UNITED STATES OF AMERICA
BEFORE THE SECURITIES AND EXCHANGE COMMISSION
APPLICATION/DECLARATION ON FORM U-1 UNDER PUBLIC UTILITY
HOLDING COMPANY ACT OF 1935
C&T Enterprises, Inc.
RR 2, Box 17
Wysox, PA 18854.
(Name of company filing this statement and address
of principal executive office)
(NONE)
PARENT HOLDING COMPANY
See below
(Name and address of agents for service)
COPIES OF ANY PLEADINGS AND OTHER DOCUMENTS
MAY BE SERVED UPON THE FOLLOWING
Robert Chappell, Esquire Kenneth Zielonis, Esquire
van de Hiel & Chappell STEVENS & LEE
14 South Main Street Suite 310
P.O. Box 57 208 North Third Street
Mansfield, PA 16933 P.O. Box 12090
Harrisburg, PA 17108-2090
<PAGE>
TABLE OF CONTENTS
Item 1 DESCRIPTION OF ACQUISITION ..................... 1
A. Introduction ................................... 1
1. General Request ........................... 5
2. Overview of the Acquisition ............... 5
B. Description of the Parties to the Acquisition .. 9
1. General Description ....................... 9
(a) Tri-County ........................... 9
(b) Claverack ............................11
(c) C&T ..................................12
(d) Citizens'.............................13
(e) Wellsboro.............................14
2. Description of Facilities .................15
(a) Tri-County ...........................15
(i) General .........................15
(ii) Electric Generating Facilities
and Resources ...................15
(iii) Electric Transmission and
Other Facilities ................16
(iv) Other ...........................19
(b) Claverack ............................20
(i) General .........................20
(ii) Electric Generating Facilities
and Resources ...................20
(iii) Electric Transmission and
Other Facilities.................20
(iv) Other............................20
(c) Citizens'.............................21
(i) General .........................21
(ii) Electric Generating Facilities
and Resources ...................21
(iii) Electric Transmission and
Other Facilities ................21
(iv) Other ...........................21
(d) Wellsboro ............................22
(i) General .........................22
(ii) Electric Generating Facilities
and Resources ...................22
<PAGE 1>
(iii) Electric Transmission and
Other Facilities ................22
(iv) Other ...........................22
3. Nonutility Subsidiaries ...................23
(a) Tri-County ...........................23
(b) Claverack ............................23
(c) Citizens' ............................23
(d) Wellsboro ............................23
C. Description of the Acquisition .................23
1. Background and Negotiations Leading
to the Acquisition ........................23
2. Acquisition Agreements ....................28
D. Benefit Plans ..................................30
E. Management and Operations of Citizens'
Following the Mergers ..........................30
F. Industry Restructuring Initiatives .............31
Item 2 FEES, COMMISSIONS AND EXPENSES .................35
Item 3 APPLICABLE STATUTORY PROVISIONS ................36
A. Legal Analysis .................................36
1. Section 10(b) .............................40
(a) Section 10(b)(1) .....................40
(i) Interlocking Relations ..........40
(ii) Concentration of Control ........41
(b) Section 10(b)(2) Fairness of
Consideration ........................48
(c) Section 10(b)(2) Reasonableness
of Fees ..............................49
(d) Section 10(b)(3) Capital Structure ...50
2. Section 10(c) .............................53
(a) Section 10(c)(1) .....................54
(b) Section 10(c)(2) .....................54
(i) Efficiencies and Economies ......54
(ii) Integrated Public Utility
System ..........................59
3. Section 10(f) .............................71
<PAGE 2>
4. Section 3(a)(1) ...........................71
5. Section 3(a)(2) ...........................73
Item 4 REGULATORY APPROVALS ...........................75
A. Antitrust .................................75
B. State Public Utility Regulation ...........75
Item 5 PROCEDURE ......................................76
Item 6 EXHIBITS AND FINANCIAL STATEMENTS ..............77
Item 7 INFORMATION AS TO ENVIRONMENTAL EFFECTS ........78
PAGE 3
<PAGE>
Item 1 DESCRIPTION OF ACQUISITION
A. Introduction
This Application/Declaration seeks approvals relating
to the proposed acquisition of the stock of an investor-owned
Pennsylvania public utility, Citizens' Electric Company,
("Citizens'"), by a recently formed holding company, C&T
Enterprises, Inc., ("C&T"). Citizens' renders electric service
solely in the Commonwealth of Pennsylvania. This newly created
holding company was formed by two rural electric cooperatives
organized and operating exclusively in the State of Pennsylvania,
Tri-County Rural Electric Cooperative, Inc., ("Tri-County"), and
Claverack Rural Electric Cooperative, Inc., ("Claverack"). Tri-
County currently owns all the stock of an exempt holding company,
Wilderness Area Utilities, Inc., ("Wilderness"). Both Tri-County
and Wilderness were granted Section 3(a)(1) exemptions by the
Commission as a result of a prior transaction. Tri-County Rural
Electric Cooperative, Inc., et. al., HCAR No. 35-26167
(November 22, 1994). Wilderness' sole subsidiary is a
Pennsylvania investor owned public utility, Wellsboro Electric
Company, ("Wellsboro"). Following the acquisition, C&T will
become an exempt holding company under Section 3(a)(1) of the
Public Utility Holding Company Act of 1935, (the "Act").
Following consummation of the stock purchase, this action will
exempt C&T from all provisions of the Act except Section 9(a)(2).
The stock acquisition is expected to produce
substantial benefits to the public served by all involved
entities, to investors and to consumers, and meets all applicable
<PAGE 1> standards of the Act. Among other benefits, Tri-County
and Claverack believe that the acquisition will allow all the
shareholders of each of the companies to participate in a larger,
financially stronger company that, through a combination of the
equity, management, human resources and technical expertise of
each supporting company;
i. Will be able to achieve increased financial
stability and strength;
ii. Will be able to achieve greater opportunity for
earnings growth;
iii. Will experience a reduction of overall operating
costs;
iv. Will achieve efficiencies of operations;
v. Will experience the improved ability to use new
technologies;
vi. Can implement better use and management of
facilities for the benefit of customers;
vii. Will achieve a potential for greater retail and
industrial sales;
viii. Will see diversity and improved capability to
make wholesale power purchases and possible sales;
ix. Will allow for maintenance of competitive rates,
or an achievement of rates that will be lower than they would be
in the absence of the stock acquisition which will improve
Citizens' and Wellsboro's ability to meet the challenges of the
increasingly competitive environment in the electric industry;
x. Will allow for the integration of corporate and
administrative functions, limiting duplicative capital <PAGE 2>
expenditures for administrative facilities and information
systems, and savings in area such as legal, auditing and
consulting fees;
xi. Will allow for expanded management resources and
ability to select leadership from a larger and more diverse
management pool;
xii. Will allow for greater purchasing power for items
such as purchased power and transportation services, and
streamlining of inventories;
xiii. Will allow for increased geographic diversity of
services territories, reducing exposure to local changes in
economic, competitive or climatic conditions;
xiv. Will allow for the entities to continue to play a
strong role in the economic development efforts of the
communities served by Citizens', Wellsboro and the two electric
cooperatives;
xv. Will allow for increased electric load diversity
by combining the electric cooperatives' rural and residential
focused service territories with Citizens' and Wellsboro's
relatively larger orientation to urban and commercial/industrial
load.
In this regard, Tri-County and Claverack believe that
synergies created by the acquisition will generate substantial
cost savings which would not be available absent the acquisition.
Tri-County and Claverack have estimated the total dollar value of
certain synergies resulting from the acquisition to be in excess
of $1.9 million per year over a ten year time period. <PAGE 3>
The shareholders of Citizens', Wilderness and C&T all
approved the acquisition at their respective shareholder
meetings. Originally, Tri-County and Claverack anticipated
acquiring the stock of Citizens' through the purchase of the
stock by Wilderness, a holding company exempt from all provisions
of the Act except Section 9(a)(2).
The original tender offer by Wilderness dated February
20, 1998 resulted in the tender of 138,724 shares of Citizens'
stock or approximately 99.46% of the outstanding voting common
shares of Citizens' stock.
Tri-County and Claverack have submitted an Application
with the Pennsylvania Public Utility Commission, (the "Pa PUC"),
seeking regulatory approval to purchase the stock of Citizens'.
No other regulatory approvals are deemed necessary.
Neither Tri-County nor Claverack were required to make
any required filings with the Antitrust Division of the United
States Department of Justice, (the "DOJ"), or the Federal Trade
Commission under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976. Apart from the approval of the Commission under the
Act, the foregoing approval of the Pa PUC is the only regulatory
approval necessary under the Act. In order to permit timely
consummation of the acquisition and the realization of the
substantial benefits it is expected to produce, C&T Tri-County
and Claverack request that the Commission's review of this
Application/Declaration commence and proceed as expeditiously as
possible. <PAGE 4>
1. General Request
Pursuant to Sections 9(a)(2) and 10 of the Act, C&T,
Tri-County and Claverack request authorization and approval to
acquire all of the issued and outstanding common stock of
Citizens'. C&T, Tri-County and Claverack request approval of the
acquisition of the stock pursuant to Section 9(a)(2) of the Act
since Wilderness, C&T, Citizens' and Wellsboro will be considered
affiliates under the Act once the transaction is consummated.
Tri-County and Claverack request that the Commission declare Tri-
County and Claverack as exempt holding companies under Section
3(a)(1) of the Act or, in the alternative, Section 3(a)(2) of the
Act. C&T requests that the Commission declare C&T an exempt
holding company pursuant to Section 3(a)(1) of the Act which
exemption would leave C&T free from all Commission regulation
except Section 9(a)(2) of the Act. Finally, Wilderness requests
that the Commission continue its Section 3(a)(1) exemption under
the Act.
2. Overview of the Acquisition
On January 5, 1997, Wilderness and Citizens' signed a
Memorandum of Understanding, ("MOU"), regarding the purchase of
Citizens' stock. This Memorandum outlined the terms of a tender
offer for such stock. Pursuant to the terms of the MOU,
Wilderness submitted an offer of $79 per share for all of
Citizens' outstanding shares of common stock. Wilderness'
obligation for payment of this share purchase price was
conditioned upon Wilderness receiving a minimum of proper tenders
from Citizens' shareholders equal to or greater than fifty-one
<PAGE 5> (51%) percent of Citizens' total number of outstanding
shares. The MOU provided for an open period of forty-five (45)
days.
Pursuant to the terms of the MOU, Wilderness would
provide that all current employees not covered under existing
employee agreements would receive a severance package such that
if the employee is terminated within thirty-six (36) months of
Wilderness' assumption of the control of Citizens', for reasons
other than just cause, that employee would be entitled to receive
one week's salary for each year of service or $5,000, whichever
is greater, in addition to any accrued benefits. Wilderness
agreed to support and encourage the ratification, by the Board of
Directors of Citizens' in existence after Wilderness assumes
control of Citizens', of a certain agreement concerning the
waiver of stock options.
Pursuant to the terms of the Tender Offer, Wilderness
offered to purchase all of the outstanding shares of Citizens'
stock. Citizens' has 227 common stockholders holding 139,472
shares of common stock. There is no preferred stock. Wilderness
agreed to pay a purchase price of $79 per common share. The
tender offer was presented to Citizens' with a closing date of
April 17, 1998.
Subsequently, on July 20, 1998, Wilderness and
Citizens' entered into a Second Addendum to Memorandum of
Understanding, ("Second Addendum"). Pursuant to the Second
Addendum, C&T would assume all of Wilderness' obligations under
the January 5, 1998 Memorandum of Understanding. This included
the offer to purchase all of the outstanding stock at $79 per
<PAGE 6> common share. None of the other terms of the January 5,
1998 Memorandum were changed or modified as a result of the
Second Addendum.
As a result of the Acquisition, there will be no change
in the ownership interests of Wilderness. All of the outstanding
Common stock of Wilderness will continue to be held by Tri-
County. In turn, Wilderness will continue to hold all of the
Common and Preferred stock of Wellsboro. Wilderness has not
issued any shares of Preferred stock.
C&T will be a subsidiary of both Tri-County and
Claverack. These two rural electric cooperatives shall be the
sole shareholders of the common stock of C&T. On May 28, 1998,
Tri-County and Claverack executed a Partnership Agreement to
define their respective investment and ownership interests in
C&T. Pursuant to that agreement, Tri-County and Claverack would
each own 50% of the issued shares of C&T. The management of the
affairs of this corporation is vested in the Board of Directors
elected jointly by Tri-County and Claverack. Tri-County's fifty
percent (50%) share of the C&T common stock shall be purchased
through a contribution of $100,000 and Claverack's fifty percent
(50%) share of the C&T common stock shall be purchased through a
contribution of $400,000. The disparity in share purchase price
is designed to reflect the substantial level of work completed by
Tri-County prior to Claverack's involvement in the transaction.
Upon issuance of the shares, Tri-County and Claverack together
will own one hundred percent (100%) of the shares, and each will
equally control the affairs, of C&T. The Partnership Agreement
further provides that Tri-County is entitled to receive an amount
<PAGE 7> up to $150,000 for monies expended on the acquisition of
Citizens' prior to May 28, 1998. Any additional capital
requirements will be identified by the Board of Directors.
National Cooperative Services Corporation, ("NCSC"),
will extend a loan in an amount equal to eighty percent (80%) of
the stock purchase price amount. Tri-County and Claverack each
agree to fund equally the remaining balance required for the
acquisition of Citizens' stock in excess of the eighty percent
(80%) of the funding approved by NCSC.
The Partnership Agreement provides that no additional
capital stock shall be issued in C&T or Citizens without the
seventy-five percent (75%) majority approval of C&T's Board of
Directors. Tri-County and Claverack agree that their shares of
C&T stock or Citizens' stock shall not be sold by the
cooperatives or C&T to a third party without the stock being
first offered to the other cooperative. The offeree cooperative
shall have sixty (60) days to match any good faith offer for the
other cooperative's shares of stock. If this right of first
refusal is not exercised within sixty (60%) days, then the
offeror cooperative is free to sell its shares to the third
party. This Partnership Agreement contains the typical
warranties and representations and is subject to all necessary
regulatory approvals.
C&T's sole subsidiary shall be Citizens'. C&T shall
not have any other subsidiaries, operating or otherwise.
A copy of the January 5, 1998 Memorandum of
Understanding is incorporated by reference herein and attached as
Exhibit B-1. A copy of the Tender Offer is incorporated by
<PAGE 8> reference herein and attached as Exhibit B-2. A copy of
the Second Addendum to the January 5, 1998 Memorandum of
Understanding is incorporated by reference herein and attached as
Exhibit B-3. A copy of the Partnership Agreement is incorporated
by reference herein and attached as Exhibit B-4.
B. Description of the Parties to the Acquisition
1. General Description
(a) Tri-County
Tri-County is a rural electric cooperative rendering
retail electric service only to the residents of Pennsylvania's
Northern Tier. Its service area encompasses the following
Pennsylvania counties:
Bradford
Cameron
Clinton
Lycoming
McKean
Potter
Tioga
Tri-County was incorporated as a rural electric cooperative in
1936. Tri-County is engaged in rendering electric utility
service to the public in the above territory. As of December 31,
1997, Tri-County provided retail electric service to
approximately 17,000 customers in an area encompassing 4.484
square miles in the geographical territory noted above. A map of
Tri-County's service territory is attached as Exhibit E-1.
Tri-County is not subject to utility style regulation
by any state or federal agency. It is specifically exempted from
any regulation by the Pa PUC pursuant to the Pennsylvania
Electric Cooperative Corporation Act, 15 Pa. C.S. Section 7301.
Tri-County, however, is regulated by its member-elected Board of
<PAGE 9> Directors and its operations are overseen by the United
States Department of Agriculture's Rural Utilities Services'
Division. Tri-County's principal executive office is located at
22 North Main Street, Mansfield, Pennsylvania 16933. A copy of
its Certificate and Articles of Incorporation are incorporated
herein by reference as Exhibit A-1.
Tri-County has one subsidiary, Wilderness, an exempt
public utility holding company. Wilderness is a Pennsylvania
corporation incorporated on March 10, 1994. In turn, Wilderness
has one operating subsidiary, Wellsboro Electric Company,
("Wellsboro"), a Pennsylvania corporation. Wellsboro is a public
utility company subject to regulation by the Pa PUC. There are
no other companies within the holding company structure of
Wilderness. As of December 31, 1997, Wellsboro had $6.2 million
in revenue generated solely from electric service rendered to
approximately 5,500 customers in a 266 square mile service
territory lying wholly within the Commonwealth of Pennsylvania.
Wellsboro's revenues are not expected to materially change in the
future
For the year ended December 31, 1997, Tri-County had
electric operating revenues of approximately $16 million. The
assets of Tri-County were approximately $32 million in
identifiable electric utility property, plant and equipment and
approximately $10 million in other corporate assets. Tri-
County's revenues and asset levels are not expected to change
materially in the future.
A more detailed summary of financial information
concerning Tri-County is contained in its Consolidated Financial
<PAGE 10> Statements for the calendar years ending 1996 and 1997
which is incorporated herein by reference and attached hereto as
Exhibit FS-1.
(b) Claverack
Claverack also is a rural electric cooperative
incorporated under the Pennsylvania Electric Cooperative
Corporation Act. It was incorporated in 1936. As of
December 31, 1997, it rendered service to approximately 17,000
customers in an eight county region in Northcentral and
Northeastern Pennsylvania. Its service territory is limited to
the Commonwealth of Pennsylvania. Its service territory is
approximately 1,820 square miles. A map of Claverack's service
territory is attached as Exhibit E-1.
Like Tri-County, Claverack is not subject to utility
regulation by any state or federal agency. It too is
specifically exempted from regulation by the Pa PUC. Its
operations, however, are regulated by its member-elected Board of
Directors. Its operations also are overseen by the United States
Department of Agriculture's Rural Utilities Services' Division.
Its Certificate and Articles of Incorporation are incorporated
herein by reference and attached as Exhibit A-2. Claverack's
principal executive office is located at RR 2, Box 17, Wysox,
Pa.,18854. Claverack has one subsidiary, Susquehanna Energy
Plus, Inc., ("SEP"), which is a Pennsylvania corporation engaged
currently in the property security business. Claverack is the
sole shareholder of SEP. SEP is in its formative stage and had
not generated any revenue as of December 31, 1997. <PAGE 11>
For the year ended December 31, 1997, Claverack's
operating electric revenues were approximately $18 million. Its
assets at December 31, 1997 were approximately $48 million
consisting of approximately $40 million in identifiable electric
utility property, plant and equipment and approximately $8
million in other corporate assets. Claverack's revenue and asset
levels are not expected to change materially in the future.
A more detailed summary of information concerning
Claverack is contained in its Consolidated Financial Statements
for the calendar years ended December 31, 1997 and 1996, a copy
of which is incorporated by reference and attached as
Exhibit FS-2.
(c) C&T
C&T is a Pennsylvania corporation incorporated on July
9, 1998 pursuant to the Pennsylvania Business Corporation Law.
Its sole purpose is to hold the common stock of Citizens'. The
aggregate number of shares authorized is 100,000 at a par value
of $100 per share. One thousand (1,000) shares of common stock
are held by each rural cooperative. Its principal place of
business is RR 2, Wysox, Pennsylvania 18540. Its sole asset
shall be the stock of Citizens'. Upon consummation of the
acquisition of the stock of Citizens', C&T will be an exempt
public utility holding company operating solely within
Pennsylvania and receiving revenues solely from its one
subsidiary, Citizens', operating exclusively in Pennsylvania.
<PAGE 12>
(d) Citizens'
Citizens' was incorporated under the laws of
Pennsylvania on June 7, 1911. It is a regulated public utility
rendering electric utility service to parts of Union and
Northumberland Counties in Central Pennsylvania. As of
December 31, 1997, Citizens' rendered electrical service to
approximately 6,300 customers in an area encompassing 55 square
miles.
Citizens' is subject to regulation as a public utility
under the Pennsylvania Public Utility Code as to retail electric
rates and other matters by the Pa PUC. Citizens' is not subject
to regulation by any other state or federal agency regulating
electric public utility service.
As of December 31, 1997, there were 139,472 shares of
common stock, $10 par value, outstanding. There are no shares of
preferred stock. Citizens' principal executive office is 1775
Industrial Boulevard, Lewisburg, Pennsylvania 17787. A copy of
Citizens' Certificate and Articles of Incorporation are
incorporated by reference and attached hereto as Exhibit A-3.
For the year ended December 31, 1997, Citizens'
electric operating revenues were approximately $9.3 million.
Assets of Citizens' were approximately $8.4 million consisting of
approximately $5.2 million in identifiable electric utility
property, plant and equipment and approximately $3.2 million in
other corporate assets. Citizens' revenue and asset levels are
not expected to change materially in the future. A more detailed
<PAGE 13> summary of information concerning Citizens' is
contained in its financial reports dated December 31, 1997 and
1996 and are incorporated by reference as Exhibit FS-3.
(e) Wellsboro
Wellsboro is an investor-owned public utility
incorporated in 1894 under the laws of Pennsylvania. It is
subject to regulation by the Pa PUC as to rates and terms and
conditions of service. Wellsboro is not subject to regulation by
any other state or federal agency regulating electric public
utility service. Wellsboro is engaged in the business of
supplying and selling electricity in parts of Tioga County in
Northcentral Pennsylvania. Wellsboro serves approximately 5,500
customers in a 266 square mile territory lying wholly within the
Commonwealth of Pennsylvania.
As of December 31, 1997, Wellsboro had 2,000 shares of
common stock authorized of which 1065.5 shares were outstanding.
As of December 31,1997, Wellsboro had 2,000 shares of preferred
stock, 4% cumulative, $100 par value, authorized with 1,960
shares issued and outstanding.
Wellsboro's executive office is located at 33 Austin
Street, Wellsboro, PA, 16901. A copy of Wellsboro's Certificate
and Articles of Incorporation are incorporated by reference and
attached hereto as Exhibit A-4.
For the year ended December 31, 1997, Wellsboro's
electric operating revenues were approximately $6.1 million.
Wellsboro's assets were approximately $6 million consisting of
approximately $4.5 million in identifiable electric utility
property, plant and equipment and approximately $1.5 million in
<PAGE 14> other corporate assets. Wellsboro's revenue and asset
levels are not expected to change materially in the future. A
more detailed summary of Wellsboro's financial information as
contained in its financial reports dated December 31, 1996 and
1997 are incorporated by reference as Exhibit FS-4
2. Description of Facilities
(a) Tri-County
(i) General
For the year ended December 31, 1997, Tri-County sold
130,605,409 kwh of electric energy (retail only).
(ii) Electric Generating Facilities and
Resources
As of December 31, 1997, Tri-County and its sister
rural electric cooperatives in Pennsylvania indirectly own
generation and transmission facilities through the Allegheny
Electric Cooperative, ("AEC"). Jointly owned by Tri-County,
Claverack and the other 12 rural electric cooperatives in
Pennsylvania and New Jersey, AEC supplies its member owners with
wholesale electric power. AEC obtains wholesale electric power
from a pool of several energy suppliers including the New York
Power Authority and several public utility companies. AEC also
owns and operates a 21 MW hydroelectric plant near Raystown,
Pennsylvania. AEC also owns a 10% interest of the 2,100 MW
Susquehanna Steam Electric Station located in Berwick,
Pennsylvania. The remaining owner is Pennsylvania Power & Light
Company, which company operates this nuclear plant. Both the
Raystown hydroelectric project and the Susquehanna Steam Electric
<PAGE 15> Station are part of and interconnected with the
Pennsylvania-New Jersey-Maryland, ("PJM"), power grid.
Tri-County's 1997 summer peak load of 17,759 KW
occurred in June, 1997 and its 1997 winter peak load of 23,545 KW
occurred January, 1997.
(iii) Electric Transmission and Other
Facilities
As of December 31, 1997, Tri-County's indirectly owned
transmission system consisted of approximately no circuit miles
of 500 kV lines; no circuit miles of 230 kV lines; no circuit
miles of 138 Kv lines; no circuit miles of 69 kV lines; 13
circuit miles of 46 kV lines; and no circuit miles of 25 Kv
lines. As of December 31, 1997, Tri-County's directly owned
transmission system consisted of 16 circuit miles of 34.5 Kv
lines. As of December 31, 1997, Tri-County's distribution system
consisted of 3,000 circuit miles of 34.5 Kv lines and 12 Kv
lines. As of December 31, 1997, Tri-County's electric
transmission and distribution system included 15 transmission
pole line miles of overhead lines; no transmission cable miles of
underground cables; 2,915 distribution pole line miles of
overhead lines; and 67 distribution cable miles of underground
distribution cables.
