...........................11,001,048
Shareholder communication and proxy solicitation.......................2,308,194
NYSE listing fee.........................................................517,500
Exchanging, printing, and engraving of stock certificates................438,000
Investment bankers' fees and expenses
SG Barr Devlin........................................................12,686,000
The Blackstone Group..................................................14,791,721
Consulting fees related to the Merger..................................6,213,597
Miscellaneous..........................................................2,664,375
TOTAL................................................................$52,009,142
===================
<PAGE>
Item 3. Applicable Statutory Provisions
The following sections of the Act and the Commission's rules thereunder are
or may be directly or indirectly applicable to the proposed Merger:
Section of the Act Transactions to which section or rule may be applicable:
------------------ --------------------------------------------------------
4, 5 Registration of Xcel as a holding company following
consummation of the Merger.
6(a), 7 Issuance of Xcel Common Stock in the Transaction in exchange
for shares of NCE Common Stock; formation and capitalization
of New NSP.
9(a)(1), 10 Acquisition by Xcel of stock of New Century Services and of
non-utility subsidiaries of NCE.
9(a)(2), 10(a), Acquisition by Xcel of common stock of NCE and NCE
(b), (c) and (f) Operating Companies; acquisition by Xcel of common
stock of New NSP.
8, 9(c)(3), Retention by Xcel of the retail gas utility operations of
11(b), 21 NSP, NSP-W, PSCo and Cheyenne; retention of other businesses
of NSP and NCE and their direct and indirect subsidiaries.
12(d) Sale by NCE of securities of NCE Operating Companies.
13 Approval of the services to be provided by New Century
Services to New NSP, NSP-W, BMG and Xcel in accordance with
the Utility Service Agreement; approval of services to be
provided thereunder by New Century Services to the direct
and indirect non-utility subsidiaries of NSP in accordance
with the Non-Utility Service Agreement; approval of the
performance of certain services between Xcel system
companies; and exemption from at-cost standards with respect
to certain services between Xcel system companies.
44 Sale by NCE of securities of NCE Operating Companies.
80-92 Affiliate transactions, generally.
88 Expansion of the activities of New Century Services to the
Xcel System.
To the extent that other sections of the Act or the Commission's rules
thereunder are deemed to be applicable to the Merger, such sections and rules
should be considered to be set forth in this Item 3.
A. Merger Analysis -- Overview
1. Introduction
The Commission must find that Section 10 of the Act is satisfied to approve
the Merger. The Section 10 analysis is presented in detail below. The highlight
of the analysis is whether the Merger will tend toward the economical and the
efficient development of an integrated public utility system. Applicants believe
that it will.
The future of the electric utility industry will be much different from its
past. The utility market model, with generation functionally unbundled from
transmission and distribution, is supplanting the vertically integrated monopoly
model. Applicants recognize these changes and believe that the Merger forms an
integrated public utility system positioned for competition in the utility
industry of the future. FERC's Order No. 888 and its recent Order No. 2000,
described below, will further the development of the market model by making
transmission access available on a regional basis at non-pancaked rates, thereby
promoting the growth of larger and more competitive regional wholesale power
markets. More buyers and sellers participate in broader bulk power markets, and
this increased competition will tend to produce lower prices for the benefit of
consumers. As these markets expand, opportunities also expand for integration
between what were previously viewed as distant utilities. For example, the NSP
companies and SPS are presently located to the north and south, respectively, of
the Midwest Independent System Operator, Inc. ("MISO"), a FERC-approved
independent system operator. Pursuant to FERC directives as part of the Merger,
they will join MISO, increasing its regional market size and competition within
bulk power markets. Moreover, PSCo and SPS continue to work toward the
completion of a physical interconnection to link their systems, and PSCo,
consistent with FERC policy, is working with its neighbors to establish an ISO
in the Rocky Mountain/High Plains region, which would neighbor MISO.
The 1935 Act was intended, among other things, to prevent the evils that
arise "when the growth and extension of holding companies bears no relation to
the economy of management and operation or the integration and coordination of
related operating properties . . ."/15 In contrast, the Xcel system is an
example of growth that promotes economies and coordination of related operating
properties within a single region in a manner consistent not only under the
policies of the Act, but also with the policies of both FERC and with state
regulatory initiatives. For these reasons, the Merger should be authorized by
this Commission.
----------
15 Section 1(b)(4).
----------
Section by Section Analysis
2. Section 9(a)(2)
Section 9(a)(2) makes it unlawful, without approval of the Commission under
Section 10, "for any person...to acquire, directly or indirectly, any security
of any public-utility company, if such person is an affiliate...of such company
and of any other public-utility or holding company, or will by virtue of such
acquisition become such an affiliate." Under the definition set forth in Section
2(a)(11), an "affiliate" of a specified company means "any person that directly
or indirectly owns, controls, or holds with power to vote, 5 per centum or more
of the outstanding voting securities of such specified company," and "any
company 5 per centum or more of whose outstanding voting securities are owned,
controlled, or held with power to vote, directly or indirectly, by such
specified company." As a result of the proposed Merger, Xcel will acquire all of
the outstanding voting securities of the NCE Operating Companies. Also in
connection with the Merger, Xcel will acquire all of the outstanding securities
of New NSP. The Merger therefore requires prior Commission approval under the
standards of Section 10./16 In this regard, the relevant standards are set forth
in Sections 10(b), 10(c) and 10(f) of the Act.
----------
16 Similarly, to the extent that NCE could be deemed to sell utility
securities or assets, it would require approval under Section 12.
----------
As set forth more fully below, the Merger complies with all of the
applicable provisions of Section 10 of the Act and should be approved by the
Commission. Thus:
o the consideration to be paid in the Merger is fair and reasonable;
o the Merger will not create detrimental interlocking relations or
concentration of control;
o the Merger will not result in an unduly complicated capital structure
for the Xcel system;
o the Merger is in the public interest and the interests of investors
and consumers;
o the Merger is consistent with Section 8 and not detrimental to
carrying out the provisions of Section 11 of the Act;
o the Merger tends toward the economical and efficient development of
both integrated electric and gas systems; and
o the Merger will comply with all applicable state laws.
Furthermore, the Merger also provides an opportunity for the Commission to
follow certain of the interpretive recommendations made by the Division of
Investment Management (the "Staff") in its report issued in June 1995 entitled
"The Regulation of Public Utility Holding Companies" (the "1995 Report"), in
particular the Staff's overall recommendation that the Commission act
administratively to modernize and simplify holding company regulation and
minimize regulatory overlap, while protecting the interests of consumers and
investors.
B. Section 10(b)
Section 10(b) provides that, if the requirements of Section 10(f) are
satisfied, the Commission shall approve an acquisition under Section 9(a) unless
the Commission finds that:
(1) such acquisition will tend towards interlocking relations or the
concentration of control of public-utility companies, of a kind or to an
extent detrimental to the public interest or the interests of investors or
consumers;
(2) in case of the acquisition of securities or utility assets, the
consideration, including all fees, commissions, and other remuneration, to
whomsoever paid, to be given, directly or indirectly, in connection with
such acquisition is not reasonable or does not bear a fair relation to the
sums invested in or the earning capacity of the utility assets to be
acquired or the utility assets underlying the securities to be acquired; or
(3) such acquisition will unduly complicate the capital structure of
the holding-company system of the applicant or will be detrimental to the
public interest or the interests of investors or consumers or the proper
functioning of such holding-company system.
1. Section 10(b)(1)
The standards of Section 10(b)(1) are satisfied because the proposed Merger
will not "tend towards interlocking relations or the concentration of control of
public utility companies, of a kind or to an extent detrimental to the public
interest or the interests of investors or consumers." By its nature, any merger
results in new links between previously unrelated companies. The Commission has
recognized that such interlocking relationships are permissible in the interest
of efficiencies and economies. Northeast Utilities, Holding Co. Act Release No.
25221 (Dec. 21, 1990), as modified, Holding Co. Act Release No. 25273 (Mar. 15,
1991), aff'd sub nom. City of Holyoke v. SEC, 972 F.2d 358 (D.C. Cir. 1992)
("interlocking relationships are necessary to integrate [the two merging
entities]"). The links that will be established as a result of the Merger are
not the types of interlocking relationships targeted by Section 10(b)(1), which
was primarily aimed at preventing business combinations unrelated to operating
synergies. The Merger Agreement provides for the Board of Directors of Xcel to
consist of up to 14 members, one-half designated by NSP and one-half designated
by NCE./17 In addition, a variety of contractual arrangements among the
companies in the Xcel system will be established, including the following:
----------
17 The Applicants acknowledge the requirements of Section 17(c) of the Act and
Rule 70 thereunder with respect to limitations upon directors and officers
of registered holding companies and subsidiary companies thereof having
affiliations with commercial banking institutions and investment bankers
and undertake that, upon completion of the Merger, they will be in
compliance with the applicable provisions thereof.
----------
o New NSP and NSP-W will each enter into the Utility Service Agreement
with New Century Services. Likewise, NSP's direct and indirect
non-utility subsidiaries will enter into the Non-Utility Service
Agreement with New Century Services. Through the consolidation of
functions into New Century Services, the Xcel system will achieve
substantial economies and efficiencies. By entering into these service
agreements, NSP and its direct and indirect subsidiaries will receive
services from New Century Services and effectively avail themselves of
these economies and efficiencies, just as the NCE system companies
presently do.
o New NSP and NSP-W may enter into service agreements with Utility
Engineering, Inc. ("UE") to obtain engineering and construction
services. UE was authorized to provide the NCE Operating Companies
such services in the 1997 NCE Order. These arrangements should enable
New NSP and NSP-W to achieve further efficiencies, just as the NCE
Operating Companies have.
o New NSP, NSP-W, PSCo and SPS will enter into a Joint Operating
Agreement (the "Joint Operating Agreement"), which provides for
coordinated operation and dispatch of their electric generation
plants, joint planning and coordinated production-related activities
including inter-system sales of electric capacity and energy. This
agreement, which has been approved by FERC conditioned only on Merger
closing, is discussed further below.
o New NSP, NSP-W, PSCo, SPS and Cheyenne will enter into a joint
open-access transmission tariff (the "Xcel Tariff") pursuant to which
they will offer transmission services over their individual systems
and over the combined Xcel system. This tariff has been approved by
FERC conditioned only on Merger closing.
These arrangements, which work to integrate NSP and NCE into the Xcel system,
will be in the public interest and the interest of investors and consumers.
Forging such relationships is beneficial to the protected interests under the
Act and, thus, is not prohibited by Section 10(b)(1). Moreover, because
substantial benefits will accrue to the public, investors and consumers from the
combination of NCE and NSP, whatever interlocking relationships may arise from
the combination are not detrimental.
In applying Section 10(b)(1) to utility acquisitions, the Commission must
further determine whether the acquisition will create "the type of structures
and combinations at which the Act was specifically directed." Vermont Yankee
Nuclear Power Corp., Holding Co. Act Release No. 15958 (Feb. 6, 1968). The
NSP-NCE strategic alliance will not create a "huge, complex and irrational
system" but, rather, will afford the opportunity to achieve economies of scale
and efficiencies for the benefit of investors and consumers. See American
Electric Power Company, Inc., Holding Co. Act Release No. 20633 (July 21, 1978)
("AEP"). As explained in the Joint Proxy Statement and Prospectus of NSP and NCE
(the "Joint Proxy Statement") (a copy of which is included as Exhibit C-2), the
primary objective of the Merger is to position the companies to participate in
the growing and increasingly competitive energy markets. Specifically, the
Merger will combine the strengths of the two companies, thus enabling them to
offer customers a broader array of energy products and services more efficiently
and cost-effectively than could either company acting alone, and at the same
time create a larger and more diverse asset and customer base, with enhanced
opportunities for operating efficiencies and risk diversification. Xcel will be
a mid-size registered holding company, and its operations will not exceed the
economies of scale of current electric generation and transmission technology or
provide undue market power or control to Xcel in the region in which it will
provide service.
While the combination of NCE and NSP will result in a larger utility
system, it certainly will not be one that exceeds the economies of scale of
current electric generation and transmission technology, on the one hand, and
gas transportation technology on the other. If approved, the Xcel system will
serve approximately 3.0 million electric customers and 1.5 million gas customers
in twelve states. As of December 31, 1999 and June 30, 2000, the combined
consolidated assets of the Applicants totaled approximately $18.0 billion and
$20.2 billion, respectively, and, for the twelve months ended December 31, 1999
and June 30, 2000, combined operating revenues totaled approximately $6.9
billion and $7.8 billion, respectively. As of December 31, 1999, the combined
owned summer generating capacity of the regulated utility operations of NSP,
NSP-W, PSCo and SPS totaled approximately 15,170 MW.
The following table shows the Xcel system's relative size as compared to
other registered systems in terms of assets, operating revenues and
customers/18:
Total Assets Operating Revenues Electric Customers
System ($ Millions) ($ Millions) (Thousands)
------ ------------ ------------ -----------
Southern $38,396 $11,585 3,871
AEP 21,488 6,315 3,017
Entergy 22,985 8,773 2,522
CSW 14,162 5,537 1,763
GPU 21,718 4,757 2,063
Xcel 20,228 7,792 3,000
Based on publicly available similar information/19 as of December 31, 1998,
NCE ranked as the 25th largest system in terms of electric operating revenues,
the 30th largest system in terms of total assets and the 22nd largest system in
terms of U.S. electric customers. NSP meanwhile ranked as the 27th, 31st and
21st such largest systems. The Xcel combined system would have ranked as the
10th largest system in terms of electric operating revenues, the 13th largest
system in terms of total assets and the 8th largest system in terms of U.S.
electric customers, and would account for less than 3.5% of the total share of
all investor owned utilities. Thus, the data clearly shows that there will be a
number of larger utility systems, including several combinations that have
recently been approved by the Commission.
-----------
18 Source: Form 10-K for the year ended December 31, 1999 for each company
listed.
19 Source: Based on study prepared by Navigant Consulting, Inc. (see Exhibits
L-1 through L-3).
----------
Moreover, the Commission has approved a number of acquisitions involving
larger and similarly-sized operating utilities. See, e.g., American Electric
Power Company, Inc., Holding Co. Act Release No. 27186 (June 14, 2000) (herein
the "AEP/CSW Order") (acquisition of Central and South West Corporation;
combined assets at anticipated time of closing in excess of $35 billion);
Entergy Corporation, Holding Co. Act Release No. 25952 (Dec. 17, 1993)
(acquisition of Gulf States Utilities; combined assets at time of acquisition in
excess of $22 billion); TUC Holding Company, Holding Co. Act Release No. 26749
(Aug. 1, 1997) (combination of Texas Utilities Company and ENSERCH Corporation;
combined assets at time of acquisition of $24.0 billion); Houston Industries
Incorporated, Holding Co. Act Release No. 26744 (July 24, 1997) (combination of
Houston Industries Incorporated and NorAm Energy Corp., combined assets at time
of acquisition of $16.0 billion); Northeast Utilities, supra (acquisition of
Public Service Company of New Hampshire; combined assets at time of acquisition
of approximately $9 billion); Centerior Energy Corp., Holding Co. Act Release
No. 24073 (April 29, 1986) (combination of Cleveland Electric Illuminating and
Toledo Edison; combined assets at time of acquisition of approximately $9.1
billion); AEP, supra (acquisition of Columbus and Southern Ohio Electric;
combined assets at time of acquisition of close to $9 billion). Furthermore, at
a time of consolidation in the industry, the combined assets of Xcel will be
less than the combined assets of certain existing registered holding companies:
AEP ($19.4 billion at December 31, 1998), Southern Company ($36.2 billion at
December 31, 1998), Entergy Corporation ($22.8 billion at December 31, 1998) and
GPU, Inc. ($16.3 billion at December 31, 1998).
The Commission has rejected a mechanical size analysis under Section
10(b)(1) in favor of assessing the size of the resulting system with reference
to the economic efficiencies that can be achieved through the integration and
coordination of utility operations. See, e.g., AEP, supra. The Commission in AEP
noted that, although the framers of the Act were concerned about "the evils of
bigness, they were also aware that the combination of isolated local utilities
into an integrated system afforded opportunities for economies of scale, the
elimination of duplicate facilities and activities, the sharing of production
capacity and reserves and generally more efficient operations...[and] [t]hey
wished to preserve these opportunities." Id. By virtue of the Merger, Xcel will
be in a position to realize precisely these types of benefits. Among other
things, the Merger is expected to yield labor cost savings, corporate and
administrative and purchasing savings, cost of fuel and purchased gas savings.
These expected economies and efficiencies from the combined utility operations
are described in greater detail in Item 3.C.2., below.
Finally, Section 10(b)(1) also requires the Commission to consider possible
anticompetitive effects of a proposed combination. As the Commission noted in
Northeast Utilities, the "antitrust ramifications of an acquisition must be
considered in light of the fact that public utilities are regulated monopolies
and that federal and state administrative agencies regulate the rates charged to
customers." NCE and NSP have filed Notification and Report Forms with the
Department of Justice and the Federal Trade Commission pursuant to the HSR Act
describing the effects of the Merger on competition in the relevant market, and
the applicable waiting period under the HSR Act expired on March 1, 2000.
The competitive impact of the Merger was also extensively considered by
FERC in unconditionally approving the Merger. In proceedings under Section 203
of the Federal Power Act involving utility mergers, FERC, under well-established
policy, must evaluate the competitive effects of a proposed merger before
deciding whether to approve the merger as "consistent with the public interest,"
the applicable standard of review./20 Accordingly, as part of their merger
application to FERC, Applicants submitted the testimony of Dr. Heironymus and
Dr. Gilbert submitted in support of the FERC application (filed as Exhibits
D-1.1 and D-1.2 hereto), Dr. Heironymus analyzed the horizontal effects of the
Merger (i.e., those that result from combining the companies generating
resources) and Dr. Gilbert analyzed the vertical effects (i.e., those that
result from consolidating the companies' gas delivery and generation
facilities). Based on those analyses, Applicants believe that there is no
adverse impact on competition resulting from the consolidation of the pre-merger
market shares of Applicants. While Applicants have acknowledged that their
post-merger integration plans will affect their post-merger market shares, they
explained to FERC that these occur as a result of joining an RTO and through
exercise of rights under FERC Order No. 888 and that they do not reflect any
overall anti-competitive effects of the Merger./21
----------
20 16 U.S.C. ss.824b(a). The factors that FERC focuses on in making this
public interest determination are set out in its Inquiry Concerning the
Commission's Merger Policy Under the Federal Power Act: Policy Statement,
Order No. 592, 61 Fed. Reg. 68,595 (1996), reconsideration denied, Order
No. 592-A, 62 Fed. Reg. 33,341 (1997).
21 While Applicants have committed to certain market mitigation in the NSP
destination market, this was done to allay any potential concerns about the
impact of the Merger on competition.
----------
The FERC Merger Order effectively validated Applicants' conclusion
regarding the lack of competitive impacts. After considering various intervenor
comments and protests, and performing its own extensive analysis of competitive
effects, FERC concluded that the Merger was unlikely to have an adverse effect
on competition (both horizontal and vertical analysis) and that there were no
issues regarding the Merger that warranted a hearing. FERC thus summarily
approved the Merger.
The analysis on which FERC based this conclusion relied heavily on the
commitment of NSP and SPS to join MISO. "We find the Applicants' commitment to
join the MISO alleviates any concern regarding the merger's impact on
competition and is sufficient to support our approval of the merger. Our
approval of the merger is based on Applicants' participation in the MISO."/22
FERC also concluded that it believed that the Merger did not raise vertical
competitive issues./23 The Commission has found, and the courts have agreed,
that it may appropriately rely upon FERC with respect to such findings. See City
of Holyoke v. SEC, supra at 363-64, quoting Wisconsin's Environmental Decade v.
SEC, 882 F.2d 523, 527 (D.C. Cir. 1989). For these reasons, the Merger will not
"tend toward interlocking relations or the concentration of control" of public
utility companies, of a kind or to the extent detrimental to the public interest
or the interests of investors or customers within the meaning of Section
10(b)(1).
----------
22 FERC Merger Order, slip op. at 23 (emphasis added).
23 Id. at 21.
----------
2. Section 10(b)(2)
Section 10(b)(2) precludes approval of an acquisition if the consideration
to be paid in connection with the combination, including all fees, commissions
and other remuneration, is "not reasonable or does not bear a fair relation to
the sums invested in or the earning capacity of...the utility assets underlying
the securities to be acquired." The Commission has found "persuasive evidence"
that the standards of Section 10(b)(2) are satisfied where, as here, the agreed
consideration for an acquisition is the result of arm's-length negotiations
between the managements of the companies involved, supported by opinions of
financial advisors. See Southern Company, Holding Co. Act Release No. 24579
(Feb. 12, 1988).
First, the Merger is a pure stock-for-stock exchange that is to qualify for
treatment as a pooling of interests./24 The Merger will therefore involve no
"acquisition adjustment" or other write-up of the assets of NCE or NSP.
----------
24 Twelve specific conditions must be met to qualify for treatment as a
pooling of interests. The Merger should meet those criteria as follows: (1)
Both NSP and NCE were autonomous and were not a subsidiary or division of
another corporation within two years before the plan of combination was
initiated; (2) at the date of the merger initiation and at the date of
consummation NSP and NCE are independent of each other; (3) NSP and NCE
will undertake a course of action which will attempt to complete the Merger
within one year in accordance with a specific plan, or completed in a
single transaction. Litigation or proceedings of a governmental authority
that delay the completion of a plan are excepted from the one-year rule,
provided they are beyond the control of the combining companies; (4) at the
consummation date of the plan, NSP will offer and issue its majority class
of stock (voting rights) for no less than 90% of the voting common stock
interests of NCE. The 90% or more of the voting common stock interests
being acquired is determined at the date the plan is consummated; (5) no
changes in the equity interests of the voting common stock of NSP or NCE
were to be made in contemplation of a pooling of interests ("this
restriction is for a period beginning two years prior to the initiation
date of the plan of combination and for the period between the initiation
date and the consummation date); (6) NSP and NCE will not reacquire any of
its voting common stock in substance or form to effect a business
combination ("any reacquisition must be a normal amount as evidenced by
both companies' patterns of reacquisition prior to the merger"; (7) each
NSP and NCE common stockholder will receive a voting common stock interest
exactly in proportion to his or her voting common stock interest prior to
the combination; (8) the NSP and NCE common shareholders will receive the
rights they are entitled to and will not be deprived or restricted in any
way from exercising those rights; (9) the entire merger agreement will not
be effected on the date of consummation; (10) subsequent to consummation of
the merger, NSP will not agree to reacquire or retire any of the stock
which was issued to effect the Merger; (11) NSP will not enter into any
agreements to the benefit of the former shareholders of NSP or NCE, such as
loan guarantees; and (12) NSP will not plan to dispose of substantial
amounts of assets of NSP or NCE within two years of the date of the
combination other than routine transactions in the ordinary course of
business or to eliminate excess capacity.
----------
Second, as explained on pages 41 and 47 of the Joint Proxy Statement
(EXHIBIT C-2 hereto), the historical price data, high and low, for NSP and NCE
Common Stock provide support for the consideration of 1.55 shares of NSP Common
Stock for each share of NCE Common Stock.
Third, the Conversion Ratio is the product of extensive and vigorous
arm's-length negotiations between NCE and NSP. These negotiations were preceded
by extensive due diligence, analysis and evaluation of the assets, liabilities
and business prospects of each of the respective companies. This process is
described in "Background of the Merger" at pages 30 to 35 of the Joint Proxy
Statement. As recognized by the Commission in Ohio Power Co., Holding Co. Act
Release No. 16753 (June 8, 1970), prices arrived at through arm's-length
negotiations are particularly persuasive evidence that Section 10(b)(2) is
satisfied.
Fourth, nationally-recognized investment bankers for NCE and NSP have
reviewed extensive information concerning the companies, analyzed the Conversion
Ratio employing a variety of valuation methodologies and opined that the
Conversion Ratio is fair to the respective holders of NCE Common Stock and NSP
Common Stock as of the date of the Merger Agreement and as of the date the Joint
Proxy Statement was mailed to stockholders of NSP and NCE. The investment
bankers' analyses and opinions are described in detail on pages 40 to 53 of the
Joint Proxy Statement. The assistance of independent consultants in setting
considerations has been recognized by the Commission as evidence that the
requirements of Section 10(b)(2) have been met. Southern Company, supra.
Finally, the Merger was submitted to, and approved by, the affected public
shareholders, i.e., the common shareholders of NCE and the common and preferred
shareholders of NSP. Holders of approximately 93% of NCE's common stock
represented at the meeting approved the Merger, and holders of approximately 83%
of NSP's common and preferred stock represented at the meeting approved the
Merger.
A further consideration under Section 10(b)(2) is the overall fees,
commissions and expenses to be incurred in connection with the Merger. NCE and
NSP believe that these items are reasonable and fair in light of the size and
complexity of the Merger relative to other utility mergers and acquisitions, and
the anticipated benefits of the Merger to the public, investors and consumers
are consistent with recent precedent and meet the standards of Section 10(b)(2).
As set forth in Item 2 of this Application-Declaration, NSP and NCE
together expect to incur a combined total of approximately $43.7 million in
fees, commissions and expenses in connection with the Merger, including the
financial advisory fees to SG Barr Devlin and The Blackstone Group. By contrast,
the total transaction fees and regulatory processing fees in the AEP/CSW Order
were approximately $73 million. The Cincinnati Gas and Electric Company and PSI
Resources incurred $47.12 million in fees in connection with their
reorganization as subsidiaries of CINergy; Northeast Utilities alone incurred
$46.5 million in fees and expenses in connection with its acquisition of Public
Service of New Hampshire; and Entergy alone incurred $38 million in fees in
connection with its acquisition of Gulf States Utilities -- which amounts all
were approved as reasonable by the Commission. CINergy, Holding Co. Act Release
No. 26146 (Oct. 21, 1994); Northeast Utilities, Holding Co. Act Release No.
25548 (June 3, 1992); and Entergy Corp., Holding Co. Act Release No. 25952 (Dec.
17, 1993).
The Applicants believe that the estimated fees and expenses in this matter
bear a fair relation to the value of their respective companies and the benefits
to be achieved by the Merger, and further that the fees and expenses are fair
and reasonable in light of the complexity of the Merger. See Northeast
Utilities, supra (noting that fees and expenses must constitute normal costs and
represent a minor part of the overall acquisition). Based on a $20.1875 price
per share of NSP Common Stock, which was the closing price per share as reported
on the NYSE-Composite Transaction of NSP Common Stock June 30, 2000, the Merger
would be valued at approximately $3.7 billion. The total estimated fees and
expenses of $52 million represent approximately 1.4% of the value of the
consideration to be paid, and are consistent with (or lower than) percentages
previously approved by the Commission. See, e.g., Entergy Corp., supra (fees and
expenses represented approximately 1.7% of the value of the consideration paid
to the shareholders of Gulf States Utilities); Northeast Utilities, supra (fees
and expenses represented approximately 2% of the value of the assets to be
acquired); AEP/CSW Order (fees and expenses represented approximately 1.1% of
the value of the consideration paid by AEP).
3. Section 10(b)(3)
Section 10(b)(3) requires the Commission to determine whether the Merger
will "unduly complicate the capital structure" or be "detrimental to the public
interest or the interest of investors or consumers or the proper functioning" of
the Xcel system.
The capital structure of Xcel will be substantially similar to capital
structures approved by the Commission in other orders. See, e.g., Ameren
Corporation, Holding Co. Act Release No. 26809 (Dec. 30, 1997); CINergy Corp;
Holding Co. Act Release No. 26934 (Nov. 2, 1998); and Centerior Energy Corp.,
Holding Co. Act Release No. 24073 (April 29, 1986). Xcel's capital structure
will also be similar to the capital structures of existing registered holding
company systems. See, e.g., Ameren, supra; the 1997 NCE Order, supra; and
American Electric Power, Holding Co. Act Release No. 21433 (Feb. 13, 1980). The
shareholders of NCE will receive Xcel (i.e., NSP) Common Stock. Xcel will own
100% of the common stock of NSP-W, New NSP, BMG, SPS, PSCo and Cheyenne, and
there will be no minority common stock interest in any of those companies. Each
outstanding share of NSP preferred stock will remain outstanding without change
as preferred stock of Xcel. The Commission has found previously that the
existence of preferred stock under facts similar to those of the present case
does not violate the standards of the Act. Illinois Power Company, Holding Co.
Act Release No. 16574 (Jan. 2, 1970) (finding that "adequate safeguards were
afforded by the dividend and liquidation preferences and other protective
provisions that are applicable to such stock). See also, New Century Energies,
Inc., Holding Co. Act Release No. 26751(Aug. 1, 1997) and The Columbia Gas
System, Inc., Holding Co. Act Release No. 26361 (Aug. 25, 1995) (each
authorizing preferred stock in a registered holding company).
The existing debt securities of NSP, NSP-W, SPS, PSCo and Cheyenne will
likewise remain outstanding without change, except that, with the merger of NCE
into NSP, the debt of NCE will become the debt of Xcel, and the existing debt of
NSP will be transferred to New NSP. The only voting securities of Xcel that will
be publicly held after the Merger will be NSP's existing Preferred Stock (which,
as noted above, will become Preferred Stock of Xcel) and Xcel Common Stock. The
outstanding NSP (i.e., Xcel) preferred stock will consist of 1.05 million
shares, consisting of 6 series. Each share of such preferred stock is entitled
to one vote per share on all matters presented to stockholders with the
exception of $3.60 series consisting of 275,000 shares, which is entitled to
three votes per share./25
----------
25 This Application only requests authorization to retain such preferred
stock. Any proposed issuance of additional preferred stock will be
addressed in a separate application.
----------
Xcel will have the ability to issue, subject to the approval of the
Commission, preferred stock, the terms of which may be set by Xcel's Board of
Directors. See, e.g., Columbia Gas System, Inc., Holding Co. Act Release No.
26361 (Aug. 25, 1995) (approving restated charter, including preferred the terms
of which, including voting rights, can be established by the board of
directors). The only outstanding class of voting securities of Xcel's direct
non-utility subsidiaries will be common stock and, in each case, all issued and
outstanding shares of such common stock will be held by Xcel (other than as
noted above for C&F, which is 75.86% owned; NMC, which is 25% owned; and NRG,
which is 82% owned.)
Set forth below are summaries of the capital structures of NSP and NCE as
of December 31, 1999, and the pro forma consolidated capital structure of Xcel
(assuming the Merger occurred on June 30, 2000):
NSP and NCE Historical Capital Structures
(dollars in millions)
NSP NCE
Common stock equity $2,557 39.5 $2,733 44.2%
Preferred stock 305 4.1 294 4.8
Long-term debt 4,453 46.6 2,374 38.5
Short-term debt* 1,094 14.8 770 12.5
----- ----- ----- -----
Total $7,409 100.0% $6,171 100.0%
---------------
* Includes current portion of long-term debt.
Xcel Pro Forma Consolidated Capital Structure
(dollars in millions) (unaudited)
Common stock equity $5,245 38.8%
Preferred stock 599 4.4
Long-term debt 5,827 43.0
Short-term debt* 1,864 13.8
------- ------
Total $13,535 100.0%
---------------
* Includes current portion of long-term debt.
Set forth below are summaries of the capital structures of NSP and NCE as
of June 30, 2000, and the pro forma consolidated capital structure of Xcel
(assuming the Merger occurred on June 30, 2000).
NSP and NCE Historical Structures
(dollars in millions)
NSP NCE
Common stock equity $2,761 30.6% $2,790 44.3%
Preferred stock 305 3.4 294 4.7
Long-term debt 4,839 53.7 2,249 35.7
Short-term debt* 1,113 12.3 968 15.3
-------- ------ --------- ------
Total $9,018 100.0% $6,301 100.0%
---------------
* Includes current portion of long-term debt.
Xcel Pro Forma Consolidated Capital Structure
(dollars in millions) (unaudited)
Common stock equity* $ 5,485 36.0%
Preferred stock 599 3.9
Long-term debt 7,088 46.5
Short-term debt** 2,081 13.6
----- ------
Total $15,253 100.0%
---------------
* A pro forma adjustment of $66 million has been made to the common stock
equity listed to reflect deferred Merger costs assumed to be written off.
** Includes current portion of long-term debt.
Xcel's pro forma consolidated common equity to total capitalization ratio of
38.8% as of December 31, 1999, and 36.0% as of June 30, 2000, exceeds the
"traditionally acceptable 30% level."/26 Northeast Utilities, Holding Co. Act
Release No. 25221 (Dec. 21, 1990). Accordingly, the proposed Merger will not
unduly complicate the capital structure of the resulting holding company.
----------
26 Under section 7(d)(1) of the Act, the Commission generally has required a
registered holding company system and its public-utility subsidiaries to
maintain a 65/30 debt/common equity ratio, the balance generally being
preferred equity. Such debt/equity capitalization requirement was included
in rule 52, as originally adopted, as applied to securities issued by
public-utility subsidiaries, but was eliminated in 1992.
----------
Section 10(b)(3) also requires the Commission to determine whether the
proposed combination will be detrimental to the public interest, the interests
of investors or consumers or the proper functioning of the combined Xcel system.
The combination of NSP and NCE is entirely consistent with the proper
functioning of a registered holding company system. NSP's and NCE's utility
operations will be fully integrated. Further, the combination will result in
substantial, otherwise unavailable, savings and benefits to the public and to
consumers and investors of both companies, and the integration of NSP and NCE
will improve the efficiency of their respective systems. The integration of NSP
and NCE is described below in Item 3.C.1.(b) and the benefits and savings are
described in Item 3.C.2.
Finally, as indicated previously, consummation of the Merger is conditional
upon receipt of numerous state and federal regulatory approvals. These
regulatory approvals will assure that the interests of retail customers and
wholesale customers are adequately protected. FERC's recent approval further
assures that there will be no significant effect to competition resulting from
the Merger. Moreover, as noted by the Commission in approving Entergy's
acquisition of Gulf States Utilities, "concerns with respect to investors'
interests have been largely addressed by developments in the federal securities
laws and the securities market themselves." Entergy Corp., Holding Co. Act
Release No. 25952 (Dec. 17, 1993). Xcel, New NSP, NSP-W, PSCo, SPS and NRG will
be reporting companies subject to the continuous disclosure requirements of the
1934 Act following the completion of the Merger. The various reports previously
filed by NSP and NCE under the 1934 Act contain readily available information
concerning the Merger. For these reasons, the Applicants believe that the Merger
will be in the public interest and the interest of investors and consumers and
will not be detrimental to the proper functioning of the resulting holding
company system.
C. Section 10(c)
Section 10(c) of the Act provides that, notwithstanding the provisions of
Section 10(b), the Commission shall not approve:
(1) an acquisition of securities or utility assets, or of any other
interest, which is unlawful under the provisions of Section 8 or is
detrimental to the carrying out of the provisions of Section 11; or
(2) the acquisition of securities or utility assets of a public utility or
holding company unless the Commission finds that such acquisition will
serve the public interest by tending towards the economical and the
efficient development of an integrated public utility system.
1. Section 10(c)(1)
(a) The Merger will be lawful under Section 8
Section 10(c)(1) first requires that the Merger be lawful under Section 8.
That section was intended to prevent holding companies, by the use of separate
subsidiaries, from circumventing state restrictions on common ownership of gas
and electric operations. The Merger will not result in any new situations of
common ownership of so-called "combination" systems within a given state.
Post-Merger, New NSP, as successor to NSP, will continue to provide electric and
gas utility services in Minnesota, North Dakota and South Dakota. NSP-W will
provide electric and gas utility services in Wisconsin and Michigan; BMG will
provide gas and propane service in Arizona; PSCo will provide gas and electric
utility service in Colorado; and Cheyenne will provide gas and electric utility
service in Wyoming. Since Minnesota, Michigan, Wisconsin, Wyoming, Colorado,
South Dakota and North Dakota law all permit combination gas and electric
utilities serving the same area, the Merger does not raise any issue under
Section 8 or, accordingly, the first clause of Section 10(c)(1).
(b) The Merger will not be detrimental to carrying out the provisions
of Section 11
Section 10(c)(1) also requires that the Merger not be "detrimental to the
carrying out of the provisions of Section 11." Section 11(b)(1) directs the
Commission generally to limit a registered holding company "to a single
integrated public-utility system." In the 1997 NCE Order, the Commission found
that the combined Colorado, New Mexico, Texas, Oklahoma and Kansas electric
operations constituted a single, integrated electric utility system (the
"Primary System"),/27 and that the Wyoming electric operations (the "Cheyenne
Electric System") and the combined Wyoming and Colorado gas operations (the "Gas
System") were each a permissible additional system under the A-B-C clauses of
Section 11(b)(1). At issue is whether the further addition of NSP and NSP-W,
each of which is a combination electric and gas utility, will result in a system
that is "detrimental to the carrying out of the provisions of Section 11."
In the early years of its administration of the Act, the Commission
construed Section 11(b)(1) to preclude significant geographic expansion by
holding company systems. However, as the Commission has acknowledged, the Act
"creates a system of pervasive and continuing economic regulation that must in
some measure at least be fashioned from time to time to keep pace with changing
economic and regulatory climates."/28 In recent decisions, the Commission has
cited U.S. Supreme Court and Circuit Court of Appeals cases that recognize that
an agency is not required to "establish rules of conduct to last forever,"/29
but must "adapt [its] rules and policies to the demands of changing
circumstances"/30 and to "treat experience not as a jailer but as a teacher."/31
Consequently, the Commission has attempted to "respond flexibly to the
legislative, regulatory and technological changes that are transforming the
structure and shape of the utility industry" as recommended in the Staff's 1995
Report. Indeed, with specific reference to the integration requirements of the
Act, the 1995 Report explains:
The statute recognizes . . . that the application of the integration
standards must be able to adjust in response to changes in "the state of
the art." As discussed previously, the Division believes the SEC must
respond realistically to the changes in the utility industry and interpret
more flexibly each piece of the integration equation./32
Moreover, the ultimate determination has always been whether, on the facts
of a given matter, the proposed transaction "will lead to a recurrence of the
evils the Act was intended to address."/33 See also AEP/CSW Order, Sempra
Energy, Holding Company Act Release No. 26971 (Feb. 1, 1999), in which the
Commission acknowledged that "we have taken notice of developments that have
occurred in the gas industry, and have interpreted the Act and analyzed proposed
transactions in light of these changed and changing circumstances."/34
----------
27 The Commission's decision was predicated on the completion of the tie line
between the SPS and PSCo systems or on the parties' otherwise satisfying
the requirements of section 10(c)(1). The status of the tie line has been
discussed above.
28 Union Electric Co., Holding Co. Act Release No. 18368, n. 52 (1974), quoted
in Consolidated Natural Gas Co., Holding Co. Act Release No. 26512 (April
30, 1996) (authorizing international joint venture to engage in energy
marketing activities); Eastern Utilities Associates, Holding Co. Act
Release No. 26232 (Feb. 15, 1995) (removing restrictions on energy
management activities); and Southern Co., Holding Co. Act Release No. 25639
(Sept. 23, 1992) (approving acquisition of foreign public-utility
subsidiary company).
29 Rust v. Sullivan, 500 U.S. 173 (1991); American Trucking Assns., Inc. v.
Atchison, T.&S.F.R. Co., 387 U.S. 397 (1967); Shawmut Assn. v. SEC, 146
F.2d, 791 (1st Cir. 1945); Sempra Energy, Holding Company Act Release No.
27095 (Oct. 25, 1999).
30 NIPSCO Industries, Inc., Holding Co. Act Release No. 26975 (Feb. 10, 1999)
[hereinafter "NIPSCO"], citing Rust v. Sullivan at 186-187. Accord, Sempra
Energy, Holding Co. Act Release No. 26971 n.23 (Feb. 1, 1999) (interpreting
the integration standards of the 1935 Act in light of developments in the
gas industry).
31 NIPSCO, supra, citing Shawmut Assn. v. SEC at 796-97.
32 1995 Report at 71.
33 Union Electric, supra.
34 Cf., Sempra Energy, Holding Company Act Release No. 27095 (Oct. 25, 1999)
("The application notes that the concept of a 'common source of supply' is
susceptible of a different understanding today than in 1935.").
----------
As explained more fully below, the combination of the Primary System of NCE
and the electric operations of NSP and NSP-W (the "NSP Electric System") will
result in a single, integrated electric utility system (the "Xcel Electric
System"). Integration will result primarily from the Joint Operating Agreement,
which will provide the framework for the coordinated operation and dispatch of
the resources of the operating companies of Xcel, a 100 MW firm transmission
path from 2002 through 2004 between SPS and the NSP companies which will
facilitate transactions among the Xcel Operating Companies and by the Xcel
Operating Companies on a joint basis with third parties/35 and the common
utilization by NSP, NSP-W, PSCo and SPS of New Century Services for numerous
procurement, operational, administrative and general services. Integration also
will be facilitated by NSP, NSP-W and SPS joining MISO./36 The combination of
the NCE Gas System and the NSP gas operations also will result in a single,
integrated gas utility system (the "Xcel Gas System"). Consequently, the
Commission should find that the Xcel Electric System will be the primary
integrated public-utility system for purposes of Section 11(b)(1), and the Xcel
Gas System and the Cheyenne Electric System are permissible systems under the
A-B-C clauses of that section./37
----------
35 PSCo will be interconnected with the combined SPS and NSP company systems
upon the completion of its announced tie-line with SPS.
36 In the FERC Merger Order, the FERC stated "Upon joining MISO following
consummation of the merger, Xcel Energy's northern zone, consisting of New
NSP Utility and NSP-W, will be physically interconnected with its southern
zone, consisting of SPS, through the transmission system of MISO."
37 The Applicants further believe that the Commission could find (i) that the
Xcel Gas System is the primary integrated system and that the NCE Primary
System, the Cheyenne Electric System and the NSP Electric Operations are
retainable additional systems, or (ii) that the Xcel Gas and Electric
Systems together constitute a single integrated public utility system
within the meaning of Section 11(b)(1) of the Act, and the Cheyenne
Electric System is a retainable additional system. The Applicants reserve
the right to supplement this Application-Declaration to develop these
arguments fully in the event that the Commission or the Staff reject the
argument that the Xcel Electric System will be the primary integrated
public-utility system for purposes of Section 11(b)(1), and the Xcel Gas
System and the Cheyenne Electric System are permissible systems under the
A-B-C clauses of that section.
----------
(i) Integration of Electric Operations
The threshold question is whether the Primary System of NCE can be combined
with the electric operations of NSP to form a single integrated public utility
system. The term, as applied to electric utility companies, means:
a system consisting of one or more units of generating plants and/or
transmission lines and/or distributing facilities, whose utility assets,
whether owned by one or more electric utility companies, are physically
interconnected or capable of physical interconnection and which under
normal conditions may be economically operated as a single interconnected
and coordinated system confined in its operations to a single area or
region, in one or more States, not so large as to impair (considering the
state of the art and the area or region affected) the advantages of
localized management, efficient operation, and the effectiveness of
regulation.
Section 2(a)(29)(A). As the definition suggests, and the Commission has
observed, Section 11 is not intended to impose "rigid concepts" but rather
creates a "flexible" standard designed "to accommodate changes in the electric
utility industry." UNITIL Corp., Holding Co. Act Release No. 25524 (April 24,
1992); see also Yankee Atomic Electric. Co., Holding Co. Act Release No. 13048
(Nov. 25, 1955) ("We think it is clear from the language of Section 2(a)(29)(A),
which defines an integrated public utility system, that Congress did not intend
to imposed [sic] rigid concepts with respect thereto.") (citations omitted). See
also Madison Gas and Electric Company v. SEC, 168 F.3d. 1337 (D.C. Cir. 1999)
("section 10(c)(1) does not require that new acquisitions comply to the letter
with section 11")./38 Section 2(a)(29)(A) expressly directs the Commission to
consider the "state of the art" in analyzing the integration requirement. As
indicated above, the Commission is not constrained by its past decisions
interpreting the integration standards based on what was then the "state of the
art." See AEP, supra (noting that the state of the art -- technological advances
in generation and transmission, unavailable thirty years prior -- served to
distinguish a prior case and justified "large systems spanning several states").
The concept of an integrated public utility system has evolved in light of
the dramatic changes in the law, technology and structure of the industry since
the passage of the 1935 Act over 60 years ago. Since the enactment of the Act,
the "state of the art" has changed enormously, so as to include within the scope
of integrated operations a broader range of utility contractual relationships
and activities. A review of these changes seems appropriate in view of the
Commission's stated goal of interpreting the Act to reflect and accommodate
changes in the industry.
Historically, electric utilities have been single corporate entities
engaged in three vertically-integrated businesses: (i) generation of electricity
(i.e., the ownership and operation of power plants that produce electricity);
(ii) transmission of electricity (i.e., the ownership and operation of the high
voltage facilities that transport electric energy in bulk from one point to
another, generally from a utility's generating units to its distribution
facilities); and (iii) distribution of electricity (the ownership and operation
of the lower voltage facilities that deliver electric energy from the
transmission system to most end users). Until recently, electric utilities
operated as regulated monopolies "predicated on the concept that a central
source of power supplied by efficient, low-cost utility generation,
transmission, and distribution was a natural monopoly."/39 These utilities
generally built generating facilities in the proximity of their customers, and
transmission was treated essentially "as an incidental service."/40
----------
38 The Commission interprets the 1935 Act and its integration standards "in
light of . . . changed and changing circumstances." Sempra Energy, Holding
Co. Act Release No. 26971 (Feb. 1, 1999) (interpreting the integration
standards of the 1935 Act in light of developments in the gas industry).
Accord, NIPSCO.
39 Energy Information Administration, Department of Energy, The Changing
Structure of the Electric Power Industry: An Update at 5.
40 See Comments by Commissioner Curtis L. Hebert, New Orleans, LA ISO Conf.,
F.E.R.C. Docket No. PL 98-5-000, Tr. at 2 (June 1, 1998); 1995 SEC Staff
Report on the Regulation of Public Utility Holding Companies at 59. See
also Promoting Wholesale Competition Through Open Access Non-Discriminatory
Transmission Services by Public Utilities; Recovery of Stranded Costs by
Public Utilities and Transmitting Utilities, Notice of Proposed Rulemaking,
FERC Stats. & Regs., Proposed Regulations, P. 32,514 (1995) ("Mega-NOPR"),
wherein FERC described the electric industry in 1935, the year of enactment
of both the Act and the Federal Power Act, which was a companion piece of
legislation to the Act, as follows:
The Federal Power Act was enacted in an age of mostly self-sufficient,
vertically integrated electric utilities, in which generation,
transmission, and distribution facilities were owned by a single
entity and sold as part of a bundled service (delivered electric
energy) to wholesale and retail customers. Most electric utilities
built their own power plants and transmission systems, entered into
interconnection and coordination arrangements with neighboring
utilities, and entered into long-term contracts to make wholesale
requirements sales (bundled sales of generation and transmission) to
municipal, cooperative, and other investor-owned utilities (IOUs)
connected to each utility's transmission system. Each system covered
limited service areas. This structure of separate systems arose
naturally due primarily to the cost and technological limitations on
the distance over which electricity could be transmitted.
Mega-NOPR at 33,059.
----------
In the decades following the enactment of the Act, the transmission sector
of the electric utility industry significantly expanded. The total miles of high
voltage (230 kV and above) transmission lines tripled in the 1950s and tripled
again in the 1960s./41 Utilities had originally constructed transmission
facilities to transmit power from their own plants to their customers.
Subsequent to the enactment of the 1935 Act, utilities increasingly developed
interconnections with their neighboring utilities to obtain and provide
assistance in emergency situations, to improve reliability, and to reduce the
costs of power supply through long-term capacity transactions and economy
transactions with their neighbors./42 Technological advances in transmission
have also occurred, making it possible to transmit electric power economically
over long distances at higher voltages. In today's world, "improved transmission
and monitoring technologies have increased the feasible geographic bounds for
supply choice; a geographic radius of 1,000 miles or more is currently
considered reasonable for choosing among supply options."/43
----------
41 There were 2,974 miles of high voltage transmission in 1940, 8,174 miles in
1950, 22,379 miles in 1960, and 65,370 miles in 1970. Peter Fox-Penner,
Electric Utility Restructuring, A Guide to the Competitive Era (1997) at
130.
42 See William J. Baumol & J. Gregory Sidak, Transmission Pricing and Stranded
Costs in the Electric Power Industry (1995) at 13.
43 Technological advances have occurred with respect to the "size" of
transmission lines (345 kV to 765 kV lines) which have allowed for the
transfer of large amounts of power over great distances. Technological
advances have also occurred with respect to the "type" of transmission
lines. High-voltage direct current ("HVDC") technology provides the ability
to transmit bulk power over longer distances with less energy loss and
normally with a smaller investment than with alternating current ("AC")
transmission lines. This technology provides an economical way to
interconnect separated AC power grids and enables power transfers to occur
between these systems, thus improving economies and reliability. The
application of phase shifting transformers, series compensation, and
flexible alternating current transmission system ("FACTS") technology has
also provided the ability to improve and control the transfer of power and
energy across expansive transmission networks. New flexible alternating
FACTS technology can increase the capacity of existing transmission lines
by approximately 20 to 40 percent. Electricity: Innovation and Competition,
Hearing Before the Subcomm. of Energy and Power of the House Comm. on
Commerce, 105th Cong. 38 (1997) (statement of Robert B. Schainker, Manager,
Substations, Transmissions and Substation Business Area Power Delivery
Group, Electric Power Research Institute). Such technology "help[s]
electric utilities operate their bulk power networks closer to their
inherent thermal limits, while maintaining and/or improving network
security and reliability." Id. Advances in telecommunications and computer
technology have improved the ability to economically dispatch power systems
and control power flow across such systems. Improvements in
telecommunication technology and the growth in coverage area of
telecommunications systems have allowed for the quick and reliable transfer
of data necessary to control and dispatch from a single location generation
that can be scattered over large geographic areas. The improvements
provided by fast and reliable telecommunication networks allow for the
control and economic dispatch of power systems that extend over large
geographic areas, providing system operators an almost real time ability to
monitor and control the power system. Significant improvements in
transmission and resource planning have also occurred since 1935. There are
several software packages available today that enable the system planner to
model the operation of most of the equipment used on a power system.
Studies can be performed that not only evaluate power transfer
capabilities, but also allow the system planner to add different types of
equipment to determine their impact on increasing power transfer
capabilities. Development of such software has enabled the system planner
to determine what equipment functions best as well as where and when it
should be installed. Further technological advances can be expected in the
future as "power engineers" explore the potential for computers to optimize
the efficiency and reliability of the North American power network. Leslie
Lamarre, The Digital Revolution, EPRI Journal, (Jan./Feb. 1998).
----------
Interconnections have proven so beneficial that every utility in the
continental United States is interconnected with one of three Interconnects: the
Eastern Interconnect, which encompasses utilities in the eastern United States
and Canada from the Atlantic Ocean to the High Plains; the Western Interconnect,
which encompasses utilities from the High Plains/Rocky Mountain region to the
Pacific Ocean; and ERCOT, which encompasses most of the State of Texas. FERC has
described the present state of the transmission sector of the electric utility
industry as follows:
The transmission facilities of any one utility in a region are part of a
larger, integrated transmission system. From an electric engineering
perspective, each of the three interconnections in the United States (the
Eastern, Western and ERCOT) operates as a single "machine."
Regional Transmission Organizations, Notice of Proposed Rulemaking, IV FERC
Stats. & Regs. P. 32,541 (1999) ("RTO NOPR") at 33,697. See also, Regional
Transmission Organizations, FERC Stats. & Regs. P. 31,089, Order No. 2000 (1999)
("Order No. 2000") at p. 31,003 /44, order on rehearing, FERC Stats. & Regs., P.
31,092 (2000).
The generation sector of the electric utility industry is also very
different than it was in 1935. Concern over the nation's energy future, in
conjunction with other factors, led to the first significant legislative
development at the federal level affecting the electric utility industry since
the enactment of the Act and the FPA: the enactment of the Public Utility
Regulatory Policies Act of 1978 ("PURPA"). PURPA requires utilities to purchase
the output of qualifying facilities ("QFs") at avoided cost rates established by
state commissions./45 An effect of PURPA was to begin to separate generation
from the transmission and distribution functions of utility operations, or to
put it another way, to broaden the scope of integrated electric operations to
include purchases from third parties as well as a utility's own production of
electricity. Consistent with the intent of PURPA, in some states significant QF
resources were added in lieu of utility generation./46
----------
44 FERC has noted that "the entire Eastern interconnection is, as the name
indicates, interconnected." North American Electric Reliability Council, 87
FERC P. 61,161 (1999).
45 PURPA Section 210. 16 U.S.C. ss. 824a-3.
46 PSCo, which has installed capacity of more than 3,000 MW, purchases over
600 MW of capacity and associated energy from QFs pursuant to long-term
agreements.
----------
Following the enactment of PURPA and the development of the QF industry,
independent power producers ("IPPs") emerged as another type of generation
supplier. IPPs operate without a franchised service territory or an established
customer base and seek to sell the output of their generating facilities in the
wholesale market, typically to a single utility. With many traditional utilities
wary of investing in new generation for a variety of reasons, IPPs in some
instances found a ready market. IPPs were further spurred by the great latitude
that FERC afforded them in rate setting. In fact, FERC initially developed its
market-based rate standards in the context of IPPs./47 However, the development
of IPPs was formerly inhibited by their lack of access to essential transmission
facilities to reach a broader customer base, as well as ownership restrictions
effectively created by the integration requirements of the Act. Recognizing
these obstacles and desiring to promote greater development of wholesale power
markets generally, Congress passed the Energy Policy Act of 1992 ("EPACT")./48
EPACT amended the FPA to permit any entity selling power at wholesale to request
FERC to order a transmission-owning utility to provide transmission services./49
EPACT also created a new exemption under Section 32 of the 1935 Act for exempt
wholesale generators ("EWGs"). The EWG exemption ensures that the 1935 Act's
integration requirements will not thwart the development of IPPs participating
in the wholesale market, an implicit acknowledgment that the economic operation
of a utility system depends on contractual relationships as well as facilities
ownership.
Since EPACT, the competitive electric supply wholesale market has developed
rapidly. This progress has been facilitated by FERC's willingness to permit the
sale of electric capacity and energy at market-based rates. This change in
regulatory policy applies not only to IPPs, but to power marketers (many of
which are affiliated with utilities) - a relatively new class of wholesale
market participant that purchases and sells power produced by third parties, not
from their own resources. This new policy also applies to utilities directly,
who have increasingly focused on their own wholesale marketing efforts. It is
now the rare utility that does not have either market-based rate authority or an
active wholesale power marketing affiliate./50
Notwithstanding these initiatives, FERC concluded that due to the lack of
third-party transmission access, and preferential access that utilities accorded
to their own marketing efforts, unequal transmission access continued to impede
the development of fully competitive bulk power markets that FERC sought to
promote./51 On that basis, within three years of the enactment of EPACT, FERC
commenced the so-called "Mega-NOPR" proceeding, Promoting Wholesale Competition
Through Open Access Non-discriminatory Transmission Services by Public
Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting
Utilities./52 This notice of proposed rulemaking culminated approximately a year
later with FERC's issuance of Order No. 888./53
----------
47 See, e.g., Commonwealth Atlantic Limited Partnership, 51 F.E.R.C.P. 61,368
(1990).
48 Pub. L. No. 102-486, 106 Stat. 2776 (1992).
49 PURPA also included a provision that allowed the Commission to order
wheeling for power generated by a third party under certain
narrowly-defined circumstances. However, FERC quickly interpreted this
already limited authority very conservatively. See Southeastern Power
Administration v. Kentucky Utilities Co., 20 F.E.R.C. P. 61,204 (1983)
(holding that the Commission could not order wheeling if the wheeling order
would result in a disturbance of existing market patterns, and holding that
Section 211 of the FPA, as added by PURPA, was not designed to remedy a
utility's anticompetitive conduct). EPACT amended sections 211 and 212 of
the FPA to expand the Commission's authority to order wheeling upon
application. 16 U.S.C. Sections 824j, 824k.
50 The NSP companies, PSCo and SPS all have been granted market rate authority
and participate actively in wholesale markets. The NCE system also has a
wholesale power marketer, e prime.
51 One commentator has described this unequal transmission access as follows:
For more than 100 years, electric companies operated as separate,
regulated monopolies producing, transmitting and distribution
electricity to their own customers or native load. The utilities were
virtual islands unto themselves with no competition and minimal risk.
To help ensure a reliable supply of electricity when generators were
down for maintenance or during period of peak demand for electricity
and other shortages, neighboring utilities installed connections
between their individual transmission systems or control areas. Power
could now flow from one neighboring utility to another. As these
connections expanded, they eventually formed a complex "grid" of
transmission systems or control areas capable of transmitting
electricity across must longer distances. Utilities also faced another
challenge, wholesale competition. Suddenly your neighboring utilities
could buy electricity at potentially lower prices from another, more
distant supplier. That meant lost business and lost income from your
company. One way to reduce this threat was to set the price for access
to your company's transmission system so high that it discouraged
other utilities from wheeling power across your territory. The result
was that distant power suppliers often found it difficult if not
physically impossible to wheel their electricity to your neighbors.
