SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM U-1
APPLICATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
NGE Resources, Inc.
One Commerce Plaza
Suite 2006A - 20th Floor
Albany, New York 12260
(Name of company or companies filing this statement and
address of principal executive offices)
Sherwood J. Rafferty
c/o NGE Resources, Inc.
One Commerce Plaza
Suite 2006A - 20th Floor
Albany, New York 12260
Telephone: (518) 434-3014
(Names and addresses of agents for service)
Copies to:
Leonard Blum, Esq.
Huber Lawrence & Abell
605 Third Avenue
New York, New York 10158
Telephone: (212)682-6200
Joanne Rutkowski, Esq.
LeBouef, Lamb, Greene & MacRae, L.L.P.
1875 Connecticut Avenue, N.W.
Washington, D.C. 20009
Telephone: (202) 986-8000
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Item 1. Description of Proposed Transaction.
A. Introduction
NGE Resources, Inc.,{1} a New York corporation ("HoldCo"),
seeks authorization from the Securities and Exchange Commission
("Commission") under Sections 3(a)(1), 9(a)(2) and 10 of the
Public Utility Holding Company Act of 1935 (the "1935 Act" or
"Act"), in connection with the proposed corporate reorganization
of New York State Electric & Gas Corporation ("NYSEG"), a New
York electric and gas utility company. The reorganization is
being proposed as part of a comprehensive rate and restructuring
plan to satisfy electric industry restructuring goals established
by the Public Service Commission of the State of New York
("PSC"). Specifically, HoldCo hereby applies for the approval of
the Commission pursuant to Section 9(a)(2) of the 1935 Act (i) to
acquire all of the outstanding shares of common stock of NYSEG
("NYSEG Common Stock") pursuant to a Plan of Exchange ("Plan of
Exchange"), a form of which is filed as Exhibit B-1 hereto, and
(ii) to engage in the proposed transactions described in this
application which will result in HoldCo owning all of the
outstanding NYSEG Common Stock and all of the outstanding common
stock of GenSub, a New York corporation ("GenSub"), which will
become an "electric utility company" for purposes of the 1935
Act.{2} In addition, HoldCo hereby applies pursuant to Section
3(a)(1) of the 1935 Act for an order exempting HoldCo and each of
its subsidiary companies from all provisions of the 1935 Act
(except for Section 9(a)(2) thereof).
The proposed Plan of Exchange is anticipated to be
implemented as soon as practicable after a Special Meeting of the
holders of NYSEG Common Stock ("Stockholders") currently expected
to be held on or about January 15, 1998. To facilitate this
schedule, the applicant requests that the Commission issue an
order in this matter by December 15, 1997. If the Stockholders
approve the proposed Plan of Exchange and the requisite
regulatory approvals are obtained, the share exchange pursuant to
the Plan of Exchange will become effective upon the filing of a
Certificate of Exchange by the Department of State of the State
of New York ("Effective Time").
_______________
{1} The name NGE Resources, Inc. may be changed prior to the
effective time of the Share Exchange (as hereinafter defined) at
the discretion of the Board of Directors of HoldCo.
{2} In addition to GenSub, NYSEG may create one or more other
generation subsidiaries for the purpose of carrying out the
proposed transactions described in this application, each of
which will be a New York corporation and each of which will
become an "electric utility company" for purposes of the 1935 Act
after the consummation of the proposed transactions described in
this application. The applicant asks the Commission to reserve
jurisdiction over the acquisition of such additional generation
subsidiaries pursuant to Section 9(a)(2) of the 1935 Act, pending
completion of the record.
B. Regulatory Background
The PSC, in August 1994, instituted an investigation of
issues related to a restructuring of the electric industry in New
York State ("Competitive Opportunities Proceeding"). The
proposed transactions described herein are an integral part of
NYSEG's overall rate and restructuring plan, which complies with
the mandate of the PSC in the Competitive Opportunities
Proceeding. The overall objective of the Competitive
Opportunities Proceeding was to identify regulatory and
ratemaking practices that would assist in the transition to a
more competitive electric industry. On May 20, 1996, the PSC
issued its Order in the Competitive Opportunities Proceeding
("Order") which set forth the PSC's vision and goals for the
future of the electric industry in New York.
The Order directed NYSEG and four other New York electric
utilities to file separate rate and restructuring plans
consistent with the PSC's vision and goals for increased
competition. The PSC stated that these utility plans should
address, at a minimum, the following matters: (1) the structure
of the utility both in the short and long term, including a
description of how that structure complies with the PSC's vision
and, in cases where divestiture of generation is not proposed,
effective mechanisms that adequately address resulting market
power concerns; (2) a schedule for the introduction of retail
access to all of the utility's customers, and a set of unbundled
tariffs that is consistent with the retail access program; (3) a
rate plan to be effective for a significant portion of the
transition; and (4) numerous other issues relating to strandable
costs, load pockets, energy services, and public policy costs.
On September 27, 1996, NYSEG submitted to the PSC its rate
and restructuring proposal, called NYSEGPlan, which contemplated
the functional separation of NYSEG's generation business from its
electric delivery business. Parties to the NYSEGPlan proceeding,
including PSC Staff, expressed a preference for a structural
separation of the generation business and on December 19, 1996,
NYSEG filed a petition with the PSC pursuant to which NYSEG
sought authority to form a holding company with a structural
separation of its coal-fired generation assets from the PSC-
regulated utility business. Structural separation of such
generation assets is expected to promote greater competition in
generation. The PSC subsequently notified NYSEG that the holding
company petition would be addressed in the NYSEGPlan proceeding.
On July 28, 1997, NYSEG and the PSC Staff entered into a
Joint Statement of Principles to Govern the Settlement Agreement
(the "Statement of Principles") which sets forth, among other
things, the terms and conditions of the proposed corporate
reorganization. The Statement of Principles serves as the basis
for a settlement agreement (the "Restructuring Agreement"), which
is expected to be entered into shortly by NYSEG, the PSC Staff
<PAGE>
and certain other parties. The Restructuring Agreement is
subject to approval by the PSC. NYSEG does not expect material
modifications to be made to the Restructuring Agreement by the
PSC Order approving the Restructuring Agreement. Copies of
NYSEG's December 19, 1996 Petition to the PSC and the Statement
of Principles are attached hereto as Exhibits D-1 and D-2,
respectively. Copies of the Restructuring Agreement and the PSC
Order will be filed as Exhibits D-3 and D-4, respectively, by
amendment hereto.
NYSEGPlan, of which the proposed reorganization is an
integral part, reflects years of careful negotiation in a multi-
party collaborative process, fostered by the PSC itself, to
create a fully competitive environment for the supply of
electricity, at both wholesale and retail, to benefit customers
throughout the State of New York. NYSEG believes that the Plan
of Exchange and the proposed transactions described herein
represent the optimal corporate structure for a restructured
competitive utility marketplace and the pursuit of unregulated
non-utility business activities, which should benefit NYSEG's
Stockholders, while at the same time alleviating concerns
regarding market power in generation, which should benefit
NYSEG's ratepayers.
As discussed in more detail below, on August 29, 1997, NYSEG
filed an application with the Federal Energy Regulatory
Commission ("FERC") for approval of the transactions described
herein. A copy of the FERC application is attached hereto as
Exhibit D-5. In addition, on September 18, 1997, NYSEG filed an
application with the Nuclear Regulatory Commission ("NRC"). A
copy of the NRC application is attached hereto as Exhibit D-7.
C. Proposed Reorganization
HoldCo and GenSub were incorporated under the laws of the
State of New York for the purpose of carrying out the proposed
transactions described in this application. HoldCo and GenSub
are currently direct, wholly-owned subsidiaries of NYSEG.
Neither HoldCo nor GenSub currently owns any utility assets or
currently is a "public utility company" or a "holding company"
for purposes of the 1935 Act.
NYSEG, a regulated public utility incorporated under the
laws of the State of New York, is engaged principally in the
business of generating, purchasing, transmitting and distributing
electricity, and purchasing, transporting and distributing
natural gas to the public in the central, eastern and western
parts of New York State. NYSEG provides electricity to
approximately 808,000 customers and provides natural gas to
approximately 238,000 customers. NYSEG's service territory is
not expected to change as a result of the proposed corporate
reorganization. A map of NYSEG's service territory is attached
hereto as Exhibit E-1. In providing this service, NYSEG is
subject to regulation by the PSC under the Public Service Law of
the State of New York with respect to retail rates and to
regulation by the FERC with respect to wholesale rates. NYSEG is
currently not subject to the 1935 Act because it is not a
"holding company" or a "subsidiary company" thereof as such terms
are defined in the 1935 Act.{3}
NYSEG has a number of subsidiaries that are not "public
utility companies" for purposes of the 1935 Act. These include
NGE Enterprises, Inc., a Delaware corporation ("Enterprises") and
Somerset Railroad Corporation, a New York corporation ("SRC").
Enterprises is a wholly-owned subsidiary of NYSEG and was formed
in April 1992 to hold the stock of certain non-utility
subsidiaries of NYSEG and to conduct energy service business
activities. SRC is a wholly-owned subsidiary of NYSEG and was
formed in August 1979 to own and operate a rail line which is
used primarily to transport coal and other materials to NYSEG's
Kintigh generating station.
XENERGY, Inc. ("XENERGY"), a subsidiary of Enterprises, was
acquired in June 1994 and is an energy services, information
systems and energy-consulting company, serving utilities,
governmental agencies and end-use energy consumers. In addition,
by order of the FERC dated June 9, 1997, XENERGY received
authorization to sell wholesale power at market-based rates.
NYSEG's current corporate structure is shown in Appendix A
attached to this application.
NYSEG owns 100% of the capital stock of GenSub, which was
organized to engage in the generation business and own and
operate all or a part of NYSEG's coal-fired generation assets
consisting of its Kintigh, Homer City, Milliken, Goudey,
Greenidge, Hickling and Jennison generating stations and certain
associated assets and liabilities ("Generation Assets"). As a
result of the proposed transactions described in this
application, GenSub will become an "electric utility company"
under the 1935 Act. HoldCo, which will own all of the
outstanding common stock of both NYSEG and GenSub after the
Effective Time, will require Commission approval under Section
9(a)(2) of the 1935 Act. In addition, HoldCo is seeking a
Commission order declaring it exempt from all provisions of the
Act except Section 9(a)(2). Under the terms of the Plan of
Exchange, all of the outstanding shares of common stock of HoldCo
("HoldCo Common Stock"), which will then be owned by NYSEG, will
be canceled and all of the outstanding shares of NYSEG Common
_______________
{3} NYSEG may temporarily become a statutory "holding company"
under the 1935 Act if certain of NYSEG's coal-fired generation
assets are transferred to GenSub, which is currently a subsidiary
of NYSEG, prior to the Effective Time. Upon such transfer, NYSEG
will claim exemption from the 1935 Act pursuant to Section
3(a)(1) or 3(a)(2) of the 1935 Act. The issue will be mooted
when, at the Effective Time, GenSub becomes a direct subsidiary
of HoldCo.
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Stock will be exchanged on a share-for-share basis for HoldCo
Common Stock ("Share Exchange"), subject to the rights of the
Stockholders to exercise their appraisal rights. Upon
consummation of the Share Exchange, each person who owned NYSEG
Common Stock immediately prior to the Share Exchange (other than
Stockholders who properly exercise their appraisal rights) will
own a corresponding number of shares and percentage of the
outstanding HoldCo Common Stock, and HoldCo will own all of the
outstanding shares of NYSEG Common Stock. It will not be
necessary for Stockholders to turn in their certificates for
stock certificates of HoldCo. Such certificates of NYSEG will
automatically represent HoldCo Common Stock.
As an additional aspect of the proposed holding company
restructuring, NYSEG intends to commence transferring the
Generation Assets to GenSub as soon as practicable after
obtaining the mortgage trustee's release and any necessary
regulatory approvals, as more fully described hereafter. NYSEG
will retain its hydroelectric and nuclear generation assets. In
addition, immediately after the Effective Time, NYSEG intends to
transfer to HoldCo all of the common stock of GenSub and
Enterprises. NYSEG also intends to transfer to GenSub all of the
common stock of SRC. The reorganization pursuant to the Plan of
Exchange, the transfer of the Generation Assets to GenSub, the
transfer of GenSub and Enterprises common stock to HoldCo and the
transfer of SRC common stock to GenSub are referred to herein as
the "Reorganization."
Shares of NYSEG's Serial Preferred Stock (Cumulative, $100
Par Value), of which seven series are currently issued and
outstanding, and NYSEG's Serial Preferred Stock (Cumulative, $25
Par Value), of which two series are currently issued and
outstanding (collectively, the "NYSEG Preferred Stock"), will
remain securities of NYSEG after the Share Exchange. There are
currently no issued and outstanding shares of NYSEG's Preference
Stock (Cumulative, $100 Par Value). The shares of NYSEG
Preferred Stock issued and outstanding immediately prior to the
Share Exchange will not be converted or otherwise affected by the
Share Exchange and will continue as equity securities of NYSEG
with the same preferences, designations, relative rights,
privileges and powers, and subject to the same restrictions,
limitations and qualifications, as were applicable to such
securities prior to the Share Exchange.
The Share Exchange will not result in any change in the
outstanding indebtedness of NYSEG which will continue to be
obligations of NYSEG after the Share Exchange. NYSEG's first
mortgage bonds will continue to be secured by a first mortgage
lien on all of the properties of NYSEG that are currently subject
to such lien, other than the Generation Assets transferred and
released from the lien of NYSEG's first mortgage bond indenture.
Such indebtedness will be neither assumed nor guaranteed by
HoldCo in connection with the Share Exchange. The decision to
have the NYSEG Preferred Stock and such indebtedness of NYSEG
continue as securities and obligations of NYSEG is based upon a
desire not to alter, or potentially alter, the nature of the
investment represented by such securities and obligations, namely
a direct investment in a regulated utility.
As to holders of NYSEG Preferred Stock and NYSEG
indebtedness, the benefits of continuing as investors in NYSEG's
regulated utility business outweigh any loss of access to the
return on the Generation Assets, Enterprises and SRC. In that
regard, investors in priority position securities, such as the
holders of NYSEG Preferred Stock and NYSEG's first mortgage
bonds, benefit to the extent that such securities and obligations
have been issued by the corporate entity that holds directly
and/or has unrestricted access to the assets which generate a
substantial portion of the net earnings of the enterprise.
The corporate structure immediately after the Reorganization
is shown in Appendix A attached to this application.
Prior to the Share Exchange, HoldCo will apply to have its
common stock listed on the New York Stock Exchange, Inc.
("NYSE"). It is anticipated that HoldCo Common Stock will be
listed and traded on such stock exchange upon consummation of the
Share Exchange, whereupon HoldCo will be required to file reports
with the Commission pursuant to Section 13(a) of the Securities
Exchange Act of 1934, as amended ("1934 Act"). The NYSEG Common
Stock will cease to be listed on the NYSE following the Share
Exchange.
The consummation of the Reorganization, including the Plan
of Exchange, is subject to various conditions. These conditions
include the approval of the Commission under Section 9(a)(2) of
the 1935 Act and the granting by the Commission of an exemption
under Section 3(a)(1) of the 1935 Act as requested in this
application, and the approval of the PSC, the FERC, and the NRC.
The Plan of Exchange is subject to approval by the affirmative
vote of two-thirds of the votes of the outstanding shares of
NYSEG Common Stock at a Special Meeting of Stockholders currently
expected to be held on or about January 15, 1998. Since the
requisite order of the Commission is being obtained by this
application, the vote of the holders of NYSEG Preferred Stock is
not required in connection with the Plan of Exchange.
HoldCo will file with the Commission a Registration
Statement on Form S-4 ("Registration Statement") under the
Securities Act of 1933, as amended. The Prospectus and Proxy
Statement contained in the Registration Statement, a copy of
which will be filed by amendment as Exhibit C-1, will be filed
for the purpose of (i) registering the shares of HoldCo Common
Stock to be issued in exchange for the NYSEG Common Stock
pursuant to the Share Exchange as well as HoldCo Common Stock
that will be issued in lieu of NYSEG Common Stock under certain
NYSEG Common Stock plans and (ii) complying with the requirements
of the 1934 Act in connection with the solicitation of proxies of
the Stockholders.
D. Purpose and Anticipated Effects of the Reorganization
1. Purpose
As indicated above, the Reorganization is an integral part
of NYSEGPlan, which was developed and submitted at the direction
of the PSC. NYSEGPlan is intended to further the PSC's stated
goals in restructuring the utility industry in New York State
into a competitive energy marketplace. The principal purpose of
the Reorganization is to establish, in furtherance of the PSC's
directive, a more appropriate corporate structure to operate more
efficiently in the evolving energy marketplace and to explore and
take advantage of potential business opportunities outside
NYSEG's present markets while protecting ratepayers and
minimizing concerns about vertical market power in generation.
The holding company structure provides flexibility to
respond in a timely manner to new opportunities, while assuring
appropriate protection for regulated business stakeholders,
including both customers and securityholders. The holding
company structure separates the operations of regulated and
unregulated businesses. As a result, it provides a better
structure for regulators to assure that there is no cross-
subsidization of costs or transfer of business risk from
unregulated to regulated lines of business. Moreover, the use of
a holding company structure provides legal protection against the
imposition of liability on regulated utilities for the results of
unregulated business activities.
There are other benefits of a holding company structure.
The holding company structure will enable HoldCo to pursue
unregulated business opportunities in a timely manner. The new
corporate structure also will permit the use of financing
techniques that are more directly suited to the particular
requirements, characteristics and risks of unregulated operations
without affecting the capital structure or creditworthiness of
NYSEG, and will increase financial flexibility by allowing the
design and implementation of capitalization ratios appropriate
for the capital and business requirements of each subsidiary.
This flexibility would, in turn, more easily permit the
establishment of a broad base of income generation from related
unregulated business activities that should enhance the overall
strength of the enterprise. A holding company structure also is
desirable because it is easier for investors to analyze and value
individual lines of business. In short, the holding company
structure is a highly desirable form of conducting regulated and
unregulated businesses within the same corporate group.
In order to promote a more fully competitive generation
marketplace, facilitate an auction sale free and clear of NYSEG's
mortgage indenture, and establish a regulatory asset to recover
any potential above market costs, NYSEG contemplates that the
Generation Assets will be transferred to GenSub as soon as
practicable after obtaining the mortgage trustee's release and
any necessary regulatory approvals. Subsequent to the transfer,
NYSEG will conduct an auction sale of the Generation Assets in
accordance with the terms of the Restructuring Agreement. GenSub
can participate in the auction as a bidder, but it will not have
any special rights or privileges. NYSEG will provide at the same
time (with appropriate confidentiality protections) all potential
bidders with the same plant and operating information as NYSEG
makes available to GenSub. The auction will be completed and the
transactions resulting therefrom will close no later than August
1, 1999.
After the auction, it is possible that GenSub may continue
to own some or all of the Generation Assets. GenSub may also
purchase other generation assets from third parties and enter
into power purchase agreements as part of its power marketing and
trading function. Upon the transfer of the Generation Assets to
GenSub, a regulatory asset of NYSEG will be created for the
difference between the book value of the Generation Assets and
the fair value determined in accordance with NYSEG's first
mortgage indenture for purposes of obtaining the release of the
Generation Assets from the lien of the mortgage. Upon a
subsequent sale of the Generation Assets pursuant to the auction
process, such regulatory asset will be adjusted to reflect
auction proceeds net of tax and transaction costs.{4} If no bids
are received for a plant above the minimum bid requirement of the
auction, an appraisal process will be used and completed no later
than August 1, 1999, or as soon as practicable thereafter for
purposes of adjusting the regulatory asset.
The Reorganization represents the optimal structure for
NYSEG to begin operating in a competitive environment while
minimizing concerns about vertical market power in generation.
Transfer of the Generation Assets and the auction is expected to
provide greater competition in the generation market and is an
integral part of the process of stranded cost mitigation.
2. Anticipated Effects
The consummation of the Reorganization, including the Plan
of Exchange, will have no significant effect on the Stockholders
since their interest and investment in the business of NYSEG will
be changed only in form and not in substance. All the business
and operations conducted by NYSEG and its subsidiaries
immediately before the Effective Time will continue to be
conducted by HoldCo and its subsidiaries immediately after the
Effective Time, and the consolidated assets and liabilities of
NYSEG and its subsidiaries immediately before the Effective Time
will be the same as the consolidated assets and liabilities of
_______________
{4} Pursuant to the Restructuring Agreement, NYSEG will be
allowed to recover from customers any short-fall between the book
value of the Generation Assets and the net auction proceeds.
This will allow NYSEG to record a regulatory asset in the amount
of any such difference in accordance with FAS 71.
<PAGE>
HoldCo and its subsidiaries immediately after the Effective Time.
It is currently anticipated that HoldCo will not be an operating
company at the parent company level.
The Reorganization will have no adverse effect upon the
electric and natural gas utility operations of NYSEG. The
Reorganization will cause no substantive change in ownership or
management of NYSEG's current utility business. The
Reorganization will not result in the transfer of any utility
assets currently owned by NYSEG to any entity outside of the
proposed holding company structure nor will the Reorganization
result in the acquisition of any utility assets not already owned
by NYSEG. Moreover, NYSEG's electricity purchase, transmission
and distribution and natural gas purchase, transportation and
distribution businesses are expected to constitute the
predominant part of HoldCo's earning power for the foreseeable
future. The structural separation of regulated and unregulated
activities provides the necessary protection for NYSEG's
ratepayers. The expected approval of the PSC to the
Reorganization should suffice to alleviate any concern the
Commission might otherwise have in this regard. Furthermore, the
Restructuring Agreement will contain numerous safeguards to
prevent NYSEG's customers from being harmed by the non-regulated
activities of HoldCo and its subsidiaries.
NYSEG could continue to pursue unregulated business
opportunities through Enterprises and other unregulated
subsidiaries of NYSEG. It is, however, more desirable in the
long run to conduct these unregulated activities through a
holding company structure. The holding company structure is a
well-established form of organization for companies conducting
multiple lines of business. It is a common form of organization
for unregulated companies and for those regulated companies, such
as telephone utilities and water utilities, which are not subject
to the 1935 Act. In addition, it is utilized by many electric
and gas companies which are involved in unregulated activities.
NYSEG wishes to take advantage of opportunities in unregulated
businesses, and desires to do so by utilizing the most efficient
and effective corporate structure.
For the reasons stated above, NYSEG believes that the
Reorganization will have no adverse effect on NYSEG, NYSEG
customers, the Stockholders, or the holders of NYSEG Preferred
Stock or NYSEG's debt securities.
E. Additional Information
No associate company or affiliate of HoldCo or NYSEG, or any
affiliate of any associate company of HoldCo or NYSEG, has any
direct or indirect material interest in the proposed transactions
except as stated herein.
For further information, reference is made to the financial
statements and other information in Exhibits G-1 through G-3
hereto.
Item 2. Fees, Commissions and Expenses.
The estimated fees, commissions and expenses paid or
incurred, or to be paid or incurred, directly or indirectly, in
connection with the Reorganization, by the applicant or any
associate company of the applicant, will be set forth in Exhibit
I-1 hereto, to be filed by amendment.
Item 3. Applicable Statutory Provisions.
Sections 3(a)(1), 9(a)(2) and 10 of the 1935 Act are
applicable to the Reorganization. Section 9(a)(2) of the 1935
Act requires Commission approval before any person may become an
affiliate within the meaning of Section 2(a)(11)(A) of more than
one "public utility company." Neither HoldCo nor NYSEG currently
owns, controls or holds with power to vote five percent or more
of the voting securities of a public utility company. However,
consummation of the Reorganization will result in HoldCo's owning
all of the outstanding voting securities of more than one "public
utility company," that is, NYSEG and GenSub. Thus, the
Reorganization will require Commission approval under Sections
9(a)(2) and 10. In addition, upon consummation of the
Reorganization, HoldCo will be a holding company within the
meaning of Section 2(a)(7) of the Act and required to register
unless it can qualify for an exemption. Accordingly, HoldCo
requests an order under Section 3(a)(1), exempting it from all
provisions of the Act except Section 9(a)(2).
The Reorganization is no more than an internal
reorganization of existing properties, at the direction of the
PSC. The Commission has previously approved numerous matters
involving the formation of a holding company over existing
utility properties. See, e.g., Atlanta Gas Light Co., Holding
Co. Act Release No. 26482 (March 5, 1996); SIGCORP, Holding Co.
Act Release No. 26431 (Dec. 14, 1995); Providence Energy
Corporation, Holding Co. Act Release No. 26420 (Nov. 30, 1995);
PP&L Resources, Inc., Holding Co. Act Release No. 26248 (March
10, 1995); WPS Resources Corporation, Holding Co. Act Release No.