AEC and Tri-County are interconnected at various points
with the PJM power grid through GPU Energy, Inc. The members of
PJM together have worked voluntarily for more than 70 years to
create the largest "tight" power pool with free-flowing ties.
Generally, a tight power pool consists of two or more electric
systems which coordinate the planning and/or operation of their
<PAGE 16> bulk power facilities for the purpose of achieving
greater economy and reliability in accordance with a contractual
agreement that establishes the individual member's
responsibilities. See, Conectiv, Inc. HCAR Nos. 35-26832 and 70-
9069 (February 27, 1998). Tight power pools have centralized
dispatch of generating facilities whereby energy and operating
reserves are interchanged among the participant systems and
transferred over the facilities owned by the individual
participants. Participants have contractual requirements
relating to generating capacity and operating reserves, together
with specific financial penalties if these requirements are not
met. Sufficient transmission capacity is made available to
realize the full value of operating and planning coordination.
With the support and backing of their regulatory commissions, the
PJM members have built an efficient wholesale energy market on a
"split savings" energy exchange, the reciprocal sharing of
capacity resources and a competitive market and transmission
entitlements to import energy. In order to achieve economy and
reliability of the system in terms of a bulk power supply, PJM
members coordinate the planning and operation of their systems,
share installed capacity, share operating reserves to reduce
installed generator requirements, and participate in centralized
unit commitment, coordinated bilateral contracts and
instantaneous real-time dispatch of energy resources to meet
customer load requirements throughout the PJM system. Conectiv,
supra. Estimates of the savings realized by the PJM Pool range
upwards of $1 billion per year. <PAGE 17>
As a result of certain restructuring proposals approved
by the Federal Energy Regulatory Commission, ("FERC"), the PJM
shall now be operated as a spot market oriented control area
allowing for the use of bilateral contracts. The PJM coordinates
planning and operation of the transmission system to deliver
energy to its contractual members reliably and economically. The
PJM staff centrally forecasts, schedules and coordinates the
operation of generating units, bilateral transactions and the
spot energy market to meet load requirements. To maintain a
reliable and secure electrical system, PJM monitors, evaluates
and coordinates the operation of over 8,000 miles of high-voltage
transmission lines. Operations are closely coordinated with
neighboring control areas, and information is exchanged to enable
real-time security assessments of the transmission grid.
Many of the rules governing the use of the nation's
transmission system are changing. In FERC Order 888, FERC
directed all transmission-owning public utilities to file tariffs
that offer comparable open access transmission service to any
entity on terms comparable to those offered to the transmitting
public utility.
The members of the PJM submitted a filing on
December 31, 1996 with FERC to comply with the requirements of
FERC's Order No. 888 applicable to tight power pools. This
filing included an Operating Agreement, a Transmission Owners
Agreement, a pool-wide PJM Open Access Transmission Tariff and an
amended PJM Interconnection Agreement. PJM is now a limited
liability corporation which has the capability of expanding its
membership base beyond its traditional member company electric
<PAGE 18> public utilities. Such expanded membership includes
nonutility power marketers and brokers, and utilities whose
retail service territories are outside the PJM's geographic
boundaries.
On February 28, 1997, FERC issued an Order, inter
alia, accepting the PJM compliance filing. MidContinent Area
Power Pool, et al., 78 F.E.R.C. Paragraph 61,207 (1997).
Subsequently, on June 2, 1997, the PJM's supporting companies
submitted a comprehensive filing to restructure PJM. The June 2,
1997 filing included an Amended and Restated Operating Agreement,
a Transmission Owners Agreement, a PJM Open Access Transmission
Tariff and a Reliability Assurance Agreement Among Load Serving
Entities in the PJM Control Area. On November 25, 1997, FERC
issued an Order conditionally accepting the proposed Operating
Agreement, Open Access Transmission Tariff and Power Pool
Agreements. Pennsylvania-New Jersey-Maryland Interconnection, et
al., 81 FERC Paragraph 61,257 (1997).
(iv) Other
Tri-County owns and occupies a number of office
buildings and operating centers in Mansfield, Coudersport,
Germania, Westfield, Mainesburg and Liberty, Pennsylvania. In
addition, Tri-County owns other property, plant and equipment
supporting its electric utility functions.
(i) General
For the year ended December 31, 1997, Claverack sold
154,790,731 kwh of electric energy (retail only). <PAGE 19>
(ii) Electric Generating Facilities and
Resources
As of December 31, 1997, Claverack was one of the rural
electric cooperatives referenced in the discussion above
regarding Tri-County. It maintains the same ownership interest
in the above generating facilities.
(iii) Electric Transmission and Other
Facilities
Claverack's indirectly owned electric transmission
facilities are the same as those referenced for Tri-County above.
As of December 31, 1997, Claverack's electrical distribution
system consisted of 2,543 circuit miles of 12 kV lines and 4 kV
lines. As of December 31, 1997, Claverack's electric
distribution system consisted of 2,523 distribution pole line
miles of overhead lines; and 20 distribution cable miles of
underground electric cables. Like Tri-County, Claverack is
interconnected at various points throughout its service territory
with the PJM power grid through GPU Energy, Inc.
(iv) Other
Claverack owns and occupies various office buildings
and operating centers located in Wysox, Tunkhannock and Montrose,
Pennsylvania. In addition, Claverack owns other property, plant
and equipment supporting its electric utility functions.
(c) Citizens'
(i) General
For the year ended December 31, 1997, Citizens' sold
163,896,000 kwh of electric energy (retail only). <PAGE 20>
(ii) Electric Generating Facilities and
Resources
As of December 31, 1997, Citizens' did not own or
operate any generating facilities. Its sole source of electrical
capacity and energy is through a power purchase agreement with a
member of PJM, Pennsylvania Power & Light Company.
(iii) Electric Transmission and Other
Facilities
As of December 31, 1997, Citizens' neither owned nor
operated any transmission facilities. Citizens' distribution
system consists of 193 circuit miles of 12 kV lines. As of
December 31, 1997, Citizens' electric distribution system
consisted of 163 distribution pole line miles of overhead lines;
and 30 distribution cable miles of underground electric cables.
As noted above, Citizens' is interconnected with the
PJM power grid through Pennsylvania Power & Light Company.
(iv) Other
Citizens' owns and occupies an office building and
operating center located in Lewisburg, Pennsylvania. Citizens'
owns other property, plant and equipment supporting its electric
utility functions.
(d) Wellsboro
(i) General
For the calendar year ended December 31, 1997,
Wellsboro sold 101,582,320 kWh of electricity. All sales took
place exclusively within Pennsylvania. <PAGE 21>
(ii) Electric Generating Facilities and
Resources
As of December 31, 1997, Wellsboro did not own any
generating assets. Its sole source of electrical energy and
capacity were power purchase agreements with nonaffiliated
companies.
(iii) Electric Transmission and Other
Facilities
As of December 31, 1997, Wellsboro did not own any
electric transmission facilities. It did own and operate
approximately 525 circuit miles of 12 kV and 2.4 kV distribution
lines consisting of 496 pole line miles of distribution line and
29 underground cable miles of underground cable. Wellsboro is
connected to the PJM power grid through an interconnection to a
PJM member, GPU Energy, Inc.
(iv) Other
Wellsboro owns and occupies an office and operating
center located in Wellsboro Pennsylvania. Wellsboro owns other
property, plant and equipment supporting its electric utility
functions.
3. Nonutility Subsidiaries
(a) Tri-County
As of December 31, 1997, Tri-County did not have any
nonutility subsidiaries.
(b) Claverack
As of December 31, 1997, Claverack had one subsidiary
known as SEP, Inc. This subsidiary will render residential and
commercial property security services in its service territory in
<PAGE 22> Pennsylvania. It is currently in its formative stages
and had no operating revenues as of December 31, 1997.
(c) Citizens'
As of December 31, 1997, Citizens' did not have any
nonutility subsidiaries.
(d) Wellsboro
As of December 31, 1997, Wellsboro did not have any
nonutility subsidiaries.
C. Description of the Acquisition
1. Background and Negotiations Leading to the
Acquisition
Tri-County and Claverack are neighboring and contiguous
rural electric cooperatives. They render electric service to
approximately 35,000 customers in Northcentral and Northeastern
Pennsylvania. They have had a variety of working relationships
in the past. They have formalized this implicit Agreement
through a Joint Cooperative Agreement concerning the operations
of Tri-County and Claverack.
The Energy Policy Act of 1992 ("Energy Act") enhanced
the authority of FERC to order electric utilities to provide
transmission service. This prompted new developments in the
electric utility industry. The Energy Act created a new class of
power producers, exempt wholesale generators, which are not
subject to regulation under the Energy Act. This exemption has
increased a number of entrants into the wholesale electric
generation market and increased competition in the wholesale
segment of the electric utility industry. The FERC, in
implementing the Energy Act, has increased the availability of
<PAGE 23> transmission services, thus creating significant
competition in the wholesale power market. Other developments
have resulted from policies at the SEC liberalizing the
interpretation and administration of the Act in ways that make
acquisitions less burdensome thus facilitating the creation of
larger industry competitors.
The idea of a transaction involving Citizens' first
arose during discussions between Robert O. Toombs, then General
Manager of Tri-County and Eric L. Brouse, President and Chief
Operating Officer of Citizens held in the late Winter/Spring
1997. This resulted in the placement of a telephone call from
Mr. Brouse to Mr. Toombs inquiring whether Tri-County or
Wilderness would be interested in discussions that could lead to
a stock offering for Citizens'. The Board of Tri-County
previously authorized Mr. Toombs to explore strategic options
available to Tri-County in order to position itself for the
coming of retail competition in Pennsylvania. At the time, the
Pennsylvania General Assembly was debating legislation concerning
retail electric choice in the Commonwealth.
These early discussions centered around trends in the
electric industry in light of the legislative debate concerning a
restructuring of the Pennsylvania electric industry. Issues were
raised as to how small electric providers could survive as
independent operating entities in an exceedingly competitive
wholesale and now potentially retail market.
Subsequently over the Spring and Summer 1997, several
telephone and social meetings occurred between Mr. Toombs and Mr.
Brouse to further discuss ways to have Citizens' and Tri-County
<PAGE 24> cooperate in a manner that would allow the two entities
to react to competition in the electric market by achieving
economies of scale. These discussions lead to the concept of
some type of combination of the operations of Citizens' and Tri-
County. The discussions appeared fruitful enough that Mr. Toombs
determined to take the matter for further discussion with the
Tri-County Board of Directors. At the May 20, 1997 Board of
Directors Special Meeting, the Tri-County Board discussed the
opportunity for Wilderness to purchase the stock of Citizens'.
It was the consensus of the Tri-County Board to have Wilderness
explore the issue. At a special Board of Directors meeting held
May 27, 1997, after a lengthy discussion, the Wilderness Board
determined to investigate this opportunity further with
Citizens'.
To assist in this investigation, Wilderness retained
the services of Management Consultant Services, an entity
specializing nationally in the purchase of utility assets and
systems by cooperatives. This entity provided management and
financial advice to Wilderness. In addition, Wilderness retained
the firm of Quad 3 Group, Inc. to develop an engineering analysis
of the Citizens' system.
At the Tri-County September 16, 1997 Board of Directors
meeting, Mr. Toombs provided a review and summary of financial
and other information that had been compiled by Tri-County's
management and engineering consultants. At this time, Mr. Toombs
reported that a letter outlining an offer to purchase had been
sent to Citizens' President, Mr. Brouse. <PAGE 25>
Several meetings were held by the Tri-County and
Wilderness Boards of Directors in the Summer and Fall, 1997 to
discuss ways to structure a combination of the electric
operations of Tri-County and Citizens. Tri-County had
successfully completed the stock purchase, through an exempt
holding company (Wilderness), of all of the common stock of a
Pennsylvania investor-owned public utility. Tri-County had
successfully integrated and achieved certain economies of scale
in the electric operations of Tri-County and Wellsboro as a
result of the acquisition of Wellsboro's stock by Wilderness. It
was believed that further economies of scale could be achieved
through the subsequent acquisition of another small investor-
owned public utility operating solely in Pennsylvania and that
was relatively contiguous.
It was about this time that Tri-County and Claverack
began discussions regarding possible ways to collaborate on
projects and ideas. Discussions began to focus on providing a
partnership interest in Wilderness to Claverack. This specific
collaboration was for the purpose of jointly acquiring a
controlling interest in Citizens' through the purchase of its
outstanding shares of common stock. At the December 16, 1997
Tri-County Board of Directors Meeting, it was reported that
Claverack was willing to participate jointly with Tri-County in
any proposal submitted to the Claverack Board of Directors. The
Tri-County Board authorized its Executive Committee to negotiate
a partnership agreement with Claverack. The partnership
discussions centered around the relative risks and benefits for
each of the respective partners in any joint venture.
<PAGE 26>
Meanwhile discussions progressed further in the
Citizens' stock offering proposal. This culminated in the
delivery of the Tender Offer by Wilderness in February 1998.
During April 1998 it was determined that the Wilderness
holding company structure could not be utilized to consummate the
acquisition of Citizens' common stock. Neither Tri-County nor
Claverack could agree upon an appropriate sharing of the risks
and benefits of the stock acquisition taking into account Tri-
County's current ownership of one hundred percent (100%) of
Wilderness' stock. The parties could not agree upon an
appropriate capital structure that would properly assign each
parties' perception of their risks and rewards.
In the late Spring/early Summer 1998 Tri-County and
Claverack began to explore the possibility of creating a new
holding company to facilitate the purchase of Citizens' stock.
This culminated in a Partnership Agreement executed on May 28,
1998 between Tri-County and Claverack. The final composition of
the purchasing corporate structure was finalized in mid-August
1998.
2. Acquisition Agreements
The January 4, 1998 Memorandum of Understanding
provided that Wilderness would direct an offer of $79.00 per
share of common stock outstanding. The obligation to pay was
predicated upon the tendering of a minimum number of shares which
was equivalent to a simple majority of the outstanding shares.
Upon acceptance of the MOU, the necessary documentation for a
<PAGE 27> tender offer would be created. Citizens' accepted the
MOU on January 5, 1998.
The Tender Offer proposes that Wilderness or its
assignee shall purchase all of the outstanding common shares
tendered for purchase by Citizens' shareholders. Under the terms
of the Tender Offer, upon consummation of the acquisition, the
shares of stock shall be held by Wilderness. The Tender Offer
remained open until April 17, 1998. The major and salient terms
of the Tender Offer are as follows.
The agreement provided for the procedure for the
tendering of shares. All questions concerning the validity of
any documents and time of receipt of such documents for purposes
of tendering shares was to be determined by the purchaser. The
Tender Offer provided that each shareholder who tendered shares
in the Offer would receive a certificate of deposit which
represents the shares tendered. Each Certificate provides that
the registered holder will be entitled to receive all dividends
paid and other distributions made with respect to shares
tendered.
Pursuant to the terms of the Tender Offer, all tenders
are irrevocable. Upon the terms and subject to the conditions of
the Offer, on the closing date the purchaser will accept for
payment all shares properly tendered and not withdrawn. The
Tender Offer provided that the shares are not listed on any
exchange or quoted on the National Association of Securities
Dealers Automated Quotation System. There is no established
public trading market for the shares and they are infrequently
traded. Citizens' management believed that the majority of
<PAGE 28> transfers were not sales of the shares but rather
changes in ownership registration. The latest price per share
reported to Citizens' as being paid in cash was $36.00 per share
paid on January 2, 1998 for 51 shares purchased. During 1997,
transactions in Citizens' Common Stock ranged from $28.75 per
share to $32.00 per share.
Subsequently, Wilderness assigned, pursuant to a Second
Amended Memorandum of Understanding, its various rights as
purchaser under the MOU and the Tender Offer to C&T. This Second
Amended Memorandum of Understanding was executed on July 20,
1998. No changes to the Tender Offer were permitted by the
express terms of the Second Amended Memorandum of Understanding.
It is contemplated that the management of Citizens will
stay in place upon consummation of the stock transfer.
The stock acquisition is subject to customary closing
conditions, including all necessary governmental approvals,
including the approval of the Commission.
D. Benefit Plans
Neither C&T nor Citizens' shall have any type of stock
reinvestment plan for the general public. Neither C&T no
Citizens' shall have any type of stock incentive plan for its
employees or officers.
E. Management and Operations of Citizens Following the
Mergers
Pursuant to the Acquisition Agreement, both Tri-County
and Claverack, through C&T, will each be entitled to nominate
members to the Citizens' Board of Directors. <PAGE 29>
C&T will take all action necessary to cause each member
of the Citizens' Board serving in such capacity immediately prior
to the acquisition to have the opportunity to serve as a member
of the new Citizens' Board. At the consummation of the
acquisition, Robert O. Toombs will be the President and Chief
Executive Officer of Citizens'. Eric L. Brouse will be the Vice
President and Chief Operating Officer of Citizens'. Mr. Brouse
is currently President of Citizens'. The Chairman and Vice
Chairman of Citizens' will be elected from the then current pool
of Directors serving on the Citizens' Board.
Citizens' will be subject to extensive federal and
state regulation governing dealings among its utility and
nonutility operations. Accordingly, any management policies
adopted by Citizens' Board of Directors must adhere to any
procedural and substantive recordkeeping, accounting and other
requirements imposed by such regulations.
The reconstituted Citizens' Board of Directors will
honor all prior contracts, agreements, collective bargaining
agreements, and commitments with current or former employees or
current or former directors of Citizens' in accordance with the
respective terms of such contracts, agreements and commitments,
subject to Citizens' right to enforce them in accordance with
their terms (including any reserved right to amend, modify,
suspend, revoke or terminate them). Further, employee severance
packages will comply with the Second Amended Memorandum of
Understanding.
Citizens' will provide charitable contributions and
community support within the service area of Citizens' at levels
<PAGE 30> substantially comparable to the historic levels of
charitable contribution and community support provided by the
prior Board of Directors within its service area. Indeed, it is
contemplated that Citizens', upon consummation of the
acquisition, will be able to enhance its involvement in such
activities.
It is contemplated that Citizens' shall maintain its
corporate headquarters and principal executive offices in
Lewisburg, Pennsylvania. Management of the system will be
subject to the local control of Citizens' officers, managers and
employees.
F. Industry Restructuring Initiatives
On December 3, 1996, Pennsylvania Governor Tom Ridge
signed into law the Pennsylvania Electricity Generation Customer
Choice and Competition Act, (the "Competition Act"). In the
Competition Act, the Pennsylvania General Assembly provided for a
comprehensive restructuring of the electric utility industry in
the Commonwealth of Pennsylvania. The Act provided for, among
other things, the filing of restructuring plans by all regulated
public utilities operating in Pennsylvania. The Act also called
for the ability of retail customers to choose their electric
generation supplier beginning in, on a pilot basis, November
1997. This pilot program was offered to 5% of each electric
public utility's existing retail load. The Competition Act also
provided for a phase-in to electric generation choice, which
period would end on January 1, 2001.
Under the Competition Act, all components of electric
service, which consists of electric generation, transmission
<PAGE 31> services, distribution services, metering and billing,
will be required to be unbundled by a date certain. Such
unbundled service must be offered to all retail customers on a
non-discriminatory basis utilizing unbundled rate components.
The Competition Act also provides for and addresses the
issue of "stranded" costs related to the generating assets
currently in a public utility's existing rates. The high cost of
construction and operations incurred by jointly-owned nuclear
power plants and the long-term high costs of supply contracts
with independent power producers are two significant contributing
factors to stranded costs. The Competition Act requires that
there be a recovery of stranded costs over a seven year
transition period through a specific competitive transition
charge which will be a separate component of a customer's bill.
Determination of the recoverability of stranded costs was to be
on a case-by-case basis with 100% recovery of a just and
reasonable level of stranded costs as determined by the Pa PUC.
The Competition Act provides that the opportunity for
recovery of such costs is contingent upon whether the electric
public utilities have appropriately mitigated their level of
stranded costs. The Act also contains several rate caps which
provide for assurances of capped rates for customers who desire
not to engage in the retail electric generation market.
All electric public utilities in Pennsylvania have
filed their electric restructuring plans with the Pa PUC. The
Commission has acted finally on all of those plans as of the date
of the filing of this Application/Declaration. <PAGE 32>
Citizens' restructuring plan was approved by the
Commission by Final Order entered June 18, 1998. The Order is
final and unappealable. Phase-in to electric retail choice shall
begin on February 1, 1999 in Citizens' service territory.
As a companion piece of legislation, the Pennsylvania
General Assembly also enacted the Electricity Generation Choice
for Customers of Electric Cooperatives Act, ("Cooperative Act").
Similar to the Competition Act for Pa PUC regulated electric
utilities, the Cooperative Act provides for, among other things,
the complete right of electric cooperatives to compete with
others in providing electric and other services in the
Commonwealth. A separate system of electric retail choice was
created for electric cooperatives. Rural electric cooperative
customers have the right to seek alternative suppliers and rural
electric cooperatives in Pennsylvania have the mandatory
obligation to provide open and nondiscriminatory access to the
electric cooperative's customer base. Finally the Cooperative
Act provides for the payment of stranded costs by a cooperative's
departing customers who engage in electric retail choice.
PAGE 33
<PAGE>
Item 2 FEES, COMMISSIONS AND EXPENSES
The fees, commissions and expenses to be paid or
incurred, directly or indirectly, in connection with the
acquisition, including the solicitation of securities of Citizens
under the Securities Act of 1993, and unrelated matters, are
estimated as follows:
Accountants' fees $5,000
Legal fees and expenses $100,000
Shareholder communication and
proxy solicitation $8,000
Exchanging, printing and
engraving of stock
certificates $2,000
Consulting fees related to the
acquisition $150,000
TOTAL ESTIMATED FEES $510,000
PAGE 34
<PAGE>
Item 3 APPLICABLE STATUTORY PROVISIONS
The following sections of the Act and the Commission's
Rules thereunder are or may be directly or indirectly applicable
to the proposed transaction:
Transaction to which Section or
Section of the Act Rule is or May Be Applicable
3(a)(1) Registration of C&T as an exempt
public utility holding company;
registration of Claverack as an
exempt public utility holding
company; continuation of
registration of Tri-County and
Wilderness as exempt holding
companies.
3(a)(2) Registration of Tri-County and
Claverack as exempt public utility
holding companies.
9(a)(2) Acquisition by C&T, Tri-County
and Claverack of common stock of
Citizens'.
To the extent that other sections of the Act or the
Commission's Rules thereunder are deemed applicable to the
acquisition, such sections and rules should be considered to be
set forth in this Item III.
A. Legal Analysis
Section 9(a)(2) makes it unlawful, without prior
approval of the Commission under Section 10, "for any
person....to acquire, directly or indirectly, any security of any
public utility company, if such person is an affiliate. . .of
such company and of any other public utility or holding company,
or will by virtue of such acquisition become such an affiliate."
Under the definitions set forth in Section 2(a)(11)(A), an
"affiliate" of a specified company means "any person that
<PAGE 35> directly or indirectly owns, controls, or holds with
power to vote, 5 per centum or more of the outstanding voting
securities of such specified company," and "any company 5 per
centum or more of whose outstanding voting securities are owned,
controlled, or held with power to vote, directly or indirectly,
by such specified company."
Citizens' is a public utility company as defined in
Section 2(a)(5) of the Act. Because C&T directly and Tri-County
indirectly will acquire more than 5% of the voting securities of
Citizens' as a result of the acquisition, both will become
affiliates as defined in Section 2(a)(11)(A) of the Act. As a
result of the acquisition, and because Tri-County has a
subsidiary holding company (Wilderness) which owns the stock of a
public utility (Wellsboro), C&T, Tri-County and Claverack must
seek and receive approval of the Commission for the stock
acquisition under Sections 9(a)(2) and 10 of the Act. The
statutory standards to be considered by the Commission in
evaluating the proposed transaction are set forth in
Sections 10(b), 10(c) and 10(f) of the Act.