You could also thwart competition by withholding information about
transmission pricing and availability, or the hours when your system
had sufficient capacity to handle the additional flow of electricity.
Nelson, Kenneth C., "The New World of Power Marketing," Management
Quarterly, v. 40, pages 13-42 (Spring 1999).
52 70 FERC P. 61,357 (1995).
53 Promoting Wholesale Competition Through Open Access Non-Discriminatory
Transmission Service by Public Utilities; Recovery of Stranded Costs by
Public Utilities and Transmitting Utilities, FERC Stats. and Regs.,
Regulations Preambles, P. 31,036 (1996) ("Order No. 888"), order on
rehearing, FERC Stats. & Regs., Regulations Preambles, P. 31,048 (1997)
("Order 888-A"), order on rehearing, 81 FERC P. 61,248 (1997) ("Order
888-B"), order on rehearing, 82 FERC P. 61,046 (1998) ("Order 888-C").
----------
Order No. 888 requires all transmission owners to (1) offer comparable
open-access transmission service for wholesale transactions under a tariff of
general applicability on file at FERC/54 and (2) take transmission service for
their own wholesale sales under their open-access tariff. Order No. 888 was
intended to facilitate third-party utilization of the transmission grid as the
vehicle for developing a competitive wholesale bulk power market. Under Order
No. 888, a utility must wheel power for third parties upon their request, on
either a firm or a non-firm basis./55 If the transmitting utility does not have
sufficient transmission capacity to transmit on a firm basis, it must either
offer to expand its transmission system to accommodate the request, or, if
appropriate, to redispatch generation to relieve constraints and thereby make
transmission capacity available. In the interim, a utility must offer
transmission on a non-firm basis to the requesting entity./56
----------
54 FERC has explained what it means by comparability:
an open access tariff that is not unduly discriminatory or
anticompetitive should offer third parties access on the same or
comparable basis, and under the same or comparable terms and
conditions, as the transmission provider's uses of its system.
67 FERC at 61,490.
55 "Wheeling" is the provision of transportation by a hub operator from one
system to another system.
56 Moreover, FERC in Order No. 888 required tight power pools (or their
individual members) both to file open-access transmission tariffs and to
file revised pooling agreements by December 31, 1996. With respect to the
latter requirement, FERC required that the reformulated power pooling
agreements establish, among other things, open, non-discriminatory
membership provisions, that would allow any bulk power market participant
to join a power pool, irrespective of its type, affiliations with other
entities, or geographic location. In Order No. 888, FERC expressly noted
that the reformation of tight power pools could be achieved through the
establishment of an ISO to supplant the tight power pool. As a result of
this encouragement and FERC's requirements, the three primary tight power
pools - Pennsylvania-New Jersey-Maryland Interconnection ("PJM"), New York
Power Pool ("NYPP"), and New England Power Pool ("NEPOOL") - have
restructured into ISOs, and have significantly modified their operations.
----------
Prior to Order No. 888, electric utilities typically needed to construct
direct interconnections to facilitate capacity and energy transfers. Now, as a
matter of right under Order No. 888, two utilities can contractually arrange for
interconnection: by contract, they can acquire either a firm or a non-firm
transmission path that would allow power transfers between their separate
systems.
Moreover, Order No. 888's companion order, Order No. 889,/57 requires
public utilities to functionally separate their transmission and reliability
functions from their wholesale power marketing functions. In this connection,
Order No. 889 required public utilities to develop and maintain an Open Access
Same-Time Information System ("OASIS") to give transmission users the same
access to transmission information that the wholesale merchant function of a
utility enjoys. The fundamental purpose of an OASIS is to ensure that
transmission customers have access to transmission information, through
electronic means, that will enable them to obtain open-access transmission
service on a basis comparable to a transmitting utility's own use of its
system./58 Generally stated, a utility's wholesale merchant function is limited
to receiving from a utility's transmission and reliability function only such
transmission information that is posted on an OASIS, and is thereby publicly
available on a simultaneous basis to third-party transmission customers. Thus,
while FERC in Order Nos. 888 and 889 did not require actual corporate
divestiture or legal separation of generation and transmission functions within
utilities, on an operational basis there has been a de facto separation of these
functions in response to these orders.
-----------
57 Open Access Same-Time Information System (formerly Real-Time Information
Network) and Standards of Conduct, Order No. 889, [1991-1996 Transfer
Binder] F.E.R.C. Stats. & Regs., Regs. Preambles P. 31,035, at 31,585
(1996), order on reh'g, Order No. 889-A, III F.E.R.C. Stats. & Regs., Regs.
Preambles P. 61,253 (1997).
58 The information to be posted on an OASIS includes the following:
transmission capability that is available on both a firm and nonfirm (i.e.,
interruptible) basis; descriptive information regarding specific
transmission requests and transactions including the point of receipt and
delivery on the transmitting utility's system, the term of service, the
level (i.e., number of MWs) and quality (i.e., firm or nonfirm) of service,
and whether the service is provided for the benefit of a transmitting
utility's associated wholesale merchant function or to an affiliate;
whether any transmission services have been offered at a discounted rate;
and notices regarding transmission curtailments or interruptions. See 18
C.F.R. ss.37.6.
----------
The comparable transmission service and functional unbundling that FERC has
required in Order Nos. 888 and 889 initially may appear to contradict the
integrated operation of electric systems required under Section 11. Taken
together, the two orders require utilities to deprive themselves of any benefit
associated with the consolidation of ownership of transmission and generation
facilities. Instead, under the concepts supporting Order Nos. 888 and 889, such
benefits are created by the competitive marketplace that results from open
access. As FERC stated in Order No. 888, "[i]ncreasingly, customers are
demanding the benefits of competition in the growing electric commodity market."
FERC estimated quantitative benefits of its rule of $3.8-$5.4 billion a year, in
addition to expected non-quantifiable benefits such as better use of existing
assets and institutions, new market mechanisms, technical innovation and less
rate distortion. According to FERC, the continuing competitive changes in the
industry and the prospect of these benefits to customers made it imperative that
FERC ensure nondiscriminatory transmission access through Order Nos. 888 and
889./59 Thus, FERC has recognized that the economic operation of utility systems
can be achieved, and indeed is perhaps best achieved, through contractual
relationships in a competitive marketplace, and not simply through ownership of
facilities.
EPACT, Order Nos. 888 and 889, and other FERC policies and initiatives have
had a tremendous impact on the development of competitive bulk power markets.
Utilities have increased their own in-house wholesale marketing efforts and the
number of entities with whom they trade. To illustrate by example, PSCo's
non-requirements wholesales sales (including short-term firm and economy sales)
have increased from 306,920 MWh in 1993 to 7,873,800 MWh in 1998. Moreover,
whereas PSCo's past wholesale marketing efforts were largely limited to economy
energy sales made by its dispatchers in the former Inland Power Pool, New
Century Services now has a marketing group that makes sales on behalf of PSCo
throughout the entire western region. Similarly, NSP's revenues from sales for
resale have increased by 70% from 1996 to 1999. While trades were typically made
within MAPP and MAIN in the past, NSP has found it economical to trade in
markets such as Ohio and Florida.
Moreover, power marketers are an increasingly important presence in the
industry. The top ten power marketers sold in excess of 1 billion MWh in 1999.
These entities typically arbitrage remaining price differentials by buying in
one market and selling in another. The effect is to minimize margins to be
gained in these interregional sales and therefore to drive electric supply
market prices closer to a regional-wide marginal (or incremental) cost. As
prices move to marginal cost, rate differentials arising from historical
embedded cost will begin to disappear./60 IPPs also are becoming a more
significant sector of the electric utility industry. Nationwide, plans to build
new plants have exploded. In the Northeast Power Coordinating Council region
alone, an additional 30,000 MWs has been announced, almost all of it from
IPPs./61 Similar plant additions have been announced by IPPs and EWGs in the
mid-continent area as well. These significant plant additions lessen the impact
of historical embedded utility-specific price differentials by changing the cost
structure of the industry as a whole.
----------
59 Order No. 888.
60 One commentator has recently described the ramifications of the more
competitive wholesale markets resulting from the enactment of EPACT and the
issuance of Order Nos. 888 and 889 as follows:
What resulted is a highly competitive and sophisticated 24-hour power
market . . .
Next we examine what happens in "real-time" . . . . Economic
power schedulers, working in the front office, monitor the
utility's entire real-time system, making sure that the planners
have accurately matched the power supply assets with the hourly
demand or native load. Economic power schedulers also make sure
that the planners have utilized the least expensive power supply
assets. Schedulers may also make adjustments to the power plan in
order to maximize the goals of reducing costs, providing
customers with the lowest possible wholesale prices. To make
these adjustments, economic power schedulers rely on available
power supply assets and the hourly or "spot" market. Unexpected
changes in the weather, mechanical problems at the generating
station and congestion on the transmission grid are only a few of
the factors that can result in deviations from the planner's
schedule. Let's assume the scheduler needs an additional 10 MW of
power for two hours, one hour from now. He or she, depending on
the level of sophistication of the company, may consult a data
screen that displays the real-time spot-market price and the
incremental cost of generation or the cost of producing the
additional or next 10 MW of electricity.
If the incremental cost of generation is less than the market
price, the power scheduler may ask the generating plant to
increase production or start a peaking unit. If the price of
power from pre-existing contracts is less than the spot market
price or generation, the scheduler may draw upon the amount of
electricity stipulated in the contract. But if the spot market
price is less than the incremental cost of generation or contract
power, the scheduler may notify the traders in the "front
office." They immediately go to the spot market and begin the
buying process.
The economic power scheduler may also find that the utility is
"long" on power or has excess capacity for several hours. The
traders may now begin the selling process. Trading in the spot
market has the same requirements as day-ahead, weekly and monthly
trading except that it happens at a much faster pace. Spot market
trading averages less than 20 minutes for securing a buyer or
seller scheduling transmission or obtaining an NERC tag, applying
competitive intelligence and price and credit risk management,
confirming the trade and notifying billing, finance and
accounting in the "back office."
Nelson, Kenneth C., "The New World of Power Marketing," Management
Quarterly, v. 40, pp. 13-32 (Spring 1999).
61 Order No. 2000 at p. 30,996.
----------
FERC's commitment to expand wholesale markets was reinforced in its Order
No. 2000, FERC's final rule on regional transmission organizations ("RTOs").
RTOs are intended to create regional planning and operation of transmission
systems to allow greater efficiency in the market as well as to eliminate
pancaked rates, making the transmission grid more like the interstate freeway
system and thereby enabling power to flow cheaply over longer distances. Order
No. 2000 sets out FERC's expectation that all transmission owners will join RTOs
on a voluntary basis. To that end, FERC announced a timetable for every
jurisdictional utility to either join in an RTO filing, or, alternatively, to
submit a filing describing its efforts to join in an RTO, the reasons for not
participating in an RTO proposal and any obstacles to participation, and its
plans for further work toward participation. This timetable is aggressive,
requiring that utilities not already participating in a FERC-approved RTO make
such initial filing by October 15, 2000.
Order 2000 states that an RTO must provide the following functions at a
minimum: (i) tariff administration and design; (ii) congestion management; (iii)
parallel path flow management; (iv) supplier of last resort for ancillary
services; (v) OASIS site administration and the determination of total
transmission capability and available transmission capacity; (vi) market
monitoring; (vii) system planning and expansion; and (viii) interregional
coordination./62 These minimum characteristics and functions are intended to
have the effect of turning the nation's transmission facilities into
independently owned and operated "common carriers" that offer comparable service
to all would-be users.
FERC expects that RTOs will promote economic efficiency as well as
operational efficiency. A significant barrier to equalizing the trading price of
a more distant utility with a nearby utility is the cost of transmission, which
is hampered by the "pancaking" of rates under the current transmission pricing
scheme. Simply stated, if a transaction requires movement of power across the
transmission system of multiple, non-affiliated public utilities:
[the] transmission customer pays separate, additive access charges
every time its contract path crosses the boundary of a transmission
owner. By raising the cost of transmission, pancaking reduces the size
of geographic power markets. This, in turn, can result in concentrated
electricity markets. Balkanization of electricity markets hurts
electricity consumers, in general, by forcing them to pay higher
prices than they would in a larger, more competitive, bulk power
market./63
As such, wholesale generators or customers seeking to buy competitively priced
generation in more distant markets must pay transmission costs that may exceed
the benefits of the transaction.
Among other benefits, an RTO price structure eliminates rate pancaking,
allowing power on the most distant edges of an ISO to be transmitted at market
price with no additional cost for transmission than would exist for a nearby
transaction or even the generation-to-end-user within a utility's own service
area. FERC has explained this benefit:
The Commission has long recognized that transmission pricing reform is
most effectively accomplished on a regional basis. An RTO would have
the geographic scope needed to eliminate pancaked transmission rates
within its region. This would broaden the generation market and could
result in more potential suppliers and less concentrated generation
markets, thereby fostering more competitive markets and lower prices
to consumers./64
Because RTOs will offer service to customers on a system-wide basis under a
single FERC-approved tariff, customers will have available "'one stop shopping'
for regional transmission service . . . resulting in simpler and more efficient
procedures for transmission users to transmit power over greater distances."/65
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62 FERC added the interregional coordination function in Order No. 2000 in
order to assure that "seams" issues between RTOs (or between RTOs and areas
where there is not yet an RTO) are adequately addressed. As FERC stated in
Order No. 2000, "[c]oordination of activities among regions is a
significant element in maintaining a reliable bulk transmission system and
for the development of competitive markets." Order No. 2000 at p. 31,167.
63 RTO NOPR at 33,703.
64 RTO NOPR at 33,716 (footnote omitted).
65 RTO NOPR at 33,717.
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Due to these and other developments at the federal level, the landscape of
the electric industry is changing rapidly. Wholesale power markets have
developed from a balkanized, utility-specific, cost-based structure to a more
competitive market-based structure./66 The effect of these developments on SEC
merger policy is both direct and profound. The emergence of RTOs, at the
direction of FERC, will further facilitate wholesale competition, moving the
industry further from the vertically-integrated utility model under which
utilities relied substantially on their own resources to serve their loads.
Because NSP and NCE can, pursuant to Order No. 888 and now Order 2000 obtain
transmission rights that allow them to procure energy from more distant markets
at prices equivalent to or better than nearby markets in which they do business,
direct physical interconnection is no longer necessary for the utilities to
transact with, or act in unison with, one another to achieve operational
efficiency. For example, in situations where two non-contiguous utilities in the
same RTO wish to transact with each other, they can arrange necessary
transmission services using a contract path or the RTO's non-pancaked tariff.
Moreover, using either a contract path or a regional tariff, two non-contiguous
utilities in the same RTO may reach common suppliers or hubs to both sell and
purchase electricity collectively. The net effect of these regulatory and market
changes is to require a re-evaluation of the meaning of integration in light of
the present structure of the electric utility industry and regulatory
environment, which have changed dramatically since the passage of the Act./67
The Commission already has recognized many of these changes in its decisions in
UNITIL Corp., Holding Co. Act Release No. 25524 (April 24, 1992) and Conectiv,
Inc., Holding Co. Act Release No. 26832 (February 25, 1998).
----------
66 Indeed, FERC in Order No. 888 invoked the widely-differing cost of
utility-generated electricity across the major regions of the country as
evidence of the need for reform. Order No. 888 at 31,651-52.
67 See also Order No. 2000 at p. 31,174 ("A main reason that an RTO can expand
the marketplace for generation to a large region is that an RTO can
implement non-pancaked rates for each transaction. A wider area served by a
single rate means more generation is economically available to any customer
which means greater competition for energy.")
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Regulatory changes at the state level have paralleled those at the federal
level and have been equally dramatic. Concurrent with or subsequent to the
implementation of PURPA, states began developing integrated resource planning
requirements that mandate that utilities focus on both supply-side and
demand-side resources and that require local utilities competitively bid their
resource requirements to obtain the lowest cost resources possible. Under these
resource procurement requirements, utilities must purchase power from third
parties (rather than provide for their own generation) if to do so would result
in lower costs to consumers. Typically, special evaluation procedures apply to
assure the fairness of the bidding process where a utility desires to pursue a
self-build option or where an affiliate desires to submit a proposal. The
bidding process has also become the manner in which QF suppliers are chosen for
avoided cost sales. For example, the Colorado Commission has adopted integrated
resource planning rules that require that utilities in Colorado conduct a
competitive resource procurement process for all additions of capacity to their
systems, except in very narrow circumstances, e.g., capacity and/or energy from
the generation facilities of other utilities or from non-utility generators
pursuant to agreements for less than one year term or for less than ten
megawatts of capacity. In the event that a Colorado utility wishes to pursue a
self-build option of greater than 10 MW, it must submit a proposal in the
competitive process. SPS and NSP are likewise subject to competitive procurement
procedures./68 Thus, the state regulators have recognized that the economic
operation of a utility system must include the benefits of integration through
the marketplace and not just the effects of a vertically-integrated ownership
structure.
Moreover, virtually every state, either at the legislative level or the
state regulatory commission level, has implemented or is actively considering
retail competition. One consequence of such actions has been the divestiture by
utilities of large amounts of generating assets to relieve stranded costs or in
response to a state mandate. Since August 1997, approximately 50,000 MW of
generating capacity have been sold (or are under contract to be sold) by
utilities, and an additional 30,000 MW is currently for sale. In total, this
represents more than 10 percent of U.S. generating capacity./69 The combination
of state restructuring efforts and federal unbundling of transmission from
generation makes it clear that utilities will not be encouraged to achieve
saving from mergers through the combination of generating facilities. The lowest
cost supply of power will be achieved in the market, and consumers will directly
access that market.
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68 As stated previously under Item 1.C.2., NSP recently submitted a request
for bids for up to 1,200 MW of capacity.
69 Order No. 2000 at 30,997.
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The two states in which SPS principally operates, Texas and New Mexico,
vividly illustrate the trend towards retail electric competition. Both Texas and
New Mexico in 1999 enacted restructuring legislation requiring that historically
integrated utilities, including SPS, unbundle their transmission and
distribution operations from their energy supply operations (including the
generation function) through corporate reorganizations or divestitures of assets
to facilitate retail competition in those states.
To elaborate, New Mexico SB-428, which was enacted in 1999, will require
the corporate separation of SPS's generation and competitive energy operations
from its regulated transmission and distribution operations in New Mexico. Texas
SB-7, which also was enacted in 1999, will require the corporate separation of
SPS's generation, retail marketing, and transmission and distribution operations
in Texas. Moreover, SB-7 requires Texas utilities to sell at auction, at least
sixty days before customer choice is to begin in Texas, entitlements to at least
fifteen percent of their jurisdictional installed capacity, and further limits
the amount of installed generating capacity that a generating company in Texas,
including those formed through the corporate separation of existing integrated
utilities, may own. Texas SB-7 establishes a 20 percent limit on the amount of
capacity that any entity can own or control in a power region.
Both New Mexico SB-428 and Texas SB-7 require utilities to submit
compliance or "transition" plans for state commission approval. In New Mexico,
SPS must file its transition plan by June 1, 2000, seeking New Mexico Commission
approval by December 1, 2000. In Texas, SPS on January 10, 2000 filed its plan
to separate its retail, generation, and transmission and distribution
businesses. By December 1, 2000, SPS must file its market power mitigation plan.
Moreover, in its order setting the Merger for hearing, the Texas Commission
requested that SPS file supplemental direct testimony addressing the structural
and operational changes that SPS would make to comply with SB-7.
In addition to addressing various merger-related issues, SPS reached
agreement in its merger proceeding in Texas with respect to several of the
restructuring requirements of Texas SB-7. In order to address vertical market
power issues, SPS agreed to join the SPP transmission tariff immediately after
Texas approval of the merger, as an interim measure until FERC's formal approval
for SPS to join the MISO. In addition, in order to address horizontal market
power issues, SPS agreed to provide economic dispatch and reliability pooling on
a comparable and non-discriminatory basis at FERC-regulated cost-based rates to
loads in SPS's service area. Such service will be offered beginning June 1, 2001
and will continue until the later of the date on which FERC approves
market-based rates for ancillary services supplied in the SPS service area or
when the PUCT certifies that SPS operates in a competitive power region. Also to
address horizontal market power, SPS and its affiliates agreed to divest
approximately 2,864 megawatts of generation capacity in the SPS service area.
This amounts to about 64 percent of the 4,472 megawatts of capacity owned by SPS
and its affiliates at 13 plants in Texas and New Mexico. The agreement also
provides that SPS may sell 3,191 megawatts or 71 percent of its capacity, if the
Texas Commission deems the larger amount necessary for SPS to be certified as
operating in a qualified power region. The agreements to sell capacity are
subject to the pooling of interests requirements and sufficient participation of
bidders in the divestiture sale to permit reasonable competition and multiple
purchasers.
To summarize, the ongoing corporate restructuring of the U.S. utility
industry reflects the effects of emerging FERC policy on transmission (including
Order Nos. 888 and 889 requiring open-access transmission on comparable terms
and the functional unbundling of the transmission and wholesale merchant
functions), the formation of ISOs and Order No. 2000. It is also the product of
many recent state laws mandating competitive resource procurement and retail
electric competition, and the functional separation (and in some states,
divestiture) of generation from transmission and distribution operations.
Layered on these changes are both rapid developments in technology and the
emergence and growth of the power marketing and energy trading businesses, both
of which facilitate efficient and competitive low-cost electric markets. Perhaps
most notable among all of these changes is the recent evolution of ISOs/RTOs.
These entities facilitate trading regions with no economic constraints on
transmission access and with the ability to manage and plan for new transmission
on a regional basis to help alleviate transmission constraints, thereby
providing entities with both the requisite physical and economic means to
integrate their systems. The cumulative effect of these regulatory,
technological and economic changes has dramatically altered the "state of the
art" that Congress directed the Commission to consider more than sixty years
ago.
* * * * *
It is against this backdrop of rapid change in the electric utility
industry and the regulatory framework that Applicants have developed a plan to
integrate the NCE and NSP systems. There are two primary components to this plan
in addition to the common utilization by the NCE and NSP systems of New Century
Services for numerous procurement, operational, administrative and general
services. First, Applicants have completed the process of arranging a 100 MW
south to north firm transmission path from 2002 through 2004 between SPS and the
NSP. This contract path will integrate the Xcel operating companies by
permitting cost savings from power transfers between NSP and SPS initially and
later between NSP and PSCo. Second, the Xcel operating companies will be parties
to the Joint Operating Agreement, which FERC has already approved in the FERC
Merger Order. The Joint Operating Agreement provides the basis for the
coordination of the Xcel operating companies generating resources, and sets out
the contractual framework for them to transact with each other and to transact
with third parties on a joint basis. This integration plan will be facilitated
by NSP, NSP-W and SPS joining the same ISO, namely MISO. The contract path, the
Joint Operating Agreement and MISO are explained below, followed by a showing
how the Xcel Electric System will be an integrated electric utility system
within the meaning of Section 2(a)(29)(A).
The Contract Path
For at least three years following consummation of the Merger, NCE and NSP
will interconnect their systems through three firm transmission service
agreements, which provide a firm 100 MW unidirectional path from SPS to NSP
(through the SPS, SPP and Ameren transmission systems), to flow 100 MW from
points of receipt located at SPS's generating stations to a point of delivery at
the interconnection between Ameren and NSP transmission systems (the "Northbound
Path"). Applicants commit either to extend their right to use the Northbound
Path prior to its expiration or to file a post-effective amendment explaining
how the Xcel operating companies will continue to satisfy the interconnection
requirement if their rights with respect to the Northbound Path are not
extended.
The Northbound Path will enable the operating companies to move 100MW of
power from SPS generation to the NSP's service territory 365 days a year. The
Northbound Path is a firm transmission arrangement that Applicants have arranged
under the open-access transmission tariffs of the Southwest Power Pool ("SPP")
and Ameren.
Specifically, power under this path will leave the SPS system from its
generation facilities and flow to the border between the SPS transmission system
and the transmission system of Public Service Company of Oklahoma ("PSO") (an
operating company of Central and South West Corporation ("CSW")). These PSO/CSW
facilities are subject to the regional transmission tariff of the SPP. To comply
with the requirements of the SPS open-access transmission tariff, the SPS
wholesale merchant function has arranged for service from the SPS transmission
function under the SPS open-access transmission tariff for the delivery of power
to the interface of the SPS and PSO/CSW transmission system, which consists of
the Elk City and Oklaunion substations. (See the orange lines on Exhibit 3.4).
SPS owns the 345 kV line to Oklaunion and owns the 230 kV line to the Texas
border with an interest in the right to use the capacity of such 230 kV line
from the Texas/Oklahoma border to Elk City./70
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70 SPS, like many transmission owners such as Public Service Company of
Oklahoma, owns the both the assets and the rights to use transmission
capacity beyond it service area boundary. Thus the SPS transmission system
is appropriately viewed as extending to both the Elk City and Oklaunion
substations.
----------
On February 22, 2000, SPS entered a transmission agreement with the SPP,
acting as tariff administrator for PSO/CSW, to provide transmission service over
facilities of PSO/CSW to the Ameren border. The contract is for a three year
period. Although the SPP does not require a specific facility route, primary
paths are on a 138 kV line from Elk City to the Cimarron substation near
Oklahoma City and on a 345 kV line from Oklaunion to the Mustang substation,
also near Oklahoma City. The Northbound Path continues on a 345 kV system to the
Ameren border near the Bolivar Burns substation around Springfield, Missouri, at
the southwest corner of the Ameren system (see the green lines on Exhibit 3.4).
On January 25, 2000, NSP reserved 100 MW of firm capacity to move power
from any point on the Ameren system (in this case, the SPP border with Ameren)
to the Montgomrey substation in eastern Missouri (see the blue line on Exhibit
3.5). This path is needed to move power across the Ameren system to the NSP
transmission system, which extends from the Minneapolis/St. Paul area to the
Montgomrey substation. This contract is also for a period of three years and is
coterminous with the SPP contract. NSP will utilize its rights under the
Minneapolis/St. Paul, Iowa, St. Louis 345 kV Interconnection Agreement (the
"East Line Agreement") to move power from the Montgomrey, Missouri substation to
the NSP service area. The East Line is jointly owned by NSP, Ameren, Alliant and
Mid American. Each party owns a physical portion of the line and has the right
to use the entire line. Specifically, under the East Line Agreement, NSP owns
100% of the portion of the line from the Twin Cities to the Adams substation at
the Minnesota/Iowa border and has a 27% interest in the right to use the line's
transmission capacity from designated points all along the line from the Twin
Cities to St. Louis. In this case, the point at which NSP has elected to receive
power pursuant to its right to use the entire East Line is at the Montgomrey
substation, from which point it will deliver the power to any point in NSP's
service area, typically to Minneapolis/St. Paul, Minnesota area/71 (see the red
line on Exhibit 3.5).
The combinations of these agreements provide a single contract path (via
two distinct contracts) by which SPS can move 100 MW of power from its
transmission system to NSP's transmission system. The Northbound Path is
approximately 500 miles (from the Elk City substation to the Montgomrey
substation)./72 The Xcel operating companies have all rights needed to move
power from the border of the SPS system (either at Elk City or Oklaunion) to the
border of the NSP system at the Montgomrey substation in Missouri.
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71 Like the SPS and PSO/CSW transmission systems, NSP's transmission system
extends beyond its service area border.
72 The distance from the Oklaunion substation to the Montgomrey substation is
approximately 550 miles.
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The Northbound Path will provide NSP, which is a net purchaser of energy in
both summer and winters seasons, the opportunity to import power from SPS to NSP
during those seasons (as well as throughout the year during periods when the
incremental cost of SPS generation is lower than NSP's) pursuant to the Joint
Operating Agreement. The Northbound Path interconnects and integrates the NCE
and NSP systems in the same manner as the contract path found acceptable by the
Commission in the AEP/CSW Order. At 100 MW, the Northbound Path represents a
slightly greater proportion of Xcel's total utility generating capacity than the
amount reserved between AEP and CSW.
Certain PSO upgrades will be required with respect to the Northbound Path.
The upgrades will be made by PSO pursuant to the transmission service agreements
that have been executed by SPS under the SPP Open Access Transmission Tariff.
The Applicants initially proposed that the Northbound Path be a 200 MW firm
path, as compared to 100 MW firm path, as 200 MW could be physically moved
between the two systems on a firm basis and would result in additional savings.
However, preliminary analysis of this scenario indicated that the loss in
available capacity in the NSP destination market was likely significant enough
to cause a potential screen failure under FERC's guidelines related to market
power, which could have resulted in NSP being required to divest a portion of
its generation assets. Because NSP is currently acquiring additional generation
resources, divestiture would be inconsistent with its growing need for energy
and capacity to serve its customers. Thus, the Applicants chose to have the
Northbound Path be a 100 MW firm path from SPS to NSP, which does not result in
the same concern./73 The 100 MW Northbound Path will serve to reduce the
operating costs by allowing for firm power transfers from SPS to NSP, creating
projected savings of $24 million over the next ten years.
The Joint Operating Agreement
The Joint Operating Agreement will integrate the generating resources of
NSP, NSP-W, PSCo and SPS (individually, an "Operating Company" and collectively,
the "Operating Companies"). More specifically, the Joint Operating Agreement
sets out the framework for the coordinated planning, operations, and maintenance
of generation resources (both owned and purchased), and coordinated wholesale
marketing activities of the Operating Companies./74 It also provides for the
allocation of associated costs and benefits.
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73 Also, the Northbound Path (like virtually every firm contract path) has
some market concentrating effects as a result of the loop-flows, as well as
market de-concentrating effects. For this reason, Applicants initially
supported the Northbound Path as a separate option from MISO in their
filing for FERC approval of the Merger. If FERC had not approved the
Northbound Path without a hearing, the Applicants would have requested FERC
and the SEC to approve the Merger without the Northbound Path. The issue is
now moot as the FERC unconditionally approved the Merger without a hearing.
74 Cheyenne is not a part to the Joint Operating Agreement as it does not
operate any generation assets or make any wholesale sales. Thus, Cheyenne
has no owned generation resources subject to integration as a result of the
Merger.
----------
An Operating Committee will have overall responsibility for administering
the Joint Operating Agreement. The Operating Committee will be comprised of a
representative of each of the Operating Companies and New Century Services,
which will act as the agent for the Operating Companies.
In accordance with the terms of the Joint Operating Agreement, New Century
Services will undertake a number of activities involving the coordination of the
generating resources of the Operating Companies, including the following:
(a) evaluating and making recommendations concerning additions of
generating facilities or capacity to be owned by, or under
long-term contract, to an Operating Company ("Generation
Resources") in order to meet the load requirements of the
Operating Companies;
(b) coordinating the planning and design of Generating Resources to
be installed or acquired by the Operating Companies;
(c) coordinating the operation and maintenance of Operating Companies
Generating Resources;
(d) coordinating the economic dispatch of Generating Resources for
the Operating Companies;
(e) conducting system purchases and sales and off-system marketing on
behalf of the Operating Companies;
(f) developing all bills and billing information among the Operating
Companies under the Joint Operating Agreement;
(g) acquiring and coordinating the provision of transmission and
ancillary services from affiliated and non-affiliate transmission
providers for use with respect to transactions by or among
Operating Companies;
(h) operating and maintain a central generating control center to
achieve these purposes, and such additional generation control
centers as the Operating Companies may require; and
(i) reassigning transmission services obtained for wholesale merchant
purposes on behalf of any Operating Company.
Section 7.2 of the Joint Operating Agreement provides for the coordinated
operation of each of the Operating Companies' resources. While preserving the
pre-Merger dispatch priorities applicable to each company's resources to allay
any possible state regulatory concern regarding cost-shifts among the Operating
Companies, this section further provides that "the Control Areas will be
dispatched on a coordinated basis in real time to minimize total generation
costs for the Operating Companies, subject to the availability of Firm
Transmission Entitlements or other transmission arrangements linking the
Operating Companies' Control Areas or other transmission services."
The Joint Operating Agreement also contains service schedules providing for
actual power transactions among the Operating Companies or by the Operating
Companies acting jointly with non-affiliated third parties. Specifically,
Service Schedule A provides for the sale of capacity and associated energy sales
by one Operating Company to another. Service Schedule B provides for energy-only
sales by one Operating Company to another. Service Schedule C provides for
system sales and purchases, and off-system marketing (i.e., not involving the
generating resources of the Operating Companies) with non-affiliated third
parties. Service Schedule D provides for the allocation of costs and revenues
associated with any firm transmission paths that the Operating Companies may
obtain to link their systems.
Applicants note that NSP and NSP-W currently coordinate the planning,
construction, operations and maintenance of their electric supply facilities on
an integrated basis and operate as a single coordinate electric system pursuant
to an Interconnection and Interchange Agreement dated September 17, 1984, as
subsequently modified and supplemented (the "NSP Interchange Agreement). For
this reason, NSP and NSP-W are treated as a single Operating Company under the
Joint Operating Agreement for virtually all purposes. The Joint Operating
Agreement is intended to be in addition to, and not in lieu of, the NSP
Interchange Agreement. Yet, in the event of an inconsistency, the Joint
Operating Agreement will control.
Applicants submitted the Joint Operating Agreement to FERC concurrently
with their application to merge. FERC in the FERC Merger Order accepted the
Joint Operating Agreement for filing without modification, only conditional on
the consummation of the Merger. FERC has jurisdiction over the actual power
transactions set out in the Joint Operating Agreement. The costs for various
non-power transaction activities (e.g., for joint planning) will likely be
incurred at the service company level and allocated in accordance with the
SEC-jurisdictional service agreements.
MISO
MISO is a voluntary non-profit corporation and, as FERC has recognized,
MISO is unique in that it "began through a consensual process and was not driven
by a pre-existing institution."/75 MISO's participants include various
transmission-owning electric utilities ("Transmission Owners") located in the
Midwest. The initial Transmission Owners currently are Ameren Corporation (which
includes Central Illinois Public Service Company and Union Electric Company),
Central Illinois Light Company, Cinergy Corporation (which includes PSI Energy,
Inc., Cincinnati Gas & Electric Company and Union Light, Heat and Power
Company), Commonwealth Edison Company, Hoosier Energy Rural Electric
Cooperative, Illinova Corp., LG&E Energy Corp. (which includes Louisville Gas
and Electric Company and Kentucky Utilities Company), Southern Illinois Power
Cooperative, Southern Indiana Gas & Electric Company, Wabash Valley Power
Association and Wisconsin Electric Power Company. MISO is expected to commence
operations in mid-2001.
As presently constituted (excluding the NSP companies and SPS), MISO will
have a service territory that includes portions of Illinois, Indiana, Kentucky,
Michigan, Missouri, Ohio and Wisconsin and two regional reliability councils
(East Central Area Reliability Coordination Agreement ("ECAR") and Mid-American
Interconnected Network ("MAIN")). MISO will control 45,000 miles of transmission
facilities which represent approximately $6.5 billion in capital investments,
and approximately 70,000 MW of generation assets will be located within the MISO
region. With the addition of the NSP companies and SPS, MISO's transmission
facilities will expand significantly to include portions of Minnesota, North
Dakota, South Dakota, Texas, New Mexico, Oklahoma and Kansas, and generation
assets in the MISO region will exceed 80,000 MW. Also, Alliant Corporation, on
behalf of Wisconsin Power & Light Company, Interstate Power Company, IES
Utilities, Inc. and South Beloit, Water, Gas and Electric Company, is seeking
FERC approval to become a participant in MISO.
On September 16, 1998, FERC conditionally approved the formation of MISO by
authorizing the transfer of jurisdictional facilities from the Transmission
Owners to MISO, and accepting the MISO Tariff and MISO Agreement for filing./76
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75 RTO NOPR at 33,693.
76 Midwest Independent Transmission System Operator, Inc., 84 FERC P. 61,231
("MISO Order"), reconsidered and clarified, 85 FERC P. 61,250 ("MISO
Clarification"), order on rehg, 85 FERC P. 61,372 (1998) ("MISO Rehearing
Order"). In accordance with Order No. 2000, those utilities participating
in MISO, individually or jointly with other entities, must submit a filing
with FERC by January 15, 2001 explaining how MISO has the characteristics
and performs the functions of RTOs as set out in the final RTO rule. See
Order No. 2000 at 31,223.
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MISO will develop all necessary operating procedures and have authority
over approving transmission requests, implementing curtailment of transmission
or requiring redispatch of generation with transmission. MISO's duties will
include calculating available transmission capability and maintaining OASIS
information. MISO will monitor real-time data to determine whether any control
areas are experiencing generation capacity deficiencies. MISO also will control
transmission maintenance. Integration of generation will be facilitated at the
MISO level through various methods/77 and through coordinating the maintenance
(outage schedules) of generating units to assure that they minimize the impact
on transmission capability. Thus, entities participating in the MISO will
interconnect and integrate their systems in a joint effort to promote regional
deployment of certain operating functions, security and redispatch functions and
scheduling functions so as to enhance efficiencies across this broad regional
market.
In joining MISO, New NSP, NSP-W and SPS will transfer control of their
respective transmission systems to MISO and become subject to the MISO Tariff
and Bylaws. Thus, like the tight power pool arrangements that formed the basis
for findings of integration by the Commission in UNITIL and Conectiv, the
transmission facilities of these entities will be under common management and
control along with those of other MISO members. Transmission will be centrally
coordinated so as to maximize transmission capacity. Further, transmission
constraints will be alleviated through regional redispatch of generation so that
the system can operate at maximum efficiency. Transmission upgrades will be
planned on a regional basis to assure the most economic means of relieving
constraints over the long-run are achieved. The greater the transmission
capacity, the greater the ability the NSP companies and the NCE Operating
Companies will have to obtain low cost sources of generation throughout the MISO
region and to arrange for power transfers from one another. Finally, removal of
rate pancaking throughout the MISO regional tariff, which provides for a single
regional rate, will remove economic barriers in reaching more distant sources of
generation supply. Thus, the efficiency of centralized transmission management
and pricing will directly create greater purchasing efficiencies in obtaining
power for Xcel's customers./78
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77 MISO will have some control over the generation of the Transmission Owners.
As stated by the Transmission Owners of MISO in their application to FERC,
MISO will possess authority over generation to the extent "generation
affects transmission." In particular, MISO will solve transmission
congestion through curtailments, generation redispatch and (as a last
resort) load shedding. MISO will use redispatch to prevent the curtailment
of scheduled firm and network transmission service and the costs of
redispatch will be shared among all load including bundled native load on a
pro rata basis rather than directly assigned to specific transmission
customers. MISO members that own generation will be required to offer
redispatch service pursuant to cost-based rates on file with FERC, and MISO
will select the least-cost option for redispatch. When requests for new
firm service cannot be accommodated under current operating conditions,
MISO will facilitate transmission capacity reassignment (by posting bids
electronically on a real-time basis) and transmission capacity expansion by
generation redispatch (by identifying generators that could relieve the
constraint by increasing or decreasing their output). When a system
emergency arises, however, MISO will take whatever actions are necessary to
maintain the reliability of the Transmission System, including
curtailments. MISO Order at 62,162.
78 As noted previously, this result was recognized by FERC in its Order No.
2000 at p. 31,174, where FERC stated: "A main reason that an RTO can expand
the marketplace for generation to a large region is that an RTO can
implement non-pancaked rates for each transaction. A wider area served by a
single rate means more generation is economically available to any customer
which means greater competition for energy."
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The impact of joining MISO on Applicants' combined operations is best
demonstrated by way of an example. Currently, NSP buys power from the market to
meet its customers' energy needs. A key limiting factor in all purchases is the
need to arrange for and the associated cost of transmission. It is common for
NSP to arrange a purchase from the Cinergy hub, which is a liquid market that
permits critical hedging against volatile price swings. However, because of
transmission cost differentials, NSP typically finds nearby power more
economical by the time delivery is expected. NSP then sells its position in
Cinergy and buys from neighboring markets at a higher energy price but a lower
overall price (energy plus pancaked transmission). Under MISO, NSP will be able
to keep and to take delivery from Cinergy, as there will be no incremental
transmission cost to make transmission uneconomical. With SPS in the same RTO,
the purchase could be made jointly and dispatched to the entity whose load
requirements indicate a need for the energy. Again, there would be no
transmission price differential, and the power could flow freely to either NSP
or SPS. In this way, both operating companies achieve economies associated with
access to low-cost power as well as efficiencies in the economic use of this
power supply. Without common MISO membership, pancaked transmission rates would
create differences in the ultimate purchase decision that would make such
coordinated arrangements more difficult and less efficient. Moreover, MISO
membership will permit the necessary transmission arrangements to be made with
MISO as the sole transmission provider.
Accordingly, when the NSP companies and SPS become members of MISO, they
will be able to transmit power between their two systems at nonpancaked rates -
specifically, at an incremental cost which is the same per unit cost involved in
shipping power within their respective systems./79 Since all market participants
in MISO can similarly move power at no additional cost of transport, the MISO
Tariff makes choice of power supply across a broad region economically feasible
for the Applicants. As this occurs, Applicants' integration of generation will
be efficiently accomplished in the marketplace, through the ability to access
potentially 100,000 MW of generating capacity rather than merely seeking
opportunities to exchange power with one another. When the NSP companies and SPS
believe such opportunities exist, they will successfully lower their total
energy costs to customers through their joint participation in energy markets.
-----------
79 There are gaps in the contiguous borders of MISO; however, any charges
incurred for flows across those borders would produce a relative small cost
differential when compared with a traditional rate pancake across multiple
service territories; as a consequence, the transactions will still be
economically feasible. In fact, there is currently an intervening utility
between SPS and MISO. As explained below, SPS intends to obtain a contract
path across the intervening utility service area so that it is
interconnected directly with MISO, although the need for this path may be
obviated in the event that the presently contemplated combination of MISO
and SPP reaches fruition.
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As noted above, Applicants anticipate that MISO will have attracted
additional members by the time it becomes fully operational, which will permit
SPS to be directly interconnected with MISO through intervening utilities. For
example, if the Southwest Power Pool (i.e., SPP) becomes part of MISO, there
would be a contiguous MISO transmission region between SPS and NSP.
Alternatively, if MAPP members join MISO consistent with recent agreements
between the two, there may be a direct link to Sunflower Electric Cooperative,
Inc. through the Holcomb-Potter segment of the tie-line if Sunflower and other
directly connected members elect to participate in MISO. However, in the event
that SPS does not become directly interconnected with another MISO member, SPS
intends to obtain a firm, 200 MW bi-directional transmission path from the point
at which its system interconnects with Public Service Company of Oklahoma
("PSO") to the point at which PSO interconnects with Ameren and MISO. This path
is referred to herein as the "MISO Interconnection." SPS has contracted for this
path from the SPP under its open-access transmission tariff.
Absent anticipated changes that result in a direct interconnection between
SPS and another MISO member, Applicants will implement their plans and
agreements already executed for the MISO Interconnection. In the event that
Applicants need to establish the MISO Interconnection, they will attempt to
enter into arrangements with PSO or the SPP to facilitate third-party use.
Specifically, they will attempt to make arrangements so that the interconnection
path will be treated as part of SPS's system, and therefore subject to MISO's
tariff. Transmission customers would then be able to arrange service over the
path through MISO.
* * * * *
The foregoing discussion was intended to provide background and overview of
how NSP and NCE will be integrated through a contract path and through the Joint
Operating Agreement and how that integration will be facilitated through the
common membership of the NSP companies and SPS in MISO. Each of the four
integration standards of Section 2(a)(29)(A) is discussed specifically below.
(a) Interconnection
The first requirement for an integrated electric utility system is that the
electric generation and/or transmission and/or distribution facilities
comprising the system be "physically interconnected or capable of physical
interconnection." Historically, the Commission has focused on physical
interconnection through facilities that the parties owned or, by contract,
controlled./80 As early as 1978, however, the Commission indicated that joint
participation in a power pool could be the basis for a finding of
integration./81 To date, the Commission has found interconnection through
memberships in "tight" power pools and ISOs./82 These findings are consistent
with the recommendation of the 1995 Study that the Commission "adopt a more
flexible interpretation of the geographic and physical integration standards,
with more emphasis on whether an acquisition will be economical and subject to
effective regulation."
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80 See, e.g., Northeast Utilities, Holding Co. Act Release No. 25221 (Dec. 21,
1990) ("Northeast Utilities") at n.85, supplemented, Holding Co. Act
Release No. 25273 (Mar. 15, 1991), aff'd sub nom. City of Holyoke v. SEC.,
972 F.2d 358 (1992) (Northeast had the right to use a Vermont Electric line
for ten years, with automatic two-year extensions, subject to termination
upon two years notice, in order to provide power to a Northeast
affiliate.); Centerior Energy Corp., Holding Co. Act Release No. 24073
(1986) (Cleveland Electric Illuminating Company and Toledo Edison Company
were connected by a line owned by Ohio Edison. All three were members of
the Central Area Power Coordination Group ("CAPCO"). The line connecting
Cleveland Electric, Ohio Edison and Toledo was a CAPCO line with segments
owned by each of the three named utilities.); Cities Service Power & Light.
Co., 14 S.E.C. 28, 53 n.44 (1943) (two companies in the same holding
company system were found to be interconnected where energy was transmitted
between two separated parts of the system over a transmission line owned by
the United States Bureau of Reclamation, under an arrangement which
afforded the system the privilege of using the line).
81 See AEP, supra ("The pooling issue is one aspect of the major debate, . . .
as to what should be the future structure of the electric utility industry.
We will not undertake to resolve these issues since they are beyond our
mandate in this case and because they are within the province of the
Congress and the Department of Energy.").
82 See, e.g., UNITIL Corp., supra (interconnection through NEPOOL), and
Conectiv, Inc., Holding Co. Act Release No. 26382 (Feb. 25, 1998)
(interconnection through PJM, Inc.). See also Yankee Atomic Elec. Co., 36
S.E.C. 552, 565 (1955); Connecticut Yankee Atomic Power Co., 41 S.E.C. 705,
710 (1963) (authorizing various New England companies to acquire interests
in a commonly-owned nuclear power company and finding the interconnection
requirement met because the New England transmission grid already
interconnected the companies).
----------
The 1995 Report further recommended that the Commission should increasingly
rely on an acquisition's demonstrated economies and efficiencies, rather than
upon physical interconnection, to meet the integration standard. The Report
noted that the 1935 Act provides the necessary flexibility and that the
application of the integration standards must be able to adjust in response to
changes in the state of the art. The Report concluded that it would be a logical
extension of prior orders for the Commission to find that wheeling and other
forms of sharing power (such as reliability councils and proposed regional
transmission groups) also qualify as interconnection. This recommendation is
particularly significant in view of the recent RTO Order, which will cause the
development of regional transmission grids that will bring even more distant
utilities closer together.
As explained above, the NSP Electric System and the Primary System of NCE
will be "physically interconnected or capable of physical interconnection"
through membership in MISO and by means of the Northbound Path.
The Northbound Path, in and of itself, satisfies the physical
interconnection requirement of Section 2(a)(29)(A). The Commission in the past
"has reasonably construed this requirement to be satisfied in cases... 'on the
basis of contractual rights to use a third-party's transmission lines...'"
Madison Gas and Electric Company v SEC, supra at 1340. See also Centerior, supra
(The physical interconnection requirements of [Section 2(a)(29)(A)] are met if
the two service areas are connected by power transmission lines that the
companies have the right to use whenever needed."). Dicta in a series of
Commission decisions states that contract rights cannot be relied on to
integrate two "distant" systems. See, e.g., WPL Holdings, Inc., Holding Co. Act
Release No. 26856 (April 14, 1998), citing UNITIL Corp., supra; Northeast
Utilities, Holding Co. Act Release No. 25273 (March 15, 1991); Centerior Energy
Corp., supra. In the Applicants' view, it would be incorrect to interpret these
statements to mean that a firm contract path might not meet the "physical
interconnection" requirement because of its length. In both UNITIL and Northeast
Utilities, the Commission explained that the reason a contract path might not
"integrate" two distant utilities was due to the "single area or region"
requirement of Section 2(a) (29)(A). UNITIL, supra at n.30; Northeast Utilities,
supra at n.75. The Commission did not hold in any of these cases that the length
of a firm contract path was relevant in determining whether the "physically
interconnected or capable of physical interconnection" requirement of Section
2(a)(29)(A) was met. Such a holding would be contrary to the literal language of
Section 2(a)(29)(A), and would ignore both the technological and commercial
developments in the industry that have occurred since the enactment of the Act.
The Commission recently confirmed the Applicants' view on this issue in the
AEP/CSW Order, in which the Commission stated: "We did not hold in any of these
prior cases that the length of a contract path was relevant in determining
whether the interconnection requirement of Section 2(a)(29)(A) was met. Such an
approach would be inappropriate in view of the express language of Section
2(a)(29)(A) as well as technological and commercial developments that have made
feasible the transmission of power over longer distances."
NSP and NCE also will be "physically interconnected or capable of physical
interconnection" through their common membership in MISO. Commission precedent
supports a finding of interconnection through an ISO such as MISO./83 In 1992,
the Commission approved the merger of UNITIL Corporation with Fitchburg Gas and
Electric Light Company, based on their common membership in NEPOOL,/84 a
regional power pool that was the basis for a FERC approved ISO and associated
power exchange./85 UNITIL and Fitchburg were not connected through transmission
lines that they owned. Rather, as the Commission noted in its order:
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83 Such findings would also appear consistent with Applicants' position in
their FERC application and the following statement in the FERC Merger
Order: "Upon joining MISO following consummation of the merger, Xcel
Energy's northern zone, consisting of New NSP Utility and NSP-W, will be
physically interconnected with its southern zone, consisting of SPS,
through the transmission system of MISO."
84 New England Power Pool, 79 FERC P. 61,374 (1997); New England Power Pool,
83 FERC P. 61,045 (1998).
85 MISO differs from how NEPOOL was initially structured as a tight power pool
in that NEPOOL provided for centralized dispatch, within a single routed
area, of the generating assets of the NEPOOL members. However, as explained
below, this difference is not relevant to whether two entities are
"physically interconnected or capable of physical interconnection."
----------
Access to and use of the regional transmission network, which is owned
by the larger New England utilities, is provided by the NEPOOL
Agreement and by transmission rate schedules and contracts filed with
the Federal Energy Regulatory Commission.
In this matter, the Companies are indirectly interconnected through
NEPOOL-designated transmission facilities ("PTF") and other
nonaffiliate transmission facilities pursuant to the NEPOOL Agreement
and other separate agreements with nonaffiliate companies. The
Commission has previously found a system to be "capable of physical
interconnection" on the basis of contractual rights to use a
third-party's transmission lines.
This matter differs from prior orders in that there will be no
particular line through which transfers of power will be made among
the Companies. Instead, power will be delivered through a nonaffiliate
system and a transmission charge will be paid to the owner of the
facilities. On the facts of this matter, the Commission is satisfied
that the Companies' contractual arrangements for transmission service
establish that the UNITIL electric system will satisfy the physical
interconnection requirement of the Act.
With respect to the "other separate agreements with nonaffiliate companies"
described above, the Commission by footnote explained that Fitchburg obtained
primary transmission service from New England Power Company ("NEPCO") under the
NEPOOL Agreement and through NEPCO's FERC Tariff Number 3, which provided for
non-firm service. The Commission went on to note that Fitchburg was eligible to
use NEPCO's FERC Tariff No. 4/86 should Fitchburg and UNITIL Power conduct more
power sales or swaps. In 1998, based on UNITIL, the Commission found that
Delmarva Power & Light Company and Atlantic Energy, Inc. met the physical
interconnection requirements of Section 2(a)(29)(A) through their common
membership in PJM Interconnection, LLC ("PJM"), which was a regional power pool
and the first FERC-approved, operational ISO./87 Conectiv, Inc., Holding Co. Act
Release No. 26832 (February 25, 1998).
The facts of this case similarly establish physical interconnection under
the UNITIL precedent and its progeny. Access by NSP and SPS to the regional
transmission network of MISO will be provided by the MISO Agreement and MISO
Tariff, which have been filed with FERC. Also, like UNITIL Power and Fitchburg,
NSP and SPS will have "other separate agreements with nonaffiliate companies" -
namely; the firm Northbound Path for 100 MW, and the nonfirm arrangements that
Applicants may arrange as described below under "Coordination." In particular,
MAPP has an open-access transmission tariff, Schedule F, that may provide an
alternative path for transactions between SPS and the NSP companies. Moreover,
in the present case and like UNITIL, "power will be delivered through a
nonaffiliate system" (i.e., MISO) and "a transmission charge will be paid to the
owner of the facilities". As noted above, MISO will have functional control over
the transmission systems of NSP, NSP-W, SPS and other members of the MISO. As
was the case in UNITIL, the NSP companies and SPS will be able to readily obtain
transmission services at non-pancaked rates to exchange energy with each other
or to access the market collectively as either a buyer or a seller. For these
reasons, Applicants believe that the Xcel Electric System will be "physically
interconnected or capable of physical interconnection."
As shown by Exhibit E-13, the powers and responsibilities of MISO over the
transmission assets of members of MISO will be virtually identical to those
today of NEPOOL and PJM over the transmission assets of their respective
members. Applicants note that MISO differs from NEPOOL in UNITIL and from PJM in
Conectiv in that NEPOOL and PJM were both "tight" power pools at the time of the
Commission's decisions, in that the generation assets of all members of NEPOOL
and PJM were centrally dispatched and controlled. Applicants acknowledge the
relevance of generation control for purposes of evaluating whether the system is
operated as "a single interconnected and coordinated system" under Section
2(a)(29)(A), but do not believe it is relevant as to whether the system is
"physically interconnected or capable of physical interconnection."/88
----------
86 Under FERC Tariff No. 4, Fitchburg would receive firm transmission service.
Amendment No. 11 to Form U-1 of UNITIL Corporation, File No. 70-7628, at
55.
87 Pennsylvania - New Jersey - Maryland Interconnection, 81 FERC P. 61,257
(1998).
88 The relationship between physical interconnection and coordinated system is
examined in The North American Co., 11 S.E.C. 194, at 241-42 (1942). The
only physical interconnection between four small service areas and a North
American subsidiary, Illinois Iowa Power Co., was through facilities
operated by Central Illinois Public Service Co., a nonaffiliated company.
The small properties were held to be physically interconnected with the
subsidiary but not part of a coordinated system because most or all of the
power for sale in these service areas was purchased from Central Illinois
and there was no central control: "Thus, even though we find physical
interconnection exists or may be effected, evidence is necessary that in
fact the isolated territories are or can be so operated in conjunction with
the remainder of the system that central control is available for the
renting of power." Moreover, as previously noted, NEPOOL and PJM have
restructured into ISOs. Indeed, both organizations have established or are
in the process of establishing associated power exchanges.
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(b) Coordination
Historically, the Commission has interpreted the requirement that an
integrated electric system be economically operated under normal conditions as a
single interconnected and coordinated system, "to refer to the physical
operation of utility assets as a system in which, among other things, the
generation and/or flow of current within the system may be centrally controlled
and allocated as need or economy directs." See, e.g., Conectiv, supra, citing
The North American Company, Holding Co. Act Release No. 3466 (April 14, 1942),
aff'd, 133 F.2d 148 (2d Cir. 1943), aff'd on constitutional issues, 327 U.S. 686
(1946). The Commission has noted that, through this standard, Congress "intended
that the utility properties be so connected and operated that there is
coordination among all parts, and that those parts bear an integral operating
relationship to one another." Id., (citations omitted). Applicants submit that
the coordination requirement is satisfied, as evidenced by the AEP/CSW Order,
through such measures as coordinated generation operations; coordinated
transmission operations, coordinated marketing efforts, both as a buyer and
seller of electricity; the integration of administrative and general services
and programs; and gas/electric convergence type measures, which will lead to
lower costs for gas as a fuel for the generation of electricity.
This is not a matter of first impression. Nearly a decade ago, the
Commission found, and the courts agreed, that the coordination requirement could
be satisfied even if power never flowed between two parts of the system.
Environmental Action, Inc. v. SEC, 895 F.2d 1255 (9th Cir. 1990). Environmental
Action involved the acquisition by a holding company of an interest in an
electric generating plant ("GenCo"). The intervenors argued that the acquisition
did not satisfy the standards of the 1935 Act because, among other things, the
system's existing electric utility company ("UtilCo") had represented that it
might purchase up to twenty percent of GenCo's capacity if, and only if, the
price of such power was competitive in the market. The Court of Appeals noted
that the GenCo might not purchase any of GenCo's output but, nonetheless,
concluded that the Commission had correctly found that UtilCo and GenCo could be
operated as part of a coordinated system, within the meaning of the Act. Id. at
1264-65, citing Electric Energy, Inc., Holding Co. Act Release No., 13871 (Nov.