26101 (Aug. 10, 1994); Unicom Corporation, Holding Co. Act
Release No. 26090 (July 22, 1994); Illinova Corporation, Holding
Co. Act Release No. 26054 (May 18, 1994); KU Energy Corporation,
Holding Co. Act Release No. 25409 (Nov. 13, 1991). Further, the
Commission has also approved the corporate "unbundling" of
utility operations where appropriate to protect the interests of
utility consumers. See, Entergy Corporation, Holding Co. Act
Release No. 25136 (August 27, 1990), aff'd in part and remanded
in part sub nom. City of New Orleans v. SEC, 969 F.2d 1163
(D.C.Cir. 1992), on remand, Entergy Corporation, Holding Co. Act
Release No. 26410 (November 17, 1995).
<PAGE>
The Reorganization is an internal corporate restructuring of
the type contemplated in the 1995 Report of the Division of
Investment Management ("Division") on The Regulation of Public
Utility Holding Companies ("1995 Report"). The 1995 Report
expressly recommended that the Commission "consider ways to
exempt from sections 9(a) and 10 transactions that involve only
reorganization of existing utility assets." 1995 Report at 76.
The basis for this recommendation was a concern that the
Commission not unduly impede the work of other energy regulators.
In this regard, the Commission has recognized that the states are
most directly responsible for the protection of utility
consumers. As explained above, the Reorganization reflects years
of careful negotiation in a multi-party collaborative process,
fostered by the PSC itself. Although the Restructuring Agreement
is subject to approval by the PSC, NYSEG does not expect material
modifications to be made to the Restructuring Agreement by the
PSC Order approving the Restructuring Agreement. In addition,
the Reorganization is subject to regulatory review by the FERC
and the NRC. Although the Commission has not yet adopted a rule
exempting internal reorganizations, we believe that the policy
considerations that gave rise to the Division's recommendation in
the 1995 Report should apply to the Commission's decision in this
matter.
For the reasons explained below, the Commission should grant
approval of the Reorganization pursuant to Section 9(a)(2) of the
1935 Act based upon the transaction's compliance with the
applicable standards of Section 10. In addition, for the reasons
described below, the Commission should by order grant HoldCo an
exemption pursuant to Section 3(a)(1) from all of the provisions
of the 1935 Act (except for Section 9(a)(2) thereof).
A. Approval of the Reorganization under Section 9(a)(2)
The standards for approval are contained in Sections 10(b),
10(c) and 10(f) of the Act. For the reasons explained below, the
Reorganization should be found to meet these standards.
1. Section 10(b)
Section 10(b) of the 1935 Act requires the Commission to
approve the Reorganization pursuant to Section 9(a)(2) 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 interest of
investors or consumers;
<PAGE>
(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 interest of investors or consumers or the proper
functioning of such holding company system.
HoldCo respectfully submits that no adverse finding should be
made under any of these paragraphs.
a. Detrimental "Interlocking Relations" or
"Concentration of Control"
The Reorganization merely involves an internal corporate
reorganization which will result in the formation of GenSub to
engage in the generation business and to own and operate all or a
part of the Generation Assets, and the imposition of HoldCo, a
holding company within the meaning of the Act, over NYSEG and
GenSub. No other "public utility company" will be involved in
the Reorganization. All the business and operations conducted by
NYSEG and its subsidiaries immediately before the Effective Time
will continue to be conducted by HoldCo and its subsidiaries
immediately after the Effective Time, and the consolidated assets
and liabilities of NYSEG and its subsidiaries immediately before
the Effective Time will be the same as the consolidated assets
and liabilities of HoldCo and its subsidiaries immediately after
the Effective Time. The Reorganization will not involve the
acquisition of any utility assets not already owned directly or
indirectly by NYSEG and consequently, the Reorganization should
not be deemed to "tend towards interlocking relations... of
public utility companies, of a kind or to an extent detrimental
to the public interest or the interest of investors or consumers"
within the meaning of Section 10(b)(1).
For the same reasons, the Reorganization should not, within
the meaning of Section 10(b)(1), be deemed to tend toward any
"concentration of control of public utility companies" that might
be detrimental to the public interest, consumers, or investors.
The Reorganization will not involve the acquisition of any
utility assets not already owned directly or indirectly by NYSEG
and "will therefore have no effect on the concentration of
control of public utility companies." Wisconsin Energy Corp.,
Holding Co. Act Release No. 24267, 37 SEC Docket 296, 300 (1986).
In addition, the competitive impact of the Reorganization will be
fully considered by the FERC. A detailed explanation of the
reasons why the Reorganization will not adversely affect
competition is set forth in the FERC application filed as Exhibit
D-5 hereto. The Commission may appropriately look to the FERC in
such matters. See, City of Holyoke v. SEC, 972 F.2d 358, 363-64,
quoting Wisconsin's Environmental Decade v. SEC, 882 F.2d 523,
527 (D.C. Cir. 1989).
b. Fairness of Consideration and Fees
Section 10(b)(2) of the 1935 Act requires the Commission to
determine whether the consideration in connection with a proposed
acquisition of securities is reasonable and bears a fair relation
to the investment in and earning capacity of the utility assets
underlying the securities being acquired. As discussed above,
the Share Exchange involves the conversion of each share of NYSEG
Common Stock into a share of HoldCo Common Stock. Because the
proportion of each Stockholder's ownership will be unchanged, the
consideration is fair and reasonable. See, Wisconsin Energy
Corp., 37 SEC Docket at 300.
NYSEG contemplates that the Generation Assets will be
transferred to GenSub as soon as practicable after obtaining the
mortgage trustee's release and any necessary regulatory
approvals. The consideration paid to NYSEG for the Generation
Assets will be based on the fair value of the Generation Assets
that will be determined in accordance with the mortgage
indenture. Subsequent to the transfer, NYSEG will conduct an
auction sale of the Generation Assets in accordance with the
terms of the Restructuring Agreement. GenSub can participate in
the auction as a bidder, but it will not have any special rights
or privileges. NYSEG will provide at the same time (with
appropriate confidentiality protections) all potential bidders
with the same plant and operating information as NYSEG makes
available to GenSub. The auction will be completed and the
transactions resulting therefrom will close no later August 1,
1999.
After the auction, it is possible that GenSub may continue
to own some or all of the Generation Assets. GenSub may also
purchase other generation assets from third parties and enter
into power purchase agreements as part of its power marketing and
trading function. Upon the transfer of the Generation Assets to
GenSub, a regulatory asset of NYSEG will be created for the
difference between the book value of the Generation Assets and
the fair value determined in accordance with NYSEG's first
mortgage indenture for purposes of obtaining the release of the
Generation Assets from the lien of the mortgage. As discussed
previously, upon a subsequent sale of the Generation Assets
pursuant to the auction process, such regulatory asset will be
adjusted to reflect auction proceeds net of tax and transaction
costs. If no bids are received for a plant above the minimum bid
requirement of the auction, an appraisal process will be used and
completed no later than August 1, 1999, or as soon as practicable
thereafter for purposes of adjusting the regulatory asset. The
creation of a regulatory asset will facilitate the recovery of
any above-market costs associated with the Generation Assets.
As stated in Item 2 above, an estimate of the fees and
expenses to be paid in connection with the Reorganization will be
filed as Exhibit I-1 by amendment hereto. Such fees and expenses
will be reasonable and customary for a transaction of this kind
and will not be material when measured against NYSEG's
consolidated book value or the earning capacity of its assets.
c. Complication of Capital Structure
Section 10(b)(3) of the 1935 Act requires the Commission to
determine if the transaction will unduly complicate the capital
structure of the holding company, or will be detrimental to the
public, investors or consumers. No such effect will result from
the Reorganization.
As stated above, NYSEG is currently not subject to the 1935
Act because it is not a "holding company" or a "subsidiary
company" thereof as such terms are defined in the 1935 Act. In
addition, the Reorganization will not involve the creation of any
ownership interests other than those necessary to maintain the
basic corporate relationships of the holding company system to be
established. Pursuant to the Reorganization, HoldCo will acquire
all of the NYSEG Common Stock. No minority common stock interest
in NYSEG will remain and the existing debt (other than any first
mortgage bonds that may be redeemed or paid at maturity prior to
the Effective Time) and senior equity securities of NYSEG will be
unaffected. Although NYSEG intends to commence transferring the
Generation Assets to GenSub as soon as practicable after
obtaining the mortgage trustee's release and any necessary
regulatory approvals, all the business and operations conducted
by NYSEG and its subsidiaries immediately before the Effective
Time will continue to be conducted by HoldCo and its subsidiaries
immediately after the Effective Time, and the consolidated assets
and liabilities of NYSEG and its subsidiaries immediately before
the Effective Time will be the same as the consolidated assets
and liabilities of HoldCo and its subsidiaries immediately after
the Effective Time. Moreover, control of the system will remain
in the hands of the Stockholders, who will become the holders of
HoldCo Common Stock. Consequently, as the Commission has found
in similar circumstances, the Reorganization will not result in
any complexity of capital structure contrary to Section 10(b)(3).
See, e.g., CIPSCO, Inc., Holding Co. Act Release No. 25152 (Sept.
18, 1990); Wisconsin Energy Corp., Holding Co. Act Release No.
24267 (Dec. 18, 1986).
<PAGE>
The Reorganization will have no material effect on the
rights of the Stockholders, with the exception that, after the
Effective Time, the holders of HoldCo Common Stock will have
certain rights which differ from the rights of the
Stockholders.{5}
_______________
{5} The principal differences between the rights of the holders
of HoldCo Common Stock and the rights of the Stockholders will
be: (i) NYSEG's Certificate of Incorporation ("NYSEG Charter")
contains certain restrictions which limit the declaration,
payment and amount of dividends on NYSEG Common Stock and the
Certificate of Incorporation of HoldCo in effect at the Effective
Time ("HoldCo Charter") will contain no such restrictions on
HoldCo Common Stock dividends; (ii) the by-laws of HoldCo in
effect at the Effective Time ("HoldCo By-Laws") will permit
stockholders to remove directors of HoldCo only for cause and
only at a meeting of stockholders, while the NYSEG Charter and
By-Laws permit Stockholders to remove directors of NYSEG with or
without cause and at a meeting of Stockholders or by written
consent; (iii) Stockholders may cumulate their votes in the
election of directors, while holders of HoldCo Common Stock will
not be able to cumulate their votes in the election of directors;
(iv) NYSEG's Charter and By-Laws provide for a minimum and
maximum number of directors and the HoldCo Charter and By-Laws
will contain no such provision; (v) HoldCo's Charter will provide
for the adoption of a plan of merger or consolidation by
affirmative vote of stockholders entitled to cast a majority of
the votes; in the absence of such provision a two-thirds vote
would be required; (vi) the HoldCo By-Laws unlike those of NYSEG,
will not permit stockholders to increase or decrease the number
of directors; (vii) HoldCo will be authorized to issue
significantly more shares of common stock than NYSEG; (viii)
HoldCo's Charter will require supermajority approval for
amendments to certain specified provisions of the HoldCo Charter
and HoldCo By-Laws; and (ix) the Board of Directors of HoldCo
will have, to the extent permitted by the BCL, full authority to
determine the terms of any series of HoldCo Preferred Stock.
With the exception of these differences, the rights of the
holders of HoldCo Common Stock will not be materially different
from the rights of the Stockholders. Certain of the provisions
of the HoldCo Charter and the HoldCo By-Laws described above may
be deemed to have anti-takeover effects. Such provisions may
have the effect of discouraging unilateral tender offers or other
attempts to take over and acquire the business of HoldCo and may
discourage a potentially interested purchaser from attempting a
unilateral takeover bid for HoldCo on terms which some
stockholders might favor. It was determined to include
provisions in the HoldCo Charter and HoldCo By-Laws that might
have such anti-takeover effects in order to ensure that any
proposed acquisition or change in control of HoldCo is
accomplished on a negotiated basis with the Board of Directors of
HoldCo in the best interests of HoldCo's stockholders.<PAGE>
2. Section 10(c)
The relevant provisions of Section 10(c) of the 1935 Act
state that 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.
HoldCo respectfully submits that the requirements of Section
10(c) are satisfied.
Neither Section 8 nor Section 11, by their terms, apply to
nonregistered entities. Thus, the Commission's analysis should
focus on the standards of Section 10(c)(2), particularly the
requirement that an acquisition tend towards the economical and
the efficient development of an integrated public utility system.
(a) Economies and Efficiencies
In the context of the formation of a new holding company
over an existing public utility, the Commission has held that the
structural change must result in significant benefits to the
holding company system. CIPSCO Inc., Holding Co. Act Release No.
25152.
As discussed above in Item 1, the holding company structure
resulting from the Reorganization will yield significant
benefits. Among other things, the holding company structure
will: (i) further the competitive goals of the PSC in the
Competitive Opportunities Proceeding; (ii) facilitate the
enterprise's participation in unregulated businesses; (iii)
better insulate NYSEG's utility ratepayers from the risks and
costs associated with business activities of unregulated
subsidiaries; (iv) enhance managerial accountability for separate
business activities; and (v) permit the use of financing
techniques that are more directly suited to the particular
requirements, characteristics and risks of unregulated and non-
utility operations without affecting the capital structure or
creditworthiness of NYSEG.
In addition, a number of economies and efficiencies would
result from the use of a holding company structure. As the
Commission has found in analogous cases, a holding company
structure permits adjustments of a utility's capital ratios to
appropriate levels through dividends to, or equity investments
from, the holding company. See, e.g., WPL Holdings, Inc.,
Holding Co. Act Release No. 25377 (1991). This ability to adjust
the components of the utility's capital structure would also
increase general financial flexibility, allowing NYSEG to take
advantage of more attractive financing opportunities that might
not otherwise be available. See, CIPSCO Inc., supra.
The flexibility associated with a balanced capital structure
permits the issuance of various types of securities under any
conditions and thus increases the potential for cost reduction.
As the Commission has noted in similar circumstances "(l)ower-
cost financing can enhance efficient utility operations and
benefit ratepayers and senior security holders." KU Energy
Corp., Holding Co. Act Release No. 25409 (Nov. 13, 1991).
The Reorganization should also help to broaden the holding
company system's financial base and its investment appeal by
reducing the system's dependence on its utility operations. This
diversity should also increase financing alternatives and
efficiencies, since financing may be tailored to the specific
needs and circumstances of the individual utility and non-utility
businesses.
The holding company structure would also tend to insulate
NYSEG's customers and security holders from the risks of
unregulated businesses by allowing the enterprise to pursue such
businesses through newly created subsidiaries of HoldCo. This
reduced risk exposure should enable NYSEG to raise new preferred
and debt capital at a lower cost than might be possible if
unregulated businesses were direct subsidiaries of NYSEG. As the
Commission has stated in similar circumstances, "(t)he insulation
of the utility businesses . . . from any risks of diversification
and the resulting lower costs should tend toward more efficient
and economical operation of the utility businesses . . ." CIPSCO,
Inc., supra.
The Commission has noted in analogous cases that these kinds
of financial and organizational advantages satisfy Section
10(c)(2). See, WPL Holdings, Inc., supra. Moreover, a
Commission finding of "efficiencies and economies" may be based
"on the potential for economies presented by the acquisition even
where these are not precisely quantifiable." American Electric
Power Co., 46 SEC 1299, 1322 (1978). Accord, Centerior Energy
Corp., Holding Co. Act Release No. 24073 (April 29, 1986)
("specific dollar forecasts of future savings are not necessarily
required; a demonstrated potential for economies will suffice
even when these are not precisely quantifiable"). In this case,
HoldCo believes that the Reorganization will provide significant
financial and organizational advantages and the resulting
substantial potential economies and efficiencies should be found
to meet the standard of Section 10(c)(2).
<PAGE>
(b) Integrated Public Utility System
The Commission has held that the economical and efficient
development of an existing integrated system satisfies the
requirements of Section 10(c)(2) of the 1935 Act. See, WPL
Holdings, Inc., supra. The electric utility system and the gas
utility system of NYSEG currently constitute an integrated
electric utility system and an integrated gas utility system
"integrated" within the meaning of Section 2(a)(29)(A) and (B) of
the 1935 Act, respectively, and would remain so after the
Reorganization. NYSEG is engaged principally in the business of
generating, purchasing, transmitting and distributing
electricity, and purchasing, transporting and distributing
natural gas to the public in the central, eastern and western
parts of New York State. NYSEG provides electricity to
approximately 808,000 customers and provides natural gas to
approximately 238,000 customers. NYSEG's service territory is
not expected to change as a result of the proposed corporate
reorganization. Consequently, the standards of Section 10(c)(2)
are satisfied.
3. Section 10(f)
Section 10(f) provides that:
The Commission shall not approve any acquisition ... 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 indicated in Item 1, Part B, the Reorganization complies
with the mandate of the PSC in the Competitive Opportunities
Proceeding. The Statement of Principles and the Restructuring
Agreement contemplate, among other things, the Plan of Exchange
and the proposed transactions described herein. Finally, the
Reorganization will be consummated in compliance with all other
applicable New York laws.
B. The Exemption under Section 3(a)(1)
HoldCo does not intend to register as a holding company
under the 1935 Act. As demonstrated below, HoldCo respectfully
submits that it should be granted, by Commission order, an
exemption under Section 3(a)(1) of the 1935 Act. Section 3(a)(1)
of the 1935 Act makes available an exemption from all of the
provisions of the 1935 Act (except for Section 9(a)(2) thereof)
to a "holding company" if:
<PAGE>
such holding company, and every subsidiary company
thereof which is a public-utility company from which
such holding company derives, directly or indirectly,
any material part of its income, are predominately
intrastate in character and carry on their business
substantially in a single State in which such holding
company and every such subsidiary company thereof are
organized.
HoldCo will satisfy such requirements. HoldCo, NYSEG and GenSub
all are organized and carry on, or in the case of HoldCo and
GenSub will carry on, their business substantially in New York
State, and neither NYSEG, HoldCo nor GenSub will derive any
material part of its income from a utility company that carries
on its business and/or is organized outside of New York State.
Section 3(a) of the 1935 Act provides that, if an applicant
satisfies the objective requirements for an exemption, the
applicant shall be granted the exemption, "unless and except
insofar as [the Commission] finds the exemption detrimental to
the public interest or the interest of investors or consumers."
In assessing whether a proposed exemption is "detrimental," the
Commission has focused upon the presence of state regulation,
establishing that federal intervention is unnecessary when state
control is adequate. See, e.g., KU Energy Corp., supra; CIPSCO
Inc., supra.{6}
The Commission should find that sufficient safeguards exist
under state law to ensure that no potential adverse consequences
would occur as a result of the Reorganization. As discussed
above, the Reorganization complies with the mandate of the PSC in
the Competitive Opportunities Proceeding and has been submitted
for approval to the PSC, which will review the Reorganization
pursuant to its jurisdiction under New York law. The Commission
has relied in the past upon the public policy decisions of state
public utility commissions when granting approval of
restructuring transactions. See, e.g., KU Energy Corp., supra;
CIPSCO Inc., supra. In addition, as discussed above, NYSEG will
continue to be regulated under the utility laws of the State of
New York and it is expected GenSub will be subject to light
regulation by the PSC. Both NYSEG and GenSub will be subject to
FERC jurisdiction.
_______________
{6} Furthermore, the Commission Staff has stated its support for
greater flexibility in the administration of existing exemptions
in consultation and cooperation with state regulators. See,
Division of Investment Management, The Regulation of Public
Utility Holding Companies, supra, at 119-20.
<PAGE>
Item 4. Regulatory Approval.
The Reorganization will require the approval of the PSC. A
copy of the PSC Petition is filed as Exhibit D-1 hereto, and a
copy of the PSC's Order pursuant thereto will be filed as Exhibit
D-4 by amendment hereto.
Under the Federal Power Act, the FERC has held that the
transfer of common stock of a public utility company, such as
NYSEG, from its existing stockholders to a holding company in a
transaction such as the Share Exchange constitutes a transfer of
the "ownership and control" of the facilities of such utility
which is subject to FERC jurisdiction under the Federal Power
Act, and is thus a "disposition of facilities" subject to FERC
review and approval under Section 203 of the Federal Power Act.
NYSEG has applied for such approval and for approval of the
transfer of certain of the Generation Assets. A copy of the FERC
application under Section 203 of the Federal Power Act is filed
as Exhibit D-5 hereto, and a copy of the FERC Order pursuant
thereto will be filed as Exhibit D-6 by amendment hereto.
In addition, Section 184 of the Atomic Energy Act requires
NRC consent for the transfer of control of NRC licenses. The NRC
staff has in the past asserted that this provision applies to the
creation of a holding company over an NRC-licensed utility
company in a transaction such as the Share Exchange. NYSEG owns
an 18% interest in the Nine Mile Point nuclear generating unit
No. 2 and holds an NRC owner's license. NYSEG has applied for
NRC approval under Section 184 of the Atomic Energy Act for the
transfer of control of such license resulting from the Share
Exchange. A copy of the NRC application under the Atomic Energy
Act is filed as Exhibit D-7 hereto, and a copy of the NRC Order
pursuant thereto will be filed as Exhibit D-8 by amendment
hereto.
No other state or federal commission has jurisdiction over
the Reorganization.
Item 5. Procedure.
The Reorganization is anticipated to be implemented as soon
as practicable after the Special Meeting of Stockholders
currently expected to be held on or about January 15, 1998. To
facilitate this schedule, HoldCo respectfully requests the
Commission to issue and publish promptly the requisite notice
under Rule 23 with respect to the filing of this application to
provide for the filing of comments in a time frame that permits
the Commission to enter an order granting and permitting this
application to become effective by December 15, 1997. A form of
notice suitable for publication in the Federal Register is
attached hereto as Exhibit H-1.
<PAGE>
HoldCo does not believe that there should be a recommended
decision by a hearing officer or any other responsible officer of
the Commission or that there should be a 30-day waiting period
between the issuance of the Commission's order and the date on
which it is to become effective. HoldCo requests that the
Commission's order become effective immediately upon the entry
thereof. HoldCo consents to the Division of Investment
Management assisting in the preparation of the Commission's
decision or order in this matter, unless such Division opposes
this application.
Item 6. Exhibits and Financial Statements.
NO. DESCRIPTION METHOD OF FILING
A-1 Draft restated Certificate of To be filed by
Incorporation of HoldCo to be in amendment.
effect at the Effective Time.
A-2 Draft By-Laws of HoldCo to be in To be filed by
effect at the Effective Time. amendment.
A-3 Restated Certificate of Incorporated herein
Incorporation of NYSEG pursuant to by reference to
Section 807 of the Business Exhibit 4-11 filed
Corporation Law filed in the in Registration No.
Office of the Secretary of State 33-50719.
of the State of New York on
October 25, 1988.
A-4 Certificate of Amendment of the Incorporated herein
Certificate of Incorporation filed by reference to
in the Office of the Secretary of Exhibit 4-12 filed
State of the State of New York on in Registration No.
October 17, 1989. 33-50719.
A-5 Certificate of Amendment of the Incorporated herein
Certificate of Incorporation filed by reference to
in the Office of the Secretary of Exhibit 4-13 filed
State of the State of New York on in Registration No.
May 22, 1990. 33-50719.
A-6 Certificate of Amendment of the Incorporated herein
Certificate of Incorporation filed by reference to
in the Office of the Secretary of Exhibit 4-14 filed
State of the State of New York on in Registration No.
October 31, 1990. 33-50719.
A-7 Certificate of Amendment of the Incorporated herein
Certificate of Incorporation filed by reference to
in the Office of the Secretary of Exhibit 4-15 filed
State of the State of New York on in Registration No.
February 6, 1991. 33-50719.
<PAGE>
A-8 Certificate of Amendment of the Incorporated herein
Certificate of Incorporation filed by reference to
in the Office of the Secretary of Exhibit 4-16 filed
State of the State of New York on in Registration No.
October 15, 1991. 33-50719.
A-9 Certificate of Amendment of the Incorporated herein
Certificate of Incorporation filed by reference to
in the Office of the Secretary of Exhibit 4-17 filed
State of the State of New York on in Registration No.
May 28, 1992. 33-50719.
A-10 Certificate of Amendment of the Incorporated herein
Certificate of Incorporation filed by reference to
in the Office of the Secretary of Exhibit 4-18 filed
State of the State of New York on in Registration No.
October 20, 1992. 33-50719.
A-11 Certificate of Amendment of the Incorporated herein
Certificate of Incorporation filed by reference to
in the Office of the Secretary of Exhibit 4-19 filed
State of the State of New York on in Registration No.
October 14, 1993. 33-50719.