As set forth more fully below, the acquisition complies
with all of the applicable provisions of Section 10 of the Act
and should be approved by the Commission. Thus:
- The consideration to be paid for the acquisition
of Citizens' stock is fair and reasonable;
- The acquisition will not create detrimental
interlocking relations or concentration of
control;
- The acquisition will not result in an unduly
complicated capital structure for the C&T system;
<PAGE 36>
- The acquisition is in the public interest and the
interest of investors and consumers;
- The acquisition is consistent with Sections 8 and
11 of the Act;
- The acquisition tends toward the economical and
efficient development of an integrated public
utility system; and
- The acquisition will comply with all applicable
state laws.
Furthermore, the acquisition provides an opportunity
for the Commission to follow certain of the interpretive
recommendations made by the Division of Investment Management,
(the "Division"), in the report issued by the Division in June
1995 entitled "THE REGULATION OF PUBLIC HOLDING COMPANIES", (the
"1995 Report"). The acquisition and requests contained in this
Application/Declaration are well within the precedent of
transactions approved by the Commission and are consistent with
the Act prior to the 1995 Report and thus could be approved
without any reference to the 1995 Report. A number of direct
recommendations contained in the Report, however, serve to
strengthen the Applicants' analysis and support certain requests
that would facilitate the creation of a new holding company
better able to compete in the rapidly evolving electric utility
industry. The Division's overall recommendation that the
Commission "act administratively to modernize and simplify
holding company regulations. . . and minimize the regulatory
overlap, while protecting the interests of consumers and
investors" should be used in reviewing this
Application/Declaration since, as demonstrated below, the
acquisition will benefit both consumers and shareholders of C&T
<PAGE 37> and the state regulatory authority with jurisdiction
over the acquisition will have approved the acquisition as in the
public interest. In addition, as discussed in more detail in
each applicable item below, the specific recommendations of the
Division with regard to financing transactions, utility
ownership, and diversification are applicable to the acquisition.
For example, the 1995 Report recommends that the
Commission should apply a more flexible interpretation of the
integration requirements of the Act. It states that
interconnection through power pools, reliability councils and
wheeling arrangements can satisfy the physical interconnection
requirement of Section 2(a)(29); the geographical requirements of
Section 2(a)(29) should be interpreted flexibly, recognizing
technical advances consistent with the purposes and provisions of
the Act; the Commission's analysis should focus on whether the
resulting system will be subject to effective regulation; the
Commission should liberalize its interpretation of the "A-B-C"
clauses and permit combination systems where the affected state
agrees and the Commission should watchfully defer to the work of
other regulators. 1995 Report at 71-77. The Commission has
recognized the need to apply the standards of Section 10, and by
reference, Section 11(b), in light of the changing realities of
the utility industry. There now exists a national policy to
promote efficient and competitive energy markets. Participation
in energy marketing ventures has been viewed as promoting greater
competition. This creation and nurturing of competition extends
to both retail and wholesale markets. Eastern Utilities
Associates, HCAR No. 70-8769 (May 23, 1996). <PAGE 38>
1. Section 10(b).
Section 10(b) provides that, if the requirements of
Section 10(f) are satisfied, the Commission shall approve an
acquisition under Section 9(a) unless;
(1) Such acquisition will tend towards
interlocking relations or the concentration
of control of public utility companies, of a
kind and to an extent detrimental to the
public interests or the interests of
investors or consumers;
(2) In the case of acquisition of securities, the
consideration, including all fees,
commissions, or other remuneration, to whom-
soever paid, to be given, directly or
indirectly, in connection with such
acquisition is not unreasonable 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.
(a) Section 10(b)(1)
(i) Interlocking Relations
By its nature, any acquisition results in new links
between theretofore unrelated companies. These links, however,
are not the types of interlocking relationships targeted by
Congress in Section (b)(1), which was primarily aimed at
preventing business combinations unrelated to operating
synergies. Congress sought to prevent interlocking directorships
among competitors engaged in interstate commerce and was
primarily targeted at preventing restrictions that prohibit free
<PAGE 39> and open competition. North American Light and Power
Company, et. al., HCAR No. 6153 (October 25, 1945).
The stock acquisition provides for a Board of Directors
to be composed of members drawn from the Boards of Citizens',
Tri-County and Claverack. This is necessary to integrate
Citizens' fully into the C&T system and therefore will be in the
public interests and the interests of investors and consumers.
Forging such relations is beneficial to the protected interests
under the Act and thus are not prohibited by Section 10(b)(1).
The stock acquisition does not contemplate creating relationships
with other far-flunged public utilities engaged in interstate
commerce or with competitors of each constituent company. The
stock acquisition shall not inhibit competition as there shall be
control exercised only over two small investor-owned public
utilities operating in a limited portion of Pennsylvania.
(ii) Concentration of Control
Section 10(b)(1) is intended to avoid "an excess of
concentration in business," while preserving "opportunities for
economies of scale, the elimination of duplicate facilities and
activities, the sharing of production, capacity and reserves, and
generally more efficient operations" afforded by the coordination
of local utilities into an integrated system. American Electric
Power Company, 46 SEC 1299, 1309 (1978). This Section of the Act
is designed to prevent huge, complex and irrational holding
company systems. American Power, supra. When applying
Section 10(b)(1) to utility acquisitions, the Commission must
determine whether the acquisition will create "the type of
structures and combinations at which the Act was specifically
<PAGE 40> directed." Vermont Yankee Nuclear Corporation, 483 SEC
693, 700 (1968). As discussed below, the acquisition will not
create a "huge, complex, and irrational system" but rather will
provide the opportunity for Citizens to achieve economies of
scale and efficiencies which are expected to benefit investors
and customers. American Electric Power, 486 SEC at 307 (1978).
Size: If approved, the C&T system will serve
approximately 6,300 electric customers solely within the State of
Pennsylvania. Even when combined with the other electric
customers served by Tri-County, Claverack and Wellsboro, the
total number of electric consumers will not exceed 50,000
customers over a geographic territory encompassing 6,625 square
miles or almost 9% of the Commonwealth of Pennsylvania. For the
year ended December 31, 1997, the combined assets of Claverack,
Tri-County, Wilderness and Citizens' would be approximately
$113.3 million; the combined operating revenues of Tri-County,
Claverack, Citizens' and Wellsboro would be approximately $49.2
million. Neither Wellsboro, Citizens', Tri-County nor Claverack
will own any generating capacity or generating facilities.
By comparison, the Commission has approved a number of
acquisitions involving significantly larger operating utilities.
See for example, Cinergy Corporation, HCAR No. 26,146
(October 21, 1994) (combination company whose combined assets at
time of acquisition was approximately $7.9 billion); Entergy
Corporation, HCAR No. 25,952 (December 17, 1993) (combined
company whose assets at time of acquisition were in excess of $21
billion); Northeast Utilities, HCAR No. 25,221 (December 21,
1990) (company whose combined assets at time of acquisition was
<PAGE 41> approximately $9 billion); Centerior Energy
Corporation, HCAR No. 24,073 (April 29, 1986) (company whose
combined assets at time of acquisition was approximately $9.1
billion); Conectiv, Inc., HCAR Nos. 35-26832 and 70-9069
(February 25, 1998) (company whose combined assets at time of
acquisition was $5.65 billion).
C&T will be an extremely small-sized exempt holding
company and its operations would not exceed the economies of
scale of current electric generation transmission technology or
provide undue power or control to Citizens' in the region in
which it will provide service. Indeed, the neighboring utility
to Citizens', Pennsylvania Power & Light Company, serves
approximately 1.1 million customers in Pennsylvania. Citizens'
6,300 customers, even when combined with Wellsboro's 5,500
customers, represent only 0.19% of the Commonwealth of
Pennsylvania's approximately 6 million electric customers.
Efficiencies and Economies: As noted above, the
Commission has rejected a mechanical size analysis under
Section 10(b)(1) in favor of assessing the size of the resulting
system with reference to the efficiencies and economies that can
be achieved through the integration and coordination of utility
operations. More recent pronouncements of the Commission confirm
that size is not determinative. Thus, in Centerior Energy Corp.,
HCAR No. 24,073 (April 29, 1986), the Commission stated flatly
that "a determination of whether to prohibit enlargement of a
system by acquisition is to be made on the basis of all of the
circumstances, not on the basis of size alone." In addition, in
the 1995 Report, the Division recommended that the Commission
<PAGE 42> approach its analysis on merger and acquisition
transactions in a flexible manner with emphasis on whether the
merger or acquisition creates an entity subject to effective
control and is beneficial for shareholders and customers as
opposed to focusing on rigid, mechanical tests.
Thus while Congress was concerned with the evils and
pitfalls of "bigness", it was also aware that the combination of
isolated local utilities into an integrated system provided
opportunities for economies of scale, the elimination of
duplicative facilities and activities, the ability to share
resources and supplies, all in an effort to implement generally
more efficient operations. American Electric, supra.
By virtue of the acquisition, C&T will be in a position
to realize the opportunities for achieving economies of scale,
eliminating duplicate facilities and activities, sharing of
production capacity and reserves, and generally more efficient
operations as more fully described by the Commission in America
Electric Power Company, 46 SEC 1299 (1978). Among other things,
the acquisition is expected to permit Citizens' and Wellsboro to
yield significant capital expenditure savings through labor cost
savings, facilities consolidations, corporate and administrative
programs, non-fuel purchasing economies, combined fuel supply and
power purchases, access to a more open and efficient market for
capital outlays and the ability to combine certain administrative
functions such as billing and metering. These expected economies
and efficiencies from the combined utility operations are
described in greater detail below and are projected to result in
<PAGE 43> net savings of more than $5.8 million over the first 10
years alone.
Competitive Effects: Section 10(b)(1) also requires
the Commission to consider the possible anticompetitive effects
of an acquisition. Entergy, supra. In Northeast Utilities, HCAR
No. 25,221 (December 21, 1990), the Commission stated that the
"antitrust ramifications of an acquisition must be considered in
light of the fact that public utilities are regulated monopolies
and that federal and state agencies regulate the rates charged
consumers." This acquisition need not be filed with the DOJ or
FTC pursuant to the Hart-Scott-Rodino Act. In addition, there
will be no review by FERC of the acquisition. The PaPUC,
however, is required, pursuant to its new electric restructuring
legislation, noted earlier, to monitor competitive conditions in
the supply and distribution of electricity to retail customers.
66 Pa. C.S. Section 2811(a). In addition, the PaPUC is required
to take steps to prevent anticompetitive or discriminatory
conduct and the unlawful exercise of market power by any electric
supplier. Id. Under this legal authority, the PaPUC, upon
complaint or upon its own motion for good cause shown, must
conduct an investigation of the impact of various transactions on
the proper functioning of a fully competitive retail electricity
market, including the effect of mergers, consolidations,
acquisition or disposition of assets or securities of electricity
suppliers, transmission congestion and anticompetitive or
discriminatory conduct affecting the retail distribution of
electricity. 66 Pa. C.S. Section 2811(b). In addition, the Code
requires the PaPUC, in the exercise of its authority that it
<PAGE 44> otherwise would have to approve the acquisition of
securities of other public utilities, to consider whether the
proposed acquisition is likely to result in anticompetitive or
discriminatory conduct, including the unlawful exercise of market
power, which will prevent retail electricity customers in the
Commonwealth from obtaining the benefits of a properly
functioning and a workable competitive retail electricity market.
Finally, the PaPUC has broad authority to condition the grant of
a certificate of public convenience approving this stock
acquisition, including the right to correct potential
anticompetitive effects. As noted above, Citizens' rates are
subject to certain rate caps as part of the Competition Act.
Those rates are capped at levels current as of January 1, 1997.
Further, the rate caps are effective for 54 months from January
1, 1997. Thus Citizens' shall not possess any market power to
extract monopoly rents from its ratepayers. It does not possess
market power in the transmission market because it does not own
any transmission assets. It lacks generation assets and thus
does not possess market power in the generation market. In sum,
the four holding company systems which are the subject of this
proceeding do not possess market power. Under the current
statutory structure in Pennsylvania the four utilities will be
subject to intense competition for their native load customers.
Because of their small size and unique characteristics, a loss of
even a small proportion of their customer load will have
significant ramifications upon their revenue streams. All the
more reason that size will be critical to survival in a
competitive retail electricity market. <PAGE 45>
Thus, it is clear that there is effective regulatory
control over the proposed acquisition of Citizens' stock by C&T.
The Pa PUC will resolve the issue of market power, if any is
found. C&T believes, however, based on the evidence provided
above, that its market power in Northcentral Pennsylvania is
nonexistent and thus the Pa PUC will make the appropriate finding
that this stock acquisition will have no impact on a competitive
market in Citizens' service territory.
For the reasons noted above, the acquisition will not
tend towards interlocking relations or the concentration of
control of public utility customers of a kind or to the extent
detrimental to the public interests or the interests of investors
or customers within the meaning of Section 10(b)(1).
(b) Section 10(b)(2) - Fairness of Consideration
Section 10(b)(2) requires the Commission to determine
whether the consideration to be given by C&T to the shareholders
of Citizens' common stock in connection with the acquisition is
reasonable and whether it bears a fair relation to investment in
and earning capacity of the utility assets underlying the
securities being acquired. While Citizens' stock does not trade
on the open market, C&T believes that the consideration paid in
this stock acquisition is fair. The Commission has stated in the
past that Section 10(b)(2) does not demand a mathematical
equivalence of values for the terms of the exchange. Rather a
voluntary exchange requires some advantages, typically a premium,
in order to induce acceptance of the tender offer. Entergy
Corporation, HCAR No. 35-25952 (December 17, 1993). <PAGE 46>
The purchase price was the product of extensive and
vigorous arms-length negotiations between Citizens' and
Wilderness, Inc. These negotiations were preceded by months of
due diligence, analysis and evaluation of the assets, liabilities
and business prospects of the respective companies.
A nationally recognized management consulting firm
specializing in advising rural cooperatives who seek to purchase
utility system assets provided extensive managerial and financial
advice. On behalf of Wilderness, this firm reviewed extensive
information concerning the companies and analyzed ratios
employing a variety of valuation methodologies. The financial
advisor examined various factors. In particular, the financial
advisor noted that the earnings per share of Citizens' was almost
75% greater than the industry average ($2.34/share versus
$3.60/share). It also noted that Citizens' return on assets was
almost twice the industry average. (3.6% versus 6.32%). All of
these comparisons were made prior to a consideration of the
effects of new operating efficiencies. Citizens' also employed a
financial advisor to provide information concerning a fair and
equitable price. Such financial advisors have opined that the
price to be paid, from a financial point of view, is fair.
In light of these opinions and an analysis of all
relevant factors, including the benefits that may be realized as
a result of the acquisition, C&T believes that the price to be
paid falls within the range of reasonableness and that the
consideration for the acquisition bears a fair relation to the
sums invested in, and the earning capacity of, the utility assets
of Citizens. <PAGE 47>
(c) Section 10(b)(2) - Reasonableness of Fees
C&T believes that the overall fees, commissions, and
expenses incurred and to be incurred in connection with the
acquisition are reasonable and fair in light of the size and
complexity of the acquisition relevant to the transaction and the
anticipated benefits of the stock acquisition to the public
investors and consumers; that they are consistent with recent
precedent; and that they meet the standards of Section 10(b)(2).
As set forth in Item II of this Application/
Declaration, C&T anticipates it will incur a total of
approximately $510,000 in fees, commissions and expenses in
connection with the merger. This number pales in light of the
recent mergers and other acquisitions approved by the SEC. In
addition, the total amount for overall fees, commissions and
expenses represents only 4.6% of the total tender offer price
proposed by C&T.
(d) Section 10(b)(3) - Capital Structure
Section 10(b)(3) requires the Commission to determine
whether the acquisition will unduly complicate C&T's capital
structure or will be detrimental to the public interest, the
interests of investors or consumers or the proper functioning of
C&T's system.
The capital structure of C&T will not be unduly
complicated nor will it be detrimental to the public interest,
the interests of investors or consumers or the proper functioning
of C&T's system. As described in Item I.A.2., C&T will have only
one class of common stock. It shall not have any preferred stock
issued to the general public. At the time of formation, C&T
<PAGE 48> shall not have any debt. As a result, C&T's capital
structure will simply consist of the common stock.
C&T will hold as its sole asset, at least initially,
all of the stock sold by the shareholders of Citizens.
This transaction or acquisition shall not have any
impact upon the capital structure of Wilderness. That capital
structure shall stay in its current status. It should be
emphasized that the original proposal contemplated by Claverack
and Tri-County would have unduly complicated Wilderness' capital
structure. As indicated in Item 1, Wilderness originally was to
have purchased all of the capital stock of Citizens. In order to
accomplish this goal, Wilderness' capital structure would have
had to be modified in order to allow for the relative risk
associated with the purchase of Citizens' stock to be properly
reflected among Tri-County and Claverack. This would possibly
have led to the creation of tracking stock in the form of a
different class of common stock. As noted above, this has been
avoided. C&T shall have only one class of common stock and no
classes of preferred stock.
The Act's concern with complicated capital structures
focuses on the use of an inordinate number of different
securities having different preferences, dividends, voting rights
and other special characteristics and the resulting difficulty in
understanding the factors determining the performance of a
security and voting control of the issuer. Section 10(b)(1)
identifies utilities' securities being "issued upon the basis of
fictitious or unsound asset values having no fair relation to the
sums invested in or the earning capacity of the properties and
<PAGE 49> upon the basis of paper profits from inter-company
transactions, or in anticipation of excessive revenues from
subsidiary public utility companies" as abusive.
Section 10(b)(3) of the Act highlights problems resulting from
"when control of [utility holding company] companies is exerted
through disproportionately small investment" (i.e., pyramiding).
The primary objective of Section 10(b)(3) and
Section 11(b)(2) is to prevent an unfair allocation of actual
voting power in utility holding companies through an unduly
complicated capital structure. Indeed, earlier decisions of the
Commission interpreting the standards of Section 10(b)(3) and
Section 11(b)(2) focus primarily on publicly-held minority stock
interests.
Section 10(b)(3) and Section 11(b)(2) were designed to
eliminate the abuse of holding company structures that predated
the adoption of the 1935 Act. These provisions were needed at
that time given the immature nature of other federal securities
or law protections available to investors. In the 1995 Report,
the Staff extensively discussed the greater access to information
and advances in accounting and recordkeeping requirements that
have developed since the adoption of the Securities Act of 1933
and the Securities Exchange Act of 1934. Given these advances,
there is no concern that the issuance of the stock will unduly
complicate C&T's capital structure.
It is anticipated that the regulatory environment in
which Citizens and Wellsboro will be conducting their respective
utility operations following the acquisition, will help to ensure
that dealings between these regulated electric utility businesses
<PAGE 50> and C&T as well as Wilderness, and will be appropriate
under the foregoing standard. The Pennsylvania Public Utility
Code provides for regulatory oversight of certain intercompany
transactions and other fiduciary matters that may relate to the
stock. Citizens' and Wellsboro will be directly subject to
comprehensive regulation by the PaPUC as to retail rates, terms
and conditions of service, accounting practices and audits,
purchases and dispositions of utility property, the issuance and
assumption of securities, the acquisitions of other utility and
nonutility companies, interaffiliates transactions, certain
additions and extensions of facilities and in certain other
respects.
The only voting securities of C&T which will be
publicly held after the transaction will be this common stock.
C&T will have the ability to issue preferred stock but at this
time that action is not anticipated.
As set forth more fully in Item 3.A.2.(b)(i)
(efficiencies and economics), Item 3.A.2.(b)(ii) (integrated
public utility system) and elsewhere in this Application/
Declaration, the acquisition is expected to result in substantial
cost savings and synergies, and will integrate and improve the
efficiency of the C&T, Wilderness, Tri-County and Claverack
utility systems. The acquisition will therefore be in the public
interests and the interests of investors and consumers, and will
not be detrimental to the proper functioning of the resulting
holding company system. <PAGE 51>
2. Section 10(c)
Section 10(c) of the Act provides that, notwithstanding
the provisions of Section 10(b), the Commission shall not
approve:
(1) An acquisition of securities or utility
assets, or of any other interests, which is
unlawful under the provisions of Section 8 or is
detrimental to the carrying out of the provisions
of Section 11, (applicable only to registered
holding companies) 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 interests by tending towards
the economic and the efficient development of an
integrated public utility system. . . .
(a) Section 10(c)(1)
Section 10(c)(1) requires that an acquisition be lawful
under Section 8. Section 8 prohibits registered holding
companies from acquiring, owning interests in or operating both a
gas and electric utility serving substantially the same area if
state law prohibits it. In the foregoing acquisition, C&T shall
not be operating a dual utility system. Rather, it shall only be
operating an electric public utility system. Further,
Wilderness, Tri-County and Claverack will not be operating dual
utility systems.
(b) Section 10(c)(2)
The mergers will tend toward the economical and
efficient development of an integrated public utility system,
thereby serving the public interest, as required by
Section 10(c)(2) of the Act. <PAGE 52>
(i) Efficiencies and Economics
The acquisition will produce economies and efficiencies
more than sufficient to satisfy the standards of
Section 10(c)(2), described above. The Commission has previously
determined that financial and organizational benefits, as well as
operational benefits can satisfy the requirement of Section
10(c)(2) of the Act. Although some of the anticipated economies
and efficiencies will be fully realizable only in the longer
term, they are properly considered in determining whether the
standards of Section 10(c)(2) have been met. See American
Electric Power Company, 46 SEC 19,298 (1978). Some potential
benefits, however, cannot be precisely estimated. Nevertheless,
they too are entitled to be considered: "[S]pecific dollar
forecasts of future savings are not necessarily required; a
demonstrated potential for economies will suffice even when these
are not precisely quantifiable." Centerior Energy Corp., HCAR
No. 24,073 (April 29, 1986) (citation omitted).
C&T has estimated the nominal dollar net value of
synergies from the acquisition to be in excess of $5.8 million
over the 10 year time period from 1998 to 2007. The geographical
locations of the respective service territory of Citizens and
Wellsboro, and whose headquarters are within 90 miles of one
another, provide an opportunity to integrate efficiently their
utility operations. Wellsboro, Citizens, Tri-County and
Claverack have existing electrical interconnections with the PJM.
The combined systems can be operated as a single, larger cohesive
system, with virtually no modification needed with respect to
existing transmission interconnections. There are three general
<PAGE 53> areas where presently quantifiable savings can be
realized through the combination of the companies: (1) corporate
and administrative programs including labor savings; (2) non-fuel
purchasing economies; and (3) fuel supply and purchase power.
The amount of savings currently estimated annually in each of
these categories, on a nominal dollar basis, is summarized in the
table below:
CATEGORY AMOUNT
Corporate and Administrative Programs $90,000
Non-Fuel Purchasing Economies $14,000
Fuel Supply and Purchase Power $480,000
NET TOTAL ESTIMATED SAVINGS $584,000
These saving categories are described in greater detail
below.
Corporate Operations and Labor: Savings will be
realized through labor reductions on an attrition basis related
to redundant positions. Many of these reductions will be in
areas where payroll costs are relatively fixed and do not vary
with the increase or decrease in the number of customers served.
These areas include legal services, finance, sales, support
services, transmission and distribution, customer service,
accounting, human resources, emergency work coordination and
information services. C&T and Wilderness also may have the
future ability to consolidate certain customer business offices
and service centers in the areas where they have geographically
close service territories. <PAGE 54>
Facilities Consolidation: While there are no current
savings to be realized through the combination of neighboring
business offices or service centers, the companies will continue
to explore that option as economics dictate. Areas where
nonstructure facilities will be consolidated include outage
dispatch from a central location, centralization of facilities'
maintenance, a centralized Customer Information System, a
Supervisory Control and Data Acquisition system for remote
control of equipment, and an automated mapping system. All of
these could not be performed by the individual operating
companies but now can be implemented because of the achievement
of economies of scale with Tri-County and Claverack.
Corporate and Administrative Program: Savings will be
realized through economies of scale and cost avoidance. These
are areas where both Citizens and Wellsboro incur many costs for
items which relate to the operation of each company, but which
are not directly attributable to customers. Ten such areas have
been identified: administrative and general overhead; benefits
administration; insurance; information services; professional
services; shareholder services; advertising; association dues;
credit facilities; directors' fees; rights-of-way maintenance;
outage response and vehicles. Achieving cost savings through
greater efficiencies and economies of scale will permit each of
the operating utilities to offer more competitively-priced
electric service and energy-related products and services than
would otherwise be possible.