28, 1958) (the companies sponsoring the construction of a generating plant only
pledged to buy any surplus energy remaining after the plant had supplied the
needs of the major purchaser, a nonaffiliated government agency). More recently,
the Commission found similar types of coordinated operational and administrative
functions to constitute "de facto" integration. Sierra Pacific Resources,
Holding Co. Act Release No. 27054 (1999). Moreover, the coordination of
administrative functions and joint marketing activities were crucial factors in
the Commission's determination that the coordination requirement was satisfied
in Sempra and NIPSCO.
Moreover, in applying the integration standard, the Commission looks beyond
simply the coordination of the generation and transmission within a system to
the coordination of other activities. See, e.g., General Public Utilities Corp.,
Holding Co. Act Release No. 13116 (Mar. 2, 1956) (integration is accomplished
through power dispatching by a central load dispatcher as well as through
coordination of maintenance and construction requirements); Middle South
Utilities, Inc., Holding Co. Act Release No. 11782 (Mar. 20, 1953), petition to
reopen denied, Holding Co. Act Release No. 12978 (Sept. 13, 1955), rev'd sub
nom. Louisiana Public Service Comm'n v. SEC, 235 F.2d 167 (5th Cir. 1956),
rev'd, 353 U.S. 368 (1957), reh'g denied, 354 U.S. 928 (1957) (integration is
accomplished through an operating committee which coordinates not only the
scheduling of generation and system dispatch, but also makes and keeps records
and necessary reports, coordinates construction programs and provides for all
other interrelated operations involved in the coordination of generation and
transmission); North American Company, Holding Co. Act Release No. 10320 (Dec.
28, 1950) (economic integration is demonstrated by the exchange of power, the
coordination of future power demand, the sharing of extensive experience with
regard to engineering and other operating problems, and the furnishing of
financial aid to the company being acquired). See also NIPSCO, supra (functional
merger of Bay States and NIPSCO gas supply department through NIPSCO Services,
"a service company subsidiary of NIPSCO that provides financial, accounting,
tax, purchasing, natural gas portfolio management, and other administrative
services to associate companies.")
Applicants will satisfy the coordination requirement in several ways.
First, in light of the developments that have occurred in the electric
utility industry and the regulatory framework that applies to it, which have
been detailed above, the coordination of utilities can occur through the market
and contractual arrangements. The Joint Operating Agreement will provide the
contractual operating framework for the Xcel Operating Companies to coordinate
and transact with each other.
Under the agreement, the generating systems of the Xcel Electric System
will be operated as a single interconnected and coordinated system.
Specifically, New Century Services, as agent for the Operating Companies, will
coordinate the planning, operation and maintenance of generating capacity
resources and the dispatch of electricity throughout the combined system of NSP
and NCE. This will be accomplished through a central generation control center
that, through a common software system, will direct the dispatch of the entire
Xcel Electric System. Under this arrangement, the system dispatcher will
dispatch the generation units of the Xcel Operating Companies and those plants
under long-term contract to which the companies effectively dispatch generation,
as needed to meet native load and will arrange for economy energy sales
(provided for in Schedule B of the Joint Operating Agreement) between Operating
Companies where such sales will lower the operating costs of the purchasing
Operating Company. Although such dispatch will be facilitated by the completion
of the tie-line between PSCo and SPS, it will be possible to perform such
dispatch and exchange power under the Joint Operating Agreement even prior to
the completion of the tie-line. New Century Services will be able to obtain both
firm (mostly short-term) and non-firm transmission between the PSCo and SPS
systems needed to engage in transactions under the Joint Operating Agreement,
once it becomes effective. For example, in the past, PSCo and SPS exchanged
power over a transmission tie owned by Public Service Company of New Mexico. The
current transmission and exchange of power between PSCo and SPS is facilitated
by their participation in the Western Systems Power Pool ("WSPP"), which, as
noted previously, is an economic power pool that operates an electronic bulletin
board and acts as a clearinghouse for bulk power transactions among more than
ninety member utilities and marketers./89
To allay any concerns that state commissions and FERC may have, such
intra-system sales will not be made if the purchasing Operating Company has a
better purchase opportunity, or the selling Operating Company has a better sales
opportunity. Schedule A of the Joint Operating Agreement likewise provides for
short-term capacity and associated energy sales between Xcel Operating
Companies, subject to the same limitations. The Joint Operating Agreement also
provides for joint generation planning and the common procurement of resources,
although again the agreement addresses potential state concerns by making
explicit that any resource additions will comply with applicable state
procurement requirements. Additionally, the Joint Operating Agreement also vests
the agent, New Century Services, with the responsibility of arranging joint
sales and purchases of electricity, as described below, and makes provision for
the allocation of associated costs and revenues./90 The Joint Operating
Agreement, with its protections, also will benefit customers as more and more
power is purchased from the market. Currently, both NSP and PSCo are capacity
short and will have opportunities to coordinate contracting of purchases to meet
the energy needs of their customers. The Joint Operating Agreement will allow
joint procurement to take advantage of weather and economic diversity as well as
scheduling of plant outages.
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89 While the completion of the tie-line between PSCo and SPS will fully
integrate their two systems, Applicants note that PSCo and SPS have been
operating on a coordinated basis since the completion of their merger in
1997 that resulted in the formation of NCE. As stated in the Form U-1
relating to the combination of SPS and PSCo (File No. 70-8787), SPS and
PSCo estimated net savings from their combination over a ten-year period
commencing in 1997 in excess of $500 million exclusive of savings that
would result from the tie-line. These savings were to be derived from
combined corporate programs, joint procurement of fuel and non-fuel items
and labor cost savings. NCE is on target to achieve these savings. Today,
through New Century Services and a joint electric trading operation, SPS
and PSCo are being run on a combined basis, with the only significant
exception being that their generating assets are not being jointly
dispatched on an economic basis. Currently, PSCo and SPS load and
generation data is located in Denver where traders can evaluate purchase
and sale decisions to optimize generation assets.
90 This philosophy is consistent with the treatment of affiliate transactions
involving non-power goods and services, which are subject to the
Commissions' jurisdiction under Section 13 of the Act. See, e.g., Rule
88(a) (service companies required to be so organized as to be able to
provide services, construction, or goods "at a reasonable saving over the
cost of comparable services or construction performed or goods sold by
independent persons").
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Second, the Xcel Operating Companies will coordinate through joint
marketing efforts, both as a buyer and seller. System dispatchers will
continually monitor the generation needs and capacity of the NSP and NCE
systems. This will include the NSP companies, SPS and PSCo. The Xcel Operating
Companies already have the ability to reach common suppliers, purchasers, and
trading hubs in various combinations. The rapidly evolving wholesale power
markets surrounding the energy industry will allow NSP and NCE to operate their
generation assets as a single system by buying and selling power to decrease the
overall production costs of the two systems. The diversity of weather, time,
fuel supply and localized economic conditions will create opportunities to
allocate resources more efficiently. This can be accomplished without the need
to actually move power from the NSP system or NCE system to the other company's
system. Power can be delivered to and from the systems by third parties using
their transmission systems. The 100 MW Northbound Path will facilitate the
ability of the entities to coordinate their systems by assuring the ability to
move power even when there are transmission constraints.
The Northbound Path is not the only means for NSP and NCE to engage in
these efforts: the NSP companies, SPS and PSCo presently trade in other common
markets, which can be accessed post-merger. For example, the NSP companies and
NCE Operating Companies both hold capacity contracts with Basin Electric
Cooperative. In 1998, NCE purchased 200MW of capacity from the Laramie River
Station. PSCo recently added an additional 136 MW. NSP contracted for 65 MW of
seasonal capacity from Basin as well as entering into an ongoing energy only
agreement which allows NSP to purchase system energy from Basin. Because Laramie
River Station is located at the intersection of the Eastern and Western
Interconnections, it is equipped to sell power in both directions. In the
future, joint purchases could be made and dispatched to the operating companies
that would provide the greater benefit. Weather diversity would make these
purchases more economically efficient as changes in daily and hourly load
forecasts can be accommodated by joint purchasing and coordinated dispatch. In
addition to Basin, both PSCo and NSP have made significant purchases from WAPA
in the past. In 1997, NSP purchased 252,332 MWh from WAPA. During this same time
period, the NCE Operating Companies purchased 559,121 MWh from WAPA. Given
WAPA's location on the border of the Eastern and Western Interconnects, it will
serve as a market for coordinated trading activities. This ability to diversify
supply over a broader region with diverse weather and time zones is how
companies can best achieve the benefits of economic integration in a
market-based commodity like electricity. The NSP companies and NCE Operating
Companies also anticipate making use of the burgeoning power markets and their
associated volatility to maximize efficiency and coordination on their systems.
Again, the Joint Operating Agreement provides the framework for these types
of activities. Pursuant to Schedule C (System Sales and Purchases, and
Off-System Marketing), New Century Services as the Agent will have
responsibility to engage in wholesale sales and purchases on behalf of the Xcel
Operating Companies on an individual company and collective basis. The
coordination of these activities under the Joint Operating Agreement is expected
to result in savings for the Xcel Operating Companies and their customers./91
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91 The Joint Operating Agreement (Schedule D) also vests New Century Services
as the Agent under the Joint Operating Agreement with the authority to
acquire the necessary transmission services for wholesale marketing
activities with non-affiliates and the system transactions described above.
----------
These marketing efforts will be further facilitated by the common
participation of the NSP companies and SPS in MISO. For example, NSP and NCE
will be able to use the diversity between their systems to buy and sell in
common MISO markets such as Ameren to optimize their use of this market, acting,
in effect, like their own trading hub.
Third, as explained further below, the Xcel Operating Companies will be
able to achieve efficiencies in the management of their natural gas portfolios.
Because PSCo, SPS, and NSP use natural gas to generate electricity, these
efficiencies are expected to translate to lower cost for gas as a fuel for
electric production, which will benefit electric customers.
Fourth, the combined system in this matter will be coordinated in a variety
of ways beyond simply the coordination of the generation and transmission within
the system. Among other things, numerous operational matters and virtually all
administrative and general services will be performed for the Xcel System by New
Century Services. In addition, the accounting functions of the combined system
will be prepared and consolidated through the use of a single system. Xcel will
have a single accounting organization which will be managed by a single team in
one or more locations. The coordination and integration of the combined system
is expected to be further achieved through the coordination and integration of
information system networks; customer service; procurement organizations;
organizational structures for power generation, energy delivery (which include
transmission) and customer relations; and support services. Many of the
foregoing functions will be performed by various business units within New
Century Services. For example, the Xcel Energy Markets unit will have the
responsibility under the Joint Operating Agreement of conducting the joint
marketing and trading for all generating resources of PSCo, SPS, NSP and NSP-W.
The Enterprise Business unit of New Century Services, with the assistance of
Xcel's chief financial officer, will centralize asset management policy
decisions, provide an integrated approach to financial decisions and develop an
appropriate allocation of resources between new capital investment and routine
operation. The Xcel Energy Delivery unit will include a transmission
organization, a distribution organization, customer service organization, a
planning and budgeting services group, and a customer and community services
organization. The Corporate Development unit of New Century Services will
provide direction to the Xcel System in areas such as integration, best
practices and business re-engineering.
Also, as has already been discussed, the operation of the transmission
systems of the NSP companies and SPS as a single interconnected and coordinated
system will be enhanced through joint membership and participation in MISO.
Among other things, MISO will develop operating procedures and schedules,
approve transmission requests and direct the operation of the transmission grid
for all MISO participants. MISO also will coordinate maintenance and planning of
the transmission facilities as well as certain generation functions within the
MISO system. This degree of coordination and integration of transmission assets
is comparable to that presented to, and accepted by, the Commission in UNITIL
and Conectiv, supra. Moreover, the availability of transmission under MISO will
provide the means to coordinate operations and engage in the joint marketing
efforts that are described above./92
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92 Section 2(a)(29)(A) might appear to require that the holding company, and
not a third-party such as MISO, must coordinate the operations of the
integrated system. However, such an interpretation of Section 2(a)(29)(A)
would be incorrect as shown by UNITIL in which the Commission stated:
"While the definition reflects an assumption that the holding company would
coordinate the operations of the integrated system, the Commission has
recognized that "Congress did not intend to impose rigid concepts but
instead expressly included flexible considerations" to accommodate changes
in the electric utility industry. Thus, the Commission has considered
advances in technology and the particular operating circumstances in
applying the integration standards. Most recently, in its decision
approving the acquisition of PSNH by Northeast Utilities, the Commission
noted that "the operation of the generating and transmitting facilities of
PSNH and the Northeast operating companies is coordinated and centrally
dispatched under the NEPOOL Agreement." Accordingly, we conclude that the
combined electric utility assets in this matter may be economically
operated as a single interconnected and coordinated system through the
Companies' participation in NEPOOL."
----------
As indicated by the language under Section 2(a)(29)(A) that the coordinated
system be "economically operated," the Commission further analyzes whether the
coordinated operation of the system results in economies and efficiencies. The
question whether a combined system will be economically operated under Section
10(c)(2) and Section 2(a)(29)(A) was recently addressed by the Court of Appeals
in Madison Gas and Electric Company v. SEC, 168 F.3d 1337 (D.C. Cir. 1999). In
that case, the court determined that in analyzing whether a system will be
economically coordinated, the focus must be on whether the acquisition "as a
whole" will "tend toward efficiency and economy." Id. at 1341. The Merger will
clearly meet this standard. As explained in Item 3.C.2. below, NSP and NCE
estimate that the net savings from the Merger will exceed $1.1 billion over 10
years.
In the recent AEP/CSW Order, the Commission found that the combined AEP and
CSW electric systems (the "New AEP System") met the requirement of economic and
coordinated operation under Section 2(a)(29)(A). In response to an argument from
an intervenor that the New AEP System would be coordinated solely through a 250
Mw contract path, the Commission noted that the contract path was only one of
several ways that the proposed combined system would be coordinated and by
footnote explained:
". . . the Umbrella Agreements will permit control and coordination of the
New AEP System. Our finding of economic and coordinated operation is also
supported by other proposed measures: potential intrasystem transfers of
capacity and energy; joint trading and marketing; and corporate and
administrative coordination."
AEP/CSW Order at fn. 86. Each of these factors exists in the present case. In
addition to the 100 Mw Northbound Path, the Joint Operating Agreement, like the
Umbrella Agreement in the AEP/CSW Order, will permit control and coordination of
the Xcel Electric System. There will be potential transfers of capacity and
energy and joint trading and marketing among PSCo, SPS, NSP and NSP-W. Finally,
numerous corporate, administrative and operational matters will be performed on
behalf of the Xcel system by NCE Services.
In short, all aspects of the combined system will be centrally and
efficiently planned and operated. As with other merger applications approved by
the Commission, the combined system will be capable of being economically
operated as a single interconnected and coordinated system as demonstrated by
the variety of means through which its operations will be coordinated and the
efficiencies and economies expected to be realized by the proposed transaction.
(c) Single Area or Region
As required by Section 2(a)(29)(A), the operations of the Xcel Electric
System will be confined to a "single area or region in one or more States."
While the terms "area" and "region" are not defined in the 1935 Act, the "single
area or region" requirement does not mandate that a system's operations be
confined to a small geographic area or a single state./93 The Commission has
specifically found that the combining systems need not be contiguous in order
for the requirement to be met./94 Rather, the Commission has found that the
single area or region test should be applied flexibly when doing so does not
undercut the policies of the 1935 Act against "'scatteration' -- [that is,] the
ownership of widely dispersed utility properties which do not lend themselves to
efficient operation and effective state regulation." NIPSCO, supra (applying
single area or region requirement with respect to gas utility system); accord,
Sempra, supra./95
----------
93 In considering size, the Commission has consistently found that utility
systems spanning multiple states satisfy the single area or region
requirement of the 1935 Act. For example, the Entergy system covers
portions of four states (Entergy, supra), the Southern system provides
electric service to customers in portions of four states (Southern Co.,
Holding Co. Act Release No. 24579 (Feb. 12, 1988)), and the principal
integrated system of NCE covers portions of five states (with all of its
electric operations serving customers in six states) (1997 NCE Order,
supra). As early as 1945, the Commission found that the operations of
American Electric Power in seven states were confined to a single region or
area. American Gas and Electric Co., Holding Co. Act Release No. 6333 (Dec.
26, 1945).
94 See, e.g., Conectiv, supra; cf. 1997 NCE Order, supra (integration test was
met where entities planned to build a 300 mile transmission line to
interconnect the systems which operated in noncontiguous territories).
95 In Gaz Metropolitain, Inc., the Commission agreed that a single area or
region could include areas across international borders. Holding Co. Act
Release No. 26170 (Nov. 23, 1994).
----------
Moreover, the Staff has recommended that the Commission "interpret the
'single area or region' requirement flexibly, recognizing technological
advances, consistent with the purposes and provisions of the Act" and that the
Commission place "more emphasis on whether an acquisition will be economical."
1995 Report at 66, 69. The Staff has recognized that "recent institutional,
legal and technological changes . . . have reduced the relative importance of .
. . geographical limitations by permitting greater control, coordination and
efficiencies" and "have expanded the means for achieving the interconnection and
economic operation and coordination of utilities with non-contiguous service
territories." 1995 Report at 69. It has also recognized that the concept of
"geographic integration" has been affected by "technological advances on the
ability to transmit electric energy economically over longer distances, and
other developments in the industry, such as brokers and marketers." Id. Such
advances and developments are breaking down traditional boundaries and concepts
of regions. The Commission has confirmed its support for the Staff's Report,
citing, in particular, the Staff's recommendation that the Commission "continue
to interpret the 'single area or region' requirement of [the 1935 Act] to take
into account technological advances." NIPSCO, supra; accord, Sempra, supra.
The Applicants believe that the Xcel Electric system will satisfy "single
area or region" requirement. The Xcel Operating Companies all have their
electric operations in the Mid-Continent area of the United States in states
that adjoin - Michigan, Wisconsin, Minnesota, North Dakota, South Dakota,
Wyoming, Colorado, New Mexico, Texas, Oklahoma and Kansas. Three of the primary
Xcel Operating Companies (SPS, NSP and New NSP) will be part of MISO, which will
be tasked with operating the regional grid, and the other primary system, PSCo,
will be directly interconnected upon completion of NCE's commitments in the 1997
NCE Order. An RTO, such as MISO, effectively defines a region from both an
operational and economic standpoint. To reiterate, FERC is promoting RTOs due to
operational and economic inefficiencies that presently exist. Generally, from an
operational perspective, RTOs will place transmission services in a larger
regional market, which is necessary to achieve short-term and long-term
reliability, including the authority to direct transmission maintenance
schedules and to redispatch generation to ensure the integrity and operation
efficiency of the electric grid. The RTO will also ensure proper evaluation of
ATC, proper transmission congestion management and proper management of loop
flows. By virtue of common membership in MISO, the electric operations of the
NSP companies and SPS will be part of the same region.
Likewise, RTOs create an economic region due to the pancaking of
transmission rates and the burden to transmission customers of having to arrange
service from multiple providers that would otherwise exist. The result is that
RTOs will likely become the primary trading region for RTO members. FERC has
recognized the key of RTOs in establishing a trading region among utilities:
The Commission has long recognized that transmission pricing reform is most
effectively accomplished on a regional basis. An RTO would have the
geographic scope needed to eliminate pancaked transmission rates within its
region. This would broaden the generation market...thereby fostering more
competitive markets and lower prices./96
MISO is organized to be extremely effective in achieving this objective.
Quite simply, joint membership in MISO makes all of its members, at the most,
one-wheel away./97 That is, the elimination of pancaked transmission rates
throughout the MISO region will create a broad wholesale market readily
accessible to all members.
----------
96 RTO NOPR, FERC Stats & Regs at 33,716. See also Order No. 2000 at 31,174,
where FERC stated: "A main reason that an RTO can expand the marketplace
for generation to a large region is that an RTO can implement non-pancaked
rates for each transaction. A wider area served by a single rate means more
generation is economically available to any customer which means greater
competition for energy."
97 In fact, under the MISO bylaws it may be possible for NSP and SPS to be
part of a single zone in which case there would be no incremental cost of
transmission (or no wheel) for exchanges of power between them.
----------
Thus, through a common RTO, the NSP companies and SPS will be in the same
operational and economic region. These regions created by RTOs are larger than
those in the electrical regions of the past for a variety of reasons. First, as
previously discussed the technological advances and additions to the
transmission network that have occurred since 1935 now permit trading to occur
over 1000 mile distances. Second, as explained in detail previously, a large
region is necessary to address the inefficiencies and inequities that FERC is
seeking to remedy through RTOs.
Moreover, although PSCo will not be in the same RTO as SPS and the NSP
companies, it nonetheless should be considered to be in the same economic
region, in light of the historic pattern of trading with Basin Cooperative and
WAPA as described above. Upon the completion of Phase II of the tie line, trades
into MAPP by PSCo will be further facilitated, and, more importantly, because
the interconnection will place PSCo on the border of MISO, PSCo will be able to
directly access the MISO region, including NSP, at non-pancaked rates.
The conclusion that the Xcel Electric System will constitute a single area
or region is further supported by the logic of the Commission's definition of
"region" used for purposes of its size analysis under Section 10(b)(1). In
Entergy, supra, the Commission adopted the applicants' definition of the
relevant region for purposes of Section 10(b)(1) to include themselves and those
electric utilities directly interconnected with either or both, which, at the
time, were their most accessible markets. This region consisting of utilities
within "one-wheel" of the merging utilities made sense in light of the barrier
that rate pancaking presented in trying to access more distant markets. In
today's increasingly competitive world, NSP and NCE do not operate as isolated
companies, and their geographic region should be analyzed in terms of their most
accessible market, which will be MISO. With the elimination of rate pancaking
and with central control of their transmission assets in MISO, the Xcel Electric
system will primarily compete within and access the MISO market and will be
within "one wheel" of each other under the MISO Tariff. At the time PSCo
interconnects its system with SPS, it will be one-wheel away from both SPS and
NSP thereby satisfying the test set forth in Entergy.
The Commission's recent decision in Sempra Energy is also relevant for a
commodity business such as the evolving electricity industry. In that decision,
the SEC approved Sempra's acquisition of a 90 percent interest in Frontier
Energy LLC of North Carolina and considered the combined system to be an
integrated system under the Act./98 In that decision the SEC affirmed the
existence of a national natural gas commodity market. The SEC pointed out that,
when the Act was drafted in the 1930s, the common source requirement meant the
same source at the city gate. Now, however, with the changing gas market, it
means obtaining gas from the same supply basins. Thus, even though the two
systems in Sempra were 3,000 miles apart, the SEC said that its decision did not
undercut the Act because the acquisition did not raise the concerns that
prompted its enactment.
----------
98 Sempra Energy, Holding Co. Act Release No. 26890 (June 26, 1998).
----------
The logic of this decision is directly applicable to electric mergers
because the electric industry is in rapid transition to becoming both a
commodity market and an extended retail consumer services industry. As
demonstrated above, there are numerous instances where NCE and NSP purchase and
sell commodity energy in the same market. These instances will increase with
continued growth in wholesale electric power market competition. In Sempra, the
SEC concluded that because Sempra and the North Carolina distribution company it
was acquiring purchased some natural gas from the same supply basin, they were
integrated utilities for Section 11 purposes under the Act. Extending the logic
of Sempra to the evolving electricity markets, the systems of NSP and NCE are in
a "single area or region" because they purchase and sell energy into the same
regional and national commodity markets.
Moreover, the combination of the NSP companies and the NCE Operating
Companies does not contravene the policy of the Act against "scatteration" - the
ownership of widely dispersed utility properties that do not lend themselves to
efficient operation. As stated in Sempra, supra, "The Act is directed against
the growth and extension of holding companies [that] bear no relation to economy
of management and operation or the integration and coordination of related
operating properties". In the AEP/CSW Order, the Commission found that the
combined operations of the AEP and CSW systems would be confined to a single
area or region due to the presence of the following four factors: (i) the
combined system would be interconnected and susceptible of economic and
coordinated operations, (ii) no adverse finding on anticompetitive grounds was
necessary under Section 10(b)(1), (iii) the size of the combined system would
not impair efficient operation, localized arrangement or effective regulation,
and (iv) the merger would result in economies and efficiencies under Section
10(c)(2). These same factors are present in this case. As demonstrated above,
the Primary System of NCE and the electric operations of NSP and NSP-W will be
economically operated as a single interconnected and coordinated system and no
adverse finding is required on anticompetitive grounds under Section 10(b)(1).
As demonstrated below, the size of the combined system will not have a adverse
effect upon localized management, efficient operation or effective regulation
and the Merger will result in economies and efficiencies under Section 10(c)(2).
Finally, Applicants retained the Pacific Economics Group to determine
whether the service territories of NSP and NCE constitute a single region under
traditional economic theories. The report of the Pacific Economies Group, filed
as EXHIBIT K-1, demonstrates that the companies operate in a single, unified
economic region. Pacific Economics Group used a gravity model to demonstrate a
high degree of economic interaction in the region including NSP and NCE's
service territories. Finally, Pacific Economics further found that the
geographic Elzinga-Hogarty market analysis underscores this result, clearly
identifying that the companies operate within a distinct economic region. For
all of these reasons, the Applicants believe that the Xcel Electric System will
be confined to a single area or region, within the meaning of the Act./99
----------
99 As explained below, the Xcel Gas System, which spans the same geographic
expanse, is itself an integrated public utility system which by definition
is confined "to a single area or region."
----------
(d) Size
The final clause of Section 2(a)(29)(A) requires the Commission to look to
the size of the combined system (considering the state of the art and the area
or region affected) and its effect upon localized management, efficient
operation and the effectiveness of regulation. In the instant matter, these
standards are easily met. The size of the Xcel Electric System will not impair
the advantages of localized management, efficient operation or the effectiveness
of regulation. Instead, the Merger will actually increase the efficiency of
operations.
Localized Management -- The Commission has found that an acquisition does
not impair the advantages of localized management where the new holding
company's "management [would be] drawn from the present management" (Centerior,
supra), or where the acquired company's management would remain substantially
intact (AEP, supra). The Commission has noted that the distance of corporate
headquarters from local management was a "less important factor in determining
what is in the public interest" given the "present-day ease of communication and
transportation." AEP, supra. The Commission also evaluates localized management
in terms of whether a merged system will be "responsive to local needs." AEP,
supra.
The management of Xcel will be drawn primarily from the existing management
of NSP and NCE and their subsidiaries. NSP will continue to maintain its
corporate headquarters in Minneapolis and will maintain the management structure
of its combined subsidiary companies (including the electric operating and other
subsidiary companies of NCE) essentially intact. The electric utility
subsidiaries will continue to operate through the regional offices with local
service personnel and line crews available to respond to customers needs. Xcel
will preserve the well-established delegations of authority -- currently in
place at NSP and NCE -- which permit the local, district and regional management
teams to budget for, operate and maintain the electric distribution system, to
procure materials and supplies and to schedule work forces in order to continue
to provide the high quality of service which the customers of NSP and NCE have
enjoyed in the past. In short, the management structures of NSP and NCE, which
are responsive to local needs, will be left essentially intact after the Merger.
Accordingly, the advantages of localized management will not be impaired.
Efficient Operation -- As discussed above in the analysis of Section
10(b)(1), the size of Xcel will not impede efficient operation; rather, the
Merger will result in significant economies and efficiencies as described in
Item 3.C.2 below. Operations (as described in Item 1.E.) are more efficiently
performed on a centralized basis because of economies of scale, standardized
operating and maintenance practices and closer coordination of system-wide
matters.
Effective Regulation -- The Merger will not impair the effectiveness of
regulation at either the state or federal level. The utility subsidiaries of NCE
will continue to be regulated by the state commissions of Colorado, Texas,
Wyoming, Oklahoma, New Mexico and Kansas with respect to retail rates, service
and related matters. The electric utility subsidiaries of NSP will continue to
be regulated by the state commissions of Minnesota, North Dakota, South Dakota,
Michigan and Wisconsin with respect to retail rates, service and related
matters./100 On the federal level, Xcel will be fully regulated as a registered
holding company. The electric utility subsidiaries of Xcel will continue to be
regulated by FERC with respect to interstate electric sales for resale,
transmission services and other matters, by the NRC with respect to the
operation of nuclear facilities, and by the FCC with respect to certain
communications licenses. The jurisdiction of other federal regulators is
similarly not affected.
Moreover, the Merger Agreement requires approvals from most of the
regulatory authorities having jurisdiction over the Xcel Operating Companies as
a condition to the consummation of the Merger. Applicants are working closely
with such regulators (both state and federal) to obtain the required approvals
(as described below in Item 4). Presumably, if the Merger results in an
impairment of regulatory authority, the state commissions will not approve
it./101
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100 The NSP and NCE management structures are designed to facilitate
communications with state regulators. Each company has established State
offices which have responsibility for regulatory, environmental, and
corporate communications and have other external relations purposes. These
state offices provide a single point of contact with each of the state
regulatory and environmental offices and have the responsibility for
handling all regulatory contacts, including making regulatory filings and
answering customer inquiries to the regulatory commissions. It is expected
that these offices will be left essentially intact after the Merger.
101 In fact, a key aspect of the merger applications is to explain why no such
impairment of regulatory authority occurs.
----------
Also, the FERC Merger Order addressed the potential impact of the Merger on
regulation. The FERC stated:
As explained in the Policy Statement, the Commission's primary concern with
the effect on regulation of a proposed merger involves possible changes in
the Commission's jurisdiction when a registered holding company is formed,
thus invoking the jurisdiction of the Securities and Exchange Commission
(SEC). We are also concerned with the effect on state regulation where a
state does not have the authority to act on a merger. . . With respect to
state regulation, Applicants note that the transaction will be reviewed by
the state public utility commissions of Minnesota, North Dakota, Arizona,
New Mexico, Colorado, Wyoming and Texas and will not impair regulation in
any of these state jurisdictions. In addition, Applicants state that
although the public utility commissions of Kansas, Wisconsin, Michigan,
Oklahoma, and South Dakota do not have direct authority to approve the
merger transaction, each state commission has authority to protect retail
customers from the effects of the merger. Applicants maintain that their
operating companies will continue to be subject to state regulation after
the transaction in each of these jurisdictions. Intervenors, including the
public utility commissions of the states of Wisconsin, South Dakota, North
Dakota, and Minnesota, raise no issues of adverse impact on regulation.
Accordingly, in light of the facts and commitments stated above, we are
satisfied that the proposed merger will not have an adverse effect on
regulation./102
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102 FERC Merger Order at 26.
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Summary
The cumulative effect of the regulatory, technological and economic changes
discussed above have significantly changed what is now the "state of the art" in
the electric industry. The Commission must respond to these changes
realistically in a manner that furthers the national and local energy policies
that have developed.
A rigid reading of the integration requirement was undoubtedly appropriate
at a time when ownership or control of the intervening lines was the only way
that a utility could move power from its generation assets to its distribution
systems. The need for this type of firm physical interconnection has been
reduced, if not eliminated, as the distribution systems now routinely contract
for power with nonaffiliates and move the purchased commodity power over
independently operated or owned transmission lines -- or eliminate the
requirement for physical movement of power from the generator to the utility
system through use of market swaps, power displacement or other similar
techniques. Indeed, a narrow reading of the integration standard could force
merging parties to a "Hobson's choice," by requiring unnecessary
interconnections that could cause a merger to fail to satisfy FERC's standards
for approval.
In the 1995 Report, the Division recommended that the Commission focus on
whether the resulting system will be subject to effective regulation. The Study
emphasized that "open access under FERC Order No. 636, wholesale wheeling under
the Energy Policy Act [and FERC Order No. 888] and the development of an
increasingly competitive and interconnected market for wholesale power have
expanded the means for achieving the interconnection and the economic operation
and coordination of utilities with non-contiguous service territories." The
Study further expressed concern that the Act "not serve as an artificial barrier
where other energy regulators have determined that an acquisition will benefit
utility consumers." Accordingly, the Study concluded that "[w]hen considering
any proposed acquisition, the SEC should consider whether the resulting system
will impair the effectiveness of regulation. Where the affected state and local
regulators concur, the SEC should interpret the integration standard flexibly to
permit non-traditional systems if the standards of the Act are otherwise met."
(Emphasis added.) Under this approach, if the affected States approve a proposed
transaction (a condition precedent to the instant Merger), the "effectiveness of
regulation" standard would be met.
In summary, the Applicants believe that the Merger will result in an
integrated electric system under the current "state of the art" in the electric
industry. The NCE and NSP systems will be physically interconnected through both
the 100 Mw Northbound Path and common membership in MISO. Either is sufficient
to meet the physically interconnected standard. The two systems will be
economically operated as a single interconnected and coordinated system
primarily through the Joint Operating Agreement and New Century Services. The
two systems will be in the same area or region. Finally, the Merger will not
impair localized management, efficient operation or effective regulation. The
Merger also will benefit investors, consumers and the public interest and will
not give rise to the evils against which the Act is addressed. Accordingly, for
the reasons set forth above, the Commission should find that the Xcel Electric
System comprises a single, integrated electric-utility system within the meaning
of the Act.
(ii) Retention of Combined Gas System
Because the Commission has interpreted the term "integrated public-utility
system" to mean a system that is either gas or electric, but not both, it is
necessary to qualify the combined gas operations of NSP and NCE (the "Xcel Gas
System") under the "A-B-C" clauses of Section 11(b)(1). Under those provisions,
a registered holding company can own "one or more" additional integrated systems
if certain conditions are met. Specifically, the Commission must find that (A)
the additional system "cannot be operated as an independent system without the
loss of substantial economies which can be secured by the retention of control
by such holding company of such system," (B) the additional system is located in
one state or adjoining states, and (C) the combination of systems under the
control of a single holding company is not so large . . . as to impair the
advantages of localized management, efficient operation, or the effectiveness of
regulation."
As shown below, the Xcel Gas System will constitute a single, integrated
public utility system. Section 2(a)(29)(B) defines an "integrated public utility
system" as applied to gas utility companies as:
a system consisting of one or more gas utility companies which are so
located and related that substantial economies may be effectuated by being
operated as a single coordinated system confined in its operation to a
single area or region, in one or more States, not so large as to impair
(considering the state of the art and the area or region affected) the
advantages of localized management, efficient operation, and the
effectiveness of regulation: Provided, that gas utility companies deriving
natural gas from a common source of supply may be deemed to be included in
a single area or region.
The combined gas operations of NSP and NCE satisfy this definition.
First, both the Commission's precedent and current technological realities
indicate that the Xcel Gas System will operate as a coordinated system confined
in its operation to a single area or region because it will derive natural gas
from common sources of supply, and utilize common transportation and storage
facilities. The gas utility operations of NSP and NCE will operate in a single
area or region, as those operations are in the adjoining states of Michigan,
Wisconsin, Minnesota, North Dakota, South Dakota, Wyoming, Colorado and Arizona.
The Commission has not traditionally required that the pipeline facilities of an
integrated gas system be physically interconnected. See, Penzoil Company,
Holding Co. Act Release No. 15963 (Feb. 7, 1968) (finding an integrated gas
utility system where some gas utility properties were not connected with the
rest of the system, but with the facilities of an unaffiliated transmission
company from which the system purchased all natural gas supplied to those
properties, but not each other). See also, American Natural Gas Company, Holding
Co. Act Release No. 15620 n.5 (Dec. 12, 1966) ("It is clear the integrated or
coordinated operations of a gas system under the Act may exist in the absence of
such interconnection"). Instead, the Commission has looked to such issues as
from whom the distribution companies within the system receive much, although
not all, of their gas supply. See, e.g., Philadelphia Company and Standard Power
and Light Company, Holding Co. Act Release No. 8242 (June 1, 1948) ("most of the
gas used by these companies in their operations is obtained from common sources
of supply"); Consolidated Natural Gas Company, Holding Co. Act Release No. 25040
(Feb. 14, 1990) (finding integrated system where each company derived natural
gas from two transmission companies, although one such company also received gas
from other sources); Sempra Energy, Holding Co. Act Release No. 26971 (Feb. 1,
1999) (finding an integrated system where each utility would derive "a
significant amount" of gas from two basins and noting that gas can now be
obtained by more flexible and efficient means, due to the development of market
centers, hubs and pooling points). The Commission also has considered obtaining
gas from a common pipeline, North American Company, Public Holding Co. Act
Release No. 11530 (finding Panhandle Eastern pipeline to be a common source of
supply): NIPSCO Industries, Holding Co. Act Release No. 26975 (Feb. 10, 1999)
(finding an integrated system where the applicants had contracted capacity on
only one common long-haul pipeline and ten of sixteen individual interstate
pipelines on which the applicants' systems had contract capacity intersected at
and formed industry-recognized trading hubs), as well as from different
pipelines when the gas originates from the same gas field in determining a
common source of supply. See, Central Power Company and Northwestern Public
Service Company, Holding Co. Act Release No. 2471 (Jan. 6, 1941), in which the
Commission declared an integrated system to exist where two entities purchase
from different pipeline companies since "both pipelines run out of the Otis
field, side by side, and are interconnected at various points in their
transmission system; and that they are within two miles of each other at
Kearney." See also, MCN Corporation, Holding Co. Act Release No. 26576 (Sept.
17, 1996) (finding an integrated system where one gas utility would receive
70-90% of its gas supply from the same basin from which two affiliates received
46% and 55% of their supply). Since the time of most of these decisions, the
state of the art in the industry has developed to allow efficient operation of
systems whose gas supplies derive from many sources.
The NSP and NCE gas operations today purchase gas from multiple basins and
transport gas on multiple pipelines in order to enhance supply competition and
provide increased reliability. However, NSP and NCE purchase significant
quantities of natural gas from common supply basins as shown below. As shown
below, approximately 75% of the 324.7 Bcf of natural gas purchased by the
combined NSP/NCE gas operations during 1998 were from common supply sources
(i.e., the MidContinent, Permian and Rocky Mountain basins), with NCE deriving
more than 92% of its gas supplies and NSP deriving approximately 36% of its gas
supplies from such common sources. The majority of these supplies were delivered
off of the Northern Natural Gas Company ("NNG") and Colorado Interstate Gas
Company ("CIG") pipeline systems to NSP and NCE, respectively. The pipeline
systems of NNG and CIG are directly connected in two locations in the Mid
Continent supply basin (i.e., the Hugoton and Anadarko supply basins). Together
NCE and NSP hold over 1.5 Bcf of daily capacity and receive peak day deliveries
in excess of 1.7 Bcf from the NNG and CIG pipeline systems. NSP and NCE purchase
gas from the following major supply basins:
NATURAL GAS NCE NSP
FIELD/BASIN (Bcf) NCE % (Bcf) NSP %
----------- --- ----- --- -----
Mid Continent 33.7 14.8 27.7 28.5
Permian 58.5 25.7 5.3 5.5
Rocky Mountain 118.7 52.2 1.7 1.8
San Juan 2.9 1 - -
Denver-Julesburg 13.8 6 - -
Alberta - - 41.9 43.2
Other - - 20.4 21.0
----- ----- ---- -----
Total 227.6 100.0 97.0 100.0
In addition to the above, NCE and NSP own or have contracted for
significant underground gas storage and own local gas peak shaving capacity at
numerous locations throughout Colorado, Minnesota, Texas and other Midwestern
states. The vast majority of this storage and peak shaving capacity is directly
linked or accessible to the NNG and CIG pipeline systems. As a result, these
operationally flexible assets have the ability to further integrate the common
sources of supply for NCE and NSP. Access to the various storage facilities and
pipelines forms a grid upon which the companies can source supply to take
advantage of relative shifts in market conditions among the various producing
basins.
The concept of a "common source of supply" is susceptible to a different
understanding today than in 1935, when the "single area or region" was generally
defined in terms of the pipeline delivery points (i.e., the city gate), where
system LDCs purchased their gas. Sempra Energy, Holding Co. Act Release No.
26971 (Feb. 1, 1999). In Sempra, the Commission recognized "that the relevant
inquiry today is whether the system LDCs purchase substantial quantities of gas
produced in the same supply basins, and whether that gas is 'deliverable' - in
other words, whether there is sufficient transportation capacity available in
the marketplace to assure delivery on an economical and reliable basis." See
also NIPSCO Industries, Inc., Holding Co. Act Release No. 26975 (February 10,
1999) (NIPSCO Industries' acquisition of Bay State Gas Company, in which case
the Commission held that "[a]lthough the intervening territory between the
NIPSCO Operating Companies is significant, we do not believe that the distance
contravenes the policy of the Act against scatteration -- the ownership of
widely dispersed utility properties which do not lend themselves to efficient
operation and effective state regulation").
In NIPSCO Industries' acquisition of Bay State Gas Company, the Commission
recognized that the "state of the art" in the gas industry continues to evolve
and change, primarily as a result of decontrol of wellhead prices, the
continuing development of an integrated national gas transportation network, the
emergence of marketers and brokers, and the "unbundling" of the commodity and
transportation functions of the interstate pipelines in response to various FERC
initiatives, in particular Order 636,/103 which has dramatically altered the way
in which local gas distribution companies purchase and ship their required gas
supplies. NIPSCO, supra.
----------
103 See 1995 Report, pp. 29-31.
----------
The Commission has also considered and recognized that another important
development affecting the "state of the art" in the natural gas industry has
been the creation of a national network of trading hubs and market centers. The
development of trading hubs and market centers was a natural outgrowth of FERC
Order 436 and 636, which, as indicated, required interstate pipelines to
separate, or "unbundle," the commodity and transportation and storage functions
of the interstate pipelines.
In this regard, it is significant to note that, 6 of the 12 individual
interstate pipelines (long-haul and regional) on which the NCE and NSP companies
have contracted capacity intersect at and form industry recognized trading hubs.
These include:
Name of Hub Location Intersecting Pipelines
MidContinent Market Greensburg, Kansas ANR Pipeline Co.
Center KN Energy, Inc.
Natural Gas Pipeline Co.
Northern Natural Gas Co.
Panhandle Eastern PipeLine Co.
Williams Gas Pipelines
Chalk Bluffs near Cheyenne, Wyoming Colorado Interstate Gas Co.
KN Energy, Inc.
Westgas Interstate, Inc.
Williams Gas Pipelines
Wyoming Interstate Co.
Trailblazer Pipeline Co.
Buffalo Wallow near Amarillo, Texas ANR Pipeline Co.
Reliant (NorAm) Gas
Transmission Co.
KN Energy, Inc.
Natural Gas Pipeline Co.
Panhandle Eastern PipeLine Co.
Transwestern Pipeline Co.
Trading hubs (including all of those listed above) essentially function as
physical transfer points between intersecting pipelines, where shippers (i.e.,
buyers and sellers) and traders can sell, exchange or trade gas or pipeline
capacity or redirect deliveries to a different pipeline. Further, various types
of unbundled services are typically available at trading hubs, such as parking,
loaning, and wheeling of gas and, in some instances, title transfer./104 Because
of the role played today by market hubs and market centers, coordination of the
operations of two non-contiguous gas companies is no longer dependent solely
upon having contractual capacity on the same interstate pipelines, so long as
the two companies both have access to one or more common trading hubs.
----------
104 "Parking" is essentially a short-term interruptible storage service.
"Loaning" is a service by which a party with gas will provide the gas to
another party with a specific date for the return of such gas at either
that location or another location under mutually agreeable terms and
conditions (in effect, the inverse of parking). "Wheeling" is the provision
of transportation by a hub operator from one system to another system.
Finally, "title transfer" services allow parties to exchange title to gas
that is already within a pipeline system for gas at different points on the
same pipeline system or for gas that is on another pipeline system, without
the requirement of physical movement. Title transfer in itself allows the
shippers to minimize transportation costs.
----------
Importantly, trading hubs now allow gas distribution companies operating in
a much larger area or region of the country to realize operating economies and
efficiencies from coordinated operations that were once thought to be achievable
only by contiguous or nearly contiguous gas companies supplied by the same
interstate pipelines. In fact, as discussed below, the opportunities to achieve
operating economies may be even greater where the two companies seeking to
combine have significantly different load profiles (e.g., non-coincident
seasonal peaks, a substantially different customer mix, etc.) or where, as in
this case, the two companies are located in two different major gas market
centers, experience non-coincident peak demands, and are served (to a degree)
from common supply basins.
Because NSP and NCE share access through their respective pipeline
transporters to several industry-recognized market and supply-area hubs, they
will have the ability to physically coordinate and manage their portfolios of
gas supply, transportation, storage and peak shaving. Each of the hubs or market
centers is served by a significant number of competing pipeline transporters,
further expanding the potential supply options available to the merged company.
In addition, as customers of hub services, NSP and NCE are among an even larger
number of other customers of such services such as natural gas marketers, local
distribution companies, and other wholesale customers.
For example, the ANR and NNG pipelines, which transport gas to NSP, and the
KN and Williams pipelines, which transport gas to NCE, all intersect at the
MidContinent Market Center hub located at Greensburg, Kansas. At the
MidContinent Market Center hub, NSP can arrange and consummate direct physical
purchases and trades of gas and/or transportation capacity with NCE or with any
other shipper having access to the MidContinent Market Center hub. NSP and NCE
also have access to the Waha Permian Basin hub near Odessa, Texas via contracted
capacity on the NNG and El Paso pipelines. The Waha Permian Basin hub is a
recognized center for western natural gas index price futures trading in the
U.S. Through four interstate and six intrastate pipeline interconnections,
market participants such as NSP and NCE can physically support, if necessary and
if permitted by state regulatory bodies, the utilization of financial
derivatives as a means of managing price volatility.
Moreover, through its contracted capacity on the CIG and KN pipelines, NCE
would have access to the storage capacity held by NSP on NNG and ANR. Such
access will enhance Xcel's ability to manage price volatility. These facilities
would also provide NSP and NCE with an important gas balancing capability, which
will allow them to manage fluctuating weather-related load profiles of each
other's system.
Finally, NSP and NCE would have direct access to the Chicago market center
hub, which is expected to become an increasingly important source of gas for all
eastern U.S. markets.
In the current natural gas industry, limitations on the deliverability of
gas in most areas of the country have disappeared. Under Section 2(a)(29)(B),
these "state of the art" changes in the industry are directly relevant to the
issue of the appropriate size of the "area or region" in which an "integrated"
gas system may operate.
(iii) Coordinated Operations of Combined Gas Properties
NSP and NCE currently manage similar physical properties and contractual
assets (gas supply, pipeline transportation, and storage contracts of varying
types and duration). Each company maintains a professional staff that performs
essential portfolio management functions.
After the Merger, the gas supply departments of NSP and NCE,/105 which
provide both gas supply planning and gas acquisition services, will be
consolidated and become part of NCE Services. NCE Services will provide
financial, accounting, tax, purchasing, and other services to associate
companies, including, gas supply planning and gas acquisition services to the
gas utility operations of the Xcel system.
The gas supply planning function will perform portfolio design and
strategy./106 The gas acquisition function will implement this strategy on
behalf of the Xcel gas operating companies through scheduling and supply
procurement,/107 storage optimization,/108 price risk management,/109 and
contract adminstration./110 As explained below, NCE and NSP have identified
specific components of their gas management strategies which, through joint
management and coordination, will enable the combined companies to enhance
opportunities for savings in the marketplace.
----------
105 The gas supply department of NSP currently consists of 9 individuals. NCE
gas supply department consists of eight individuals.
106 Portfolio design includes the development of demand forecasts and modeling
of the appropriate combination of portfolio components (e.g., the optimum
levels of "firm" transportation and long-term gas purchases, short-term
transportation and supply, and sportmarket transactions) to meet projected
demand and the negotiation of all transportation and storage contracts.
Portfolio strategy involves the development of strategies to optimize the
daily and seasonal utilization of portfolio assets through the correlation
of supply area and market area pricing activity with the load requirements
and pressures of each individual company.
107 Procurement involves daily and short-term (less than three months) gas
purchases in supply basis, market centers, pooling points, and other
markets, based on the plan developed by the portfolio strategy group.
108 Storage, optimization involves maximizing the "value" of storage contracts
and storage that is owned through coordination and management of injection
and withdrawal volumes and rates.
109 Price risk management implements strategies, using both physical and
financial contracts, within guidelines approved by the board of directors.
110 Contract administration is responsible for contract administration and
accounting functions, scheduling/nomination of gas shipments, and state
regulatory reporting and support functions.
----------
The two gas supply planning departments will be unified under common
management and, through use of common software (known as SENDOUT(TM)), will
provide a consistent approach for planning and designing supply portfolios,
including upstream resources of transportation and storage. The gas acquisition
function will also be under common management and it is planned that the group
will utilize a common software program for the gas acquisition functions
described above.
The gas departments of NSP (except for BMG) and NCE will also be linked
upon consolidating their Gas Supervisory Control and Data Acquisition ("SCADA")
systems. This system electronically communicates gas flow and gas pressure, and
gas equipment set point data thereby monitoring the adequacy and reliability of
gas supplies being delivered at the individual-town border stations serving NSP
or NCE retail distribution systems. Consolidated SCADA operations (which will
take some time to implement to assure gas reliability) will promote efficiencies
and coordination among the NCE and NSP gas systems.
Through the coordination and use of supply/demand information, NSP and NCE
will be able to maximize revenues and minimize costs in such areas as pipeline
capacity and storage utilization following the Merger. Several illustrations of
how the merger of the gas departments will result in coordination of gas supply
to the NCE and NSP systems were discussed above and include:
- Using the data gathered and analyzed by the common management and the
planned software tools, NCE Services will be able to make supply
acquisition decisions that lower overall gas costs. With knowledge of
available storage capacity at any moment, and weather conditions and
other factors affecting anticipated demand, NCE Services will be able
to make coordinated decisions for both systems, buying or selling firm
capacity or, as explained above, diverting gas from the company with
excess supply to the company in need of such supply.
- At the MidContinent Market Center hub, NCE Services can arrange and
consummate direct physical purchases and trades of gas and/or
transportation capacity with NCE or NSP or with any other shipper
having access to the MidContinent Market Center hub as two key
pipelines serving the companies (Northern Natural and KN Energy)
intersect there.
- New NSP will increase the maximum daily production at one of its
peak-shaving facilities by approximately 40%. NSP has already made
significant investment on this project in anticipation of the
completion of the Merger. When system demand conditions on the NCE
system require, NSP would increase the output of this facility and
serve NSP loads with peak shaving gas, and deliver NSP pipeline gas to
the NCE system. This arrangement would reduce consolidated reserve
margin needs while preserving reliability. In addition, on days when
the peak shaving capacity is needed by NSP customers, New NSP would be
able to increase the output of the facility to serve the firm supply
needs of NSP gas customers. (This is quite similar to the coordination
provided by the 100 MW contract path between SPS and NSP as that path
will allow energy produced by SPS to be transferred to NSP just as the
peak-shaving expansion creates a similar transfer of New NSP gas
supply to NCE on days when it is most needed by NCE).
Other aspects of coordinated operations will be common performance
measurements and strategies to meet performance targets that will be implemented
by the Xcel gas distribution companies. This coordinated management through NCE
Services, with operational implementation through localized management, will
assure the gas distribution companies are well maintained and managed throughout
the NSP/NCE system.
As indicated in Item 3.C.2 below, combination and coordination of the NCE
and NSP gas operations will result in significant economies and savings. The
estimated dollar value of synergies from the combination of the two gas systems
is expected to exceed $100 million over the 10-year period from 2001-2010, of
which $77.4 is expected to be derived from natural gas supply savings. The
natural gas supply savings are based in large part on the coordinated activities
discussed above, including gas transport and storage capacity reductions, gas
reserve margin reductions, field transportation reductions and capacity release
savings.
Finally, as discussed below in detail in Item 3.c.1.(b).(iii).(c). in the
context of Section 11(b)(1)(c) of the Act, the system will not be so large as to
impair the advantages of localized management or the effectiveness of
regulation. Localized management will be preserved. It is expected that the
centralized functions of the Xcel gas system will be managed from one location,
and the local functions will continue to be handled from several regional
offices. Management will, accordingly, remain close to the gas operations,
thereby preserving the advantages of local management. And, from a regulatory
standpoint, there will be no impairment of regulatory effectiveness. The same
state regulators currently overseeing these gas operations will continue to have
jurisdiction after the proposed transaction is completed. Those same state
regulators are already regulating multi-jurisdictional gas or combination
gas/electric utilities.
For all of these reasons, we believe that the Xcel gas operations will
satisfy the integration requirements of Section 2(a)(29)(B).
(a) Loss of economies
Historically, the Commission had considered the question of whether a
registered electric system could retain a separate gas system under a strict
standard that required showing a loss of substantial economies before retention
would be permitted. New England Electric System, 41 S.E.C. 888 (1964). In its
affirmation of that decision, the U.S. Supreme Court declared that a loss of
substantial economies could be demonstrated by the inability of the separate gas
system to survive on a stand-alone basis. SEC v. New England Electric System,
384 U.S. 176, 181 (1966). This rigid interpretation of the requirements of
Section 11(b)(1) has been explicitly eased by the Commission in its most recent
decisions under Sections 9(a) and 10 of the Act both with respect to exempt
holding companies (TUC Holding Company, Holding Co. Act Release No. 26749 (Aug.
1, 1997) and Houston Industries Incorporated, Holding Co. Act Release No. 26744
(July 24, 1997)) and newly formed registered companies (e.g., SCANA Corp.,
Holding Co. Act Release No. 27133 (Feb. 9, 2000); 1997 NCE Order).
In these recent decisions, the Commission acknowledged that as a result of
the transformation of utilities' status as franchised monopolies with captive
ratepayers to competitors and also as a result of the convergence of the
electric and gas industries that was then underway (and which continues today),
the historical standards of review had become outdated and that separated
electric and gas companies might be weaker competitors than they would be
together in the same market. SCANA Corp., supra.; 1997 NCE Order; Houston
Industries Incorporated, Holding Co. Act Release No. 26744 (July 24, 1997).
Thus, newer transactions such as the Merger should be evaluated on the basis of
new Commission precedent and policy in light of changing industry standards.
Applicants believe that the Commission should allow the retention of the
NSP-NCE gas operations as a matter of policy and as a matter of law. The
Commission already has acknowledged that the electric and gas industries are
converging and that combination companies may be more effective competitors in a
given market. This trend towards, and the need for, convergence of the former
separate electric utility function and gas utility function into one energy
service company was recently recognized by the Commission in Consolidated
Natural Gas Company, Holding Co. Act Release No. 26512 (April 30, 1996)
(hereinafter, the "CNG Order"), where the Commission stated: "It appears that
the restructuring of the electric industry now underway will dramatically affect
all United States energy markets as a result of the growing interdependence of
natural gas transmission and electric generation, and the interchangeability of
different forms of energy, particularly gas and electricity." See also UNITIL
Corp., Holding Co. Act Release No. 26527 (May 31, 1996); SEI Holdings, Inc.,
Holding Co. Act Release No. 26581 (Sept. 26, 1996); and Dominion Resources,
Inc., Holding Co. Act Release No. 27113 (Dec. 15, 1999). In the instant
situation, the lost economies that would follow from denying the retention of
the NSP-NCE gas operations are substantial, both quantitatively and
qualitatively.
Divestiture of the NSP and NCE gas properties either into one company or
into separate companies would result in the loss to consumers of the cost-saving
benefits of the economies offered by the "energy services" approach of NSP and
NCE to the utility business. While the losses cannot now be fully quantified,
they are substantial. At the center of the energy services company concept is
the idea that providing gas and electric services and products is only the start
of the utility's job. In addition, the utility must provide enhanced service to
the consumer by providing an entire package of both energy products and
services. In this area, NSP's and NCE's efforts are part of a trend by utilities
to organize themselves as energy service companies; that is, as providers of a
total package of energy services rather than merely suppliers of gas and
electric products. The goal of an energy service company is to retain its
current customers and obtain new customers in an increasingly competitive
environment by meeting customers' needs better than the competition. An energy
service company can provide the customer with a low cost energy (i.e., gas,
electricity or conservation) option without inefficient subsidies.
As the Commission recognized in SCANA, WPL Holdings, TUC Holdings and the
1997 NCE Order, there are significant economies and competitive advantages
inherent in a combined gas and electric utility as contrasted to a utility
offering only electricity or gas. Besides the loss of these inherent economies,
other substantial economies would be lost by the separation of the electric
systems from the gas systems. These lost economies would include decreased
efficiencies from separate meter reading, meter testing and billing operations,
as well as decreased efficiencies in customer service operations, savings in
facilities maintenance and emergency work coordination, and other administrative
operations. As a result, the stand alone gas company (or separate gas companies)
would have greater operating costs per unit sold and would, therefore, realize a
lesser amount of any increased revenue on its bottom line. A final
consideration, also raised by the Commission in the 1997 NCE Order, is that the
gas and electric properties of NCE and NSP have long been under common control,
and approval of the Merger will not alter the status quo with respect to these
operations.