A-12 Certificate of Amendment of the Incorporated herein
Certificate of Incorporation filed by reference to
in the Office of the Secretary of Exhibit 3-11 to
State of the State of New York on NYSEG's Form 10-K
December 10, 1993. for the year ended
December 31, 1993 -
File No. 1-3103-2.
A-13 Certificate of Amendment of the Incorporated herein
Certificate of Incorporation filed by reference to
in the Office of the Secretary of Exhibit 3-12 to
State of the State of New York on NYSEG's Form 10-K
December 20, 1993. for the year ended
December 31, 1993 -
File No. 1-3103-2.
A-14 Certificate of Amendment of the Incorporated herein
Certificate of Incorporation filed by reference to
in the Office of the Secretary of Exhibit 3-13 to
State of the State of New York on NYSEG's Form 10-K
December 20, 1993. for the year ended
December 31, 1993 -
File No. 1-3103-2.
A-15 Certificate of Merger of Columbia Incorporated herein
Gas of New York, Inc. into NYSEG by reference to
filed in the Office of the Exhibit 4-20 filed
Secretary of State of the State of in Registration No.
New York on April 8, 1991. 33-50719.
<PAGE>
A-16 By-Laws of NYSEG. Incorporated herein
by reference to
Exhibit 3-15 to
NYSEG's Form 10-K
for the year ended
December 31, 1996 -
File No. 1-3103-2.
B-1 Draft Plan of Exchange. Filed herewith.
C-1 Registration Statement of HoldCo To be filed by
on Form S-4 relating to the shares amendment.
of Holdco Common Stock to be
issued in connection with the
Share Exchange.
D-1 PSC Petition dated December 19, Filed herewith.
1996.
D-2 Joint Statement of Principles. Filed herewith.
D-3 Restructuring Agreement. To be filed by
amendment.
D-4 Order of the PSC. To be filed by
amendment.
D-5 Application for FERC authorization Filed herewith.
under Section 203 of the Federal
Power Act.
D-6 Order of the FERC. To be filed by
amendment.
D-7 Request for NRC Consent under Filed herewith.
Section 184 of the Atomic Energy
Act and 10 C.F.R. SS 50.80.
D-8 Order of the NRC. To be filed by
amendment.
E-1 Map showing service territory of Filed herewith.
NYSEG.
F-1 Preliminary opinion of counsel. To be filed by
amendment.
F-2 "Past-tense" opinion of counsel. To be filed by
amendment.
<PAGE>
G-1 Consolidated Balance Sheet of Incorporated by
NYSEG as of June 30, 1997 and reference to NYSEG's
Consolidated Statements of Income, Quarterly Report on
Shareowners' Common Equity and Form 10-Q for the
Cash Flows as of June 30, 1997. quarter ended June
30, 1997 - File No.
1-3103-2.
G-2 Pro forma Consolidated Balance Filed herewith.
Sheets, Statements of Income and
Retained Earnings giving effect
to the Reorganization.
G-3 Financial Data Schedule. Filed herewith and
titled "Exhibit 27".
H-1 Form of Notice. Filed herewith.
I-1 Fees, Commissions and Expenses. To be filed by
amendment.
<PAGE>
Item 7. Information as to Environmental Effects.
HoldCo does not believe that the Reorganization would
involve a "Major federal action" nor would it "significantly
affect the quality of the human environment" as those terms are
used in Section 102(2)(c) of the National Environmental Policy
Act. The only federal actions related to the Reorganization
pertain to the Commission's declaration of the effectiveness of
the Registration Statement, the Commission's approval of this
application and granting of the exemption requested herein, the
FERC's authorization pursuant to Section 203 of the Federal Power
Act, and the NRC's consent under Section 184 of the Atomic Energy
Act. The Reorganization would not result in changes in the
operations of NYSEG that would have any impact on the
environment. No Federal agency has prepared or is preparing an
environmental impact statement with respect to the
Reorganization.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the undersigned company has duly caused this
statement to be signed on its behalf by the undersigned thereunto
duly authorized.
NGE Resources, Inc.
Date: September 26, 1997 By: Sherwood J. Rafferty
Sherwood J. Rafferty
Vice President, Chief
Financial Officer and
Chief Accounting Officer<PAGE>
APPENDIX A
Current Corporate Structure
NYSEG
|
|
|
- - - - - - - - - - - - - -
| |
| |
Somerset |
Railroad Enterprises
Corporation |
|
- - - - - - - - -
| |
| |
XENERGY Other
Subs of
Enterprises
<PAGE>
Proposed Corporate Structure
HoldCo
|
|
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
| | |
| | |
NYSEG GenSub |
Electric Delivery Electric Generation Enterprises
Natural Gas | |
| |
| - - - - - - - - -
| | |
Somerset | Other
Railroad XENERGY Subs of
Corporation Enterprises
<TABLE> <S> <C>
<ARTICLE> OPUR1 EXHIBIT 27
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
INCLUDED IN ITS FORM U-1 FILING FOR THE 12 MONTHS ENDED JUNE 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<BOOK-VALUE> PER-BOOK PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 0 3,950,559
<OTHER-PROPERTY-AND-INVEST> 0 95,947
<TOTAL-CURRENT-ASSETS> 0 300,530
<TOTAL-DEFERRED-CHARGES> 0 0
<OTHER-ASSETS> 0 648,759
<TOTAL-ASSETS> 0 4,995,795
<COMMON> 0 462,250
<CAPITAL-SURPLUS-PAID-IN> 0 811,793
<RETAINED-EARNINGS> 0 544,470
<TOTAL-COMMON-STOCKHOLDERS-EQ> 0 1,778,948
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</TABLE>
EXHIBIT B-1
AGREEMENT AND PLAN OF SHARE EXCHANGE
OF
NEW YORK STATE ELECTRIC & GAS CORPORATION
AND
NGE RESOURCES, INC.
This Agreement and Plan of Share Exchange (the "Plan of
Exchange") is dated and executed as of the ___ day of ______,
1997 by and between New York State Electric & Gas Corporation, a
New York corporation and NGE Resources, Inc., a New York
corporation.
1. The name of the acquiring corporation is NGE
Resources, Inc. (the "Acquiring Corporation"). The name of the
subject corporation is New York State Electric & Gas Corporation
(the "Subject Corporation"). The name under which the Subject
Corporation was originally formed was the Ithaca Gas Light
Company.
2. The designation and number of outstanding shares of
capital stock of the Subject Corporation are as follows: Common
Stock, $6.66 2/3 par value per share, each of which is entitled
to one vote and of which 67,502,827 shares are outstanding
("Subject Corporation Common Stock"); 3.75% Serial Preferred
Stock, $100.00 par value per share, of which 150,000 shares are
outstanding; 4 1/2% Serial Preferred Stock (Series 1949), $100.00
par value per share, of which 40,000 shares are outstanding;
4.15% Serial Preferred Stock, $100.00 par value per share, of
which 14,000 shares are outstanding; 4.40% Serial Preferred
Stock, $100.00 par value per share, of which 55,200 shares are
outstanding; 4.15% Serial Preferred Stock (Series 1954), $100.00
par value per share, of which 35,200 shares are outstanding;
6.48% Serial Preferred Stock, $100.00 par value per share, of
which 300,000 shares are outstanding; 6.30% Serial Preferred
Stock, $100.00 par value per share, of which 250,000 shares are
outstanding; Adjustable Rate Serial Preferred Stock, Series B,
$25.00 par value per share, of which 2,000,000 shares are
outstanding; and 7.40% Serial Preferred Stock, $25.00 par value
per share, of which 1,000,000 are outstanding (said series of
preferred stock are collectively referred to herein as "Subject
Corporation Preferred Stock"). The Subject Corporation Preferred
Stock is non-voting, except that the holders thereof have the
right to vote as a class in connection with certain corporate
actions as set forth in the Subject Corporation's Restated
Certificate of Incorporation. The Subject Corporation is also
authorized by its Restated Certificate of Incorporation to issue
Preference Stock (Cumulative, $100 Par Value) ("Subject
Corporation Preference Stock"), none of which is outstanding.
The number of shares set forth in this paragraph is subject to
change prior to the Effective Time (as defined below) insofar as
the Subject Corporation may during said period issue Subject
Corporation Preference Stock, issue additional Subject
Corporation Common Stock and Subject Corporation Preferred Stock
and may reacquire Subject Corporation Preferred Stock and may
repurchase Subject Corporation Common Stock.
The designation and number of outstanding shares of the
Acquiring Corporation are: Common Stock, $5 par value per share
("the Acquiring Corporation Common Stock"), each of which is
entitled to one vote and of which 100 shares are outstanding; and
Preferred Stock, no par value per share (the "Acquiring
Corporation Preferred Stock"), none of which are outstanding.
The number of shares set forth in this paragraph is subject to
change prior to the Effective Time (as defined below) insofar as
the Acquiring Corporation may during said period issue Acquiring
Corporation Preferred Stock and additional Acquiring Cororation
Common Stock.
In accordance with the provisions of Section 913(c) of
the New York Business Corporation Law ("BCL"), this Plan of
Exchange shall be submitted to the holders of the Subject
Corporation Common Stock for their approval and adoption. The
affirmative vote of the holders of at least two-thirds of the
outstanding shares of Subject Corporation Common Stock shall be
necessary to approve and adopt this Plan of Exchange.
3. Upon the time of filing of a Certificate of
Exchange in connection with the share exchange contemplated
hereby (the "Share Exchange") by the Department of State of the
State of New York (the "Effective Time"):
(a) Each share of Subject Corporation Common Stock
outstanding at the Effective Time shall, by operation
of law and without further action, be exchanged for one
share of Acquiring Corporation Common Stock, subject to
dissenting shareholders' rights under Sections 623 and
910 of the BCL ("Dissenter's Rights");
(b) Each share of Acquiring Corporation Common
Stock outstanding immediately prior to the Effective
Time shall be canceled and shall be restored to the
status of an authorized but unissued share of Acquiring
Corporation Common Stock;
(c) Each share of Subject Corporation Common Stock
held in the treasury of the Subject Corporation
immediately prior to the Effective Time shall be
canceled and shall be restored to the status of an
authorized but unissued share of Subject Corporation
Common Stock; and
(d) Immediately after the Effective Time, all of
the outstanding shares of Subject Corporation Common
Stock will be held by the Acquiring Corporation, and
all of the outstanding shares of Acquiring Corporation
Common Stock will be held by the holders of shares of
Subject Corporation Common Stock that were outstanding
immediately prior to the Effective Time (subject to
Dissenter's Rights). Each holder of Subject
Corporation Common Stock who properly exercises
Dissenter's Rights shall have the right to receive
payment of the fair value of the holder's Subject
Corporation Common Stock in accordance with the
provisions of Sections 623 and 910 of the BCL.
4. Shares of Subject Corporation Preferred Stock shall
not be exchanged or otherwise affected by this Plan of Exchange.
Each share of Subject Corporation Preferred Stock outstanding
immediately prior to the Effective Time shall continue to be
outstanding following the Effective Time.
5. Each outstanding certificate which immediately
prior to the Effective Time represents Subject Corporation Common
Stock shall, without any further action on the part of the holder
thereof, be deemed and treated for all corporate purposes to
represent the ownership of the same number of shares of Acquiring
Corporation Common Stock as though a surrender or transfer and
exchange had taken place.
6. At the Effective Time, the Acquiring Corporation
will succeed to and assume the Subject Corporation's Tax Deferred
Savings Plan for Salaried Employees, Tax Deferred Savings Plan
for Hourly Paid Employees, Employees' Stock Purchase Plan, Tax
Reduction Act Employee Stock Ownership Plan, Dividend
Reinvestment and Stock Purchase Plan and 1997 Stock Option Plan
(collectively referred to as the "Plans"); and, by virtue of the
Share Exchange and without any action on the part of the holder
thereof, each option or right under the Plans to purchase shares
of Subject Corporation Common Stock granted and outstanding
immediately prior to the Effective Time shall be converted into
and become an option or right to purchase an equivalent number of
shares of Acquiring Corporation Common Stock at the same price
per share, and upon the same terms and subject to the same
conditions, as applicable immediately prior to the Effective Time
under the relevant option or right.
The Acquiring Corporation will reserve, for purposes of
the Plans, a number of shares of Acquiring Corporation Common
Stock equivalent to the number of shares of Subject Corporation
Common Stock reserved by the Subject Corporation for such
purposes immediately prior to the Effective Time.
7. The Plan of Exchange shall be conditioned upon:
(a) Receipt of the requisite vote of shareholders
of the Subject Corporation pursuant to Section
913(c)(2) of the BCL;
(b) Effectiveness of a registration statement
under the Securities Act of 1933 relating to Acquiring
Corporation Common Stock to be issued or reserved for
issuance in connection with the Share Exchange;
<PAGE>
(c) Approval for listing, on official notice of
issuance, of such shares of Acquiring Corporation
Common Stock on the New York Stock Exchange;
(d) Receipt of an opinion of counsel covering
certain United States federal income tax matters;
(e) Receipt of an opinion of counsel as to the
legality of Acquiring Corporation Common Stock issuable
in connection with the Share Exchange; and
(f) Receipt of all consents and approvals of
federal or state regulatory authorities that are
necessary and appropriate for the consummation of the
Share Exchange, in form and substance satisfactory to
the Subject Corporation and the Acquiring Corporation.
8. At any time prior to the Effective Time, this Plan
of Exchange may be amended or modified by mutual consent of the
respective Boards of Directors of the Subject Corporation and the
Acquiring Corporation; provided, however, once the Plan of
Exchange is approved by the common shareholders of the Subject
Corporation, no amendment or modification may be made that either
changes the number or kind of shares to be received by the
Subject Corporation Common Shareholders pursuant to the Plan of
Exchange or affects the rights of any shareholder of the Subject
Corporation in any manner that is materially adverse to such
shareholder in the judgment of the Board of Directors of the
Subject Corporation. The Plan of Exchange may be abandoned by
resolution approved by the Board of Directors of either the
Subject Corporation or the Acquiring Corporation, at any time
before the Effective Time, whether or not the shareholders of the
Subject Corporation have cast their votes with regard to the Plan
of Exchange.
9. The Subject Corporation and the Acquiring
Corporation, respectively, shall take all such action as may be
necessary or appropriate in order to effectuate the Share
Exchange and the other transactions contemplated by this Plan of
Exchange. If at any time after the Effective Time, any further
action is necessary or desirable to carry out the purposes of
this Plan of Exchange, the officers and directors of each of the
Acquiring Corporation and the Subject Corporation shall take such
further action.
10. The Plan of Exchange was duly adopted by the Board
of Directors of the Subject Corporation on _________, 1997.
11. The Plan of Exchange was duly adopted by the Board
of Directors of the Acquiring Corporation on September __, 1997.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Plan of Exchange to be duly executed by their respective duly
authorized representatives as of the date first above written.
NGE RESOURCES, INC.
By:________________________
NEW YORK STATE ELECTRIC &
GAS CORPORATION
By:________________________
EXHIBIT D-1
STATE OF NEW YORK
DEPARTMENT OF PUBLIC SERVICE
PUBLIC SERVICE COMMISSION
* * * * * * * * * * * * * * * * * * * * * * * * *
*
In the Matter of the Application *
of *
NEW YORK STATE ELECTRIC & GAS CORPORATION * Case 96- ____
*
for authority, under Sections 70, 107, 108 * PETITION
and 110 of the Public Service Law, to form a *
holding company structure; to structurally *
separate fossil and hydropower generation *
assets; and for certain related transactions. *
*
* * * * * * * * * * * * * * * * * * * * * * * * *
PETITION OF
NEW YORK STATE ELECTRIC & GAS CORPORATION
TO FORM A HOLDING COMPANY STRUCTURE; TO STRUCTURALLY
SEPARATE FOSSIL AND HYDROPOWER GENERATION ASSETS;
AND FOR CERTAIN RELATED TRANSACTIONS
HUBER LAWRENCE & ABELL
605 Third Avenue
New York, New York 10158
(212) 682-6200
Leonard Blum, Esq.
Frank Lee, Esq.
Of Counsel
ROBINSON SILVERMAN PEARCE
ARONSOHN & BERMAN LLP
1290 Avenue of the Americas
New York, New York 10104-0053
(212) 541-2000
James F. Gill, Esq.
Andrew Irving, Esq.
Of Counsel
Dated: December 19, 1996
<PAGE>
TABLE OF CONTENTS
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
DESCRIPTION OF THE CORPORATE RESTRUCTURING . . . . . . . . . . . . . . . 5
A. Description of Share Exchange. . . . . . . . . . . . . . . . . . 5
B. Description of Ratepayer Protections . . . . . . . . . . . . . . 8
CONDITIONS TO THE FORMATION OF HOLDCO AND GENSUB . . . . . . . . . . . . 10
EXHIBIT A - Statement of Financial Condition . . . . to be filed
EXHIBIT B - Proposed Corporate Structure Chart . filed herewith
EXHIBIT C - HoldCo Certificate of Incorporation . . . to be filed
EXHIBIT D - HoldCo By-Laws . . . . . . . . . . . . . to be filed
EXHIBIT E - GenSub Certificate of Incorporation . . to be filed
EXHIBIT F - GenSub By-Laws . . . . . . . . . . . . to be filed
EXHIBIT G - Cost Allocation Methodology . . . . . . . to be filed
<PAGE>
STATE OF NEW YORK
DEPARTMENT OF PUBLIC SERVICE
PUBLIC SERVICE COMMISSION
* * * * * * * * * * * * * * * * * * * * * * * * *
*
In the Matter of the Application *
of *
NEW YORK STATE ELECTRIC & GAS CORPORATION * Case 96- ____
*
for authority, under Sections 70, 107, 108 * PETITION
and 110 of the Public Service Law, to form a *
holding company structure; to structurally *
separate fossil and hydropower generation *
assets; and for certain related transactions. *
*
* * * * * * * * * * * * * * * * * * * * * * * * *
TO THE PUBLIC SERVICE COMMISSION OF THE STATE OF NEW YORK:
NEW YORK STATE ELECTRIC & GAS CORPORATION, Petitioner
herein, hereby applies for authority under Sections 70, 107, 108
and 110 of the Public Service Law to form a holding company
structure; to structurally separate fossil and hydropower
generation assets; and for certain related transactions, and in
support thereof, respectfully shows:
1. Petitioner is a corporation duly organized and existing
under the Transportation Corporations Law of the State of New
York, having its principal office in the Town of Dryden, County
of Tompkins, State of New York, and is engaged principally in the
generation, purchase, transmission and distribution of
electricity, and the purchase, transportation and distribution of
natural gas for light, heat and power purposes in numerous
counties in the State of New York. Petitioner is also qualified
to do business in the Commonwealth of Pennsylvania and the State
of Texas.
2. A certified copy of Petitioner's Restated Certificate
of Incorporation is now on file with the Public Service
Commission (the "Commission" or "PSC") in proceedings designated
as Case Nos. 88-M-154, 89-M-068, 89-M-145, 90-E-0019, 90-M-0804,
92-M-0104 and 92-M-0828.
3. A Statement of Financial Condition of the Petitioner at
December 31, 1996 will be filed with the Commission as soon as
available, and will be marked as Exhibit A.
<PAGE>
INTRODUCTION
4. Petitioner is filing this petition in order to
facilitate a structural separation of designated NYSEG fossil and
hydropower generation assets from the PSC-regulated utility
business of Petitioner in a holding company corporate framework.
Although Petitioner's September 27, 1996 submission ("NYSEGPlan")
in the PSC's Competitive Opportunities Proceeding contemplates
the functional separation of Petitioner's generation business
from its electric delivery business, parties to the NYSEGPlan
proceeding (PSC Case 96-E-0891) have expressed a preference for a
structural separation of the generation business. This position
appears to be based on the view that such structural separation
would alleviate concerns about potential vertical market power in
generation better than the planned functional separation.
Without conceding the issue, Petitioner desires to address that
position constructively by petitioning for a change in corporate
structure upon the conditions set forth in this application. A
corresponding amendment to NYSEGPlan will be filed in the near
future.
5. Pursuant to the provisions of Section 913 of the
Business Corporation Law, Petitioner proposes to reorganize its
operations by forming a holding company structure pursuant to a
Plan of Exchange (the "Plan of Exchange") whereby, subject to the
rights of the holders of Petitioner's Common Stock (the "NYSEG
Common Stock") to exercise their appraisal rights, all of the
outstanding shares of NYSEG Common Stock will be exchanged on a
share-for-share basis for the common stock of a holding company
(the "Share Exchange"). Such common stock exchanged for NYSEG
Common Stock is referred to herein as "HoldCo Common Stock," and
the term "HoldCo" refers to the corporation whose common stock is
exchanged for NYSEG Common Stock pursuant to the Plan of
Exchange. Upon consummation of the Share Exchange, each person
who owned NYSEG Common Stock immediately prior to the Share
Exchange (other than stockholders who properly exercise their
appraisal rights) will own a corresponding number of shares and
percentage of the outstanding HoldCo Common Stock, and HoldCo
will own all of the outstanding shares of NYSEG Common Stock.
6. After the consummation of the transactions described in
this Petition, Petitioner will be a regulated, wholly-owned
utility subsidiary of HoldCo, and is referred to herein as
"RegSub." As discussed above, Petitioner intends to structurally
separate designated fossil and hydropower generation assets from
RegSub by transferring at fair market value such generation
assets to one or more generation subsidiaries ("GenSub"), formed
to hold such generation assets. GenSub will be a wholly-owned
subsidiary of HoldCo. It is expected that such transfers will
commence as soon as practicable after satisfaction of the
preconditions for the transfer ("the Separation Date"), as set
forth below. A chart of the proposed corporate structure after
the Separation Date is attached hereto as Exhibit B. GenSub
<PAGE>
would sell electric power to the marketplace, and it may sell
some electric power to RegSub pursuant to a PSC-approved power
purchase agreement during the transition to competition when
RegSub retains the obligation to serve.
7. Petitioner believes that a holding company structure
offers important protections to ratepayers from the risks
associated with the introduction of competition. Such
protections are described in paragraphs 19-22 below.
8. Accordingly, Petitioner seeks Commission consent,
permission and authority under Sections 70, 107, 108 and 110 of
the Public Service Law to take such steps as are necessary to
form a holding company structure; to structurally separate
designated fossil and hydropower generation assets; and for
Commission consent, permission and authority under such other
statutory and regulatory provisions as may be required to permit
the consummation of the transactions contemplated herein.
DESCRIPTION OF THE CORPORATE RESTRUCTURING
A. Description of Share Exchange
9. Upon Commission approval of this Petition, and the
receipt of necessary stockholder and other regulatory approvals
described below, Petitioner proposes to reorganize its operations
by forming a holding company structure pursuant to the Plan of
Exchange. Under the terms of the Plan of Exchange, all of the
shares of outstanding HoldCo Common Stock, which will then be
owned by Petitioner, will be canceled and all outstanding shares
of NYSEG Common Stock will be exchanged on a share-for-share
basis for HoldCo Common Stock, subject to the rights of the
holders of NYSEG Common Stock to exercise their appraisal rights.
Upon consummation of the Share Exchange, each person who owned
NYSEG Common Stock immediately prior to the Share Exchange (other
than stockholders who properly exercise their appraisal rights)
will own a corresponding number of shares and percentage of the
outstanding HoldCo Common Stock, and HoldCo will own all of the
outstanding shares of NYSEG Common Stock.
10. Immediately after the Share Exchange, Petitioner
intends to transfer to HoldCo all of the common stock of Somerset
Railroad Corporation ("SRC"). It is expected that this transfer
will be made in the form of a stock dividend. SRC is currently a
wholly-owned subsidiary of Petitioner and was formed in August
1979. It owns and operates a rail line which is used
predominantly to transport coal and other materials to
Petitioner's Kintigh generating station.
<PAGE>
11. Immediately after the Share Exchange, Petitioner
intends to transfer to HoldCo all of the common stock of NGE
Enterprises, Inc. ("NGE"). It is expected that this transfer
will be made in the form of a stock dividend. NGE is currently a
wholly-owned subsidiary of Petitioner and was formed in April
1992, to hold the capital stock of certain non-utility
subsidiaries of Petitioner and to conduct unregulated business
activities.
12. As soon as practicable after the Separation Date,
Petitioner intends to commence transferring to GenSub at fair
market value designated fossil and hydropower generation assets.
13. Forms of the Certificate of Incorporation and By-Laws
of HoldCo will be filed with the Commission as soon as available
and will be marked as Exhibits C and D, respectively, and the
forms of the Certificate of Incorporation and By-Laws of GenSub
will be filed with the Commission as soon as available and will
be marked as Exhibits E and F, respectively. Any proposed power
purchase agreement between GenSub and RegSub will be filed with
the Commission as soon as available.
14. The Share Exchange will not result in any change in the
outstanding Preferred Stock or debt securities of the Petitioner,
which will continue to be securities and obligations of RegSub
after the Share Exchange.