Non-Fuel Purchasing Economies: Savings will be
realized through increased order quantities and the enhanced
<PAGE 55> utilization of a combined inventory for materials and
supplies. Currently, Citizens and Wellsboro independently
maintain separate purchasing departments responsible for
maintaining materials and supplies used by employees at various
storeroom locations. In addition, both companies procure
contract services independently. As a direct result of the
combination, savings can be realized through the procurement of
both materials and services, as well as in costs associated with
the maintenance of inventory levels.
Fuel Supply and Purchased Power: Savings will be
realized through the bundling of commodity fuels and bulk power
purchases in the form of larger quantities or volume. Fuel
supply savings were analyzed in the following area: Purchased
Power - Wellsboro and Citizens will be able to take advantage of
possible commodity savings based on higher total volumes of
electricity acquired. Further Wellsboro's transmission and
generation contract with First Energy will allow Citizens' to
access inexpensive power located to the west of the PJM Control
Area, i.e. the ECAR control area. Savings may also be achievable
in the area of PJM deficiency charges. Currently, PJM requires a
certain level of capacity for its member companies. A charge is
assessed whenever the member company is deficient in terms of
capacity. Citizens' and Wellsboro may be able to avoid such
charges through the diversity created by the amount and timing of
the different peak loads of the two operating companies. The
total potential savings from purchased power economies is
estimated to be $4.8 million over the 10 year period. <PAGE 56>
Additional Expected Benefits: In addition to the
benefits described above, there are other benefits which, while
presently difficult to quantify, are nonetheless substantial.
These other benefits include:
- Increased Scale - As competition intensifies
within the industry, C&T believes scale will be one
parameter that will contribute to overall business success.
Scale has importance in many areas, including utility
operations, product development, advertising and corporate
services. The acquisition is expected to improve the
profitability of the Citizens by increasing the customer
base and providing increased economies of scale in all of
these areas.
- Competitive Prices and Services - Sales to
industrial, large commercial and wholesale customers are
considered to be at greatest near term risk as a result of
increased competition in the electric utility industry. The
acquisition will enable the companies to meet the challenges
of the increased competition and will create operating
efficiencies through which the companies will be able to
provide more competitive prices to customers.
- More Balanced Customer Base - The acquisition
will create a larger company with less reliance on the
residential business now presently served. The companies'
service territories will be more diversed than their
individual service territories, reducing exposure to adverse
changes in any sector's economic and competitive conditions.
- Regional Platform for Growth - The
combination of the companies will create a regional platform
in Pennsylvania's Central and Northern Tier Corridor. The
Corridor is experiencing sluggish economic growth. C&T
plans to expand relationships with existing customers and to
develop new customers in the region. The areas surrounding
Lewisburg, Pennsylvania is expanding. It contains the
corridor of a rapidly improving U.S. Route 15. Growth is
occurring along that entire corridor base. It is hoped that
C&T will be able to capitalize on that market growth.
(ii) Integrated Public Utility System
(1) Electric System
As applied to electric utility companies, the term
"integrated public utility system" is defined in
Section 2(a)(29)(A) of the Act as: <PAGE 57>
a system consisting of one or more units of
generating plants and/or transmission lines and/or
distributing facilities, whose utility assets,
whether owned by one or more electric utility
companies, are physically interconnected or
capable of physical interconnection and which
under normal conditions may be economically
operated as a single interconnected and
coordinated system confined in its operation to a
single area or region, in one or more states, not
so large as to impair (considering the state of
the art in the area or region affected), the
advantage of localized management, efficient
operations, and the effectiveness of regulation."
On the basis of this statutory definition, the Commission has
established four standards that must be met before the Commission
will find that an integrated public utility system will result
from a proposed acquisition of securities:
(1) The utility assets of the system are
physically interconnected or capable of physical
interconnection;
(2) The utility assets, under normal conditions,
may be economically operated as a single interconnected and
coordinated system;
(3) The system must be confined in its operations
to a single area or region; and
(4) The system must not be so large as to impair
(considering the state of the art in the area or region
affected) the advantages of localized management, efficient
operation, and the effectiveness of regulations.
Environmental Action, Inc. v. Securities and Exchange Commission,
895 F.2d 1255 (9th Cir. 1990), citing Electric Energy, Inc., 38
SEC 658 (1958). The acquisition satisfies all four of these
requirements. It should be noted that in the 1995 Report the
Division recommended that the Commission respond realistically to
the changes in the utility industry and interpret more flexibly
each piece of the integration requirements. The purpose of the
integration requirement is intended to eliminate the evils that
<PAGE 58> Congress found to exist "when the growth and the
extension of holding companies bears no relation to... the
integration and coordination of related operating properties".
Section 1(b)(4) of the Act. Congress expressed its belief that,
"in the absence of clearly overriding considerations a utility
system should have a management single-mindedly devoted to
advancing the interests of its investors and consumers and not
engaged, through the means of the holding company device, in
operating other utility or non-utility businesses. New England
Electric System, 41 SEC 888 (1964).
C&T, Wilderness, Tri-County and Claverack satisfy each
of these requirements for an integrated system. C&T shall
operate one public utility system, Citizens'. There shall be no
other public utilities within the C&T holding company system.
Citizens', Wellsboro, Tri-County and Claverack can operate as an
integrated system and thus the integration standard is meet. The
companies will implement centralized and coordinated dispatch
consistent with the requirements of PJM. Tri-County is
contiguous to and actually surrounds Wellsboro. Tri-County and
Claverack are contiguous utilities. All three are interconnected
by various PJM facilities. They are not, however, directly
interconnected. Now that the PJM has recently permitted
nontransmission owning utilities to join PJM, effective
January 1, 1998, it is anticipated that Wellsboro and Citizens'
will became members in the near future.
The Commission has determined that the first
requirement of physical interconnection can be meet on the basis
of contractual rights to use third parties' transmission lines
<PAGE 59> when the companies are members of a tight power pool.
WPL Holdings, Inc.,et. al., HCAR Nos. 35-26856 and 70-8891
(April 14, 1998); Conectiv, supra.; UNITIL Corp., HCAR No.
25,524 (April 24, 1992); Northeast Utilities, HCAR No. 25,221
(December 21, 1990). In these cases, the Commission found that
the utilities and the holding company systems were physically
capable of supplying power to each other through wheeling or
power pool arrangements. The facts of this case also are
strikingly similar to those of UNITIL, supra. There, the
Commission approved a new holding company system that was
different than prior proceedings. In particular the Commission
noted that there would be no particular line through which
transfers of power would take place amongst the companies.
Instead power would be delivered through a nonaffiliate system
and a transmission charge would be paid to the transmission
facility owner. Likewise, the operating public utility companies
did not own or operate any generation facilities. The same facts
arise here: neither of the four operating companies own
generation and all must rely upon third parties to transmit
purchased power. In UNITIL, the Commission found that the
Companies would be indirectly connected through the NEPOOL-
designated transmission facilities and other nonaffiliate
transmission facilities pursuant to the NEPOOL Agreement and
other separate agreements with nonaffiliate companies. NEPOOL is
a tight power pool like PJM. As the Commission stated in UNITIL,
NEPOOL and PJM are comparable power pools. The only difference
between the two is NEPOOL's determination of planned maintenance
outages for the power pool's generating units. <PAGE 60>
The PJM Transmission Tariff applies its provisions to a
regional transmission service that allows network resources and
loads to be integrated over the eight utility PJM transmission
member systems, including the systems that interconnect with
Citizens', Wellsboro, Tri-County and Claverack. The later three
electric utilities are interconnected by the same PJM member, GPU
Energy, Inc.
In addition, the companies will be interconnected
through their interests in their right to use extra high voltage
transmission facilities, as well as through their contractual
rights to use the transmission facilities of other members of the
PJM regional power pool. Those transmission systems will now be
integrated even to a greater degree than when examined by the
Commission in UNITIL because transmission will be rendered on a
regional,integrated basis across all transmission owners'
network. While the statutory definition assumes that the holding
company would coordinate the operations of the integrated system,
the Commission recognized that Congress did not intend to impose
rigid concepts but instead expressly included flexible
considerations to accommodate changes in the electric industry.
Mississippi Valley Generating Co., 36 S.E.C. 159 (1955). Thus
the Commission has considered advances in technology and the
particular operating circumstances in applying the integration
requirements. See, for example New England Electric System, 38
S.E.C. 159 (1958). Thus in Northeast Utilities, supra. the
Commission held that the operation of the generating and
transmitting facilities of the operating company is coordinated
and centrally dispatched under the NEPOOL agreement. Thus the
<PAGE 61> UNITIL companies could be economically operated as a
single interconnected and coordinated system through the
operating companies' participation in NEPOOL.
Likewise here the PJM system will be integrated. The
PJM Office of Interconnection will operate the PJM Control Area;
receive and act upon applications for transmission service;
conduct system impact and facilities studies; schedule
transactions; and direct redispatch, curtailment and
interruption. PJM Interconnection, 81 FERC para. 61257 (1997).
Indeed FERC has characterized the system as integrated stating
that the PJM grid will now be planned and operated as a single
integrated network. Thus, any customer-owned distribution
facilities integrated with the facilities of one transmission
owner will, by definition, be integrated with each of the eight
transmission owning members.
It is anticipated that Citizens and Wellsboro will both
be members of the PJM pool, which is the largest single control
area and type power pool in the Country. In order to achieve
economy and reliability in bulk power supply within the PJM
region, PJM members coordinate the planning and coordination of
their systems, share installed and operating reserves to reduce
installed generator requirements, and participate in centralized
unit commitments, coordinated by lateral transactions, and
instantaneous real-time dispatch of energy resources to meet
customer load requirements throughout the PJM interconnection.
It should be noted that the FERC, as indicated earlier,
has approved the comprehensive restructuring of the PJM
<PAGE 62> interconnection. In its Order, the FERC stated that
the PJM Operating Agreement establishes:
"PJM-OI as an independent body to operate the
[system], administer the PJM Transmission Tariff,
operate the pool spot energy market, referred to
as the Power Exchange (PX), approve a regional
transmission expansion plan, and administer
certain aspects of the Owner's Agreement and
Reliability Agreement. The PJM Operating
Agreement provides that an independent Board of
Managers (PJM Board) would be responsible for
supervision and oversight of the day-to-day
operations of the PJM Pool through PJM-OI, with
the PJM Board's primary responsibilities being to
ensure that the [system's] functions are
accomplished in a manner consistent with: (1) the
safe and reliable operation of the PJM Pool;
(2) the creation and operation of a robust,
competitive, and non-discriminatory electric
market in the PJM Control Area; and (3) the
principle that a member or group of members shall
not have undue influence over the operation of the
PJM Pool. The PJM Operating Agreement also calls
for the formation of a member's committee, in
which all PJM members will vote on the basis of
the following sectors: Generation Owners, Other
Suppliers, Transmission Owners, Electric
Distributors, and End-Use Customers. The rights
reserved to the members are to elect the PJM
Board, amend or terminate the PJM Operating
Agreement, and provide advice and recommendations
to the PJM Board and PJM-OI. The PJM Operating
Agreement also creates Users Groups, which allow
members sharing a common interest to bring matters
before the Members Committee and, if necessary,
the PJM Board."
Pennsylvania-New Jersey-Maryland Interconnection, et al., 81 FERC
Paragraph 61,256 at 62,235-62,236.
It should also be emphasized that the PJM is creating
several historic documents which will influence the ability to
transmit power in and through the PJM control area. The three
documents created include the Transmission Owner's Agreement, the
PJM Transmission Tariff, and the Reliability Agreement. Those
documents are described below. <PAGE 63>
The FERC indicated in its Order that the Owner's
Agreement provides:
". . .that owners of transmission facilities
in the PJM Control Area have agreed to offer
regional transmission service under non-pancake
rates, and to transfer to the [system] the
responsibility for administration of the PJM
Transmission Tariff and regional transmission
planning and operations. The Owner's Agreement
also creates an Administrative Committee of
Transmission Owners that may make recommendations
to the [operator], but that committee is expressly
denied the ability to exercise any control over
the functions and responsibilities transferred to
the [operator]."
In addition, the FERC Order describes the PJM
Transmission Tariff as follows:
". . .PJM-OI will offer pool-wide access
transmission service throughout the PJM Pool via
the facilities of the eight PJM Companies. All
transmission services will be subject to a single,
non-pancake rate based on the cost of the
individual utility's transmission system where the
point of delivery is located."
Finally, the FERC's Order describes the Reliability
Agreement as follows:
". . .it is intended to govern installed
capacity reserves sharing obligations in the PJM
Pool. The Reliability Agreement modifies
traditional reserves sharing within PJM for
purposes of accommodating the introduction of
retail choice in portions of the PJM Control Area.
Only Load Serving Entities, defined as any utility
that sells power at retail to loads within the PJM
Control Area, will be parties to the Reliability
Agreement. The Reliability Agreement will be
administered by a committee containing
representatives of each party, with all day-to-day
functions delegated to PJM-OI."
Id. at 62,236.
The Commission previously has stated that the physical
interconnection requirements of the Act are satisfied on the
basis of contractual rights to use third-parties' transmission
<PAGE 64> lines when the companies both were members of the same
type power pool. In UNITIL, UNITIL's public utility subsidiary
companies and Fitchburg Gas and Electric Light Company were
indirectly interconnected through the New England Power Pool
("NEPOOL") designated facilities and other non-affiliate
transmission facilities pursuant to the NEPOOL Agreement. While
there was no particular transmission lines through which
transfers of powers would be made among the UNITIL Companies,
power would be delivered through a nonaffiliate system and a
transmission charge would be paid to the owners of the
facilities. The Commission found that the UNITIL Companies'
contractual arrangements for transmission service established
that the UNITIL electric system would satisfy the physical
interconnection requirement of the Act. For the same reasons,
C&T satisfies the physical interconnection requirement of the
Act.
While Wellsboro and Citizens now achieve integration
comparable to that found in UNITIL and Northeast Utilities under
the current PJM Interconnection Agreement, PJM members as
indicated above, restructured the organization in ways that will
expand the available mechanisms for integrating the C&T and
Wilderness systems. Under the PJM Open Access Tariff, all
entities can obtain network integration transmission service
throughout the PJM control area to deliver capacity and energy
from designated generation resources to the utility's electric
customers. The amended PJM Interconnection Agreement provides
for coordination of electric system loads, electric generating
capacities and electric transmission facilities. The amended PJM
<PAGE 65> Interconnection Agreement provides that the members
will establish a bid-based wholesale energy market in which any
participant may buy and sell energy, and for the PJM control
center to schedule and dispatch generation on the basis of least-
cost, security-constrained dispatched, and the prices and
operating requirements of customers.
C&T also satisfies the second of the Commission's
requirements that utility assets, under normal conditions, may be
economically operated as a single interconnected and coordinated
system. Cities Services Company, 14 SEC at 55. The Commission
has interpreted this language to refer, among other things, to
the physical operation of utility assets as a system in which the
generation and/or flow of current within the system may be
controlled centrally and allocated as needed or economy dictates.
North American Company, 11 SEC 194 (1942), aff'd, 133 F.2d 148
(2nd Cir. 1943), aff'd on constitutional issues, 327 U.S. 686
(1946). The Commission has considered advances in technology and
the particular operating circumstances in applying the
integration standards. In approving the acquisition of the
Public Service Company of New Hampshire by Northeast Utilities,
the Commission noted that "the operation of generating and
transmission facilities of PSNH and the Northeast operating
companies is coordinated and centrally dispatched under the
NEPOOL Agreement." Northeast Utilities Co., HCAR No. 25,221 at
n. 85. Similarly, in UNITIL, the Commission concluded that the
combined electric utility assets of the companies may be operated
as a single interconnected and coordinated system through their
participation in NEPOOL. For the same reasons Tri-County,
<PAGE 66> Claverack, C&T and Wilderness are able to operate their
utility assets as a single interconnected and coordinated system.
Electrical power requirements will be centrally coordinated by a
power center and dispatched to Citizens' or Wellsboro on the
basis of need, reliability, reserve commitments and economic
pricing principles.
The Commission's third requirement is also satisfied.
The C&T and Wilderness electric system will operate in a single
area or region. The small size of the areas covered by Tri-
County, Claverack, Citizens' and Wellsboro is comparable to the
ares approved by the Commission in UNITIL and Northeast
Utilities. The system will be confined to operations entirely
within the Commonwealth of Pennsylvania and in particular in
several contiguous counties in Northern and Central Pennsylvania.
It should be noted that in the 1995 Report, the division has
stated that the evaluation of a "'single area or region' portion
of the integrated requirement should be made. . .in light of the
affect of technological advances on the ability to transmit
electrical energy economically over a longer distance, and other
developments in the industry, such as brokers and marketers, that
affect the concept of geographical integration." 1995 Report at
72-74. The 1995 Report also recommends primacy be given to
"demonstrated economies and efficiencies to satisfy the
integration requirements." 1995 Report at 73. As set forth in
Item III.A.2(b)(i), the acquisition will result in economies and
efficiencies for the utilities and, in turn, their customers.
Finally, with respect to the Commission's fourth
requirement, C&T's electric system will not be so large as to
<PAGE 67> impair the advantages of localized management,
efficient operations, and the effectiveness of regulation. After
the acquisition, Citizens' will maintain its system headquarters
in Lewisburg, Pennsylvania. This structure will preserve all the
benefits of localized management that Citizens' and Wellsboro
presently enjoy while simultaneously allowing for the
efficiencies and economies that will derive from a future
strategic alliance. Citizens will maintain its existing
management team. It will continue its focus on the Lewisburg
area. Likewise, Tri-County and Claverack will maintain their
existing management team focusing on the rural and residential
basis of their systems. Furthermore, as described earlier, the
system will facilitate efficient operation.
Additionally, the C&T system will not impair the
effectiveness of state regulation. Citizens' and Wellsboro will
continue their separate existence as before and their utility
operations will remain subject to the same comprehensive
regulatory authority, the Pa PUC. As noted earlier, the Pa PUC
will maintain jurisdiction to control all affiliate transactions
between Citizens', Wellsboro and the two rural cooperatives.
Costs charged by the holding companies to their affiliated
operating companies will be subject to the ratemaking review of
the Pa PUC. Pursuant to the recommendations contained in the
1995 Report, this last factor of state control is significant as
the Division stated therein "when the affected state and local
regulators concur, the [Commission] should interpret the
integration standard flexibly to permit non-traditional systems
if the standards of the Act are otherwise met," especially where
<PAGE 68> these mergers will result in a system similar to a
traditional holding company system. 1995 Report at 74.
3. Section 10(f)
Section 10(f) provides that:
"The Commission shall not approve any
acquisition as to which an application is made
under this Section unless it appears to the
satisfaction of the Commission that such state
laws as may apply in respect to such acquisition
have been complied with, except if the Commission
finds that compliance with state laws would be
detrimental to the carrying out of the provisions
of Section 11.
As described in Item IV of this Application/
Declaration, and as evidenced by the Application before the Pa
PUC all relating to the acquisition, C&T intends to comply with
all applicable state laws related to the proposed transaction. A
timed-stamped copy of the Pa PUC Application is attached hereto
as Exhibit D-1
4. Section 3(a)(1)
C&T requests that the Commission issue an order under
Section 3(a)(1) declaring that it is exempt from all provisions
of the Act except Section 9(a)(2). This type of corporate
structure was selected because Pennsylvania law prohibits the
direct ownership of an Investor Owned Utility by a rural
cooperative. Pennsylvania Rural Electric Cooperative Law of
1990, 15 P.S. Section 7321(a)(1). Thus the need to interpose a
holding company between two essentially operating public
utilities. Section 3(a)(1) of the Act provides that the
Commission may issue the above-requested order to a holding
company, if: <PAGE 69>
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 predominantly
intrastate in character and carry on their
business substantially in a single state in
which such holding company in every such
subsidiary company thereof are organized.
C&T and its public utility subsidiary following the stock
acquisition, Citizens', will all be Pennsylvania corporations
operating wholly in the Commonwealth of Pennsylvania and
therefore meet the latter half of the Section 3(a)(1) test. In
addition, Wilderness and Wellsboro are likewise Pennsylvania
corporations operating wholly in the Commonwealth of
Pennsylvania.
With regard to the first half of the test, in
determining whether a company's operations are "predominantly
intrastate in character," the above entities meet this test. As
noted above, all of the service territory, customers, property/
equipment, and sales will be wholly within the Commonwealth of
Pennsylvania. As a result, C&T and Citizens' operations are
totally intrastate in character. Because C&T and Citizens' meet
both parts of the test, C&T is entitled to an exemption pursuant
to Section 3(a)(1) of the Act.
Further, the acquisition does not change or modify in
any way the corporate structure of the Wilderness holding company
system. Wilderness and its operating subsidiary public utility
are both Pennsylvania companies and operate solely within the
Commonwealth of Pennsylvania. All revenues are derived from
these intrastate operations. <PAGE 70>
Likewise, Tri-County and Claverack are Pennsylvania
corporations and as holding companies their operating revenues
are derived substantially and materially from intrastate
operations. All business activities are carried on substantially
in the state of incorporation. Thus they are entitled to the
Section 3(a)(1) exemption.
5. Section 3(a)(2)
Section 3(a)(2) of the Act provides an exemption for a
holding company if "such a holding company is predominately a
public utility company whose operations as such does not extend
beyond the State in which it is organized and states contiguous
thereto". There is no numerical test to determine the
"predominate" test. Houston Industries, Inc, HCAR Nos. 35-26744
and 70-8907 (July 24, 1997). Generally the Commission has
examined several key factors to determine whether a holding
company is predominately a public utility under this exemption.
Those factors generally include a comparison of the gross utility
operating revenues, net income and utility plant amounts for the
various entities. The Commission gives greatest weight to the
gross utility operating revenues. Houston, supra.
A comparison of the 1997 utility operating revenues
reveals a ratio of 25.83% for Claverack and 67.18% for Tri-
County. Clearly the Claverack ratio is consistent with prior
Commission precedent. Thus Claverack also would qualify for a
Section 3(a)(2) exemption. The Tri-County ratio, however,
exceeds the amount found acceptable in Houston, supra. The
rationale of Houston, however, would apply here in the instant
proceeding. Namely the designated corporate structure is a
<PAGE 71> result of state law requirements, see discussion above,
and not intended to evade regulatory jurisdiction. Indeed, the
transactions between the holding companies and their operating
affiliates will be subject to pervasive Pa PUC review. Tri-
County will not be an unregulated entity through which potential
abuses could be perpetrated. Its utility actions will be subject
to regulation by the U.S. Department of Agriculture. Thus Tri-
County also qualifies for a Section 3(a)(2) exemption. There is
little possibility that the holding company will be used to evade
state jurisdiction.
PAGE 72
<PAGE>
Item 4. REGULATORY APPROVALS
Set forth below is a summary of the regulatory approval
that C&T has obtained or expects to obtain in connection with the
acquisition.
A. Antitrust
The HSR Act and the regulation and rules thereunder
provide that certain transactions may not be consummated until
certain information has been submitted to the DOJ and FTC. C&T
need not provide such information.
B. State Public Utility Regulation
Pennsylvania: Pursuant to Pennsylvania statute, the
transfer to any person or corporation of the stock, including a
transfer by sale, of any jurisdictional public utility must be
approved by the Pa PUC. The Pa PUC will approve such transfers
upon a showing that the merger will affirmatively meet the public
interest and will affirmatively promote the service,
accommodation, convenience or safety of the public in a
substantial way. C&T and Citizens applied for Pa PUC approval on
September 15, 1998. In addition, the Pa PUC must examine the
acquisition in light of market power.
PAGE 73
<PAGE>
Item 5 PROCEDURE
The Commission is respectfully requested to issue and
publish not later than October 1, 1998, the requisite notice
under Rule 23 with respect to the filing of the Application, such
notice to specify a date not later than October 26, 1998 by which
comments may be entered and a date not later than November 16,
1998 as the date after which an order of the Commission granting
and permitting this Application to become effective may be
entered by the Commission.
It is submitted that a recommended decision by a
hearing or other responsible officer of the Commission is not
needed for approval of the proposed acquisition. The Division of
Investment Management may assist in the preparation of the
Commission's decision. There should be no waiting period between
the issuance of the Commission's Order and the date on which it
is to become effective.