While the Applicants believe that the foregoing is sufficient to permit
retention under the standard established in SCANA, supra., Applicants also can
demonstrate loss of economies under a more traditional analysis. Historically,
the Commission has given consideration to four ratios, which measure the
projected loss of economies as a percentage of: (1) total utility operating
revenues; (2) total utility expense or "operating revenue deductions"; (3) gross
utility income; and (4) net utility operating income. Although the Commission
has declined to draw a bright-line numerical test under Section 11(b)(1)(A), it
has indicated that cost increases resulting in a 6.78% loss of operating
revenues, a 9.72% increase in operating revenue deductions, a 25.44% loss of
gross gas income and a 42.46% loss of net income would afford an "impressive
basis for finding a loss of substantial economies." Engineers Public Service
Co., Holding Co. Act Release No. 1632 (Sept. 16, 1942).
Direct Loss of Economies. NSP and NCE have each prepared separate studies
of their respective gas utility operations that analyze the lost economies that
their gas utility operations would suffer upon divestiture when compared to
their retention pursuant to the Merger. These studies are attached to this
Application as Exhibit J-1 and Exhibit J-2/111 (the "Gas Studies"). As set forth
in the Gas Studies, if the gas operations of NSP and NCE were operated on a
stand-alone basis, lost economies from the need to replicate services, the loss
of economies of scale, the costs of reorganization, and other factors would be
immediate and substantial. In the absence of rate relief, those lost economies
would substantially injure the shareholders of NSP and NCE upon the divestiture
of those gas operations. As the studies further show, if rate relief were
granted with respect to the lost economies, then consumers would bear those
substantial costs over what they would have to pay if the properties were
retained as contemplated by the Merger.
----------
111 As described below, the Applicants have also jointly prepared an analysis
of the effects of combining their gas properties into one company prior to
divestiture, which is filed as Exhibit J-3.
----------
As set forth in the Gas Studies, divestiture of the gas operations of PSCo,
Cheyenne, NSP and NSP-W into stand-alone companies would result in lost
economies of $25,807,000 for NSP, $7,629,000 for NSP-W, $55,862,000 for PSCo,
and $1,417,000 for Cheyenne. The table below shows the 1998 gas operating
revenues, gas operating revenue deductions, gas gross income and gas net income
of NSP, NSP-W, PSCo and Cheyenne.
================================================================================
Gas 000s Gas Gas
Operating Gas Operating Gross Net
Company Revenues Revenue Deductions Income Income
NSP $360,567 $330,578 $29,989 $23,432
NSP-W $78,800 $73,510 $5,290 $3,691
PSCo $682,289 $585,557 $96,732 $73,321
Cheyenne $20,995 $18,574 $2,421 $1,857
================================================================================
On a percentage basis, the lost economies amount to 76.19% of 1998 gas net
income for PSCo, 76.35% for Cheyenne, 110.14% of gas net income for NSP and
206.69% of gas net income for NSP-W -- far in excess of the loss of net income
in UNITIL, where the Commission allowed the retention of gas utility operations,
and the 30% loss in New England Electric System that the Commission has
described as the highest loss of net income in any past divestiture order./112
As a percentage of 1998 gas operating revenues, these lost economies described
in the Gas Studies amount to 8.19% for PSCo, 6.75% for Cheyenne, 7.16% for NSP
and 9.68% for NSP-W--losses substantially higher than the losses in any past
divestiture order./113 As a percentage of 1998 expenses or operating revenue
deductions, the lost economies described in the Gas Studies would amount to
9.54% for PSCo, 7.63% for Cheyenne, 7.81% for NSP, and 10.38% for NSP-W, higher
than the losses in any past divestiture order and, in Entergy Corporation,
Holding Co. Act Release No. 25952 (Dec. 17, 1993), another case in which the
Commission authorized the retention of gas operations. As a percentage of 1998
gross income, the lost economies described in the Gas Studies amount to 57.75%
for PSCo, 58.53% for Cheyenne, 86.05% for NSP and 144.22% for NSP-W, far in
excess of the highest loss of gross income in any divestiture order.
----------
112 See UNITIL Corp., supra ("The Commission has required divestment where the
anticipated loss of income of the stand-alone company was approximately
30%..." or "29.9% of net income before taxes"), citing SEC v. New England
Electric System, 390 U.S. 207, 214 n.11 (1968).
113 The highest loss of operating revenues in any case ordering divestiture is
commonly said to be 6.58%. See, e.g., UNITIL Corp., supra ("[o]f cases in
which the Commission has required divestment, the highest estimated loss of
operating revenues of a stand-alone company was 6.58%...").
----------
In order to recover these estimated lost economies, PSCo would need to
increase rate revenue by $57,738,000 or 8.53%, Cheyenne would need to increase
revenue by $1,615,000 or 7.69%, NSP would need to increase revenues by
$26,723,000 or 7.41% and NSP-W would need to increase rate revenue by $7,812,000
or 9.91%. These increases in rate revenues would have a direct and immediate
negative impact on the rates charged to customers for gas services. In addition,
the customers of NCE and NSP gas businesses who are also customers of their
respective electric utility businesses will experience a doubling of their
postage costs to pay separate bills. The total estimated increase in such
postage costs is $3.96 per customer per year or $6,026,733 in the aggregate
($1,523,000 for NSP gas customers, $326,000 for NSP-W gas customers, $4,065,000
for PSCo gas customers, and $113,000 for Cheyenne gas customers.)
It is the intention of the Applicants that their separate gas properties be
integrated and operated as a single economic system in conjunction with
Applicants' electric system in order to better provide competitive comprehensive
energy services to Applicant's customers. Because today the properties of NSP
and NCE are operated as separate entities and Section 11(b)(1)(A), (B) and (C)
appear to require an analysis of "[e]ach such additional system," the Gas
Studies described above looked at divestiture of four separate gas systems,
preserving their present status of being separate from one another, which
produced annual lost economies that are estimated to be $90.7 million per annum.
The Applicants have also prepared a study that evaluates the economic
impact of a divestiture of the natural gas assets of NSP and NCE into a single
stand-alone gas holding company ("BigGasCo"), Exhibit J-3. While this
alternative form of divestiture would allow some of the savings of the Merger
(primarily in natural gas supply procurement and transportation management) to
be realized, the combination of the gas operations under Xcel would facilitate
and enhance the efficiency of the gas operations to a much greater degree than
divestiture to a stand-alone BigGasCo gas utility operation. In addition, the
increased costs to the remaining Xcel electric utility operations are not
mitigated in any way, thus reducing the predicted merger savings to the Xcel
electric utility operations from the merger. The lost savings to combined NSP
and NCE electric ratepayers would be $110,447,000 or 2.89%.
As set forth in EXHIBIT J-3, combining the Applicants' gas properties into
one company prior to divestiture would still result in lost economies of
$55,115,000, assuming no rate adjustments to recover the lost economies and
associated income taxes. On a percentage basis, this is equivalent to 4.8% of
total operating revenue, 5.47% of total operating revenue deductions, 41% of
gross income, and 53.88% of 1998 net income. These lost economies are greater
(in three of the four measures) than those found adequate to support retention
in New England Electric System, 41 S.E.C. 888 (1964), rev'd SEC v. New England
Electric System, 346 F.2d 399 (1st Cir. 1966), rev'd and remanded, 384 U.S. 176
(1965), on remand, 376 F.2d 107 (1st Cir. 1967), rev'd, 390 U.S. 2-7 (1968)
("NEES") (approving retention on measures of 4.8% of operating revenues, 6% of
operating revenue deductions (excluding federal income tax), 23.3% of gross
income (before federal income taxes) and 29.9% of net income (before taxes). The
fact that the lost economies are below the levels in NEES for one measure is not
significant because the Commission has established that retention may be
warranted when the "cost increases that would result from severance of the gas
properties would in most instances be consistent with [the established]
thresholds." Dominion Resources, Inc., Holding Co. Act Release No. 27133 (Dec.
15, 1999) (emphasis added) (citing NEES with approval).
In the case of divestiture, BigGasCo's customers would pay $58,156,000 or
5.1% more in rates to offset these losses. In comparison, if the Merger were
implemented as proposed, gas ratepayers would save $20,736,000 or 1.82%. In
addition, both NSP's and NCE's gas customers would incur increased personal
costs, such as postage on a separate envelope and additional check costs to mail
payments to two utilities. Finally, the earnings contribution relating to NSP
and NCE's combined gas businesses would be decreased by approximately 54%. Such
a decline would make ownership of shares in this stand-alone gas company
unattractive.
In summary, divestiture of BigGasCo would result in a loss or necessary
rate increase of $168,000,000 annually ($58 million in annual gas revenue plus
$110 million in annual revenue increases for the remaining Xcel electric
companies). These negative consequences do not tend toward the economical and
efficient development of an integrated public utility system.
The lost economies occurring from both divestiture of NCE and NSP's gas
utilities as separate businesses and as a combined stand-alone company are
substantial in an industry in which there are already many companies competing
with Applicants for the provision of comprehensive energy services in
Applicants' service territories and, where there is not yet competition, lost
economies may well result in increased retail rates. Competition between energy
suppliers can only benefit consumers. Increasingly, the competitors are
themselves suppliers of comprehensive energy services just like NCE, NSP, TUC
Holding Company and Reliant Energy Inc.
Accordingly, it is Applicants' view that the standards of Clause A are
satisfied in light of the increased expenses and the potential loss of
competitive advantages that could result from separation from the gas system.
Against this background, Applicants believe that the Commission should find the
standards of Clause A satisfied with respect to the gas systems of NCE, NSP and
NSP-W.
(b) Same state or adjoining states
The proposed Merger does not raise any issue under Section 11(b)(1)(B) of
the Act. The Commission has paraphrased Clause B as follows: "All of such
additional systems are located in a state in which the single integrated public
utility system operates, or in states adjoining such a state, or in a foreign
country contiguous thereto." Engineers Public Service Company, Holding Co. Act
Release No. 2897 (July 23, 1941), rev'd on other grounds, 138 F.2d 936 (D.C.
Cir. 1943), vacated as moot, 332 U.S. 788 (1947). The Xcel Gas System is located
in the same states as the Xcel Electric System, plus Arizona, and Arizona
adjoins Colorado, a state in which the Xcel Electric System operates. Thus, the
requirement that each additional system is located in one state or adjoining
states is satisfied.
(c) Size
Further, retention of the combined gas operations of NCE and NSP as an
additional integrated system raises no issue under Section 11(b)(1)(c) of the
Act. The combination of the systems under the control of a single holding
company will not be "not so large . . . as to impair the advantages of localized
management, efficient operation, or the effectiveness of regulation." As the
Commission has recognized elsewhere, the determinative consideration is not size
alone or size in an absolute sense, either big or small, but size in relation to
its effect, if any, on localized management, efficient operation and effective
regulation. From these perspectives, it is clear that the continued combination
of the gas operations under Xcel is not too large.
Even after the combination, the gas utility operations of New NSP, NSP-W,
BMG, PSCo and Cheyenne, with some 1.5 million gas customers combined in seven
states, will be smaller than Reliant Energy (the parent of Minnegasco) which,
through subsidiaries, has 2,700,000 gas customers, 630,000 of which are in
Minnesota. This company is among NSP's and NCE's primary natural gas competitors
in the region. Based on data through December 31, 1998, and giving effect to the
Merger, the combined gas assets will represent only 8.6% of the total assets of
Xcel, whereas the electric assets will represent 51.6%; operating revenues for
the gas operations will be 16.5% of total Xcel's revenues as compared with 74.1%
for the electric operations; and customers of the gas operations will constitute
33.3% of all Xcel's customers, while electric operations will represent 67.6%.
With respect to localized management, this issue is discussed for the Merger as
a whole under Item 3.C.1.(b)(i)(a) below. Applied solely to the gas operations,
the current NSP, NSP-W, BMG, PSCo and Cheyenne gas systems enhance localized
management within the larger corporate structure and will continue to do so
after the Merger is completed.
After the Merger, certain centralized gas functions of Xcel will be managed
by New Century Services from a centralized location, and the local functions
will continue to be handled from regional offices. No reduction in customer
service or support crews is expected. Management will therefore remain
geographically close to the gas operations, thereby preserving the advantages of
localized management. From the standpoint of regulatory effectiveness, NSP
already operates a combined gas and electric utility in Minnesota, North Dakota
and South Dakota, as does NSP-W in Wisconsin and Michigan, PSCo in Colorado and
Cheyenne in Wyoming. In addition, several other gas utilities in the region
serve customers in several states. Thus, the regulatory agencies in the seven
states are currently regulating multi-jurisdictional gas utilities and will be
able to effectively regulate the gas utility operations of Xcel after the
Merger. In addition, the historical joint gas and electric utility operations of
NSP have never raised regulatory concerns in Minnesota and North Dakota, and NSP
has requested the Minnesota, North Dakota and Arizona regulatory authorities to
make findings that the retention of the existing gas system of NSP would not
impair their ability to regulate these systems effectively./114 With respect to
efficient operation, as described below, as part of the Xcel system, the gas
operations of New NSP, NSP-W, PSCo and Cheyenne are expected to reduce purchased
gas costs by $77.4 million from 2001 to 2010, which will be flowed through to
customers via lower rates in accordance with state commission approved purchased
gas adjustment clauses. Far from impairing the advantages of efficient
operation, the combination of the gas operations under Xcel will facilitate and
enhance the efficiency of gas operations.
----------
114 In approving the merger of PSCo and SPS into NCE, the Colorado Commission
similarly supported the retention by PSCo of its gas operations, and the
Wyoming Commission similarly supported the retention by Cheyenne of its gas
operations.
----------
As in the 1997 NCE Order and WPL Holdings, the proposed combination of NCE
and NSP offers Applicants a means to compete more effectively in the emerging
energy services business. Further, as discussed above, the Merger will give rise
to none of the abuses, such as ownership of scattered utilities properties,
inefficient operations, lack of local management or evasion of state regulation,
that section 11(b)(1) and the Act generally were intended to prohibit.
While Applicants believe that the Xcel Gas Operations constitute a single,
integrated public utility system under that is retainable under Section 11(b)(1)
of the Act, Applicants assert, in the alternative, that the Commission could
find that Xcel will have two integrated gas systems, the first consisting of its
Arizona gas operations (the "BMG System") and the second, the combined gas
operations of NSP and NCE other than BMG. The rationale for the NSP-NCE gas
operations being an integrated system entitled to retention under Section
11(b)(1) is explained above. The rationale for the retention of the BMG System
is explained below.
As explained previously, NSP currently has pending before the Commission an
Application in File No. 70-9337 for approval to transfer the assets and
operations of BMG to a subsidiary of NSP. As explained in detail in that
application and as a background in this filing, NSP acquired BMG on July 24,
1998 pursuant to a merger in which BMG was merged into NSP with NSP as the
surviving corporaion./115 The shareholders of the common stock of BMG approved
the merger of BMG with and into NSP at a special meeting of BMG's shareholders
on May 21, 1998. The BMG Merger was approved by the Arizona Commission, the
Minnesota Commission and the North Dakota Commission. In addition, NSP obtained
approval from the Arizona Commission, the Minnesota Commission and the North
Dakota Commission to drop the BMG assets into a new wholly-owned entity that
will be a first-tier subsidiary of Xcel. The waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act")
has expired.
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115 Pursuant to an Agreement and Plan of Merger, dated as of December 29, 1997
(the "BMG Merger Agreement"), on July 24, 1998, BMG merged into NSP with
NSP as the surviving corporation. A copy of the Merger Agreement is
incorporated by reference as Exhibit B-4. Pursuant to the BMG Merger
Agreement, each issued and outstanding share of common stock, no par value,
of BMG ("BMG Common Stock) (except shares owned by BMG as treasury stock)
was canceled and converted into the right to receive a fraction of a share
of common stock, $2.50 par value, of NSP ("NSP Common Stock") equal to the
quotient (hereinafter, the "Exchange Ratio") derived by dividing (A)
$17,750,000 by (B) the product of (i) the volume weighted average of the
closing prices for NSP Common Stock on the New York Stock Exchange for the
twenty full trading days ending on the third full trading day prior to July
24, 1998, the date the Merger became effective (the "Average NSP Share
Price") and (ii) the number of shares of BMG Common Stock issued and
outstanding immediately prior to July 24, 1998. Pursuant to the BMG Merger
Agreement an additional number of shares of NSP Common Stock equal to the
quotient derived by dividing $1,500,000 by the Average NSP Share Price was
placed in escrow to satisfy any indemnification claims of NSP under the BMG
Merger Agreement. Such additional shares, net of any indemnification
claims, were distributed pro rata to the former holders of BMG Common Stock
on or about July 24, 1999, the first anniversary of the closing of the
Merger.
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BMG was incorporated under the laws of Arizona in 1965. Prior to its
acquisition by NSP, BMG was an Arizona public service corporation providing
natural gas distribution to an area of approximately 100 square miles in
Maricopa County, Arizona, and providing propane gas distribution to an area of
approximately 20 square miles in Coconino County, Arizona, pursuant to
certificates of convenience and necessity issued by the Arizona Commission. As
of the year ended December 31, 1999, BMG provided utility services to
approximately 7,800 customers. Most of its customers are residential.
Non-residential customers include two school districts, three resorts and
multiple light commercial customers. BMG's operations are not subject to
regulation under the jurisidiction of the FERC. The rates charged by BMG
(operating as a division of NSP) to customers are regulated by Arizona
Commission. BMG's total operating revenues for the years ended December 31,
1997, 1998 and 1999 were approximately $6.2 million, $6.3 million and $6.4
million, respectively. For the same peiods, BMG's net income was approximately
$1.3 million, $365,000 and $855,000, respectively. BMG's assets was of December
31, 1997, 1998 and 1999 were approximately $10.3 million, $15.5 million and
$16.6 million, respectively. More detailed information concerning BMG is
contained in the Proxy Statement of BMG dated April 23, 1998, incorporated by
reference as Exhibit C-4.
For the reasons set forth in detail in its Application in File No.
70-09337, NSP believes that its gas utility system, including the BMG System,
constitutes an integrated gas utility system under Section 2(a)(29)(B) of the
Act. Yet, given its small size and proximity to the primary Xcel Electric System
and the other additional systems, the BMG System also readily satisfies the
standards for retention under the "A-B-C" clauses of Seciton 11(b)(1). Under
those provisions, a registered holding company can own "one or more" additional
integrated systems if certain conditions are met. Specifically, the Commission
must find that the additional system "cannot be operated as an independent
system without the loss of substantial economies which can be secured by the
retention of control by such holding company of such system," (B) the additional
system is located in one state or adjoining states, and (C) the combination of
systems under the control of a single holding company is not so large ... as to
impair the advantages of localized management, efficient operation, or the
effectiveness of regulation." Each of those conditions is satisfied with respect
to the BMG System.
The Commission has recently addressed the retention by a registered
electric system of "very small" gas operations. At issue in Allegheny Energy,
Inc., Holding Co. Act Release No. 27121 (Dec. 23, 1999), was the retention of
gas assets with $23.7 million in gas revenues, significantly larger than those
of the BMG System in this matter. Concerning the requirements of Clause A, the
Commission stated:
the Act does not prohibit ownership of combination gas and electric
systems, but rather specifies the showings that must be made by an
applicant to justify ownership of such properties. The Commission has
addressed, in many cases, the question of retainability by electric
registered holding company systems of additional integrated gas
systems and has reached its findings under clause A on a case-by-case
basis, in light of the particular facts.
The principal issue under clause A is whether there would be a
loss of substantial economies if the additional system were divested.
Although Monongahela Power did not provide the Commission a formal
analysis of the gas system as a separate system, the record permits a
finding that there would be a loss of substantial economies if
Monongahela Power were required to divest the gas properties. By any
measure, the gas system is very small. As noted above, the WVP system
serves 24,000 customers. The Commission finds the requirements of
clause A are satisfied with respect to Monongahela Power's ownership
of the gas properties of West Virginia Power as an additional
integrated system.
The gas operations in this matter are smaller in every respect than those at
issue in Allegheny. In addition, association with a larger system is necessary
to ensure the realization of the benefits and economies that lead to the
acquisition by NSP of BMG in the first instance. These include corporate and
administrative efficiencies, management and operational efficiencies, purchasing
economies and enhanced technology and computer services.
The BMG System also satisfies the requirements of Clauses (B) and (C).
Specifically, Arizona is adjacent to New Mexico and continguous to Colorado
where the primary Xcel Electric System operates. For the reasons explained in
detail elsewhere in this Application and in NSP's Application in File No.
90-09337, the combination of systems under the ownership of Xcel will not be "so
large as to impair the advantages of localized management, efficient operation,
or the effectiveness of regulation."
(iv) Retention of Other Businesses
In the 1997 NCE Order, the Commission approved the retention by NCE of
certain non-utility businesses of PSCo and SPS, as well as their direct and
indirect subsidiary companies. Annex C sets forth those non-utility businesses.
In addition Annex C lists and describes those non-utility businesses commenced
by NCE following that merger. All such businesses have been established pursuant
to a Commission order or an applicable exception. As noted previously, the
non-utility businesses of NSP were listed and described on Annex D. At issue in
this transaction, is whether Xcel may retain the non-utility businesses of NSP
and the new non-utility businesses of NCE.
The non-utility interests of NSP are fully retainable. As a result of the
Merger, the non-utility businesses and interests of NSP and NCE described in
Item 1.C. above will become businesses and interests of Xcel. Corporate charts
showing the subsidiaries, including non-utility subsidiaries of NSP and NCE, are
filed as Exhibits E-10 and E-11. A corporate chart showing the projected
arrangement of these subsidiaries under Xcel is filed as Exhibit E-12./116
Standard for retention: Section 11(b)(1) permits a registered holding
company to retain "such other businesses as are reasonably incidental, or
economically necessary or appropriate, to the operations of [an] integrated
public utility system." The Commission has historically interpreted this
provision to require an operating or "functional" relationship between the
non-utility activity and the system's core non-utility business. See, e.g.
Michigan Consolidated Gas Co., Holding Co. Act Release No. 16763 (June 22,
1970), aff'd, 444 F.2d 913 (D.C. Cir. 1971); United Light and Railways Co.,
Holding Co. Act Release No. 12317 (Jan. 22, 1954); CSW Credit, Inc., Holding Co.
Act Release No. 25995 (March 2, 1994); and Jersey Central Power and Light Co.,
Holding Co. Act Release No. 24348 (March 18, 1987). The Commission retreated
from this historical position and "has sought to respond to developments in the
industry by expanding its concept of a functional relationship."/117 This shift
culminated in the adoption of Rule 58. The Commission added "that various
considerations, including developments in the industry, the Commission's
familiarity with the particular non-utility activities at issue, the absence of
significant risks inherent in the particular venture, the specific protections
provided for consumers and the absence of objections by the relevant state
regulators, made it unnecessary to adhere rigidly to the types of administrative
measures" used in the past. Id. Furthermore, in the 1995 Report, the SEC Staff
recommended that the Commission replace the use of bright-line limitations with
a more flexible standard that would take into account the risks inherent in the
particular venture and the specific protections provided for consumers./118 In
regards to NCE's non-utility subsidiaries, the Applicants are only requesting
that Xcel inherit NCE's existing authority, except as noted otherwise in the
body of this Application. The description provided in Annex C merely describes
the existing businesses that are retainable pursuant to statute, rule or order
and is not a request for expansion or modification of that authority. Xcel's
acquisition of NCE's non-utility subsidiaries should be approved because the
indirect ownership of these businesses by Xcel in no way affects their
functional relationship with Xcel's electric business following the Merger. Xcel
may retain NSP's non-utility subsidiaries because, as detailed in Annex D, they
meet the statutory requirements of ownership.
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116 As noted before, as part of the merger integration process, Applicants are
currently trying to determine the optimal corporate structure for Xcel. The
structure reflected in EXHIBIT E-12 is thus tentative. In the event that
Applicants decide to revise the proposed structure, they will file it by
amendment.
117 Exemption of Acquisition by Registered Public-utility Holding Companies of
Securities of Non-utility Companies Engaged in Certain Energy-related and
Gas-related Activities, Holding Co. Act Release No. 26667 (Feb. 14, 1997)
("Rule 58 Release").
118 1995 Report at 81-87, 91-92.
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In the past, the Commission has approved the acquisition or retention of
non-utility businesses in a merger between two companies, one of which was an
independent public utility company not subject to the 1935 Act and the other was
an exempt holding company. See 1997 NCE Order, supra. As noted above, Annex C
sets forth the non-utility business of PSCo and SPS approved for retention.
Applicants submit that the statutory requirements for ownership of NCE's new
non-utility businesses and NSP's non-utility businesses are satisfied, as
detailed in Annexes C and D hereto.
In approving NCE's retention of other businesses, the Commission also
excluded such businesses from the limitation upon investment in energy-related
companies under Rule 58, noting that the restrictions of Section 11(b)(1) are
applicable to registered holding companies and not to exempt holding companies.
Rule 58 provides in section (a)(1)(ii) that investments in non-utility
activities that are exempt under Rule 58 cannot exceed 15% of the consolidated
capitalization of the registered holding company. In its statement supporting
the adoption of the Rule, the Commission stated:
The Commission believes that all amounts that have actually been invested
in energy-related companies pursuant to commission order prior to the date
of effectiveness of the Rule should be excluded from the calculation of
aggregate investment under Rule 58. The Commission also believes it is
appropriate to exclude from the calculation all investments made prior to
that date pursuant to available exemptions.
Holding Co. Act Release No. 26667 at 50-51. Because NSP was not yet a registered
holding company, none of the investments in non-utility activities that are
described in Annex D hereto were pursuant to Commission order. However, since
the non-utility investments of NSP, as an exempt holding company, were exempt
under the Act, investments made by it prior to the effective date of Rule 58
which will continue as part of Xcel after consummation of the merger, should not
count in the calculation of the 15% maximum. See 1997 NCE Order, supra
(Commission order granting exclusion of non-utility energy-related investments
of SPS, an independent utility, and PSCo an exempt holding company, from
calculations of the 15% maximum investment allowed under Rule 58).
Besides the non-utility businesses of NSP subsidiaries that are described
in Annex B, NSP is directly engaged at the parent company level in the following
non-utility businesses: (i) an appliance services program for its residential
customers, (ii) construction of natural gas distribution systems for third
parties (primarily end-users and municipal gas systems), (iii) sale of steam to
industrial customers in NSP's service territory, (iv) installation and
maintenance of street lighting for municipalities and other customers, (v)
propane sales, (vi) fuel oil sales, and (vii) distributed generation services.
New NSP intends to continue to engage in these businesses.
The following chart shows the reasons based on Commission orders or rules
that retention of such businesses should be permitted:
Business Description Authority
Appliance services program Mississippi Power and Light
Company, Holding Co. Act
Release No. 25140 (August 30,
1990); Rule 58(b)(1)(iv)
Construction of natural gas National Fuel Gas Company,
distribution systems for third Holding Co. Act Release No.
parties; installation and 24381 (May 1, 1987); Rule 58(b)(1)(vii)
maintenance of street lighting
Sale of steam New Century Energies, Inc.,
Holding Co. Act Release No. 26748
(Aug. 1, 1997); Cinergy Corp., Holding Co.
Act Release No. 26474 (Feb. 20, 1996);
Rule 58(b)(1)(vi)
Propane sales SCANA Corporation, Holding Co. Act Release
No. 27133 (Feb. 9, 2000)
Fuel oil sales Rule 58(b)(1)(ix)
Distributed generation services Rule 58(b)(1)(iv)
Similarly, PSCo, prior to the merger with SPS into NCE, also was directly
engaged in various non-utility businesses, namely: (i) thermal energy; (ii) the
commercialization of electro-technologies; (iii) electric and gas vehicle
products and services; and (iv) the sale and servicing of electric and gas
appliances. The Commission in the 1997 NCE Order authorized the retention of
these businesses. From its experience in marketing these services, NCE is aware
that there are certain advantages of having a utility be able to offer these
types of services directly to customers, as opposed to through an affiliate.
Based on this experience, Applicants request the following authorization: where
either PSCo or the NSP companies are directly engaged in a line of business, the
retention of which the Commission either in the 1997 NCE Order or in its order
in this proceeding has authorized, the other Xcel Operating Companies should
likewise be authorized to engage in that business, subject to any limitations or
requirements imposed by state law or state commission order or rule.
In addition, the Commission in the 1997 NCE Order authorized SPS, PSCo, and
other associate companies of NCE to lease office or other space to other
associate companies (with such leases to be in accordance with Rules 87, 90 and
91) or to third parties. Applicants request that the Commission extend this
authority to apply to the Xcel system and NSP and its direct and indirect
subsidiaries.
2. Section 10 (c)(2)
Because the Merger is expected to result in substantial cost savings and
synergies, it will tend toward the economical and efficient development of an
integrated public utility system, thereby serving the public interest, as
required by Section 10(c)(2) of the Act.
The Merger will produce economies and efficiencies more than sufficient to
satisfy the standards of Section 10(c)(2) of the Act. Although some of the
anticipated economies and efficiencies will be fully realizable only in the
longer term, they are properly considered in determining whether the standards
of Section 10(c)(2) have been met. See AEP, supra. Some potential benefits
cannot be precisely estimated, nevertheless they too are entitled to be
considered. "[S]pecific dollar forecasts of future savings are not necessarily
required; a demonstrated potential for economies will suffice even when these
are not precisely quantifiable." Centerior, supra.
NSP and NCE have estimated the nominal dollar value of synergies from the
Merger to be approximately $1.1 billion (net costs to achieve) over the 10-year
period from 2001-2010. The Merger is expected to yield several types of
presently quantifiable benefits and savings, which are identified by area below:
(1) corporate and operations support; (2) corporate and administration programs;
(3) nonfuel purchasing economies; and (4) production savings, including savings
for fuel procurement, production dispatch and natural gas supply. The total
amount of savings currently estimated in each of these categories, on a nominal
dollar basis is summarized in the table below:
Merger Synergies in Nominal Dollars
------------------------------------------------------------------
Category Nominal
Amount
Corporate and Operations Support $691.3 million
Corporate and Administrative Programs $344.4 million
Non-Fuel Purchasing Economies $203.7 million
Production Savings (Electric and Gas) $95.9 million
------------------------------------------------------------------
Total Savings $1,334.7 million
Less: Costs to Achieve ($149.5 million)
Pre-merger Initiatives ($92.9 million)
-------------------------------------------------------------------
Net Savings $1,092.3 million
-------------------------------------------------------------------
These expected savings will meet or exceed the anticipated savings in a
number of recent acquisitions approved by the Commission./119 See, e.g., NIPSCO
Industries, Inc., Holding Co. Act Release No. 26975 (Feb. 10, 1999) (expected
savings of $57.45 million over ten years); Sempra Energy, Holding Co. Act
Release No. 26890 (June 26, 1998) (expected savings of $1.2 billion over ten
years); BL Holding Corp., Holding Co. Act Release No. 26875 (May 15, 1998)
(expected savings of $1.1 billion over ten years); LG&E Energy Corp., Holding
Co. Act Release No. 26866 (April 20, 1998) (expected savings of $687.3 million
over ten years); WPL Holdings, Holding Co. Act Release No. 26856 (April 14,
1998) (expected savings of $680 million over ten years); Conectiv, Holding Co.
Act Release No. 26856 (Feb. 25, 1998) (expected savings of $500 million over ten
years); Ameren Corporation, supra (expected savings of $686 million over ten
years); 1997 NCE Order, supra (expected savings of $770 million over ten years);
TUC Holding Company, supra (expected savings of $505 million over ten years);
Northeast Utilities, supra (expected savings of $837 million over eleven years);
Entergy Corporation, Holding Co. Act Release No. 25952 (Dec. 17, 1993) (expected
savings of $1.67 billion over ten years); Northeast Utilities, Holding Co. Act
Release No. 25221 (Dec. 21, 1990) (expected savings of $837 million over eleven
years); Kansas Power and Light Co., Holding Co. Act Release No. 25465 (Feb. 5,
1992) (expected savings of $140 million over five years); IE Industries, Holding
Co. Act Release No. 25325 (June 3, 1991) (expected savings of $91 million over
ten years); Midwest Resources, Holding Co. Act Release No. 25159 (Sept. 26,
1990) (expected savings of $25 million over five years); CINergy Corp., Holding
Co. Act Release No. 26146 (Oct. 21, 1994) (expected savings of approximately
$1.5 billion over ten years). These savings categories are described in greater
detail below.
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119 Further, the Applicants anticipate an additional $24 million in operating
efficiencies due to the integration plans as described below.
----------
Corporate and Operations Support: NCE and NSP estimate that a net reduction
in labor costs of approximately $691 million over ten years can be achieved as a
result of the Merger through elimination of approximately 780 full time
equivalent duplicative positions (including 105 contract workers) in certain
corporate, administrative and technical support functions.
Corporate and Administrative Programs: NSP and NCE estimate a reduction in
nonlabor corporate and administrative programs and expenses through the
consolidation of overlapping or duplicative programs and expenses of $344
million over ten years. Specific areas in which savings are expected to occur
include information systems, professional services, demand-side management
administration, benefits administration, insurance, regulatory expenses,
advertising and shareholder services.
Nonfuel Purchasing Economies: NSP and NCE estimate savings of $203.7
million through the combined procurement of material and supplies, inventory
reduction from standardization, and limited sharing of parts and components and
from economies of scale from the aggregation of related work activities and
increased purchasing power over service providers.
Production Savings: NSP and NCE estimate production savings of
approximately $96 million over a ten-year period. Two main components make up
total production savings: efficiencies in procurement of fossil fuel and
efficiencies in procurement and management of natural gas supply. The Applicants
estimate fossil fuel savings of $18.5 million, stemming from an increase in coal
procurement and coal transportation volumes and greater leverage during contract
negotiations. NSP and NCE estimate natural gas supply savings of approximately
$77.4 million, based on gas transport and storage capacity reductions, gas
reserve margin reductions, field transportation reductions and capacity release
savings through the contemplated gas supply coordinated dispatch agreement.
The foregoing amounts do not include an additional $24 million in operating
efficiencies that the Applicants expect to achieve over ten years as a result of
the integration of the NSP and NCE electric generation systems through the 100
MW firm path from SPS to NSP. Through the use of this contract path, the
Applicants estimate approximately $31 million in production cost savings and an
additional $10 million in benefits resulting from increased opportunity sales.
The firm path would also provide a secure source of additional low-cost supply
to NSP during NSP's peak periods, protecting NSP from some predicted energy
price volatility. These expected benefits are offset by anticipated transmission
costs, resulting in an expected net benefit of $24 million over the ten-year
period. As noted before, in their application to FERC, Applicants reserved the
right to forego this firm path in the event that FERC believed that competitive
concerns related to the path raised material issues of fact that would require a
hearing. For this reason, these additional $24 million of savings have not been
included in the $1.1 billion of savings presented in the chart above. Because
the FERC Merger Order did not require that Applicants forego this path, these
additional savings should also be achievable.
Additional Expected Benefits: In addition to the benefits described above,
there are other benefits which, while presently difficult to quantify, are
nonetheless substantial. These other benefits include maintenance of competitive
rates, expanded management resources, more diverse service territory and
continued community involvement.
Maintenance of Competitive Rates: A combined NSP/NCE will be able to meet
the challenges of the increasingly competitive environment in the utility
industry more effectively than either NCE or NSP standing alone. The Merger will
create the opportunity for strategic, financial and operational benefits for
customers in the form of lower rates over the long term and for shareholders in
the form of greater financial strength and financial flexibility. NCE and NSP
have proposed in filings with the various state regulatory commissions that
regulate their retail sales of electricity various mechanisms to share in
contemplated benefits, including a three- to five-year rate freeze. The rate
freezes are subject to certain exceptions regarding matters beyond the NSP's or
NCE's control. Further, ratepayers will receive 100% of the benefit of
reductions in Xcel's fuel costs, except that customers of PSCo will receive 50%
of such benefit.
Expanded Management Resources: A combined NCE and NSP entity will be able
to draw on a larger and more diverse mid- and senior-level management pool to
lead the new company forward in an increasingly competitive environment for the
delivery of energy, and should be better able to attract and retain the most
qualified employees. The employees of Xcel should also benefit from new
opportunities in the expanded organization.
More Diverse Service Territory: The combined service territories of NSP and
NCE will be larger and more diverse than either of the service territories of
NSP or NCE as independent entities. This increased geographical diversity will
mitigate the risk of changes in economic, competitive or climatic conditions in
any given sector of the combined service territory.
Community Involvement: Xcel will continue to play a strong role in the
economic development efforts of the communities NSP and NCE now serve. The
philanthropic and volunteer programs currently maintained by the two companies
will be continued.
D. Section 10(f)
Section 10(f) provides that:
The Commission shall not approve any acquisition as to which an application
is made under this section unless it appears to the satisfaction of the
Commission that such State laws as may apply in respect of such acquisition
have been complied with, except where the Commission finds that compliance
with such State laws would be detrimental to the carrying out of the
provisions of section 11.
As described below under Item 4. "Regulatory Approvals," and as evidenced
by the filings before the Minnesota Commission, the North Dakota Commission, the
Colorado Commission, the Arizona Commission, the New Mexico Commission, the
Texas Commission, and the Wyoming Commission, NSP and NCE intend to comply with
all applicable state laws related to the proposed Merger.
E. Intra-system Transactions
The Xcel system companies will engage in a variety of affiliate
transactions for the provision of goods, services, and construction. Certain of
these transactions are elaborated upon below. In some instances, the Applicants
simply request extension of the authorizations granted in the 1997 NCE Order,
with respect to the NCE system, to the Xcel system. The provision of goods,
services and construction by Xcel system companies to other Xcel system
companies will be carried out in accordance with the requirements and provisions
of Rules 87, 90 and 91 unless otherwise authorized by the Commission by order or
by rule./120
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120 As stated previously, the electric production and transmission costs of NSP
and NSP-W are shared by them in accordance with the Interchange Agreement,
which is a FERC-regulated agreement that has also been accepted by the
Wisconsin Commission and the Minnesota Commission for determination of
costs recoverable in rates by NSP-W and NSP in rate cases.
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1. New Century Services, Inc. (to be renamed Xcel Energy Services Inc.)
Rule 88(b) provides that "[a] finding by the Commission that a subsidiary
company of a registered holding company. . .is so organized and conducted, or to
be so conducted, as to meet the requirements of Section 13(b) of the Act with
respect to reasonable assurance of efficient and economical performance of
services or construction or sale of goods for the benefit of associate
companies, at cost fairly and equitably allocated among them (or as permitted by
[Rule] 90), will be made only pursuant to a declaration filed with the
Commission on Form U-13-1, as specified in the instructions for that form, by
such company or the persons proposing to organize it." Notwithstanding the
foregoing language, the Commission in the 1997 NCE Order made findings under
Section 13(b) based on information set forth in an Application-Declaration on
Form U-1, without requiring the formal filing of a Form U-13-1. In this
Application-Declaration, Applicants are submitting substantially the application
information as would have been submitted in a Form U-13-1. Moreover, in this
application, Applicants are not requesting authorization to establish a new
service company, but rather are requesting that the Commission authorize an
existing, Commission-approved service company, New Century Services, to extend
its activities to NSP and its direct and indirect subsidiaries following the
consummation of the Merger and the formation of the Xcel system.
Accordingly, it is submitted that it is appropriate to find that New
Century Services will be so organized and shall be so conducted as to meet the
requirements of Section 13(b), and that the filing of a Form U-13-1 is
unnecessary, or, alternatively, that this Application-Declaration should be
deemed to constitute a filing on Form U-13-1 for purposes of Rule 88.
New Century Services will be the service company subsidiary for the Xcel
system. Specifically, New Century Services will provide Xcel, New NSP, NSP-W,
BMG, PSCo, SPS, and Cheyenne, pursuant to the Utility Service Agreement, and the
non-utility subsidiaries of the NSP/NCE system pursuant to the Non-Utility
Service Agreement, with one or more of the following: administrative, management
and support services, including services relating to support of electric and gas
plant operations (i.e., energy supply management of the bulk power and natural
gas supply, procurement of fuels, dispatch of generating units, coordination of
electric and natural gas distribution systems, maintenance, construction and
engineering work); customer bills, and related matters; materials management;
facilities; real estate; rights of way; human resources; finance; accounting;
internal auditing; information systems; corporate planning and research; public
affairs; corporate communications; legal; environmental matters; and executive
services. In accordance with the Service Agreement, services provided by New
Century Services will be directly assigned, distributed or allocated by
activity, project, program, work order or other appropriate basis. To accomplish
this, employees of New Century Services will record their labor and expenses to
bill the appropriate subsidiary company. Costs of New Century Services will be
accumulated in accounts of the service company and be directly assigned,
distributed, or allocated to the appropriate client company in accordance with
the guidelines set forth in the Utility Service Agreement and the Non-Utility
Service Agreement and the procedures in the "Procedures Manual" included but not
incorporated with ExhibitS B-2 and B-3. As part of the merger integration
process, Applicants evaluated the existing forms of service agreement and the
allocation methodologies currently being used by New Century Services to
determine whether they should be revised to reflect the introduction of New NSP,
NSP-W, or any of NSP's present subsidiaries as recipients of services. While
Applicants did not alter the forms of service agreements, some revisions were
made to the allocation methodologies and are reflected in the "Procedures
Manual" referenced above. There will be an internal audit group which, among
other things, will audit the assignment of service company charges to client
companies. It is anticipated that New Century Services will be staffed primarily
by existing personnel and by transferring personnel from the current employee
rosters of NSP and its subsidiaries. New Century Services's accounting and cost
allocation methods and procedures are structured so as to comply with the
Commission's standards for service companies in registered holding company
systems and were approved by the Commission in the 1997 NCE Order.
It is expected that New Century Services will conduct substantial
operations in Minneapolis and St. Paul, Minnesota; Eau Claire, Wisconsin;
Denver, Colorado; and Amarillo, Texas, where the headquarters of NSP, NSP-W,
PSCo and SPS are located. Merger transition teams are presently considering
where specific operations of the combined company will be headquartered.
As compensation for services, both the Utility and Non-Utility Service
Agreements provide that "each Client Company shall pay to Service Company [i.e.,
New Century Services] the cost to Service Company of rendering such services for
or on its behalf." Where more than one company is involved in or has received
benefits from a service performed, the Service Agreement will provide that the
"methods of assigning, distributing, or allocating Service Company costs to each
Client Company, as well as to other associate companies, are set forth in
Appendix A. . . . Such methods of assignment, distribution or allocation of
costs may be modified or changed by Service Company without the necessity of an
amendment to this Service Agreement provided that in such instance, all services
rendered hereunder shall be at actual cost thereof, fairly and equitably
assigned, distributed or allocated, all in accordance with the requirements of
the [Public Utility Holding Company] Act and any orders thereunder." Thus,
charges for all services provided by New Century Services to affiliated utility
companies will be as determined under Rules 90 and 91 of the Act.
The Non-Utility Service Agreement contains provisions similar to those of
the Service Agreement, except as set forth in detail below in this Item 3.E.3.
The Non-Utility Service Agreement also will permit charges for certain services
to be at fair market value to the extent authorized by the 1997 NCE Order, or
hereafter by the Commission. Thus, except for the prior exemptions in the 1997
NCE Order and the requested exceptions discussed below, services provided by New
Century Services to non-utility affiliates pursuant to the Non-Utility Service
Agreement will also be charged as determined under Rules 90 and 91 of the Act.
For further information regarding the accounting and cost assignment procedures
of New Century Services, reference is made to EXHIBITS B-2 and B-3 hereto./121
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121 NSP's agreement with a subsidiary, NMC, states that services provided to
NMC or received from NMC be at the higher of cost or market, or lower the
cost or market, respectively. However, that agreement also deems market to
equal cost and thus is consistent with SEC requirements.
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Moreover, the Utility and Non-Utility Service Agreements provide that no
change in the organization of New Century Services, the type and character of
the companies to be serviced, the methods of allocating costs to associate
companies, or in the scope or character of the services to be rendered subject
to Section 13 of the Act, or any rule, regulation or order thereunder, shall be
made unless and until New Century Services shall first have given the Commission
written notice of the proposed change not less than 60 days prior to the
proposed effectiveness of any such change. If, upon the receipt of any such
notice, the Commission shall notify New Century Services within the 60-day
period that a question exists as to whether the proposed change is consistent
with the provisions of Section 13 of the Act, or of any rule, regulation or
order thereunder, then the proposed change shall not become effective unless and
until New Century Services shall have filed with the Commission an appropriate
declaration regarding such proposed change and the Commission shall have
permitted such declaration to become effective.
Applicants believe that the Utility Service Agreement and the Non-Utility
Service Agreement are structured so as to comply with Section 13 of the Act and
the Commission's rules and regulations thereunder.
2. Services, Goods, and Assets Involving the Utility Operating Companies
PSCo, SPS, Cheyenne, New NSP, NSP-W and BMG may provide to one another and
other associate companies services incidental to their utility businesses,
including but not limited to, power plant maintenance overhauls, power plant and
storm outage emergency repairs, and services of personnel with specialized
expertise related to the operation of the utility (i.e., services by an
industrial lighting specialist or waste disposal specialist). These services
will be provided in accordance with Rules 87, 90 and 91. Moreover, in accordance
with Rules 87, 90 and 91, certain goods may be provided through a leasing
arrangement or otherwise by one utility operating company to one or more
associate companies, and certain assets may be used by one utility operating
company for the benefit of one or more other associate companies.
In addition to the foregoing, NSP and NSP-W are currently providing goods
and services to, or receiving goods and services from, affiliates in accordance
with agreements approved by the Minnesota Commission and/or the Wisconsin
Commission. Each of these contracts (including the parties) is described in
Annex E. To the extent necessary, Applicants request that the Commission
grandfather these pre-existing arrangements to enable the provision of goods and
services to continue post-Merger. As indicated in Annex E, Applicants believe
that the pricing of such transactions is in compliance with, or exempt from, the
Commission's rules. However, in the event that the Commission disagrees,
Applicants also request that with respect to such arrangements, the Commission
grant an exemption for the pricing of such transactions to the extent such
pricing varies from the Commission's at-cost standard under Section 13(b) of the
Act./122
To elaborate on the requested exemption from the Commission's at-cost
standard, Minnesota law specifies as follows:
no contract or arrangement, including any general or continuing
arrangement, providing for the furnishing of management, supervisory,
construction, engineering, accounting, legal, financial or similar
services and no contract or arrangement for the purchase, sale, lease
or exchange of any property, right or thing, or for the furnishing of
any service, property, right or thing, other than those above
enumerated, made or entered into after January 1, 1975, between a
public utility and any affiliated interest...is valid or effective
unless and until the contract or arrangement has received the written
approval of the [Minnesota Public Utilities] commission./123
An "affiliated interest" includes every subsidiary of a public utility.
Furthermore Minnesota law provides that "the [Minnesota Public Utilities]
Commission shall approve the contract or arrangement...only if it shall clearly
appear and be established upon investigation that it is reasonable and
consistent with the public interest...," with the utility bearing the burden of
proving that it is in the public interest./124
Under a policy statement issued in Docket No. E,G-999/CI-90-1008 (1994),
the Minnesota Commission had adopted extensive guidelines on the allocation of
costs for transactions with nonregulated affiliates. The Policy Statement docket
initially arose from an investigation of nonregulated utility appliance sales
and service programs. However, the Minnesota Commission later expanded the scope
of the docket, and the Policy Statement also applies to all utility arrangements
with regulated and nonregulated affiliates./125 The Policy Statement provides
that costs should be assigned between the utility and non-regulated function
using the following four step hierarchy:
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122 Applicants believe that the one contract specified in Appendix E that has
been approved by the Wisconsin Commission fully comports with the at-cost
standard. Therefore, Applicants do not request the same exemption with
respect to that contract.
123 ss.216B.48, subdivision 3 (Supp. 1993).
124 Id.
125 In MPUC Docket No. G002/M-94-831, the MPUC again expanded the scope of the
Policy Statement, indicating it would be applied to assign costs between
NSP utility operations and regulated affiliates (such as Viking).
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1. Tariffed rates shall be used to value tariffed services provided to
the non-regulated activity.
2. Costs shall be directly assigned to either regulated or non-regulated
activities whenever possible.
3. Costs which cannot be directly assigned are common costs which shall
be grouped into cost categories. Each cost category shall be allocated
based on direct analysis of the origin of costs wherever possible. If
direct analysis is not possible, common costs shall be allocated based
upon an indirect cost-causative linkage to another cost category or
group of cost categories for which direct assignment or allocation is
available.
4. When neither direct nor indirect measures of cost causation can be
found, the cost category shall be allocated based upon a general
allocator computed by the ratio of all expenses directly assigned or
attributed to regulated and non-regulated activities, excluding the
cost of fuel, gas, purchased power and the cost of goods sold.
Under this hierarchy, costs are generally allocated to non-regulated or
regulated affiliates on a "fully allocated cost" basis, in order to prevent any
subsidy of non-utility operations by the regulated utility operations and its
customers. Accordingly, Applicants believe that most of the NSP contracts that
have been reviewed and approved by the Minnesota Commission comport with the
Commission's at-cost standard. However, to the extent that there is any variance
between at-cost pricing under the Minnesota Commission's policies and Rules 90
and 91 of the Commission's rules, Applicants request that the Commission
grandfather the existing arrangements and exempt those contractual arrangements
from the at-cost standard of Section 13(b) of the Act so that they may stay in
effect for New NSP as the successor of NSP.
Applicants believe that the requested exemptions from the at-cost standard
of Section 13(b), allowing for these contracts to be continued on a
grandfathered basis, are in the public interest. For each contract, the
Minnesota Commission has determined that the contract is reasonable and in the
public interest. The Commission's principal concern under Section 13 of the Act
is to protect utility companies in a holding company system from abusive
cross-subsidization transactions between associate companies. Since the
Minnesota Commission has found that the applicable contracts listed in Appendix
E are reasonable and in the public interest, cross-subsidization issues do not
arise under these agreements, and each should be permitted to continue.
In requesting exemption from the at-cost standard of Section 13(b),
Applicants emphasize that the exemptions are only intended to allow for the
continuation of existing contractual arrangements on a grandfathered basis. In
the event that New NSP or NSP-W wish to enter into new affiliate arrangements
that would necessitate an exemption from the Commission's at-cost standard, they
will first make an appropriate application to the Commission.
In addition to the contracts listed in Annex E, New NSP will obtain nuclear
plant operations services from Nuclear Management Company, LLC ("NMC"), a
Wisconsin limited liability company. NMC was formed in February 1999 by three
unaffiliated companies, namely, NSP, WEC Nuclear Corp., a subsidiary of
Wisconsin Energy Corporation, and WPS Nuclear Corporation, a subsidiary of WPS
Resources, which own (or whose affiliates own) nuclear power plant units located
in Wisconsin and Minnesota (the "NMC Plant Owners") for the purpose of
consolidating into one service organization the specialized nuclear power plant
personnel and resources of such companies. NSP owns a 25% interest in NMC
through an affiliate, NSP Nuclear Corporation, that was formed to hold this
interest. NMC is providing to, and receiving from, NMC Plant Owners various
services pursuant to two agreements. First, the NMC Services Agreement lists ten
categories of support services, such as fuel procurement and maintenance, from
which NMC may provide the NMC Plant Owners support services on a centralized
basis. Each NMC Plant Owner has the right not to take services under the
Services Agreement and NMC may offer additional services to the NMC Plant
Owners. Second, as an NMC Plant Owner, NSP, in accordance with an Employee Lease
Agreement, is providing NMC services and specialized personnel to facilitate its
provision of services back to it and the other NMC Plant Owners. All services
under these agreements are provided to the recipient of the services at cost in
accordance with Rules 90 and 91. NSP has received Minnesota Commission approval
of the Services Agreement and Employee Lease Agreement./126 Also by order dated
October 26, 1999 (Holding Co. Act Release No. 27096), the Commission authorized
Alliant Energy Corporation to acquire a 25% membership interest in NMC, and IES
Utilities, Inc., a subsidiary of Alliant Energy, to enter into the Service
Agreement and the Employee Lease Agreement. Applicants seek permission for New
NSP (as successor of NSP) to engage in business with NMC under the NMC Services
Agreement and the NMC Employee Lease Agreement as grandfathered affiliate
agreements approved by the Minnesota Commission, or alternatively, pursuant to
the relief granted to Alliant Energy in the Commission's Release No. 27096.
Additionally, NSP recently received Minnesota Commission approval of a
Nuclear Power Plant Operating Services Agreement ("Operating Services
Agreement")./127 When all necessary regulatory approvals for all NMC Plant
Owners are received, NMC will provide operations, maintenance, capital
improvement and decommissioning services to the NMC Plant Owners including New
NSP under this agreement. NMC will provide these services at cost in accordance
with Rules 90 and 91. By order dated May 10, 2000 (Holding Co. Act Release No.
27175), Alliant Energy has also requested approval of the Nuclear Power Plant
Operating Services Agreement. Applicants request permission for New NSP to
engage in business with NMC under the Operating Services Agreement as a
grandfathered affiliate agreement approved by the Minnesota Commission or,
alternatively, pursuant to the relief granted to Alliant Energy in the
Commission's Release No. 27175.
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126 Docket E-002\AI-99-618 (July 29, 1999).
127 Docket E-002\AI-99-1652 (February 4, 2000).
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Finally, in the 1997 NCE Order, the Commission authorized Utility
Engineering Corporation ("UE") to perform engineering, development, design,
construction, and other related services to operating companies within the NCE
system on an at-cost basis. The Commission contemplated that UE may provide
those services to individual operating companies pursuant to agreements with
such companies, or may contract with New Century Services, which could in turn
provide the services to associate companies including the operating companies.
Applicants request that this authority be extended to enable UE to provide such
services on an at-cost basis to the operating companies within the Xcel system.
3. Non-Utility Sale of Goods and Services to EWGs, FUCOs, and QFs
The Commission has authorized the nonutility subsidiaries of NCE (including
New Century Services), whether then existing or thereafter created, to provide
goods and services to any "Client Company" under an exemption from the at-cost
standard of Section 13(b) where:
(i) the Client Company is a FUCO or foreign EWG which derives no part
of its income, directly or indirectly, from the generation,
transmission, or distribution of electric energy for sale within
the United States;
(ii) the Client Company is an EWG which sells electricity at
market-based rates which have been approved by the Federal Energy
Regulatory Commission ("FERC"), provided that the purchaser is
not a utility operating company within the NCE system (a "Utility
Subsidiary");
(iii) the Client Company is a QF within the meaning of the Public
Utility Regulatory Policies Act of 1978 ("PURPA") that sells
electricity exclusively (a) at rates negotiated at arms' length
to one or more industrial or commercial customers purchasing that
electricity for their own use and not for resale, and/or (b) to
an electric utility company other than a Utility Subsidiary at
the purchaser's "avoided cost" as determined in accordance with
the regulations under PURPA; or
(iv) the Client Company is a domestic EWG or QF that sells electricity
at rates based upon its cost of service, as approved by FERC or
any state public utility commission having jurisdiction, provided
that the purchaser is not a Utility Subsidiary.
See New Century Energies, Inc., Holding Company Act Release No. 35-27000
(issued in File No. 70-9397 on April 7, 1999) (reaffirming a similar exemption
granted in the 1997 Order) (the "1999 Order"). Applicants request similar
authorization for the nonutility subsidiaries of Xcel (whether now existing or
hereafter created) to provide goods and services to Client Companies within the
Xcel system meeting the above criteria under an exemption from the at-cost
standard of Section 13(b).
In File No. 70-9397 NCE had also requested that ETCs, Rule 58 subsidiaries,
and nonutility subsidiaries that do not derive any part of their income from
sales of goods, services or other property to a Utility Subsidiary be deemed
Client Companies for purposes of this exemption. In the 1999 Order, the
Commission reserved jurisdiction over that request. Applicants request that the
Commission either (i) expand the exemption to apply to such companies as Client
Companies within the Xcel system following the merger; or (ii) reserve
jurisdiction over that request in this proceeding pending completion of the
record.
In addition to the general exemption from the at-cost standard described
above, Applicants also, to the extent necessary, request a waiver of the at-cost
standard with respect to services that UE and Quixx Power Services, Inc. ("QPS")
may provide to a QF located at the Phillips Petroleum Refinery Complex near
Borger, Texas, that will sell power to SPS pursuant to a power sale agreement
(the "QF PPA"). This QF is held by a limited partnership in which Quixx
Corporation ("Quixx"), an indirect subsidiary of NCE and therefore an affiliate
of SPS, has a 50% interest. UE has provided and may in the future provide
engineering and construction services for the facility. QPS, a subsidiary of
Quixx, is providing operations and maintenance services to the facility at a
negotiated market-based rate pursuant to an operating agreement. The Commission
approved an exemption from the at-cost standard for these services in the 1997
NCE Order. The basis for the exemption was that SPS, utilizing a bidding process
supervised by an independent bid examiner pursuant to guidelines of the Texas
Commission, selected the QF PPA as the most economic manner to satisfy projected
power needs. Applicants request that the Commission, as necessary, extend the
existing exemption to the at-cost standard of section 13(b) to enable UE and QPS
to provide services for the QF at negotiated terms and conditions (including
prices) post-Merger.