15. In connection with HoldCo's commencement of operations,
RegSub may lease office space to HoldCo and GenSub at fair market
value and transfer to HoldCo and GenSub at fair market value
office furniture, equipment and other non-generation assets.
16. In addition to the Commission's approval, consummation
of the proposed reorganization will also require the approval of
the Securities and Exchange Commission ("SEC"), the Federal
Energy Regulatory Commission ("FERC"), and the Nuclear Regulatory
Commission ("NRC"). Petitioner intends to file applications with
the SEC, FERC and the NRC as soon as practicable.
17. HoldCo will also file for an exemption from the
registration requirements of the Public Utility Holding Company
Act of 1935 ("PUHCA"), to the extent necessary. It is
contemplated that HoldCo will qualify for an exemption from
registration under PUHCA as a "predominantly intrastate" public
utility holding company, under section 3(a)(l) of PUHCA.
18. The approval of the holders of the NYSEG Common Stock
will be required to effect the transactions described herein.
Petitioner currently plans to seek stockholder approval at the
Annual Meeting of Stockholders scheduled for May 21, 1997. To
secure the stockholders' approval in a timely manner, Petitioner
plans to file a registration statement on Form S-4 with the SEC
in early February and plans to distribute a combination Proxy
Statement and Prospectus to stockholders on or about April 10,
1997.
B. Description of Ratepayer Protections
19. The proposed separation of regulated and unregulated
businesses protects the ratepayers in several respects. RegSub
and the unregulated affiliates would maintain separate books and
records and thereby provide a better structure for regulators to
assure that there is no cross-subsidization of costs or transfer
of business risk from unregulated to regulated businesses. The
proposed holding company structure will ensure that RegSub is
insulated from any losses and profits resulting from unregulated
activities and that such losses or profits will flow to the
stockholders of HoldCo so that RegSub and its ratepayers would
not be harmed by unregulated activities. The proposed holding
company structure will help to streamline the regulatory process
and thereby further the Commission's goals by permitting the
Commission to devote its finite resources to the regulatory needs
of ratepayers.
20. Because the operations of HoldCo's unregulated
subsidiaries would be structurally separate from RegSub's
operations under a holding company structure, any change in the
financial results of the unregulated businesses would have no
effect on RegSub or RegSub's credit. Under the holding company
structure, RegSub's access to the debt and equity markets would
be based on RegSub's operating and financial results alone, and
the debt/equity ratios of Holdco's unregulated subsidiaries would
have no adverse impact on the credit quality of RegSub.
21. In addition, RegSub and its ratepayers, creditors and
other stakeholders would be structurally insulated from the
obligations and liabilities of the unregulated businesses as a
matter of corporate law.
22. Furthermore, a holding company structure would
facilitate the management of the capitalization ratios of RegSub
so that ratepayers would not be harmed by a capital structure
which was not tailored to the needs of a regulated business. A
holding company structure also will permit the use of financing
techniques that are more directly suited to the particular
requirements, characteristics and risks of unregulated operations
without affecting the capital structure or creditworthiness of
RegSub, and will increase financial flexibility by allowing the
design and implementation of the capitalization ratios
appropriate for the capital and business requirements of each
subsidiary.
<PAGE>
CONDITIONS TO THE FORMATION OF HOLDCO AND GENSUB
23. To compete effectively and fairly in the emerging
competitive energy marketplace, Petitioner must have the same
degree of flexibility in doing business that is enjoyed by its
current and potential competitors. Petitioner must not be unduly
burdened by excessive constraints and conditions, particularly
when such constraints are not shared by its competitors, many of
whom are large, aggressive and well-capitalized affiliates of
well-known, out-of-state utility and industrial companies (e.g.,
Duke Power Company, Enron Corporation, Edison International, LG&E
Energy Corporation, Sithe Energies, Inc., Southern Company, and
Entergy).
24. As discussed herein, the holding company structure
protects ratepayers from the risks of the unregulated businesses
by separating the operations of regulated businesses from the
unregulated businesses. In addition, the Commission already
possesses a broad array of regulatory mechanisms to ensure that
ratepayers are adequately protected. The Commission has
authority under the Public Service Law with respect to setting
utility rates (Sections 65, 66 and 72), the issuance of
securities (Section 69), transfers of assets (Section 70), loans
to stockholders (Section 106), the use of utility revenues
(Section 107), approval of certificates of merger and certain
certificates of amendment (Section 108), affiliate transactions
(Section 110) and other matters to sufficiently safeguard the
ratepayers' interests. Petitioner believes that the Commission
can protect ratepayers and prevent HoldCo and its affiliates from
gaining any unfair competitive advantage without imposing
additional unduly burdensome operating constraints on HoldCo and
its affiliates, including RegSub.
25. The circumstances surrounding Petitioner's proposed
reorganization differ from the circumstances surrounding prior
occasions where the Commission has imposed conditions on
utilities seeking to establish unregulated affiliates. While
such conditions may have been appropriate under the old
regulatory regime and under the specific circumstances
surrounding such prior occasions, such conditions are not
appropriate in the emerging competitive energy marketplace. At
the Commission's direction, Petitioner's submission provides for
the opening of its electric business to competition. Petitioner
believes that only limited operating constraints, tailored
closely to the activity to be monitored, are appropriate. These
constraints, along with the existing statutory tools of the
Commission and FERC and the federal and state antitrust laws,
will be adequate to protect ratepayers and ensure that robust
competition develops.
26. Nonetheless, Petitioner is willing to agree to certain
additional restrictions which address the Commission's concerns,
provided that such restrictions do not disadvantage HoldCo's
competitive businesses and that such restrictions supersede the
Order Approving Stipulation and Agreement, Subject to Conditions,
issued April 28, 1992 in the Commission's Case No. 91-M-0838 and
the related Stipulation and Agreement (the "Diversification
Order"). These proposed additional protections are set forth
below, and are designed to ensure, among other things, that
RegSub has the financial resources to continue to provide safe
and reliable service to ratepayers.
- Debt and Preferred Stock Financing: Future debt or
preferred stock of RegSub would be raised by RegSub
independently of HoldCo, and RegSub will maintain a
separate debt rating from HoldCo and its other
subsidiaries (the "affiliates").
- Prohibition on Loans and Guarantees: Except for any
initial interim financing, RegSub will neither make
loans to, nor guarantee or provide credit support for
the obligations of, either HoldCo or any of RegSub's
affiliates that are not subsidiaries of RegSub.
- Prohibition on Pledges: RegSub will not pledge any of
its assets as security for any indebtedness of HoldCo
or its affiliates other than RegSub.
- Maintenance of Credit: RegSub will maintain an
investment grade rating on its bonds. RegSub will
notify the Commission of any downgrade or possible
downgrade or placement on credit watch or review of the
debt of RegSub.
- Annual Certification: RegSub will certify annually to
the Commission and provide evidence to establish that
RegSub has retained or has access to sufficient capital
to maintain and upgrade its system for continued safe
and reliable service subject to the Commission
authorizing rates that are adequate for such purposes.
- Annual Meeting: RegSub will meet annually with
Commission designated personnel to discuss RegSub's
activities and plans related to capital attraction and
financial performance.
27. Petitioner is also willing to agree to the following
additional standards of conduct to govern transactions between
RegSub and its affiliates:
- Allocations of cost among HoldCo, RegSub and the
affiliates would be made in accordance with an
approved, fully distributed, cost allocation
methodology, which will be filed with the Commission as
soon as available, and will be marked as Exhibit G, and
all such allocations will be subject to Commission
audit annually.
<PAGE>
- RegSub will operate at arms-length from HoldCo and the
affiliates.
- All transactions in excess of $100,000, other than
tariffed transactions and corporate governance and
administrative services, between RegSub and either
HoldCo or any affiliate will be pursuant to written
contracts filed with the Commission, and the provision
of goods and services by such contracts will be on a
basis that will neither disadvantage RegSub nor unduly
prefer HoldCo or any affiliate.
- For the purpose of auditing any transaction between
RegSub and either HoldCo or its affiliates, HoldCo will
provide Commission designated personnel reasonable
opportunity to audit any such transaction, subject to
appropriate confidentiality agreements and trade secret
protection.
- RegSub will not represent to customers that it speaks
on behalf of HoldCo or the affiliates, or that RegSub
will provide an advantage to customers if they deal
with HoldCo or any affiliate.
- RegSub will make available to competitors of RegSub or
competitors of any affiliate, non-confidential
information relating to customers in RegSub's service
territory that RegSub makes available to HoldCo or any
affiliate. Any energy service company affiliated with
HoldCo will be permitted to sell goods and services to
customers, both inside and outside of RegSub's service
territory.
- The Diversification Order shall be superseded by the
terms and conditions set forth in this Petition.
- RegSub will implement FERC-approved standards of
conduct for FERC-jurisdictional activities, as required
under FERC Order 889.
28. Finally, the Separation Date shall be the first
business day after all of the following events have occurred or
conditions have been satisfied, except as otherwise agreed to in
writing by Petitioner:
- Issuance of a final and non-appealable Commission order
granting Petitioner the authority sought by this
Petition upon the terms and conditions set forth
herein.
- Issuance of a final and non-appealable Commission order
approving the implementation of NYSEGPlan, as amended
by Petitioner.
<PAGE>
- Issuance of final and non-appealable orders from the
SEC, FERC and NRC regarding the transactions
contemplated by this Petition.
- Petitioner's acceptance of the aforesaid orders, and
corporate and stockholder approval of, and receipt of
any required consents under any agreement to which
Petitioner is a party in connection with, the Share
Exchange and the transactions contemplated by this
Petition.
- Agreement by the trustee under Petitioner's mortgage
indenture that the designated fossil and hydropower
generation assets to be transferred to GenSub can be
released from Petitioner's mortgage indenture on the
terms and conditions proposed by Petitioner for such
release.
- Commission establishment of a RegSub regulatory asset
on terms and conditions acceptable to Petitioner with
respect to the above-market costs associated with the
designated fossil and hydropower generation assets to
be transferred by Petitioner to GenSub at fair market
value, including recovery of such costs.
- Issuance of a final and non-appealable order from the
Commission granting light regulation status to GenSub
and consenting to "exempt wholesale generator" status
pursuant to PUHCA to the extent requested by
Petitioner, and Commission approval of any power
purchase agreement between RegSub and GenSub without
material changes or conditions.
- Establishment of a fully operational, FERC-approved
Independent System Operator and Power Exchange for the
New York State power market on terms acceptable to
Petitioner.
- Commission approval of a RegSub mechanism to recover
all costs incurred by Petitioner to consummate the
reorganization and structural separation of assets
contemplated by this Petition, and approval of
accounting treatment for the contemplated transactions
on terms acceptable to Petitioner.
- Elimination of all New York State gross receipts taxes
on any sales at wholesale by GenSub to RegSub.
29. By Commission Order issued and effective September 12,
1996 in Case No. 95-M-1195 (the "Global Financing Order"), which
extended the previous global financing order issued and effective
on December 8, 1993 in Case No. 93-M-0744, the Commission
approved the issuance of securities by Petitioner under Section
69 of the Public Service Law in a total amount not to exceed $339
million principal amount of securities for traditional utility
purposes and $979 million of securities for the purpose of early
redemption of debt and preferred stock through December 31, 1997.
Ordering Clause 5 of the Global Financing Order requires, among
other things, that the proceeds from the sale of the authorized
common stock "shall not be less than 95% of the value of an
equivalent amount of Petitioner's common stock priced at the
various methods listed in staff's memorandum." Since there will
no longer be a public market for Petitioner's common stock after
the Share Exchange, and any new common stock issued by Petitioner
will be sold to HoldCo, rather than to public stockholders, the
above-quoted condition will no longer be necessary. Accordingly,
Petitioner hereby requests that the Global Financing Order be
amended, effective upon consummation of the Share Exchange, to
eliminate the above-quoted language from the Global Financing
Order.
30. Petitioner reserves the right to amend and withdraw
this Petition at any time prior to its acceptance of an order of
the Commission with respect to the Petition. Petitioner further
requests that any such order by its terms permit Petitioner (even
after unconditionally accepting such order) to decide not to
consummate the transactions described herein if, in Petitioner's
opinion, consummation would not result in material benefit, or
would result in material detriment, to Petitioner.
31. All communications and notices in connection with this
proceeding should be addressed to Daniel W. Farley, Vice
President and Secretary, New York State Electric & Gas
Corporation, P.O. Box 5224, Binghamton, New York 13902-5224;
W. Chad Steckel, Manager - Corporate Finance, New York State
Electric & Gas Corporation, P.O. Box 3287, Ithaca, New York
14852-3287; Leonard Blum, Esq., Huber Lawrence & Abell, 605 Third
Avenue, New York, New York 10158 and James F. Gill, Esq.,
Robinson Silverman Pearce Aronsohn & Berman LLP, 1290 Avenue of
the Americas, New York, New York 10104-0053.
WHEREFORE, Petitioner, New York State Electric & Gas
Corporation, respectfully requests Commission consent, permission
and authority under Sections 70, 107, 108 and 110 of the Public
Service Law to take such steps as are necessary to form a holding
company structure; to structurally separate designated fossil and
hydropower generation assets; and for Commission consent,
permission and authority under such other statutory and
regulatory provisions as may be required to permit the
consummation of the transactions contemplated herein.
NEW YORK STATE ELECTRIC & GAS CORPORATION
Sherwood J. Rafferty
By: Sherwood J. Rafferty
Senior Vice President and
Chief Financial Officer
Dated: December 19, 1996
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF TOMPKINS )
Sherwood J. Rafferty, being duly sworn, deposes and
says that he is Senior Vice President and Chief Financial Officer
of NEW YORK STATE ELECTRIC & GAS CORPORATION, the Petitioner
herein named; that he has read the foregoing application and
knows the contents thereof; that the same is true of his own
knowledge except as to those matters therein stated to be alleged
upon information and belief, and that as to those matters he
believes them to be true.
Sherwood J. Rafferty
Sworn to before me this
19th day of December, 1996.
Darlene E. Beach
Notary Public
<PAGE>
EXHIBIT B
PROPOSED CORPORATE STRUCTURE
HoldCo
|
|
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
| | | |
| | NGE |
RegSub SRC Enterprises GenSub
|
|
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
| |
| |
| Other NGE
Xenergy Subsidiaries
EXHIBIT D-2
NYSEG/PSC Staff Joint Statement of Principles
to Govern a Settlement
July 28, 1997
Coal Plant Valuation
- Coal plant valuation to be determined by a simultaneous
multiple round open auction process designed to obtain
highest final market value for purposes of mitigation of
above-market costs and establishment of regulatory asset for
recovery of remaining above-market costs. All coal plants
and associated assets and liabilities (including, without
limitation, Somerset railroad, environmental liabilities,
coal purchase contracts, etc.) will be subject to such
auction process. The process will not be designed to
necessarily require NYSEG to divest its coal plants to a
third party, except as otherwise agreed to in this
settlement. The company's unregulated generating subsidiary
(GenSub) can participate as a bidder, and shall not have any
special rights or privileges, including the right to close
out the bidding by a matching bid. NYSEG shall provide
(with appropriate confidentiality protections) all potential
bidders with the same plant and operating information as
NYSEG makes available to GenSub.
- The ascending bid auction proceeds for a given coal plant
until no new bids are received. Bids are compared in the
auction process on a gross cash basis, and the company
agrees to sell (or transfer to GenSub) the plants at the
auction determined value without subsequent negotiation of
value.
- The auction process will be completed and the transaction(s)
resulting therefrom shall close no later than 8/1/99.
- If no bids are received for a plant above the minimum bid
requirement of the auction, an appraisal process will be
used and completed no later than 8/1/99, or as soon as
practicable thereafter. The valuation, on an after-tax
basis, achieved by the appraisal process shall be used in
lieu of the value of net after tax auction proceeds for
purposes of establishing the regulatory asset or credit as
set forth below.
- Protocols, terms and conditions to implement the auction and
appraisal process will be developed by the company in
consultation with Commission Staff and will be submitted to
the Commission for pre-auction approval by approximately
February 1, 1998. Such auction provisions will state time
requirements for bids and have mechanisms to pre-qualify
bidders willing and able to abide by auction requirements
and to disqualify or penalize bidders for cause. The
Commission may employ a consultant, at NYSEG's expense
(recoverable form the auction proceeds), to advise the
Commission on the design and implementation of the auction
process consistent with this Settlement. The Commission
shall select the consultant from a list of at least three
qualified individuals or firms selected jointly by the
company and the Commission Staff.
- In order to facilitate a competitive generation market, an
auction sale or transfer free and clear of the company's
mortgage indenture, and establishment of a minimum bid value
for the auction process, the coal plants will be transferred
to GenSub as soon as practicable after the creation of
HoldCo and obtaining the mortgage trustee's release. GenSub
earnings with respect to any such transferred plant will be
combined with RegSub's earnings for the period prior to an
auction sale or transfer of that plant. Upon such transfer,
a regulatory asset of RegSub will be created for the
difference between the book value of the coal plants and the
valuation performed in accordance with the bond indenture.
Such regulatory asset will be adjusted subsequently upon a
sale or transfer based on the cash proceeds resulting from
the auction process net of tax, auction and transaction
costs. Once a plant is sold or transferred pursuant to the
auction process there will be no further readjustment of
RegSub's regulatory assets.
- Upon completion of the auction process and sale of any plant
to an unrelated third party or GenSub, the regulatory asset
or credit on RegSub's books will represent the difference
between the net book value of the plant, less funded
deferred taxes, and the net after-tax auction proceeds.
This regulatory asset or credit will be grossed up in
accordance with SFAS 109. Any net regulatory asset and
carrying charges thereon (calculated based on the pre-tax
cost of capital used by the Commission to determine the
company's retail rates, i.e., 12.43%) will be recovered from
all customers through a wires charge over a period of time
to be determined by the Commission at the conclusion of the
auction process and which shall not exceed the weighted
average remaining life of the auctioned assets as of the
conclusion of the auction process and the closing(s)
thereon. In the event that the GenSub is the winning bidder
of any plant in the auction, any deferred tax liability on
the gain will remain the responsibility of RegSub's
customers by virtue of its inclusion in the calculation of
the above-described regulatory asset or credit which may
result from the auction. The amount of this future customer
responsibility will be limited to the tax (calculated at the
then current tax rate) which derives from the tax gain that
would have been realized at the time of the transfer to the
GenSub at the auction-determined value, had the sale been
made to an unrelated third party grossed up in accordance
with SFAS 109. Any net regulatory credit will be used by
RegSub to writedown the company's Nine Mile II investment,
and any such credit remaining after such writedown will be
used by RegSub as directed by the Commission.
Rate Plan
- There will be no second or third year increases as provided
for in the September 27, 1995 rate settlement. Beginning
8/1/97, rates will be reduced 5% per year for 5 years for
industrial customers with average on-peak demands of 500 KW
or more and all customers with load factors of 68% or
greater. Customers currently served pursuant to contracts
or incentive rates will become eligible for such rate
reductions after expiration of contracts unless contracts
render them eligible for such reductions during term of
contract.
- Stranded cost recovery, including amortization of the RegSub
regulatory assets associated with the coal plants, is
presumed within overall rate objectives during the five-year
rate cap period and recovered through retail electric rates.
Post-year 5, remaining RegSub regulatory assets, including
those resulting from the auction process, and hydro, IPP and
nuclear fixed costs will be recovered (for the life of the
amortization period, contract or license) through a non-
bypassable wires charge or, possibly, a non-bypassable
competitive transition charge (CTC). Nuclear variable
costs, which would exclude decommissioning and wind down
costs and 62.5% of annual property taxes, will be put to
market post-year 5, provided that the company's cotenants
put the same to market. In year 5, Regsub will make a
filing with the Commission for year 6 rates for RegSub.
- Company may petition for recovery of costs in excess of 3%
of RegSub Net Income for items identified as Category 1 on
Appendix A attached hereto (force majeure). Definitive
agreement will define force majeure. Recovery of costs is
also permitted upon petition by the company for costs
incurred above the target levels of Category 2 items
pursuant to Appendix A, which will be refined to show zero
targets for legislative, etc. changes. Recovery will be
determined through a limited and expedited process similar
to a traditional "second stage" review and will not result
in a reopener of any terms of the settlement. The Company
shall submit an annual filing which reports the variances of
actual costs from the Category 1 and 2 targets and costs
included on Appendix A. Any recovery of Category 1 or 2
cost items may be offset by Category 1 or 2 savings below
the targets achieved during the period, any earnings in
excess of the 12% cap discussed below, and any net NUG
contract cost savings achieved by contract termination or
restructuring during the period. System benefits charge-
related Category 2 targets may be separated into an
unbundled System Benefit Charge as determined by the
Commission and, upon such separation, are deleted from
Category 2 for purposes of recovery. Separation of the SBC
targets from Category 2 will not alter the target levels for
these components from those shown on Appendix A. After
creation of such SBC, any variances from the targets for the
separated components will be recovered or credited through
the SBC.
- Over the five-year price cap period, RegSub earnings are
capped at 12% of common equity including any combined GenSub
earnings prior to the completion of the auction or the
subsequent appraisal process (if necessary). The RegSub
earnings floor is 9.0% during that period. Any earnings in
excess of 12% will be returned to customers in a manner to
be determined by the Commission. Notwithstanding a Company
filing to recover costs pursuant to the Category 1 and 2
cost items, the Company shall make an annual filing for each
of the years of this Agreement to report on earnings and to
defer any excess earnings for the benefit of customers. The
company may petition for rate relief if earnings fall below
the floor. In the event that in any year of the price cap
period the company petitions for cost recovery under the
uncontrollable cost recovery provision stated above for
Category 1 or 2 items, the Commission will be entitled to
offset any such request with any company earnings in excess
of 12% that would have been realized but for the use by the
company of accelerated (increased) depreciation or
amortization of any physical or regulatory assets. Such
acceleration (increase) is permitted without pre-approval by
the Commission.
Retail Access
- The company will implement the retail access program
required in the Dairylea proceeding.
- Access to Norwich and Lockport customers begins on 8/1/98.
- All remaining customers transitioned to retail access
starting 8/1/99 assuming ISO is approved by FERC and
operating. Customers selecting a new supplier will have
power delivered by RegSub for their chosen supplier
commencing no later than 12/31/99. RegSub may rely on the
ISO to plan for power supply.
- Company permits access to those customers taking service at
negotiated or incentive rates if their contracts allow for
it.
- For customers eligible for retail access through the
Dairylea proceeding, the backout method for billing retail
access customers for the period prior to the completion of
the auction and the closing(s) thereon is the market price
of energy plus a 4 mill/kWh adder for industrial and large
commercial customers and a 10 mill/kWh adder for residential
and small commercial customers.
- The retail access credit used to back out generation during
the period prior to the completion of the auction and the
closing(s) thereon for Norwich and Lockport customers
electing to switch suppliers shall be the market price of
energy plus a 4 mill/kWh adder for industrial and large
commercial customers, and a 10 mill/kWh adder for
residential and small commercial customers, but such credit
shall in no event exceed 3 cents/kWh, including GRT.
- The retail access credit used to back out generation during
the period following the completion of the auction and the
closing(s) thereon through the end of the rate-cap period
for all customers electing to switch suppliers shall be
equal to (i) 3.23 cents/kWh including GRT through 7/31/2000,
(ii) 3.47 cents/kWh including GRT from 8/1/2000 through
7/31/2001, and (iii) 3.71 cents/kWh including GRT from
8/1/2001 through 7/31/2002. Commencing 8/1/2002, all costs
(other than the non-bypassable wires charge or CTC) related
to the assets subject to the auction/appraisal process
hereunder shall be excluded from the rates charged by RegSub
for all customers, and all customers shall pay the market
price of generation plus any applicable GRT.
- In the event the auction or appraisal process and the
closing(s) thereon are not completed by 8/1/99, the retail
access credit during the period commencing 8/1/99 and ending
upon the completion of the auction or appraisal process used
to back out generation for all customers electing to switch
suppliers shall be the market price of energy plus a 4
mill/kWh adder for industrial and large commercial customers
and 10 mills/kWh adder for residential and small commercial
customers, but such credit shall in no event exceed 3.23
cents/kWh, including GRT.
- All customers, including those who switch suppliers, shall
pay the non-bypassable wires charge or CTC plus any GRT for
as long as is necessary to permit the company to recover the
regulatory asset determined by the auction process. Bills
will disclose all generation-related credits and charges.
- Other NY utility ESCOs permitted into service territory only
on a reciprocal basis.
- Except as specifically modified by this Agreement, the
Company's right and obligation under New York Law and its
Public Service Law Section 68 Certificates to provide
electric service to its customers remains unchanged
notwithstanding the full implementation of retail access and
remains in full force and effect for the full term of the
Definitive Agreement and thereafter until duly changed.