PAGE 74
<PAGE>
Item 6 EXHIBITS AND FINANCIAL STATEMENTS
A. EXHIBITS
A-1 Tri-County Articles of Incorporation
A-2 Claverack Articles of Incorporation
A-3 C&T Articles of Incorporation
A-4 Citizens' Articles of Incorporation
A-5 Wilderness Articles of Incorporation
A-6 Wellsboro Articles of Incorporation
B-1 January 5, 1998 Memorandum of Understanding
B-2 Tender Offer
B-3 Second Amended Memorandum of Understanding
B-4 May 28, 1998 Partnership Agreement
D-1 Pennsylvania Public Utility Commission Application
E-1 Map of Citizens' and Wellsboro Systems (not filed
electronically)
F-1 Opinion of Counsel (to be filed by amendment)
F-2 "Past Tense" Opinion of Counsel (to be filed by
amendment)
G-1 Proposed Form of Public Notice
B. FINANCIAL STATEMENTS
FS-1 Consolidated Financial Statements of Tri-County
for years ended December 31, 1997 and 1996 (not
filed electronically)
FS-2 Consolidated Financial Statements of Claverack for
years ended December 31, 1997 and 1996 (not filed
electronically)
FS-3 Audited Financial Statements of Citizens' Electric
Company for year ended December 31, 1997 and 1996
(not filed electronically)
FS-4 Audited Financial Statements of Wellsboro Electric
Company for year ended December 31, 1997 and 1996
(not filed electronically)
PAGE 75
<PAGE>
Item 7 INFORMATION AS TO ENVIRONMENTAL EFFECTS
None of the matters that are the subject of this
application and declaration involve a "major federal action" nor
do they "significantly affect the quality of the human
environment" as those terms are used in Section 102(2)(C) of the
National Environmental Policy Act. The transaction that is the
subject of this application will not result in changes in the
operation of the company that will have an impact on the
environment. C&T is not aware of any federal agency that has
prepared or is preparing an environmental impact statement with
respect to the transaction that is the subject of this
application.
SIGNATURE
Pursuant to the requirements of the Public Utility
Holding Company Act of 1935, the undersigned company has duly
caused this application and declaration to be signed on its
behalf by the undersigned.
C&T Enterprises, Inc.
/s/ Kenneth Zielonis
Kenneth Zielonis, Esq.
STEVENS & LEE
208 North Third Street, Ste. 310
P.O. Box 12090
Harrisburg, PA 17108-2090
Attorneys for C&T Enterprises, Inc.
PAGE 76
<PAGE>
EXHIBIT A-1
ARTICLES OF ASSOCIATION
OF
TRI-COUNTY RURAL ELECTRIC CO-OPERATIVE ASSOCIATION
In compliance with the requirements of an act entitled "An
act to encourage and authorize the formation of co-operative
associations, productive and distributive, by farmers, mechanics,
laborers or other persons," approved June 7, 1887, the
undersigned, desiring to form an association thereunder do hereby
certify:
1. The name of the Association is the Tri-County Rural
Electric Co-operative Association.
2. The principal office of the Association is to be
located in Mansfield Borough, County of Tioga, Commonwealth of
Pennsylvania.
3. The purpose or object for which the Association is
formed is: to manufacture, generate, purchase, acquire and
accumulate electric energy for its members and to transmit,
distribute, furnish, sell and dispose of such electric energy to
its members and to construct, erect, purchase, lease as lessee
and in any manner acquire, own, hold, maintain, operate, sell,
dispose of, lease as lessor, exchange and mortgage plants,
buildings, works, machinery, equipment, supplies and transmission
and distribution lines or systems and any and all other real and
personal property.
4. The capital stock of the Association is fixed at Five
Thousand Dollars ($5,000.00).
<PAGE 1>
5. The amount of each share of permanent stock is Five
Dollars ($5.00) and such shares shall be paid for in cash before
the insurance of stock certificates therefor. No ordinary stock
is to be issued.
6. Five Hundred Dollars ($500.00) of capital stock shall
actually be paid in before the Association ____________________
business _____________________________________________________.
7. Membership may be obtained on the following terms: the
undersigned shall be members as soon as these Articles of
Association are made, filed and recorded, ____________________ or
corporation shall become a member upon the approval by the Board
of Directors, or by their duly authorized representative, of an
application in which the applicant agrees to (1) purchase at
least one share of permanent stock of the Association, (2) use
electric energy supplied by the Association, and (3) comply with
and abide by the terms and conditions relating to membership
contained in the By-Laws of the Association.
8. The regular or quarterly meetings of the members shall
be held on the first Tuesday of January, April, July and October
of each year, if not a legal holiday, and if a legal holiday then
on the first following day not a legal holiday.
9. The Association is to have the power to borrow money
and otherwise incur indebtedness up to One Million and No/100
Dollars ($1,000,000) and to issue notes, bonds and other evidence
of indebtedness and to secure any of its obligations by mortgage,
deed of trust or other plead of conveyance of all or any part of
its real and personal property, rights, privileges and
franchises, and in such manner and upon such terms as its Board
of Directors may determine.
10. The term of the existence of the Association is thirty
(30) years.
<PAGE 2>
11. The names of the first associates, their respective
residences and the number of permanent shares held by each of
them are:
NO. OF
NAME RESIDENCE SHARES
Harry P. Hulslander Troy, Pa. one
Joseph H. Whitlock Troy, Pa. one
Benjamin P. Braund Troy, R.D. 3, Pa. one
R.A. Steadman Mansfield, Pa. one
J. Ward Braund Troy, R.D. 3, Pa. one
Howard B. Connelly Mainesburg, R.D. 1, Pa. one
William D. Canfield Columbia Cross Roads, Pa. one
Mahlon H. Ream Osceola, Pa. one
George E. Bardwell Snedekerville, Pa. one
Anne L. Mellett Gillett, Pa. one
Maurice S. Whitlock Sylvania, Pa. one
L.D. Stevens Mansfield, R.D. 2, Pa. one
Frank A. Burleigh Snederkerville, Pa. one
Rollin Soper Snederkerville, Pa. one
Mark L. Watkins Columbia Cross Roads, Pa. one
IN WITNESS WHEREOF, the subscribers to these Articles of
Association have hereunto subscribed their names.
Signed
Harry P. Hulslander
Joseph H. Whitlock
Benjamin P. Braund
R.A. Steadman
J. Ward Braund
Howard B. Connelly
William D. Canfield
Mahlon H. Ream
George E. Bardwell
Anne L. Mellett
Maurice S. Whitlock
L.D. Stevens
Frank A. Burleigh
Rollin Soper
Mark L. Watkins
COMMONWEALTH OF PENNSYLVANIA :
: ss.
COUNTY OF BRADFORD :
Before me, a Notary Public, in and for said county,
personally came the above named Harry P. Hulslander, R.A.
Steadman, Joseph H. Whitlock, J. Ward Braud, Benjamin P. Braund,
<PAGE 3> Howard B. Connelly, who in due form of law, acknowledged
the foregoing instrument to be their ______ and deed for the
purposes therein specified.
WITNESS my hand and official seal this 24th day of October,
A.D. 1936.
/s/Henrietta Pierce
Notary Public
March 2, 1937
My Commission Expires
(Notary's Seal)
_________________________ ___________________________________
(Notary's Seal) March 2, 1937
My Commission Expires
_________________________ ___________________________________
Filed in the Office of the Secretary of the Commonwealth, on
the 6th day of November, A.D. 1936.
J. WARREN NICKLE
Deputy Secretary of the
Commonwealth Coop. Ch. Bk. No. 1
Page 253
Commonwealth of Pennsylvania
Department of State
OFFICE of the SECRETARY of the COMMONWEALTH
Harrisburg,
November 10, 1936.
Pennsylvania, ss:
I DO HEREBY CERTIFY, That the foregoing and annexed is a
full, true and correct copy of Articles of Association of the
"TRI-COUNTY RURAL ELECTRIC CO-OPERATIVE ASSOCIATION," as same
appears of record and remains on file in this Office. <PAGE 4>
IN TESTIMONY THEREOF, I have hereunto set my hand and caused
the seal of the Secretary's Office to be affixed, the day and
year above written.
Great Seal J. Warren Nickle
Deputy Secretary of the
Commonwealth
Recorded November 12, 1936
______________________ one
Columbia Cross Roads, Pa. one
October 11, 1974: Certified from record this date.
Deed Book 211
Page 472
/s/ Dorothy D. Jones
Dorothy D. Jones, Principal Deputy
Recorder of Deeds of Tioga County, Pa.
PAGE 5
<PAGE>
ARTICLES OF AMENDMENT
OF
TRI-COUNTY RURAL ELECTRIC CO-OPERATIVE ASSOCIATION
In compliance with the requirements of Section 35 of the Act
of the General Assembly of the Commonwealth of Pennsylvania,
known as the "Electric Co-operative Corporation Act," approved
June 31, 1937, providing for the amendment to the Articles of any
co-operative or non-profit corporation or association, organized
for the purpose of engaging in rural electrification, Tri-County
Rural Electric Co-operative Association hereby certifies under
its corporate seal that:
1. Its name is Tri-County Rural Electric Co-operative
Association and its principal office is located at Mansfield,
Pennsylvania.
2. It is a nonprofit cooperative association,
incorporated and existing for the purpose of engaging in rural
electrification, under the Act of the General Assembly of the
Commonwealth of Pennsylvania approved June 7, 1887, as shown by
its Articles of Association dated the 6th day of November, 1936,
and recorded in the office of the Secretary of the Commonwealth
in Charter Book No. 1, page 253, and in the office of the
Recorder of Deeds in and for the County of Tioga on the 12th day
of November, 1936, in Deed Book No. 211, page 472.
3. A meeting of the members of the Corporation to
take action upon an amendment to its Articles of Association was
held on the 6th day of July, 1937, at the principal office of the
Corporation, pursuant to written notice mailed to all the
members.
4. At the time of this meeting of the members the
authorized number of shares of the capital stock of the
Corporation was 1,000, of which 135 shares were issued and
<PAGE 6> outstanding, all of which were owned or held by
132 members of each of whom, regardless of the number of shares
owned or held by him, was entitled to one vote and no more on the
proposed amendment; by the By-laws a quorum is 10% of the
shareholding members but not less than 20 members thereof.
5. At the meeting of the members of the Corporation
held on the 6th day of July, 1936, 26 members were present of
whom 26 voted in favor of the resolution amending the Articles of
Association of the Corporation in the manner hereinafter set
forth and none voted against the resolution; the result being
unanimous for the amendment.
6. At this meeting the following resolutions were
adopted by a majority vote of the members present:
RESOLVED, That the Articles of Association of this
Corporation be, and the same hereby are, amended so as to read as
follows:
ARTICLE I.
The name of the Corporation is TRI-COUNTY RURAL
ELECTRIC COOPERATIVE, INC.
ARTICLE II.
The purpose for which the Corporation is organized is
to engage in rural electrification by any one or more of the
following methods:
(1) the furnishings of electric energy to members
in rural areas who are not receiving central station
service;
<PAGE 7>
(2) assisting in the wiring of the premises of
members in rural areas, or the acquisition, supply or
installation of electrical or plumbing equipment therein;
(3) the furnishing of electric energy, wiring
facilities, electrical or plumbing equipment or services to
any other corporation organized under the "Electric
Cooperative Corporation Act" or to the members thereof.
ARTICLE III.
The names and addresses of the persons who shall serve as
directors and manage the affairs of the Corporation until the
next annual meeting of the members or until their successors are
elected and qualified are as follows:
Name Residence
Harry P. Hulslander, Pres. Troy, Penna.
Howard Connelly, V. Pres. Mainesburg, Pa.
R. A. Steadman, Sec. Mansfield, Pa.
L. R. Kennedy, Treas. Troy, Pa.
J. Ward Braund Troy, Pa.
J. H. Whitlock Troy, Pa.
Anne L. Mellett Gillett, Pa.
L. D. Stevens Roseville, Pa.
Noel Card Lawrenceville, Pa.
Roscoe M. Kemp Nelson, Penna.
Mahlon Ream Osceola, Penna.
Bert Doan Knoxville, Pa.
Cass D. Ackley Westfield, Penna.
Laurence Hunt Westfield, Penna.
ARTICLE IV.
The number of directors to be elected at annual meetings of
the members if 14, their tenure of office to be subject to the
By-laws of the Association.
<PAGE 8>
ARTICLE V.
The address of the principal office of the Corporation shall
be 22 Main Street, Mansfield, County of Tioga, Pennsylvania, and
the name and address of its agent upon whom process may be served
is Harry P. Hulslander, Pres. of Mansfield, Pa.
ARTICLE VI.
The duration of the Corporation is perpetual.
ARTICLE VII.
Section 1. In addition to the present members of the
Corporation any person, corporation, partnership or body politic
in rural areas who or which are not receiving central station
service may become a member of the Corporation by: (a) paying
such membership fee as shall be specified in the Bylaws of the
Corporation; (b) agreeing to purchase from the Corporation the
amount of electric energy hereinafter in Section 2 of this
Article specified; and (c) agreeing to comply with and be bound
by the Articles of Incorporation and Bylaws of the Corporation
and any amendments thereto and such rules and regulations as may
from time to time be adopted by the Board of Directors of the
Corporation; provided, however, that no person, corporation,
partnership or body politic, except the present members of the
Corporation, or any person, corporation, partnership or body
politic hereafter accepted for membership by the members at any
meeting thereof, shall become a member in the Corporation unless
and until he or it has been accepted for membership by the
members at any meeting thereof, shall become a member in the
Corporation unless and until he or it has been accepted for
membership by the affirmative vote of a majority of the members
of the Board of Directors.
Section 2. Each member shall, as soon as electric energy
shall be available, purchase from the Corporation monthly not
<PAGE 9> less than the minimum amount of electric energy which
shall, from time to time, be determined by resolution of the
Board of Directors of the Corporation and shall pay therefor, and
for all additional electric energy used by such member, the price
which, from time to time shall be fixed therefor by resolution of
the Board of Directors. Each member shall also pay all
obligations which may from time to time become due and payable by
such member to the Corporation as and when the same shall become
due and payable.
Section 3. The Bylaws of the Corporation may fix such other
terms and conditions upon which person shall be admitted to and
retain membership in the Corporation not inconsistent with these
Articles of Incorporation or the Act under which the Corporation
is organized.
ARTICLE VIII.
Section 1. Subject to the provisions of any mortgage or
deed of trust given by the Corporation and within sixty (60) days
after the expiration of each fiscal year the Board of Directors,
after paying or providing for the payment of all operating and
maintenance expenses of the Corporation including an amount for
prospective operating and maintenance expenses for a reasonable
period, and all interest and installments on account of the
principal of notes, bonds or other evidence of indebtedness of
the Corporation which shall have become due and be unpaid, or
which shall have accrued at the end of the fiscal year but which
shall not be then due, and after paying or making provision for
the payment of all taxes, insurance and all other non-operating
expenses which shall have become due and be unpaid, and all
taxes, insurance and all other non-operating expenses which shall
have accrued at the end of the fiscal year but which shall not be
then due, shall apply the revenues and receipts of the
Corporation remaining thereafter for the following purposes and
in the following order of priority.
<PAGE 10>
(1) the establishment and maintenance of a
reserve for the payment of interest on and principal of all
outstanding notes, bonds or other evidences of indebtedness
of the Corporation in an amount which shall equal the amount
of principal and interest required to be paid in respect of
such notes, bonds or other evidences of indebtedness during
the ensuring fiscal year;
(2) the establishment and maintenance of a
general reserve funds of working capital, insurance, taxes,
improvements, new construction, depreciation, obsolescence,
and contingencies in an account which the Board of Directors
shall deem reasonable;
and all revenues and receipts not required for the above and
foregoing purposes shall be returned to the members either in
cash, in abatement of current charges for electric energy or
otherwise, as the Board may decide on the basis and in the manner
provided in the Act under which this Corporation is organized;
provided, however, that in no case shall any such return be made
to any member who is indebted to the Corporation until such
indebtedness is paid or arrangements in respect thereof
satisfactory to the Board of Directors shall have been made.
Section 2. At least ten per centrum (10%) of the total
number of members of the corporation present in person or
represented by proxy but not less than twenty (20) Members shall
constitute a quorum for the transaction of business at all
meetings of the members so long as the total number of members
does not exceed three hundred (300). In case the total number of
members exceeds three hundred (300), then and in such case five
per centrum (5%) of the total number of members present in person
or represented by proxy, but not less than thirty (30) in number,
shall constitute a quorum for the transaction of business at all
meetings of the members.
<PAGE 11>
Section 3. The Board of Directors shall have power to make
and adopt such rules and regulations, not inconsistent with these
Articles of Incorporation or the Bylaws of the Corporation, as it
may deem advisable for the management, administration and
regulation of the business and affairs of the Corporation.
Section 4. The private property of the members of the
Corporation shall not be subject to the payment of, and no member
shall be individually responsible for, corporate debts to any
extent whatever.
RESOLVED, FURTHER, That the President and the Secretary of
this Corporation be and they are hereby authorized, empowered and
directed to execute, under the corporate seal of the Corporation,
Articles of Amendment to the Articles of Association of this
Corporation and to file such Articles of Amendment with the
Department of State of the Commonwealth of Pennsylvania, and to
file for recording a certified copy of such Articles of Amendment
in the office of the Recorder of Deeds of the County in which the
principal office of the Corporation is located.
IN TESTIMONY WHEREOF, Tri-County Rural Electric
Co-operative Association has caused these Articles of Amendment
to be signed by its President and its corporate seal, duly
attested by its Secretary, to be hereunto affixed this 6th day of
July, 1937.
TRI-COUNTY RURAL ELECTRIC
COOPERATIVE ASSOCIATION
By_________________________________
President
Attest:
_________________________
Secretary
PAGE 12
<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
: ss.
COUNTY OF TIOGA :
BE IT REMEMBERED that on this 6th day of July, 1937,
before me, a Notary Public in and for the County aforesaid,
personally appeared Harry P. Hulslander, President and R.A.
Steadman, Secretary, of Tri-County Rural Electric Co-operative
Association, the corporation named in and which executed the
foregoing Articles of Amendment, who being severally duly sworn,
did depose and say that they were personally present at the
execution of the foregoing Articles of Amendment and saw the
common or corporate seal of Tri-County Rural Electric
Co-operative Association affixed thereto; that the seal affixed
thereto is the common or corporate seal of the corporation; that
the foregoing Articles of Amendment were duly signed, sealed and
delivered by, and as and for the act and deed of the Tri-County
Rural Electric Co-operative Association, by the authority and at
the direction of the members of the Corporation, and that the
names of Harry P. Hulslander as President and of R.A. Steadman,
as Secretary subscribed thereto are in their proper and
respective handwritings.
/s/ Harry P. Hulslander
/s/ R.A. Steadman
Sworn and subscribed before
me this 6th day of July, 1937.
____________________________
Notary Public
My Commission expires:
(SEAL)
<PAGE 13>
Approved and filed in the Department of Sate, on the 29th
day of October, A.D. 1937.
___________________________________
Secretary of the Commonwealth
Coop. Ch. & Amndt. Bl, No. 385 Page 5
PAGE 14
<PAGE>
EXHIBIT A-2
DSCB-56 (Rev. 9-67)
COMMONWEALTH OF PENNSYLVANIA
DEPARTMENT OF STATE
TO ALL TO WHOM THESE PRESENTS SHALL COME, GREETING:
WHEREAS, In and by Section twenty-seven of the "Electric
Cooperative Corporation Act," P.L. 1969, approved the 21st day of
June, Anno Domini one thousand nine hundred and thirty-seven, as
amended, the Department of State is authorized and required to
issue a
CERTIFICATE OF AMENDMENT
evidencing the amendment of the Articles of Association of a
Cooperative Association organized under or subject to the
provisions of the Act of June 21, 1937,
WHEREAS, The stipulations and conditions of that law
pertaining to the amendment of Articles of Association have been
fully complied with by
CLAVERACK ELECTRIC COOPERATIVE INC.
name changed to
CLAVERACK RURAL ELECTRIC COOPERATIVE, INC.
THEREFORE, KNOW YE, That subject to the Constitution of this
Commonwealth, and under the authority of the "Electric
Cooperative Corporation Act," I DO BY THESE PRESENTS, which I
have caused to be sealed with the Great Seal of the Commonwealth,
extend the rights and powers of the association named above, in
<PAGE 1> accordance with the terms and provisions of the Articles
of Amendment presented by it to the Department of State, with
full power and Authority to use and enjoy such rights and powers,
subject to all the provisions and restrictions of the Electric
Cooperative Corporation Law and all other applicable laws of this
Commonwealth.
GIVEN under my Hand and the Great
Seal of the Commonwealth, at the
City of Harrisburg, this 8th day of
December in the year of our Lord
one thousand nine hundred and
seventy-one and of the Commonwealth
the one hundred and ninety-sixth.
/s/ C. DeLares Tucker
Secretary of the Commonwealth
jmw
PAGE 2
<PAGE>
I, Harry W. Smith, President of Claverack Rural Electric
Cooperative, Inc., of R. D. #2, Wysox, Pennsylvania, do hereby
certify that the annual meeting of the members of the said
co-operative was held at Wysox, Pennsylvania, at 1 p. m. on the
19th day of August, 1971, pursuant to written notice given said
stockholders more than sixty (60) days prior to meeting, all in
conformity with the Act of Assembly of the Commonwealth of
Pennsylvania, cited as "Electric Co-Operative Corporation Act"
June 21, 1937, P. L. 1969, referring particularly to Section 9
under Powers of Corporation and section relative to amendment of
Articles of Incorporation. There were present members in excess
of 2,000, and the amendments to Articles of Incorporation as
passed are as follows:
ARTICLE I:
"The name of the Corporation is CLAVERACK RURAL
ELECTRIC COOPERATIVE, INC."
ARTICLE IV:
"The number of directors to be elected at annual
meetings of the members to be not more than 14.
ARTICLE V:
"The address of the principal office of the Corporation
shall be R.D. 2, Wysox, County of Bradford, Pennsylvania, and
process may be served on the President, Secretary, or General
Manager of the Corporation.
ARTICLE VII, Section I
"In addition to the present members of the Corporation
any person, corporation, partnership or body politic in rural
areas who or which are not receiving central station service may
<PAGE 3> become a member of the Corporation by: (a) paying such
membership fee as shall be specified in the By-Laws of the
Corporation; (b) agreeing to purchase from the Corporation the
amount of electric energy hereinafter in Section 2 of this
Article specified; and (c) agreeing to comply with and be bound
by the Articles of Incorporation and By-Laws of the Corporation
and any amendments thereto and such rules and regulations as may
from time to time be adopted by the Board of Directors of the
Corporation."
ARTICLE VII, Section 2
"Each member shall, as soon as electric energy shall be
available, purchase from the Corporation not less than the
minimum amount of electric energy which shall, from time to time,
be determined by resolution of the Board of Directors of the
Corporation and shall pay therefor, and for all additional
electric energy used by such member, the price which, from time
to time, shall be fixed therefor by resolution of the Board of
Directors. Each member shall also pay all obligations which may
from time to time become due and payable by such member to the
Corporation as and when the same shall become due and payable.
ARTICLE VIII, Section 2
"Five per centum (5%) of the total number of members
present in person but not less than thirty (30) in number shall
constitute a quorum for the transaction of business at all
meetings of the members.
I certify that I am the President of the above
co-operative and the foregoing amendments represent a true and
complete copy of the amendments adopted at said meeting and said
amendments have not been rescinded and are now in effect.
<PAGE 4>
IN WITNESS WHEREOF, I have hereunto set my hand and
affixed the seal of the cooperative this 23rd day of November,
1971.
___________________________________
President
I, Fred W. Alexander, do hereby certify that I am the
Secretary of the Claverack Rural Electric Cooperative, Inc. of
R.D. #2, Wysox, Pennsylvania, that I am the keeper of the
official records, minutes and seal of the said cooperative and
the foregoing amendments represent a true and complete copy of
the amendments adopted at said meeting and said amendments have
not been rescinded and are now in effect.
IN WITNESS WHEREOF, I have hereunto set my hand and
affix the seal of the cooperative this 23rd day of November,
1971.
___________________________________
Secretary
Approved and filed in the Department of State on the 8th day
of December A. D. 1971.
___________________________________
Secretary of the Commonwealth
PAGE 5
<PAGE>
ARTICLES OF AMENDMENT
Claverack Rural Electric Cooperative, Inc.
I. This amendment to the Articles of Incorporation of
Claverack Rural Electric Cooperative, Inc., is filed according to
the provisions of the Electric Cooperative Act of the
Commonwealth of Pennsylvania, 1937, June 21, P. L. 1969 Section 1
et seq.