F. Capitalization of New NSP
The Applicants request authority to organize a new utility subsidiary, New
NSP, under the laws of Minnesota and to take the following actions in connection
with the organization and capitalization of New NSP: New NSP proposes to assume
the debt of NSP existing at the time of the Merger (approximately $2.0 billion)
and issue shares of its capital stock to Xcel. The equity component will be
derived by subtracting the total debt being assumed by New NSP from the total
assets being transferred to New NSP. The result of the foregoing is that the
overall equity/debt ratio New NSP will be approximately 50%, which is similar to
that of NSP prior to consummation of the Merger. Applicants also request
authority for Xcel to acquire the capital stock of New NSP and for NSP to
transfer its debt to New NSP.
Item 4. Regulatory Approvals
Set forth below is a summary of the regulatory approvals that Applicants
have obtained or expect to obtain in connection with the Merger. It is a
condition to the consummation of the Merger that final orders approving the
Merger be obtained from the Commission under the Act and from the various
federal and state commissions described below on terms and conditions which
would not have, or would not be reasonably likely to have, a material adverse
effect on the business, assets, financial condition or results of operations of
NCE and its subsidiaries taken as a whole, or on NSP and its subsidiaries taken
as a whole.
A. Antitrust
The HSR Act and the rules and regulations thereunder prohibit certain
transactions (including the Merger) until certain information has been submitted
to the Antitrust Division of the Department of Justice ("DOJ") and Federal Trade
Commission ("FTC") and the specified HSR Act waiting period requirements have
been satisfied. The HSR Act waiting period expired on March 1, 2000.
The expiration or earlier termination of the HSR Act waiting period does
not preclude the DOJ or the FTC from challenging the Merger on antitrust
grounds. Applicants believe that the Merger will not violate Federal antitrust
laws. If the Merger is not consummated within twelve months after the expiration
or earlier termination of the initial HSR Act waiting period, NSP and NCE will
be required to submit new information to the DOJ and the FTC, and a new HSR Act
waiting period would begin and have to expire or be terminated before the Merger
could be consummated.
B. Federal Power Act
Section 203 of the Federal Power Act provides that no public utility shall
sell or otherwise dispose of its jurisdictional facilities or directly or
indirectly merge or consolidate such facilities with those of any other person
or acquire any security of any other public utility, without first having
obtained authorization from FERC. Under Section 203 of the Federal Power Act,
FERC will approve a merger if it finds that merger "consistent with the public
interest." In reviewing a merger, FERC generally evaluates: (i) whether the
merger will adversely affect competition, (ii) whether the merger will adversely
affect rates, and (iii) whether the merger will impair the effectiveness of
regulation. On July 30, 1999, NSP and NCE filed a combined application with FERC
requesting FERC to approve the Merger under Section 203 of the Federal Power
Act. In connection with this Application, NSP and NCE also filed a joint Open
Access Transmission Tariff to be effective upon completion of the Merger and
Joint Operating Agreement and proposed Statement of Policy and Code of Conduct
applicable to certain wholesale merchant function operations and various
subsidiaries under Section 205 of the Federal Power Act, to become effective
upon consummation of the Merger. As explained previously, on January 12, 2000,
FERC issued its order approving the Merger under Section 203 of the Federal
Power Act. As part of its order, the FERC also accepted the Joint Operating
Agreement for filing without modification, the proposed Statement of Policy and
Code of Conduct without modification and the Joint Open Access Transmission
Tariff for filing, subject to a pending separate proceeding regarding SPS's
rates. In addition, Applicants separately filed under 18 C.F.R. Part 37 proposed
revised Standards of Conduct for NSP, PSCo, Cheyenne and SPS to be effective
during the pendency of and after the proposed Merger. NSP also needed to obtain
FERC's authorization under Part I of the Federal Power Act to transfer
hydro-electric licenses held by it to New NSP, and to obtain FERC's
authorization under Section 205 of the Federal Power Act to amend existing
wholesale contracts to have New NSP assume NSP's responsibilities. These
authorizations have been obtained, subject to a notice filing to be made within
30 days after closing of the Merger.
C. Atomic Energy Act
NSP holds NRC operating licenses in connection with its ownership and
operation of the Prairie Island and Monticello nuclear generating facilities.
The operating licenses authorize NSP to own and operate the facilities. PSCo
holds NRC licenses in connection with its ownership of the Fort St. Vrain
Nuclear Electric Generating Station. The Fort St. Vrain facility ceased
operations on August 29, 1989 and is in the process of being decommissioned in
accordance with the terms of orders issued by the NRC. The Atomic Energy Act
provides that a license or any rights thereunder may not be transferred or in
any manner disposed of, directly or indirectly, to any person through transfer
of control unless the NRC finds that such transfer is in accordance with the
Atomic Energy Act and consents to the transfer. Pursuant to the Atomic Energy
Act, NSP has applied for approval from the NRC to reflect the fact that after
the Merger, New NSP will own and operate the Prairie Island and Monticello
facilities and will become the operating company subsidiary of such facilities.
NRC approval of NSP's application occurred on May 12, 2000.
D. State Public Utility Regulation
NSP is currently subject to the jurisdiction of the Minnesota Commission,
the North Dakota Commission, the South Dakota Commission and the Arizona
Commission. NSP-W is subject to the jurisdiction of the Wisconsin Commission and
the Michigan Commission. BMG is subject to the jurisdiction of the Arizona
Commission. PSCo is subject to the jurisdiction of the Colorado Commission.
Cheyenne is subject to the jurisdiction of the Wyoming Commission. SPS is
subject to the jurisdiction of the New Mexico Commission, the Texas Commission,
the Kansas Commission and the Oklahoma Commission. NSP and NCE have filed
applications for approval of the Merger, including (where necessary) the
issuance of securities, with the Minnesota Commission, the North Dakota
Commission, the Arizona Commission, the Colorado Commission, the New Mexico
Commission and the Wyoming Commission. Approval of the Merger is not required in
Texas. However, unless the Texas Commission determines that the Merger is in the
public interest, the Texas Commission may take its findings into account in
future rate making proceedings. Thus, NSP and NCE also filed with the Texas
Commission for a determination that the Merger is in the public interest.
Approval of the Merger is not required in South Dakota, Wisconsin, Michigan,
Kansas or Oklahoma. However, certain notice or similar filings were made in
Kansas and Oklahoma.
All necessary approvals associated with the Merger were obtained from the
Arizona Commission on March 1, 2000, the Colorado Commission on February 16,
2000, the Kansas Commission on September 20, 1999, the North Dakota Commission
on April 12, 2000, the Oklahoma Commission on December 21, 1999, the Wyoming
Commission on March 13, 2000, the Minnesota Commission on June 12, 2000, the
Texas Commission on May 30, 2000, and the New Mexico Commission on May 4, 2000.
Copies of the orders evidencing these approvals are filed on Exhibits D-4.2,
D-5.2, D-10, D-3.2, D-11, D-7.2, D-2.2, D-8.2 and D-6.2 hereto. No further
approval of these commissions or any other state commission is expected or
required in connection with the Merger. As indicated above, no filings or
approvals pertaining to the Merger were necessary or were sought in Michigan,
South Dakota or Wisconsin.
Set forth below is a summary of each of the state orders:
In an order, a copy of which is attached to the Application as Exhibit
D-2.2 ("Minnesota Order"), the Minnesota Commission approved the Merger, and
also approved certain settlement agreements among NSP, the Minnesota Department
of Commerce, the Minnesota Office of Attorney General and other intervenors in
the state proceeding. Among other things, the Minnesota Order and settlement
agreements imposed certain conditions regarding (1) a prospective electric rate
reduction to reflect certain non-fuel Merger savings; (2) pass-through of
electric fuel, purchased power and purchased natural gas savings; (3) a rate
increase moratorium, subject to certain conditions; (4) quality of service and
reliability standards; (5) access to records and reporting requirements,
including reports on generation cost unbundling, the viability of retail
aggregation services, and strategies for mitigation of carbon dioxide emissions;
(6) certain commitments regarding state regulatory review of rate recoverability
of costs allocated to New NSP Utility; and (7) commitments to file tariff
provisions to facilitate distributed generation and customer "sale back" supply
services. The Minnesota Order includes a finding that retention by Xcel of the
natural gas distribution operations of NSP would serve the public interest.
In an order, a copy of which is attached to the Application as Exhibit
D-3.2 ("North Dakota Order"), the North Dakota Commission approved the Merger
and a settlement agreement between NSP and North Dakota Commission staff. Among
other things, the North Dakota Order and settlement agreement imposed certain
conditions regarding (1) a prospective electric rate reduction; (2) filing of an
electric performance based regulation plan, including quality of service and
reliability measures; (3) pass-through of electric fuel, purchased power and
purchased natural gas savings; and (4) access to records and commitments
regarding state regulatory review of rate recoverability of costs allocated to
New NSP Utility. The North Dakota Order includes a finding that retention by
Xcel of the natural gas distribution operations of NSP would serve the public
interest.
In an order, a copy of which is attached to the Application as Exhibit
D-4.2 ("Arizona Order"), the Arizona Commission approved the Merger. Among other
things, the Arizona Order imposed certain conditions regarding (1) access to
records and commitments regarding state regulatory review of non-fuel Merger
savings in a future BMG rate proceeding; and (2) certain reporting requirements.
The Arizona Order includes a finding that retention by Xcel of the natural gas
distribution operations of BMG would serve the public interest.
In an order, a copy of which is attached to the Application as Exhibit
D-5.2, the Colorado Commission approved a stipulation and agreement among PSCo,
the staff of the Colorado Commission, the Colorado Office of Consumer Counsel,
and various other parties recommending approval of the merger subject to various
conditions. Among other things, PSCo has committed in this stipulation and
agreement to reduce retail rates, to file a combined electric and gas rate case
in early 2002 with the expectation that new rates will go into effect on January
1, 2003, and to continue its existing electric earnings sharing mechanism and
quality of service plans. The Colorado Commission also approved a stipulation
and agreement among PSCo, the Colorado Office of Consumer Counsel, and various
other parties addressing issues related to low income customers. Based on its
approval of these two stipulations and agreements, the Colorado Commission
approved the Merger.
In an order, a copy of which is attached to the Application as Exhibit
D-10, the Kansas Commission approved an agreement among SPS, NSP, and the Staff
of the Kansas Commission setting forth various commitments relating to the
Merger, including an annual rate credit.
In an order, a copy of which is attached to the Application as Exhibit
D-6.2, the New Mexico Commission approved the Merger subject to various
commitments by SPS. Among other things, SPS committed to credit or otherwise
reflect in rates merger savings by a guaranteed amount to its New Mexico retail
customers for a 54-month transition period and to hold its New Mexico retail
customers harmless from any and all negative impacts of the Merger, including
financial impacts.
In an order, a copy of which is attached to the Application as Exhibit
D-11, the Oklahoma Commission approved a stipulation which incorporated a
regulatory plan relating to the Merger.
In an order, a copy of which is attached to the Application as Exhibit
D-8.2, the Texas Commission found the Merger to be consistent with the public
interest subject to the conditions set out in a stipulation entered into by SPS,
the staff of the Texas Commission, and certain other parties. In summary, the
stipulation provides for the implementation of full retail customer choice by
SPS in its Texas retail service territory consistent with the requirements of
Texas SB-7. As previously discussed (see discussion in Item 3.C.1(b)(i)), such
implementation will require the future divestiture of approximately 64-71% of
the generation capacity owned by SPS and its affiliates in the SPS service area
region. Additionally, the stipulation approved by the Texas Commission provides
for SPS to guarantee merger savings credits through December 31, 2005, to retain
its current fuel recovery mechanism to pass through fuel savings to retail
customers, and to comply with various new service quality and reliability
standards.
In an order, a copy of which is attached to the Application as Exhibit
D-7.2, the Wyoming Commission approved of the Merger based on the commitments
agreed to by Cheyenne in a stipulation and agreement with the Wyoming Consumer
Advocate Staff. Among other things, Cheyenne in this stipulation agreed to
various measures to maintain its present level of autonomous and independent
operations after the merger and to an electric and a gas base rate moratorium
through January 1, 2004.
E. Other
The NSP and NCE Systems possess municipal franchises and environmental
permits and licenses that they may need to assign or replace as a result of the
Merger. NSP and NCE do not anticipate any difficulties obtaining such
assignments, renewals and replacements. In addition, British regulatory approval
may also be required in light of NCE's ownership interest in Yorkshire
Electricity and NSP's indirect investments in the United Kingdom.
Except as set forth above, no other state or local regulatory body or
agency and no other Federal commission or agency has jurisdiction over the
transactions proposed herein.
Finally, pursuant to Rule 24 under the Act, the Applicants represent that
the transactions proposed in this filing shall be carried out in accordance with
the terms and conditions of, and for the purposes stated in, the
declaration-application no later than December 31, 2004.
Item 5. Procedure
The Commission is respectfully requested to publish, not later than January
31, 2000, the requisite notice under Rule 23 with respect to the filing of this
Application-Declaration, such notice to specify a date not later than February
28, 2000, by which comments must have been entered and a date on or after
February 29, 2000, as the date when an order of the Commission granting and
permitting this Application-Declaration to become effective may be entered by
the Commission.
It is submitted that a recommended decision by a hearing or other
responsible officer of the Commission is not needed for approval of the proposed
Merger. The SEC Staff may assist in the preparation of the Commission's
decision. There should be no waiting period between the issuance of the
Commission's order and the date on which it is to become effective.
Item 6. Exhibits and Financial Statements
A. Exhibits
Exhibit Description
Number
A-1 Restated Articles of Incorporation of NSP (filed as EXHIBIT 3.01 to
Form 10-Q of NSP for the quarter ended June 30, 1998, File No. 1-3034,
and incorporated herein by reference)
A-2 Restated Articles of Incorporation of NSP-W (filed as EXHIBIT 3.01 to
Form 10-K of NSP-W for the year ended December 31, 1987, File No.
10-3140, and incorporated herein by reference)
A-3 Restated Articles of Incorporation of NCE dated December 8, 1995
(filed as EXHIBIT 3(a) to Registration Statement No. 333-64951 on Form
S-4, File No. 1-12927, and incorporated herein by reference)
A-4 Amended and Restated Articles of Incorporation of PSCo dated July 10,
1998 (filed as EXHIBIT 3(a)1 to Form 10-K of PSCo for the year ended
December 31, 1998, File No. 1-3280).
A-5 Amended and Restated Articles of Incorporation of SPS (filed as
EXHIBIT 3(a)2 to Form 10-K of SPS for the year ended December 31,
1997, File No. 1-3789).
A-6 Certificate of Incorporation of NRG (filed as EXHIBIT 3.1 to
Registration Statement on Form S-1 (as amended), File No. 333-33397).
B-1 Agreement and Plan of Merger for NSP and NCE (Merger Agreement) (filed
as Appendix A to Exhibit C-1, and incorporated herein by reference)
B-2 Form of Service Agreement between New Century Services and utility
affiliates (an appendix entitled "Description of Services and
Determination of Charges for Services" is attached but not forming a
part thereof.)
B-3* Form of Service Agreement between New Century Services and non-utility
affiliates (an appendix entitled "Description of Services and
Determination of Charges for Services" is attached but not forming a
part thereof)
B-4 Agreement and Plan of Merger for NSP Acquisition of BMG (filed as
Annex A to Registration Statement NO. 333-49529 on Form S-4 and
incorporated herein by reference.
C-1 Registration Statement of NSP on Form S-4 (as amended) (filed as
Registration Statement No. 333-73989 and incorporated herein by
reference)
C-2 Joint Proxy Statement and Prospectus of NSP and NCE (included in
EXHIBIT C-1)
C-3 Registration Statement of NSP on Form S-4 (as amended) in connection
with acquisition of BMG (filed as Registration Statement No. 333-49529
and incorporated herein by reference)
C-4 Proxy Statement and Prospectus for NSP acquisition of BMG (included in
Exhibit C-3)
D-1.1* P Original testimony of Heironymus to FERC
D-1.2* P Application of NSP and NCE before FERC
D-1.3* P Order of FERC approving the Merger
D-1.4* P Original testimony of Gilbert to FERC
D-2.1* P Application of NSP before the Minnesota Commission
D-2.2 P Order of the Minnesota Commission approving the Merger
D-3.1* P Application of NSP before the North Dakota Commission
D-3.2 P Order of the North Dakota Commission approving the Merger
D-4.1* P Application of NSP before the Arizona Commission
D-4.2 P Order of the Arizona Commission approving the Merger
D-5.1* P Application of NCE before the Colorado Commission
D-5.2 P Order of the Colorado Commission approving the Merger
D-6.1* P Application of NCE before the New Mexico Commission
D-6.2 P Order of the New Mexico Commission approving the Merger
D-7.1* P Application of NCE before the Wyoming Commission
D-7.2 P Order of the Wyoming Commission approving the Merger
D-8.1* P Application of NCE before the Texas Commission
D-8.2 P Order of the Texas Commission finding that the Merger is in the public
interest
D-9** P Order of the NRC finding that the transfer of certain operating
licenses in connection with the Merger is in compliance with The
Atomic Energy Act and consenting to such transfers
D-10 P Order of the Kansas Commission
D-11 P Order of the Oklahoma Commission
E-1* P Map of service areas of NSP, NSP-W, PSCo, SPS and Cheyenne
E-2* P Map showing interconnections of NSP, NSP-W PSCo, SPS and Cheyenne (see
Exhibit E-1)
E-3.1* P Map of NSP electric and gas service areas
E-3.2* P Map of NSP-W electric and gas service areas
E-3.3* P Map of NSP and NSP-W transmission systems
E-3.4 P Map of southern portion of Northbound Path, including PSCo/SPS tie
line
E-3.5 P Map of northern portion of Northbound Path
E-4.1* P Map of PSCo electric and gas service areas (including Cheyenne
electric and gas service areas)
E-4.2* P Map of SPS electric service areas (see Exhibit E-4.3)
E-4.3* P Map of PSCo and SPS transmission systems (including Cheyenne
transmission system)
E-10* P NSP corporate chart
E-11* P NCE corporate chart
E-12 P Combined Company corporate chart (as revised)
D-13* Chart comparing MISO, NEPOOL and PJM
F-1.1 Preliminary opinion of counsel to NSP
F-1.2** Past-tense opinion of counsel to NSP
F-2.1** Preliminary opinon of counsel to NCE
F-2.1** Past-tense opinion of counsel to NCE
G-1 Opinion of SG Barr Devlin (filed as Annex B to Registration Statement
No. 333-76989 on Form S-4 and incorporated herein by reference)
G-2 Opinion of The Blackstone Group L.P. (filed as Annex C to Registration
Statement No. 333-76989 on Form S-4 and incorporated herein by
reference)
H-1 Annual Report of NSP on Form 10-K for the year ended December 31, 1998
(File No. 1-3034 and incorporated herein by reference)
H-2 Annual Report of NCE on Form 10-K for the year ended December 31, 1998
(File No. 1-23927 and incorporated herein by reference)
H-3 Annual Report of NSP-W on Form 10-K for the year ended December 31,
1998 (File No. 1-3140 and incorporated herein by reference)
H-4 Annual Report of NRG on Form 10-K for the year ended December 31, 1998
(File No. 333-33397 and incorporated herein by reference)
H-5 Annual Report of PSCo on Form 10-K for the year ended December 31,
1998 (File No. 1-3780 and incorporated herein by reference)
H-6 Annual Report of SPS on Form 10-K for the year ended December 31, 1998
(File No. 1-3789 and incorporated herein by reference)
H-7 Quarterly Report of SPS on Form 10-Q for the quarter ended March 31,
1999 (File No. 1-3789 and incorporated herein by reference)
H-8 Quarterly Report of SPS on Form 10-Q for the quarter ended June 30,
1999 (File No. 1-3789 and incorporated herein by reference)
H-9 Quarterly Report of NSP on Form 10-Q for the quarter ended March 31,
1999 (File No. 1-3034 and incorporated herein by reference)
H-10 Quarterly Report of NSP on Form 10-Q for the quarter ended June 30,
1999 (File No. 1-3034 and incorporated herein by reference)
H-11 Quarterly Report of NCE on Form 10-Q for the quarter ended March 31,
1999 (File No. 1-12927 and incorporated herein by reference)
H-12 Quarterly Report of NCE on Form 10-Q for the quarter ended June 30,
1999 (File No. 1-12927 and incorporated herein by reference)
H-13 Quarterly Report of NSP-W on Form 10-Q for the quarter ended March 31,
1999 (File No. 10-3140 and incorporated herein by reference)
H-14 Quarterly Report of NSP-W on Form 10-Q for the quarter ended June 30,
1999 (File No. 1-3140 and incorporated herein by reference)
H-15 Quarterly Report of NRG on Form 10-Q for the quarter ended March 31,
1999 (File No. 333-33397 and incorporated herein by reference)
H-16 Quarterly Report of NRG on Form 10-Q for the quarter ended June 30,
1999 (File No. 333-33397 and incorporated herein by reference)
H-17 Quarterly Report of PSCo on Form 10-Q for the quarter ended March 31,
1999 (File No. 1-3280 and incorporated herein by reference)
H-18 Quarterly Report of PSCo on Form 10-Q for the quarter ended June 30,
1999 (File No. 1-3280 and incorporated herein by reference)
H-19 Quarterly Report of NSP on Form 10-Q for the quarter ended September
30, 1999 (File No. 1-3034 and incorporated herein by reference)
H-20 Quarterly Report of NCE on Form 10-Q for the quarter ended September
30, 1999 (File No. 1-12927 and incorporated herein by reference)
H-21 Quarterly Report of NSP-W on Form 10-Q for the quarter ended September
30, 1999 (File No. 1-3140 and incorporated herein by reference)
H-22 Quarterly Report of NRG on Form 10-Q for the quarter ended September
30, 1999 (File No. 333-33397 and incorporated herein by reference)
H-23 Quarterly Report of PSCo on Form 10-Q for the quarter ended September
30, 1999 (File No. 1-3280 and incorporated herein by reference)
H-24 Quarterly Report of SPS on Form 10-Q for the quarter ended September
30, 1999 (File No. 1-3789 and incorporated herein by reference)
H-25 Annual Report of NSP on Form 10-K for the year ended December 31, 1999
(File No. 1-3034 and incorporated herein by reference)
H-26 Annual Report of NCE on Form 10-K for the year ended December 31, 1999
(File No. 1-23927 and incorporated herein by reference)
H-27 Annual Report of NSP-W on Form 10-K for the year ended December 31,
1999 (File No. 1-3140 and incorporated herein by reference)
H-28 Annual Report of NRG on Form 10-K for the year ended December 31, 1999
(File No. 333-33397 and incorporated herein by reference)
H-29 Annual Report of PSCo on Form 10-K for the year ended December 31,
1999 (File No. 1-3780 and incorporated herein by reference)
H-30 Annual Report of SPS on Form 10-K for the year ended December 31, 1999
(File No. 1-3789 and incorporated herein by reference)
H-31 Quarterly Report of SPS on Form 10-Q for the quarter ended March 31,
2000 (File No. 1-3789 and incorporated herein by reference)
H-32 Quarterly Report of NSP on Form 10-Q for the quarter ended March 31,
2000 (File No. 1-3034 and incorporated herein by reference)
H-33 Quarterly Report of NCE on Form 10-Q for the quarter ended March 31,
2000 (File No. 1-12927 and incorporated herein by reference)
H-34 Quarterly Report of NSP-W on Form 10-Q for the quarter ended March 31,
2000 (File No. 10-3140 and incorporated herein by reference)
H-35 Quarterly Report of NRG on Form 10-Q for the quarter ended March 31,
2000 (File No. 333-33397 and incorporated herein by reference)
H-36 Quarterly Report of PSCo on Form 10-Q for the quarter ended March 31,
2000 (File No. 1-3280 and incorporated herein by reference)
I-1* Notice of the Transaction
J-1* NSP and NSP-W Analysis of the Economic Impact of a Divestiture of the
Gas Operations of NSP and NSP-W
J-2* NCE Analysis of the Economic Impact of a Divestiture of NCE's Gas
Operations J-3** Joint Analysis of the Economic Impact of a
Divestiture of the Gas Operations of NCE, NSP and NSP-W
K-1* Report of Pacific Economies Group
K-2 Memorandum on Status of Tie-line between PSCo and SPS
L-1 Market Share for Electric Companies in the United States sorted by
Electric Revenues
L-2 Market Share for Electric Companies in the United States sorted by
Assets
L-3 Market Share for Electric Companies in the United States sorted by
Electric Customers
----------
* Previously filed
** To be filed by Amendment
----------
B. Financial Statements
FS-1 Unaudited Pro Forma Combined Condensed Consolidated Balance Sheet at
December 31, 1999 (included Exhibit 99.03 of Form 10-K for the year
ended December 31, 1999 of NSP (Exhibit H-25 hereto) at p. 80)
FS-2 Unaudited Pro Forma Condensed Consolidated Statements of Income for
each of the three years in the period ended December 31, 1999
(included in Form 10-K for the year ended December 31, 1999 of NSP
(Exhibit H-25 hereto) at p. 77)
FS-3 NSP Consolidated Balance Sheet as of December 31, 1999 see Annual
Report of NSP on Form 10-K for the year ended December 31, 1999
(Exhibit H-25 hereto), at p. 37)
FS-4 NSP Consolidated Statements of Income for its last three fiscal years
(see Annual Report of NSP on Form 10-K for the year ended December 31,
1999 (Exhibit H-25 hereto), at p. 35)
FS-5 NCE Consolidated Balance Sheet as of December 31, 1999 (see Annual
Report of NCE on Form 10-K for the year ended December 31, 1998
(Exhibit H-26 hereto), at p. 49)
FS-6 NCE Consolidated Statements of Income for its last three fiscal years
(see Annual Report of NCE on Form 10-K for the year ended December 31,
1999 (Exhibit H-26 hereto), at p. 51)
FS-7 NSP-W Consolidated Balance Sheet as of December 31, 1999 (see Annual
Report of NSP-W on Form 10-K for the year ended December 31, 1998
(Exhibit H-27 hereto), at p. 15)
FS-8 NSP-W Consolidated Statements of Income for its last three fiscal
years (see Annual Report of NSP-W on Form 10-K for the year ended
December 31, 1999 (Exhibit H-27) hereto), at p. 13)
FS-9 NRG Consolidated Balance Sheet as of December 31, 1999 (see Annual
Report of NRG on Form 10-K for the year ended December 31, 1999
(Exhibit H-28 hereto), at p. 33)
FS-10 NRG Consolidated Statements of Income for it last three fiscal years
(see Annual Report of NRG on Form 10-K for the year ended December 31,
1999 (Exhibit H-28 hereto), at p.31)
FS-11 PSCo Consolidated Balance Sheet as of December 31, 1999 (see Annual
Report of PSCo on Form 10-K for the year ended December 31, 1999
(Exhibit H-29 hereto), at p. 60)
FS-12 PSCo Consolidated Statements of Income for its last three fiscal years
(an Annual Report of PSCo on Form 10-K for the year ended December 31,
1999 (Exhibit H-29), at p. 63)
FS-13 SPS Consolidated Balance Sheet as of December 31, 1999 (see Annual
Report of SPS on Form 10-K for the year ended December 31, 1999
(Exhibit H-30 hereto), at p. 72)
FS-14 SPS Consolidated Statements of Income for its last three fiscal years
(see Annual Report of SPS on Form 10-K for the year ended December 31,
1999 (Exhibit H-30 hereto), at p.74)
Item 7. Information as to Environmental Effects
The Merger neither involves "major federal actions" nor "significantly
[affects] the quality of the human environment" as those terms are used in
Section (2)(C) of the National Environmental Policy Act, 42 U.S.C. Sec. 4332.
The only federal actions related to the Merger pertain to the Commission's
declaration of the effectiveness of the Joint Registration Statement, the
approvals and actions described under Item 4 and Commission approval of this
Application-Declaration. Consummation of the Merger will not result in changes
in the operations of NSP, NSP-W or NCE that would have any impact on the
environment. No federal agency is preparing an environmental impact statement
with respect to this matter.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, each of the undersigned companies has duly caused this
Application-Declaration to be signed on its behalf by the undersigned thereunto
duly authorized.
NEW CENTURY ENERGIES, INC. NORTHERN STATES POWER COMPANY
BY: /s/ Richard C. Kelly BY: /s/ E. J. McIntyre
Richard C. Kelly E. J. McIntyre
Executive Vice President and Vice President and
Chief Financial Officer Chief Financial Officer
Date: August 3, 2000
<PAGE>
Annex A
FURTHER DESCRIPTION OF UTILITY ASSETS
AND OPERATIONS OF NCE
1. PSCo Electric Generation Property
The PSCo electric generating stations expected to be available at the time
of the anticipated 1999 net firm system peak demand during the summer season are
as follows:
<TABLE>
<CAPTION>
Name of Station and Location Installed Gross Capacity Net Dependable Capacity Major Fuel Source
(MW) (MW) at Time of
Anticipated 2000 Net Firm
System Peak Demand*
<S> <C> <C> <C>
Steam:
Arapahoe - 262.00 246.00 Coal
Denver, Co.
Cameo - near 77.00 72.70 Coal
Grand Junction,
Co.
Cherokee - 779.00 717.00 Coal
Denver, Co.
Comanche - Near 725.00 660.00 Coal
Pueblo, Co.
Craig - near Craig, 87.00(a) 83.20 Coal
Co.
Hayden - near 259.00(b) 237.00 Coal
Hayden, Co.
Pawnee - near 530.00 505.00 Coal
Brush, Co.
Valmont - near 196.00 186.00 Coal
Boulder, Co. (Unit
5)
Zuni - Denver, Co. 115.00 86.00 Gas/Oil
Total (Steam) 3,030.00 2,792.90
Other:
Fort St. Vrain 514.00 466.60(f) Gas
Combustion
Turbines - near
Platteville, Co.
Combustion 209.00 159.00(g) Gas
turbines (6 units-
various locations)
Hydro (14 units- 53.00 36.55(d) Hydro
various locations
(c).
Cabin Creek 324.00(e) 210.00 Hydro
Pumped Storage-
near Georgetown,
Co.
Total (Steam and 4,136.35 3,669.05
Other)
</TABLE>
Notes to Table:
* A measure of the unit capability planned to be available at the time of the
system peak load net of seasonal reductions in unit capability due to weather,
stream flow, fuel availability and station horsepower, including requirements
for air and water quality control equipment.
(a) The gross maximum capability of Craig Units No. 1 and No. 2 is 894
Megawatts ("MW"), of which PSCo has a 9.72% undivided ownership interest.
(b) The gross maximum capability of Hayden Units No. 1 and No. 2 is 202.01 MW
and 285.96 MW, respectively, of which PSCo has a 75.5% and 37.4% undivided
ownership interest, respectively.
(c) Includes one station (two units) not owned by PSCo but operated under
contract.
(d) Seasonal Hydro Plant net dependable capabilities are based upon average
water conditions and limitations for each particular season. The individual
plant seasonal capabilities are sometimes limited by less than design water
flow.
(e) Capability at maximum load.
(f) This represents the net dependable capacity during the summer peak. The net
dependable capacity during the winter peak is 507.6 MW.
(g) This represents the net dependable capacity during the summer peak. The net
dependable capacity during the winter peak is 209 MW.
Fort St. Vrain, PSCo's only nuclear plant, ceased operations on August 29,
1989, and on March 22, 1996, the physical decommissioning of the station was
completed. The initial phase of the repowered gas-fired, combined-cycle steam
electric generating station began commercial operations on May 1, 1996. Phase 2
began operations in May 1999.
2. SPS Electric Generation Property/128
The SPS electric generating stations expected to be available at the time
of the anticipated 1999 net firm system peak demand during the summer season are
as follows:
----------
128 No information is presented for Cheyenne as it does not own any generating
facilities.
----------
<TABLE>
<CAPTION>
Name of Station and Location Installed Gross Net Dependable Capacity Major Fuel source
Capacity (MW) (MW) at Time of
Anticipated 2000 Net Firm
System Peak Demand*
<S> <C> <C> <C>
Steam:
Harrington - near 1,137.00 1,066.00 Coal
Amarillo, TX
Tolk - near Muleshoe, 1,130.00 1,080.00 Coal
TX
Jones - near Lubbock, TX 512.00 486.00 Gas
Plant X - near Earth, TX 463.00 442.00 Gas
Nichols - near Amarillo, TX 479.00 457.00 Gas
Cunningham - near Hobbs, NM 281.00 267.00 Gas
Maddox - near Hobbs, NM 123.00 118.00 Gas
CZ-2 - near Pampa, TX 26.00 26.00 Purch. steam
Moore County - near 51.00 48.00 Gas
Sunray, TX
Total (Steam) 4,202.00 3,990.00
Gas Turbine:
Carlsbad - near Carlsbad, 16.00 13.00 Gas
NM
CZ-1 - near Pampa, TX 13.00 13.00
Hot nitrogen
Maddox - near Hobbs, NM 76.00 66.00 Gas
Riverview - near Borger, 25.00 23.00 Gas
TX
Cunningham - near Hobbs, 244.00 220.00 Gas
NM
Diesel Engine (1 unit) 15.00 0.00 Diesel
Tucumcari, NM
Total (Steam and Gas 4,591.00 4,325.00
Turbine)
</TABLE>
Notes to Table:
* Purchased Power Contracts: The NCE Operating Companies have contractual
arrangements with regional utilities as well as QFs and EWGs to meet the energy
needs of their customers. The NCE Operating Companies have capacity contracts in
the following amounts at the time of the anticipated 1999 net firm system peak
demand:
<PAGE>
NCE Operating Company MW
PSCo 2,047
SPS 236
Cheyenne 150
-----
Total 2,433
3. NCE Electric Transmission and Distribution Properties
PSCo: On December 31, 1999, PSCo's transmission system consisted of
approximately 112 circuit miles of 345 kilovolt ("kV") overhead lines; 1,936
circuit miles of 230 kV overhead lines; 15 circuit miles of 230 kV underground
lines; 65 circuit miles of 138 kV overhead lines; 1,005 circuit miles of 115 kV
overhead lines; 20 circuit miles of 115 kV underground lines; 332 circuit miles
of 69 kV overhead lines; 137 circuit miles of 44 kV overhead lines; and 1
circuit mile of 44 kV underground line. PSCo jointly owns with another utility
approximately 342 circuit miles of 345 kV overhead lines and 359 miles of 230 kV
overhead lines, of which PSCo's share is 112 miles and 147 miles, respectively,
which shares are included in the amounts listed above.
SPS: On December 31, 1999, SPS's transmission system consisted of
approximately 319 circuit miles of 345 kV overhead lines; 1,604 circuit miles of
230 kV overhead lines; 2,579 circuit miles of 115 kV overhead lines; 1,750
circuit miles of 69 kV overhead lines; 1 circuit mile of 115 kV underground
line; and 5 circuit miles of 69 kV underground lines.
Cheyenne: Cheyenne's transmission facilities are located in Wyoming. These
facilities are very limited, consisting of two 115kV transmission line segments
that total 25.5 miles in length. The primary purpose of these transmission lines
is to deliver power that Cheyenne purchases from its full requirements supplier,
PacifiCorp. Power is wheeled from WAPA's transmission system, with which
Cheyenne intersects, to Cheyenne's distribution substation for ultimate
distribution to Cheyenne's retail customers. Like PSCo, Cheyenne is a member of
the WSCC.
The distribution system of NCE's electric utility subsidiary companies
consists of both overhead lines and underground distribution systems. PSCo owns
approximately 210 substations (30 of which are jointly-owned) having an
aggregate transformer capacity of 20,365,000 kVa, of which, 4,867,000 kVa is
step-up transformer capacity at generating stations. SPS owns approximately 319
substations having an aggregate transformer capacity of 20,597,935 kVa, of which
5,951,000 kVa is step-up transformer capacity.
<PAGE>
4. NCE ENERGY SALES
For the year ended December 31, 1998, PSCo, SPS and Cheyenne sold the
following amounts of electric energy (at retail or wholesale) and distributed
the following amounts of natural or manufactured gas at retail:
Year ended
December 31, 1999
PSCo
Kwh of electric energy sold (including amounts delivered in 28,537
interchange) (millions of Kwh sales)
Million ("MDth") of gas distributed at retail (including
natural and manufactured gas) (millions of Dth Deliverables) 216.4
SPS
MWh of electric energy sold (including amounts delivered in 22,744
interchange) (millions of Kwh sales)
Cheyenne
MWh of electric energy sold (including amounts delivered in 864,081
interchange)
MMBTU of gas distributed at retail (including natural and
manufactured gas) 4,663,278
5. NCE Gas Property
The gas property of PSCo at December 31, 1999, consisted of approximately
16,709 miles of distribution mains ranging in size from 0.50 to 30 inches and
related equipment. The Denver distribution system consisted of 9,249 miles of
mains. Pressures in the system are varied to meet load requirements and
individual house regulators are installed on each customer's premises to provide
uniform flow of gas to appliances. PSCo also owns and operates four gas storage
facilities.
<PAGE>
Annex B
FURTHER DESCRIPTION OF UTILITY ASSETS
AND OPERATIONS OF NSP
1. NSP Electric Generating Facilities
As of December 31, 1999, NSP and NSP-W had a total net summer generating
capability of 7,176 MW and NSP had a total summer net generating capacity of
6,311 MW available primarily from the following units:
Sherburne County ("Sherco"): NSP owns two coal-fired generating units at
its Sherco station in Minnesota with a combined net capability of 1,433 MW. NSP
owns a 59% undivided interest in the third unit at the station ("Sherco 3"), of
which NSP's share of the net capability of this unit is 514 MW.
Prairie Island: NSP owns two nuclear generating units at its Prairie Island
station in Minnesota with a combined net capability of 1,052 MW.
Monticello: NSP owns one nuclear generating unit at its Monticello station
in Minnesota with a net capability of 578 MW.
King: NSP owns one coal-fired generating unit at its King station in
Minnesota with a net capability of 571 MW.
Black Dog: NSP owns four coal-fired generating units at its Black Dog
station in Minnesota with a combined net capability of 462 MW.
High Bridge: NSP owns two coal-fired generating units at its High Bridge
station in Minnesota with a combined net capability of 267 MW.
Riverside: NSP owns two coal-fired generating units at its Riverside
station in Minnesota with a combined net capability of 380 MW.
Anson: NSP owns two oil/gas-fired combustion turbine electric generating
units at its Angus Anson station near Sioux Falls, South Dakota, with an
aggregate net generating capability of 202 MW.
Inver Hills: NSP owns eight oil/gas-fired combustion turbine electric
generating units at its Inver Hills station located in Inver Grove Heights,
Minnesota, with an aggregate net generating capability of 332 MW.
NSP also owns numerous smaller generating units fueled with coal, natural
gas, oil or waste, wind and one hydro-electric generating facility, with an
aggregate net capability of 520 MW.
As of December 31, 1999, NSP-W had a total net summer generating capability
of 866 MW from the following units:
Bay Front: NSP-W owns three steam electric generating units at its Bay
Front station in Ashland, Wisconsin that are fueled with coal, wood and gas,
with a combined net capability of 73 MW.
French Island: NSP-W owns two steam electric generating units, fueled with
wood and refuse derived fuel, and two oil-fired combustion turbine generating
units at its French Island generating station in LaCrosse, Wisconsin with a
combined net capability of 183 MW.
Flambeau: NSP-W owns a gas/oil-fired combustion turbine electric generating
unit at its Flambeau station in Park Falls, Wisconsin with a summer net
generating capability of 12 MW.
Wheaton: NSP-W owns six oil-fired combustion turbine electric generating
units at its Wheaton station in Eau Claire, Wisconsin with a combined net
capability of 346 MW.
Hydro Plants: NSP-W also owns and operates 19 hydro-electric generating
stations throughout northwestern Wisconsin with an aggregate net capability of
251 MW.
NSP-W presently relies primarily on NSP for base load generation and
purchases of power to meet the needs of NSP-W's customers. The electric
operations of NSP and NSP-W are fully integrated and all generating units are
centrally dispatched by NSP. The electric production and transmission costs of
NSP and NSP-W are shared by the companies under an agreement which is called the
"Agreement to Coordinate Planning and Operation and Interchange Power and Energy
Between Northern States Power Company (Minnesota) and Northern States Power
Company (Wisconsin)" (the "Interchange Agreement"). The Interchange Agreement
was approved by FERC in Docket No. ER84-690-000, dated August 21, 1985. For the
year ended December 31, 1999, the combined energy (Kwh) sales of NSP and NSP-W
were produced 44% by coal-fired generation, 28% by nuclear generation, 26% by
purchase and interchange and 2% from NSP's hydroelectric and other generation.
The 1998 electric system peak load for NSP and NSP-W was 7,660 MW and occurred
on July 14, 1998, exclusive of off-system sales. The 1999 electric system peak
load for NSP and NSP-W was 7,990 MW and occurred on July 29, 1999, exclusive of
off-system sales. For the year ended December 31, 1999, the fuel resources for
NSP's and NSP-W's generation-based Kwh was 58% obtained from coal-fired
generation, approximately 38% from nuclear generation, and approximately 4% from
other fuels.
2. NSP Electric Transmission and Other Facilities
As of December 31, 1999, NSP's electric transmission system included 265
circuit miles of 500 kV line, 751 circuit miles of 345 kV line, 287 circuit
miles of 230 kV line, 59 circuit miles of 161 kV line, 1,304 circuit miles of
115 kV line and 1,710 circuit miles of transmission line under 115 kV. The bulk
of NSP's high voltage transmission system is located in the State of Minnesota.
As of December 31, 1999, NSP's transmission substations had a combined capacity
of approximately 30,684 thousand KVA and the distribution substations totaled
approximately 13,624 thousand KVA. Manitoba Hydro-Electric Board, Minnesota
Power Company and NSP completed the construction of a 500 kV transmission
interconnection between Winnipeg, Manitoba, Canada, and the Minneapolis-St.
Paul, Minnesota, area in May 1980. NSP has a contract with Manitoba
Hydro-Electric Board for 500 MW of firm power utilizing this transmission line.
In addition, the Company is interconnected with Manitoba Hydro at the
U.S./Canada border through a 230 kV transmission line completed in 1970.
As of December 31, 1999, NSP-W's electric transmission system included 165
circuit miles of 345 kV line, 280 circuit miles of 161 kV line, 448 circuit
miles of 115 kV line and 1,491 circuit miles of transmission line under 115 kV.
As of December 31, 1999 NSP-W's transmission substations had a combined capacity
of approximately 4,397 thousand KVA and the distribution substations totaled
approximately 2,094 thousand KVA.
Other assets owned by NSP and NSP-W include electric distribution systems
located throughout its service area, and property, plant and equipment owned or
leased supporting their electric and gas utility functions. NSP and NSP-W also
own or lease other physical properties, including real property, and other
facilities necessary to conduct their operations.
3. NSP Energy Sales
For the year ended December 31, 1999, NSP and NSP-W sold the following
amounts of electric energy (at retail only):
Year ended
December 31, 1998
NSP
kwh of electric energy sold (including amounts 31,645,688
delivered in interchange)
NSP-W
kwh of electric energy sold (including amounts 5,433,619
delivered in interchange)
4. Gas Facilities
NSP provides natural gas service at retail in the St. Paul metropolitan
area and portions of southeast, northwest and central Minnesota, as well as
eastern North Dakota, and in Arizona through its BMG division./129 NSP-W
provides natural gas service in western and central Wisconsin as well as
Ironwood in Michigan's Upper Peninsula. Both NSP and NSP-W are directly
connected to various interstate pipelines and have separate contractual supply
portfolios for transportation through pipelines and with suppliers of natural
gas. The gas delivery operations of NSP, NSP-W and Viking are managed out of St.
Paul, Minnesota, pursuant to a Supervisory Control and Data Acquisition
Agreements among NSP, NSP-W and Viking (NSP's wholly-owned interstate pipeline
subsidiary). Under these agreements, NSP manages the pressures of the various
pipelines owned by these companies and the inflow and outflow of natural gas
from these pipelines. These agreements were approved by the Minnesota Commission
in Docket No. G002/AI-94-831, and the NSP/NSP-W agreement was approved by the
Wisconsin Commission in Docket No. 4220-AU-117.
----------
129 As noted above, a "spin down" of NSP's gas utility assets to a subsidiary
(also called BMG) is pending Commission approval. The Minnesota Commission
and the North Dakota Commission approved this transaction in April 1999;
the Arizona Commission approved it in September 1999. Upon Commission
approval, BMG would operate as a subsidiary of NSP until the Merger and
would be utility operating company subsidiary of Xcel after the Merger.
----------
The gas properties of NSP include 7,943 miles of natural gas distribution
and transmission mains, 52 miles of propane vapor distribution mains, the
Westcott LNG plant with a storage capacity of 2.1 Bcf equivalent and five
propane-air plants with a storage capacity of 1.4 Bcf equivalent to help meet
the peak requirements of its firm residential, commercial and industrial
customers. NSP-W's gas properties include approximately 1,811 miles of natural
gas distribution mains, the Eau Claire and LaCrosse LNG plants, having a storage
capacity of 0.4 Bcf equivalent, and three propane-air plant, with storage
capacity of 0.02 Bcf equivalent. The gas properties of BMG include 361 miles of
natural gas distribution mains and approximately 52 miles of propane vapor
distribution mains.
NSP and NSP-W are authorized to make certain sales of natural gas for
resale under blanket authority granted by FERC under 18 CFR 284.402.
For the year ended December 31, 1998, NSP, NSP-W and BMG distributed the
following amounts of natural or manufactured gas at retail:
Year-ended
December 31, 1998
NSP
Mcf of gas distributed at retail (including 75,609,804
natural and manufactured gas)
NSP-W
Mcf of gas distributed at retail (including 17,685,179
natural and manufactured gas)
<PAGE>
ANNEX C-1
NON-UTILITY SUBSIDIARIES OF NCE
<TABLE>
<CAPTION>
Type of
Name of Company Organization State Business Authority/1/
DIRECT NON-UTILITY SUBSIDIARIES OF NCE
<S> <C> <C> <C> <C>
WestGas InterState, Inc. Corporation CO Gas pipeline company 1997 Order
NC Enterprises, Inc. Corporation DE Non-utility holding 1997 Order
company
NON-UTILITY SUBSIDIARIES OF PUBLIC SERVICE COMPANY OF COLORADO
1480 Welton, Inc. Corporation CO Utility real estate 1997 Order
P.S.R. Investments, Inc. Corporation CO Employee life insurance 1997 Order
PS Colorado Credit Corporation CO Financing/factoring 1997 Order
Corporation company
Green and Clear Lakes Corporation NY Hydroelectric water 1997 Order
Company storage
Fuel Resources Development Corporation CO Natural gas exploration 1997 Order
Co.
Baugh Lateral Ditch Company Corporation CO Ditch company 1997 Order
The Beeman Ditch Company Corporation CO Ditch company 1997 Order
Consolidated Extension Corporation CO Ditch company 1997 Order
Canal Company
East Boulder Ditch Company Corporation CO Ditch company 1997 Order
Enterprise Irrigating Corporation CO Ditch company 1997 Order
Ditch Company
Fisher Ditch Company Corporation CO Ditch company 1997 Order
Hillcrest Ditch and Corporation CO Ditch company 1997 Order
Reservoir Company
Jones and Donnelly Ditch Corporation CO Ditch company 1997 Order
Company
Las Animas Consolidated Corporation CO Ditch company 1997 Order
Canal Company
----------------
1 "1997 Order" refers to New Century Energies, Inc., Holding Co. Act Release
No. 26748 (1997), wherein the Commission approved the creation of the NCE
system through the merger of Public Service Company of Colorado and
Southwestern Public Service Company, including the retention of their
non-utility businesses.
C-1-1
<PAGE>
United Water Company Corporation CO Ditch Company 1997 Order
Colorado Natural Fuels Compressed gas NCE, HCAR
Corporation 27116
NON-UTILITY SUBSIDIARIES OF NC ENTERPRISES
NC Enterprises, Inc. Corporation DE Non-utility holding 1997 Order
company
New Century International, Corporation DE FUCO/EWG holding company 1997 Order
Inc.
Yorkshire Power Group Corporation UK FUCO holding company 1997 Order
Limited
Yorkshire Holdings plc Corporation UK FUCO holding company 1997 Order
Yorkshire Electricity Corporation UK Section 3(b) 1997 Order
Group plc subsidiary; expected
FUCO
The Independent Power Corporation UK Expected FUCO 1997 Order
Corporation plc
Independent Power Corporation Jersey Isles EWG Section 32
International Corp.
Corporation Independiente Corporation Argentina EWG Section 32
de Energia S.A.
Central Piedra Buena S.A. Corporation Argentina EWG Section 32
NCE Communications, Inc./2/ Corporation DE ETC 1997 Order
Northern Colorado Limited liability CO ETC ETC
Telecommunications, LLC company
New Century-Cadence, Inc. Corporation CO Energy-related company Rule 58(b)(1(i),
NCE, HCAR 27124
Cadence Network LLC Limited liability DE Energy-related company Rule 58(b)(1(i),
company NCE, HCAR 27124
Natural Station Equipment Limited liability DE Commercialization of NCE, HCAR 27116
LLC company compressed natural gas
Natural/Total Limited Limited liability WY Commercialization of 1997 Order
Liability Company company compressed natural gas
Natural/Total/KN Limited Limited partnership CO Commercialization of 1997 Order
Partnership compressed natural gas
----------------
2 Formerly e prime Telecom, Inc., a subsidiary of e prime, inc.
C-1-2
<PAGE>
Natural/Peoples Limited Limited liability WY Commercialization of 1997 Order
Liability Company company compressed natural gas
Utility Engineering Corporation TX Engineering services 1997 Order
Corporation and construction
management
Precision Resource Company Corporation TX Human resource services 1997 Order
Quixx Corporation Corporation TX IPP & cogeneration 1997 Order
development; railcar
services; water rights;
other non-utility
investments
BCH Energy, Limited Limited Partnership DE QF ownership - Inactive 1997 Order
Partnership
(Limited Partner)
Quixx Carolina, Inc. Corporation TX QF holding company 1997 Order
Carolina Energy, Limited Limited partnership DE QF ownership 1997 Order
Partnership (General
Partner)
Carolina Energy, Limited Limited partnership DE QF ownership - Inactive 1997 Order
Partnership (Limited
Partner)
Mosbacher Power Group, Limited liability DE EWG and FUCO 1997 Order
L.L.C. company development and
ownership
Mosbacher Power Limited liability DE EWG and FUCO 1997 Order
International, L.L.C. company development and
ownership
Quixxlin Corp. Corporation DE QF holding company 1997 Order
Quixx Linden, L.P. Limited partnership DE QF ownership 1997 Order
(General Partner)
Quixx Linden, L.P. Limited partnership DE WF ownership 1997 Order
(Limited Partner)
Quixx Borger Cogen, Inc. Corporation DE QF holding company 1997 Order
Borger Energy Associates, Limited partnership DE QF ownership 1997 Order
L.P.
(General Partner)
Borger Energy Associates, Limited partnership DE QF ownership 1997 Order
L.P.
(Limited Partner)
Borger Funding Corporation Corporation DE Financing Subsidiary 1997 Order
Quixx Mustang Station, Inc. Corporation DE EWG 1997 Order
Denver City Energy Limited partnership DE EWG ownership 1997 Order
Associates, L.P. (General
Partner)
Denver City Energy Limited partnership DE EWG ownership 1997 Order
Associates, L.P. (Limited
Partner)
C-1-3
<PAGE>
Quixx WPP94, Inc. Corporation TX QF holding company 1997 Order
Windpower Partners 1994, Limited partnership DE QF ownership 1997 Order
L.P.
(General Partner)
Windpower Partners 1994, Limited partnership DE QF ownership 1997 Order
L.P.
(Limited Partner)
Quixx Mountain Holdings, Limited liability DE Expected EWG Section 32
LLC company
Front Range Energy Limited liability TX IPP cogeneration 1997 Order
Associates, LLC company operation and
maintenance services
Quixx Power Services, Inc. Corporation DE Expected EWG Section 32
Quixx Resources, Inc. Corporation NV Ownership of water 1997 Order
rights, QF, and EWG
Quixx WRR, L.P. (Limited Limited partnership TX QF ownership and 1997 Order
Partner) ownership of water
rights
Quixx WRR, L.P. (General Limited partnership TX QF ownership and 1997 Order
Partner) ownership of water
rights
Quixx Louisville, LLC Limited liability DE steam generation 1997 Order
company
The Planergy Group, Inc. Corporation TX Energy-related company Rule 58(b)(1)(i)
Planergy (Delaware), Inc. Corporation DE Energy-related company Rule 58(b)(1)(i)
Planergy Services, Inc. Corporation DE Energy-related company Rule 58(b)(1)(i)
Planergy Services of Corporation CA Energy-related company Rule 58(b)(1)(i)
California, Inc.
Cogeneration Capital Corporation CA Energy-related company Rule 58(b)(1)(i)
Associates, Incorporated
Planergy Energy Services Corporation DE Energy-related company Rule 58(b)(1)(i)
Corporation
Planergy Services of Corporation DE Energy-related company Rule 58(b)(1)(i)
Houston, Inc.
Planergy Services USA, Inc. Corporation DE Energy-related company Rule 58(b)(1)(i)
Planergy Services of Corporation DE Energy-related company Rule 58(b)(1)(i)
Texas, Inc.
Planergy New York, Inc. Corporation NY Energy-related company Rule 58(b)(1)(i)
Planergy, Inc. Corporation TX Energy-related company Rule 58(b)(1)(i)
Planergy Limited Corporation Canada Energy-related company Rule 58(b)(1)(i)
USA-Planergy LLC Corporation TX Energy-related company Rule 58(b)(1)(i)
C-1-4
<PAGE>
First American Energy Corporation NC Energy-related company Rule 58(b)(1)(i)
Alliance, LLC
Planergy Power II, Inc. Corporation DE Energy-related company Rule 58(b)(1)(i)
New Century O&M Services, Corporation CO Ownership, operation & NCE, HCAR
Inc. maintenance of military No. 27048
base assets
e prime, inc. Corporation CO Energy services; IPP, 1997 Order
cogeneration, and ETC
ownership
Texas-Ohio Pipeline, Inc. Corporation TX Natural gas pipeline 1997 Order
e prime Florida, Inc Corporation FL Energy-related company Rule 58(b)(2)(i)
e prime Georgia Inc. Corporation GA Energy-related company Rule 58(b)(2)(i)
Young Gas Storage Company Corporation DE Natural gas storage 1997 Order
Young Gas Storage Company, Limited partnership CO Natural gas storage 1997 Order
Ltd.
New Century WYCO, Inc. Corporation CO Natural gas NCE, HCAR 27106,
transportation NCE, HCAR 27068,
NCE, HCAR 27034
WYCO Development LLC Limited liability CO Natural gas NCE, HCAR 27106,
company transportation NCE, HCAR 27068,
NCE, HCAR 27034
</TABLE>
C-1-5
<PAGE>
ANNEX C-2
SUPPLEMENTAL DESCRIPTION OF NCE NON-UTILITY BUSINESSES
NCE engages directly and indirectly in various non-utility activities. Many
of these activities were approved in New Century Energies, Holding Act Release
No. 26748 (Aug. 1, 1997) ("1997 NCE Order") or more recent orders. NCE engages
in other activities pursuant to exemptions granted by the Act or by Commission
rule.
A. Direct Non-Utility Subsidiaries of NCE
1. West Gas InterState, Inc. ("WGI"): a gas pipeline company that operates
in Colorado and Wyoming transports gas from the PSC gas system to Cheyenne./3/
At December 31, 1999 and December 31, 1998, NCE's investment in WGI represented
approximately .03% and .03%, respectively, of the consolidated book value of the
assets of NCE and its subsidiaries. WGI had aggregate net earnings of
approximately $82,327 in fiscal year 1999, $85,750 in fiscal 1998, and $75,623
in fiscal 1997.
2. NC Enterprises, Inc. is a holding company for non-utility interests./4/
At December 31, 1999 and December 31, 1998, NCE's investment in NC Enterprises,
Inc. represented approximately 8.51% and 7.08%, respectively, of the
consolidated book value of the assets of NCE and its subsidiaries. NC
Enterprises, Inc. had aggregate net earnings of approximately $35,966,000 in
fiscal year 1999, $28,861,000 in fiscal 1998.
B. Public Service Company of Colorado ("PSC")
1. Direct activities of PSC:
(a) Thermal energy: PSC is engaged in the thermal energy business in its
service territory, primarily in the downtown Denver area. Although much of the
steam is supplied from boilers at PSC's Denver steam plant, the steam system is
connected to the utility's Zuni steam electric generating plant as well, and
approximately one-quarter of the steam heating business requirements are met
through steam produced by this plant in the course of its ordinary operation.
PSC also provides chilled water service to customers in the downtown Denver
area, and offers related services to maintain customers' heating and cooling
plants./5/
----------------
3 1997 NCE Order.
4 1997 NCE Order.
5 1997 NCE Order.