Corporate Structure
Structural separation via holding company as set forth in
paragraphs 1 through 7 of Section VII of the 3/25/97
"Definitive Agreement" filed by the company, including the
following:
- Conditions to ensure protection and prevent anti-competitive
behavior as set forth in subparagraphs (a) through (e) of
paragraph 8 of Section VII of the 3/25/97 "Definitive
Agreement," and subparagraph (f) thereof, as modified as set
forth on Attachment B.
- The company shall have flexibility to retain on a cumulative
basis M&A savings for a period of five years from the date
of closing of any utility merger or acquisition pursuant to
a petition filed jointly or individually by the company, up
to the amount of acquisition premium paid over the lesser of
book value or fair market value of assets merged or
acquired. Savings in excess of that recovery will be
disposed of by order of the Commission. Cost recovery
provisions of settlement continue in combined entity.
Company petitions given expedited review and treatment.
- Affiliate ESCO permitted to operate in service area with
competitive safeguards.
- The Section 107 order (Order in Case 91-M-0838, issued April
28, 1992) on diversification is superseded.
Rate Design
- Undue bill shock for any customers from any rate design
changes will be avoided. Rate design for the five-year rate
cap period will be pre-approved by the Commission in the
definitive settlement agreement, and will increase the basic
monthly charge in steps as energy charges decrease toward
marginal cost. Imposition of certain revenue neutral direct
charge fees based on incremental costs may be proposed by
the company. Regsub may petition for minor, revenue-neutral
price changes between and within customer classes. The
company may also petition for a retail access transaction
fee on an incremental cost basis.
Unbundling
- On August 1, 1997, or as soon thereafter as practicable,
customers' rates will be unbundled as follows:
- Electric Power Supply per Kwh and per KW.
- Electric Power Delivery (T&D) per Kwh and per KW.
- Basic Service Charge (BSC) per customer per month.
- Non-bypassable wires charge or CTC to amortize
regulatory asset per Kwh and per KW.
- System Benefits Charge applied as determined by the
Commission.
<PAGE>
- Further unbundling of Delivery into Transmission and
Distribution elements will be implemented based on the
classification of facilities determined in the proceeding
begun for that purpose at the February 12, 1997 session.
- The company commits to provide a study and agrees to
unbundle "customer service" functions on an incremental cost
basis by tariffs to be effective 8/1/99.
General
- The settlement meets all of the PSC's rate goals. It
encourages economic development and freezes prices under a
hard, five-year price cap. The aggregate value of the
revenue concessions is nearly $600 million.
Other Issues
- Company withdraws outstanding Energy Association, year-2
rate increase, and Dairylea litigation against the
Commission pursuant to mutually-agreed stipulations.
- After further negotiation, the current gas rate settlement
will be extended through July 31, 2002.
- Implementation of a penalty-only service quality plan which
focusses on T&D reliability.
- If the Company achieves NUG contract savings from targets to
be set forth in the Definitive Agreement (net of transaction
costs) during the rate cap period through contract
termination or restructuring (but not securitization), 80%
of such savings shall flow through to customers as
determined by the Commission; the remaining 20% shall be
retained by the Company. The foregoing is subject to the
potential offset against uncontrollable costs described
above in the event the Company petitions for uncontrollable
cost recovery with respect to Category 1 or 2 items.
Beginning in year 6 of the settlement, all net NUG contract
cost savings are subject to flow through to customers as
determined by the Commission.
- Net gross receipts tax savings will be flowed through to
customers.
- SC-11 tariff modification to be negotiated.
- Deferred credit balances as of 8/1/97 will be used by the
company during the rate cap period as an offset to deferred
charges.
<PAGE>
- The FAS 71 language in the 3/25/97 "Definitive Agreement" is
to be included.
- The finality language in the 3/25/97 "Definitive Agreement"
is to be included.
- Definitive settlement agreement to be negotiated
expeditiously.
STATE OF NEW YORK NEW YORK STATE ELECTRIC & GAS
DEPARTMENT OF PUBLIC CORPORATION
SERVICE STAFF By: Huber Lawrence & Abell,
General Counsel
By: Leonard Van Ryn By:Kenneth M. Jasinski
Leonard Van Ryn, Staff Kenneth M. Jasinski,
Counsel Partner
Dated: July 28, 1997 Dated: July 28, 1997
<PAGE>
<TABLE>
<CAPTION>
Appendix A
Page 1 of 2
Price Adjustment Factor(1)
<S> <C> <C>
Category 1 Category 2
Frequency: One-Time Event Ongoing Costs
___________________________________________________________________________________________________
General Description of Natural Disasters, Acts of Accounting, Legislative, Regulatory,
Qualifying Events: Terrorism, and Category 2 Costs or Tax Changes
Incurred Before Rates are Changed
___________________________________________________________________________________________________
Examples of Potential - Storms - Change in DSM Expenses
Qualifying Events: - Bombings - FASB Accounting Pronouncements
- Retroactive Tax Levies - Changes in Federal Income Tax Rate
- Changes in Nuclear Decommissioning
Costs
- NYPA Transmission Adjustment Charge
___________________________________________________________________________________________________
Threshold Limits for Aggregate Costs in Excess of 3% Variations from Targets Stated in
Rate Recovery: of RegSub Net Income Appendix A, Page 2
___________________________________________________________________________________________________
Recovery Method: The PAF will be applied to each The PAF will be applied to each
customer's bill in a manner to be customer's bill in a manner to be
determined by the Commission. determined by the Commission.
___________________________________________________________________________________________________
Timing of Rate Change/ Annually in a manner and over a Annually in a manner and over a
Recovery Period: period to be determined by the period to be determined by the
Commission. Commission.
___________________________________________________________________________________________________
1 The price adjustment methods relate to cost increases and decreases.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Appendix A
Page 2 of 2
Category 2 Price Adjustment Factor Targets
($000)
<S> <C> <C> <C> <C> <C>
12 Months Ending July,
1998 1999 2000 2001 2002
Nuclear Decommissioning Costs:
Internal Fund $208 $263 $263 $263 $263
External Fund 1,494 4,062 4,062 4,062 4,062
Total 1,702 4,325 4,325 4,325 4,325
Demand Side Management Costs 6,090 7,124 6,924 7,162 7,431
Research & Development Costs 4,710 5,951 6,996 6,902 7,065
Manufactured Gas Plant Site Remediation Costs 1,569 2,163 2,640 2,640 2,640
Fresh Start Program Costs 475 475 475 475 475
Renewable Resource Costs 157 157 157 157 157
NYPA Transition Adjustment 0 0 0 0 0
Total $14,703 $20,195 $21,517 $21,661 $22,093
The above targets are the amounts that are covered within the rates specified in this settlement.
Prudently incurred changes from these amounts will be included in the Price Adjustment Factor.
</TABLE>
<PAGE>
Page 1 of 2
Appendix B
STANDARDS OF CONDUCT
- Separate Entities: any affiliate should be set up as a
business entity separate from RegSub to foster competition
in the utility's territory. Separate entities will help to
minimize the potential for self-dealing and the perception
of self-dealing by customers and other competitors.
- Separation of books and records: Separation should include
books and records, non-officer employees, advertising and
marketing efforts, and energy purchasing (except for
tariffed services). Where common costs are shared to take
advantage of economies of scale, direct cost allocation
should be used where practical. However, if direct cost
allocation is impractical, cost allocations should be
accomplished by using a fully distributed cost method to be
provided by NYSEG and approved by the Commission.
- Physical Separation: RegSub and HoldCo may occupy the same
building. Any non-regulated affiliate, other than HoldCo,
should be located at a different location from RegSub to
reduce the opportunity for, and appearance of, anti-
competitive behavior or other inappropriate activities.
Generation employees may occupy the same building as RegSub
until completion of the auction required pursuant to the
competitive generation plan.
- Affiliate Transactions: Affiliate transactions should be
minimized to protect against cross-subsidies. When
transactions occur, they should be priced at tariff rates,
if applicable, or at least at fully distributed costs. In
addition, such transactions should be at arms-length. All
transactions in excess of $100,000, other than tariffed
transactions and corporate governance and administrative
services, between RegSub and either HoldCo or any affiliate
will be pursuant to written contracts filed with the
Commission, and the provision of goods and services by such
contracts will be on a basis that neither disadvantages
RegSub nor unduly prefers HoldCo or any affiliate.
- Transfer of Assets: Any transfer of utility assets should
be compensated to RegSub based on the greater of book value
or market value, except for the transfer of generation
assets (coal plants, related equipment and contracts) as
contemplated by this settlement.
- Transfer of Data/Information: RegSub should not provide any
competitive information or data to its affiliated entities
unless that same information or data is provided to all
competitors at the same time.
<PAGE>
Page 2 of 2
- Access to Books and Records: Staff should have direct
access to the books and records of RegSub and, prior to the
auction, of GenSub. For purposes of Public Service Law
Section 110, Staff should also have direct access to the
books and records of RegSub, GenSub, HoldCo, and any
majority-held affiliate. For the purpose of auditing any
Section 110 transactions between RegSub and either HoldCo or
its affiliates, including GenSub, HoldCo will provide
Commission designated personnel reasonable opportunity to
audit any such transaction, subject to appropriate
confidentiality agreements and trade secret protection.
- Dispute Resolution Process: A process should be established
for a competitor or customer to use if it believes that
RegSub, or its affiliate in a regulated transaction, has
acted in an anti-competitive manner. Complete records of
disputes should be retained for Department of Public Service
review.
- Name and Reputation: There shall be no restrictions on
HoldCo or any affiliate using the same name, trade name,
trademarks, service name, service mark or a derivative of a
name, of HoldCo or RegSub, or in identifying itself as being
affiliated with HoldCo or RegSub. RegSub will not provide
sales leads for customers in RegSub's service territory to
any affiliate and will refrain from giving the appearance
that RegSub speaks on behalf of an affiliate or that the
affiliate speaks on behalf of RegSub. If a customer
requests information about securing any service or product
offered within the service territory by an affiliate, RegSub
may provide a list of all companies known to RegSub
operating in the service territory that provide the service
or product, which may include the affiliate, but RegSub may
not promote its affiliate.
- Debt Rating: RegSub should have its own debt rating. If
RegSub experiences a downgrading or placement on creditwatch
or review of its senior debt, RegSub management should
notify the Director of Accounting & Finance of the New York
State Department of Public Service.
- Guarantee of Affiliate Debt: RegSub should not guarantee
the notes, debentures, debt obligations or other securities
of any affiliate, nor should it pledge any of its assets as
security for any indebtedness of HoldCo or its affiliates.
- Loans of Employees: RegSub should not loan operating
employees to its affiliates. Operating employees are those
involved in competitive lines of business, which excludes
(among other categories) corporate governance, finance,
accounting, legal and administrative services.
EXHIBIT D-5
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
NEW YORK STATE ELECTRIC & )
GAS CORPORATION ) Docket No. EC97- __________
)
APPLICATION FOR COMMISSION
APPROVAL OF CORPORATE REORGANIZATION
Sam Behrends, IV, Esq. Stuart A. Caplan, Esq.
Bruce W. Neely, Esq. Taras G. Borkowsky, Esq.
LeBoeuf, Lamb, Greene Huber Lawrence & Abell
& MacRae, L.L.P. 605 Third Avenue
1875 Connecticut Avenue, N.W. New York, New York 10158
Washington, D.C. 20009 Telephone: (212) 682-6200
Telephone: (202) 986-8000 Counsel for New York State
Electric & Gas Corporation
August 29, 1997
<PAGE>
TABLE OF CONTENTS
Page
I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . 1
II. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . 4
III. PROPOSED REORGANIZATION. . . . . . . . . . . . . . . . 6
IV. TRANSFER OF POWER SALES AGREEMENTS AND TARIFF. . . . . 7
V. PUBLIC INTEREST STANDARDS. . . . . . . . . . . . . . . 13
A. THE PROPOSED RESTRUCTURING WILL NOT HAVE
AN ADVERSE EFFECT ON COMPETITION . . . . . . 17
B. THE PROPOSED RESTRUCTURING WILL NOT
ADVERSELY AFFECT RATE LEVELS . . . . . . . . 22
C. THE PROPOSED RESTRUCTURING WILL NOT
IMPAIR THE EFFECTIVENESS OF STATE OR
FEDERAL REGULATION . . . . . . . . . . . . . 25
VI. SUPPORTING INFORMATION . . . . . . . . . . . . . . . . 27
APPENDICES
APPENDIX A - DIAGRAMS OF CORPORATE STRUCTURE
PRIOR TO AND AFTER THE PROPOSED
REORGANIZATION
APPENDIX B - LIST OF POWER TARIFF CUSTOMERS WITH
CORRESPONDING RATE SCHEDULE
DESIGNATIONS
APPENDIX C - LIST OF CUSTOMERS NOT UNDER THE
TARIFF WITH CORRESPONDING RATE
SCHEDULE DESIGNATIONS
APPENDIX D - DESCRIPTION OF FRANCHISE
TERRITORIES
APPENDIX E - FORM OF FEDERAL REGISTER NOTICE
<PAGE>
EXHIBITS
EXHIBIT A - Resolutions of the Board of
Directors.
EXHIBIT B - A statement of the measure of
control or ownership exercised by
or over each party to the
transaction as to any public
utiity, or bank, trust company,
banking association, or firm that
is authorized by law to underwrite
or participate in the marketing of
securities of a public utility, or
any company supplying electric
equipment to such party, and the
extent of any intercorporate
relationships.
EXHIBIT C - Balance sheets and supporting plant
schedules for the 12-month period
ended December 31, 1996 on an
actual basis in the form prescribed
for Statements A and B of the FERC
Annual Report Form No. 1 and pro
forma balance sheets.
EXHIBIT D - A statement of all known contingent
liabilities except minor items such
as damage claims and similar items
involving relatively small amounts.
EXHIBIT E - Income statements for the 12-month
period ended December 31, 1996 on
an actual basis in the form
prescribed for Statement C of the
FERC Annual Report Form No. 1 and
pro forma income statements.
EXHIBIT F - An analysis of retained earnings
for the period covered by the
income statements referred to in
Exhibit E and pro forma retained
earnings statements.
EXHIBIT G - Copy of Petition filed with the New
York Public Service Commission on
December 19, 1996, the Statement of
Principles and the Settlement
Agreement.
EXHIBIT H - Draft of the Agreement and Plan of
Exchange between NYSEG and HoldCo.
<PAGE>
EXHIBIT I - A map showing NYSEG's properties
and interconnections and the
principal cities of the area
served.
<PAGE>
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
NEW YORK STATE ELECTRIC & )
GAS CORPORATION ) Docket No. EC97-__________
)
APPLICATION FOR COMMISSION
APPROVAL OF CORPORATE REORGANIZATION
I. INTRODUCTION
Pursuant to Section 203 of the Federal Power Act
("FPA"){1} and Section 33 of the Federal Energy Regulatory
Commission's ("FERC" or "Commission") regulations{2}, New York
State Electric & Gas Corporation ("NYSEG" or "Applicant") hereby
submits this Application for Commission Approval of Corporate
Reorganization ("Application"). NYSEG seeks Section 203
authority to form a holding company to implement a comprehensive
restructuring plan to satisfy electric industry restructuring
goals established by the New York Public Service Commission
("NYPSC"). The plan agreed to by NYSEG and the NYPSC Staff
includes the separation of NYSEG's coal-fired fuel generation
facilities into a separate company, the auction of those assets
to mitigate strandable costs and foster competition, and the
expeditious implementation of a full retail access program.
Granting the Application will help fulfill the Agreement
regarding, among other things, NYSEG's corporate reorganization
signed on July 28, 1997 by NYSEG and the NYPSC Staff, as further
detailed in a proposed comprehensive Settlement Agreement reached
on August 20, 1997. As further discussed below, NYSEG requests
expedited treatment of the Application and requests that the
Commission provide a thirty day notice period for comments.
In this Application, NYSEG seeks the Commission's
authorization to implement a corporate reorganization
("Reorganization") which will result in the creation of a holding
company over NYSEG and its corporate subsidiaries, including its
power marketing affiliate, XENERGY, Inc. ("XENERGY").{3} The
creation of a holding company over a Commission-jurisdictional
entity is deemed to result in a "disposition of facilities" under
FPA Section 203 as that term has been interpreted by the
Commission in various proceedings involving similar corporate
reorganizations.{4}
____________
{1} 16 U.S.C. SS 824(b).
{2} 18 C.F.R. SS 33 (1996).
{3} The name of holding company has not yet been determined and
for purposes of this application it is referred to as HoldCo.
{4} See, e.g., Pennsylvania Power & Light Company, 60 FERC P.
62,267 (Issued December 30, 1994); Commonwealth Edison Company,
68 FERC P. 62,049 (Issued July 15, 1994); Illinois Power Company,
67 FERC P. 61,136 (Issued May 3, 1994); Kentucky Utiities Company
and Old Dominion Power Company, 47 FERC P. 61,271 (1989); and
Central Vermont Public Service Corporation, 39 FERC P. 61,295
(1987).
<PAGE>
In addition, as part of the proposed Reorganization,
NYSEG's coal-fired fuel generation facilities ("Generation
Assets") will be transferred from NYSEG to a subsidiary or
subsidiaries of HoldCo{5} (collectively referred to in this
Application as "GenSub") as soon as practicable after obtaining
the mortgage trustee's release. The Generation Assets consist of
NYSEG's interests in its Kintigh, Homer City, Milliken, Goudey,
Greenidge, Hickling and Jennison generation stations and certain
associated assets and liabilities, as further described in
Section f. of Article VI hereof. However, no Commission-
jurisdictional transmission facilities are proposed to be
transferred to GenSub. Such Generation Assets will be subject to
an auction process in which third parties as well as GenSub may
participate.{6} This Application also requests Commission
approval pursuant to FPA Section 203 for the transfer of
Commission-jurisdictional power sales contracts and a tariff from
NYSEG to GenSub, as further described in Article IV hereof and
Appendices B and C attached hereto.
The proposed Reorganization is anticipated to be
implemented as soon as practicable after a special meeting of
stockholders currently expected to be held on or about January
15, 1998. To facilitate this rapid restructuring, NYSEG requests
that the Commission proceed on an expedited basis, provide a
thirty day period for comments and issue an order in this
proceeding by December 15, 1997. A thirty day notice period is
appropriate since this Application does not involve a merger or
similar transaction.
II. BACKGROUND
NYSEG is a combination gas and electric utility engaged
principally in the generation, transmission, distribution and
sale of electric energy and the transportation, distribution of
natural gas in parts of central, eastern and western New York.
NYSEG provides electricity to more than 804,000 customers and
natural gas to more than 235,000 customers. NYSEG's wholesale
rates and services are regulated by the Commission and retail
rates and services are regulated by the NYPSC. Both NYSEG and
XENERGY have received authorization from the Commission, by Order
dated June 9, 1997, to sell wholesale power at market-based
rates.
The proposed Reorganization is in response to the
"Competitive Opportunities" proceeding instituted by the NYPSC in
Case No. 94-E-0952, which addresses the future structure of the
____________
{5} GenSub may initially be a subsidiary of NYSEG and as part of
the proposed Reorganization be transferred by NYSEG to HoldCo.
{6} Although it is not contemplated that GenSub will auction any
Commission-jurisdictional assets, if it does, GenSub will file a
subsequent FPA Section 203 application at a later time prior to
the transfer.
electric utility industry in New York State. In NYPSC Opinion
No. 96-12, issued May 20, 1996, the NYPSC required NYSEG to file
a restructuring plan consistent with the NYPSC's policy and
vision for increased competition. The restructuring plan was
required to address, among other things, the structure of the
utility, both in the short and long term, a schedule for the
introduction of retail access and a rate plan to be effective for
a significant portion of the transition.
On September 27, 1996, NYSEG submitted to the NYPSC its
rate and restructuring proposal, called NYSEGPlan, which
contemplated the functional separation of NYSEG's generation
business from its electric delivery business. Parties to the
NYSEGPlan proceeding (Case No. 96-E-0891) including NYPSC Staff,
expressed a preference for a structural separation of the
generation business and on December 19, 1996, NYSEG filed a
petition with the NYPSC pursuant to which NYSEG sought authority
to form a holding company with a structural separation of
designated NYSEG fossil generation assets from the PSC-regulated
utility business. The NYPSC subsequently notified the company
that the holding company petition would be addressed in the
NYSEGPlan proceeding. Case 96-E-0891, Notice to the Parties
(issued January 7, 1997).
On July 28, 1997, NYSEG and the Staff of the NYPSC
entered into a Joint Statement of Principles to Govern the
Settlement Agreement ("Statement of Principles") which sets forth
the terms and conditions of the proposed Reorganization. The
Statement of Principles serves as the basis for a Settlement
Agreement ("Settlement Agreement"), which is subject to PSC
approval. On August 20, 1997, a copy of the Settlement Agreement
was sent out jointly by NYSEG and the NYPSC Staff to all
participants in the NYSEGPlan proceeding for their approval.
NYSEG does not expect material modifications to be made to the
Settlement Agreement by the NYPSC. Copies of NYSEG's December
19, 1996 Petition to the PSC, the Statement of Principles and the
Settlement Agreement are attached hereto as Exhibits G-1, G-2 and
G-3 respectively.
The restructuring plan reflects years of careful
negotiation in a multi-party collaborative process, fostered by
the NYPSC itself, to create a fully competitive environment for
the supply of electricity, at both wholesale and retail, to
benefit customers throughout New York State. The structure
proposed herein is the most effective means of maximizing
competition, as part of a coordinated statewide effort under the
direction of the NYPSC.
III. PROPOSED REORGANIZATION
The restructuring into a holding company structure will
be accomplished through an exchange (the "Share Exchange") of
each outstanding share of common stock of NYSEG for one share of
common stock of HoldCo pursuant to an Agreement and Plan of Share
Exchange to be entered into between NYSEG and HoldCo. As a
result of the Share Exchange and subject to the rights, if any,
of the holders of NYSEG's Common Stock to exercise their
appraisal rights, each outstanding share of common stock of NYSEG
will automatically be exchanged and, without any further action,
will thereafter represent one share of common stock of HoldCo.
After the establishment of GenSub, the Generation Assets will be
transferred to GenSub in accordance with the NYPSC's order
approving the terms and conditions of the Settlement Agreement.
Attached to this Application as Appendix A are diagrams
showing NYSEG's corporate structure prior to and after the
creation of the holding company structure.
The Settlement Agreement contemplates an ultimate
auction of the Generation Assets, in which GenSub, as well as
third parties, can participate. The auction process is further
described in Article V. 1. of the Settlement Agreement, attached
hereto as Exhibit G-3.
IV. TRANSFER OF POWER SALES AGREEMENTS AND TARIFF
To the extent required, NYSEG hereby requests
authorization under Section 203 of the FPA to transfer all of
NYSEG's wholesale power sales agreements and its power sales
tariff from NYSEG to GenSub effective upon the transfer of the
Generation Assets to GenSub, as more fully described and with the
exceptions noted below. NYSEG has many Commission-accepted power
sales agreements and a power sales tariff. In addition, NYSEG
has provided over 140 prospective customers with service
agreements for their review and execution. NYSEG will continue
to transact under new agreements as mutually beneficial
opportunities arise for NYSEG and new customers.
Most of NYSEG's power sales are supported by the coal-
fired generation that will be transferred to GenSub or by NYSEG's
marketing function that will also be transferred to GenSub. Upon
this transfer, continued participation of those resources in the
wholesale power market will most efficiently be facilitated by
the substitution of GenSub in place of NYSEG with respect to the
power sales agreements and tariffs, except for three agreements
pursuant to which NYSEG has transactions and NYSEG's borderline
sales agreements that will continue beyond the transfer of the
Generation Assets. These contracts will remain with NYSEG.
Only to the extent required, NYSEG also requests
authorization to transfer by assignment that part of an agreement
between GPU and NYSEG dated May 1, 1969 which provides for the
operation and maintenance of the Homer City Electric Generating
Station. By letter of December 30, 1993, in Docket No. ER94-298-
000, NYSEG filed a certificate of concurrence with respect to
GPU's filing of the agreement. As noted in NYSEG's filing
letter, NYSEG does not provide any jurisdictional services under
the agreement, and Pennsylvania Electric Company is the operating
co-tenant. To the extent the agreement concerns the operation
and maintenance of the Generating Assets, NYSEG seeks authority
to transfer the agreement, but only to the extent required under
FPA Section 203.