II. Claverack Rural Electric Cooperative, Inc. has its
principal place of business at R.D. #2, Wysox, Pennsylvania.
III. The Articles of Incorporation of the corporation
have been amended as follows: Article VIII, Section 2 of the
Articles of Incorporation is amended to read as follows:
"At least one hundred fifty (150) members
present in person shall constitute a quorum
for the transaction of business at all
meetings of the members."
IV. The date on which the amendment was adopted was
August 5, 1978.
V. Notice of the meeting at which the amendment was
adopted was given each member as provided by the By-laws of the
Corporation.
VI. At the meeting at which the amendment was adopted,
a quorum was present as determined by the By-laws of the
Corporation and the Articles of Incorporation prior to this
amendment.
<PAGE 6>
VII. The amendment was approved by a majority of the
members present in person or by proxy.
/s/ John B. Drake
President
I, Leo J. Griffith, as Secretary of Claverack Rural
Electric Cooperative, Inc., hereby attest that the statements in
the foregoing articles are true and that the Articles of
Amendment to the Articles of the Corporation were adopted as
therein set forth. I have therefore signed these articles and
sealed them with the seal of the corporation.
/s/ Lee J. Griffith
Secretary
Dated August 30, 1978
Seal:
PAGE 7
<PAGE>
COMMONWEALTH OF PENNSYLVANIA )
SS
COUNTY OF BRADFORD )
On this, the 31st day of August, A.D., 1978, before me,
a Notary Public, personally appeared Leo J. Griffith, known to me
or satisfactorily proven to be the person whose name is
subscribed to the within instrument, and acknowledged that he
executed the same for the purposes therein contained.
In witness whereof, I hereunto set my hand and official
seal.
/s/ Ralph S. Park II
Notary Public
Ralph S. Park II, Notary
Public Standing Stone Twp.,
Bradford Co., Pa.
My Commission Expires
September 6, 1960
Approved and filed in the Department of State on the 11th day of
September, 1978.
/s/ Bardon A. Fields
Secretary of the Commonwealth
WF/he
PAGE 8
<PAGE>
DSCB-56 (Rev. 9-67) 3-1-78:43 401
69180
COMMONWEALTH OF PENNSYLVANIA
DEPARTMENT OF STATE
TO ALL TO WHOM THESE PRESENTS SHALL COME, GREETING:
WHEREAS, In and by Section twenty-seven of the
"Electric Cooperative Corporation Act," P. L. 1969, approved the
21st day of June, Anno Domini one thousand nine hundred and
thirty-seven, as amended, the Department of State is authorized
and required to issue a
CERTIFICATE OF AMENDMENT
evidencing the amendment of the Articles of Association of a
Cooperative Association organized under or subject to the
provisions of the Act of June 21, 1937,
WHEREAS, The stipulations and conditions of that law
pertaining to the amendment of Articles of Association have been
fully complied with by
CLAVERACK RURAL ELECTRIC COOPERATIVE, INC.
THEREFORE, KNOW YE, That subject to the Constitution of
this Commonwealth and under the authority of the "Electric
Cooperative Corporation Act," I DO BY THESE PRESENTS, which I
have caused to be sealed with the Great Seal of the Commonwealth,
extend the rights and powers of the association named above, in
accordance with the terms and provisions of the Articles of
Amendment presented by it to the Department of State, with full
power and authority to use and enjoy such rights and powers,
subject to all the provisions and restrictions of the Electric
<PAGE 9> Cooperative Corporation Law and all other applicable
laws of this Commonwealth.
GIVEN under my Hand and the Great
Seal of the Commonwealth, at the
City of Harrisburg, this 11th day
of September in the year of our
Lord one thousand nine hundred and
seventy-eight and of the
Commonwealth the two hundred and
third.
/s/ Barton A. Fields
Secretary of the Commonwealth
he
PAGE 10
<PAGE>
EXHIBIT A-3
Microfilm Number 9851-1481 Filed with the Department of
State on Jul 9, 199__
Entity Number 2825831
Secretary of the Commonwealth
ARTICLES OF INCORPORATION-FOR PROFIT
OF
C & T ENTERPRISES, INC.
Name of Corporation
A TYPE OF CORPORATION INDICATED BELOW
Indicate type of domestic corporation:
X Business-stock (15 Pa.C.S. Section 1306)
___ Business-nonstock (15 Pa.C.S. Section 2102)
___ Business-statutory close (15 Pa.C.S. Section 2303)
___ Management (15 Pa.C.S. Section 2702)
___ Professional (15 Pa.C.S. Section 2903)
___ Insurance (15 Pa.C.S. Section 3101)
___ Cooperative (15 Pa.C.S. Section 7102)
DSCB:15-1306/2102/2303/2702/2903/3101/7102A (Rev 91)
In compliance with the requirements of the applicable
provisions of 15 Pa.C.S. (relating to corporations and
unincorporated associations) the undersigned, desiring to
incorporate a corporation for profit hereby, state(s) that:
1. The name of the corporation is: C & T Enterprises, Inc.
2. The (a) address of this corporation's initial registered
office in this Commonwealth or (b) name of its commercial
registered office provider and the county of venue is:
(a) 22 North Main Street, Mansfield, PA 16933 Tioga
Number and Street City State Zip County
<PAGE 1>
(b) c/o:___________________________________________________
Name of Commercial Registered County
Office Provider
For a corporation represented by a commercial registered
office provider, the county in (b) shall be deemed the county in
which the corporation is located for venue and official
publication purposes.
3. The corporation is incorporated under the provisions of the
Business Corporation Law of 1988.
4. The aggregate number of shares authorized is: 100,000
(other provisions, if any, attach 8 1/2 x 11 sheet)
5. The name and address, including number and street, if any,
of each incorporator is:
Name Address
Robert W. Chappell, Esquire 14 South Main Street,
Mansfield, PA 16933
___________________________ ______________________________
6. The specified effective date, if any, is:
date of filing
month day year hour, if any
7. Additional provisions of the articles, if any, attach an
8 1/2 x 11 sheet.
8. Statutory close corporation only: Neither the corporation
nor any shareholder shall make an offering of any of its
shares of any class that would constitute a "public
offering" within the meaning of the Securities Act of 1933
(15 U.S.C. Section 77a et seq.)
9. Cooperative corporations only: (Complete and strike out
inapplicable term). The common bond of membership among its
members/shareholders is: __________________________________
IN TESTIMONY WHEREOF, the incorporator(s) has (have) signed these
Articles of Incorporation this 8th day of July, 1998.
_________________________ ___________________________________
(Signature) (Signature)
PAGE 2
<PAGE>
PENNSYLVANIA DEPARTMENT OF STATE 140
CORPORATION BUREAU
ROOM 308 NORTH OFFICE BUILDING
P.O. BOX 8722
HARRISBURG, PA 17105-8722
C & T ENTERPRISES, INC.
THE CORPORATION BUREAU IS HAPPY TO SEND YOU YOUR FILED
DOCUMENT. PLEASE NOTE THE FILE DATE AND THE SIGNATURE OF THE
SECRETARY OF THE COMMONWEALTH. THE CORPORATION BUREAU IS HERE TO
SERVE YOU AND WANTS TO THANK YOU FOR DOING BUSINESS IN
PENNSYLVANIA. IF YOU HAVE ANY QUESTIONS PERTAINING TO THE
CORPORATION BUREAU, CALL (717) 787-1057.
ENTITY NUMBER: 2825831
MICROFILM NUMBER: 09851
1481-1482
VAN DER HIEL & CHAPPELL ESQS
PO BOX 57
MANSFIELD PA 16933-0057
PAGE 3
<PAGE>
EXHIBIT A-4
ARTICLES OF INCORPORATION
ARTICLE I
The name of the corporation is:
Citizens' Electric Company of Lewisburg, Pa.
ARTICLE II
The location and post office address of the corporation in this
commonwealth is:
1775 Industrial Boulevard
Lewisburg, Pennsylvania 17837
ARTICLE III
The purpose or purposes for which the corporation is incorporated
under the Business Corporation Law of the Commonwealth of
Pennsylvania are to engage in, and do any lawful act concerning,
any or all lawful business for which corporations may be
incorporated under said Business Corporation Law, including, but
not limited to, the supply of light, heat and power to the public
by means of electricity or by any other means.
ARTICLE
The term for which the corporation is to exist is perpetual.
ARTICLE V
The aggregate number of shares which the corporation shall have
authority to issue and the par value thereof are:
200,000 shares of common stock having a par value of
$10.00 per share.
ARTICLE VI
The corporation may issue or sell shares, option rights, or
securities having option rights for money or otherwise without
first offering them Lo shareholders of any class or classes.
ARTICLE VII
A majority of the directors may make, amend, alter, or repeal the
Bylaws with respect to those matters which are not, by statute,
reserved exclusively to the shareholders, subject always to the
power of the shareholders to change such action.
<PAGE 1>
ARTICLE VIII
In an election of directors of the corporation a shareholder
shall not have the right to multiply the number of votes to which
he may be entitled by the total number of directors to be elected
in the same election by the holders of the class or classes of
shares of which his shares are a part, and to cast the whole
number of such votes for one candidate or distribute them among
any two or more candidates.
SEE APPENDIX A ATTACHED
PAGE 2
<PAGE>
APPENDIX A
By resolution adopted November 10, 1971, the Board of Directors
authorized submission to a vote of the shareholders at the Annual
Meeting to be held January 10, 1972, a proposed amendment of the
Articles of Incorporation restating the same in their entirety.
The amendment was adopted and endorsed by the Secretary of the
Commonwealth.
COMMENTS
The corporation, originally formed under the Corporation Act of
1874, is now governed by the Business Corporation Law of 1933, as
amended, a more modern and comprehensive statute which permits
much more efficient and less cumbersome corporate procedures.
The Board of Directors considered it desirable to restate the
Articles of Incorporation in a form compatible with the Business
Corporation Law and up-to-date corporate practice. The following
are the principal effects of the restatement of the Articles:
1) The corporate purpose is broadened to take advantage of
currently allowable powers to engage in any lawful business
permissible to corporations formed under the Business
Corporation Law;
2) The capital stock, which the company would be authorized to
issue is increased from 80,000 shares of $10 par common
stock to 200,000 shares of $10 par value per share;
3) The corporation is given the right to issue shares, at its
election, free of pre-emptive rights;
4) The Board of Directors is authorized to make, amend, alter,
or repeal Bylaws, subject to the power of the shareholders
to change such action.
It is the view of the Management that these changes would
contribute to the company's ability to operate effectively,
commensurate with it's steady growth and increased capital
requirements.
By resolution adopted by the Board of Directors for submission
to a vote of shareholders at the Annual Meeting held April 9,
1983, Article VIII was added. This article was adopted by the
shareholders at the April 1983 meeting and endorsed by the
Secretary of the Commonwealth on April 13, 1983.
PAGE 3
<PAGE>
EXHIBIT A
ATTACHMENT TO ARTICLES OF INCORPORATION
The provision of the Articles of Incorporation regarding
authorized shares (Paragraph 4) shall read in its entirety as
follows:
The aggregate number of shares authorized is
100,000 shares of common stock, having a par value of
$0.01 per share.
PAGE 4
<PAGE>
EXHIBIT A-5
ARTICLES OF INCORPORATION
OF
WELLSBOROUGH ELECTRIC COMPANY
To the Governor of the Commonwealth of Pennsylvania: Sir:
In compliance with the requirements of an act of the General
Assembly of the Commonwealth of Pennsylvania entitled "An act to
provide for the incorporation and regulation of certain
corporations," approved the 29th day of April, A.D. 1874 and the
several supplements thereto, the undersigned, all of whom are
citizens of Pennsylvania having associated themselves together
for the purpose hereinafter specified, and desiring that they may
be incorporated, and that letters patent may issue to them and
their successors according to law, do hereby certify:
1st. The name of the proposed corporation is
Wellsborough Electric company.
2nd. Said corporation is formed for the purpose of the
supply of light, heat and power by means of electricity to the
public in the borough of Wellsborough, Pennsylvania.
3rd. The business of said corporation is to be
transacted in Wellsborough, Tioga County, Pennsylvania.
4th. Said corporation is to exist for the term of
Ninety-Nine years.
5th. The names and residences of the subscribers and
the number of shares subscribed by each are as follows:
<PAGE 1>
Name Residence No. of Shares
Hugh Goung Wellsboro, Pa. Ten
L. Harrison Wellsboro, Pa. Twenty
J. M. Robinson Wellsboro, Pa. Twenty
H.C. Goung Williamsport, Pa. Ten
Robert K. Goung Wellsboro, Pa. Ten
6th. The number of directors of said corporation is
fixed at five and the names and residences of the directors who
are chosen directors for the first year are as follows:
Name Residence
Hugh Goung Wellsboro, Pa.
L. Harrison Wellsboro, Pa.
J. M. Robinson Wellsboro, Pa.
H.C. Goung Williamsport, Pa.
Robert K. Goung Wellsboro, Pa.
7th. The amount of the capital stock of said
Corporation is $7,000.00 divided into Seventy shares of the par
value of $100.00 and $700.00 being ten percentum of the capital
stock, has been paid in cash to the Treasurer of said corporation
whose name and residence are: J. M. Robinson, Wellsboro, Pa.
Hugh Goung (SEAL) H.C. Goung (SEAL)
L. Harrosin (SEAL) Robert K. Goung (SEAL)
J.M. Robinson (SEAL)
State of Pennsylvania, County of Tioga. Before me.
H.J. Ripley Recorder ______ in and for the county aforesaid
personally came the above named L. Harrison: J.M. Robinson &
Robert H. Goung, who in due form of law acknowledged the
foregoing instrument to be their act and deed for the purposes
therein specified. Witness my hand and seal of office the
nineteenth day of March A.D. 1894.
Homer J. Repler Recorder (OFFICIAL SEAL)
State of Pennsylvania, County of Tioga. Personally appeared
before me, this nineteenth day of March A.D. 1894. L. Harrison;
J. M. Robinson, Robert K. Goung who being duly sworn, according
<PAGE 2> to law, depose and say that the statements contained in
the foregoing instrument are true.
Sworn and subscribed before me, J.M. Robinson
the day and year aforesaid L. Harrison, Robert K. Goung
Homer J. Ripley Recorder (OFFICIAL SEAL)
Executive Chamber. Harrisburg, April 11th 1894. To the
Secretary of the Commonwealth: Having examined the within
application and found it to be in proper form, and within the
purposes of the calls of corporations specified in section two,
of the act entitled "An act to provide for the incorporation and
regulation of ceratin corporations," approved April 29th, A.D.
1874, and the several supplements thereto, I hereby approve the
same and direct that letters patent issue according to law.
Robt. E. Pattison Governor.
Secretary's Office. Pennsylvania ss: enrolled in Charter Book
No. 43, Page 94. Witness my hand and Seal of Office at
Harrisburg this eleventh day of April A.D. 1894.
A.L. Tilden: Deputy. Secretary of the Commonwealth
(SECRETARY SEAL)
Recorded April 20, 1894. Homer Ripley.
PAGE 3
<PAGE>
EXHIBIT A-6
Filed with the Department
of State on MAR 10, 1994
Microfilm Number___________________
Entity Number______________________ _________________________
Secretary of the
Commonwealth
ARTICLES OF INCORPORATION-FOR PROFIT
DSCB: 15-1306/2102/2702/2903/7102A (Rev 90)
Indicate type of domestic corporation (check one):
X Business-stock (15 Pa. C.S. Section 1306)
___ Business-nonstock (15 Pa,C.S. Section 2102)
___ Business-statutory close (15 Pa.C.S. Section 2303)
___ Management (15 Pa. C.S. Section 2702)
___ Professional (15 Pa. C.S. Section 2903)
___ Cooperative (15 Pa.C.S. Section 7102A)
In compliance with the requirements of the applicable
provisions of 15 Pa. C.S. (relating to corporations and
unincorporated associations) the undersigned, desiring to
incorporate a corporation for profit hereby state(s) that:
1. The name of the corporation is: Wilderness Area Utilities,
Inc.
2. The (a) address of this corporation's initial registered
office in this Commonwealth or (b) name of its commercial
registered office provider and the county of venue is:
(a) 22 North Main Street, P.O. Box 526, Mansfield, PA
Number and Street City State
16933-0526
Zip County
<PAGE 1>
(b) c/o:___________________________________________________
Name of Commercial Registered Office Provider
_______________________________________________________
County
For a corporation represented by a commercial registered
office provider, the county in (b) shall be deemed the county in
which the corporation is located for venue and official
publication purposes.
3. The corporation is incorporated under the provisions of the
Business Corporation Law of 1988.
4. The aggregate number of shares authorized is: see
attachment (other provisions, if any, attach 8 1/2 x 11
sheet).
5. The name and address, including street and number, if any,
of each incorporator is:
Name Address
Neal S. West 100 Pine Street, P.O. Box 1166
Harrisburg, PA 17101
_________________________ ______________________________
6. The specified effective date, if any, is:
03 10 1994
month day year hour, if any
7. Any additional provisions of the articles, if any, attach an
8 1/2 x 11 sheet.
8. Statutory close corporation only: Neither the corporation
nor any shareholder shall make an offering of any of its
shares of any class that would constitute a "public
offering" within the meaning of the Securities Act of 1933
(15 U S.C. Section 77a et seq.
9. Cooperative corporations only: (Complete and strike out
inapplicable term). The common bond of membership among its
members/shareholders is: ___________________________________
IN TESTIMONY WHEREOF, the incorporator(s) has (have) signed
these Articles of Incorporation this 19th day of March, 19 .
/s/ Neal S. West ______________________________
(Signature)
PAGE 2
<PAGE>
EXHIBIT B-1
WILDERNESS AREA UTILITIES, INC.
________________________________________________________________
P.O. Box 448 * 22 North Main Street * Mansfield, PA 16933-0448
717-662-2175 * Fax 717-662-2142
MEMORANDUM OF UNDERSTANDING
THIS Memorandum of Understanding is entered into by and
between Wilderness Area Utilities, Inc., ("Wilderness") and the
Board of Directors, ("Board"), of Citizens' Electric Company
("Citizens").
WHEREAS, Wilderness desires to acquire Citizens through a
tender offer to be delivered to Citizens' Shareholders; and
WHEREAS, Wilderness desires to obtain the unanimous support
of Board;
THEREFORE the following is put forth:
1. Wilderness will direct a tender offer of $79.00 per
share to all of the shareholders of Citizens.
2. Wilderness will accept for payment and will pay for, at
the time and in the manner set forth in the proposed tender
offer, any and all shares properly tendered on or before the
Expiration Date of the tender offer.
3. Wilderness' obligation to accept for payment any and
all shares shall be conditioned upon Wilderness receiving a
minimum number of proper tenders from Citizens' shareholders
equal to or greater than fifty-one (51%) percent of Citizens'
total number of outstanding shares.
4. The tender offer shall be held open for a period of
forty-five (45) days. <PAGE 1>
5. Wilderness will provide all current employees not
covered under existing employment agreements a severance
agreement that if such employee is terminated within a thirty-six
(36) month period, said period commencing on the day Wilderness
assumes control of Citizens, for reasons other than self-caused,
such employee shall be entitled to receive one (1) week's salary
for each year of service or FIVE THOUSAND and 00/1 00 ($5,000.00)
DOLLARS, whichever is greater, in addition to any accrued
benefits. Further, all such employees shall not be demoted in
pay or position, nor be required to have their location of
employment chanced from the Lewisburg service center without the
employee's consent.
6. Wilderness agrees to support and encourage the
ratification by the Board of Directors of Citizens in existence
after the Wilderness assumes control of Citizens of that certain
Agreement concerning the waiver of stock option rights, a copy of
which is marked Exhibit "A", attached hereto and incorporated
herein by reference.
7. Wilderness will provide assurance of total necessary
funding to Board ten (10) days prior to the issuance of the
tender offer.
8. The proposed tender offer materials will be presented
to Board in draft form for review and approval, which approval
shall not be unreasonably withheld. If Board does not provide
written comments within ten (10) days of receipt of the proposed
tender offer materials to Wilderness, Board approval shall be
presumed and any right to request further review and approval
shall be waived. If Board does not provided approval of the
proposed tender offer materials this Memorandum of Understanding
shall terminate immediately and any and all obligations shall
expire and neither party shall be bound in any manner whatsoever.
9. Upon signed acceptance of this Memorandum by Citizens,
Wilderness will immediately begin preparation of the proposed
<PAGE 2> tender offer. Said tender offer will be provided
Citizens' shareholders no later than February 15, 1998.
10. Citizens agrees not to expend or transfer any funds or
enter any commitments pending the consummation of the proposed
tender offer, except for the payment of the usual, ordinary, and
necessary operating expenditures and record liabilities as they
mature, unless approved in writing by Wilderness, which approval
shall not be unreasonably withheld.
11. This Memorandum of Understanding shall no longer be of
any force or effect in the event the tender offer transaction has
not been completed by April 1, 1999; and further, it shall
terminate immediately on the event that Wilderness formally
notifies Citizens that the tender offer transaction will not be
consummated.
12. This Memorandum of Understanding shall be held open for
signed acceptance until 4:00 o'clock p.m. eastern standard time,
January 5, 1998. If either party has not executed this
Memorandum of Understanding within the aforementioned time any
and all obligations shall expire and neither party shall be bound
in any manner whatsoever.
Citizens' Electric Company Wilderness Area Utilities Inc.
Board of Directors
By: /s/ Eric L. Brouse By: /s/ Robert O. Toombs 1/5/98
Eric L. Brouse Robert O. Toombs
President Executive Vice President &
January 5, 1998 General Manager
PAGE 3
<PAGE>
Offer to Purchase for Cash
Any and All Outstanding Shares of Common Stock
of
CITIZENS' ELECTRIC COMPANY OF LEWISBURG, PA
at
$79.00 Net Per Share
by
WILDERNESS AREA UTILITIES, INC.
___________________________
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
PHILADELPHIA, PENNSYLVANIA TIME, ON APRIL 10, 1998, UNLESS THE
OFFER IS EXTENDED.
___________________________
IMPORTANT
Any shareholder wishing to accept the Offer should
either (i) complete and sign the Letter of Transmittal in
accordance with the instructions in the Letter of Transmittal and
mail or deliver it and any other required documents to the
Depositary and deliver the certificates for such Shares to the
Depositary along with the Letter of Transmittal, or (ii) request
his broker, dealer, commercial bank, trust company or nominee to
effect the transaction for him. A shareholder having Shares
registered in the name of a broker, dealer, commercial bank or
trust company or nominee must contact such person if he desires
to tender such Shares.
Questions and requests for assistance may be directed
to and additional copies of this Offer to Purchase and the Letter
of Transmittal may be obtained from Eric L. Brouse at Citizens'
Electric Company (717-524-2231) and Alex Hartley at Wilderness
Area Utilities, Inc. (717-662-2175).
February 13, 1998
<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION .......................................... 1
1. Terms of the Offer .......................... 2
2. Procedure for Tendering Shares .............. 2
3. Withdrawal Rights ........................... 4
4. Acceptance for Payment and Payment .......... 5
5. Certain Federal Income Tax Consequences ..... 6
6. Price Range of Shares ....................... 7
7. Risk Factors For Nontendering Shareholders .. 7
8. Certain Information Concerning the Company .. 8
9. Certain Information Concerning the Purchaser. 10
10. Source and Amount of Funds .................. 11
11. Background of the Offer ..................... 11
12. Purpose of the Offer ........................ 12
13. Extension of Expiration Date ................ 14
14. Certain Conditions of the Offer; Termination. 14
15. Certain Legal Matters; Regulatory Approvals . 16
16. Fees And Expenses ........................... 17
17. Miscellaneous ............................... 17
PAGE 1
<PAGE>
To the Holders of Common Stock
of CITIZENS' ELECTRIC COMPANY OF LEWISBURG, PA
INTRODUCTION
Wilderness Area Utilities, Inc., a Pennsylvania
business corporation (the "Purchaser"), which is a wholly owned
subsidiary of Tri-County Rural Electric Cooperative Inc., a
nonprofit member-owned cooperative ("Tri-County"), hereby offers
to purchase any and all issued and outstanding shares of Common
Stock, $10.00 par value (the "Shares"), of Citizens' Electric
Company of Lewisburg, PA, a Pennsylvania corporation (the
"Company"), at $79.00 per Share, net to the seller in cash, upon
the terms and subject to the conditions set forth in this Offer
to Purchase and in the related Letter of Transmittal (which
together constitute the "Offer"). Tendering shareholders will
not be obligated to pay brokerage fees or commissions or, except
as set forth in the Letter of Transmittal, transfer taxes on the
purchase of Shares by the Purchaser pursuant to the Offer. The
Purchaser will pay all charges and expenses of the depositary,
Registrar and Transfer Company (the "Depositary"), in connection
with the Offer.