C-2-1
<PAGE>
(b) Electrotechnologies: PSC markets products and services developed
through its utility operations. For example, PSC provides relay testing services
for customers, and proposes to lease or sell surge protection equipment to
nonassociates as well as install, own and operate photovoltaic cells and
commercialize other electrotechnologies that become available to it./6/
(c) Intellectual property: PSC proposes to sell or enter into royalty
arrangements with regard to intellectual property owned or developed in its
utility operations. If these arrangements are with affiliates, PSC will be paid
70% of the revenues from the marketing of the intellectual property until all
programming and development costs are recovered, and 20% of such royalty
revenues thereafter./7/
(d) Products and services related to electric and natural gas vehicles: PSC
is engaged in a pilot program to develop fueling sites for natural gas vehicles.
The fueling units are owned by PSC and are located at PSC and customer
facilities. In addition, PSC leases gas compressors, which are used for vehicle
fueling purposes, to certain alternative fuel customers located within its
service territory. PSC proposes to expand its activities to include the
ownership, operation, sale, installation and servicing of recharging and
conversion equipment and facilities, and other types of promotion of electric
powered vehicles./8/
(e) Sale and servicing of gas and electric appliances: PSC's appliance
service operations provide repair services and warranties to customers in
connection with certain household appliances and may involve the leasing of
certain large appliances, such as heating, ventilation and air conditioning
systems, lighting systems and chillers, to industrial customers./9/ PSC
provides, and will continue to provide, customer financing in connection with
this business./10/
2. Subsidiaries of PSC:
At December 31, 1999 and December 31, 1998 PSC's aggregate investment in
its nonutility subsidiaries constituted 2.46%% and 2.34%, respectively, of the
consolidated book value of the assets of PSC and its subsidiaries. PSC's
non-utility subsidiaries had aggregate net earnings of approximately $16,589,000
in fiscal year 1999, $17,729,000 in fiscal 1998, and $(60,330,000) in fiscal
1997. The major subsidiaries and their interests and investments are described
briefly below.
----------------
6 1997 NCE Order.
7 1997 NCE Order.
8 1997 NCE Order.
9 1997 NCE Order.
10 NCE states that this financing will be furnished pursuant to the exemption
afforded by rule 48 under the Act.
C-2-2
<PAGE>
(a) 1480 Welton, Inc. ("1480 Welton"): owns certain of PSC's real estate
interests for use in its utility business./11/ 1480 Welton does not hold other
interests in properties and does not offer services to nonassociates.
(b) PSR Investments, Inc. ("PSRI") owns and manages certain company-owned
employee life insurance policies, acquired prior to 1986, the benefits from
which are used to provide future funding for general corporate purposes. The
company does not intend to acquire any new policies or engage in any other
active business./12/
(c) PS Colorado Credit Corporation ("PSCCC") engages in financing and
factoring of PSC's fuel inventories and customer accounts receivable./13/
(d) Green and Clear Lakes Company ("Green and Clear Lakes") owns water
rights and storage facilities for water used or formerly used at PSC's
Georgetown Hydroelectric Station./14/
(e) Fuel Resources Development Co. ("Fuelco"): a corporation in dissolution
under Colorado law. The company had been engaged in natural gas and oil
exploration and production, principally in Colorado./15/
(f) Water and ditch companies: PSC has a majority interest in six water and
ditch companies, East Boulder Ditch Company, Hillcrest Ditch and Reservoir
Company, United Water Company, Consolidated Extension Canal Company, Enterprise
Ditch Company and Las Animas Consolidated Canal Company, and has a less than 50%
interest in four other such companies, namely, Fisher Ditch Water Company, Bough
Lateral Ditch Company, Beenan Irrigating Ditch and Milling Company, and Jones
and Donnelley Ditch Company./16/
(g) Colorado Natural Fuels Corporation, directly and through its
wholly-owned subsidiary Natural Fuels Company LLC, engages in the business of
converting motor vehicles to permit their operation by compressed natural gas or
propane, and the construction, ownership, and operation of compressed natural
gas fueling stations./17/
----------------
11 1997 NCE Order.
12 1997 NCE Order.
13 1997 NCE Order.
14 1997 NCE Order.
15 1997 NCE Order.
16 1997 NCE Order.
17 New Century Energies, Inc., HCAR No. 27116 (Dec. 22, 1999).
C-2-3
<PAGE>
(i) Natural/Total Limited Liability Company ("Natural/Total"), in which
Natural Fuels has a 50% ownership interest, is a Wyoming limited liability
company that owns and operates natural gas fueling stations located at gas
stations in Colorado./18/
(ii) Natural/Total/KN Limited Partnership, in which Natural/Total has a 67%
ownership interest, owns the profits interests in the natural gas fueling
stations located at gas stations in Colorado./19/
(iii) Natural/Peoples Limited Liability Company, in which Natural Fuels has
a 50% profits interest (25% capital interest), is a Wyoming limited liability
company that owns and operates one natural gas fueling station located in Castle
Rock, Colorado./20/
C. Non-Utility Subsidiaries of NC Enterprises
1. NC Enterprises, Inc. is a holding company for various NCE non-utility
subsidiaries./21/
2. New Century International, Inc. ("NCI") was formed to hold NCE's foreign
investments./22/ Specifically, it owns (i) a 50% interest in Yorkshire Power
Group Limited, which indirectly through Yorkshire Holdings plc owns Yorkshire
Electricity Group plc ("Yorkshire"), a regional electric company operating in
the United Kingdom, and (ii) a 49% interest in Independent Power Corporation PLC
("IPC"), a British company that is in the business of developing, owning, and
operating foreign generating plants. Xcel will qualify both Yorkshire and IPC as
foreign utility companies within the meaning of Section 33 of the Act. In
addition, NCI owns interests in three exempt wholesale generators, within the
meaning of Section 32 of the Act, namely Independent Power International,
Corporation Independiente de Energia S.A., and Central Piedra Buena S.A.
3. NCE Communications, Inc. ("NCEC") (formerly e prime Telecom, Inc.) was
formed to provide long-haul fiber capacity using excess capacity on PSC's fiber
system on a wholesale basis to nonassociate companies and to engage in other
activities permitted for exempt telecommunications companies ("ETCs")./23/ It
has been qualified as an ETC within the meaning of Sections 34 of the Act. In
addition, NCEC has a 50% interest in Northern Colorado Telecommunications, LLC
("NCT"), which, among other things, will offer commercial customers in the
Denver metropolitan area long distance, internet access, and private line
services. NCT has likewise been qualified as an ETC.
----------------
18 1997 NCE Order.
19 1997 NCE Order.
20 1997 NCE Order.
21 1997 NCE Order.
22 1997 NCE Order.
23 1997 NCE Order.
C-2-4
<PAGE>
4. New Century - Cadence, Inc. owns a 15% interest in Cadence Network, Inc.
which is a business-to-business e-commerce provider of utility and other
facility cost-reduction services for multi-location enterprises./24/
5. Natural Station Equipment LLC is in the business of packaging and
marketing compressed natural gas fueling facility equipment./25/
6. Utility Engineering Corporation ("UE"): UE engages in some activities
directly, and engages in other activities through subsidiaries. At December 31,
1999 and December 31, 1998, the total assets of UE were approximately $76.5
Million and $57.5 Million respectively, and total revenues for fiscal years 1999
and 1998 were $154.5 Million and $106.3 Million respectively. For fiscal years
1999 and 1998, approximately $12.2 Million and $27.1 Million or 12% and 18%
respectively, of UE's revenues were derived from transactions with
nonassociates.
(a) Direct activities of UE:
(i) UE provides general engineering, development, design,
procurement, construction and other related services./26/ Except with
respect to services provided EWGs and FUCOs, and except as provided in
clause (ii) below, all of these activities are limited to the United
States. UE will not engage in any activity that would cause it to be a
"public utility" under the Act.
(ii) UE provides directly, or indirectly through subsidiaries or
joint ventures, project development, engineering, design, construction
and construction management, pre-operational start-up, testing and
commissioning, operating, fuel management and procurement, maintenance
and power plant overhaul, management and supervision, technical and
training, administrative support, and other similar managerial and
technical services to foreign developers, operators and owners of
power projects, utility systems and industrial concerns. UE also
proposes to provide these services to foreign power projects that it
may develop on its own or in collaboration with third parties./27/ UE
will not engage in any activity that would cause it to be a "public
utility" under the Act.
(iii) UE works jointly with Quixx on cogeneration and other
independent power and related projects, providing engineering,
development, design, procurement, construction and related
services./28/
----------------
24 Rule 58(b)(1)(i) and New Century Energies, Inc., HCAR No. 27124 (Jan. 11,
2000).
25 New Century Energies, Inc., HCAR No. 27116 (Dec. 22, 1999).
26 1997 NCE Order.
27 1997 NCE Order.
28 1997 NCE Order.
C-2-5
<PAGE>
(iv) UE owns thirty-one electric substations that it leases to
fourteen industrial customers of SPS who use the leased substations to
secure power from SPS under a favorable Texas transmission tariff.
Annual revenues from the leases are approximately $2.7 million./29/ UE
will attempt to renegotiate the terms of each of these leases so that,
within five years after the date of consummation of the merger, each
lease (and any other substation lease into which UE enters) qualifies
for treatment as a capital lease under general accepted accounting
principles. If any lease cannot be so amended, UE proposes to transfer
to SPS, and SPS proposes to acquire, at a price equal to then net book
value, the substation that is the subject of the lease. In the event
of transfer, UE could continue to administer the lease arrangements
for SPS.
(b) Subsidiaries of UE:
(i) Precision Resource Company ("PRC"): provides a technical
personnel resource database service to both associates and
nonassociates. The database is comprised of names of unaffiliated
individuals who can be dispatched to provide temporary services for
various projects, and is used by PRC to match customers and service
personnel for a fee. Revenues from services provided to nonassociates
will not exceed 49% of PRC's total annual revenues, unless otherwise
authorized by the Commission./30/
(ii) Quixx: Quixx primarily engages in investment in, and
development of, energy-related projects. At December 31, 1999 and
December 31, 1998 Quixx's assets were $93.4 million and $88.7 million,
respectively; and total revenues for calendar year, 1999 and calendar
year, 1998 were $7.3 million and $13.7 million respectively.
(a) Direct activities of Quixx:
(i) Project development activities: Quixx forms and finances
subsidiaries to invest in EWGs, FUCOs, qualifying facilities
("QFs") under the Public Utility Regulatory Policies Act
("PURPA"), and other energy related projects, and engages in
preliminary development activities relating to energy related
projects, including project due diligence and design, design
review, market studies, site inspection, preparation of bid
proposals (including the posting of bid bonds, cash deposits or
similar instruments), applications for required permits or
authorizations, acquisition of options on sites and other rights,
negotiation and execution of contractual commitments with owners
of existing facilities, equipment vendors and other project
contractors, negotiating of financing commitments with lenders
and co-investors, and related activities./31/ Quixx will not
acquire interests in projects
----------------
29 1997 NCE Order.
30 1997 NCE Order.
31 1997 NCE Order.
C-2-6
<PAGE>
unless the acquisition is either approved by the Commission or is
exempt from the requirement of obtaining such approval.
(ii) Customer financing: Quixx has provided financing for
heat pump acquisitions by SPS customers./32/ Although Quixx no
longer makes new loans, it has a loan portfolio of approximately
$13.5 million as of December 31, 1999.
(b) Interests of Quixx in EWGs, FUCOs and QFs:
(i) BCH Energy Limited Partnership, in which Quixx holds a
42% limited partnership interest, owns a waste-to-energy facility
near Fayetteville, North Carolina./33/ Operation of the facility
has been suspended and Quixx has written off its entire
investment.
(ii) Quixx Carolina, Inc., a wholly-owned subsidiary of
Quixx, holds a 1% general partnership interest in Carolina Energy
Limited Partnership, a waste-to-energy cogeneration facility.
Quixx also holds a 32.33% limited partnership interest in this
same partnership./34/ In June 1997, Quixx wrote off its
investment of approximately $13.64 million in the Carolina Energy
Limited Partnership.
(iii) Mosbacher Power Group, L.L.C. and Mosbacher Power
International, L.L.C., in which Quixx formerly held a 50%
membership interest,/35/ are independent power development
companies that have foreign interests in the developmental stage,
all of which are expected to be EWGs or FUCOs. In early 1997,
Quixx entered into a business arrangement with Mosbacher Power, a
developer of power projects in the United States and foreign
countries. Quixx relinquished its business relationship with
Mosbacher Power in December, 1997 but retained investment rights
in two international projects and four domestic projects. Since
1997 all but one of these development projects were terminated.
The remaining project is an electric generating project under
development in Cambodia with a contract to supply power to the
national utility.
(iv) Quixlin Corp., a wholly-owned subsidiary of Quixx,
holds a 0.5% general partnership interest in Quixx Linden, L.P.,
which owns a 23 Mw natural gas fired cogeneration facility in
Linden, New Jersey. This
----------------
32 1997 NCE Order.
33 1997 NCE Order.
34 1997 NCE Order.
35 1997 NCE Order.
C-2-7
<PAGE>
facility commenced cogeneration operations in October 1999. It is
estimated that final completion of this facility will be in early
2000. Quixx also directly holds a 49.5% limited partnership
interest in Quixx Linden, L.P./36/
(v) Quixx Borger Cogen, Inc., a wholly-owned subsidiary of
Quixx, holds a 0.45% general partnership interest in Borger
Energy Associates, L.P., which owns Blackhawk Station, a
cogeneration plant located at the Phillips Petroleum Refinery
Complex near Borger, Texas and Borger Funding Corporation which
is a co-issuer of bonds for construction of Blackhawk Station.
Quixx Resources, Inc., a wholly-owned subsidiary of Quixx, holds
a 44.55% limited partnership interest in this same partnership.
This facility commenced Phase I electric operations in October
1998 and commenced Phase II cogeneration operations in June
1999./37/
(vi) Quixx Mustang Station, Inc., a wholly-owned subsidiary
of Quixx, was created to hold Quixx's 0.5%, general partnership
interest in Denver City Energy Associates, L.P., a partnership
which owns a 50% interest in Mustang Station, a 488 Mw combined
cycle generating facility which is scheduled for completion in
early 2000. Quixx also holds a 49.5% limited partnership interest
in Denver City Energy Associates, L.P., through Quixx Resources,
Inc. a wholly-owned subsidiary of Quixx./38/
(vii) Quixx WPP94, Inc., a wholly-owned subsidiary of Quixx,
holds a 0.33% general partnership interest in Windpower Partners,
1994 L.P. Windpower Partners, 1994 L.P. owns a 35 Mw wind
generation facility in Culberson County, Texas. Quixx also
directly holds a 24.67% limited partnership interest in Windpower
Partners, 1994 L.P./39/
(viii) Quixx Mountain Holdings, LLC, a wholly-owned
subsidiary of Quixx, holds a 50% interest in Front Range Energy
Associates, LLC, which was incorporated to develop a gas-fired
combustion turbine generation facility near Ft. Lupton,
Colorado./40/
----------------
36 1997 NCE Order.
37 1997 NCE Order.
38 1997 NCE Order.
39 1997 NCE Order.
40 Section 32.
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<PAGE>
(c) Other interests and businesses of Quixx:
(i) Quixx Power Services, Inc. ("QPS"), a wholly-owned
subsidiary of Quixx, provides operation and maintenance services
for generation facilities in which Quixx holds an equity interest
and for nonassociates./41/
(ii) Quixx Resources, Inc., a wholly-owned subsidiary of
Quixx, holds a 44.55% limited partnership interest in Borger
Energy Associates, L.P., a 49.5% limited partnership interest in
Denver City Energy Associates, L.P., a general and a 99% limited
partnership interest in Quixx WRR, L.P./42/
(iii) Quixx Louisville, L.L.C., (formerly Vedco Louisville,
L.L.C.) a wholly-owned subsidiary of Quixx, owns a facility
consisting of two gas-fired boilers providing steam to a DuPont
plant in Louisville, Kentucky./43/
Royalty interests in coal and other minerals produced in New
Mexico by a nonassociate company are held directly by Quixx./44/
7. The Planergy Group, Inc. ("Planergy"), which was acquired April 1, 1998
(formerly known as Falcon Seaboard Energy Services, Inc.), was incorporated in
1990 under the laws of the State of Texas. Planergy provides energy management,
consulting and demand side management services to commercial, industrial,
utility and municipal customers. Planergy currently has two principal
wholly-owned subsidiaries, Planergy (Delaware), Inc., and Planergy Services,
Inc. Planergy (Delaware), Inc. provides energy-efficiency management,
conservation programs and mass-market services. Planergy Services, Inc.
specializes in industrial energy audits, and conservation reliability projects.
It focuses on energy services for industrial and large commercial customers. The
other subsidiaries in the planergy group are inactive or have no significant
operations or employees./45/
Planergy group subsidiaries with no significant operations or employees or
inactive subsidiaries: Planergy Services of California, Inc.; Cogeneration
Capital Associates Incorporated; Planergy Energy Services Corporation; Planergy
Services of Houston, Inc.; Planergy Services USA, Inc.; Planergy Services of
Texas, Inc.;
----------------
41 1997 NCE Order.
42 1997 NCE Order.
43 1997 NCE Order.
44 1997 NCE Order.
45 NCE system acquired the Planergy group pursuant to Rule 58(b)(1)(i), and
has reported information regarding the Planergy Group on Form U-9C-3.
C-2-9
<PAGE>
Planergy New York, Inc.; Planergy, Inc.; Planergy Limited; USA-Planergy LLC;
First American Energy Alliance, LLC; Planergy Power II, Inc.46
8. New Century O&M Services, Inc. was formed in 1999 to bid on and acquire
facilities owned by the federal government on military enclaves which are used
exclusively (i) in connection with the delivery and distribution of electricity,
natural gas, water (including potable water and hot and chilled water), steam
and other energy products, and (ii) for the collection, treatment, processing
and disposal of solid and liquid wastes (collectively, the "Military Assets").
The Commission authorized the formation of NCO&M, but reserved jurisdiction
pending completion of the record over all of its proposed activities except
those with respect to the Fort Carson Military Base, which is located near
Colorado Springs, Colorado./47/
9. e prime, inc. ("e prime"): e prime engages in nonutility activities both
directly and indirectly through subsidiaries. e prime does not, and in the
future will not, own any facilities or engage in any activities that would cause
it to be a public-utility within the meaning of section 2(a)(5) of the Act,
unless authorized by the Commission.
(a) Direct activities of e prime:
(i) Energy marketing and brokering: e prime is directly engaged
in purchasing and selling gas at negotiated rates reflecting market
conditions./48/ e prime has also been authorized to act as a wholesale
electric power marketer, but is not presently active in that business.
In connection with its marketing activities, e prime employs risk
management strategies./49/ e prime will not directly or indirectly
engage in marketing or brokering activities outside of the United
States without separate Commission authorization, and, unless
authorized by the FERC, the marketing or brokering of power will not
involve purchases from, and sales to, associate companies.
(ii) Customer financing: e prime purchased a gas-fired air
compressor used for making snow and leases it to a customer in
conjunction with PSC's demand-side management program./50/ e prime
will not engage in customer financing in the future unless it obtains
Commission authorization or is exempt from the requirement of such
prior approval.
----------------
46 Rule 58(b)(1)(i).
47 New Century Energies, Inc., HCAR No. 27048 (July 9, 1999).
48 1997 NCE Order.
49 1997 NCE Order.
50 1997 NCE Order.
C-2-10
<PAGE>
(b) Subsidiaries of e prime:
(i) Texas Ohio Pipeline, Inc. owns and operates a 900-foot
FERC-regulated interstate gas pipeline that links the pipelines of
Texas Eastern Transmission Corporation and Tennessee Gas Pipeline
Company. The interest in this company was purchased in connection with
e prime's purchase of Texas Ohio Gas./51/
(ii) e prime Florida, Inc. holds contract assets formerly owned
by Texas Ohio Gas Incorporated./52/
(iii) e prime Georgia, Inc. holds contract assets formerly owned
by Texas Ohio Gas Incorporated./53/
(iv) Young Gas Storage Company: holds a 47.5% general partnership
interest in Young Gas Storage Company, Ltd., a limited partnership
that owns an underground gas storage facility, primarily for use in
PSC's gas operations./54/ The partnership provides services to PSC and
to third parties, at FERC-determined rates.
10. New Century WYCO, Inc.: New Century WYCO owns a 50% interest in WYCO
Development LLC ("WYCO") which is authorized to purchase Front Range Pipeline
and Powder River Lateral Expansion pipeline project. The purpose of WYCO is to
acquire, own and lease natural gas transportation facilities./55/
----------------
51 1997 NCE Order.
52 Rule 58(b)(2)(i). Texas Ohio Gas, Inc. was engaged in wholesale and retail
gas marketing, participated in an electric retail pilot program in New
York, marketed electric power at wholesale and used risk management tools
in connection with its business, when it was sold, e prime Florida and e
prime Georgia retained some of its gas marketing and risk management
contracts as assets.
53 Rule 58(b)(2)(i). Texas Ohio Gas, Inc. was engaged in wholesale and retail
gas marketing, participated in an electric retail pilot program in New
York, marketed electric power at wholesale and used risk management tools
in connection with its business, when it was sold, e prime Florida and e
prime Georgia retained some of its gas marketing and risk management
contracts as assets.
54 1997 NCE Order.
55 New Century Energies, Inc., HCAR Nos. 27106 (Nov. 22, 1999), 27068 (Aug.
24, 1999) and 27034 (May 28, 1999)
C-2-11
<PAGE>
ANNEX D-1
NSP NON-UTILITY BUSINESSES
The vast majority of NSP's non-utility business are EWGs, FUCOs or QFs and
therefore would be exempt from the Act. A registered holding company may acquire
and hold an interest in an EWG and a FUCO without the need to apply for or
receive approval from the Commission. ss.ss.32 and 33 of the Act. (The
Commission retains jurisdiction over certain related transactions with prior
entities.) The Commission has also authorized the formation and financing of a
number of non-utility subsidiaries of registered holding companies in order to
invest in and hold securities of QFs, FUCOs, and EWGs. See, e.g., Interstate
Energy Corporation, Holding Co. Act Release No. 27069 (Aug. 26, 1999)
(authorizing intermediate subsidiaries for holding EWGs, FUCOs, subsidiaries
whose securities are acquired under Rule 58, and ETCs); Entergy Corporation,
Holding Co. Act Release No. 27039 (June 22, 1999) (authorizing development
activities, providing management services to associate EWGs, QFs and FUCOs, and
providing consulting and O&M services); The Southern Company, Holding Co. Act
Release No. 26212 (Dec. 30, 1994); Entergy Corp., Holding Co. Act Release No.
26322 (June 30, 1995); Northeast Utilities, Holding Co. Act Release No. 25977
(Jan. 24, 1994) (authorizing Charter Oak Energy and COE Development
Corporation): Central and South West Corp., Holding Co. Act Release No. 26156
(Nov. 3, 1994) (authorizing CSW to form, acquire, finance and own securities of
FUCOs); Central and South West Corporation, Holding Co. Act Release No. 26155
(Nov. 2, 1994) (authorizing investment in joint venture which will construct,
own and operate QFs and EWGs).
A registered holding company may acquire "energy-related companies" meeting
the Rule 58 safe harbor conditions without the need for Commission approval. 17
C.F.R. ss. 250.58 (1999); Exemption of Acquisition by Registered Public-Utility
Holding Companies of Non-Utility Companies Engaged in Certain Energy-Related
Activities, Holding Co. Act Release No. 26667 (Feb. 14, 1997). Under Rule 58, an
energy-related company is a company that derives or will derive substantially
all of its revenues (exclusive of revenues from temporary investments) from one
of the twelve businesses described in the Rule and from such other activities
and investments as the Commission may approve under Section 10. Rule 58 lists
the ownership of QFs as an energy-related activity under Rule 58(b)(1)(viii).
Almost all of NSP's and certain of NCE's non-utility businesses that are not
EWGs or FUCOs would be energy-related companies under the Commission's Rule 58
or prior Commission precedent.
The non-utility subsidiary companies are further described below in tabular
form, followed by a textual description of the larger non-utility subsidiary
businesses.
I. Subsidiaries of NSP
<TABLE>
<CAPTION>
Subsidiary Name Location of
Incorporation Description of Business Authority
<S> <C> <C> <C>
NSP Financing I Delaware Special purpose business trust Prior Commission
Precedent/1/
Viking Gas Transmission Delaware Natural Gas Company (interstate Rule 58(b)(2)
Company transportation)
Energy Masters Minnesota Energy services company Rule 58(b)(1)(i)
International
Eloigne Company Minnesota Investments in affordable housing Prior Commission
projects which qualify for low precedent/2/
income housing tax credits
First Midwest Auto Minnesota Owns and operates parking garage Prior Commission
Park, Inc. next to NSP HQs precedent/3/
United Power & Land Minnesota Holds land adjacent to certain NSP Prior Commission
Company operations, rents office space to precedent/4/
NSP
Nuclear Management Wisconsin Provides services to the nuclear Rule 58(b)(1)(i)
Company operations of its members
Reddy Kilowatt Montana Owns certain intellectual property Prior Commission
Corporation rights Precedent/5/
Seren Innovations, Inc. Minnesota Provides cable, telephone and Section 34
high-speed internet access system
---------------
1 New Century Energies, Inc., Holding Co. Act Release No. 26748 (Aug. 1,
1997) (approving retention of Southwestern Public Service Capital I, as
special purpose trust of SPS).
2 WPL Holdings, Inc., Holding Co. Act Release No. 26856 (April 14, 1998)
(permitting retention of Heartland Development and related subsidiaries
engaged in investing in projects that qualify under the Low Income Housing
Tax Credit Program under Section 42 of the Internal Revenue Code).
3 American Electric Power Service Co., Holding Co. Act Release No. 19981
(April 12, 1977).
4 UNITIL Corporation, Holding Co. Act Release No. 25524 (April 24, 1992).
5 New Century Energies, Inc., supra (approving the activity of selling or
entering into "royalty arrangements with regard to intellectual property
owned or developed" by PSC).
---------------
Ultra Power Technologies, Minnesota Markets power cable testing Rule 58(b)(1)(vii)
Inc. technology
NRG Energy, Inc. Delaware Develops, organizes, owns and ss.ss.32 and 33 and
operates non-regulated Rule 58(b)(1)(viii)
energy-related businesses
II. Subsidiaries of NSP-W
Subsidiary Name Location of
Incorporation Description of Business Authority
Clearwater Investments, Inc. Wisconsin Investment in affordable housing Prior Commission
projects which qualify for low precedent/6/
income housing tax credits under
federal tax law
NSP Lands Wisconsin Sells excess lands adjacent to Prior Commission
certain NSP operations precedent/7/
Chippewa & Flambeau Wisconsin Builds and operates dams and Prior Commission
Improvement Company reservoirs precedent/8/
III. Subsidiaries of NRG
Subsidiary Name Location of
Incorporation Description of Business Authority
Arthur Kill Power LLC Delaware Entity holding title to Arthur Kill EWG
generating station in Staten Island, 88 FERC P. 62,072
New York
Astoria Gas Turbine Power Delaware Entity holding title to Astoria EWG
LLC turbines in Staten Island, New York 88 FERC P. 62,178
Bioconversion Partners, L.P. California Supplies biomass fuel in California QF
---------------
6 WPL Holdings, Inc., supra.
7 UNITIL Corporation, supra.
8 Wisconsin River Power Company, Holding Co. Act Release No. 7977 (Jan. 29,
1948); Jersey Central Power and Light Co., Holding Co. Act Release No.
24664 (June 14, 1988); WPL Holdings, Inc., supra. (13%-owned subsidiary
managed and controlled waterflow through reservoirs and dams on Wisconsin
River).
---------------
B.L. England Power LLC Delaware Formed to acquire Connectiv assets Inactive
Brimsdown Power Limited England Project company for peaking unit Inactive
and Wales associated with Enfield Energy Centre
Limited in England
Cabrillo Power I LLC Delaware Entity holding title to the Encina EWG
electric generation station in 87 FERCP. 62,066
Carlsbad, California
Cabrillo Power II LLC Delaware Entity holding title to 17 SDG&E EWG
combustion turbines in San Diego, 87 FERC P. 62,080
California
Cadillac Renewable Energy Delaware Owns wood-fired electric generation QF
LLC plant in Cadillac, Michigan
Camas Power Boiler Limited Oregon Owns waste-wood-fired steam boiler in Rule 58(b)(1)(vi)
Partnership Camas paper mill in Washington
Camas Power Boiler, Inc. Oregon General partner in Camas Boiler Limited Rule 58(b)(1)(vi)
Partners
Carolina Energy, Limited Delaware Holds remaining non-generating assets QF
Partnership of the Carolina Energy transfer station
and waste-to-energy facility in North
Carolina
Cobee Energy Development LLC Delaware Provides project development services Prior Commission
in Latin America for NRG Energy, Inc. precedent/9/
and Vattenfall AB
Cobee Holdings Inc. Delaware Domestic holding company for Tosli Prior Commission
Investments N.V. precedent/10/
---------------
9 Entergy Corporation, Holding Co. Act Release No. 27039 (June 22, 1999).
10 Interstate Energy Corporation, Holding Co. Act Release No. 27069 (Aug. 26,
1999).
---------------
Cogeneration Corporation of Delaware Develops, owns and operates Rule 58(b)(1)(viii)
America cogeneration facilities in U.S.
Collinsville Operations Pty Australia Operates Collinsville coal-fired power Prior Commission
Ltd. plant in Australia precedent/11/
Collinsville Power Joint (Unincorporated) Owns Collinsville coal-fired power Prior Commission
Venture plant in Australia precedent/12/
Compania Electrica Central Bolivia Owner of generation assets for project EWG
Bulo Bulo S.A. in Bolivia 90FERC P. 62,193
Compania Boliviana de Canada (Nova Scotia) Owns and/or operates 15 operating power EWG
Energia Electrica S.A. plants primarily hydroelectric, in 78 FERC P. 62,166
Bolivia
Conemaugh Power LLC Delaware Formed to acquire Connectiv assets Inactive
Connecticut Jet Power LLC Delaware Own combustion turbines acquired from EWG
Connecticut Light and Power ("CL&P 90 FERCP. 62,010
assets")
Coniti Holding B.V. Netherlands International holding company for Bulo Prior Commission
Bulo gas fired power plant in Bolivia precedent/13/
Croatia Power Group Cayman Islands Holding company for potential project Prior Commission
in Croatia precedent/14/
Crockett Cogeneration, a California Owns Crockett cogeneration facility in QF
California Limited California
Partnership
Curtis/Palmer Hydroelectric New York Owns Curtis/Palmer hydroelectric power QF
Company plant in New York
Deepwater Power LLC Delaware Formed to acquire Connectiv assets Inactive
---------------
11 Interstate Energy Corporation, supra.
12 Interstate Energy Corporation, supra.
13 Interstate Energy Corporation, supra.
14 Interstate Energy Corporation, supra.
---------------
Devon Power LLC Delaware Entity holding title to the Devon Power EWG
station in Connecticut 90 FERC P. 62,036
Dunkirk Power LLC Delaware Entity holding title to Dunkirk Power EWG
Station in New York 88 FERCP. 61,190
ECK Generating, s.r.o. Czech Republic Expansion project for approximately 300 FUCO
MW coal-fired power plant under
construction in Kladno facility
El Segundo Power, LLC Delaware Entity holding title to the El Segundo EWG
power plant in El Segundo, California 82 FERC P. 62,169
Elk River Resource Recovery, Minnesota Proposed owner of Elk River waste Inactive
Inc. processing facility in Minnesota
Energeticke Centrum Kladno, Czech Republic Owns and operates a coal-fired power FUCO
s.r.o. plant in Kladno, Czech Republic
Energy Developments Australia Develops, owns and operates power FUCO
Limited (Queensland) generation and waste-to-energy projects
in Australia, New Zealand, Asia and
England
Energy Investors Fund, L.P. Delaware Domestic investment company which holds Prior Commission
limited partner interests in Crockett, precedent/15/
Curtis/Palmer, Windpower 87 and
Windpower 88 projects; also a funding
vehicle for numerous other unrelated
projects in the U.S.
Energy National, Inc. Utah Domestic holding company which holds Prior Commission
limited partner interests in Crockett, precedent/16/
Curtis/Palmer, Maine Energy Recovery
Company, Penobscot Energy Recovery
Company, PowerSmith, Windpower 87,
Windpower 88 projects; general partner
in Penobscot Energy Recovery Co.
---------------
15 Interstate Energy Corporation, supra.
16 Interstate Energy Corporation, supra.
---------------
Enfield Energy Centre England Owns Enfield gas fired power plant in EWG
Limited And Wales England 82 FERCP. 62,086
Enfield Holdings B.V. Netherlands International holding company for Prior Commission
Enfield Energy Centre Limited projects precedent/17/
in England
Enfield Operations, L.L.C. England Operates Enfield Energy gas-fired power EWG
plant in England 82 FERCP. 62,087
Enfield Operations (UK) England Holds employees for Enfield Operations, Prior Commission
Limited And Wales L.L.C. precedent/18/
ENI Chester, Limited Oregon Was limited partner in wood burning Inactive
Partnership project in Maine
ENI Crockett Limited Oregon Limited partner in Crockett Rule 58(b)(1)(viii)
Partnership Cogeneration, A California Limited
Partnership
ENI Curtis Falls, Limited Oregon Limited partner in Curtis/Palmer Rule 58(b)(1)(viii)
Partnership Hydroelectric Company
Enifund, Inc. Utah Holds property (house at Crockett Prior Commission
cogeneration facility) and provides precedent/19/
consulting services to Maine Energy
Recovery Company
Enigen, Inc. Utah General Partner in The PowerSmith Prior Commission
Cogeneration Project, Limited precedent/20/
Partnership
ESOCO Crockett, Inc. Oregon Operates Crockett cogeneration facility Rule 58(b)(1)(viii)
in California
---------------
17 Interstate Energy Corporation, supra.
18 Interstate Energy Corporation, supra.
19 Entergy Corporation, Holding Co. Act Release No. 27039 (June 12, 1999).
20 Interstate Energy Corporation, supra.
---------------
ESOCO Fayetteville, Inc. Oregon Proposed operator of Fayetteville Inactive
waste-to-energy facility in North
Carolina
ESOCO Molokai, Inc. Utah Proposed operator of Molokai biomass Inactive
fueled power plant in Hawaii
ESOCO Orrington, Inc. Utah Operates Penobscot Energy Recovery Rule 58(b)(1)(viii)
Company in Maine
ESOCO Soledad, Inc. Utah Proposed operator of Soledad wood Inactive
burning power plant in California
ESOCO Wilson, Inc. Oregon Proposed operator of Carolina Energy Inactive
waste-to-energy facility and transfer
station in North Carolina
ESOCO, Inc. Utah Domestic holding company for individual Rule 58(b)(1)(viii)
Esoco O&M companies
Flinders (Gibraltar) Gibraltar Formed as holding company for Prior Commission
Australian project precedent/21/
Flinders Labuan (No. 1) Ltd. Labuan Holding company for potential Prior Commission
acquisition in Australia precedent/22/
Flinders Labuan (No. 2) Ltd. Labuan Holding company for potential Prior Commission
acquisition in Australia precedent/23/
Four Hills, LLC Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
Nashua project in New Hampshire
---------------
21 Interstate Energy Corporation, supra.
22 Interstate Energy Corporation, supra.
23 Interstate Energy Corporation, supra.
---------------
Gladstone Power Station (Unincorporated) Owns a 1,680MW coal-fired power EWG
Joint Venture generation facility in Australia 67 FERC P. 61,187
Graystone Corporation Minnesota General Partner in Louisiana Energy Rule 58(b)(1)(viii)
Services, L.P.
Gunwale B.V. Netherlands International holding company Inactive
Huntley Power LLC Delaware Entity holding title to the Huntley EWG
Power station in New York 88 FERC P. 61,190
Indian River Power LLC Delaware Formed to acquire Connectiv assets Inactive
Interenergy Limited Ireland Inactive - proposed provider of Inactive
electric marketing services in eastern
and central Europe
Inversiones Bulo Bulo S.A. Bolivia Bolivian holding company for Bulo Bulo Prior Commission
gas-fired power plant in Bolivia precedent/24/
Jackson Valley Energy California Owns and operates waste Rule 58(b)(1)(x)
Partners, L.P. lignite/cogeneration plant and lignite
mining and reclamation operation in
California
Kanel Kangal Elektrik Turkey Will own Kangal lignite fired power Prior Commission
Limited Sirketi plant in Turkey precedent/25/
Keystone Power LLC Delaware Formed to acquire Connectiv assets Inactive
Kiksis B.V. Netherlands Inactive - international holding Inactive
company - hold for Estonia project
Killingholme Generation United Kingdom Project company for Killingholme Power EWG
Limited Station 90 FERCP. 61,194
---------------
24 Interstate Energy Corporation, supra.
25 Entergy Corporation, supra.
---------------
Killinghome Holdings Limited United Kingdom Holds interest in Killinghome power Prior Commission
station precedent/26/
Killinghome Power Limited United Kingdom Project company for Killinghome power EWG
station 90 FERCP. 62,117
Kingston Cogeneration Canada Owns Kingston cogeneration facility in EWG
Limited Partnership (Ontario) Ontario, Canada 74 FERC P. 62,063
Kissimee Power Partners, Delaware Inactive Inactive
Limited Partnership
Kladno Power (No. 1) B.V. Netherlands International holding company for FUCO
Energeticke Centrum Kladno, s.r.o.
Kladno Power (No. 2) B.V. Netherlands International holding company for Matra FUCO
Powerplant Holding B.V., in Czech
Republic
Kraftwerk Schkopau GbR Germany Owns 960MW coal-fired power plant in EWG
Schkopau, Germany 73 FERC P. 61,318
Kraftwerk Schkopau Germany Operates in Germany Schkopau facility EWG
Betriebsgesellschaft mbH 73 FERC P. 61,314
KUSEL Kutahya Seyitomer Elektrik Turkey Formed to acquire 600 MW coal-fired Prior Commission
Limited Sirketi power station in Turkey. No assets or precedent/27/
employees at this time. NRG ownership
is 31.75%
Lakefield Junction LLC Delaware Shell company, formerly owned peaking Inactive
plant to be constructed in Minnesota
Lambique Beheer B.V. Netherlands International holding company for Prior Commission
MIBRAG B.V. and Mitteldeutsche precedent/28/
Braunkohlengesellschaft mbH in Germany
---------------
26 Interstate Energy Corporation, supra.
27 Interstate Energy Corporation, supra.
28 Interstate Energy Corporation, supra.
---------------
Langage Energy Park Limited United Kingdom Formed to develop Langage project Prior Commission
precedent/29/
Landfill Power LLC Wyoming Owns and operates Flying Cloud landfill QF
gas fueled power generation facility in
Eden Prairie, Minnesota
Le Paz Incorporated Minnesota Limited partner in Louisiana Energy Rule 58(b)(1)(vii)
Services, L.P.
LFG Partners, LLC Delaware Landfill gas collection system for Inactive
Yaworski project in Connecticut
Long Beach Generation LLC Delaware Owns gas-fired electric generation EWG
power plant in Long Beach, California 84 FERC P. 62,084
Long Island Cogeneration, New York Holds contracts for Long Island Inactive
L.P. cogeneration facility in New York which
was never constructed
Louisiana Energy Services, Delaware Owns uranium enrichment facility under Rule 58(b)(1)(vii)
L.P. development in Louisiana
Louisiana Generating LLC Delaware Formed for the purpose of owning Cajun EWG
non-nuclear generating assets in 90 FERCP. 61,311
Louisiana (including gas and coal-fired
generation)
Loy Yang Power Australia (Victoria) Operates Loy Yang coal-fired power Prior Commission
Management Pty Ltd. plant in Australia precedent/30/
Loy Yang Power Partners Australia Owns Loy Yang coal-fired plant in Prior Commission
Australia precedent/31/
Loy Yang Power Projects Pty Australia (Victoria) Provides technical services to Loy Yang Prior Commission
Ltd coal fired power plant in Australia precedent/32/
---------------
29 Interstate Energy Corporation, supra.
30 Entergy Corporation, supra.
31 Entergy Corporation, supra.
32 Entergy Corporation, supra.
---------------
Maine Energy Recovery Maine Owns Waste-to-Energy facility in QF and
Company Biddeford, Maine Rule 58(b)(1)(ix)
Matra Powerplant Holding Netherlands International holding company for ECK Prior Commission
B.V. Generating, s.r.o. in Czech Republic precedent/33/
MESI Fuel Station #1 L.L.C. Delaware Owns a synthetic coal processing Rule 58(b)(1)(vi)
facility in Catlettsburg, Kentucky
MIBRAG B.V. Netherlands Owns 99% of MIBRAG GmbH coal mines and Prior Commission
coal-fired power plants in Germany precedent/34/
MIBRAG Industriekraftwerke Gmbh Germany Owns three coal-fired power plants in 67 FERCP. 61,391
& Co. KG Germany
Mid-Continent Power Delaware Owns Mid-Contingent Power Company Inactive
Company, L.L.C. cogeneration facility in Oklahoma
Middletown Power LLC Delaware Own and/or operate portion of CL&P EWG
assets 90 FERCP. 62,037
Minnesota Methane Holdings Delaware Domestic holding company Inactive
LLC
Minnesota Methane II LLC Delaware Owns and operates original 3 Rule 58(b)(1)(vi) and
NEO/Ziegler landfill gas projects Rule 58(b)(1)(viii)
(Edward Kraemer in Burnsville, MN;
Flying Cloud in Eden Prairie, MN and
Nashua in New Hampshire)
Minnesota Methane LLC Wyoming Owns and operates 18 landfill gas Rule 58(b)(1)(vi) and
projects in the U.S. financed by Lyon Rule 58(b)(1)(viii)
Credit
---------------
33 Interstate Energy Corporation, supra.
34 Interstate Energy Corporation, supra.
---------------
Minnesota Waste Processing Delaware Owns municipal solid waste processing Rule 58(b)(1)(ii)
Company, L.L.C. facility and transfer station in
Minnesota
Mitteldeutsche Germany Operates coal mining, power generation Prior Commission
Braunkohlengesellschaft and associated operations near Leipzig, precedent/35/
mbH Germany
MM Albany Energy LLC Delaware Landfill gas fueled power generation QF and
for project in New York Rule 58(b)(1)(vi)
MM Biogas Power LLC Delaware Domestic holding company - owns 100% Rule 58(b)(1)(vi) and
interest in landfill gas fueled power Rule 58(b)(1)(viii)
generation projects not yet financed
MM Burnsville Energy LLC Delaware Landfill gas fueled power generation QF and
for Edward Kraemer landfill in Minnesota Rule 58(b)(1)(vi)
MM Corona Energy LLC Delaware Landfill gas fueled power generation QF and
for O'Brien projects in California Rule 58(b)(1)(vi)
MM Cuyahoga Energy LLC Delaware Landfill gas fueled power generation QF and
for project in Cleveland, Ohio Rule 58(b)(1)(vi)
MM El Sobrante Energy LLC Delaware Landfill gas fueled power generation Inactive
for project in California
MM Erie Power LLC Delaware Landfill gas fueled power generation Rule 58(b)(1)(vi)
for project in Denver, Colorado
MM Ft. Smith Energy LLC Delaware Formed to sell landfill gas to other Inactive
companies in Arkansas - not a GENCO
----------------
35 Entergy Corporation, supra.
---------------
MM Hackensack Energy LLC Delaware Landfill gas fueled power generation QF and
for HMDC/Balefill/Kingsland O'Brien Rule 58(b)(1)(vi)
project in Lyndhurst, New Jersey
MM Hartford Energy LLC Delaware Landfill gas fueled power generation QF and
for project in Connecticut Rule 58(b)(1)(vi)
MM Lopez Energy LLC Delaware Landfill gas fueled power generation QF and
for Lopez Canyon project in Los Rule 58(b)(1)(vi)
Angeles, California
MM Lowell Energy LLC Delaware Landfill gas fueled power generation QF and
for project in Massachusetts Rule 58(b)(1)(vi)
MM Martinez Energy LLC Delaware Landfill gas fueled power generation QF and Rule
for project in California 58(b)(1)(vi)
MM Nashville Energy LLC Delaware Landfill gas fueled power generation QF and
for project in Tennessee Rule 58(b)(1)(vi)
MM Northern Tier Energy Delaware Landfill gas fueled power generation QF and
LLC for project in Pennsylvania Rule 58(b)(1)(vi)
MM Phoenix Energy LLC Delaware Landfill gas fueled power generation QF and
for project in Arizona Rule 58(b)(1)(vi)
MM Prima Deshecha Energy Delaware Landfill gas fueled power generation QF and
LLC for project in Orange County, California Rule 58(b)(1)(vi)
MM Prince William Energy Delaware Landfill gas fueled power generation QF and
LLC for project in Virginia Rule 58(b)(1)(vi)
MM Riverside LLC Delaware Landfill gas fueled power generation QF and
for project in California Rule 58(b)(1)(vi)
MM San Diego LLC Delaware Landfill gas fueled power generation QF and
for Miramar project in California Rule 58(b)(1)(vi)
MM SKB Energy LLC Delaware Landfill gas fueled power generation QF and
for project in Pennsylvania Rule 58(b)(1)(vi)
MM Spokane Energy LLC Delaware Landfill gas fueled power generation QF and
for project in Washington Rule 58(b)(1)(vi)
MM Tacoma LLC Delaware Landfill gas fueled power generation QF and
for project in Washington Rule 58(b)(1)(vi)
MM Tajiguas Energy LLC Delaware Landfill gas fueled power generation QF and
for project in Santa Barbara, California Rule 58(b)(1)(vi)
MM Taunton Energy LLC Delaware Landfill gas fueled power generation QF and
for project in Massachusetts Rule 58(b)(1)(vi)
MM Tomoka Farms Energy Delaware Landfill gas fueled power generation QF and
LLC for Volusia project in Florida Rule 58(b)(1)(vi)
MM Tri-Cities Energy LLC Delaware Sale of landfill gas to industrial Rule 58(b)(1)(vi)
customer
MM Tulare Energy LLC Delaware Landfill gas fueled power generation QF and
for Visalia project in California Rule 58(b)(1)(vi)
MM West Covina LLC Delaware Landfill gas fueled power generation QF and
for BKK project in California Rule 58(b)(1)(vi)
MM Woodville Energy LLC Delaware Landfill gas fueled power generation QF and
for project in California Rule 58(b)(1)(vi)
MM Yolo Power LLC Delaware Landfill gas fueled power generation QF and
for project in California Rule 58(b)(1)(vi)
MMSB Transco Holdings Delaware Transport landfill gas for resale QF and
LLC Rule 58(b)(1)(vi)
Montville Power LLC Delaware Own and/or operate a portion of the EWG
CL&P assets 90 FERCP. 62,043
Mt. Poso Cogeneration California Owns Mt. Poso cogeneration facility in QF
Company, a California California
Limited Partnership
NEO Albany, L.L.C. Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
project in New York
NEO Burnsville, LLC Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
Edward Kraemer landfill in Minnesota
NEO Chester-Gen LLC Delaware Formed to acquire landfill gas project Rule 58(b)(1)(vi)
NEO Corona LLC Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
O'Brien project in California
NEO Corporation Minnesota Develops, owns and operates Rule 58(b)(1)(vi)
landfill gas, hydroelectric and Rule 58(b)(1)(viii)
and small cogeneration projects
in the U.S.
NEO Cuyahoga, LLC Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
project in Cleveland, Ohio
NEO ECO 11 LLC Delaware Formed to acquire landfill gas project Rule 58(b)(1)(vi)
NEO El Sobrante LLC Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
project in California
NEO Erie LLC Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
project in Denver, Colorado
NEO Edgeboro, LLC Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
O'Brien project in New Jersey
NEO Findlay, LLC Delaware Landfill gas collection system for Inactive
project in Pennsylvania
NEO Fitchburg LLC Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
project in Massachusetts
NEO Freehold-Gen LLC Delaware Formed to acquire landfill gas project Rule 58(b)(1)(vi)
NEO Ft. Smith LLC Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
project in Arkansas
NEO Hackensack, LLC Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
HMDC/Balefill/Kingsland O'Brien
projects in Lyndhurst, New Jersey
NEO Hartford, LLC Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
project in Connecticut
NEO Landfill Gas Holdings Delaware Domestic holding company - provides O&M Rule 58(b)(1)(vi) and
Inc. services for landfill gas projects prior Commission
precedent/36/
NEO Landfill Gas Inc. Delaware Domestic holding company - holds 100% Rule 58(b)(1)(vi) and
interest in landfill gas collection prior Commission
system projects financed by Lyon Credit precedent/37/
NEO Lopez Canyon LLC Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
project in Los Angeles, California
NEO Lowell LLC Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
project in Massachusetts
NEO Martinez LLC Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
project in California
---------------
36 Entergy Corporation, supra.
37 Interstate Energy Corporation, supra.
---------------
NEO MESI LLC Delaware Produce and sell synthetic fuel (coal Rule 58(b)(1)(vi)
briquettes) in Kentucky
NEO Nashville LLC Delaware Landfill gas collection system for Rule 58(b)(1)(x)
project in Tennessee
NEO Northern Tier LLC Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
project in Pennsylvania
NEO Phoenix LLC Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
project in Arizona
NEO Prima Deshecha LLC Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
project in Orange County, California
NEO Prince William, LLC Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
project in Virginia
NEO Riverside LLC Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
project in California
NEO San Bernardino LLC Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
project in California
NEO San Diego LLC Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
Miramar project in California
NEO SKB LLC Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
project in Pennsylvania
NEO Spokane LLC Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
project in Washington
NEO Tacoma, L.L.C. Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
project in Washington
NEO Tajiguas LLC Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
project in Santa Barbara, California
NEO Taunton LLC Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
project in Massachusetts
NEO Toledo-Gen LLC Delaware Formed to acquire landfill gas project Rule 58(b)(1)(vi)
NEO Tomoka Farms LLC Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
Volusia project in Florida
NEO Tri-Cities LLC Delaware Landfill gas collection system for Rule 59(b)(1)(vi)
project in California
NEO Tulare LLC Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
Visalia project in California
NEO West Covina LLC Delaware Landfill gas collection system for BKK Rule 58(b)(1)(vi)
project in California
NEO Woodville LLC Delaware Landfill gas collection for project in Rule 58(b)(1)(vi)
California
NEO Yolo LLC Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
project in California
New Roads Generating, LLC Delaware Alternative domestic holding company Inactive
for Cajun non-nuclear generating assets
in Louisiana (including gas and
coal-fired generation)
North American Thermal Ohio Develops district heating and cooling Prior Commission
Systems Limited Liability projects in the U.S.; general partner precedent/38/
Company in Pittsburgh Thermal, Limited
Partnership and San Francisco Thermal,
Limited Partnership
Northbrook Acquisition Corp. Delaware Domestic holding company in STS Rule 58(b)(1)(viii)
Hydropower Ltd.
Northbrook Carolina Hydro, Delaware Owns and operates hydroelectric power Rule 58(b)(1)(viii)
L.L.C. plants in North Carolina and South
Carolina
---------------
38 Interstate Energy Corporation, supra.
---------------
Northbrook Energy, L.L.C. Delaware Develops hydroelectric power projects Rule 58(b)(1)(viii)
in the U.S.
Northbrook New York, L.L.C. Delaware Holds interest in Northbrook Rule 58(b)(1)(viii)
Acquisition Corp.
Northeast Generation Holding Delaware Holds a 50% interest in NRG Northeast Prior Commission
LLC Generating LLC precedent/39/
Norwalk Power LLC Delaware Entity holding title to the Norwalk EWG
generating station in Connecticut 90 FERC P. 62,035
NR (Gibraltar) Gibraltar Company utilized during the Enfield Inactive
transactions in England
NRG Affiliate Services Inc. Delaware Sponsor and hold the contracts and 401k Prior Commission
plans for CL&P, Somerset and other precedent/40/
entities
NRG Artesia Operations Inc. Delaware Proposed operator for Artesia Inactive
cogeneration facility in California
NRG Arthur Kill Operations Delaware Special purpose operating company to Prior Commission
Inc. provide contract O&M services to Arthur precedent/41/
Kill Power LLC
NRG Asia-Pacific, Ltd. Delaware Provides international business Prior Commission
development services in Australia and precedent/42/
the Pacific Rim region
NRG Astoria Gas Turbine Delaware Special purpose operating company to Prior Commission
Operations Inc. provide contract O&M services to precedent/43/
Astoria Gas Turbine Power LLC
----------------
39 Interstate Energy Corporation, supra.
40 Entergy Corporation, Holding Co., Act Release No. 27039 (June 22, 1999).
41 Entergy Corporation, supra.
42 Entergy Corporation, supra.
43 Entergy Corporation, supra.
---------------
NRG Cabrillo Power Delaware Special purpose operating company to Prior Commission
Operations Inc. provide contract O&M services. precedent/44/
Currently inactive.
NRG Cadillac Inc. Delaware Entity holding NRG's 50% interest in Prior Commission
Cadillac Renewable Energy LLC precedent/45/
NRG Cadillac Operations Inc. Delaware Operating company for Cadillac wood Prior Commission
fired power plant in Michigan precedent/46/
NRG Caymans-C Cayman Islands Holding company for interests in Prior Commission
Scudder Latin American precedent/47/
Power I-C and II-C and II-Corp A and
II-Corp B
NRG Caymans Company Cayman Islands Holding company for Central and Eastern Prior Commission
European Power Fund precedent/48/
NRG Caymans-P Cayman Islands Holding company for interests in Prior Commission
Scudder Latin American precedent/49/
Power I-P and II-P
NRG South Central Generating LLC Delaware Special purpose holding company entity Prior Commission
to facility central pool financing precedent/50/
NRG Central U.S. LLC Delaware To hold 50% interest in NRG South Prior Commission
Central Generating LLC precedent/51/
NRG Collinsville Operating Australia International holding company in Prior Commission
Services Pty Ltd. Collinsville Operations Pty Ltd. precedent/52/
---------------
44 Entergy Corporation, supra.
45 Rule 58(b)(1)(viii).
46 Entergy Corporation, supra.
47 Interstate Energy Corporation, supra.
48 Interstate Energy Corporation, supra.
49 Interstate Energy Corporation, supra.
50 Interstate Energy Corporation, supra.
51 Interstate Energy Corporation, supra.
52 Interstate Energy Corporation, supra.
---------------
NRG Connecticut Affiliate Delaware House the payroll for the four Prior Commission
Services Inc. Connecticut operations, sponsor the precedent/53/
Pension, 401(k), Welfare plans, etc.
NRG Connecticut Generating Delaware Entity holding 100% of the ownership of Prior Commission
LLC Devon Power LLC, Norwalk Power LLC, precedent/54/
Middletown Power LLC, Montville Power
LLC and Connecticut Jet Power LLC
NRG Development Company Delaware Entity created to limit development Prior Commission
Inc. exposure on generation projects where precedent/55/
NRG Energy, Inc. is pursuing the
transaction with certain types of
partners
NRG Devon Operations Inc. Delaware Special purpose operating company to Prior Commission
provide contract O&M services to Devon precedent/56/
Power LLC
NRG Dunkirk Operations Inc. Delaware Special purpose operating company to Prior Commission
provide contract O&M services to precedent/57/
Dunkirk Power LLC
NRG Eastern LLC Delaware To hold 50% interest in NRG Northeast Prior Commission
Generating LLC precedent/58/
NRG El Segundo Operations Delaware Proposed operator for El Segundo Prior Commission
Inc. gas-fired power plant in California precedent/59/
---------------
53 Entergy Corporation, supra.
54 Interstate Energy Corporation, supra.
55 Entergy Corporation, supra.
56 Entergy Corporation, supra.
57 Entergy Corporation, supra.
58 Interstate Energy Corporation, supra. (authorizing intermediate
subsidiaries for the purpose of holdings EWGs).
59 Entergy Corporation, supra.
---------------
NRG Energeticky Provoz, Czech Republic Operates coal-fired power plants in FUCO
s.r.o. Kladno, Czech Republic
NRG Energy Center Dover Delaware Owns and operates 18 MW cogeneration Rule 58(b)(1)(viii)
LLC facility in Delaware
NRG Energy Center Grand Delaware Owns assets in connection with a Rule 58(b)(1)(vi)
Forks LLC contract to provide steam at the Grand
Forks Air Force Base
NRG Energy Center Harrisburg, Inc. Delaware Formed to own cogeneration assets and Inactive
sell steam to NRG Energy Center
Harrisburg, Inc.