NYSEG proposes that it make a subsequent "compliance
filing" in which NYSEG will file all necessary notices of
succession under Section 35.16 of the Commission's Regulations,
18 C.F.R. SS 35.16 (1997) in response to any Commission order
authorizing the formation of the holding company. This
"compliance filing" would consist, among other things, of the
following:
a) A restated power sales tariff (FERC Electric Rate
Schedule No. 1) substituting GenSub for NYSEG and
a notice of succession;
b) Restated service agreements substituting GenSub
for NYSEG and a notice of succession for all power
sales tariff service agreements transferred to
GenSub; and
c) Restated agreements substituting GenSub for NYSEG
and a notice of succession for all umbrella power
sales agreements that are not pursuant to the
power sales tariff and that are to be transferred
to GenSub.
The specific agreements to be transferred to GenSub are
identified in Appendix B hereto, which lists all service
agreements under NYSEG's power sales tariff (FERC Electric Rate
Schedule No. 1) and Appendix C hereto, which lists the umbrella
power sales agreements.{7} The lists show the purchasers in
alphabetical order, the Docket Numbers for the filings with the
Commission, and the rate schedules designated by the Commission.
Additionally, NYSEG requests authorization to transfer
certain power sales tariff service agreements and umbrella
agreements ("New Agreements") that it enters into up to and until
the time NYSEG transfers the Generating Assets to GenSub (the
"Transfer Date"). The Commission's authorization is critical.
Consummation of the proposed Reorganization may not occur until
approval of this Commission, the Nuclear Regulatory Commission
("NRC") and the Securities and Exchange Commission ("SEC") is
obtained. Consequently, several months could go by during which
new customers want to buy power from NYSEG. NYSEG will enter
into these New Agreements and file them with the Commission. For
each new power sales tariff service agreement/umbrella agreement
entered into from the date of this Application through the
____________
{7} Appendix C also includes one transaction-specific rate
schedule described below. Appendices B and C do not list the
agreements noted above that will remain with NYSEG.
<PAGE>
Transfer Date, NYSEG will indicate in its filing letter with the
Commission that the agreement is the subject of this pending FPA
Section 203 Application. By allowing NYSEG to transfer these New
Agreements to GenSub on the Transfer Date, NYSEG's resources will
remain seamlessly in the market place, and NYSEG and the
Commission can administer the transfer in the compliance filing.
This procedure would avoid cumbersome and time consuming
amendments under FPA Section 203. The Commission's grant of
authority under FPA Section 203 could be conditional on the New
Agreements being similar to the other agreements identified in
this Application so the Commission need not be concerned that the
New Agreements would raise new issues for purposes of the
Commission's FPA Section 203 review. Moreover, the Commission
will review each agreement under FPA Section 205 as it is filed,
as noted, with a clear identification of whether the agreement is
the subject of this pending Section 203 request.
With the exception of Rate Schedule FERC No. 111 (an
agreement to sell up to 30 MW to Town of Massena), all of the
agreements being transferred to GenSub are enabling or umbrella
agreements or service agreements under NYSEG's power sales tariff
that do not require either party to enter into transactions. The
parties enter into transactions only when it is mutually
beneficial to do so for economic reasons. All of NYSEG's power
sales under the agreements and tariff to be assumed by GenSub
were or will be negotiated at arm s length. All of the
agreements contain Mobil-Sierra clauses pursuant to which neither
NYSEG nor the customer unilaterally may seek a change in the
negotiated rates applicable to any transactions. None of the
negotiated rates is based on cost-based formulae in which the
cost inputs would be affected by the restructuring. Moreover,
NYSEG has not been a traditional wholesale requirements supplier
to any customers.{8} Accordingly, neither NYSEG nor GenSub will
seek to change the rates applicable to any existing transactions
under these power sales agreements and the tariff.
If GenSub later were to assign any power sales
agreements to a party buying one or more of the Generation
Assets, then a separate filing with the Commission would be
necessary; this Application does not request authority to effect
such a transfer or succession. After the auction, GenSub may
continue to own one or more of the Generation Assets. GenSub may
also purchase other generators and will enter into power purchase
agreements as part of its power marketing and trading function.
Consequently, GenSub may not assign all power sales agreements{9}
after GenSub concludes the auction of the Generation Assets.
____________
{8} The New York Power Authority has been the exclusive power
supplier for most of New York's municipal and cooperative
customers, including all of those interconnected to NYSEG.
{9} At this time, however, only one transaction that extends
beyond the time that the auction should be completed will be the
subject of a notice of succession from NYSEG to GenSub, and that
transaction is for no more than 30 MW. This transaction will
represent a small portion of GenSub's trading activity.
NYSEG's power sales tariff, which GenSub will assume,
provides that it is not available for the sale of power to
affiliates. If GenSub were to sell power to NYSEG, prior to any
such transaction, GenSub would be required to make a separate
filing under Section 205 of the FPA (and would also have to make
a filing with the NYPSC). Any such sale would be for the maximum
period extending to August 1, 1999, the date established for the
closing of the sale of plant pursuant to the above-described
auction of plant held by GenSub.
The power sales tariff also currently requires NYSEG's
merchants (and will require GenSub upon its assumption of the
tariff) to obtain any NYSEG transmission services in the same
manner as any non-affiliated customers (e.g., on OASIS)
consistent with NYSEG's transmission protocols applicable to
nonaffiliated customers under Order Nos. 888 and 889. NYSEG's
standards of conduct and Order No. 889 also address transmission
access and information issues and will govern the GenSub-NYSEG
relationship. NYSEG's affiliate XENERGY also has a market-based
power sales tariff (FERC Electric Rate Schedule No. 1) accepted
in Docket No. ER97-2517-000. In that Docket, NYSEG committed to
a code of conduct that, by its terms, applies to NYSEG's
relationship with other affiliates as well as XENERGY. If NYSEG
were to propose any changes to these existing requirements (which
it does not currently propose), it would require a separate
filing with the Commission.
Based on the above discussion, the assignment of
NYSEG's power sales agreements and tariff to GenSub will not
result in any changes in rates applicable to any Commission-
jurisdictional transactions and shall not result in the
cancellation of any Commission-jurisdictional service.
V. PUBLIC INTEREST STANDARDS
The Commission routinely has found that reorganizations
involving the creation of holding companies are consistent with
the public interest.{10} NYSEG submits that its proposed
Reorganization is consistent with the public interest. The
Reorganization, which satisfies the electric industry
restructuring goals established by the NYPSC, alleviates concerns
about potential vertical market power in generation and
facilitates the auction required by the Settlement Agreement.
Structural separation of generation and the auction is expected
to promote greater competition in generation. The proposed
Reorganization furthermore strengthens the organization by
establishing a more appropriate corporate structure for the
____________
{10} See, e.g., Pennsylvania Power & Light Company, 69 FERC
P.62,267 (Issued December 30, 1994); Commonwealth Edison Company,
63 FERC P.62,049 (Issued July 15, 1994); Illinois Power Company,
67 FERC P.61,136 (Issued May 3, 1994); Central Vermont Public
Service Corporation, 39 FERC P.61,295 (1987); Kentucky Utilities
Company and Old Dominion Power Company, 47 FERC P.61,271 (1989).
<PAGE>
pursuit of unregulated non-utility business activities.
Increased flexibility as a result of the Reorganization is
expected to enhance the long-term financial strength of NYSEG.
As the Commission is well aware, deregulation and
competition are reshaping the utility marketplace and changing
the nature of the electric utility business. After extensive
investigation and analysis, NYSEG has determined that the holding
company structure, including the disaggregation of the Generation
Assets, offers the best means of positioning itself for future
changes and opportunities and will enable it to take advantage of
emerging business opportunities to the benefit of both
shareholders and customers.
The holding company structure is a vehicle for the
company to begin operating in a competitive environment while
minimizing concerns about vertical market power. NYSEG's coal-
fired generation that is competing in the market, which amounts
to 90% of NYSEG's aggregate generation plant, will be in a
different company than its transmission, distribution, and
control center. The holding company structure also facilitates
the unbundling of rates for purposes of NYSEG's aggressive retail
access program. Under the restructuring plan, retail access
charges will include a competitive transition charge.
Disaggregation of the Generation Assets will facilitate a
competitive generation market and the proposed auction sale and
is also an integral part of the process of stranded cost
mitigation. Upon the transfer to GenSub, a regulatory asset of
NYSEG will be created for the difference between the book value
of the coal-fired plants and the fair value determined in
accordance with NYSEG's mortgage bond indenture for purposes of
obtaining the release of the property from the lien of the
mortgage. Upon a subsequent sale of the coal-fired plants
pursuant to the auction process, such regulatory asset will be
adjusted to reflect the after-tax auction proceeds. After the
auction, there will be no further readjustment of the regulatory
asset.
Furthermore, through its non-regulated subsidiaries,
HoldCo will be in a position to quickly take advantage of
increasing opportunities in non-utility activities.
The holding company structure is a well-established
form of organization for those companies conducting multiple
lines of business. It is a common form of organization for
unregulated companies and for regulated companies, such as
telephone utilities and water utilities, which are not subject to
the Public Utility Holding Company Act of 1935, as amended
("PUHCA"). In addition, the holding company structure is
utilized by many electric utilities that are involved in
unregulated activities. NYSEG wishes to be in a position to take
advantage of business opportunities that may present themselves,
and desires to do so by utilizing the most efficient and
effective corporate structure.
The benefits of a holding company structure are well
established. A holding company structure enables the holding
company to participate in unregulated businesses in a timely
manner, and fully separates the operations of regulated and
unregulated businesses. As a result, it provides protection to
ratepayers and a better structure for regulators to assure that
there is no cross-subsidization of costs or transfer of business
risk from unregulated to regulated lines of business. A holding
company structure also makes it easier for investors to analyze
and value individual lines of business. Moreover, the use of a
holding company structure provides legal protection against the
imposition of liability on regulated utilities for the results of
unregulated business activities. In short, the holding company
structure is a highly desirable form of conducting regulated and
unregulated businesses within the same corporate group.
Furthermore, the proposed Reorganization is in the
public interest as evaluated against the three factors set forth
in the Commission's recently issued Merger Policy Statement: (1)
effect on competition, (2) effect on rates, and (3) effect on
regulation.{11} As more fully demonstrated below, the proposed
Reorganization: (1) does not raise competitive issues; (2) does
not adversely affect wholesale power sales or transmission rates;
and (3) does not adversely impact on the ability of the
Commission or state regulators to regulate the jurisdictional
entities.
A. THE PROPOSED RESTRUCTURING WILL NOT HAVE
AN ADVERSE EFFECT ON COMPETITION.
The proposed Reorganization will not have an adverse
effect on competition in wholesale electric markets. In fact,
the proposed Reorganization is being effected substantially as a
response to the NYPSC's Competitive Opportunities proceeding
designed to increase competitive choices for New York ratepayers.
The NYPSC has strongly urged the formation of a separate
generation company and ultimately the divestiture of generation.
The proposed structural separation of designated generation
assets will further reduce any potential vertical market power
concerns, facilitate an open auction of such assets, and thus
____________
{11} Order No. 592, Inquiry Concerning the Commission's Merger
Policy Under the Federal Power Act; Policy Statement, Docket No.
RM96-6-000, 61 Fed. Reg. 68,595, 68,605 (issued December 18,
1996) ("Merger Policy Statement"). The Merger Policy Statement
addresses public utility mergers subject to the Commission's
jurisdiction under Section 203(a) of the FPA. While the instant
Application does not involve a "merger" between electric public
utilities, but rather the reorganization of an electric public
utility, NYSEG has addressed each of the criteria set forth in
the Merger Policy Statement to demonstrate that the
Reorganization is in the public interest.
<PAGE>
enhance competition. It is an integral part of the movement to
retail competition. With a separate company owning NYSEG's coal-
fired generation, with separate books and records, even before
auction, vertical separation of the generation business will be
enhanced.
Creation of a holding company will also not create any
horizontal market power issues. NYSEG has submitted two market
power analyses to the Commission recently - one applicable to
the current market structure (filed in Docket No. ER97-2518-000
on April 11, 1997); and one applicable to the market structure
proposed in the New York Independent System Operator ("NYISO")
filing (filed in Docket No. ER97-1523-000 on August 15, 1997).
In NYSEG, 79 FERC P.61,303 (June 9, 1997), the Commission found
that NYSEG could not exercise market power in generation or
transmission and authorized NYSEG and XENERGY to make wholesale
power sales at market-based rates.
The division of NYSEG's generation into NYSEG and
GenSub will not increase NYSEG's (or HoldCo's) share of
generation in the market. No change in concentration in total
generation ownership can occur as a result of the formation of
GenSub. Moreover, GenSub is being formed as part of a
restructuring that requires the auction of all of GenSub's
Generation Assets, which if anything would result in a decrease
in NYSEG (or HoldCo) affiliates' generation ownership. It is
clear that the formation of the holding company and GenSub will
cause no change in NYSEG affiliates' aggregate generation
ownership.
The transfer of the Generation Assets to GenSub would
occur after release of such assets from the lien of NYSEG's
mortgage indenture. Upon such transfer, NYSEG will require
substantial capacity and energy in order to satisfy its native
load and installed reserve requirements. As a transitional tool
prior to the events described below or completion of the auction,
GenSub may supply NYSEG with necessary capacity and energy
pursuant to a contract that would be filed with the Commission
under FPA Section 205 and that would also be subject to NYPSC
review under New York Public Service Law Section 110(4).{12}
While a combination of GenSub and NYSEG generation satisfy
NYSEG's load and installed reserve requirements, the holding
company and its affiliates will have the same amount of total and
uncommitted capacity that NYSEG has today (prior to formation of
the holding company). Accordingly, the Commission can authorize
NYSEG to transfer its power sales tariff, including market-based
rate authorization, to GenSub without an additional market power
____________
{12} As noted below, the GenSub supply arrangment would only be
necessary to the extent and for the period that the energy and/or
capacity markets are not sufficiently liquid to economically
satisfy NYSEG's "new demand".
<PAGE>
analysis. Any necessary GenSub-NYSEG contract would result in
unchanged total and uncommitted capacity shares for the holding
company, making it reasonable to rely on the market power
analysis that was submitted in Docket No. ER97-2518-000. On a
holding company basis, nothing will have changed with respect to
market shares of total capacity or uncommitted capacity.
The NYPSC has expressed its preference that as much
generation as possible compete to serve load within New York
State as soon as possible. The proposed Reorganization
represents a fundamental pro-competitive shift in business
structure that will serve the goals of the NYPSC. NYSEG has
agreed to separate its coal-fired generation in a separate
corporation and to subject this generation to the market as soon
as reasonably practicable. It has also agreed to satisfy its
load requirements (above the hydro, nuclear and NUG capacity)
from the market in the same time frame. When the NYISO market
structure is implemented, there will be a liquid wholesale energy
market into which GenSub will sell and from which NYSEG will buy
with no need for supply between the two for energy. As soon as
the installed capacity market is sufficiently liquid to satisfy
NYSEG's requirements without relying on GenSub (at or before
completion of the auction), a GenSub supply agreement for
capacity will no longer be required.{13} Exactly when this point
occurs will depend on several exogenous factors, including (a)
when other utilities structurally separate ("decommit")
generation from load for purposes of installed capacity
requirements; (b) when restructured NUG contracts result in more
uncommitted generation; and (c) implementation of retail access
by utilities in New York.
When NYSEG has sufficient options, it will satisfy its
energy and installed capacity requirements from the market, and
GenSub will sell its energy and installed capacity into the
market. At that point, the market will be the new market
structure described in the August 15, 1997 NYISO filing. NYSEG
does not propose to address the new market structure here. The
proposed market structure and market rate authorization in the
New York ISO environment are the subject of NYSEG and other NYISO
proponents' August 15th filing in which NYSEG analyzed the new
market structures, including a NYSEG holding company. While the
analyses demonstrate that the proposed market structure will be
workably competitive, the Commission, however, need not decide
the merits of the market power analysis in the NYISO Docket to
rule on the instant Application. The NYISO market analysis would
be relevant to whether NYSEG/GenSub authorization to use market
rates should apply in the NYISO market, but not whether to
authorize a corporate restructuring.
____________
{13} Due to one local load pocket, one unit at NYSEG's Milliken
Generating Station is required to run at a minimum output for
NYSEG to operate reliably during a limited number of hours each
year. Consequently, a limited contract will be required after
the auction is completed. This contract is described more fully
in NYSEG's August 15, 1997 NYISO filing.
Based on the foregoing, NYSEG does not believe that
additional market power analysis is necessary in this Docket.
This case does not involve a merger of two separate companies
with separate generation resources. In contrast, this
Application involves the disaggregation of generation, leading up
to the auction of the company's coal-fired generating assets.
Moreover, formation of the holding company structure proposed
herein offers greater separation between NYSEG's wholesale power
marketing and generation functions from its transmission and
distribution functions. Accordingly, the Application does not
raise any vertical market power concerns. Under the
circumstances, a Merger Policy Statement Appendix A competitive
analysis is not needed.
After the Reorganization, NYSEG will continue to
conduct its business under the non-discriminatory rates and terms
of service that it currently is using. The proposed
Reorganization does not enhance the ability of NYSEG to exercise
market power in any geographic or product market. See Enova
Corporation and Pacific Enterprises, 79 FERC P.61,107 (1997).
Furthermore, as stated previously, it is anticipated that a
holding company structure will allow NYSEG and its affiliates to
more effectively compete in today's energy market place.
B. THE PROPOSED RESTRUCTURING WILL NOT ADVERSELY
AFFECT RATE LEVELS.
In cases involving corporate reorganizations, the
Commission has analyzed whether the utility and non-utility
businesses are adequately separated in order to protect the
utility's ratepayers from detriments that may result from the
non-regulated activities of the parent.{14} In the instant case,
the structural separation of regulated and unregulated activities
provides the necessary protection for NYSEG's ratepayers. The
agreement of the NYPSC Staff to the proposed restructuring should
suffice to alleviate any concern the Commission might otherwise
have in this regard. Furthermore, the Settlement Agreement
contains numerous safeguards to prevent NYSEG's customers from
being harmed by the non-regulated activities of HoldCo and its
subsidiaries. Such safeguards are discussed in Article VII of
the Settlement Agreement, attached hereto as Exhibit G-3. In
addition, GenSub will file a Code of Conduct which fully complies
with the Commission's regulations governing affiliate
transactions and the sharing of information as part of any FPA
Section 205 filing to be made by GenSub.
As discussed in Article IV above, the proposed
Reorganization will not have any effect on existing power sales
rates. NYSEG already has market-based rate authority and is free
to negotiate prices dictated by the market. Any cost impacts on
____________
{14} See e.g., Central Vermont, 39 FERC at p. 61,960; Kentucky
Utilities, 47 FERC at p. 61,948.
<PAGE>
NYSEG resulting from the proposed Reorganization will not have
any effect on the market-based rates of NYSEG insofar as these
rates are market-driven rather than cost-derived. NYSEG's
authority to sell power at market-based rates is based on a
finding that it lacks market power in generation and transmission
and can erect no other barriers to entry. As discussed in
Section A of Article V above, the proposed Reorganization will
not provide the company with any opportunity or ability to
exercise market power. Accordingly, the proposed Reorganization
will not affect prospective or future power sales rates.
NYSEG is not requesting any rate increase as a part of
this Application. All of the power sales contracts being
transferred are at fixed rates, the terms and provisions of which
may not be changed. In addition, these rates are not based upon
cost-based rate formulae in which cost inputs would be affected
by the restructuring. Therefore, it is also not possible for
NYSEG to increase rates with respect to these contracts as a
result of the proposed Reorganization.
NYSEG, furthermore, agrees that it will not recover any
transaction costs associated with the proposed Reorganization
through its transmission rates. NYSEG's transmission rates will
not be influenced by the proposed Reorganization, except for non-
compulsory ancillary services that are generation-based. It
would be reasonable to expect a change in the cost factors
applied to these services, absent the New York ISO tariff (filed
in FERC Docket No. ER97-1523-000), which should be effective
around the time that the transfer to GenSub occurs. If the ISO
tariff is in effect, then ancillary services will be provided
consistent with the ISO tariff. If it is not in effect, NYSEG's
ancillary service charges would not be adversely affected because
they are generation-based services and subject to market
discipline. Notwithstanding this fact, NYSEG commits to evaluate
its generation-based ancillary service charges and to file a rate
change under FPA Section 205 if it determines that its costs of
these services decrease as a result of the transfer.
The Commission has held that, in merger proceedings,
the Commission's role is to "remedy only specific harms resulting
from a proposed transaction and, therefore, the affected utility
must establish a nexus between the proposed transaction and the
alleged harm." Duke Power Company and PanEnergy Corp., 79 FERC
P. 61,236 at p. 62,041 (1997). Therefore, to be entitled to
relief regarding rates in a merger context, a party should
demonstrate that the merger could have some adverse effects on
rates. Id. and see Enron Corp. and Portland General Corporation,
78 FERC P. 61,197 at p. 61,739 (1997). Given the nature of the
contracts involved in the present case, and the commitments made
by NYSEG herein, it is highly unlikely that a party could
demonstrate that this restructuring would have an adverse effect
upon wholesale rates.
<PAGE>
C. THE PROPOSED RESTRUCTURING WILL NOT IMPAIR THE
EFFECTIVENESS OF STATE OR FEDERAL REGULATION.
The regulatory concerns noted in the Merger Policy
Statement are not concerns raised by the proposed Reorganization
insofar the effectiveness of government regulation of NYSEG and
XENERGY will not be impaired and no "regulatory gap" will be
created. Following the Reorganization, NYSEG will continue to be
subject to the jurisdiction of both this Commission and the NYPSC
while the Commission will continue to exercise regulatory
authority over XENERGY. The Commission's prior orders granting
the market-based rate authority of NYSEG and XENERGY will remain
in effect. In their market-based rate filings, NYSEG and XENERGY
have agreed to a code of conduct which the Commission in its June
9, 1997 Order has indicated satisfies the Commission's
requirements with respect to affiliate transactions. Such Code
of Conduct will remain in effect.
Furthermore, because approval of the NYPSC is required
in order for NYSEG to effect the proposed Reorganization, the
NYPSC, therefore, can exercise its authority to adequately
protect its state regulatory interests.
In addition, the concerns of the Commission relating to
the impairment of regulation under the Ohio Power decision are
not applicable to the instant situation since HoldCo will not be
a registered holding company under PUHCA{15}. HoldCo will
qualify for an exemption from registration under PUHCA as a
"predominately intrastate" public utility holding company, under
Section 3(a)(1) of PUHCA. Since HoldCo will not be a registered
holding company under PUHCA, there will be no shift of regulatory
authority from the Commission to the SEC. The Commission will
continue to have jurisdiction over HoldCo's FPA-jurisdictional
subsidiaries to the same extent as it does today. See Long
Island Lighting Company, 80 FERC P. 61,035 (1997); Enron
Corporation and Portland General Corporation, 78 FERC P. 61,179
(1997) (impairment of regulation relating to the SEC's
jurisdiction over registered holding companies is not an issue
where the utility qualifies as an exempt intrastate holding
company exempt from SEC jurisdiction under PUHCA).
____________
{15} Ohio Power v. FERC, 954 F.2d 779, 782-86 (D.C. Cir. 1992),
cert. denied, 498 U.S. 73 (1992)
<PAGE>
Lastly, GenSub, insofar as it will engage in FERC
jurisdictional activity, will make all appropriate filings with
the Commission and become subject to the jurisdiction of this
Commission. The Commission will at that time have the
opportunity to address any issues arising out of such activity.
For the foregoing reasons, NYSEG's proposed
Reorganization is compatible with the public interest and should
be authorized by the Commission.
<PAGE>
VI. SUPPORTING INFORMATION
In support of this Application, and pursuant to 18
C.F.R. P. 33.2, NYSEG states the following:
a. The exact name and the address of the Applicant's
principal business office and each company whose activities are
involved:
New York State Electric & Gas Corporation
4500 Vestal Parkway East
P.O. Box 3607
Binghamton, New York 13902-3607
HoldCo, Inc.
4500 Vestal Parkway East
P.O. Box 3607
Binghamton, New York 13902-3607
b. Names and addresses of persons authorized to receive
notices and communications concerning this Application:
Daniel W. Farley
Vice President and Secretary
New York State Electric & Gas Corporation
4500 Vestal Parkway East
P.O. Box 3607
Binghamton, New York 13902-3607
(607) 762-5901
Stuart A. Caplan, Esq.
Taras G. Borkowsky, Esq.
Huber Lawrence & Abell
605 Third Avenue, 27th Fl.
New York, New York 10158
(212) 682-6200
Sam Behrends, IV, Esq.
Bruce W. Neely, Esq.