Consummation of the Offer and acceptance for purchase
of any shares tendered in the Offer are subject to the
Pennsylvania Public Utility Commission (the "PUC") and the
Securities and Exchange Commission (the "SEC") approving the
acquisition of the Shares by the Purchaser. Obtaining such
approvals may take six months or longer from the date
applications for such approvals are filed. The Purchaser and the
Company intend to file such applications as soon as practicable.
Nevertheless, such approvals may not be obtained until the fourth
quarter of 1998 or the first quarter of 1999. If such approvals
are not obtained by April 1, 1999, either the Company or
Purchaser may terminate the Offer. See "Certain Legal Matters;
Regulatory Approvals." For a discussion of the rights of
shareholders who tender Shares to receive dividends on and vote
such Shares during such period, see "Procedure for Tendering
Shares - Certificates of Deposit."
The Offer is being made pursuant to the Memorandum of
Understanding dated January 5, 1998 (the "Memorandum of
Understanding") between Purchaser and the Company, a copy of
which is attached hereto as Exhibit "A." At the time of the
acceptance for payment by Purchaser of Shares tendered pursuant
to the Offer, and as a condition thereof, the present directors
of the Company will resign and will fill such vacancies with
directors designated by Purchaser. As a result, Purchaser will
be in control of the management and policies of the Company.
The terms and conditions of the Memorandum of
Understanding are hereby incorporated by reference herein and are
part of the Offer. Shareholders are urged to read carefully the
<PAGE 1> Memorandum of Understanding in determining whether or
not to tender their Shares.
The directors of the Company unanimously approved the
execution of the Memorandum of Understanding by the Company, and
the Board of Directors of the Company has recommended acceptance
of the Offer. THE BOARD OF DIRECTORS OF THE COMPANY ADVISES EACH
SHAREHOLDER OF THE COMPANY TO MAKE HIS, HER OR ITS OWN DECISION
CONCERNING WHETHER TO TENDER HIS, HER OR ITS SHARES PURSUANT TO
THE OFFER.
According to the Company, as of January 31, 1998, there
were issued and outstanding 139,472 Shares. Outstanding options
for 3,650 shares will not be exercised or paid for pursuant to
the Offer, by agreement of the option holders. See "Purpose of
the Offer - Stock Option Waiver Agreement." Purchaser does not
own or have the right to acquire any Shares.
1. Terms of the Offer.
Upon the terms and subject to the conditions set forth
in the Offer, Purchaser will accept for payment and will pay for,
at the time and in the manner set forth herein, any and all
Shares properly tendered on or before the Expiration Date and not
withdrawn as provided herein. The term "Expiration Date" shall
mean 5:00 p.m., Philadelphia, Pennsylvania time, on April 10,
1998, unless and until Purchaser shall have extended the period
of time for which the Offer is open, in which event the term
"Expiration Date" shall mean the latest time and date at which
the Offer, as so extended by Purchaser, shall expire. For a
description of Purchaser's right to extend the period of time
during which the Offer is open and to terminate or amend the
Offer, see "Extension of Expiration Date" and "Certain Conditions
of the Offer; Termination." The date and time on which Purchaser
accepts for payment and pays for the Shares tendered pursuant to
the Offer shall hereinafter be referred to as the "Closing Date."
The Company has supplied Purchaser with copies of the
Company's shareholder list for the purpose of disseminating the
Offer to holders of Shares. This Offer to Purchase and the
related Letter of Transmittal will be mailed to record holders of
Shares and will be furnished to brokers, banks and similar
persons whose names, or the names of whose nominees, appear on
the shareholder list.
2. Procedure for Tendering Shares.
To tender Shares pursuant to the Offer, a properly
completed and duly executed Letter of Transmittal and any other
documents required by the Letter of Transmittal must be received
by the Depositary at its address set forth in the Letter of
Transmittal and certificates for the Shares to be tendered must
be received by the Depositary at such address on or before the
Expiration Date.
<PAGE 2>
Signature Guarantees. No signature guarantee is required if the
Letter of Transmittal is signed by the registered holder of the
Shares tendered therewith and such holder has not completed the
section entitled "Special Payment Instructions" in the Letter of
Transmittal, or if such Shares are tendered for the account of an
Eligible Institution (as defined below). Except as otherwise
provided in the preceding sentence, all signatures on a Letter of
Transmittal must be guaranteed by a firm which is a member of a
registered national securities exchange or the National
Association of Securities Dealers, Inc., or by a commercial bank
or trust company having an office, branch or agency in the United
States (an "Eligible Institution"). See Instruction 2 of the
Letter of Transmittal.
If a certificate representing Shares is registered in
the name of a person other than the signer of a Letter of
Transmittal, or if payment is to be made, or Shares not purchased
or tendered are to be issued, to a person other than the
registered owner, then the certificate must be endorsed or
accompanied by an appropriate stock power, in either case signed
exactly as the name of the registered owner appears on the
certificate, with the signature on the certificate or stock power
guaranteed by an Eligible Institution. See Instruction 3 of the
Letter of Transmittal.
THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING SHAREHOLDER.
IF CERTIFICATES FOR SHARES ARE SENT BY MAIL, REGISTERED MAIL WITH
RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
Back-Up Federal Income Tax Withholding. Under the Federal income
tax back-up withholding rules, unless an exception applies under
the applicable law and regulations, Purchaser may be required to
withhold, and will withhold and remit to the United States
Treasury, 31% of the gross proceeds paid to a shareholder or
other payee pursuant to the Offer, unless the shareholder or
other payee provides his taxpayer identification number (employer
identification number or social security number) and certifies
that such number is correct. Therefore, unless such an exception
exists and is proved in a manner satisfactory to Purchaser, each
shareholder and, if applicable, each other payee, should complete
and sign the Substitute Form W-9 included as part of the Letter
of Transmittal, so as to provide the information and
certification necessary to avoid backup withholding.
Determination of Validity. All questions as to the form of
documents and the validity, eligibility (including time of
receipt) and acceptance for payment of any tender of Shares will
be determined by Purchaser, in its sole discretion, which
determination shall be final and binding. The Purchaser reserves
the absolute right to reject any or all tenders of Shares
determined by it not to be in proper form or the acceptance for
payment of or payment for which may, in the opinion of
Purchaser's counsel, be unlawful. The Purchaser also reserves
the absolute right to waive any of the conditions of the Offer or
<PAGE 3> any defect or irregularity in any tender of Shares.
None of the Purchaser, the Depositary, or any other person will
be under any duty to give notification of any defect or
irregularity in tenders or incur any liability for failure to
give any such notifications.
Certificates of Deposit. Each shareholder who tenders shares in
the Offer will receive a transferable certificate of deposit (a
"Certificate") which will represent the Shares tendered by the
shareholder. Each Certificate provides that the registered
holder thereof will be entitled to receive all dividends paid and
other distributions made with respect to the Shares represented
by the Certificate prior to the date such Shares are accepted for
payment in the Offer. In addition, the registered holder of such
Certificate is entitled to vote the Shares represented by such
Certificate at any annual, special, adjourned, or postponed
meeting of the Company's shareholders, or in connection with any
other action of the Company's shareholders by written consent or
otherwise. If the acquisition of the tendered Shares is not
approved by the SEC and the PUC or if the Shares are not
otherwise accepted for payment by the Purchaser by April 1, 1999,
the Shares represented by each Certificate will be returned to
the registered holder of such Certificate by the Depositary. The
Depositary will maintain a register of the holder of each
Certificate, and Certificates may be presented to the Depositary
for registration of any transfer of a Certificate. The
Depositary, the Company, and the Purchaser shall be entitled to
treat the record holder of each Certificate as the owner thereof
for the purpose of receiving dividends on and voting the Shares
represented thereby.
Approval of Stock Option Waiver Agreement. By executing the
Letter of Transmittal, the shareholder shall also be deemed to
have approved the arrangements between Purchaser and Eric L.
Brouse, Bonnie L. Shadle, Eric W. Winslow, and Kathy A. Zechman,
executive officers of the Company (the "Eligible Officers"),
which are contained in the Agreement between the Eligible
Officers and the Company (the "Stock Option Waiver Agreement"), a
copy of which is attached as Exhibit "B". The terms and payments
to be made pursuant to such arrangements are described in
"Purpose of the Offer - Stock Option Waiver Agreement."
The tender of Shares pursuant to the Offer will
constitute an agreement between the tendering shareholder and
Purchaser upon the terms and subject to the conditions of the
Offer.
3. Withdrawal Rights.
Except as otherwise provided in this Section, tenders
of Shares are irrevocable. Shares tendered pursuant to the Offer
may be withdrawn by or on behalf of a shareholder (i) at any time
prior to the Expiration Date and (ii) at any time after
12:00 Midnight, Philadelphia, Pennsylvania time, April 1, 1999,
<PAGE 4> unless theretofore accepted for payment by the Purchaser
as provided in this Offer to Purchase.
To be effective, a written, telegraphic, telex or
facsimile transmission notice of withdrawal must be timely
received by the Depositary at its address set forth in the Letter
of Transmittal and must specify the name of the person who
tendered the Shares to be withdrawn and the number of Shares to
be withdrawn. If the Shares to be withdrawn have been delivered
or otherwise identified to the Depositary, a signed notice of
withdrawal with signatures guaranteed by an Eligible Institution,
except in the case of Shares tendered by an Eligible Institution,
must be submitted prior to the release of such Shares. In
addition, such notice must specify, in the case of Shares
tendered by delivery of certificates, the name of the registered
holder (if different from that of the tendering shareholder) and
the serial numbers shown on the particular certificates
evidencing the Shares to be withdrawn. Withdrawals may not be
rescinded, and Shares withdrawn will thereafter be deemed not
properly tendered for purposes of the Offer. Withdrawn Shares
may be retendered, however, by again following the procedures
described herein at any time prior to the Expiration Date.
All questions as to the form and validity (including
time of receipt) of any notice of withdrawal will be determined
by Purchaser, in its sole discretion, which determination shall
be final and binding. None of Purchaser, the Depositary, or any
other person will be under any duty to give notification of any
defect or irregularity in any notice of withdrawal or incur any
liability for failure to give any such notification.
4. Acceptance for Payment and Payment.
Upon the terms and subject to the conditions of the
Offer, on the Closing Date the Purchaser will accept for payment
all Shares properly tendered and not withdrawn on or prior to the
Expiration Date. The Closing Date shall occur on the later of
(i) the Expiration Date; or (ii) the date on which all of the
conditions to Purchaser's obligation to accept for payment and
pay for the Shares have been satisfied or waived. See "Extension
of Expiration Date;" "Certain Conditions of the Offer;
Termination;" and "Certain Legal Matters; Regulatory Approvals."
Following the Closing Date, the Depositary will mail any amounts
properly payable to any tendering shareholder of the Company as
promptly as practicable.
For purposes of the Offer, the Closing Date shall have
occurred and the Purchaser shall be deemed to have accepted for
payment, and thereby purchased, tendered Shares on the date and
time that Purchaser gives oral or written notice to the
Depositary of its acceptance for payment of such Shares. Payment
for Shares accepted for payment pursuant to the Offer will be
made by deposit of the purchase price with the Depositary, which
will act as agent for the tendering shareholders for the purpose
of receiving payments from Purchaser and transmitting such
<PAGE 5> payments to tendering shareholders. If certain events
occur, Purchaser may not be obligated to purchase Shares pursuant
to the Offer and Purchaser or the Company may terminate the
Offer. See "Certain Conditions of the Offer; Termination."
If tendered Shares are not purchased pursuant to the
Offer for any reason, or if certificates are submitted for more
Shares than are tendered, certificates for such unpurchased or
untendered Shares will be returned, without expense to the
tendering shareholder, as promptly as practicable following the
expiration or termination of the Offer.
If, prior to the Expiration Date, Purchaser increases
the consideration to be paid for Shares pursuant to the Offer,
Purchaser will pay such increased consideration for all Shares
accepted for payment pursuant to the Offer, whether or not they
have been tendered prior to such increase in consideration. If
the Purchaser increases the consideration offered, the Offer
shall remain open for at least 10 business days from the date
that notice thereof is first published or sent or given to
holders of Shares.
Purchaser reserves the right to transfer or assign, in
whole or from time to time in part, to one or more of its
affiliates the right to purchase Shares tendered pursuant to the
Offer, but any such transfer or assignment will not relieve
Purchaser of its obligations under the Offer or prejudice the
rights of tendering shareholders to receive payment for Shares
properly tendered and accepted for payment.
5. Certain Federal Income Tax Consequences.
Sales of Shares pursuant to the Offer by shareholders
of the Company who are subject to federal income tax will be
taxable transactions for federal income tax purposes and may also
be taxable transactions under applicable state, local, foreign
and other tax laws. A shareholder will recognize gain or loss
measured by the difference between such shareholder's adjusted
tax basis for the Shares tendered by him or her at the time of
the sale and the amount of cash received therefor. In general,
any gain or loss will be capital gain or loss if the Shares are
capital assets in the hands of the shareholder, and generally
will be long-term capital gain or loss if such shareholder's
holding period for the Shares sold is more than one year.
Under the Taxpayer Relief Act of 1997, for noncorporate
taxpayers, such gain is taxed at different rates, which vary with
the taxpayer's holding period for the capital asset. Generally,
for capital assets held one year or less, the maximum rate is the
highest regular tax rate that applies to the taxpayer's taxable
income, exclusive of long-term capital gains, up to a maximum of
39.6%. For capital assets held for more than one year but not
more than eighteen months, the maximum rate is 28%. For capital
assets held for more than eighteen months, the maximum rate is
20%. Subject to certain limited exceptions, capital losses
<PAGE 6> cannot be applied to offset ordinary income for United
States federal income tax purposes.
No ruling has been or will be requested from the
Internal Revenue Service and no opinion of counsel has been or
will be given to the Company as to any of the tax consequences of
the transactions discussed in this Offer to Purchase.
The foregoing is only a general description of certain
of the federal income tax consequences to shareholders of the
sale of Shares pursuant to this Offer without consideration of
the particular facts and circumstances of each shareholder's
situation. Each Shareholder is urged to consult its, his or her
tax advisor with respect to the federal, state, local and foreign
tax consequences of the Offer.
6. Price Range of Shares.
The Shares are not listed on any exchange or quoted on
the National Association of Securities Dealers Automated
Quotation System. While the Shares are quoted in the "pink
sheets" there is no established public trading market for the
Shares and they are very infrequently traded. During the
calendar year ended December 31, 1997, approximately
35,677 Shares were transferred of record. Management of the
Company believes that the majority of these transfers were not in
fact sales, but instead represented changes in ownership
registration.
The latest price per Share reported to the Company's
management to have been paid in an actual transaction was $36.00
per Share paid on January 2, 1998 for 51 Shares purchased.
During 1997, transactions in the Company's Common Stock ranged
from $28.75 per Share to $32.00 per Share. Because of the
isolated nature of transactions in the Shares, the prices set
forth above may not be indicative of the market value of the
Shares. According to the Over The Counter (OTC) bulletin board,
the last transaction was on September 5, 1997. The per share
price was $30.875. The 52 week range was from $29.50 to $31.875.
There is an open offer of $55.00 per share at the present time.
7. Risk Factors For Nontendering Shareholders.
Shareholders of the Company who fail to tender their
Shares in the Offer or who withdraw Shares tendered by them may
face certain risk factors if the Offer is consummated. Certain
of these risk factors are discussed below:
Control of the Company by Purchaser. If the Offer is
consummated, the Purchaser will own at least a majority of the
outstanding Shares of the Company. Because shareholders of the
Company do not have the right to cumulative voting for election
of directors of the Company, the Purchaser will be able to elect
all the Company's directors. Accordingly, the Purchaser will
control whether or not dividends are paid on the Company's Shares
<PAGE 7> after consummation of the Offer. In addition, the
Purchaser may cause the Company to incur additional debt and to
loan such funds to the Purchaser for the purpose of repaying
indebtedness incurred in connection with the Offer or for other
purposes.
Second Step Merger. Although it is not obligated to do so,
following consummation of the Offer the Purchaser may choose to
cause the Company to merge into the Purchaser or another
corporation pursuant to which all shareholders of the Company
except the Purchaser receive cash for their Shares. The amount
of cash paid in such merger may be less than $79.00 per Share.
Although any remaining shareholders of the Company should be
entitled to exercise dissenters' rights in such merger, no
assurance can be given that a court will determine that the
Shares are worth at least $79.00 per Share. Accordingly,
shareholders who fail to tender their Shares in the Offer could
receive less than $79.00 per Share in any such merger.
Market for Remaining Shares. Although there is no established
market for the Shares, the purchase by Purchaser of Shares
pursuant to the Offer will reduce the number of Shares that might
otherwise trade publicly and will reduce the number of holders of
Shares. This will adversely affect the liquidity of, and may
adversely affect the market value of, the remaining Shares.
8. Certain Information Concerning the Company.
The Company is a for-profit regulated public utility,
distributing electric service to more than 6,225 customers in
parts of Union and Northumberland Counties in central
Pennsylvania. Headquartered in the county seat of Lewisburg,
Pennsylvania, the Company was incorporated on June 7, 1911. The
Company is an investor-owned utility and must adhere to
regulations established by the PUC.
The Company's headquarters and operations center is
located on Industrial Boulevard in Lewisburg, Pennsylvania. The
Company's payroll consists of 18 full-time employees. The 325
mile electric distribution system is fed from one centrally
located substation. Pennsylvania Power and Light currently
provides wholesale power to the Company's substation.
The Company's records for 1996 show residential
services making up the bulk of the Company's 6,211 active
accounts. Approximately 82 percent (5,105 meters) of the
Company's accounts are classified as residential. Nearly 17
percent (1,070 meters) are small commercial/industrial accounts,
with the remaining one percent (36 meters) classified as large
commercial/industrial accounts.
The following selected consolidated financial data
relating to the Company and its subsidiaries has been taken or
derived from the audited financial statements prepared by the
Company for the years ended December 31, 1997 and 1996. More
<PAGE 8> comprehensive financial information is included in such
audited financial statements, and the financial data set forth
below is qualified in its entirety by reference to such
documents.
CITIZENS' ELECTRIC COMPANY
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per Share amounts)
Year Ended
Dec. 31, Dec. 31,
1997 1996
Income Statement Information
Operating Revenues $9,272 $8,726
Operating Income 636 721
Net Income 479 497
Net Income per Share 3.46 3.60
Dividends per Share 1.76 1.72
Balance Sheet Information (at
period end):
Working Capital $ 661 $ 806
Total Assets 8,398 7,865
Long-term Obligations,
Less Current Maturities 82 112
Shareholders' Equity 5,857 5,549
Although Purchaser does not have any knowledge or
reason to believe that any information contained herein
concerning the Company is untrue or that any significant
information has been omitted, Purchaser does not take any
responsibility for the accuracy or completeness of the
information contained herein or for any failure by the Company to
disclose events that may have occurred or which may affect the
significance or accuracy of any such information but that are
unknown to the Purchaser.
<PAGE 9>
9. Certain Information Concerning the Purchaser.
The Purchaser is a for-profit corporation,
headquartered in Mansfield, Pennsylvania. The Purchaser was
organized under the laws of the Commonwealth of Pennsylvania as a
"C" corporation on March 10, 1994, and is a subsidiary of
Tri-County Rural Electric Cooperative Inc., a member owned
non-profit electric utility.
In January 1995, the Purchaser acquired the majority of
Wellsboro Electric Company's ("Wellsboro Electric") common stock.
Wellsboro Electric is a for-profit electric utility based in
Wellsboro, Pennsylvania. Wellsboro Electric currently serves
more than 5,500 accounts in Tioga County over an electric
distribution system entailing approximately 525 miles of line,
one primary substation and three smaller substations/regulators.
As of December 31, 1996, the Purchaser had assets of
$11,991,000, consisting of $7,541,000 in Wellsboro Electric
common stock, $3,053,000 in long term loans to Wellsboro
Electric, $238,000 in vehicle leases, and $1,159,000 in other
miscellaneous assets.
The following selected consolidated financial data
relating to the Purchaser and its subsidiaries has been taken or
derived from the unaudited financial statements of the Purchaser
for the fiscal year ended December 31, 1996.
PAGE 10
<PAGE>
WILDERNESS AREA UTILITIES, INC.,
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share amounts)
Year Ended
December 31, 1996
Income Statement Information:
Net Sales $ 6,154
Earnings Before Income Taxes (285)
Net Earnings (160)
Earnings per Common Share (11.09)
Dividends per Common Share -0-
Balance Sheet Information:
Working Capital 337
Total Assets 17,272
Long-term Debt and Obligations 9,154
Under Capital Leases, Less
Current Maturities
Shareholders' Equity 2,859
10. Source and Amount of Funds.
The total amount of funds required by the Purchaser to
purchase all the Shares and to pay related fees and expenses will
be approximately $12 million. Purchaser plans to obtain such
funds from its cash and from existing credit facilities.
11. Background of the Offer.
Realizing the monumental change taking place in the
electric industry, Purchaser has sought ways to enhance
shareholder value and stabilize it's future in the utility
business. Upon obtaining a controlling interest in the Company,
Purchaser intends to capitalize on operational efficiencies which
should enhance electric service and reliability for all
consumers, while at the same time reducing costs for each
organization involved through economies of sale. Purchaser
believes the opportunity to achieve more leverage in bargaining
for better wholesale power rates, provide for mutual assistance
<PAGE 11> during major outages, and gain further efficiencies in
material acquisition, customer billing and overall administration
is the way to prosper in the new environment.
Purchaser and the Company have shared services on a
limited nature within the past year. Except for the Memorandum
of Understanding, no formal contracts have been entered into
between the organizations.
The proposed acquisition has been under consideration
for the past year. Negotiations were finalized on January 5,
1998, when a Memorandum of Understanding outlining terms of a
proposed tender offer was entered into between the Purchaser and
the Company.
12. Purpose of the Offer.
The purpose of the Offer is to acquire for cash as many
of the Shares as possible. The Offer is being made pursuant to
the Memorandum of Understanding. At the time of Purchaser's
acceptance of the Shares tendered pursuant to the Offer and as a
condition thereof, all of the directors of the Company will
resign and fill such vacancies with directors designated by
Purchaser.
Memorandum of Understanding. Subject to the satisfaction or
waiver by Purchaser of the conditions to the consummation of the
Offer, the Memorandum of Understanding provides that Purchaser
shall accept for payment and purchase the Shares tendered
pursuant to the Offer for $79.00 in cash without interest. In
addition, if certain events occur or fail to occur after the date
of the Memorandum of Understanding, the Purchaser may terminate
and withdraw the Offer. See "Certain Conditions of the Offer;
Termination."
Stock Option Waiver Agreement. Pursuant to the Stock Option
Waiver Agreement, each Eligible Officer entitled to receive stock
options to purchase Shares will be entitled to receive, in full
satisfaction of such options, a cash payment equal to such
Eligible Officer's annual salary as in effect on the Closing
Date. Such amount is payable one-half on the first anniversary
of the Closing Date and one-half on the second anniversary of the
Closing Date, provided such Eligible Officer is still a full-time
employee of the Company at the time such payment is due. The
condition that the Eligible Officer be a full-time employee of
the Company at such payment date does not apply if (i) the
person's full-time employment ended due to death or partial or
full disability; (ii) the Company changed the person's duties
from what they were at the Closing Date, or (iii) the Company
terminated the person's employment, whether with or without
cause.
Employee Severance Arrangements. Pursuant to the Memorandum of
Understanding, the Purchaser has agreed to provide severance
agreements to all current employees of the Company not covered
<PAGE 12> under existing employment agreements. Such severance
agreement will provide that if the employee is terminated within
thirty-six (36) months after the Closing Date other than for
cause, Purchaser will pay to such employee an amount equal to
the greater of (i) $5,000, or (ii) one week's salary for each
year of service. In addition, none of such employees will be
demoted in pay or position or have his or her location of
employment changed from the Lewisburg Service Center without the
employees's consent during such thirty-six month period.