NRG Energy Center Delaware Owns and operates the district heating Rule 58(b)(1)(vi)
Minneapolis LLC and cooling system serving customers in
the downtown Minneapolis area
NRG Energy Center Paxton Inc. Delaware Formed to provide steam to Harrisburg, Inactive
Pennsylvania central business district
NRG Energy Center Delaware Eventually will own and operate the Rule 58(b)(1)(vi)
Pittsburgh LLC Pittsburgh Thermal district heating and
cooling plant which currently serves
approx 25 customers in the Pittsburgh
area
NRG Energy Center Rock Delaware Owns assets in connection with the sale Rule 58(b)(1)(vi)
Tenn LLC of steam of Rock-Tenn Corporation in
St. Paul
NRG Energy Center San Delaware Eventually will own and operate San Rule 58(b)(1)(vi)
Diego LLC Diego power and cooling, a chilled
plant serving downtown San Diego area
NRG Energy Center San Delaware Eventually will own and operate the San Rule 58(b)(1)(vi)
Francisco LLC Francisco Thermal district heating and
cooling plant which currently serves
customers in the San Francisco area
NRG Energy Center Washco Delaware Owns assets in connection with the sale Rule 58(b)(1)(vi)
LLC of steam to Anderson Corporation and
the State of Minnesota Correctional
Facility
NRG Energy CZ, s.r.o. Czech Republic Provides international business FUCO
development services in the Czech
Republic and Europe
NRG Energy Development Germany Provides international business Prior Commission
GmbH development services in Germany and precedent/60/
Europe
NRG Energy Jackson Valley California General partner in Jackson Valley QF
I, Inc. Energy Partners, L.P.
NRG Energy Jackson California Limited partner in (i) Jackson Valley QF
Valley II, Inc. Energy Partners, L.P., (ii) San Joaquin
Valley Energy Partners I, L.P.,
(iii) San Joaquin Valley Energy
Partners IV, L.P. and (iv)
Bioconversion Partners, L.P.
NRG Energy Ltd. England and Wales Provides international business Prior Commission
development services in the U.K. and precedent/61/
Europe
NRG Energy PL Sp. z o.o. Warsaw, Poland Provides international business Prior Commission
development services in Poland precedent/62/
NRG Gladstone Operating Australia Operates coal-fired Gladstone power EWG
Services Pty Ltd. plant in Australia 67 FERC P. 61,187
NRG Gladstone Australia Holds pension assets for employees of Prior Commission
Superannuation Pty Ltd. Gladstone coal-fired power plant in precedent/63/
Australia
---------------
60 Interstate Energy Corporation, supra.
61 Interstate Energy Corporation, supra.
62 Interstate Energy Corporation, supra.
63 Entergy Corporation, supra.
---------------
NRG Huntley Operations Inc. Delaware Special purpose operating company to Prior Commission
provide contract O&M services to precedent/64/
Huntley Power LLC
NRG International II Inc. Delaware Domestic holding company Prior Commission
precedent/65/
NRG International, Inc. Delaware Domestic holding company Prior Commission
precedent/66/
NRG International Services Delaware Holds service agreements with Prior Commission
Company expatriates and international precedent/67/
consultants
NRG International Delaware Entity created to limit development Prior Commission
Development Inc. exposure on generation projects where precedent/68/
NRG Energy, Inc. is pursuing the
transaction with certain types of
partners on international transactions
NRG Lakefield Inc. Delaware Special purpose entity to hold NRG's Prior Commission
50% member interest in Lakefield precedent/69/
Junction LLC
NRG Lakefield Junction LLC Delaware Inactive Inactive
NRG Latin America Inc. Delaware Domestic holding company for Cobee Prior Commission
Energy Development LLC precedent/70/
NRG Louisiana LLC Delaware Formed to acquire Koch Sterlington LLC Inactive
NRG Mextrans Inc. Delaware This entity will develop a transmission Prior Commission
line from Palo Verde power station precedent/71/
through Arizona, into Mexico and back
up into California, per a Presidential
Permit
---------------
64 Entergy Corporation, supra.
65 Interstate Energy Corporation, supra.
66 Interstate Energy Corporation, supra.
67 Interstate Energy Corporation, supra.
68 Interstate Energy Corporation, supra.
69 Interstate Energy Corporation, supra.
70 Interstate Energy Corporation, supra.
---------------
NRG MidAtlantic Generating LLC Delaware Formed to acquire Connectiv assets Inactive
NRG Middletown Operations Delaware Special purpose operating company to Prior Commission
Inc. provide O&M services contract to precedent/72/
Middletown Power LLC
NRG Montville Operations Delaware Special purpose operating company to Prior Commission
Inc. provide contract O&M services to precedent/73/
Montville Power LLC
NRG Morris Operations Inc. Delaware Former operator for Millennium Prior Commission
cogeneration facility in Illinois precedent/74/
NRG New Roads Holdings LLC Delaware Entity formed to hold title to certain Prior Commission
Cajun assets that, due to federal precedent/75/
regulatory reasons could not be held by
Louisiana Generating LLC
NRG Northeast Affiliate Delaware Manage payroll and benefits for Huntley Prior Commission
Services Inc. and Dunkirk (approximately 330 precedent/76/
employees)
NRG Northeast Generating Delaware Special purpose holding company entity Prior Commission
LLC to facilitate east coast pool financing precedent/77/
---------------
71 Entergy Corporation, supra.
72 Entergy Corporation, supra.
73 Entergy Corporation, supra.
74 Entergy Corporation, supra.
75 Entergy Corporation, supra. (These properties are being held pending future
use by the EWGs and also appear retainable under UNITIL Corporation,
Holding Co. Act Release No. 25524 (April 24, 1992)).
76 Entergy Corporation, supra.
77 Interstate Energy Corporation, supra. (authorizing intermediate
subsidiaries for the purpose of holdings EWGs).
---------------
NRG Northeast Power Delaware Power marketing and fuel procurement Rule 58(b)(1)(v)
Marketing LLC
NRG Norwalk Harbor Delaware Special purpose operating company to Prior Commission
Operations Inc. provide contract O&M services to precedent/78/
Norwalk Harbor LLC
NRG Oklahoma Operations Delaware Proposed operator for Mid-Continent Inactive
Inc. Power Company cogeneration facility in
Oklahoma
NRG Operating Services, Inc. Delaware Currently provides O&M services for Prior Commission
Cadillac, Collinsville, and Gladstone precedent/79/
projects
NRG Oswego Harbor Power Delaware Special purpose operating company to Prior Commission
Operations Inc. provide contract O&M services to Oswego precedent/80/
Power LLC
NRG PacGen Inc. Delaware Domestic holding company which acquired Prior Commission
100% of the stock of Pacific Generation precedent/81/
Company
NRG Pittsburgh Thermal Inc. Delaware Limited Partner in Pittsburgh Thermal, Rule 58(b)(2)(vi)
Limited Partnership
NRG Power Marketing Inc. Delaware Holds power marketing license Rule 58(b)(1)(v)
NRG Rocky Road LLC Delaware Special purpose LLC formed to hold the Prior Commission
50% membership interest in Rocky Road precedent/82/
LLC
NRG San Francisco Thermal Delaware Special purpose entity to hold NRG's Rule 58(b)(1)(vi)
Inc. limited partnership ownership in SFTLP
---------------
78 Entergy Corporation, supra.
79 Entergy Corporation, supra.
80 Entergy Corporation, supra.
81 Interstate Energy Corporation, supra.
82 Interstate Energy Corporation, supra.
---------------
NRG Services Corporation Delaware Provides payroll and benefits services Prior Commission
through service agreements with precedent/83/
individual O&M companies
NRG South Central Generating LLC Delaware Special purpose holding company entity Prior Commission
to facility central pool financing precedent/84/
NRG Sunnyside Operations Delaware General Partner in Sunnyside Operations Inactive
GP Inc. Associated L.P.
NRG Sunnyside Operations Delaware Limited Partner in Sunnyside Operations Inactive
LP Inc. Associates L.P.
NRG Thermal Corporation Delaware The sole member of all the llcs under Prior Commission
the new thermal restructuring precedent/85/
NRG Thermal Operating Delaware At this time has no assets or operations Inactive
Services LLC
NRG Victoria I Pty Ltd. Australia International holding company in NRG FUCO
Victoria II Pty Ltd. and NRG Victoria
III Pty Ltd. In Australia
NRG Thermal Services, Inc. Delaware Formed to hold chiller plant assets for Inactive
NRG Energy Center Harrisburg, Inc.
NRG Victoria II Pty Ltd. Australia International holding company in NRG FUCO
Victoria III Pty Ltd. In Australia
NRG Victoria III Pty Ltd. Australia International holding company for FUCO
Energy Developments Limited
---------------
83 Entergy Corporation, supra.
84 Interstate Energy Corporation, supra.
85 Interstate Energy Corporation, supra.
---------------
NRG West Coast Inc. Delaware To act as holding company for West Prior Commission
coast limited liability companies precedent/86/
NRG Western Affiliate Delaware Handle payroll type issues for the Prior Commission
Services Inc. Western Region operating companies precedent/87/
NRGenerating Energy Trading Ltd. United Kingdom International power marketing entity Rule 58(b)(1)(v)
NRGenerating Holdings Switzerland Swiss holding company Prior Commission
GmbH precedent/88/
NRGenerating Holdings Switzerland Formed as holding company for Prior Commission
(No. 2) Gmbh Australian project. precedent/89/
NRGenerating Holdings Netherlands International holding company in FUCO
(No. 1) B.V. Collinsville Power Joint Venture
NRGenerating Holdings Netherlands International holding company Inactive
(No. 3) B.V. registered to do business in Australia
NRGenerating Holdings Netherlands International holding company in Loy EWG
(No. 4) B.V. Yang Power Partners, Loy Yang Power 79 FERC P. 62,025
Management Pty Ltd. and Loy Yang Power
Projects Pty Ltd.
NRGenerating Holdings Netherlands International holding company in NRG FUCO
(No. 5) B.V. Energeticky Provoz, s.r.o.
NRGenerating Holdings Netherlands International holding company Inactive
(No. 6) B.V. registered to do business in Australia
NRGenerating Holdings Netherlands International holding company for West Inactive
(No. 7) B.V. Java O&M company in formation in
Indonesia
---------------
86 Interstate Energy Corporation, supra.
87 Entergy Corporation, supra.
88 Interstate Energy Corporation, supra.
89 Interstate Energy Corporation, supra.
---------------
NRGenerating Holdings Netherlands International holding company for West Inactive
(No. 8) B.V. Java O&M company in formation in
Indonesia
NRGenerating Holdings Netherlands International holding company in Kanel Prior Commission
(No. 9) B.V. Kangal Elektrik Limited Sirketi precedent/90/
NRGenerating Holdings Netherlands International holding company for Prior Commission
(No. 11) B.V. Langage Park Project in England precedent/91/
NRGenerating Holdings Netherlands International holding company Inactive
(No. 12) B.V.
NRGenerating Holdings Netherlands International holding company Inactive
(No. 13) B.V.
NRGenerating Holdings Netherlands International holding company Inactive
(No. 14) B.V.
NRGenerating Holdings Netherlands International holding company Inactive
(No. 15) B.V.
NRGenerating Holdings Netherlands International holding company Inactive
(No. 16) B.V.
NRGenerating Holdings Netherlands International holding company Inactive
(No. 17) B.V.
NRGenerating Holdings Netherlands International holding company Inactive
(No. 18) B.V.
NRGenerating Holdings Netherlands International holding company Inactive
(No. 19) B.V.
NRGenerating Holdings Netherlands International holding company Inactive
(No. 20) B.V.
---------------
90 Interstate Energy Corporation, supra.
91 Interstate Energy Corporation, supra.
---------------
NRGenerating Holdings Netherlands International holding company Inactive
(No. 21) B.V.
NRGenerating Holdings Netherlands International holding company Inactive
(No. 22) B.V.
NRGenerating Holdings Netherlands International holding company Inactive
(No. 23) B.V.
NRGenerating International Netherlands International holding company Prior Commission
B.V. precedent/92/
NRGenerating, Ltd. United Kingdom Holding company for Killingholme Prior Commission
structure in the UK precedent/93/
NRGenerating Luxembourg Luxembourg Formed as holding company for Prior Commission
(No. 1) S.a.r.l Australian project precedent/94/
NRGenerating Luxembourg Luxembourg Formed as holding company for Prior Commission
(No. 2) S.a.r.l Australian project precedent/95/
NRGenerating Rupali B.V. Netherlands International holding company for Inactive
Rupali oil fired power plant bid in
Pakistan
O'Brien Biogas (Mazzaro), Delaware Landfill gas collection system for Rule 58(b)(1)(vi)
Inc. project in Pennsylvania
O'Brien Biogas IV LLC Delaware Landfill gas fueled power generation QF and
for Edgeboro project in New Jersey Rule 58(b)(1)(vii)
O'Brien California Cogen California Owns Artesia cogeneration facility in Inactive
Limited California
O'Brien Cogeneration, Inc. II Delaware General Partner in O'Brien California Rule 58(b)(1)(viii)
Cogen Limited
O'Brien Standby Power Delaware Landfill gas fueled power generation QF and Rule
Energy, Inc. for SKB project in Pennsylvania 58(b)(1)(vi)
---------------
92 Interstate Energy Corporation, supra.
93 Interstate Energy Corporation, supra.
94 Interstate Energy Corporation, supra.
95 Interstate Energy Corporation, supra.
---------------
Okeechobee Power I, Inc. Delaware Inactive Inactive
Okeechobee Power II, Inc. Delaware Inactive Inactive
Okeechobee Power III, Inc. Delaware Inactive Inactive
ONSITE Energy, Inc. Oregon Domestic holding company for ONSITE Rule 58(b)(1)(viii)
Soledad, Inc. and ONSITE Marianas
Corporation; also indirectly holds
general partner interest in Mt. Poso
project and limited partner interest in
Turners Falls project
ONSITE Funding Corporation Oregon Provides funding to various ONSITE Inactive
projects
ONSITE Limited Partnership Oregon Owned cogeneration facilities for Inactive
No. 1 bakery in Los Angeles and dairy in
Michigan
ONSITE Marianas Commonwealth of the Owned and operated Marianas solar Inactive
Corporation Northern Marianas energy plant in the Commonwealth of
Islands Northern Mariana Islands in Pacific
Ocean
ONSITE Soledad, Inc. Oregon Owned and operated Soledad wood burning Inactive
power plant in California
ONSITE/US Power Limited Oregon Owned Crossroads cogeneration facility Inactive
Partnership No. 1 in New Jersey
Orrington Waste, Ltd. Limited Oregon Provides waste disposal services to Rule 58(b)(1)(ix)
Partnership municipalities to be delivered to waste
disposal operators in Maine, including
Penobscot Energy Recovery Company
Oswego Harbor Power LLC Delaware Formed for the purpose of acquiring, EWG
operating and owning the electric 89 FERC P. 62,177
generating plant in Oswego, New York
OU Nrg Energy Est Estonia Formed as NRG's development office in Prior Commission
Estonia precedent/96/
P.T. Dayalistrik Pratama Indonesia Formed to own and construct West Java Inactive
coal-fired power plant in Indonesia
Pacific Crockett Energy, Inc. Utah General Partner in Crockett Rule 58(b)(1)(viii)
Cogeneration, A California Limited
Partnership
Pacific Crockett Holdings, Oregon Domestic holding company for Pacific Rule 58(b)(1)(viii)
Inc. Crockett Energy, Inc.
Pacific Generation Company Oregon Domestic holding company acquired by Rule 58(b)(1)(viii)
NRG (formerly a wholly owned subsidiary
of PacifiCorp Holdings, Inc. which
developed, built, owned, operated and
managed energy production facilities);
also a limited partner in Camas Power
Boiler Limited Partnership
Pacific Generation Oregon Provided domestic business development Inactive
Development Company services
Pacific Generation Holdings Oregon Domestic holdings company for Pacific Rule 58(b)(1)(viii)
Company Generation Funding and Pacific Prior Commission
Recycling Energy; holds precedent/97/
limited partner interests in
Carolina Energy, Limited
Partnership and Project Finance
Fund III; and indirectly holds
general partner interest in Kingston
Cogeneration Limited Partnership
Pacific Generation Resources Oregon Domestic holding company which holds Rule 58(b)(1)(vi);
Company limited partner interest in Long Island Rule 58(b)(1)(viii)
Cogeneration, L.P.; holds limited
partner interest in Curtis/Palmer;
general partner in ENI Chester, Limited
Partnership
---------------
96 Entergy Corporation, supra.
97 Interstate Energy Corporation, supra.
---------------
Pacific Kingston Energy, Inc. Canada General Partner in Kingston Prior Commission
(Ontario) Cogeneration Limited Partnership precedent/98/
Pacific Orrington Energy, Inc. Oregon Holds general and limited partner Rule 58(b)(1)(viii)
interests in Orrington Waste, Ltd.,
Limited Partnership
Pacific Recycling Energy, Inc. Oregon Provided business development services Inactive
for waste-to-energy projects
Pacific-Mt. Poso Corporation Oregon General Partner in Mt. Poso Rule 58(b)(1)(viii)
Cogeneration Company, A California
Limited Partnership
Penobscot Energy Recovery Maine Owns waste-to-energy facility in QF
Company Orrington, Maine
Pittsburgh Thermal, Limited Delaware Provides district heating and cooling Rule 58(b)(1)(vi)
Partnership services in Pittsburgh
Power Operations, Inc. Delaware Provides O&M services for Cadillac, Prior Commission
Newark and Parlin projects precedent/99/
Project Finance Fund III, L.P. Delaware Funding vehicle for various (primarily) Rule 58(b)(1)(viii)
international operating projects and Prior Commission
precedent/100/
P.T. Dayalistrik Pratarna Indonesia Formed to develop Cilegon project in Inactive
Indonesia
---------------
98 Interstate Energy Corporation, supra.
99 Entergy Corporation, supra.
100 Interstate Energy Corporation, supra.
---------------
P.T. NRG West Java Indonesia Formed to operate Cilegon project in Inactive
Indonesia
Pyro-Pacific Operating California Operates Mt. Poso cogeneration facility Inactive
Company in California
Rocky Road LLC Delaware Formed to hold ownership to generating Prior Commission
facility in Dundee, Illinois precedent/101/
Saale Energie GmbH Germany International holding company for Prior Commission
Kraftwerk Schkopau Betriebsgesellschaft precedent/102/
mbH, Kraftwerk Schkopau GbR and Saale
Energie Services GmbH (Germany)
Saale Energie Services GmbH Germany Provides consulting services to MIBRAG Prior Commission
precedent/103/
Sachsen Holding B.V. Netherlands International holding company for P.T. Inactive
Dayalistrik Pratama
San Bernardino Landfill Gas Delaware Partnership holding interest in QF QF and Rule
Limited Partnership, a landfill gas project 58(b)(1)(vi)
California limited
partnership
San Francisco Thermal, Delaware Provides district heating and cooling Rule 58(b)(1)(vi)
Limited Partnership services in San Francisco, California
San Joaquin Valley Energy I, California General Partner in San Joaquin Valley QF
Inc. Energy Partners I, L.P.
San Joaquin Valley California General partner in San Joaquin Valley QF
Energy IV, Inc. Energy Partners IV, L.P. and
Bioconversion Partners, L.P.
San Joaquin Valley Energy California Owns and operates three biomass QF
Partners I, L.P. waste-fuel power plants (Chowchilla II,
El Nido and Madera) in California
---------------
101 Interstate Energy Corporation, supra.
102 Interstate Energy Corporation, supra.
103 Entergy Corporation, supra.
---------------
San Joaquin Valley Energy California Holds remaining non-operating assets of QF
Partners IV, L.P. biomass waste-fuel power plant
(Chowchilla I) in California
Scoria Incorporated Minnesota Holds license for synthetic coal Inactive
technology
Scudder Latin American Cayman Islands, Investment company which owns Prior Commission
Power I-C L.D.C. British West Indies (primarily passive) investments in precedent/104/
Latin American power projects
Scudder Latin American Cayman Islands, Investment company which owns Prior Commission
Power I-P L.D.C. British West Indies (primarily passive) investments in precedent/105/
Latin American power projects
Scudder Latin American Cayman Islands, Investment company which owns Prior Commission
Power II-C L.D.C. British West Indies (primarily passive) investments in precedent/106/
Latin American power projects
Scudder Latin American Cayman Islands, Investment company which is part of the Prior Commission
Power II-Corporation A British West Indies holding company structure for precedent/107/
investments in Latin American power
projects held by Scudder Latin American
Power II-C and/or II-P
Scudder Latin American Cayman Islands, Investment company which is part of the Prior Commission
Power II-Corporation B British West Indies holding company structure for precedent/108/
investments in Latin American power
projects held by Scudder Latin American
Power II-C and/or II-P
---------------
104 Interstate Energy Corporation, supra.
105 Interstate Energy Corporation, supra.
106 Interstate Energy Corporation, supra.
107 Interstate Energy Corporation, supra.
108 Interstate Energy Corporation, supra.
---------------
Scudder Latin American Cayman Islands, Investment company which owns Prior Commission
Power II-P L.D.C. British West Indies (primarily passive) investments in precedent/109/
Latin American power projects
Servicios Energeticos S.A. Bolivia Operator of 87 MW gas-fired power plant EWG 92
in Bolivia FERCP. 62,011
Somerset Operations Inc. Delaware Operator for Somerset coal fired power Prior Commission
plant in Massachusetts precedent/110/
Somerset Power LLC Delaware Entity holding title to the electric EWG
generating plant in Somerset, 87 FERCP. 62,289
Massachusetts
South Central Generation Holding LLC Delaware Entity holding a 50% interest in NRG Prior Commission
South Central Generating LLC (issuer in precedent/111/
the Cajun deal)
Sterling (Gibraltar) Gibraltar This entity was formed to assist with Prior Commission
the NRGenerating, Ltd./UK holding precedent/112/
structure through Luxembourg
Sterling Luxembourg (No. 1) S.a.r.l. Luxembourg This entity was formed to hold Luxco2 Prior Commission
as a part of the NRGenerating, Ltd. precedent/113/
holding structure in the UK
Sterling Luxembourg (No. 2) S.a.r.l. Luxembourg This entity was formed to hold the Prior Commission
Swiss branch as a part of the precedent/114/
NRGenerating, Ltd. holding structure in
the UK
Sterling Luxembourg (No. 3) S.a.r.l. Luxembourg This entity was formed as a part of the Prior Commission
Sterling holding structure in the UK precedent/115/
---------------
109 Interstate Energy Corporation, supra.
110 Entergy Corporation, supra.
111 Interstate Energy Corporation, supra.
112 Interstate Energy Corporation, supra.
113 Interstate Energy Corporation, supra.
114 Interstate Energy Corporation, supra.
115 Interstate Energy Corporation, supra.
---------------
Sterling Luxembourg (No. 4) S.a.r.l. Luxembourg This entity was formed as a part of the Prior Commission
Sterling holding structure in the UK precedent/116/
STS Hydropower Ltd. Michigan Owns and operates hydroelectric QF
projects in California, Colorado,
Michigan, Virginia and Washington
STS Turbine & Development, Delaware Provides turbine design and project QF and
L.L.C. development services Rule 58(b)(1)(iv)
Suncook Energy LLC Delaware Landfill gas fueled power generation QF and
for Nashua project in New Hampshire Rule 58(b)(1)(vi)
Sunnyside Operations Associates, L.P. Delaware Operated a waste coal power plant in Inactive
Utah
Sunshine State Power (No. 2) Netherlands International holding company which EWG 67 FERCP. 61,185
B.V. holds a 17.5% undivided interest in
Gladstone Power Station Joint Venture
Sunshine State Power B.V. Netherlands International holding company which EWG 67 FERCP. 61,186
holds a 20% undivided interest in
Gladstone Power Station Joint Venture
Tacoma Energy Recovery Delaware Operate and manage power plant for City EWG
Company of Tacoma 90 FERCP. 62,165
The PowerSmith Delaware Owns PowerSmith cogeneration facility Rule 58(b)(1)(viii)
Cogeneration Project, in Oklahoma
Limited Partnership
Tosli (Gibraltar) B.V. Netherlands Company that serves as a funding Prior Commission
vehicle for certain of NRG's Latin precedent/117/
American projects
---------------
116 Interstate Energy Corporation, supra.
117 Entergy Corporation, supra.
---------------
Tosli Acquisition B.V. Netherlands Company formed to assist with Cobee Prior Commission
tender offer precedent/118/
Tosli Investments N.V. Netherlands International holding company for EWG
Compania Boliviana de Energia Electrica 78 FERCP. 62,165
S.A. in Latin America
Tosli Luxembourg (No. 1) Luxembourg Serves as a funding vehicle for NRG's Prior Commission
s.a.r.l. Latin America projects precedent/119/
Tosli Luxembourg (No. 2) Luxembourg International holding company for Bulo Prior Commission
s.a.r.l. Bulo project in Bolivia precedent/120/
Turners Falls Limited Massachusetts Owns Turners Falls cogeneration Rule 58(b)(1)(viii)
Partnership facility in Massachusetts
Vienna Power LLC Delaware Formed to acquire Connectiv assets Inactive
Wainstones Power Limited England and Wales Formed to develop, build, own and Prior Commission
operate 800MW combined cycle gas precedent/121/
turbine power plant on greenfield site
at Langage England (f/k/a Plymouth
Energy Centre)
WCP (Generation) Holdings Delaware Jointly owned entity between the owners Prior Commission
LLC and West Coast Power LLC precedent/122/
West Coast Power LLC Delaware West coast holding company entity Prior Commission
designed to facilitate west coast asset precedent/123/
pool financing
---------------
118 Entergy Corporation, supra.
119 Interstate Energy Corporation, supra.
120 Interstate Energy Corporation, supra.
121 Entergy Corporation, supra.
122 Interstate Energy Corporation, supra.
123 Interstate Energy Corporation, supra.
---------------
IV. Subsidiaries of Eloigne Company
Location of
Subsidiary Name Incorporation Description of Business Authority
Safe Haven Homes LLC Delaware Owns partnership interest in four Prior Commission
affordable housing projects, precedent/124/
primarily within the Company's
service area
Lauring Green Ltd. Ptsp. Minnesota Affordable housing Same
Bemidji Townhouse Ltd. Ptsp. Minnesota Affordable housing Same
Central Towers Limited Minnesota Affordable housing Same
Partnership
Driftwood Partners Ltd. Ptsp. Minnesota Affordable housing Same
Colfax Prairie Homes Limited Wisconsin Affordable housing Same
Partnership
Cottage Court Ltd. Ptsp. Minnesota Affordable housing Same
Ctg. Homesteads Hillcrest Minnesota Affordable housing Same
Ltd. Ptsp.
Cottages of Spring Lake Park Minnesota Affordable housing Same
Ltd. Ptsp.
Cottages of Vadnais Heights Minnesota Affordable housing Same
Ltd. Ptsp.
Ctg. Homesteads of Willow Minnesota Affordable housing Same
Ponds Ltd. Ptsp.
Albany Countryside Minnesota Affordable housing Same
Townhomes Ltd. Ptsp.
RWIC Credit Fund Ltd. Ptsp. Minnesota Affordable housing Same
Marvin Gardens Ltd. Ptsp. Minnesota Affordable housing Same
---------------
124 WPL Holdings, Inc., Holding Co. Act Release No. 26856 (April 14, 1998)
(approving retention of a non-utility subsidiary engaged in the
"development, ownership, and sales of, and asset management services in
connection with, affordable multi-family housing properties").
---------------
Crown Ridge Apartments Ltd. Minnesota Affordable housing Same
Ptsp.
Sioux Falls Housing Equity South Dakota Affordable housing Same
Fund I Ltd. Ptsp.
East Creek Limited Minnesota Affordable housing Same
Partnership
Edenvale Family Housing Minnesota Affordable housing Same
Limited Partnership
Granite Hill Ltd. Ptsp. Minnesota Affordable housing Same
Groveland Terrace Minnesota Affordable housing Same
Townhomes Ltd. Ptsp.
Plover Limited Liability Co. Wisconsin Affordable housing Same
Jefferson Heights Townhomes Minnesota Affordable housing Same
Ltd. Ptsp.
Lakeville Court Ltd. Ptsp. Minnesota Affordable housing Same
Majestic View Apartments, South Dakota Affordable housing Same
Ltd. Ptsp.
Marsh Run Ltd. Ptsp. Minnesota Affordable housing Same
Oakdale Leased Housing Ltd. Minnesota Affordable housing Same
Ptsp.
Wyoming Limited Partnership Minnesota Affordable housing Same
J&D 14-93 Ltd. Ptsp. Minnesota Affordable housing Same
Park Rapids Housing Limited Minnesota Affordable housing Same
Partnership
MDI Ltd. Ptsp. #44 Minnesota Affordable housing Same
Sioux Falls Partners Ltd. Ptsp. South Dakota Affordable housing Same
806 N. Hazel Ltd. Ptsp. Minnesota Affordable housing Same
Links Lane, A Ltd. Ptsp. Minnesota Affordable housing Same
Polynesian Village 1994 Ltd. Minnesota Affordable housing Same
Ptsp.
Sioux River Ltd. Ptsp. South Dakota Affordable housing Same
Stradford Flats Ltd. Ptsp. Minnesota Affordable housing Same
Brooklyn Ctr. Leased Housing Minnesota Affordable housing Same
Assc. LLC
Fairview Ridge Ltd. Ptsp. Minnesota Affordable housing Same
Tower Terrace Ltd. Ptsp. Minnesota Affordable housing Same
R & W Partners Ltd. Ptsp. Minnesota Affordable housing Same
Mahtomedi Woodland Minnesota Affordable housing Same
Limited Partnership
Woodland Village Minnesota Affordable housing Same
Townhomes Ltd. Ptsp.
Chaska Brickstone Limited Minnesota Affordable housing Same
Partnership
Farmington Townhome Minnesota Affordable housing Same
Limited Partnership
Hearthstone Village Limited North Dakota Affordable housing Same
Partnership
Lyndale Avenue Townhomes Minnesota Affordable housing Same
Limited Partnership
Mankato Townhomes Limited Minnesota Affordable housing Same
Partnership
Moorehead Townhomes Minnesota Affordable housing Same
Limited Partnership
Oakwood Townhomes Minnesota Affordable housing Same
Limited Partnership
Rochester Townhome Limited Minnesota Affordable housing Same
Partnership
Rushford Housing Limited Minnesota Affordable housing Same
Partnership
Shakopee Boulder Ridge Minnesota Affordable housing Same
Limited Partnership
Shenandoah Woods Limited Minnesota Affordable housing Same
Partnership
V. Subsidiaries of Clearwater
Location of
Subsidiary Name Incorporation Description of Business Authority
Shoe Factory Holdings, LLC Wisconsin Affordable housing Same
Woodsedge Eau Claire Wisconsin Affordable housing Same
Limited Partnership
</TABLE>
<PAGE>
Annex D-2
SUPPLEMENTAL DESCRIPTION OF NSP NON-UTILITY BUSINESSES
NSP and NSP-W engage directly and indirectly in various non-utility
activities. NSP directly provides: (i) an appliance services program for
residential customers; (ii) construction and maintenance of natural gas
distribution systems for third parties (primarily end-users and municipal gas
systems); (iii) sale of steam to industrial customers in NSP's service
territory; (iv) installation and maintenance of street lighting for
municipalities; (v) propane services; (vi) fuel oil services; and (vii)
installation and maintenance of distributed generation on customer's facilities.
In addition, NSP owns directly the interests of the following non-utility
subsidiary companies: Viking Gas Transmission Company ("Viking"), an interstate
natural gas pipeline subject to FERC jurisdiction under the NGA; 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 system; Ultra Power Technologies, Inc.
("Ultra Power"), a company currently in the process of winding up its affairs
and formerly in the business of marketing 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"), the owner of a parking garage; 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. ("Natrogas"), a provider of propane services; Nuclear
Management Company ("NMC"), a limited liability company that will provide
services to the nuclear operations of its members; and NSP Nuclear Corporation,
a subsidiary formed to hold NSP's interest in the NMC. NSP owns 100% of all of
the foregoing businesses, except that NSP owns 25% of the membership interests
in NMC and as a result of the issuance of equity by NRG currently has an 84%
ownership interest in NRG.
NSP-W owns directly all of the outstanding common stock of 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.
All of these non-utility activities are substantially similar to activities
approved by the Commission in the past. Set forth below is a description of each
of these activities along with authority cited in the footnotes that support
retention of these non-utility activities. At December 31, 1999 and March 31,
2000, NSP's aggregate investment in its non-utility subsidiaries constituted
less than 44 percent of its common stock equity.
A. Direct Activities of NSP
1. Appliance Warranty and Repair Services: NSP provides an appliance
warranty and repair program for residential customers (known as "NSP Advantage
Service"). The service is similar to that offered by many other electric and/or
gas utilities in the region. Appliances covered include heating and air
conditioning systems, water heaters, refrigerators, dishwashers and clothes
washers./125/
2. Construction of Gas Pipelines: NSP directly constructs and maintains
natural gas distribution systems for third parties, primarily end-users and
municipal gas systems, that either want installation of new natural gas systems
or want to expand the capacity or number of sources from which they receive
natural gas./126/
3. Production and Distribution of Steam: NSP supplies steam to commercial
and industrial customers, which is obtained from NSP's generating stations./127/
4. Installation and Maintenance of Street Lighting for Municipalities and
Other Customers: NSP installs and maintains street lighting for more than 50
municipalities throughout its service territory in Minnesota, North Dakota and
South Dakota./128/ This service consists of replacing the light bulbs and
maintaining the light fixtures.
5. Propane Services: NSP owns and operates approximately 13 million gallons
of propane storage capacity (above ground tanks) installed for the purpose of
meeting the peak day and winter season natural gas supply needs of its retail
gas customers./129/ Other natural gas utilities in the NSP region similarly
operate propane-air storage and injection facilities. (In controlled volumes,
propane can be mixed with air to vaporize the liquid propane, and the vapor
mixture is injected into the natural gas distribution system as a replacement
for pipeline natural gas.) When propane storage capacity or supplies will not be
needed to meet retail customer supply needs, NSP leases limited quantities of
the storage capacity for a fee or may sell unused propane supplies./130/ A
representative level of the propane storage or sale revenues is reflected when
setting NSP's regulated natural gas rates.
---------------
125 Rule 58(b)(1)(iv); see also Mississippi Power and Light Company, Release
No. 35-25140 (August 30, 1990) (a subsidiary of a registered holding
company allowed to create a "Space Conditioning Program" to market and sell
"manufacturer's warranties or other maintenance agreements for space
conditioning equipment such as water heaters and heat pumps and related
weatherization, ductwork and wiring improvements").
126 Construction of gas pipelines for third parties was approved in National
Fuel Gas Company, Release No. 35-24381 (May 1, 1987), in which the
Commission authorized Utility Constructors, Inc., a subsidiary of a
registered holding company, to provide "pipeline construction and
replacement...and related and auxiliary services" to subsidiaries and to
non-associate companies; Rule 58(b)(1)(vii).
127 Rule 58(b)(1)(vi); see also CINergy Corp. et al, Release No. 35-26474
(February 20, 1996) (Commission authorized the establishment of two new
subsidiaries to engage in district heating and cooling businesses. Such
businesses will deliver chilled and/or heated water and possibly steam to
customers for heating and cooling purposes and supply such customers
related services); The Southern Company et al, Release No. 35-26468
(February 2, 1996) (Commission granted SEI Holdings, Inc. ("Holdings"), a
new holding company that will hold investments in EWGs, FUCOs, companies
that invest in EWGs and FUCOs, and companies that provide functions related
to the operation of EWGs and FUCOs, authority to acquire an interest in, or
the securities of, one or more companies that derive or will derive
substantially all of its revenues from the production, conversion and
distribution of steam); General Public Utility Corp., 32 SEC 807, 840-841
(1951) (Commission authorized retention of steam heating systems. Steam
from such systems was used to generate electricity and sold to customers
for heating purposes.); In re The North American Company, 11 SEC 194 (April
14, 1942) (Commission authorized retention of steam heating operations
which provided steam heat to customers and was used in the generation of
electricity); WPL Holdings, Inc., Holding Co. Act Release No. 26856 (April
14, 1998) (delivery of steam to more than 200 residential and business
customers.
128 Rule 58(b)(1)(vii).
129 Scana Corporation, Holding Co. Act Release No. 27133 (Feb. 9, 2000).
130 As described in Annex E, NSP entered into short term propane storage and
sale agreements with its affiliate Natrogas in February 2000. The
agreements expire in 2000. The agreements are pending Minnesota Commission
approval in Docket No. G002/AI-00-258. The Minnesota Department of Commerce
has recommended approval of the agreements.
---------------
In addition, Black Mountain Gas Company (BMG) provides propane services at
retail in Page, Arizona through its Page Division. BMG's retail propane service
rates are regulated by the Arizona Commission.
6. Fuel Oil Services: NSP owns and operates fuel oil storage capacity
(above ground tanks) at its Inver Hills electric generating plant in Minnesota.
The fuel oil storage was installed during the oil shortages in the 1970s for the
purpose of storing fuel inventory so the Inver Hills plant could be operated to
meet the peak day electric service needs of NSP's retail and wholesale electric
customers. In 1998, the Inver Hills plant was converted to use natural gas as
its primary fuel, with fuel oil as a back-up fuel. When fuel oil storage
capacity or supplies will not be needed to meet electric customer generation
needs, NSP leases limited quantities of the storage capacity for a fee or may
sell unused fuel oil supplies.
7. Distributed Generation Services: NSP has just recently begun to offer
installation and maintenance services on the customer side of the meter for
distributed generation services. The service is quite similar to the appliance
sale and repair service except that it is focused on providing customers these
maintenance services on distributed generation equipment purchased and operated
by the customer./131/
B. Subsidiaries of NSP
1. Viking owns and operates a 500 mile interstate natural gas pipeline
serving portions of Minnesota, Wisconsin and North Dakota with a capacity of
approximately 550,000 Mcf per day. Viking is a regulated natural gas company
under the Natural Gas Act of 1938, as amended (the "Natural Gas Act"). Viking
currently operates exclusively as a transporter of natural gas for third-party
shippers under FERC rate and tariff jurisdiction. The Viking pipeline currently
transports natural gas for the gas utility operations of NSP and NSP-W and
provides gas transportation services for numerous other customers./132/
Approximately 75% of NSP's and NSP-W's gas customers are located within 40 miles
of the Viking pipeline. However, approximately 83% of Viking's firm capacity is
held by non-affiliates.
2. FMAP, UP&L and NSP Lands are engaged in various forms of land ownership
associated with NSP's and NSP-W's utility operations. FMAP owns and operates a
parking garage. NSP leases from FMAP 92 parking spaces as well as 14,000 square
feet of unimproved storage space on the first and second floor. The garage is
located next to NSP's corporate headquarters, and is primarily used by NSP
employees. It provides secure, close parking for NSP employees. It is
anticipated that, in the event that additional facilities at NSP headquarters
are necessary, the parking garage will be razed and the site will be used for
such expansion. UP&L's land holdings include the Renaissance Square office
facility directly adjacent to NSP's corporate headquarters, which NSP uses for
utility business. NSP has long-term agreements to lease virtually all of the
Renaissance Square facility./133/
---------------
131 Rule 58(b)(1)(iv).
132 New Century Energies, Inc., Holding Co. Act Release No. 26748 (Aug. 1,
1997) (allowing retention of interstate pipeline that provided service to
PSCo, Cheyenne and others); CNG Transmission Corp., Holding Co. Act Release
No. 25239 (Jan. 9, 1991); Central and SouthWest Corp., Holding Co. Act
Release No. 14555 (Dec. 28, 1961).
133 In previous orders, the Commission has approved the purchase of real estate
which is incidentally related to the operations of a registered holding
company. See American Electric Power Service Co., Release No. 35-19981
(April 12, 1977) (Commission allowed a subsidiary of American Electric
Power to purchase employees' homes in conjunction with their transfer to a
new position in a different geographical area.) Furthermore, FMAP's
ownership of a parking garage and NSP's lease of the Renaissance Square
facility can be distinguished from ownership of a commercial building
brought into question in In re The North American Company, 11 SEC 194
(April 14, 1942). In North American, a registered holding company owned a
twenty-five floor office building in downtown New York. However, only two
whole floors and part of three other floors were occupied by North
American, and the building was not within close proximity to the company's
headquarters. Given the proximity of the parking garage to NSP's
headquarters, the benefits to employees it currently provides, and its
potential for future use, ownership of the garage is reasonably necessary
to the operation of the utility business. Similarly, since virtually all of
the Renaissance Square facility is used by NSP in its utility operations,
UP&L should be allowed to retain its interest in the facility. The
Minnesota Commission has approved both the NSP/FMAP lease and the NSP/UP&L
lease.
---------------
Besides Renaissance Square, UP&L owns and holds additional real property
typically surrounding or adjacent to property owned and used by NSP in its
regulated operations. The majority of UP&L's land consists of property adjacent
to land owned and used for NSP's Sherco and Monticello generating stations. UP&L
receives rental revenue for some of the land, which is leased to third parties
for agricultural purposes. UP&L provides a direct benefit to NSP. Real property
needed by NSP for its utility operations can often only be obtained as part of
purchases of larger tracts. In these cases, UP&L may acquire the property,
transfer the useful portion to NSP, hold any potential useful portion for future
use by NSP, and resell the remainder. Since UP&L is not subject to NSP's first
mortgage indenture, it is easier to transfer real property through UP&L than to
obtain a separate release from the mortgagee for each transaction./134/
NSP Lands was created in 1992 to enable NSP-W to sell excess land adjacent
to NSP-W's hydro reservoirs. Since the time of its creation, NSP Lands' primary
focus has been to liquidate NSP-W's unused land adjacent to Lake Arbutus, the
hydro reservoir at NSP-W's Hatfield hydro project./135/
3. EMI provides value-added energy conservation and energy management
services to retail customers, both inside NSP's service territory and on a
national basis through offices in fifteen states./136/ Programs offered by EMI
include: (i) installation of more efficient lighting systems; (ii) group
relamping (systematic replacement of lamps before they burn out and cleaning of
lens, reflective surfaces and fixtures); (iii) consolidated billing service and
auditing of utility bills; (iv) performance contracting whereby EMI evaluates
facilities and identifies energy-efficiency improvement opportunities; and (v)
identification of water conservation opportunities. EMI is also a party to a
joint venture with Energy Performance Services of King of Prussia, Pennsylvania,
to provide energy savings performance services to the U.S. Department of the
Army, Corps of Engineers. (Contract No. DACA87-97 D0073).
---------------
134 In UNITIL Corporation et al, Release No. 35-25524 (April 24, 1992), the
Commission noted that UNITIL Realty Corporation, a subsidiary of the
registered holding company, UNITIL, which acquired real estate to support
utility operations, engaged in activities which were within the confines of
the Act. UP&L's ownership of land adjacent to the Sherco and Monticello
plant sites are necessary to support such plants' future operations. As
stated previously, the land held by NSP Lands surrounded a hydro-electric
generation facility previously owned by NSP-W and is in the process of
being sold. Consequently, as the real estate held by UP&L and NSP Lands is
substantially similar to that owned by UNITIL Realty Corporation, UP&L
Lands should be allowed to retain their interests in such property.
135 Id.
136 Rule 58(b)(1)(i); Allegheny Power System, Inc., Holding Co. Act Release No
26401 (Oct. 27, 1995); Central and South West Corporation, Holding Co. Act
Release No. 26367 (Sept. 1, 1995).
---------------
4. Seren provides cable television, high-speed cable internet, and local
and long distance telephone service./137/ Seren has applied to the FCC for
certification as an exempt telecommunications company under Section 34 of the
Act. Seren has received franchises and is providing local competitive
telecommunications services in the St. Cloud, Minnesota area (where NSP already
provides retail electric and natural gas service) and the Contra Costa,
California area. Seren is seeking telecommunications franchises in other
communities, consistent with its business plan. Seren is also seeking to expand
its business through the acquisition of other companies that are exempt
telecommunications companies under Section 34 of the Act.
5. Ultra Power is currently in the process of winding up its affairs. It
had been in the business of detecting problems and defects in underground cables
from an above ground position, through a licensing agreement with Instrument
Manufacturing Corp. ("IMC"), the developer and licensor of the technology used
by Ultra Power to provide cable testing service. Effective June 22, 2000, Ultra
Power transferred its rights to the technology back to IMC. NSP will continue to
contract for cable testing services from IMC. Ultra Power will continue to exist
as a subsidiary of NSP until the wind-up period is completed./138/
6. C&F was formed in 1911 for the purpose of building, maintaining and
operating dams and reservoirs on the Chippewa and Flambeau Rivers in Wisconsin.
C&F owns and operates the Flambeau Dam and Reservoir and the land and equipment
associated with the dam's and the reservoir's operations. C&F also owns the
Chippewa Dam and associated land and leases and operates the Chippewa Reservoir.
By providing a uniform flow of water to the downstream hydroplants, C&F helps
ensure the consistent operation of the plants, including plants owned by NSP-W.
Such leasing and operating activities are necessary to the operation of the
plants./139/
7. Reddy Kilowatt Corporation owns two trademarks, Reddy Kilowatt(R) (which
has been associated with the electric industry for more than 30 years) and Reddy
Flame(R), which has been a well-recognized symbol of the NSP gas utility
business for a substantial period of time. These trademarks are being utilized
to position NSP nationally as the electric and natural gas utility industry
continues to restructure and move towards competition./140/
---------------
137 Section 34 of the Act.
138 Jersey Central Power and Light Co., Holding Co. Act Release No. 24664 (June
18, 1988); Wisconsin River Power Company, Holding Co. Act Release No. 7977
(Jan. 29, 1948); WPL Holdings, Inc., Holding Co. Act Release No. 26856
(April 14, 1998) (13%-owned subsidiary managed and controlled waterflow
through reservoirs and dams on Wisconsin River).
139 Jersey Central Power and Light Co., Holding Co. Act Release No. 24664 (June
18, 1988); Wisconsin River Power Company, 27 S.E.C. 539 (1948); WPL
Holdings, Inc., Holding Co. Act Release No. 26856 (April 14, 1998)
(13%-owned subsidiary managed and controlled waterflow through reservoirs
and dams on Wisconsin River).
140 New Century Energies, Inc., supra, (approving the activity of selling or
entering into "royalty arrangements with regard to intellectual property
owned or developed" by PSCo).
---------------
8. Eloigne and Clearwater are engaged in the business of owning interests
in affordable housing projects that qualify for affordable housing credits under
the provisions of the Low Income Housing Tax Credit Program ("LIHTC") under
Section 42 of the Internal Revenue Code. Eloigne and Clearwater Investments only
consider investing in projects that have received tax credit allocations by the
state authority. Eloigne and Clearwater own their interests in these projects
through 53 subsidiaries which are enumerated in Appendix D to the Application.
Virtually all of these investments are located in the combined service
territories of NSP and NSP-W.
The principal objectives of Eloigne and Clearwater are to (i) assist the
residents NSP and NSP-W's service area by providing funds for sound and
affordable housing for income qualifying individuals and families; (ii) preserve
and enhance Eloigne's and Clearwater's capital investments in its partnerships
and projects; (iii) realize tax credits and other tax benefits which may be
available through investments in the housing tax credit program; and(iv) achieve
possible long term gains through the appreciation and future sale of their
investments in partnerships and projects.
The sole activities of Eloigne and Clearwater are investment oversight, and
not development, management or operation of tax credit properties. They do not
participate in the syndication, development and property management of tax
credit properties. Their emphasis is on investment management to protect the tax
credits and the physical properties. Investment management includes reviewing
and analyzing financial statements generated by the third party property
management firms against the approved budget for the investments and conducting
due diligence assessments to determine that the properties remain in compliance
with the provisions of the LIHTC. Investment management in this context also
includes on-site inspections to determine that the physical structure and
grounds are maintained as quality affordable housing./141/
9. NSP Financing I is a special purpose subsidiary of trust that was formed
solely for the purpose of facilitating a financing transaction. NSP Financing I
issued $200 million of 7.875% preferred securities in 1997, the proceeds of
which were loaned to NSP./142/
10. NMC was formed to consolidate into one organization the talents and
efforts of specialized employees of NSP and certain other unaffiliated nuclear
power plant owners in order to make available to such plant owners a larger and
more diverse pool of skilled workers and other specialized resources than would
otherwise be available to them if they were to continue to manage their plants
independently of each other. NMC renders operating services to its members and
their utility affiliates that own interests in or operate nuclear generating
units. The members of NMC are NSP Nuclear Corporation, a subsidiary of NSP; WEC
Nuclear Corp., a subsidiary of Wisconsin Energy Corporation; WPS Nuclear
Corporation, a subsidiary of WPS Resources; and Alliant Nuclear, a subsidiary of
Alliant Energy Corp./143/
---------------
141 WPL Holdings, Inc., supra (permitting retention of Heartland Development
and related subsidiaries engaged in investing in projects that qualify
under the LIHTC).
142 New Century Energies, Inc., supra (approving the retention of Southwestern
Public Service Capital I, as special purpose trust of SPS).
143 Alliant Energy Corporation, Holding Co. Act Release No. 27096 (Oct. 26,
1999).
---------------
11. Natrogas is a Minnesota corporation that provides retail propane
service to approximately 15,000 customers in portions of Minnesota, Wisconsin
and North and South Dakota. Natrogas is also engaged in certain ancillary
propane appliance sales. A wholly-owned subsidiary of Natrogas, North American
Energy, Inc., based in Hankinson, North Dakota, provides wholesale propane sales
in portions of North Dakota, South Dakota and Minnesota./144/
12. NSP Nuclear Corporation was formed to hold NSP's interest in NMC. The
Minnesota Public Utility Corporation has approved an affiliate interest
agreement pursuant to which NSP and NSP Nuclear Corporation can provide each
other with administrative services./145/
13. NRG: NRG primarily engages in the acquisition, development, ownership
and operation of power generation facilities and other energy-related projects.
On June 5, 2000, NRG closed an initial public offering of its common stock.
Additional detailed information regarding NRG is contained in Registration
Statement No. 333-35096 on file with the Securities and Exchange
Commission./146/
A. Direct activities of NRG:
1. Project development activities: NRG forms and finances subsidiaries to
invest in EWGs, FUCOs, qualifying facilities ("QFs") under the Public Utility
Regulatory Policies Act ("PURPA"), and other energy related projects, and
engages in preliminary development activities relating to energy-related
projects, including project due diligence and design, design review, market
studies, site inspection, preparation of bid proposals (including the posting of
bid bonds, cash deposits or similar instruments), applications for required
permits or authorizations, acquisition of options on sites and other rights,
negotiation and execution of contractual commitments with owners of existing
facilities, equipment vendors and other project contractors, negotiating of
financing commitments with lenders and co-investors and related activities./147/
2. Thermal Businesses: Through this division, NRG owns and operates
district heating and cooling systems in the cities of Minneapolis, Minnesota;
San Diego, California; San Francisco, California; and Pittsburgh, Pennsylvania.
This division also owns four process steam operations, each of which delivers
steam to one or more commercial or industrial customers./148/
---------------
144 Scana Corporation, Holding Co. Act Release No. 27133 (Feb. 9, 2000).
145 Alliant Energy Corporation, supra.
146 Sections 32 and 33 of the 1935 Act; Rule 58(b)(1)(viii).
147 Entergy Corporation, Holding Co. Act Release No. 27039 (June 22, 1999).
148 The production, sale, conversion and distribution of thermal energy product
is exempt under Rule 58(b)(1)(vi). Intermediate subsidiaries holding
subsidiaries whose securities are acquired under Rule 58 are exempt under
Interstate Energy Corporation, Holding Co. Act Release No. 27069 (Aug. 26,
1999).
---------------
a. NRG Thermal Corporation, in which NRG owns a 100% interest, owns 100% of
the following: (i) NRG Energy Center Minneapolis LLC, owner of the Minneapolis
Energy Center facility, which provides steam and chilled water to commercial
customers in downtown Minneapolis, Minnesota; (ii) NRG Energy Center San Diego
LLC, owner of the San Diego Power & Cooling facility, which provides chilled
water to commercial customers in downtown San Diego, California; (iii) NRG
Energy Center Rock-Tenn LLC, which owns a five mile closed loop steam/condensate
line that delivers steam to the Rock-Tenn Company in St. Paul, Minnesota; (iv)
NRG Energy Center Grand Forks LLC, which provides steam to the Grand Forks Air
Force Base in Grand Forks, North Dakota; (v) NRG Energy Center Washco LLC, which
provides steam to two commercial customers in Washington County, Minnesota; (vi)
NRG Thermal Operating Services LLC, which has no assets or employees and is
inactive; (vii) NRG Energy Center Dover LLC, which is currently inactive but
which is expected to acquire an 18 MW cogeneration facility and an 80 MW
expansion project in Dover, Delaware; and (viii) NRG Energy Center Paxton Inc.,
NRG Energy Center Harrisburg, Inc., and NRG Thermal Services, Inc. which were
formed to hold certain steam assets to be acquired from Statoil Inc. later this
month.
b. North American Thermal Systems LLC, in which NRG owns a 100% interest,
is the 1% general partner of Pittsburgh Thermal LP and of San Francisco Thermal
LP, which own the Pittsburgh and San Francisco heating and cooling systems,
respectively. NRG's wholly-owned subsidiary, NRG Pittsburgh Thermal Inc., is the
99% limited partner of Pittsburgh Thermal LP and NRG's wholly-owned subsidiary,
NRG San Francisco Thermal Inc., is the 50.1% limited partner of San Francisco
Thermal L.P. NRG is a 48.9% limited partner of San Francisco Thermal L.P.
Pending public utility commission approval, it is expected that the Pittsburgh
and San Francisco heating and cooling systems will be transferred to NRG Energy
Center Pittsburgh LLC and NRG Energy Center San Francisco LLC, respectively,
which will be wholly-owned by NRG Thermal Corporation.
c. Camas Power Boiler LP, in which NRG owns a 100% interest through Camas
Power Boiler, Inc. (a 1% limited partner) and Pacific Generation Company (a 99%
limited partner), owns a facility which delivers steam to an industrial
customer. (Camas Power Boiler, Inc. is a wholly-owned subsidiary of Pacific
Generation Company, which is a wholly-owned subsidiary of NRG PacGen Inc. NRG
PacGen Inc. is wholly-owned by NRG.)
3. Resource Recovery Businesses: Through this division, NRG owns and
operates a resource recovery facility in Newport, Minnesota and operates a
second resource recovery facility in Elk River, Minnesota which is currently
owned by NSP./149/ This division also manages and operates NSP's ash storage and
disposal facility near Becker, Minnesota. In addition, this division owns
interests in a waste transfer station in Minnesota, and in two waste-to-energy
facilities and a waste disposal service in Maine.
a. Minnesota Waste Processing Company LLC, in which NRG owns a 50%
interest, owns a waste transfer station in Mankato, Minnesota./150/
b. Maine Energy Recovery Company, in which NRG owns a 16.25% limited
partnership interest through Energy National, Inc. (an indirect wholly-owned
subsidiary of NRG), owns a 22 MW refused derived fuel-fired QF facility and
related waste processing facility located in Biddeford, Maine./151/
---------------
149 Rule 58(b)(1)(ix).
150 Rule 58(b)(1)(ii).
---------------
c. Penobscot Energy Recovery Company, in which NRG owns a 28.72% general
partnership interest through Energy National, Inc., owns a 25 MW refused derived
fuel-fired QF facility and related waste processing facility located in
Penobscot, Maine./152/
d. ESOCO Orrington, Inc., in which NRG owns a 100% interest through ESOCO,
Inc. (an indirect wholly-owned subsidiary of NRG), provides operations and
maintenance services to Penobscot Energy Recovery Company./153/
e. Orrington Waste, Ltd. Limited Partnership, in which NRG owns a 16.67%
interest through Pacific Orrington Energy, Inc. (an indirect wholly-owned
subsidiary of NRG), provides waste disposal services to various municipalities
in Maine for processing at Penobscot Energy Recovery Company./154/
B. Interests of NRG in EWGs, FUCOs and QFs:
1. NRG Northeast Generating LLC,/155/ in which NRG owns a 100% interest
through two wholly-owned limited liability companies (each of which owns a 50%
interest in NRG Northeast Generating LLC), Northeast Generation Holding LLC/156/
and NRG Eastern LLC,/157/ owns 100% of the following EWGs: (i) Dunkirk Power
LLC,/158/ owner of a 600 MW coal-fired facility located in Dunkirk, New York;
(ii) Huntley Power LLC,/159/ owner of a 760 MW coal-fired facility located near
Buffalo, New York; (iii) Astoria Gas Turbine Power LLC,/160/ owner of 11
gas-fired combustion turbines with a total capacity of 614 MW located on the
same site in Queens, New York, (iv) Arthur Kill Power LLC,/161/ owner of an 842
gas/oil-fired facility located on Staten Island, New York; (v) Somerset Power
LLC,/162/ owner of the 229 MW (160 MW of which is operational) oil/coal-fired
facility located in Somerset, Massachusetts, (vi) Oswego Harbor Power LLC,/163/
owner of a 1700 MW gas/oil-fired facility located in Oswego, New York; (vii)
Connecticut Jet Power LLC,/164/ owner of six oil-fired combustion turbines with
a total capacity of 127 MW located at 4 different sites in Connecticut; (viii)
Devon Power LLC,/165/ owner of a 401 MW gas/oil-fired facility located in
Milford, Connecticut; (ix) Middletown Power LLC,/166/ owner of an 856 MW
gas/oil-fired facility located in Middleton, Connecticut; (x) Montville Power
LLC,/167/ owner of a 498 MW gas/oil-fired facility located in Uncasville,
Connecticut; and (xi) Norwalk Power LLC,/168/ owner of a 353 MW oil-fired
facility located in Norwalk, Connecticut.