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
1875 Connecticut Avenue, N. W.
Washington, DC 20009
(202) 986-8000
c. Designation of the territories served, by counties and
States:
NYSEG is engaged principally in the business of
generating, purchasing, transmitting and distributing
electricity, and purchasing, transporting and distributing
natural gas. NYSEG's service territory, 99% of which is located
outside the corporate limits of cities, is in the central,
eastern and western parts of the State of New York. NYSEG's
service territory has an area of approximately 19,600 square
<PAGE>
miles and a population of 2,400,000. The largest cities in which
NYSEG serves both electricity and natural gas are Binghamton,
Elmira, Auburn, Geneva, Ithaca and Lockport. The following
counties in New York are all of the counties in which NYSEG
provides retail electric services: Alleghany, Broome,
Cattaraugus, Cayuga, Chautauqua, Chemung, Chenango, Clinton,
Columbia, Cortland, Delaware, Dutchess, Erie, Essex, Franklin,
Greene, Hamilton, Herkimer, Livingston, Madison, Niagara, Oneida,
Onondaga, Ontario, Orange, Otsego, Putnam, Rensselaer, Saratoga,
Schoharie, Schuyler, Seneca, Steuben, Sullivan, Tioga, Tompkins,
Ulster, Washington, Wayne, Westchester, Wyoming, and Yates.
d. General statement briefly describing the facilities
owned or operated for transmission of electric energy in
interstate commerce or for the sale of electric energy at
wholesale in interstate commerce:
As of December 31, 1996, NYSEG's electric transmission
system consisted of approximately 4,840 circuit miles of line.
The electric distribution system consisted of 33,724 pole miles
of overhead lines and 2,025 miles of underground lines. NYSEG
also owns 433 substations having an aggregate transformer
capacity of 13,367,720 kilovolt-amperes. With the exception of
transmission facilities owned by NYSEG in Pennsylvania in
connection with its Homer City generation station, all of NYSEG's
electric transmission facilities are located in the State of New
York.
e. Whether the application is for disposition of
facilities by sale, lease, or otherwise, and a description of the
consideration, if any, and the method of arriving at the amount
thereof:
The "disposition of facilities" deemed to occur solely
from the creation of a holding company over NYSEG through the
mechanism of the Share Exchange does not involve any
consideration or sales price.
The transfer of the Generation Assets to GenSub will be
in accordance with the terms and conditions set forth in Article
V 1. g. of the Settlement Agreement, attached hereto as Exhibit
G-3. The "fair value" of the coal-fired plants will be
determined in accordance with NYSEG's mortgage bond indenture for
purposes of obtaining the release of such property from the lien
of such indenture. Upon transfer to GenSub, a regulatory asset
of NYSEG will be created for the difference between the book
value of the coal-fired plants and the fair value determined in
accordance with the mortgage bond indenture. Such regulatory
asset will then be adjusted subsequently upon a sale or transfer
based on the cash proceeds resulting from the auction process,
net of tax, auction and transaction costs. After the auction,
there will be no further adjustment of the regulatory asset.
<PAGE>
Attached hereto as part of Exhibits C, E and F are
proforma historical balance sheet, income statements and retained
earnings statements for HoldCo, NYSEG and GenSub. Since the
mortgage bond indenture valuation process has not yet taken
place, the proforma financial statements have been prepared on
the assumption that the coal-fired plants were transferred at
book value.
f. Statement of the facilities to be disposed of, giving a
description of their present use and proposed use after
disposition. State whether the proposed disposition includes all
the operating facilities of the parties to the transactions:
The creation of a holding company over NYSEG is deemed
to be a "disposition" for purposes of the FPA of all of NYSEG's
facilities, including all operating facilities. However, after
the holding company structure is implemented, title, possession
and use of all utility property, will be held by NYSEG or GenSub,
both of which will be wholly owned subsidiaries of HoldCo.
Furthermore, ultimate control of NYSEG and GenSub will remain in
the hands of the NYSEG common shareholders who are such
shareholders immediately prior to consummation of the Share
Exchange (other than shareholders who properly exercise their
appraisal rights, if any) since after the Share Exchange, those
NYSEG common shareholders will own all of HoldCo's outstanding
common stock and HoldCo will in turn own all of the outstanding
common stock of NYSEG and GenSub.
The Generation Assets transferred by NYSEG consist of
the following coal fired power plants:
a) Kintigh Generating Station, located in Somerset, New
York (675 MW)
b) NYSEG's 50% interest in Homer City Generating
Station, Units 1, 2 and 3, located in Homer City,
Pennsylvania (945 MW)
c) Goudey Generating Station, Units 7 and 8, located in
Johnson City, New York (120 MW)
d) Greenidge Generating Station, Units 3 and 4, located
in Torrey, New York (163 MW)
e) Milliken Generating Station, Units 1 and 2, located
in Lansing, New York (296 MW)
f) Hickling Generating Station, Units 1 and 2, located
in Corning, New York (76 MW)
g) Jennison Generating Station, Units 1 and 2, located
in Bainbridge, New York (60 MW)
<PAGE>
Also included in the transfer are certain assets and liabilities
associated with these plants. Of the Generation Assets to be
transferred, the only FERC jurisdictional assets are the power
purchase agreements and arrangements described in Appendices B
and C hereof. No Commission-jurisdictional transmission
facilities are proposed to be transferred to GenSub.
g. Statement (in the form prescribed by the Commission's
Uniform System of Accounts for Public Utilities as Licensees) of
the cost of the facilities involved in the disposition:
After the proposed Reorganization, all of the physical
facilities currently owned by NYSEG will continue to be owned by
NYSEG and GenSub, and NYSEG and GenSub will be wholly owned
subsidiaries of HoldCo. Therefore, NYSEG incorporates herein by
reference the statements contained in its FERC Form No. 1 for the
year ended December 31, 1996, relating to the cost of NYSEG's net
utility plant.
h. Statement as to the effect of the proposed transaction
upon any contract for the purchase, sale, or interchange of
electric energy:
The impact of the Reorganization on existing NYSEG
contracts for the purchase, sale, or interchange of electric
energy is described in Article IV of this Application.
i. Statement as to whether any application with respect to
the transaction or any part thereof is required to be filed with
any other federal or state regulatory body:
The proposed Reorganization requires the approval of
the NYPSC, the SEC pursuant to PUHCA and the NRC. Copies of
NYSEG's December 19, 1996 Petition to the NYPSC, the Statement of
Principles and the Settlement Agreement are attached hereto as
Exhibits G-1, G-2 and G-3, respectively.
NYSEG intends to shortly file applications with the NRC
and the SEC for approval to effect the proposed Reorganization.
Copies of such applications will be submitted to FERC upon
availability. No similar application is required to be filed
with any other State or federal regulatory body.
j. The facts relied upon to show that the proposed
disposition will be consistent with the public interest:
Reference is hereby made to the prior discussion in
Article V of this Application.
<PAGE>
k. Brief statement of franchises held, showing date of
expiration, if not perpetual:
NYSEG has, with minor exceptions, valid franchises from
the municipalities in which it provides electric public utility
service. Descriptions of the franchise territories are attached
hereto as Appendix D. The proposed Reorganization does not
involve a transfer of any franchises and there will be no change
in franchised territories as a result of the proposed
Reorganization.
l. Form of notice suitable for publication in the Federal
Register, briefly summarizing the application in such a way as to
acquaint the public with its scope and purpose:
A form of Notice suitable for publication in the
Federal Register, pursuant to 18 C.F.R. SS 35.8, is attached
hereto as Appendix E. In addition, enclosed with this
Application is a 3 1/2" diskette containing the notice of filing
in Wordperfect 5.1 for DOS.
m. Required exhibits:
The following exhibits required by Section 33.3 of the
Commission's regulations are filed herewith, except as noted
below:
Exhibit A -- Resolutions of the Board of Directors.
Exhibit B -- A statement of the measure of control or ownership
exercised by or over each party to the transaction
as to any public utility, or bank, trust company,
banking association, or firm that is authorized by
law to underwrite or participate in the marketing
of securities of a public utility, or any company
supplying electric equipment to such party, and
the extent of any intercorporate relationships.
Exhibit C -- Balance sheets and supporting plant schedules for
the 12-month period ended December 31, 1996 on an
actual basis in the form prescribed for Statements
A and B of the FERC Annual Report Form No. 1. and
pro forma balance sheets.
Exhibit D -- A statement of all known contingent liabilities
except minor items such as damage claims and
similar items involving relatively small amounts,
as of the date of this application.
Exhibit E -- Income statements for the 12-month period ended
December 31, 1996 on an actual basis in the form
prescribed for Statement C of the FERC Annual
Report Form No. 1 and pro forma income statements.
<PAGE>
Exhibit F -- An analysis of retained earnings for the period
covered by the income statements referred to in
Exhibit E and pro forma retained earnings
statements.
Exhibit G -- Copy of the Petition filed with the NYPSC on
December 19, 1996, the Statement of Principles and
the Settlement Agreement.
Exhibit H -- Draft of the Agreement and Plan of Exchange
between NYSEG and HoldCo.
Exhibit I -- A map showing NYSEG's properties and
interconnections and the principal cities of the
area served.
WHEREFORE, New York State Electric & Gas Corporation
respectfully requests that the Commission approve this
Application and authorize the proposed corporate
Reorganization under the terms and conditions set forth herein.
Respectfully submitted,
NEW YORK STATE ELECTRIC &
GAS CORPORATION
By: Sherwood J. Rafferty
Sherwood J. Rafferty
Senior Vice President
and Chief Financial
Officer
Sam Behrends, IV, Esq. Stuart A. Caplan, Esq.
Bruce W. Neely, Esq. Taras G. Borkowsky, Esq.
LeBoeuf, Lamb, Greene Huber Lawrence & Abell
& MacRae, L.L.P. 605 Third Avenue
1875 Connecticut Avenue, N.W. New York, New York 10158
Washington, D.C. 20009 Telephone: (212) 682-6200
Telephone: (202) 986-8000 Counsel for New York State
Electric & Gas Corporation
August 29, 1997
EXHIBIT D-7
UNITED STATES OF AMERICA
BEFORE THE
NUCLEAR REGULATORY COMMISSION
NEW YORK STATE ELECTRIC & ) Docket No. 50-410
GAS CORPORATION ) Facility Operating License
No. NPF-69
REQUEST FOR CONSENT TO
CORPORATE REORGANIZATION
Sam Behrends, IV, Esq. Taras G. Borkowsky, Esq.
Paul Bonavia, Esq. Huber Lawrence & Abell
LeBoeuf, Lamb, Greene 605 Third Avenue
& MacRae, L.L.P. New York, New York 10158
1875 Connecticut Avenue, N.W. Telephone: (212) 682-6200
Washington, D.C. 20009 Counsel for New York
Telephone: (202) 986-8000 State Electric & Gas
Corporation
September 18, 1997
<PAGE>
UNITED STATES OF AMERICA
BEFORE THE
NUCLEAR REGULATORY COMMISSION
NEW YORK STATE ELECTRIC & ) Docket No. 50-410
GAS CORPORATION ) Facility Operating License
) No. NPF-69
REQUEST FOR CONSENT TO
CORPORATE REORGANIZATION
I. INTRODUCTION
New York State Electric & Gas Corporation ("NYSEG") hereby
requests consent, under 10 C.F.R. SS 50.80, to the transfer of
control of its possessory license with respect to the Nine Mile
Point Nuclear Station, Unit No. 2 ("Nine Mile 2") located in
Scriba, New York. NYSEG is a New York corporation which is an
18% co-owner of Nine Mile 2 and which is presently engaged
principally in the generation, purchase, transmission,
distribution and sale of electric energy and the purchase,
transportation, distribution and sale of natural gas in parts of
central, eastern and western New York State. NYSEG is proposing
to reorganize in order to satisfy the requirements of the New
York Public Service Commission ("NYPSC") and to fulfill an
Agreement in Principle regarding, among other things, such
corporate reorganization signed on July 28, 1997 by NYSEG and
NYPSC Staff, as further detailed in a proposed comprehensive
Settlement Agreement reached on August 20, 1997.
The corporate reorganization ("Reorganization") will result
in the creation of a holding company over NYSEG{1}. Insofar as
the Nuclear Regulatory Commission ("NRC" or the "Commission") has
taken the position that a reorganization involving the creation
of a holding company over a NRC license holder requires
notification and approval pursuant to 10 C.F.R. SS 50.80 and
Section 184 of the Atomic Energy Act, as amended, NYSEG is hereby
filing this request for NRC approval of the formation of the
holding company.
The other co-owners of Nine Mile 2 are Niagara Mohawk Power
Corporation ("Niagara Mohawk"), Rochester Gas and Electric
Corporation, Central Hudson Gas & Electric Corporation and Long
Island Lighting Company. Pursuant to Section 2.B.(2) of Facility
Operating License No. NPF-69, NYSEG, as a possession licensee, is
licensed only to own an interest in the nuclear plant. NYSEG
does not have an operator's license with respect to Nine Mile 2.
The operator's license is held by Niagara Mohawk.
____________
{1} The name of the holding company has not yet been determined
and for purposes of this application it is referred to as HoldCo.
II. PROPOSED REORGANIZATION
The proposed Reorganization is in response to the
"Competitive Opportunities" proceeding instituted by the NYPSC in
1994, which addresses the future structure of the electric
utility industry in New York State. As part of the proceeding,
the NYPSC required NYSEG to file a restructuring plan consistent
with the NYPSC's policy and vision for increased competition.
The restructuring plan was required to address, among other
things, the structure of the utility, both in the short and long
term, a schedule for the introduction of retail access and a rate
plan to be effective for a significant portion of the transition.
On July 28, 1997, NYSEG and the Staff of the NYPSC entered
into a Joint Statement of Principles to Govern the Settlement
Agreement ("Statement of Principles") which sets forth the terms
and conditions of the proposed Reorganization. The Statement of
Principles serves as the basis for a Settlement Agreement
("Settlement Agreement"), which was distributed jointly by the
NYPSC Staff and NYSEG on August 20, 1997. The Settlement
Agreement is subject to NYPSC approval. NYSEG does not expect
material modifications to be made to the Settlement Agreement by
the NYPSC, and a copy of the approved Settlement Agreement will
be supplied to the NRC as soon as it is available. Copies of the
Statement of Principles and the Settlement Agreement (as
distributed by the NYPSC Staff and NYSEG on August 20, 1997) are
attached hereto as Exhibits A-1 and A-2, respectively. NYSEG has
also filed with the Federal Energy Regulatory Commission ("FERC")
an application seeking approval of the Reorganization, a copy of
which is attached hereto as Exhibit B.
Pursuant to the Reorganization, outstanding shares of
NYSEG's common stock (other than shares with respect to which
appraisal rights, if any, are properly exercised) will be
exchanged on a share-for-share basis for common stock of HoldCo.
Following the Reorganization, HoldCo will own all of the
outstanding common stock of NYSEG, and NYSEG will become a
regulated transmission and distribution subsidiary of HoldCo.
HoldCo, rather than NYSEG, will own, directly or indirectly, the
stock of any non-utility subsidiaries. The holding company
structure, therefore, will provide clear separation between
NYPSC-regulated NYSEG, and unregulated lines of business
conducted by HoldCo, thereby insulating the utility ratepayers
from any risks associated with the unregulated enterprises.
<PAGE>
As part of the Reorganization and to fulfill an obligation
under the Settlement Agreement, NYSEG will transfer to a wholly
owned subsidiary of HoldCo (collectively referred to in this
application as "GenSub"){2}, NYSEG's coal-fired fuel generation
facilities (collectively referred to in this application as
"Coal-fired Generation Assets"). The Coal-fired Generation
Assets to be transferred consist of NYSEG's seven coal-fired
power plants, representing approximately 2,335 MW of capacity,
with a net book value of approximately $1.2 billion as of
December 31, 1996. Also included in the transfer are certain
assets and liabilities associated with these plants.
The transfer of the Coal-fired Generation Assets to GenSub
will be in accordance with Article V 1. g. of the Settlement
Agreement, attached hereto as Exhibit A-2. The "fair value" of
the Coal-fired Generation Assets will be determined in accordance
with NYSEG's mortgage bond indenture for purposes of obtaining
the release of such property from the lien of such indenture.
Upon transfer to GenSub, a regulatory asset of NYSEG will be
created for the shortfall, if any, between the fair value
determined in accordance with the mortgage bond indenture and the
book value of the Coal-fired Generation Assets ("Regulatory
Asset").
The Coal-fired Generation Assets will be subject to a
subsequent auction process in which third parties as well as
GenSub can participate. The framework for the auction is
described in Article V of the Settlement Agreement, attached
hereto as Exhibit A-2. Based on the after-tax proceeds resulting
from the auction process, the Regulatory Asset will then be
adjusted accordingly. After the auction, there will be no
further adjustment of the Regulatory Asset. In the event that
the auction proceeds exceed the book value of the plants, any net
regulatory credit will be used to write down NYSEG s investment
in Nine Mile 2.
III. EFFECT OF PROPOSED REORGANIZATION
After the Reorganization, NYSEG, which is referred to as
"RegSub" in the Settlement Agreement, will continue to be an
electric utility engaged in the transmission, distribution and,
in the case of Nine Mile 2 and hydroelectric facilities, the
generation of electricity. NYSEG will continue to be regulated
by the NYPSC and the FERC.
____________
{2} GenSub will initially be a subsidiary of NYSEG and as part
of the proposed Reorganization will be transferred by NYSEG to
HoldCo. In addition to GenSub, NYSEG may create one or more
other generating subsidiaries.
<PAGE>
As shown below, the proposed Reorganization will not affect
NYSEG's qualifications as a possession licensee for Nine Mile 2,
will not affect the status of NYSEG as an "electric utility" for
purposes of decommissioning as that term is defined in 10 C.F.R.
SS 50.2 and is otherwise consistent with applicable provisions of
law, NRC regulations and NRC orders.
NYSEG's ownership interest in Nine Mile 2 will not be
changed by the Reorganization. The Nine Mile 2 ownership
interest will not be transferred to GenSub as part of the
proposed Reorganization, but will remain with NYSEG. After the
Reorganization, NYSEG will continue to be a co-owner of Nine Mile
2 and no actual transfer of the license or ownership interest in
Nine Mile 2 will be effected as part of the Reorganization.
NYSEG will continue to recover the costs of its ownership share
of Nine Mile 2 through the rate-making process.
NYSEG's retail utility operations are currently, and after
the Reorganization will remain, subject to regulation by the
NYPSC pursuant to the New York Public Service Law ("PSL"). The
PSL regulates, inter alia, NYSEG's retail rates and charges,
issuances of securities (other than short-term debt securities),
services, facilities, classification of accounts, transactions
with affiliated interests, and other matters.
NYSEG is also currently, and after the Reorganization will
remain, subject to wholesale regulation by the FERC as a "public
utility" as defined in Section 201(e) of the Federal Power Act,
16 U.S.C. 824(e). Using its interests in the nuclear facility
and its interests in its hydroelectric facilities, NYSEG will
continue to sell electric energy at wholesale to, and will
transmit electric energy in interstate commerce for, other
electric utilities under rate schedules approved by FERC, on a
cost of service, rate of return basis, in addition to making
market-based sales pursuant to FERC authority. NYSEG will
continue to own all of the transmission and distribution
facilities which it now owns and will continue to provide
transmission and distribution service on a cost of service, rate
of return basis.
In addition to the NYPSC and FERC applications previously
discussed, an application seeking appropriate approval of the
Securities and Exchange Commission under the Public Utility
Holding Company Act of 1935, as amended, in order to effect the
Reorganization will also be filed in the near future. The
creation of a holding company over NYSEG and its subsidiaries
will also require shareholder approval.
IV. NUCLEAR REGULATORY COMMISSION REVIEW
To assist the NRC in its review of this request, NYSEG is
providing information with respect to the following four specific
areas which have been the focus of the NRC's review in prior
cases involving the creation of holding companies over NRC
licensees:
1. The proposed Reorganization will not impair
NYSEG's ability to carry out its responsibilities
under its NRC possession license, or otherwise
affect the financial health of NYSEG.
The proposed Reorganization will not have an adverse impact
on NYSEG's ability to fulfill its responsibilities under its NRC
possession license. Specifically, the proposed Reorganization
will not adversely affect the ability of NYSEG to meet its
financial obligations with respect to the future operating and
capital requirements related to Nine Mile 2 or to meet its
funding obligations with respect to the eventual nuclear
decommissioning of Nine Mile 2.
In NRC Administrative Letter 96-02 (issued June 21, 1996),
the NRC addressed the future restructuring of the electric
utility industry and voiced concerns that NRC licensed entities
continue to have access to adequate funds so that funds are
available for safe reactor operation and the payment of
decommissioning costs. The same concerns were voiced by the NRC
in its recently issued "Final Policy Statement on the
Restructuring and Economic Deregulation of the Electric Utility
Industry" ("Final Policy Statement"), 62 Fed Reg. 44071 (1997).
With respect to both financial qualification reviews for
operating license applicants and decommissioning funding
assurance reviews, the NRC has noted that it has distinguished
between an "electric utility" and other licensees. As defined in
10 C.F.R. SS 50.2, an "electric utility" is an entity that
generates or distributes electricity for which costs are
recovered by rates set by the entity or by a separate regulatory
authority. Investor-owned utilities, including generation and
distribution subsidiaries, are included within the meaning of
"electric utility". The underlying rationale for different
treatment is that rate regulators typically allow an electric
utility to recover prudently incurred costs of generating,
transmitting and distributing electric services.{3}
____________
{3} The NRC recently proposed revisions to the definition of
"electric utility" in its proposed rulemaking regarding financial
assurance requirements for decommissioning nuclear power reactors
(issued September 4, 1997). In the proposed rulemaking, the
Commission proposed to revise its definition of "electric
utility" to introduce additional flexibility to address potential
impacts of electric industry deregulation. The Commission noted
that the key component of the revised definition is a licensee's
rates being established either through cost-of-service mechanisms
or through other non-bypassable charge mechanisms, such as wires
charges or non-bypassable customer fees by a rate-regulating
authority. The NRC indicated that as a result of the proposed
change it would expect licensees to be more likely to continue to
qualify as "electric utilities."
<PAGE>
The proposed Reorganization will not change the status of
NYSEG as an "electric utility" for decommissioning purposes, as
defined in 10 C.F.R. SS 50.2. After the proposed Reorganization
is complete, the nuclear generation assets and investment will be
retained by NYSEG and NYSEG will continue to be a public utility
subject to regulation by the NYPSC with respect to, among other
things, its retail rates. In addition, FERC will continue to
regulate NYSEG's transmission and wholesale electric rates. As
further described below, the Settlement Agreement provides that
throughout the remaining life of the nuclear facility, all
decommissioning costs will continue to be recovered through rates
which are regulated on a cost-based, rate of return basis or
through a non-bypassable wires charge, as described in the
Settlement Agreement. Thus, for purposes of decommissioning,
NYSEG will at all times remain an "electric utility", as defined
in the Commission's present and proposed regulations.
Attached hereto as Exhibit C is an affidavit of Robert Kump,
NYSEG's Treasurer, which reviews the financial and regulatory
implications for NYSEG of the proposed Reorganization as they
relate to the continued recovery of NYSEG's costs relating to
Nine Mile 2. The Settlement Agreement contemplates a five-year
rate cap period ("Price Cap Period"). During the Price Cap
Period, all expenditures associated with Nine Mile 2, including
decommissioning costs, are presumed to be within overall rate
objectives and will continue to be recoverable through retail
electric rates. Electric service tariffs for the Price Cap
Period will be approved in accordance with the terms of the
Settlement Agreement. The Settlement Agreement also provides
additional protection through its return on equity and
uncontrollable cost provisions. NYSEG may request rate relief if
earnings fall below a certain floor or if certain uncontrollable
costs are incurred.
For years beyond the Price Cap Period, the Settlement
Agreement contemplates a subsequent cost-of-service rate filing
by NYSEG with the NYPSC. The Settlement Agreement provides that
after the Price Cap Period, the nuclear plant fixed costs
(including all nuclear decommissioning and wind down costs and
62.5% of annual property taxes) will be recovered for the life of
the applicable amortization period, contract or license through a
non-bypassable wires charge borne by the retail customers. After
the Price Cap Period, the Settlement Agreement contemplates that
nuclear variable costs will be recovered through proceeds of
sales of the Nine Mile 2 power in the marketplace, but only if
the other Nine Mile 2 cotenants put the same to the market.
Sufficient funds will be available to assure adequate funding for
the safe operation of Nine Mile 2.
As further set forth in Mr. Kump's affidavit, it is
anticipated that the Reorganization will not have an adverse
effect on NYSEG's capital structure, ability to raise capital or
bond ratings. In conclusion, the Settlement Agreement and the
company's financial position will ensure adequate funding for
both decommissioning and safe operation.
2. The proposed Reorganization will not adversely
affect the management of NYSEG's utility
operations or its technical qualifications.