---------------
151 QF; Rule 58(b)(1)(ix).
152 QF.
153 Rule 58(b)(1)(viii).
154 Rule 58(b)(1)(ix).
155 Interstate Energy Corporation, supra. (authorizing intermediate
subsidiaries for the purpose of holding EWGs).
156 Interstate Energy Corporation, supra. (authorizing intermediate
subsidiaries for the purpose of holding EWGs).
157 Interstate Energy Corporation, supra. (authorizing intermediate
subsidiaries for the purpose of holding EWGs).
158 EWG (88 FERC 61,190).
159 EWG (88 FERC 61,190).
160 EWG (88 FERC 62,178).
161 EWG (88 FERC 62,072).
162 EWG (87 FERC 62,289).
163 EWG (89 FERC 62,177).
164 EWG (90 FERC 62,010).
165 EWG (90 FERC 62,036).
166 EWG (90 FERC 62,037).
167 EWG (90 FERC 62,043).
168 EWG (90 FERC 62,035).
---------------
2. NRG South Central Generating LLC,/169/ in which NRG owns a 100% interest
through two wholly-owned limited liability companies (each of which owns a 50%
interest in NRG South Central Generating LLC), South Central Generation Holding
LLC/170/ and NRG Central U.S. LLC,/171/ owns 100% of the following: (i)
Louisiana Generating LLC,/172/ an EWG that owns a 220 MW gas-fired facility
located in New Roads, Louisiana, and a 100% interest in two coal-fired units and
a 58% interest in a third coal-fired until located in a separate facility also
in New Roads, Louisiana; and (ii) NRG New Roads Holdings LLC,/173/ owner of
various equipment and of several parcels of land in Louisiana, some of which is
leased to third parties for farming.
3. West Coast Power LLC,/174/ in which NRG owns a 50% interest through
NRG's wholly-owned subsidiary NRG West Coast Power Inc./175/ (which owns 50%
interest in WCP (Generation) Holdings LLC/176/ of which West Coast Power LLC is
a wholly-owned limited liability company), owns 100% of the following EWGs: (i)
Long Beach Generation LLC,/177/ owner of a 530 MW gas-fired facility located in
Long Beach, California, and (ii) El Segundo Power LLC,/178/ owner of a 1020 MW
gas-fired facility located in El Segundo, California.
4. Cogeneration Corporation of America,/179/ in which NRG owns a 20%
interest, owns the following through wholly-owned subsidiaries (i) a 100%
interest in a 122 MW gas-fired cogeneration facility in Parlin New Jersey that
is an EWG; (ii) a 100% interest in a 58 MW gas-fired cogeneration facility
located in Newark, New Jersey that is a QF; (iii) a 100% interest in a 117 MW
gas-fired cogeneration facility located in Pryor, Oklahoma that is a QF; (iv) a
100% interest in a 117 MW gas-fired cogeneration facility located in Morris,
Illinois that is a QF; (v) a 50% interest in a 150 MW gas-fired cogeneration
facility located in Philadelphia, Pennsylvania that is a QF; (vi) an 83%
interest in two standby peak sharing facilities with an aggregate capacity of 22
MW located in Philadelphia, Pennsylvania, both of which are EWGs.
---------------
169 Interstate Energy Corporation, supra.
170 Interstate Energy Corporation, supra.
171 Interstate Energy Corporation, supra.
172 EWG (90 FERC 61,311).
173 Entergy Corporation, supra. (These properties are being held pending future
use by the EWGs and also appear retainable under UNITIL Corporation,
Holding Co. Act Release No. 25524 (April 24, 1992)).
174 Interstate Energy Corporation, supra.
175 Interstate Energy Corporation, supra.
176 Interstate Energy Corporation, supra.
177 EWG (84 FERC 62,084).
178 EWG (82 FERC 62,169).
179 Rule 58(b) (1)(viii).
---------------
5. NRG Rocky Road LLC,/180/ in which NRG owns a 100% interest, owns 50% of
Rocky Road Power LLC,/181/ an EWG that owns a 350 MW gas-fired facility located
in East Dundee, Illinois.
6. NRG Cadillac, Inc.,/182/ in which NRG owns a 100% interest, owns 50% of
Cadillac Renewable Energy LLC,/183/ owner of a 39 MW wood-fired facility located
in Cadillac, Michigan that is a QF.
7. O'Brien Cogeneration, Inc. II,/184/ in which NRG owns a 100% interest,
owns a 2% general partner interest in O'Brien California Cogen Limited, a
California limited partnership, owner of a 34 MW gas-fired cogeneration facility
located in Artesia, California that was a QF but that is not currently
operating.
8. Crockett Cogeneration, a California Limited Partnership,/185/ in which
NRG owns a 57.67% interest through Pacific Crockett Energy, Inc./186/
(wholly-owned by Pacific Crockett Holdings, Inc.,/187/ an indirect wholly-owned
subsidiary of NRG) and ENI Crockett L.P./188/ (in which NRG owns a 74.73%
general partner interest), owns a 240 MW gas-fired cogeneration facility located
near San Francisco, California that is a QF.
9. The PowerSmith Cogeneration Project LP.,189 in which NRG owns an 8.75%
interest through Energy National Inc./190/ (an indirect wholly-owned subsidiary
of NRG) and ENIGEN, Inc./191/ (a wholly-owned subsidiary of Energy National
Inc.), owns a 110MW gas-fired cogeneration facility located in Oklahoma City,
Oklahoma that is a QF.
10. Curtis-Palmer Hydroelectric Company,/192/ in which NRG owns a 12.5%
limited partnership interest through ENI Curtis Falls, LP./193/ (which is 68%
owned by Pacific Generation Resources Company,/194/ an indirect wholly-owned
subsidiary of NRG), and 32% owned by Energy Investors Fund LP,/195/ in which NRG
has a 3.10% interest), owns a 58 MW hydroelectric facility in Corinth New York
that is exempt under a no-action letter from the Securities and Exchange
Commission.
---------------
180 Interstate Energy Corporation, supra.
181 Interstate Energy Corporation, supra.
182 Rule 58(b)(1)(viii).
183 QF.
184 Rule 58(b)(1)(viii).
185 QF.
186 Rule 58(b)(1)(viii).
187 Rule 58(b)(1)(viii).
188 Rule 58(b)(1)(viii).
189 Rule 58(b)(1)(viii).
190 Rule 58(b)(1)(viii)
191 Rule 58(b)(1)(viii)
192 QF.
193 Rule 58(b)(1)(viii).
194 Rule 58(b)(1)(vi) and (viii).
195 Rule 58(b)(1)(viii).
---------------
11. Turners Falls Limited Partnership,/196/ in which NRG owns an 8.89%
limited partnership interest through ONSITE Energy, Inc./197/ (an indirect
wholly-owned subsidiary of NRG), owns a 20 MW coal-fired cogeneration facility
in Turners Falls, Massachusetts that was a QF but that is not currently
operating.
12. Mt. Poso Cogeneration Company, a California Limited Partnership,/198/
in which NRG owns a 39.10% general partnership interest through Pacific-Mt. Poso
Corporation/199/ (an indirect wholly-owned subsidiary of NRG), owns a 50 MW
coal-fired cogeneration facility located in Bakersfield, California that is a
QF.
13. Kingston Cogeneration Limited Partnership,/200/ in which NRG owns a 25%
general partnership interest through Pacific Kingston Energy, Inc./201/ (an
indirect wholly-owned subsidiary of NRG), owns a 110 MW gas-fired EWG facility
located in Kingston, Ontario (Canada).
14. NRGenerating Ltd./202/ - which is 100% owned by Sterling Luxembourg
(No.1) s.a.r.l.,/203/ which is 100% owned by NRGenerating Holdings (No. 15)
B.V.,/204/ which is 100% owned by NRGenerating International BV ("NRGIBV")/205/
- owns 100% of the following: (i) Killingholme Holdings Limited,/206/ which owns
100% of Killingholme Generation Limited,/207/ an EWG which owns 100% of
Killingholme Power Limited,/208/ an EWG which owns a 680 MW gas-fired facility
located in North Lincolnshire, England; and (ii) NRGenerating Energy Trading
Ltd.,/209/ which carries on power marketing activities for NRG assets in the
United Kingdom.
15. Enfield Holdings B.V./210/ which is 50% owned by NRGIBV, owns 50% of
Enfield Energy Centre Limited,/211/ an EWG which owns a 396 MW gas-fired power
station in Enfield, England. Enfield Operations LLC,/212/ which is owned 50% by
Enfield Energy Centre Limited and 16.3% by NRG International, Inc./213/
("NRGI"), is an EWG which operates the Enfield power station, and also owns 100%
of Enfield Operations UK Ltd,/214/ which employs the employees of the Enfield
power station.
---------------
196 Rule 58(b)(1)(viii).
197 Rule 58(b)(1)(viii).
198 QF.
199 Rule 58(b)(1)(viii).
200 EWG (74 FERC 62,063).
201 Interstate Energy Corporation, supra.
202 Interstate Energy Corporation, supra.
203 Interstate Energy Corporation, supra.
204 Interstate Energy Corporation, supra.
205 Interstate Energy Corporation, supra.
206 Interstate Energy Corporation, supra.
207 EWG (90 FERC 61,194).
208 EWG (90 FERC 62,117).
209 Rule 58(b)(1)(v).
210 Interstate Energy Corporation, supra.
211 EWG (82 FERC 62,086).
212 EWG (82 FERC 62,087).
213 Interstate Energy Corporation, supra.
214 Interstate Energy Corporation, supra.
---------------
16. NRGenerating Holdings (No.4) B.V.,/215/ which is 100% owned by NRGIBV,
is an EWG which owns (i) a 25.37% partnership interest in Loy Yang Power
Partners,/216/ the owner of the 2000 MW coal-fired Loy Yang power station and
adjacent brown coal mine in the State of Victoria, Australia; (ii) 25.37% of Loy
Yang Power Projects Pty Ltd.,/217/ which provides technical services to the Loy
Yang project; and (iii) 25.37% of Loy Yang Power Management Pty Ltd.,/218/ which
operates the Loy Yang project. NRGenerating Holdings (No.4) B.V./219/ also owns
100% of Gunwale B.V., a vehicle for investing shareholder loans and equity into
the Loy Yang project which has no assets or employees and is inactive.
17. Sunshine State Power (No.2) B.V./220/ and Sunshine State Power
B.V.,/221/ which are EWGs and which are both 100% owned by NRGIBV, own 17.5% and
20%, respectively, of the unincorporated joint venture that owns the 1680 MW
coal-fired Gladstone power station in Queensland, Australia. NRG Gladstone
Operating Services Pty Ltd,/222/ which is 1% owned by NRGI and 99% owned by NRG
Operating Services, Inc./223/ (both of which are 100% owned by NRG), is an EWG
which operates the Gladstone facility, and owns 100% of NRG Gladstone
Superannuation Pty Ltd.,/224/ which holds pension assets for the employees of
the Gladstone project.
18. NRGenerating Holdings (No. 1) B.V.,225 which is 100% owned by NRGIBV,
is a FUCO that owns a 50% interest in the unincorporated joint venture that owns
the 192 MW coal-fired Collinsville power station in Queensland, Australia. NRG
Collinsville Operating Services Pty Ltd.,/226/ which is 1% owned by NRGI and 99%
owned by NRG Operating Services, Inc./227/ (both of which are 100% owned by
NRG), is a FUCO that owns 50% of Collinsville Operations Pty Ltd,/228/ which
operates the Collinsville facility.
19. NRG Victoria 1 Pty Ltd,/229/ which is 100% owned by NRGIBV, owns 100%
of NRG Victoria II Pty Ltd./230/ These two entities own 33.33% and 66.67%,
respectively, of NRG Victoria III Pty Ltd,/231/ which owns 35% of Energy
Developments Limited,/232/ a FUCO which is a publicly listed Australian company
that invests in landfill gas generation projects and related investments
worldwide.
----------------
215 EWG (79 FERC 62,025).
216 Entergy Corporation, supra.
217 Entergy Corporation, supra.
218 Entergy Corporation, supra.
219 EWG (79 FERC 62,025).
220 EWG (67 FERC 61,185).
221 EWG (67 FERC 61,186).
222 EWG (67 FERC 61,187).
223 Entergy Corporation, supra.
224 Entergy Corporation, supra.
225 FUCO.
226 Interstate Energy Corporation, supra.
227 Entergy Corporation, supra.
228 Interstate Energy Corporation, supra.
229 FUCO.
230 FUCO.
231 FUCO.
232 FUCO.
---------------
20. Saale Energie Gmbh,/233/ which is 50% owned by NRGIBV, owns the
following interests in the following entities: (i) 41.1% of Kraftwerke Schkopau
GbR,/234/ an EWG that owns the 960 MW Schkopau coal-fired power station in
Germany; (ii) 44.4% of Kraftwerke Schkopau Betriebsgesellshcaft mbH,/235/ an EWG
that operates the Schkopau power station; and (iii) 98% of Saale Energie
Services Gmbh,/236/ which provides management services to the Schkopau plant
(NRGIBVI also owns a direct 1% interest in this entity).
21. NRGIBV owns 33.33% of MIBRAG mbH, through a holding structure whereby
NRGIBV owns 100% of Lambique Beheer BV;/237/ Lambique Beheer BV owns 33.3% of
MIBRAG BV/238/ and 1% of MIBRAG mbH;/239/ and MIBRAG BV owns 99% of MIBRAG mbH.
MIBRAG Gmbh, by itself and through its wholly-owned subsidiary MIBRAG
Industriekraftwerke Vermoegensverwaltungs und Beteiligungs Gmbh, owns 1% of
MIBRAG Industriekraftwerke Gmbh & Co KG, an EWG that owns three coal-fired power
plants in Germany. MIBRAG Gmbh owns 99%, and MIBRAG B.V. owns 1% of MIBRAG
Industriekraftwerke Betriebs Gmbh, an EWG which operates and maintains the power
stations.
22. Kladno Power (No.2) BV,/240/ which is 100% owned by NRGIBV, owns 50% of
Matra Powerplant Holding BV,/241/ which owns 89% of ECK Generating s.r.o.,/242/
a FUCO which owns a 300 MW coal-fired power station in Kladno, Czech Republic,
and related businesses. Kladno Power (No.1) BV,/243/ which is 100% owned by
NRGIBV, owns 44.26% of Energeticke Centrum Kladno, s.r.o.,/244/ is a FUCO which
holds title to certain assets of the Kladno power station. NRGenerating Holdings
(No.5) BV,/245/ which is 100% owned by NRG Energeticke Provoz, s.r.o.,/246/ is a
FUCO which operates the Kladno power station.
23. Tosli Investments N.V.,/247/ in which NRG has a 50% interest through
Cobee Holdings Inc.,/248/ a wholly-owned subsidiary of NRG International Inc.
(see Paragraph B.15), is an EWG which currently owns 98.9% of Compania Boliviana
de Energia Electrica S.A. -- Bolivian Power Company Ltd.,/249/ an EWG which owns
and/or operates 15 power plants in Bolivia, which in turn on an interim basis
owns 99.9% of Compania Electrica Central Bulo Bulo S.A./250/ and 99.8% of
Servicios Energeticos S.A., which are both EWGs and the owner and the operator,
respectively, of an 87 MW gas-fired facility in Bolivia. Tosli Investments N.V.
also currently owns a 0.002% interest in Compania Electrica Central Bulo Bulo
S.A.
---------------
233 Entergy Corporation, supra.
234 EWG (73 FERC 61,318).
235 EWG (73 FERC 61,314).
236 Entergy Corporation, supra.
237 Interstate Energy Corporation, supra.
238 Interstate Energy Corporation, supra.
239 Entergy Corporation, supra.
240 FUCO.
241 Interstate Energy Corporation, supra.
242 FUCO.
243 FUCO.
244 FUCO.
245 FUCO.
246 FUCO.
247 EWG (78 FERC 62,165).
248 Interstate Energy Corporation, supra.
249 EWG (78 FERC 62,166).
250 EWG (90 FERC 62,193).
---------------
24. Scudder Latin American Power I/251/ and Scudder Latin American Power
II/252/ are private equity funds in which NRG owns a 25% interest and 4.45860%
interest, respectively, through NRGenerating Holdings GmbH (see paragraph C.34).
These funds invest in power generation projects in Latin America. All of the
power generation projects in which these funds have invested are, or are
expected to become, EWGs or FUCOs.
25. Energy Investors Fund, L.P.,/253/ in which NRG owns a 3.10% interest
through Energy National, Inc./254/ (an indirect wholly-owned subsidiary of NRG),
invests in power generation projects within the United States which are either
EWGs or QFs.
26. Project Finance Fund III, L.P.,/255/ in which NRG owns a 6.87% interest
through Pacific Generation Holdings Company/256/ (an indirect wholly-owned
subsidiary of NRG), invests in power generation projects within and outside of
the United States which are either EWGs or QFs.
27. NEO Corporation/257/ ("NEO," also discussed in Paragraph C.44 below),
in which NRG owns a 100% interest, owns and operates through its subsidiaries
and affiliates, landfill gas electric generation projects, a synthetic coal
processing facility and small hydroelectric projects. The following NEO
subsidiaries and affiliates are QFs:
a. Minnesota Methane LLC,/258/ in which NEO owns a 50% interest, owns 15
landfill gas ("LFG") electric generation projects, through the following 15
wholly-owned limited liability companies, which are all QFs:/259/ MM Albany
Energy LLC, owner of a 1.9 MW LFG generation facility located in Albany, New
York; (ii) MM Cuyahoga Energy LLC, owner of a 3.8 MW LFG generation facility
located in Cleveland, Ohio; (iii) MM Hartford Energy LLC, owner of a 2.8 MW LFG
generation facility and a thermal plant located in Hartford, Connecticut; (iv)
MM Lopez Energy LLC, owner of a 6.1 MW LFG generation facility located in Lake
View Terrace, California; (v) MM Lowell Energy LLC, owner of a 1.6 MW LFG
generation facility located in Lowell, Massachusetts; (vi) MM Prince William
Energy LLC, owner of a 1.9 MW LFG generation facility located in Prince William,
Virginia, (vii) MM San Diego LLC, owner of a 6.5 MW LFG generation facility and
a 3.8 MW LFG generation facility, both located in San Diego, California; (viii)
MM Spokane Energy LLC, owner of a .9 MW LFG generation facility located in
Spokane, Washington; (ix) MM Tacoma LLC, owner of a 1.9 MW LFG generation
facility located in Tacoma, Washington; (x) MM Taunton Energy LLC, owner of a
1.9 MW LFG generation facility located in Taunton, Massachusetts, (xi) MM Tomoka
Farms Energy LLC, owner of a 3.8 MW LFG generation facility located in Daytona
Beach Florida; (xii) MM Tulare Energy LLC, owner of a 1.6 MW LFG generation
facility located in Visalia, California; (xiii) MM West Covina LLC, owner of a
12 MW LFG generation facility located in West Covina, California; (xiv) MM Yolo
Power LLC, owner of a 2.8 MW LFG generation facility located in Sacramento,
California; and (xv) O'Brien Biogas IV LLC, owner of a 10.8 MW LFG generation
facility located in Edgeboro, New Jersey.
---------------
251 Interstate Energy Corporation, supra.
252 Interstate Energy Corporation, supra.
253 Interstate Energy Corporation, supra. and Rule 58(b)(1)(viii).
254 Interstate Energy Corporation, supra. and Rule 58(b)(1)(viii).
255 Interstate Energy Corporation, supra. and Rule 58(b)(1)(viii).
256 Interstate Energy Corporation, supra. and Rule 58(b)(1)(viii).
257 Rule 58(b)(1)(vi) and (viii).
258 Rule 58(b)(1)(vi) and (viii).
259 In addition, each listed entity meets the requirements of Rule
58(b)(1)(vi).
---------------
b. MM Biogas Power LLC,/260/ in which NEO owns a 50% interest, is the 100%
owner of the following limited liability companies:/261/ (i) MM Corona Energy
LLC, a QF which is the owner of a .6 MW LFG generation facility located in
Corona, California; (ii) MM Hackensack Energy LLC, a QF which is the owner of
3.8 MW LFG generation facility and a 1.9 MW LFG generation facility, both
located in Lyndhurst, New Jersey; (iii) MM Nashville Energy LLC, a QF which is
the owner of a 1.9 MW LFG generation facility located in Nashville, Tennessee;
(iv) MM Prima Deshecha Energy LLC, a QF which is the owner of a 6.1 MW LFG
generation facility located in San Juan Capistrano, California; (v) MM SKB
Energy LLC, a QF which is the owner of a 1.2 MW LFG generation facility located
in Swedeland, Pennsylvania; (vi) MM Tajiguas Energy LLC, a QF which is the owner
of a 3.0 MW LFG generation facility located in Santa Barbara, California
expected to begin commercial operation in August, 2000; (vii) MM Woodville
Energy LLC, a QF which is the owner of a .6 MW LFG generation facility located
in Woodville, California; and (viii) O'Brien Biogas (Mazzaro) Inc., a QF which
is the owner of a .4 MW LFG generation facility located in Imperial,
Pennsylvania.
c. Minnesota Methane II LLC ("MMII"),/262/ in which NEO owns a 50%
interest, is the 100% owner of (i) MM Burnsville Energy LLC,/263/ a QF which is
the owner of a 4.2 MW LFG generation facility located in Burnsville, Minnesota
and (ii) Suncook Energy LLC,/264/ a QF which is the owner of a 3.0 MW LFG
generation facility located in Nashua, New Hampshire. MMII is also the 50% owner
of Landfill Power LLC,/265/ which is the owner of a 4.8 MW LFG generation
facility located in Eden Prairie, Minnesota.
d. Northbrook Energy LLC ("Northbrook"),/266/ in which NEO owns a 50%
interest, owns the following hydroelectric projects, all of which are QFs: (i)
.9 MW facility located at Lowell, Michigan; (ii) 1.4 MW facility located at Ada,
Michigan; (iii) .8 MW facility located at Comstock, Michigan; (iv) 3.2 MW
facility located at Dixon, Illinois; (v) 2.5 MW facility located at Leadville,
Colorado; (vi) 1.6 MW facility located at Grand Rapids, Michigan; (vii) 1.2 MW
facility located at Oroville, California; (viii) 1.8 MW facility located at
Belleville, Michigan; (ix) 5 MW facility located at Zenia, California; (x) 4.4
MW facility located at Danville, Virginia; and (xi) 1.0 MW facility located at
Deming, Washington.
e. Northbrook Carolina Hydro LLC,/267/ in which Northbrook owns a 99%
interest, owns the following hydroelectric projects, all of which are QFs: (i)
1.5 MW facility located at Laurens, South Carolina; (ii) 3.5 MW facility located
at Honea Path, South Carolina; (iii) 2.4 MW facility located at Greenville,
South Carolina; (iv) .64 MW facility located at Ranlo, North Carolina; (v) .6 MW
facility located at Shelby, North Carolina, and (vi) 5.5 MW facility located at
Mill Springs, North Carolina.
---------------
260 Rule 58(b)(vi) and (viii).
261 Each of the listed entities is a QF and meets the requirements of Rule
58(b)(1)(vi).
262 Rule 58(b)(1)(vi) and (viii).
263 QF and Rule 58(b)(1)(vi).
264 QF and Rule 58(b)(1)(vi).
265 QF.
266 Rule 58(b)(1)(viii).
267 Rule 58(b)(1)(viii).
---------------
f. Northbrook New York LLC, in which NEO owns a 50% interest, is a QF and
the owner of a 32.6 MW hydroelectric facility located in Watertown, New York.
C. Other
1. NRG MidAtlantic Generating LLC, in which NRG owns a 100% interest, owns
100% of the following entities which were formed to acquire certain assets from
Conectiv: (i) B.L. England Power LLC, (ii) Conemaugh Power LLC, (iii) Deepwater
Power LLC, (iv) Indian River Power LLC, (v) Keystone Power LLC and (vi) Vienna
Power LLC. The Conectiv acquisition is expected to close later this year and,
therefore, none of these entities currently owns any assets.
2. Okeechobee Power I., Inc./268/, Kissimmee Power Partners, L.P./269/,
Okeechobee Power II Inc./270/ and Okeechobee Power III, Inc./271/ are inactive.
These entities were formed in connection with a project that did not close.
3. Louisiana Energy Services, L.P.,/272/ in which NRG has a 0.52% general
partner interest (through NRG's wholly-owned subsidiary Graystone
Corporation/273/) and a 6.23% limited partner interest (though LePaz
Incorporated,/274/ a wholly-owned subsidiary of Graystone Corporation), owns a
uranium enrichment facility under development in Louisiana.
4. NRG Development Company Inc./275/ and NRG International Development
Inc./276/ are wholly-owned subsidiaries of NRG which engage in development
activities on behalf of NRG. (See paragraph A.1 for a description of these
activities.)
5. NRG Operating Services, Inc.,/277/ in which NRG owns a 100% interest,
has the following wholly-owned subsidiaries, each of which was formed to provide
(and, if not currently inactive, does perform) operation and maintenance
services to the NRG facility described in the paragraph set forth in
parenthesis:/278/ (i) NRG Artesia Operations, Inc. (inactive); (ii) NRG Cadillac
Operations Inc. (inactive); (iii) NRG Oklahoma Operations Inc. (inactive); (iv)
NRG El Segundo Operations Inc. (Paragraph B.3(iv)); (v) Somerset Operations Inc.
(Paragraph B.1(v)); (vi) NRG Morris Operations, Inc. (inactive); (vii) NRG
Cabrillo Power Operations Inc. (inactive); (viii) NRG Arthur Kill Operations
Inc. (Paragraph B.1(iv)); (ix) NRG Astoria Gas Turbine Operations Inc.
(Paragraph B.1(iii)); NRG Dunkirk Operations Inc. (Paragraph B.1(i)); NRG
Huntley Operations Inc. (Paragraph B.1(ii)); NRG Oswego Harbor Power Operations
Inc. (Paragraph B1(vi)); NRG Devon Operations Inc. (Paragraph B.1(viii)); NRG
Middletown Operations Inc. (Paragraph B.1(ix)); NRG Norwalk Harbor Operations
Inc. (Paragraph B.1(i); NRG Montville Operations Inc. (Paragraph B.1(x));
Deepwater Operations Inc. (inactive, see paragraph C.1(iii)); B.L. England
Operations Inc. (inactive, see paragraph (i)); Indian River Operations Inc.
(inactive, see paragraph (iv)); and Vienna Operations Inc. (inactive, see
paragraph (vi)).
---------------
268 Interstate Energy Corporation, supra.
269 Interstate Energy Corporation, supra.
270 Interstate Energy Corporation, supra.
271 Interstate Energy Corporation, supra.
272 Rule 58(b)(1)(vii). See also, New England Electric System, Holding Co. Act
Release No. 26227 (April 26, 1995).
273 Rule 58(b)(1)(viii).
274 Rule 58(b)(1)(vii).
275 Entergy Corporation, supra.
276 Interstate Energy Corporation, supra.
277 Entergy Corporation, supra.
278 Entergy Corporation, supra.
---------------
6. Power Operations, Inc.,/279/ in which NRG owns a 100% interest, provides
operations and maintenance services to the Cadillac facility (see Paragraph B.6)
and various other NRG facilities.
7. ESOCO Crockett, Inc.,/280/ in which NRG owns a 100% interest, provides
operations and maintenance services to the Crockett facility (see Paragraph
B.8).
8. NRG Mextrans Inc.,/281/ in which NRG owns a 100% interest, was formed to
develop a transmission line in Arizona and currently has no assets or employees.
9. NRG Services Corporation,/282/ NRG Affiliate Services, Inc.,/283/ NRG
Northeast Affiliate Services Inc.,/284/ NRG Western Affiliate Services
Inc.,/285/ NRG Connecticut Affiliate Services Inc.,/286/ each of which is a
wholly-owned subsidiary of NRG, provide payroll, benefits and other
administrative services to various wholly-owned subsidiaries of NRG.
10. Sunnyside Operations Associates, L.P., in which NRG owns a 50% interest
through NRG Sunnyside Operations G.P. Inc. (a 1% general partner) and NRG
Sunnyside Operations L.P. Inc. (a 49% limited partner), is the former operator
of a power generation facility in Utah. The Sunnyside facility has been sold and
Sunnyside Operations Associates, L.P. has no assets or employees and is
inactive.
11. Scoria Incorporated, in which NRG owns a 100% interest, has no assets
(other than rights to certain synthetic coal technology) or employees and is
inactive.
12. ONSITE Limited Partnership No. 1 and ONSITE /US Power Limited
Partnership No. 1 are 100% owned indirect subsidiaries of NRG, have no assets or
employees, and are inactive.
---------------
279 Entergy Corporation, supra.
280 Entergy Corporation, supra.
281 Entergy Corporation, supra.
282 Entergy Corporation, supra.
283 Entergy Corporation, supra.
284 Entergy Corporation, supra.
285 Entergy Corporation, supra.
286 Entergy Corporation, supra.
---------------
13. NRG Lakefield Inc. and NRG Lakefield Junction LLC, in which NRG owns a
100% interest, and Lakefield Junction LLC, in which NRG owns a 50% interest,
have no assets or employees and are inactive.
14. Mid-Continent Power Company LLC, in which NRG owns a 50% interest, has
no assets or employees and is inactive.
15. San Joaquin Valley Energy Partners I, L.P., which is 45% owned by NRG
through San Joaquin Valley Energy I, Inc. (a 2% general partner) and NRG Energy
Jackson Valley II, Inc. (a 43% limited partner), owns three biomass/waste
fuel-fired facilities located in central California which have an aggregate
capacity of 43 MW. These facilities, which were QFs, are no longer in operation
and the plant and equipment is being liquidated. San Joaquin Valley Energy
Partners IV, L.P. and Bioconversion Partners, L.P., each of which is 45% owned
by NRG through San Joaquin Valley Energy IV, Inc. (a 2% general partner) and NRG
Energy Jackson Valley II, Inc., (a 43% general partner), own certain
non-generation assets and acted as a fuel supplier to San Joaquin Valley Energy
Partners I, LP. These entities are inactive.
16. ENI Chester, LP, in which NRG has a 68.3% interest, has no assets or
employees and is inactive.
17. Carolina Energy Limited Partnership, in which NRG has a 50% limited
partnership interest through Pacific Generation Holdings Company, has no assets
or employees and is inactive.
18. Pryo-Pacific Operating Company, in which NRG owns a 45% interest, has
no assets or employees and is inactive.
19. The following entities, each of which is wholly-owned by NRG, have no
assets or employees and are inactive: (i) ESOCO Wilson, Inc.; (ii) ESOCO
Molokai, Inc.; (iii) ESOCO Fayetteville, Inc.; (iv) ESOCO Soledad, Inc.; (v)
ENIFUND, Inc.; (vi) Long Island Cogeneration, L.P.; (vii) NRG Connecticut
Generating LLC; (viii) NRG Louisiana LLC; (ix) NRG New Roads Generating LLC; (x)
Tacoma Energy Recovery Company LLC; (xi) Elk River Resource Recovery, Inc.;
(xii) Pacific Generation Development Company; (xiii) Pacific Recycling Energy,
Inc.; (xiv) ONSITE Soledad, Inc.; (xv) ONSITE Marianas Corporation; (xvi) ONSITE
Funding Corporation.
20. NRG holds its foreign investments either through NRG International,
Inc./287/ ("NRGI"), which is 100% owned by NRG, or through NRGenerating
International B.V./288/ ("NRGIBV"), a Netherlands holding company which is 100%
owned by NRGI.
21. NRG International Services Company,289 which is 100% owned by NRGI, was
formed to enter into servicing agreements with expatriates and international
consultants.
---------------
287 Interstate Energy Corporation, supra.
288 Interstate Energy Corporation, supra.
289 Interstate Energy Corporation, supra.
---------------
22. Sterling Luxembourg (No.1) S.a.r.l.,/290/ which is 100% owned by
NRGenerating Holdings (No. 15) B.V.,/291/ which is 100% owned by NRGIBV, owns
100% of Sterling Luxembourg (No.2) S.a.r.l.,/292/ which acts a vehicle for
investing shareholder loans and equity in Killingholme Generation Limited,/293/
and which owns 100% of Sterling (Gibraltar)/294/ which was formed for the same
purpose. NRG also formed Sterling Luxembourg (No.3) S.a.r.l./295/ as a vehicle
for channeling debt financing to Killingholme Generation Limited; Sterling
Luxembourg (No.3) S.a.r.l. is 100% owned by Sterling Luxembourg (No.4)
S.a.r.l.,/296/ which is 50% owned by NRGI and 50% owned by NRG International II,
Inc.,/297/ which are both 100% owned by NRG.
23. Flinders Labuan (No. 1) Ltd. And Flinders Labuan (No. 2) Ltd. Are each
100% owned by NRGenerating Holdings (No. 2) Gmbh, which is 100% owned by
NRGenerating Luxembourg (No. 1) S.a.r.l., which is 100% owned by NRGIBV.
NRGenerating Holdings (No. 2) Gmbh, Flinders Labuan (No. 1) Ltd. and Flinders
Labuan (No. 2) Ltd. were formed to own 50%, 25% and 25%, respectively, of an
as-yet-unformed partnership that will acquire certain power stations and related
assets in South Australia for which NRG is currently bidding. NRGenerating
Luxembourg (No. 1) also owns 100% of NRGenerating Luxembourg (No. 2), which owns
100% of Flinders (Gibraltar), both of which were formed to act as vehicles for
making loans to the partnership.
24. (NR) Gibraltar, which is 100% owned by Enfield Holdings B.V. (see
Paragraph B.15), is an inactive entity with no employees or assets.
25. Brimsdown Power Limited, which is 100% owned by NRGIBV, was formed to
develop a peaking unit at the Enfield power station, but it has no assets or
employees and is currently inactive. (See Paragraph B.15.)
26. Wainstones Power Limited, which is 100% owned by NRGIBV through its
100% ownership in NRGenerating Holdings (No.11) B.V., was formed to own the 800
MW gas-fired Langage power project in the UK, which is still in the development
stage. It currently has no assets or employees.
27. Langage Energy Park Limited, which is 100% owned by NRGIBV through its
100% ownership in NRGenerating Holdings (No.13) B.V., was formed to acquire the
site for the Langage project. It currently has no assets or employees.
28. NRGenerating Holdings (No.9) B.V., which is 100% owned by NRGIBV, owns
25% of Kanel Kangal Elektrik Limited Sirketi,/298/ which was formed to develop
and acquire a 450 MW coal-fired power station in Turkey. It does not currently
have any employees or assets.
---------------
290 Interstate Energy Corporation, supra.
291 Interstate Energy Corporation, supra.
292 Interstate Energy Corporation, supra.
293 EWG (90 FERC 61,194).
294 Interstate Energy Corporation, supra.
295 Interstate Energy Corporation, supra.
296 Interstate Energy Corporation, supra.
297 Interstate Energy Corporation, supra.
298 Entergy Corporation, supra.
---------------
29. NRGenerating Holdings (No. 17) B.V., which is 100% owned by NRGIBV,
owns 31.75% of KUSEL Kutahya Seyitomer Elektrik Limited Sirketi, which was
formed to develop and acquire a 600 MW coal-fired power station in Turkey. It
does not currently have any employees or assets.
30. Sachsen Holding B.V., which is 100% owned by NRGIBV, owns 45% of P.T.
Dayalistrik Pratama, was formed to develop a 400 MW coal-fired power station in
Cilegon, Indonesia. It has no employees and owns no assets other than an
undeveloped parcel of land that may serve as a site for a future power project.
NRGenerating Holdings (No.7) B.V., and NRGenerating Holdings (No.8) B.V., which
are both 100% owned by NRGIBV, respectively own 95% and 5% of P.T. NRG West
Java, which was formed to operate the Cilegon project in Indonesia, but which
has no assets or employees and is currently inactive.
31. Inversiones Bulo Bulo S.A.,/299/ in which NRG owns a 30% interest
through Tosli Investments N.V. (see paragraph B.23) and through Coniti Holding
B.V.,/300/ which is owned 100% by Tosli Investments N.V., is a holding company
and is expected to eventually own a controlling interest in Compania Electrica
Central Bulo Bulo S.A. (see paragraph B.23). Coniti Holding B.V. also currently
owns a 0.002% interest in Compania Electrica Central Bulo Bulo S.A.
32. Tosli (Gibraltar) BV,/301/ in which NRG owns a 50% interest through
Coniti Holding B.V. (see paragraph C.29) serves as a funding vehicle for certain
of NRG's Latin American projects.
33. Tosli Luxembourg (No.2) S.a.r.l.,/302/ in which NRG has a 50% interest
through Tosli Luxembourg (No.1) S.a.r.l.,/303/ a wholly-owned subsidiary of
Tosli Investments N.V. (see paragraph B.23), serves as a funding vehicle for
certain of NRG's Latin American projects.
34. NRGenerating Holdings Gmbh,/304/ which is 100% owned by NRG through
NRGenerating International B.V., owns 100% of NRG Caymans-C/305/ and NRG Caymans
P./306/ Together NRG Caymans-C and NRG Caymans-P own (i) 25% of Scudder Latin
American Power I/307/ (which is composed of Scudder Latin American Power I-P
LDC/308/ and Scudder Latin American Power I-C LDC/309/) and (ii) 4.45860% of
Scudder Latin American Power II/310/ (which is composed of Scudder Latin
American Power II-P LDC/311/, Scudder Latin American Power II-C LDC/312/,
Scudder Latin American Power II-Corporation A/313/ and Scudder Latin American
Power II-Corporation B/314/) (see paragraph B.24). NRGenerating Holdings Gmbh
also owns 100% of NRG Caymans Company/315/, which owns 20% of Croatia Power
Group/316/, a holding company created in connection with a potential investment
in Croatia and a 36.4% interest in Central and Eastern Europe Power Fund, Ltd.,
a private equity fund designed to make investments in power projects in central
and eastern Europe. Central and Eastern Europe Power Fund, Ltd. does not
currently have any ownership interests in power projects.
---------------
299 Interstate Energy Corporation, supra.
300 Interstate Energy Corporation, supra.
301 Entergy Corporation, supra.
302 Interstate Energy Corporation, supra.
303 Interstate Energy Corporation, supra.
304 Interstate Energy Corporation, supra.
305 Interstate Energy Corporation, supra.
306 Interstate Energy Corporation, supra.
307 Interstate Energy Corporation, supra.
308 Interstate Energy Corporation, supra.
309 Interstate Energy Corporation, supra.
310 Interstate Energy Corporation, supra.
311 Interstate Energy Corporation, supra.
312 Interstate Energy Corporation, supra.
313 Interstate Energy Corporation, supra.
314 Interstate Energy Corporation, supra.
315 Interstate Energy Corporation, supra.
316 Interstate Energy Corporation, supra.
---------------
35. Cobee Energy Development LLC, in which NRG has a 50% interest, through
NRG Latin America, Inc.,/317/ a wholly-owned subsidiary of NRG International
Inc. (see paragraph C.20), is an inactive entity.
36. The following entities are 100% owned by NRGIBV, but at present are
inactive shell entities: NRGenerating Holdings (No.3) B.V., NRGenerating
Holdings (No.6) B.V., NRGenerating Holdings (No.14) B.V., NRGenerating Holdings
(No.15) B.V., NRGenerating Holdings (No.16) B.V., NRGenerating Holdings (No.18)
B.V., NRGenerating Holdings (No.19) B.V., NRGenerating Holdings (No.20) B.V.,
NRGenerating Holdings (No.21) B.V., NRGenerating Holdings (No.22) B.V.,
NRGenerating Holdings (No.23) B.V., Interenergy Limited, NRGenerating Rupali
B.V., Kiksis B.V.
37. NRGenerating Holdings (No. 12) B.V., which is 50% owned by NRG
Internationall II, Inc., will be used as a holding company for international
assets of NRG, but does not currently have any employees or assets.
38. NRG Energy Ltd.,/318/ which is 100% owned by NRGIBV, serves as NRG's
development office for the United Kingdom. It owns no utility assets.
39. NRG Asia-Pacific Ltd.,/319/ which is 100% owned by NRGI, serves as
NRG's development office for Australia and Southeast Asia. It owns no utility
assets.
40. NRG Energy Development GmbH,/320/ which is 100% owned by NRGIBV, serves
as NRG's development office in Germany. It owns no utility assets.
41. NRG Energy CZ, s.r.o.,/321/ which is 100% owned by NRGIBV, serves as
NRG's development office in the Czech Republic. It owns no utility assets.
42. NRG Energy PL Sp.z.o.o.,/322/ which is 100% owned by NRGIBV, serves as
NRG's development office in Poland. It owns no utility assets.
---------------
317 Interstate Energy Corporation, supra.
318 Interstate Energy Corporation, supra.
319 Entergy Corporation, supra.
320 Interstate Energy Corporation, supra.
321 FUCO.
322 Interstate Energy Corporation, supra.
---------------
43. Ou Nrg Energy Est, which is 100% owned by NRGIBV, serves as NRG's
development office in Estonia. It owns no utility assets.
44. NEO Corporation ("NEO," also discussed in paragraph B.25, above), owns
interests in the following subsidiaries and affiliates that are not QFs:
a. MM Biogas Power LLC,/323/ in which NEO owns a 50% interest, is the 100%
owner of the following limited liability companies:/324/ (i) MM Erie Power LLC,
which currently is the Lessee under a Site Lease giving it rights to construct a
LFG generation facility to be located in Denver, Colorado; (ii) MM Martinez
Energy LLC, which currently is the Lessee under a Site Lease giving it rights to
construct a LFG generation facility to be located in Contra Costa County,
California; (iii) MM Northern Tier Energy LLC, which is currently the Lessee
under a Site Lease giving it rights to construct a LFG generation facility to be
located in Troy, Pennsylvania; (iv) MM Phoenix Energy LLC, which currently has
rights to construct a LFG utilization project in Phoenix, Arizona; (v) MM
Riverside LLC, which currently is the Lessee under a Site Lease giving it rights
to construct a LFG generation facility to be located in Riverside, California;
(vi) MMSB Transco Holdings LLC, which has no assets or employees and is
inactive; (vii) MM El Sobrante Energy LLC, which currently has no assets or
employees (viii) MM Tri-Cities Energy LLC, which currently has no assets or
employees and is inactive and (ix) O'Brien Standby Power Energy, Inc., the owner
of an 8.4 MW Diesel generation facility located in Swedeland, Pennsylvania.
b. Minnesota Methane Holdings, LLC, in which NEO owns a 50% interest, has
no assets or employees and is inactive.
c. Four Hills, LLC,/325/ in which NEO owns a 50% interest, is the owner of
a LFG collection system in Nashua, New Hampshire.
d. LFG Partners, LLC, in which NEO owns a 100% interest, has no assets or
employees and is inactive.
e. NEO Landfill Gas, Inc.,/326/ of which NEO owns 100%, is the 100% owner
of the following limited liability companies, each of which owns a LFG
collection system located as follows:/327/ (i) NEO Albany LLC (Albany, New
York); (ii) NEO Cuyahoga LLC (Cleveland, Ohio); (iii) NEO Edgeboro LLC
(Edgeboro, New Jersey); (iv) NEO Fitchburg LLC (Fitchburg, Massachusetts); (v)
NEO Hartford LLC (Hartford, Connecticut); (vi) NEO Lopez Canyon LLC (Lake View
Terrace, California); (vii) NEO Lowell LLC (Lowell, Massachusetts); (viii) NEO
Prince William LLC (Prince William, Virginia); (ix) NEO San Diego LLC (San
Diego, California); (x) NEO Spokane LLC (Spokane, Washington); (xi) NEO Tacoma
LLC (Tacoma, Washington); (xii) NEO Taunton LLC (Taunton, Massachusetts); (xiii)
NEO Tomoka Farms LLC (Daytona Beach, Florida); (xiv) NEO Tulare LLC (Visalia,
California); (xv) NEO West Covina LLC (West Covina, California); and (xvi) NEO
Yolo LLC (Sacramento, California).
---------------
323 Rule 58(b)(1)(vi) and (viii).
324 Each of the listed companies is exempt under Rule 58(b)(1)(vi).
325 Rule 58(b)(1)(vi).
326 Rule 58(b)(1)(vi) and Interstate Energy Corporation, supra.
327 Each of the listed companies is exempt under Rule 58(b)(1)(vi).
---------------
f. NEO Landfill Gas Holdings Inc.,/328/ has entered into an operations and
maintenance agreement with Landfill Services LLC (an unrelated party) to provide
operation and maintenance services for the facilities owned by the companies
listed in paragraph 40(a), above.
g. NEO owns 100% of each of the following limited liability companies, each
of which owns a LFG collection system located as follows:/329/ (i) NEO
Burnsville LLC (Burnsville, Minnesota); (ii) NEO Corona LLC (Corona,
California); (iii) NEO Erie LLC (Denver, Colorado); (iv) NEO Ft. Smith LLC (Ft.
Smith, Arkansas); (v) NEO Hackensack LLC (Lyndhurst, New Jersey); (vi) NEO
Martinez LLC (Contra Costa County, California); (vii) NEO Nashville LLC
(Nashville, Tennessee); (viii) NEO Northern Tier LLC (Troy, Pennsylvania); (ix)
NEO Phoenix LLC (Phoenix, Arizona); (x) NEO Prima Deshecha LCC (San Juan
Capistrano, California); (xi) NEO Riverside LLC (Riverside, California); (xii)
NEO SKB LLC (Swedeland, Pennsylvania); (xiii) NEO Tajiguas LLC (Santa Barbara,
California); and (xiv) NEO Woodville, LLC (Woodville, California).
h. NEO El Sobrante LLC, NEO Tri-Cities LLC and MM Ft. Smith Energy LLC,
each of which is 100% owned by NEO, have no assets or employees and are
inactive.
i. NEO San Bernardino LLC,/330/ of which NEO owns 100%, is a 100% profits
and loss member and a 95% voting member of San Bernardino Landfill Gas
Partnership,/331/ which owns LFG collection systems at four landfills located in
San Bernardino County, California.
j. NEO MESI LLC,/332/ of which NEO owns 100%, is a 50% owner of MESI Fuel
Station #1 LLC,/333/ which is the owner of a synthetic coal processing facility
located in Catlettsburg, Kentucky.
k. Northbrook Acquisition Corp.,/334/ which is 100% owned by Northbrook New
York LLC ("Northbrook,/335/" in which NEO owns a 50% interest), is the 100%
owner of STS Hydropower, Ltd.,/336/ which provides operation and maintenance
services for all of the hydroelectric projects in which NEO has an interest. STS
Turbine Development LLC,/337/ in which Northbrook owns a 99% interest, provides
turbine design, manufacturing and engineering services for hydroelectric
facilities.
l. NEO ECO 11 LLC,/338/ of which NEO owns 100%, has not assets or employees
and is inactive.
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328 Rule 58(b)(1)(vi) and Entergy Corporation, supra.
329 Each of the listed companies is exempt under Rule 58(b)(1)(vi).
330 Rule 58(b)(1)(vi).
331 QF and Rule 58(b)(1)(vi).
332 Rule 58(b)(1)(vi).
333 Rule 58(b)(1)(vi).
334 Rule 58(b)(1)(viii).
335 Rule 58(b)(1)(viii).
336 QF.
337 QF and Rule 58(b)(1)(vi).
338 Rule 58(b)(1)(vi).
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m. NEO Chester-Gen LLC/339/ was formed to own a cogeneration facility in
Chester, Pennsylvania. It is currently inactive and intends to apply for EWG
status before becoming active.
n. NEO Toldeo-Gen LLC/340/ was formed to own a cogeneration facility in
Toledo, Ohio. It is currently inactive and intends to apply for EWG status
before becoming active.
o. NEO Freehold-Gen LLC/341/ was formed to own a cogeneration facility in
Freehold, New Jersey. It is currently inactive and intends to apply for EWG
status before becoming active.
45. NRG Power Marketing Inc.,/342/ which is 100% owned by NRG, conducts
power marketing and related activities on behalf of certain wholly-owned
subsidiaries of NRG.
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339 Rule 58(b)(1)(vi).
340 Rule 58(b)(1)(vi).
341 Rule 58(b)(1)(vi).
342 Rule 58(b)(1)(v).
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<PAGE>
Annex E
AFFILIATE CONTRACTS
SALE OF FUEL FOR ELECTRIC GENERATION
NRG Energy Center Washco LLC has the option to sell wood by-product
purchased from Andersen Corporation to NSP for use as fuel in generating
facilities. The price for the wood by-product equals the average cost per MMBtu
of solid fuel delivered to a NSP generating plant during the calendar year and,
as a result such price is in compliance with Rule 90(d)(2) and Rule 92(b) under
the 1935 Act. This contract was approved by the Minnesota Public Utility
Commission ("MPUC") in Docket No. E002/M-86-775.
NSP purchases refuse-derived fuel ("RDF") from NRG's Newport facility and
Elk River Facility through a series of contracts, including a lease of land, an
operating agreement, and a reimbursement agreement for additional pollution
control equipment installed by NSP to burn RDF. In NSP's view, the proper
characterization of the transaction is the sale by NRG of a good manufactured by
it (i.e., RDF), and the price being paid is in compliance with Rule 90(d)(2) and
Rule 92(b) under the 1935 Act. The various contracts associated with this
transaction were approved by the MPUC in Docket Nos. E002/AI-93-821,
E002/AI-94-950, E002/AI-93-770, and E002/AI-95-171.
URANIUM FUEL ENRICHMENT SERVICES
Louisiana Energy Services ("LES") is a joint venture which was to operate a
nuclear enrichment facility in Louisiana. NSP's wholly owned subsidiary, NRG,
owns 100% of Graystone Corporation (Graystone), an investor in uranium
enrichment services. Graystone is a general partner in the LES venture, and also
owns LePaz Inc., which is a limited partner in LES. Together, Graystone and
LePaz own 6.74% of LES.
Under the terms of the contract, LES was to supply 30% of NSP's enrichment
services needs for the period October 1, 1995 through September 30, 2005. The
agreement contained a term specifying that if LES could not perform, NSP would
purchase equivalent amounts from Urenco, which is not affiliated with NSP but is
the main investor in LES. Pursuant to this provision, NSP has purchased between
$7 million and $8 million in enrichment services from Urenco, as LES has never
performed under the agreement. NSP and LES have agreed to terminate this
arrangement on December 31, 2000, and, in the interim, NSP will not make any
purchases from LES. As a result, this transaction will not involve the sale of a
good or service for a charge. The remainder of NSP's enrichment services needs
are purchased on the spot market. This contract was approved by the MPUC in
Docket No. E002/AI-92-1164.
SALE OF STEAM
NSP sells cold steam to NRG Energy Center Washco LLC (a subsidiary of NRG)
from its King plant. The steam is then reheated and resold to Andersen
Corporation and a Minnesota correctional facility. NRG pays approximately
$700,000 per year for the steam, which is NSP's incremental cost of producing an
equivalent amount of electricity (measured in BTUs) with the cold steam. As a
result, such price is in compliance with Rule 90(d)(2) and Rule 92(b) under the
Act. Alternatively, the sale of steam is conceivably exempt under Rule 81. In
addition, NRG pays approximately $450,000 per year for NSP to operate the NRG
boiler facilities based on NSP's fully allocated cost plus a small management
fee (5%) required to reflect potential unaccounted-for overhead costs for state
regulatory purposes to avoid subsidization. NSP believes that such pricing is in
compliance with Rules 90 and 91 under the 1935 Act. This contract was approved
by the MPUC in Docket No. E002/M-86-775.
NSP maintains and operates NSP's Highbridge Units 3 and 4 boilers for NRG
Energy Center Rock-Tenn, a subsidiary of NRG, so that NRG can produce steam to
sell to RockTenn Corporation. NRG pays approximately $3 million per year at
NSP's fully allocated cost, which includes a small management fee required to
reflect the potential for unaccounted-for overhead costs for state regulatory
purposes to avoid subsidization. NSP believes that such price is in compliance
with Rules 90 and 91 under the 1935 Act. This contract was approved by the MPUC
in Docket No. E002/CI-82-523.
GAS SUPERVISORY CONTROL AND DATA ACQUISITION AND DISPATCHING SERVICES
NSP supplies NSP-W and Viking with supervisory control and data acquisition
("SCADA") services for their gas businesses pursuant to separate contracts with
Viking and NSP-W. NSP also supplies NSP-W gas dispatching and other services.
NSP-W pays approximately $192,000 per year, while Viking pays approximately
$256,000 per year. Both contracts were approved by the MPUC in Docket No.
G002/AI-94-831, and the contract between NSP and NSP-W was approved by the PSCW
in Docket No. 4220-AU-117. A SCADA system electronically communicates gas flow,
gas pressure, and gas equipment set point data for the delivery system and
records the data in a computerized data storage system for monitoring and
control purposes. Gas dispatching includes monitoring and controlling the flow,
pressures and operating conditions of a natural gas delivery system through the
use of a SCADA system. The agreements enable NSP, NSP-W and Viking to share the
costs of a single system rather than each owning and operating a SCADA system.
The three companies are each allocated and billed a share of the actual
operating costs incurred by NSP on a monthly basis based on the number of
metering points monitored for each company. NSP believes that such pricing
complies with Rules 90 and 91.
MANAGEMENT OR LEASING OF LAND OR OTHER FACILITIES
NSP manages the Renaissance Square Office Building for United Power & Land
("UP&L"). NSP provides this service in exchange for two percent (2%) of the
building's gross annual rents. All direct costs of management are charged to
UP&L under an administrative services agreement. These typically total
approximately $1.1 million per year. NSP believes that such pricing complies
with Rules 90 and 91. This contract was approved by the MPUC in Docket No.
E002/AI-94-1188.
UP&L leases office space on floors two through eleven of the Renaissance
Square office building to NSP. NSP pays UP&L rent based on a square footage rate
of approximately $3.6 million per year, consisting of a base rental fee on a per
square foot basis and a separate fee for NSP's share of the actual costs of
operating and maintaining the building. These terms were more favorable to NSP
than other bids that NSP received and result in a situation equivalent to if NSP
owned the building, as the UP&L target return in establishing the lease payments
was NSP's regulated return on equity. This contract was approved by the MPUC in
Docket No. E002/AI-90-845. UP&L also leases office space on the first floor and
in the basement of the Renaissance Square office building to NSP. This contract
was approved by the MPUC in Docket No. E002/AI-94-1056. NSP believes that its
rental payments to UP&L comply with Rules 90 and 91 under the Act.
First Midwest Auto Park ("FMAP") leases 14,000 square feet of unimproved
storage area to NSP in the first and second floors of the parking garage
directly adjacent to NSP's headquarters for approximately $100,000 per year.
This contract was approved by the MPUC in Docket No. E002/AI-94-1043. FMAP also
leases 92 parking spaces in the parking facility to NSP at an annual rent of
approximately $220,00 per year. This contract was approved by the MPUC in Docket
No. E002/AI-94-1042. NSP believes that the payments to FMAP comply with Rules 90
and 91 under the Act.
Seren Innovations, Inc. ("Seren"), a wholly owned subsidiary of NSP,
entered into a lease agreement with NSP that allows Seren to attach cable or
similar telecommunications facilities to NSP's distribution poles, conduits,
ducts and other properties. The lease is effective February 20, 1998 through
December 31, 2018, and is applicable in Minnesota, South Dakota and North
Dakota. NSP receives approximately $425,000 per year in lease payments from
Seren, calculated pursuant to a formula rate outlined by the FCC. As a result,
NSP believes that such transaction is exempt under Rule 81 or is determined in
compliance with Rules 90 and 91 under the Act. This contract was approved by the
MPUC in Docket No. E002/AI-98-377. Under the federal Telecommunications Act
of 1996, NSP is obligated to provide access to its poles, etc., to
telecommunications providers. NSP has entered into similar facility access lease
agreements with several non-affiliated telecommunications providers.
INTELLECTUAL PROPERTY
Reddy Kilowatt Corporation ("RKC") is a wholly-owned subsidiary of NSP
which owns and licenses use of the Reddy Kilowatt(R) and Reddy Flame(TM)
trademarks ("Trademarks"). On October 1, 1999, NSP and RKC entered into a
Trademark License Agreement allowing NSP to use the Trademarks for an annual
fee. NSP pays Reddy Kilowatt Corporation $125,000 per year for its portion of
the amortized cost of purchasing the Reddy trademark. NSP believes that such
price is in compliance with Rules 90 and 91 under the 1935 Act. The MPUC
approved the agreement effective October 1, 1999, in Docket No.
G,E-002/AI-99-1418.