As previously noted, NYSEG is a possession licensee and is
not the NRC-licensed operator of Nine Mile 2. The operating
licensee, Niagara Mohawk, will continue to be responsible for the
day-to-day operations of the plant and the technical
qualifications required by the operating license will continue to
be the responsibility of Niagara Mohawk.
The holding company structure retains the utility as a
discrete and separate entity. No responsibility for nuclear
operations within NYSEG will be changed by the Reorganization.
Officer responsibilities at the holding company level will be
primarily administrative and financial in nature and will not
involve operational matters relating to Nine Mile 2. After the
proposed holding company formation, NYSEG will continue to
actively participate in the oversight and non-operational
decision making with respect to Nine Mile 2.
3. The proposed Reorganization will not result in
NYSEG becoming owned, controlled or dominated by
an alien, a foreign corporation, or a foreign
government.
At the time the Reorganization becomes effective, HoldCo
will become the sole holder of NYSEG's common stock, and the
current holders of NYSEG's common stock (other than stockholders
who have exercised their appraisal rights, if any) will become
holders of the common stock of HoldCo on a share-for-share basis.
Therefore, immediately following the Reorganization, the common
stock of HoldCo will be owned by the previous holders of NYSEG's
common stock in substantially the same proportions in which they
held NYSEG's common stock. Based upon currently available
information, shares of NYSEG's common stock held in foreign
accounts represent less than one percent (1%) of the total
outstanding shares of NYSEG.
Based on the foregoing, the Reorganization will not result
in NYSEG becoming owned, controlled or dominated by foreign
interests.
4. The proposed Reorganization will not adversely
affect competition.
The implications of the proposed Reorganization are pro-
competitive in their anti-trust effects and there is no need for
an NRC inquiry with respect to this issue. The potential effect
of the proposed Reorganization on competition is discussed on
pages 17 through 22 of the FERC Application attached hereto as
Exhibit B and will be analyzed by FERC in their review of that
Application.
<PAGE>
As described in the Settlement Agreement, the proposed
reorganization was designed to greatly enhance competition, as
determined by the NYPSC. The formation of a holding company, and
the divestiture and eventual sale of the Coal-fired Generation
Assets, are integral parts of the comprehensive plan to increase
competition for the retail supply of electricity, and to expand
the range of power supply choices available to consumers
throughout the state of New York. For those reasons, the
proposed license transfer will have no anti-competitive effects,
and indeed is essential to promote competition for power supply
in the affected region.
V. THE PROPOSED TRANSFER WILL HAVE NO SIGNIFICANT ENVIRONMENTAL
EFFECT
As discussed above, the proposed transfer will have no
effect on the operation of Nine Mile 2. The transfer is merely a
technical change in corporate control over a minority owner,
through the creation of a holding company. That change will not
result in any change in the types, or any increase in the
amounts, of any effluents that may be released offsite, and there
will be no increase in individual or cumulative occupational
radiation exposure as a result of the creation of the holding
company or the other actions discussed herein. Accordingly,
pursuant to 10 C.F.R. SS 52.22(c)(9), the proposed action is
excluded from the need for an environmental assessment or an
environmental impact statement, and special circumstances do not
exist which would otherwise require such an assessment or impact
statement. Accordingly, the Applicant requests that the
Commission issue and publish a finding of no significant
environmental impact pursuant to 10 C.F.R. SS SS 51.32 and 51.35.
VI. SUBSEQUENT TRANSFERS OF ASSETS
NYSEG agrees to inform the Director, Nuclear Reactor
Regulation, 60 days prior to a transfer (excluding grants of
security interests or liens) during any twelve month period from
NYSEG to HoldCo, or any direct or indirect subsidiary of HoldCo,
of facilities for the production, transmission or distribution of
electric energy (other than the transfer of the Coal-fired
Generation Assets, which are discussed in this application)
having a depreciated book value exceeding ten percent (10%) of
NYSEG's consolidated net utility plant, as recorded on NYSEG's
books of account.
<PAGE>
VII. REQUEST FOR EXPEDITED CONSIDERATION
NYSEG respectfully requests a fifteen day notice period and
expedited consideration of its application.
The proposed Reorganization is anticipated to be fully
implemented as soon as practicable after a special meeting of the
stockholders currently expected to be held on or about January
15, 1998. To facilitate this restructuring, NYSEG requests
Commission approval for the proposed Reorganization by December
15, 1997.
VIII. CONCLUSION
NYSEG believes that the information contained in this
application and its exhibits will be sufficient for the NRC to
grant its consent to the proposed Reorganization as promptly as
possible. As shown above, the proposed Reorganization will not
adversely affect NYSEG's qualifications as a possession licensee
for Nine Mile 2 and is also consistent with applicable provisions
of law and with the NRC's regulations.
Respectfully submitted,
NEW YORK STATE ELECTRIC &
GAS CORPORATION
By: Sherwood J. Rafferty
Sherwood J. Rafferty
Senior Vice President and
Chief Financial Officer
Sam Behrends, IV, Esq. Taras G. Borkowsky, Esq.
Paul Bonavia, Esq. Huber Lawrence & Abell
LeBoeuf, Lamb, Greene 605 Third Avenue
& MacRae, L.L.P. New York, New York 10158
1875 Connecticut Avenue, N.W. Telephone: (212) 682-6200
Washington, D.C. 20009 Counsel for New York
Telephone: (202) 986-8000 State Electric & Gas
Corporation
September 18, 1997
<PAGE>
UNITED STATES OF AMERICA
BEFORE THE
NUCLEAR REGULATORY COMMISSION
NEW YORK STATE ELECTRIC & ) Docket No. 50-410
GAS CORPORATION ) Facility Operating License
) No. NPF-69
STATE OF NEW YORK )
) SS.:
COUNTY OF TOMPKINS )
AFFIDAVIT OF SHERWOOD J. RAFFERTY
Sherwood J. Rafferty, being duly sworn, states that he is
the Senior Vice President and Chief Financial Officer of New York
State Electric & Gas Corporation ("NYSEG"); that he is authorized
on the part of NYSEG to sign and file with the Nuclear Regulatory
Commission the foregoing Application; and that said Application
is true and correct to the best of his knowledge, information and
belief.
Sherwood J. Rafferty
Sherwood J. Rafferty
Senior Vice President and
Chief Financial Officer
Subscribed and sworn to before me, a Notary Public,
this 17th day of September, 1997.
Lisa M. Cochran
Notary Public
EXHIBIT E-1
Map showing service territory of NYSEG filed in paper format
under cover of Form S-E.
<TABLE>
<CAPTION>
NGE Resources, Inc. EXHIBIT G-2
Unaudited Pro Forma Consolidated Statements of Income
Twelve Months Ended June 30, 1997
<S> <C> <C> <C> <C> <C> <C>
(Thousands, except per share amounts) Pro Forma Pro Forma Financial Statements
NGE HoldCo Adjustments
Consolidated NGE HoldCo NGE Hold Co
Per Books Corporate NYSEG GenSub Other(F) Consolidated
Operating Revenues
Wholesale electric(A) $1,119 $322,659 ($143,199) $180,579
Retail and other electric 1,535,850 1,535,850
Electric 1,536,969 322,659 (143,199) 1,716,429
Natural gas 332,887 332,887
Total Operating Revenues 1,869,856 322,659 (143,199) 2,049,316
Operating Expenses
Fuel used in electric generation 10,877 217,634 228,511
Electricity purchased(B) 514,722 (143,199) 371,523
Natural gas purchased 166,602 166,602
Other operating expenses(C) 264,567 77,882 342,449
Maintenance(C) 81,454 27,183 108,637
Depreciation and amortization 127,712 63,862 191,574
Other taxes 175,180 28,304 203,484
Total Operating Expenses 1,341,114 414,865 (143,199) 1,612,780
Operating Income 528,742 (92,206) 436,536
Interest Charges, Net(D) 91,902 29,022 120,924
Other Income and Deductions(E) 9,488 5,292 25,359 40,139
Equity in Earnings of Subsidiaries ($166,935) 166,935
Preferred Dividend Requirements of Subsidiary 9,478 (9,478)
Income Before Federal Income Taxes 157,457 427,352 (126,520) (182,816) 275,473
Federal Income Taxes 166,575 (49,852) (8,185) 108,538
Net Income (Loss) 157,457 260,777 (76,668) (174,631) 166,935
Preferred Stock Dividends 9,478 9,478
Earnings (Loss) Available for Common Stock - $157,457 $251,299 ($76,668) ($174,631) $157,457
Earnings Per Share $2.26
Dividends Declared per Common Share $1.40
Average Shares Outstanding 69,792
<PAGE>
NGE Resources, Inc. EXHIBIT G-2
Unaudited Pro Forma Consolidated Balance Sheets
June 30, 1997
(Thousands) Pro Forma Pro Forma Financial Statements
NGE HoldCo Adjustments
Consolidated NGE HoldCo NGE HoldCo
Per Books Corporate NYSEG GenSub Other(B) Consolidated
Assets
Current Assets
Cash and cash equivalents $7,312 $3,736 $2,374 $13,422
Special deposits 1,786 908 2,694
Accounts receivable, net 110,128 17,003 8,427 135,558
Fuel, at average cost 13,272 21,002 34,274
Materials and supplies, at average cost 11,516 32,769 44,285
Prepayments 38,514 8,096 283 46,893
Accumulated deferred federal income tax
benefits, net 21,620 1,784 23,404
Total Current Assets 204,148 83,514 12,868 300,530
Utility Plant, at Original Cost(A)
Electric 3,278,048 1,921,970 5,200,018
Natural gas 548,186 548,186
Common 155,218 155,218
3,981,452 1,921,970 5,903,422
Less accumulated depreciation 1,252,340 758,605 2,010,945
Net Utility Plant in Service 2,729,112 1,163,365 3,892,477
Construction work in progress 45,250 12,832 58,082
Total Utility Plant 2,774,362 1,176,197 3,950,559
Other Property and Investments, Net 80,057 47,774 (31,884) 95,947
Investment in Subsidiaries $1,778,948 (1,778,948)
Regulatory and Other Assets
Regulatory assets
Unfunded future federal income taxes 267,711 267,711
Environmental remediation costs 84,600 84,600
Unamortized debt expense 78,862 78,862
Demand-side management program costs 69,576 69,576
Other 125,768 125,768
Total regulatory assets 626,517 626,517
Other assets 14,237 8,034 (29) 22,242
Total Regulatory and Other Assets 640,754 8,034 (29) 648,759
Total Assets - $1,778,948 $3,699,321 $1,315,519 ($1,797,993) $4,995,795
<PAGE>
NGE Resources, Inc. EXHIBIT G-2
Unaudited Pro Forma Consolidated Balance Sheets
June 30, 1997
(Thousands) Pro Forma Pro Forma Financial Statements
NGE HoldCo Adjustments
Consolidated NGE HoldCo NGE HoldCo
Per Books Corporate NYSEG GenSub Other(B) Consolidated
Liabilities
Current Liabilities
Current portion of long-term debt(C) $19,980 $7,915 $5,077 $32,972
Commercial paper 28,727 9,073 37,800
Accounts payable and accrued liabilities 74,980 17,971 (486) 92,465
Interest accrued 15,825 4,989 20,814
Taxes accrued 24,813 18,012 42,825
Other 52,539 497 53,036
Total Current Liabilities 216,864 58,457 4,591 279,912
Regulatory and Other Liabilities
Regulatory liabilities
Deferred income taxes - unfunded future
federal income taxes 107,967 107,967
Deferred income taxes 88,280 88,280
Other 78,535 78,535
Total regulatory liabilities 274,782 274,782
Other liabilities
Deferred income taxes(D) 414,017 340,645 (213) 754,449
Other postretirement benefits 106,509 106,509
Environmental remediation costs 84,600 84,600
Other 60,592 9,943 70,535
Total other liabilities 665,718 340,645 9,730 1,016,093
Long-term debt(C) 1,120,208 356,374 10,038 1,486,620
Total Liabilities 2,277,572 755,476 24,359 3,057,407
Commitments
Preferred Stock Redeemable Solely
at the Option of the Company 134,440 134,440
Preferred Stock Subject to Mandatory
Redemption Requirements 25,000 25,000
Common Stock Equity(C)
Common stock $462,250 323,191 139,059 (462,250) 462,250
Capital in excess of par value 811,793 567,614 244,179 (811,793) 811,793
Retained earnings 544,470 411,069 176,805 (587,874) 544,470
Treasury stock (39,565) (39,565)
Total Common Stock Equity 1,778,948 1,301,874 560,043 (1,861,917) 1,778,948
Total Liabilities and Stockholders' Equity - $1,778,948 $3,738,886 $1,315,519 ($1,837,558) $4,995,795
NGE Resources, Inc. EXHIBIT G-2
Unaudited Pro Forma Consolidated Statements
of Retained Earnings
June 30, 1997
(Thousands) Pro Forma Pro Forma Financial Statements
NGE HoldCo Adjustments
Consolidated NGE HoldCo NGE
Per Books Corporate NYSEG GenSub Other NGE HoldCo
Balance, June 30, 1996 $482,189 $254,946 $253,473 ($508,419) $482,189
Add net income (loss) 157,457 260,777 (76,668) (174,631) 166,935
639,646 515,723 176,805 (683,050) 649,124
Deduct dividends on capital stock
Preferred 9,478 9,478
Common 97,803 97,803 (97,803) 97,803
97,803 107,281 (97,803) 107,281
Add
Discount on preferred stock redemption 2,627 2,627
Discount on preferred stock redemption
of subsidiary 2,627 (2,627)
Balance, June 30, 1997 - $544,470 $411,069 $176,805 ($587,874) $544,470
</TABLE>
<PAGE>
NGE Resources, Inc.
Notes to Unaudited Pro Forma Consolidated Financial Statements
June 30, 1997
The pro forma consolidated financial statements and the
assumptions set forth below are for illustrative purposes only.
The pro forma consolidated financial statements and assumptions
should not be used to forecast future operating results or
financial position. Actual operating results or financial
position could differ materially from the pro forma financial
statements.
Nature of the Transaction
New York State Electric & Gas Corporation (the company) will
reorganize into a holding company structure with GenSub, NYSEG (a
regulated subsidiary) and NGE Enterprises, Inc. becoming wholly-
owned subsidiaries of the parent company, NGE Resources, Inc.
For purposes of these pro forma consolidated financial
statements, the balance sheets were prepared assuming the
transaction was consummated on June 30, 1997 by transferring
assets, liabilities and common stock equity from NYSEG to the
GenSub. The common stock of NYSEG, GenSub and NGE Enterprises,
Inc. was transferred to NGE Resources, Inc. Existing
stockholders of NYSEG will become stockholders of NGE Resources,
Inc. It was assumed that no cash consideration was received for
these transactions. For purposes of the pro forma statements of
income and retained earnings, it was assumed that the transaction
occurred at July 1, 1996.
Somerset Railroad Corporation, previously a wholly-owned
subsidiary of the company, will become a wholly-owned subsidiary
of GenSub. The GenSub will include all of the company's coal-
fired generating stations and related assets and liabilities, and
Somerset Railroad Corporation. Nuclear and hydro generation
assets will remain with NYSEG, a regulated subsidiary. NGE
Enterprises, Inc. remains as an unregulated subsidiary.
Consolidated Income Statement Assumptions
(A) Wholesale sales revenues represent actual revenues received.
Except for borderline sales which remain with NYSEG,
wholesale sales were assumed to have been made by GenSub.
All remaining GenSub generation was assumed to be sold to
NYSEG. Revenues on sales to NYSEG in 1996 and 1997 were
calculated at the 1996 and 1997 New York State Department of
Public Service schedule of Long Run Avoided Cost energy and
capacity price, respectively.
(B) Assumes all energy lost and unaccounted for was absorbed by
NYSEG.
<PAGE>
(C) Operation and maintenance expenses include all amounts
directly related to the operation (excluding fuel costs) and
maintenance of coal-fired generation plus corporate
administrative and general costs allocated in accordance
with the company's cost allocation methodology.
The cost allocation methodology provides for the assignment
of authorized corporate services directly related to
generation; for example, personal computer operation and
maintenance costs and information service consulting costs.
It also allocates costs which cannot be directly charged on
a specific allocation method. For example, building service
costs are allocated based on generation square footage
utilization of several buildings. Health care costs,
pensions and workers compensation costs which are employee
dependent are allocated based on payroll. All other
corporate administrative and general costs which cannot be
allocated using a specific allocation method are allocated
based on payroll.
(D) Interest charges were allocated based on the debt
allocation.
(E) Other income and deductions were either allocated based on
payroll or allocated based on net utility plant.
(F) Amounts represent normal consolidating eliminations and the
operating results of NGE Enterprises, Inc., a wholly-owned
subsidiary that holds stock of certain nonutility
subsidiaries.
Consolidated Balance Sheet Assumptions
(A) Utility plant was transferred to GenSub at book value. The
restructuring agreement provides that upon the transfer of
the coal-fired generation assets to GenSub, a regulatory
asset of NYSEG will be created for the difference between
the book value of the coal-fired generation assets and the
fair value determined in accordance with NYSEG's first
mortgage indenture for purposes of obtaining the release of
the coal-fired generation assets from the lien of the
mortgage. That determination of fair value has not yet
been made, but could result in material differences from the
pro forma financial statements.
(B) Amounts in this column represent normal consolidating
eliminations.
(C) Total common stock equity, long-term debt, current portion
of long-term debt and commercial paper were allocated to
GenSub based on net utility plant, less an adjustment for
regulatory assets and liabilities which are retained on
NYSEG's balance sheet.
(D) Allocated to GenSub based upon the related assets.
<PAGE>
NGE Resources, Inc.
Accounting Entry to Record the Reorganization
June 30, 1997
(Thousands)
Subsidiary Line Description Debit Credit
NGE HoldCo Corp. Investment in
Subsidiaries $1,778,948
NGE HoldCo Corp. Treasury stock $39,565
NGE HoldCo Corp. Common stock $462,250
NGE HoldCo Corp. Capital in excess of
par value $811,793
NGE HoldCo Corp. Retained earnings $544,470
To record NGE HoldCo Corporate's investment in subsidiaries.
EXHIBIT H-1
UNITED STATES OF AMERICA
BEFORE THE
SECURITIES AND EXCHANGE COMMISSION
NGE Resources, Inc. ) File No.
_______________
NOTICE OF FILING
Take notice that on September 26, 1997, NGE Resources, Inc.,
New York corporation ("HoldCo"), filed an application seeking
authorization from the Commission under Sections 3(a)(1), 9(a)(2)
and 10 of the Public Utility Holding Company Act of 1935 (the
"1935 Act" or "Act"), in connection with the proposed corporate
reorganization of New York State Electric & Gas Corporation
("NYSEG"), a New York electric and gas utility company.
The application requests authorization (i) to acquire all of
the outstanding shares of common stock of NYSEG ("NYSEG Common
Stock") pursuant to a Plan of Exchange ("Plan of Exchange"), and
(ii) to engage in the proposed transactions described in the
application which will result in HoldCo owning all of the
outstanding NYSEG Common Stock and all of the outstanding common
stock of GenSub, a New York corporation ("GenSub"), which will
become an "electric utility company" for purposes of the 1935 Act
after the consummation of the proposed transactions described in
the application. In addition, the application requests an order
exempting HoldCo and each of its subsidiary companies from all
provisions of the 1935 Act (except for Section 9(a)(2) thereof).
Under the terms of the Plan of Exchange, all of the
outstanding shares of common stock of HoldCo ("HoldCo Common
Stock"), which will then be owned by NYSEG, will be canceled and
all of the outstanding shares of NYSEG Common Stock will be
exchanged on a share-for-share basis for HoldCo Common Stock
("Share Exchange"), subject to the rights of the NYSEG Common
Stockholders to exercise their appraisal rights. Upon
consummation of the Share Exchange, each person who owned NYSEG
Common Stock immediately prior to the Share Exchange (other than
NYSEG Common Stockholders who properly exercise their appraisal
rights) will own a corresponding number of shares and percentage
of the outstanding HoldCo Common Stock, and HoldCo will own all
of the outstanding shares of NYSEG Common Stock.
As an additional aspect of the proposed holding company
restructuring, NYSEG intends to commence transferring NYSEG's
coal-fired generation assets (the "Generation Assets") to GenSub
as soon as practicable after obtaining the mortgage trustee's
release and any necessary regulatory approvals. NYSEG will
retain its hydroelectric and nuclear generation assets. In
addition, immediately after the effective time of the Share
Exchange, NYSEG intends to transfer to HoldCo all of the common
stock of GenSub and NGE Enterprises, Inc., a Delaware corporation
("Enterprises"). Enterprises is a wholly-owned subsidiary of
NYSEG and was formed in April 1992 to hold the stock of certain
non-utility subsidiaries of NYSEG and to conduct energy service
business activities. NYSEG also intends to transfer to GenSub
all of the common stock of Somerset Railroad Corporation, a New
York corporation ("SRC"). SRC is a wholly-owned subsidiary of
NYSEG and was formed in August 1979 to own and operate a rail
line which is used primarily to transport coal and other
materials to NYSEG's Kintigh generating station.
NYSEG, a regulated public utility incorporated under the
laws of the State of New York, is engaged principally in the
business of generating, purchasing, transmitting and distributing
electricity, and purchasing, transporting and distributing
natural gas to the public in the central, eastern and western
parts of New York State. NYSEG is currently not subject to the
1935 Act because it is not a "holding company" or a "subsidiary
company" thereof as such terms are defined in the 1935 Act.
HoldCo and GenSub were incorporated under the laws of the
State of New York for the purpose of carrying out the proposed
transactions described in this application. HoldCo and GenSub
are currently direct, wholly-owned subsidiaries of NYSEG.
Neither HoldCo nor GenSub currently owns any utility assets or
currently is a "public utility company" or a "holding company"
for purposes of the 1935 Act.
As a result of the proposed transactions described in this
application, GenSub will become an "electric utility company"
under the 1935 Act. HoldCo, which will own all of the
outstanding common stock of both NYSEG and GenSub after the
effective time of the Share Exchange, will require Commission
approval under Section 9(a)(2) of the 1935 Act. In addition,
HoldCo is seeking a Commission order declaring it exempt from all
provisions of the Act except Section 9(a)(2).
The shares of NYSEG Preferred Stock issued and outstanding
immediately prior to the Share Exchange will not be converted or
otherwise affected by the Share Exchange and will continue as
equity securities of NYSEG with the same preferences,
designations, relative rights, privileges and powers, and subject
to the same restrictions, limitations and qualifications, as were
applicable to such securities prior to the Share Exchange.
The Share Exchange will not result in any change in the
outstanding indebtedness of NYSEG which will continue to be
obligations of NYSEG after the Share Exchange. NYSEG's first
mortgage bonds will continue to be secured by a first mortgage
lien on all of the properties of NYSEG that are currently subject
to such lien, other than the Generation Assets transferred and
released from the lien of NYSEG's first mortgage bond indenture.
Such indebtedness will be neither assumed nor guaranteed by
HoldCo in connection with the Share Exchange.
The proposed reorganization is an integral part of NYSEG's
overall rate and restructuring plan ("NYSEGPlan"), which was
formulated and submitted at the direction of the Public Service
Commission of the State of New York ("PSC"). NYSEGPlan is
intended to further the PSC's stated goals in restructuring the
utility industry in New York State into a competitive energy
marketplace. The principal purpose of the proposed
reorganization is to establish, in furtherance of the PSC's
directive, a more appropriate corporate structure to operate more
efficiently in the evolving energy marketplace and to explore and
take advantage of potential business opportunities outside
NYSEG's present markets while protecting ratepayers and
minimizing concerns about vertical market power in generation.
HoldCo asserts that, following the consummation of the
proposed restructuring, it would be a public-utility holding
company entitled to an exemption under Section 3(a)(1) of the Act
because it and each of its public-utility subsidiaries from which
it would derive a material part of its income would be
incorporated in the State of New York, would be predominately
intrastate in character and would carry on their business
substantially within the State of New York.
All interested persons are referred to the application for
complete statements of the proposed reorganization summarized
above. The application is available for public inspection
through the Commission's Office of Public Reference.
Interested persons wishing to comment or request a hearing
on the application should submit their views in writing by
___________________ __, ____, to the Secretary, Securities and
Exchange Commission, Washington, DC 20549, and serve a copy on
the relevant applicants at the address specified above. Proof of
service (by affidavit or, in case of an attorney at law, by
certificate) should be filed with the request. Any request for
hearing shall identify specifically the issues of fact or law
that are disputed. A person who so requests will be notified of
any hearing, if ordered, and will receive a copy of any notice or
order issued in the matter. After said date, the application, as
filed or as amended, may be granted.