Transactions Pending Closing. Pursuant to the Memorandum of
Understanding, the Company has agreed that, among other things,
except as expressly contemplated by the Memorandum of
Understanding, from and after January 5, 1998 and until the
Closing Date, the Company will not expend or transfer any funds
or enter into any commitments, except for the payment of the
usual, ordinary and necessary operating expenses and record
liabilities of the Company as they mature.
The Company has also agreed that it shall provide
access to the officers and authorized representatives of
Purchaser (i) to its books and records at such times as Purchaser
shall reasonably request in order that Purchaser shall have the
full opportunity to make such investigation of the assets,
liabilities, financial condition, business and affairs of the
Company or any subsidiary as Purchaser shall desire, (ii) to all
work papers and audit papers prepared by the Company's auditors
for the prior fiscal years or periods of the Company and to the
due diligence procedures of the Company's auditors, and (iii) to
the Company's properties and personnel during normal working
hours after prior notice to the Company. Purchaser may terminate
the Offer if it is not in its sole opinion reasonably satisfied
with the results of its due diligence investigation. See
"Certain Conditions of the Offer; Termination."
The Company has agreed that, unless the Memorandum of
Understanding has been terminated by either party, neither the
Company, any of its subsidiaries, nor any investment banking firm
or financial advisor will, directly or indirectly, initiate
discussions or engage in negotiations with, or provide any
information to, any person or entity concerning any possible
proposal regarding a sale or purchase of capital stock of the
Company or a merger, liquidation, consolidation, sale or purchase
of assets or other similar transaction involving the Company or
any subsidiary, division or major asset of the Company; provided,
however, that the Board of Directors of the Company may pursue
such a proposal if, upon advice of counsel to the Company, such
is necessary under applicable law, and the Board of Directors of
the Company concludes that such proposal is more favorable to the
shareholders than the Offer or any amendment to the Offer. The
Company has agreed to communicate promptly to Purchaser the terms
of any proposal or contact which it or any of its subsidiaries
may receive in respect of any such transaction and to afford
Purchaser the right to match or exceed such other offer. In the
event that Purchaser shall choose to match or exceed such other
<PAGE 13> offer, the Purchaser shall give notice thereof to
holders of the Shares and the Offer shall remain open for at
least 10 business days from the date such notice is first
published or sent or given to holders of Shares. See "Acceptance
For Payment and Payment" and "Extension of Expiration Date."
All costs and expenses incurred in connection with the
Memorandum of Understanding and the transactions contemplated
thereby (including the Offer) shall be paid by the party
incurring them.
The consummation of the Offer by Purchaser is subject
to the satisfaction of certain conditions, and under certain
circumstances Purchaser or the Company may terminate the Offer.
See "Certain Conditions of the Offer; Termination."
The Offer may be amended by Purchaser at any time but
no amendment shall be made which decreases the consideration to
be received in exchange for any of the Shares pursuant to the
Offer or which imposes additional conditions to the acceptance of
the Shares by Purchaser or which is otherwise inconsistent with
the provisions of the Memorandum of Understanding.
13. Extension of Expiration Date.
The Purchaser reserves the right, at any time or from
time to time, to extend the Expiration Date by giving oral or
written notice of such extension to the Depositary. There can be
no assurance that Purchaser will exercise its right to extend the
Offer. During any such extension, all Shares previously tendered
and not accepted for payment or withdrawn will remain subject to
the Offer and may be accepted for payment by the Purchaser,
except to the extent that such Shares may be withdrawn as set
forth in "Withdrawal Rights." Under no circumstances will
interest be paid on the purchase price by the Purchaser by reason
of any such extension. Any extension will be followed as
promptly as practicable by a press release or other public
announcement thereof, such notice shall include disclosure of the
approximate number of Shares tendered to date and shall be issued
no later than 9:00 a.m. Eastern time, on the next business day
after the previously scheduled Expiration Date.
14. Certain Conditions of the Offer; Termination.
Conditions of the Offer. Notwithstanding any other provision of
the Offer, Purchaser will be under no obligation to accept for
payment and pay for the Shares unless all of the following exist
or occur on or prior thereto or are waived by it: (i) each of the
representations and warranties made by the Company in the
Memorandum of Understanding shall be true in all material
respects at the Closing Date as if made at, as of, and with
respect to the Closing Date, and the covenants, agreements and
obligations to be performed by the Company at or before the
Closing Date pursuant to the Memorandum of Understanding shall
have been so performed in all material respects; (ii) Purchaser
<PAGE 14> and the Company shall have obtained all permits,
consents, waivers from and approvals of, and made filings and
registrations with any federal, state and local governmental
board, commission, authority or any other regulatory body,
including but not limited to, those required from the SEC, the
PUC, or any other state commission or board which are required
for the consummation of the transactions contemplated on their
respective parts thereby; (iii) the Company shall have taken all
corporate action necessary to approve the Memorandum of
Understanding and the transactions contemplated thereby; (iv) the
Company shall have delivered to Purchaser all consents, waivers
and authorizations necessary to permit the Offer to be
consummated without any violation of, or the acceleration of any
indebtedness under, or the termination of any agreement to which
the Company or a subsidiary is a party; (v) the Company shall
have delivered to Purchaser its audited financial statements for
the calendar year ended December 31, 1997 along with the
unqualified opinion of its independent auditor relating to such
financial statements and its unaudited financial statements for
the nine months ended September 30, 1998; (vi) no less than 51%
of the Shares shall have been tendered to the Depositary pursuant
to the Offer; and (vii) the directors of the Company shall have
resigned and filled such vacancies with the directors designated
by Purchaser.
The foregoing conditions are for the sole benefit of
the Purchaser and may be asserted by the Purchaser in its sole
discretion regardless of the circumstances (including any action
or omission by the Purchaser) giving rise to any such conditions
or may be waived by the Purchaser in its sole discretion in whole
at any time or in part from time to time.
Termination of Offer. The Offer may be terminated at any time
prior to the Closing Date by Purchaser by notice to the Company,
as follows:
(i) if the conditions to Purchaser's obligation
to accept for payment and pay for the Shares pursuant to the
Offer shall not have been complied with or performed in any
material respect and such noncompliance and nonperformance shall
not have been waived by Purchaser, or cured or eliminated (or by
its nature cannot be cured or eliminated) by the Company on or
before 12:00 Noon, Philadelphia, Pennsylvania time on April 1,
1999;
(ii) if at any time prior to the Closing Date, a
governmental authority shall have instituted an action claiming
that the consummation of the Offer will constitute a violation of
law or give rise to any material liability;
(iii) if at any time prior to the Closing Date,
there is a material action, material proceeding or material claim
("Action") pending or threatened by a party other than a
governmental authority which (a) might prevent the consummation
of the Offer or (b) by its terms seeks damages by reason of the
<PAGE 15> Offer; and as to which to the law firm of McNees,
Wallace & Nurick has expressed written opinions to Purchaser that
(in the case of (a)) there is a reasonable likelihood of success
of such Action or that (in the case of (b)) there is both a
reasonable likelihood of success and a reasonable likelihood that
the Action will have a material adverse effect on the financial
condition of either the Company and its subsidiaries taken as a
whole, or Purchaser;
(iv) if at any time prior to the Closing Date,
Purchaser is not in its sole opinion reasonably satisfied with
the results of its due diligence investigation of the Company or
a subsidiary;
(v) if at any time prior to the Closing Date,
Purchaser reasonably determines that there has been a material
adverse change in the condition (financial or otherwise), assets,
business, financial position, results of operations or prospects
of the Company and the subsidiaries, taken as a whole; or
(vi) if at any time prior to the Closing Date,
Purchaser has received notice from the Company regarding an offer
received by the Company and Purchaser does not elect to match or
exceed such offer.
If the Closing Date does not occur on or before
April 1, 1999, the Memorandum of Understanding may be terminated
by the Company prior to the Closing Date by notice to Purchaser,
and Purchaser shall then terminate the Offer,
The foregoing only summarizes the event or occurrences
which could result in the termination of the Offer.
15. Certain Legal Matters; Regulatory Approvals.
General. Based on its examination of information made available
by the Company, Purchaser is not aware of any license or
regulatory permit that appears to be material to the Company's
business that might be adversely affected by Purchaser's
acquisition of Shares as contemplated herein. Except for (i) the
approval of the PUC, and (ii) the approval of the SEC under the
Public Utility Holding Company Act, Purchaser is not aware of any
approval or other action or filing to be made with or by any
government or governmental, administrative or regulatory
authority or agency, that would be required for the purchase of
Shares by the Purchaser as contemplated herein. The appropriate
filings will be made by Purchaser with the PUC and SEC, and the
occurrence of the Closing Date is expressly conditioned upon
(i) the approval of the PUC, and (ii) the approval of the SEC.
Should any other approval or other action be required, the
Purchaser presently contemplates that such other approval or
other action will be sought.
State Takeover Statutes. A number of states have adopted state
"takeover" statutes and regulations which purport, to varying
<PAGE 16> degrees, to be applicable to attempts to acquire
securities of corporations that are incorporated or have
substantial assets, shareholders, principal executive offices or
principal places of business in such states.
The Purchaser reserves the right to challenge the
applicability of any state law purporting to apply to the Offer,
and neither anything in this Offer nor any action taken in
connection herewith is intended as a waiver of such right. In
the event it is asserted that one or more state takeover statutes
or regulations are applicable to the Offer, and an appropriate
court does not determine that they are inapplicable or invalid as
applied to the Offer, Purchaser might be required to file certain
information with, or to receive approvals from, the relevant
state authorities, and Purchaser might be unable to accept for
payment or pay for Shares tendered pursuant to the Offer, or be
delayed in consummating the Offer. See "Certain Conditions of
the Offer; Termination."
16. Fees And Expenses.
Purchaser has retained Registrar and Transfer Company
of Cranford, New Jersey to act as the Depositary in connection
with the Offer. The Depositary will receive reasonable and
customary compensation for its services, will be reimbursed for
certain reasonable out-of-pocket expenses and will be indemnified
against certain liabilities and expenses in connection therewith.
The Purchaser will not pay any fees or commissions to
any broker or dealer or any other person for soliciting tenders
of Shares pursuant to the Offer. Brokers, dealers, commercial
banks and trust companies will, upon request, be reimbursed by
the Purchaser for reasonable and necessary costs and expenses
incurred by them in forwarding materials to their customers.
17. Miscellaneous.
The Offer is not being made to, nor will tenders be
accepted from or on behalf of, holders of Shares in any
jurisdiction in which the making of the Offer or acceptance
thereof would not be in compliance with the laws of such
jurisdiction. Purchaser may, however, in its discretion, take
such action as it may deem necessary to make the Offer in any
such jurisdiction and extend the Offer to holders of Shares in
such jurisdiction.
No person has been authorized to give any information
or make any representation on behalf of the Company or Purchaser
not contained in this Offer to Purchase or in the Letter of
Transmittal and, if given or made, such information or
representation must not be relied upon as having been authorized.
WILDERNESS AREA UTILITIES, INC.
February 13, 1998 <PAGE 17>
<PAGE>
EXHIBIT B-3
WILDERNESS AREA UTILITIES, INC.
________________________________________________________________
P.O. Box 448 * 22 North Main Street * Mansfield, PA 16933-0448
717-662-2175 * Fax 717-662-2142
SECOND ADDENDUM TO MEMORANDUM OF UNDERSTANDING
BETWEEN CITIZENS' ELECTRIC COMPANY AND
WILDERNESS AREA UTILITIES, INC.
WHEREAS, the aforementioned parties entered into a
Memorandum of Understanding dated January 5, 1998 ("Memorandum");
WHEREAS, Wilderness Area Utilities, Inc. ("Wilderness")
desires to transfer and assign it's rights and obligations under
said Memorandum to C&T Enterprises Inc. ("C&T"); and
WHEREAS, Citizens' Electric Company ("Citizens") is
agreeable to such transfer and assignment subject to the
conditions set forth below:
NOW THEREFORE, intending to be legally bound, the parties
jointly agree as follows:
1. Wilderness shall unconditionally guarantee the full and
timely performance by C&T of the obligations assigned
under the Memorandum, and the execution of this Second
Memorandum by Wilderness, evidences Wilderness'
agreement to this condition.
2. In connection with Wilderness' obligation under
Section 7 of the Memorandum, Wilderness shall provide a
letter or other written evidence satisfactory to
Citizens to the effect that the tender offer financing
to provided to Wilderness by National Rural Utilities
Cooperative Finance Cooperation ("CFC"), as originally
<PAGE 1> confirmed in CFC's letter to Wilderness dated
January 28, 1998, will be provided by CFC to C&T.
IN WITNESS WHEREOF, the parties have hereunto set their
hands and seals this 20th day of July 1998.
Citizens' Electric Company Wilderness Area Utilities Inc.
Board of Directors
By: /s/ Eric L. Brouse By: /s/ Robert O. Toombs 1/5/98
Eric L. Brouse Robert O. Toombs
President President & Chief Executive
January 5, 1998 Officer
For valuable consideration and intending to be legally
bound, C&T Enterprises, Inc. hereby joins in, and agrees to be
bound by, this Second Addendum.
By: /s/ Robert O. Toombs
PAGE 2
<PAGE>
EXHIBIT B-4
AGREEMENT
THIS AGREEMENT, ("Agreement"), made this 28th day of May
1998, by and between TRI-COUNTY RURAL ELECTRIC COOPERATIVE, INC.
("TRI-COUNTY") and CLAVERACK RURAL ELECTRIC COOPERATIVE, INC,
("CLAVERACK"). TRI-COUNTY and CLAVERACK are herein referred to
jointly as the "COOPERATIVES".
WHEREAS, the COOPERATIVES desire to organize a corporation
to acquire the stock of CITIZENS' ELECTRIC COMPANY ("CITIZENS");
and
WHEREAS, the COOPERATIVES desire to define their investment
and ownership interest in said corporation;
NOW THEREFORE, in consideration of the mutual promises and
covenants contained herein, and intending to be legally bound
hereby, the COOPERATIVES hereby agree as follows:
1. FORMATION OF CORPORATION. The COOPERATIVES shall cause
to be incorporated under the laws of the Commonwealth of
Pennsylvania a corporation named "C&T Enterprises, Inc. /s/ JLM
(the "Company"). The Company shall be incorporated and in good
standing in Pennsylvania, All expenses thereof shall be borne by
the Company.
The ownership of the capital stock of the Company shall be
as follows: TRI-COUNTY, fifty percent (50%) of the issued
shares; and CLAVERACK, fifty percent (50%) of the issued shares.
2. MANAGEMENT OF THE COMPANY. The management of the
affairs of the Company shall be vested in the Board of Directors
elected by the COOPERATIVES. The organizational meeting of the
Board shall take place within ninety (90) days of the execution
and delivery of this Agreement, at which time the bylaws shall be
<PAGE 1> adopted by the COOPERATIVES, and such other
organizational matters shall be accomplished as deemed necessary
by the COOPERATIVES. The COOPERATIVES may extend the time for
the organizational meeting of the Company if necessary.
3. CAPITALIZATION. Subject to the terms and conditions
set forth herein, at the Closing, TRI-COUNTY shall purchase fifty
percent (50%) of the issued stock of the Company in
consideration, inter alia for the payment and contribution of ONE
HUNDRED THOUSAND and 00/100 ($100,000.00) DOLLARS; and CLAVERACK
shall purchase fifty percent (50%) of the issued stock of the
Company in consideration for the payment and contribution of FOUR
HUNDRED THOUSAND and 00/100 ($400,000.00) DOLLARS. Upon the
issuance of the foregoing shares (the "Stock"), the COOPERATIVES
shall own 100% of the issued stock of the Company and will
equally have control of the Company. The COOPERATIVES further
agree that TRI-COUNTY shall bill and be entitled to receive
payment from the Company for any and all amounts expended by it
or its subsidiary prior to this Agreement to obtain the right to
acquire CITIZENS'. However, said amount will not exceed ONE
HUNDRED FIFTY THOUSAND and 00/100 ($150,000.00) Dollars. Any
additional capital requirements will be identified by the Company
Board of Directors and presented for budgetary approval to the
COOPERATIVES.
In addition to the aforementioned cash infusion to the
Company, the COOPERATIVES agree to equally fund the remaining
balance required for the acquisition of CITIZENS' tendered stock
in excess of the approved eighty percent (80%) funding by
National Rural Utilities Cooperative Financing Corporation
("CFC"). The COOPERATIVES agree that all of the tendered stock
of CITIZENS will be issued to the Company.
4. CLOSING. The Closing of the purchase and issuance of
the Stock (the "Closing") shall take place at such.time, date and
place as the COOPERATIVES may agree.
<PAGE 2>
5. COOPERATIVES DELIVERIES AT THE CLOSING. At the
Closing, the COOPERATIVES shall deliver to the Company the
following:
A. Cash, in immediately available funds in the amount
stated in paragraph three (3) above.
6. COMPANY'S DELIVERIES AT THE CLOSING. At the Closing,
TRI-COUNTY and CLAVERACK shall cause the Company to deliver to
each of them the following:
A. Certificates representing the number of shares of
Stock to be issued in accordance with paragraph (3) above;
B. A copy of the Articles of Incorporation and the
Certificate of Incorporation of the Company certified by the
Secretary of the Commonwealth of Pennsylvania; and
C. Such other documents executed and delivered by or
on behalf of the Company, as the COOPERATIVES may reasonably
request. Simultaneously at the time of closing all of the
tendered stock of CITIZENS will be transferred to the Company.
7. REPRESENTATIONS AND WARRANTIES OF THE COOPERATIVES.
TRI-COUNTY and CLAVERACK each represent and warrant to the other
and to the Company as follows:
A. It is an electric cooperative corporation duly
organized, validly existing and in good standing under the laws
of the Commonwealth of Pennsylvania;
B. The execution and delivery of this Agreement, and
the consummation of the transaction contemplated hereby, have
been duly authorized by all requisite corporate action. It has
the full corporate power and authority to enter into and
consummate the transactions on its part contemplated hereby, none
of which will constitute any violation or breach of its Articles
<PAGE 3> of Incorporation, bylaws or any other agreement,
document or undertaking to which it is a party or by which it is
bound. This Agreement constitutes the legal, valid and binding
obligation, enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, reorganization,
insolvency or other laws affecting creditors' rights generally or
equitable principles of specific performance;
C. There is no dispute, claim, action, suite,
proceeding, arbitration or governmental investigation, either
administrative or judicial, pending or threatened, against or
related to it seeking to restrain or prohibit or to obtain
damages or other relief in connection with this Agreement or the
consummation of the transactions contemplated hereby;
D. No representation or warranty by it contains or
will contain any untrue statement of material fact or omits or
will omit to state any material fact necessary to make any
statement herein not misleading or necessary to provide proper
information with respect to it;
E. CLAVERACK shall defend, indemnify and hold TRI-
COUNTY harmless from and against all damages, losses, liabilities
and out-of-pocket expenses, including reasonable attorneys' fees
and disbursements, caused by or arising out of the breach of any
representation, warranty or agreement made by CLAVERACK herein;
and
F. TRI-COUNTY shall defend, indemnify and hold
CLAVERACK harmless from and against all damages, losses,
liabilities and out-of-pocket expenses, including reasonable
attorneys' fees and disbursements, caused by or arising out of
the breach of any representation. warranty or agreement made by
TRI-COUNTY herein.
<PAGE 4>
8. MISCELLANEOUS.
A. This Agreement shall be governed by, and construed
and enforced in accordance with the laws of the Commonwealth of
Pennsylvania.
B. This Agreement shall not be assignable by either
party. This Agreement shall be binding upon, and inure to the
benefit of COOPERATIVES, and their successors and assigns.
C. None of the terms of this Agreement can be waived
or modified except by an express agreement in writing signed by
the parties. The failure of or delay by any party hereto in
enforcing any of its rights under this Agreement shall not be
deemed a continuing waiver or modification thereof. No person,
firm, group or corporation other than the parties hereto shall be
deemed to have acquired or be entitled to as third party
beneficiary, any rights or claims by reason of anything contained
in this Agreement.
D. This Agreement contains the entire understanding
between the parties and supersedes all prior or contemporaneous
representations, promises, warranties, covenants or undertakings
not contained in this Agreement,
9. The COOPERATIVES agree that there will be no additional
stock issued in the Company or CITIZENS without a majority
approval of the Board of Directors of the Company.
10. The parties agree that their shares of the Company and
the Company's shares of CITIZENS will not be sold by the
COOPERATIVES or the Company to a third party without said stock
being first offered to the other COOPERATIVE or COOPERATIVE. The
shares of the Company and CITIZENS will contain said restrictions
The offeree COOPERATIVE will have sixty (60) days to match any
good faith offer received by the offeror COOPERATIVE or the
Company from a third party. If in the event said option is not
<PAGE 5> exercised within the sixty (60) day period, then in that
event, the offeror COOPERATIVE or the Company will be free to
sell said stock to a third party.
11. This agreement is contingent upon the following:
A. Wilderness Area Utilities, Inc., transferring its
rights to purchase the stock of CITIZENS as defined in a tender
offer dated February 20, 1998 to the Company.
B. The approval of all regulatory bodies for the
transfer to the Company the rights of Wilderness to the CITIZENS
stock, the ownership of the CITIZENS stock by the Company, the
ownership of the Company's stock by the COOPERATIVES, the
maintaining of the COOPERATIVES tax exempt status in connection
with ownership interests contemplated by this.agreement.
C. CFC financing of eighty (80%) percent of the
amount needed to purchase the stock of CITIZENS.
D. In the event that any of the foregoing
contingencies are not met, then in that event, this agreement
<PAGE 6> will be null and void and neither party will be
obligated to the other in any way whatsoever.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed as of the day and year first above written by
their duly authorized officers.
Attest: TRI-COUNTY RURAL ELECTRIC
COOPERATIVE, INC.
/s/ Alston A. Teeter By: /s/ Gerald A. Kite
Secretary Gerald A. Kite, President
(SEAL)
Attest: CLAVERACK RURAL ELECTRIC
COOPERATIVE, INC.
/s/ Robert A. Hess By: /s/ John McNamara
Secretary John McNamara, Chairman
(SEAL)
PAGE 7
<PAGE>
EXHIBIT D-1
BEFORE THE
PENNSYLVANIA PUBLIC UTILITY COMMISSION
IN RE: JOINT APPLICATION OF :
CITIZENS' ELECTRIC COMPANY, :
C&T ENTERPRISES, INC., :
TRI-COUNTY RURAL ELECTRIC : Docket No. A-__________
COOPERATIVE, INC. AND CLAVERACK :
RURAL ELECTRIC COOPERATIVE, INC. :
FOR APPROVAL OF THE TRANSFER OF :
ALL OF THE CAPITAL STOCK OF :
CITIZENS' ELECTRIC COMPANY :
TO THE PENNSYLVANIA PUBLIC UTILITY COMMISSION:
AND NOW COMES, the Citizens' Electric Company,
("Citizens'"), C&T Enterprises, Inc., ("C&T"), the Tri-County
Rural Electric Cooperative, Inc., ("Tri-County"), and Claverack
Rural Electric Cooperative, Inc., ("Claverack"), hereinafter
collectively referred to as Joint Applicants, and file, pursuant
to Sections 1102(a), 1103(a) and 2811(e) of the Pennsylvania
Public Utility Code, ("Code"), 66 Pa. C.S. Sections 1102(a),
1103(a) and 2811(e), and the regulations of the Pennsylvania
Public Utility Commission, ("Commission"), issued pursuant
thereto, this Joint Application for Commission approval of a
Tender Offer under which C&T will seek to purchase 100% of the
<PAGE 1> issued and outstanding common stock of Citizens', and in
support thereof, the Joint Applicants aver the following:
1. The names and addresses of the Joint Applicants
are:
Citizens' Electric Company
1775 Industrial Blvd.
Lewisburg, PA 17837-0551
C&T Enterprises, Inc.
P.O. Box 17, RR 2
Wysox, PA. 18540
Claverack Rural Electric Cooperative, Inc.
P.O. Box 17, RR 2
Wysox, PA 18540
Tri-County Rural Electric Cooperative, Inc.
P.O. Box 526
22 North Main Street
Mansfield, PA 16933-0448
2. The name and address of the Joint Applicants' attorneys
are:
Kenneth Zielonis, Esquire
STEVENS & LEE
Suite 310
208 North Third Street
P.O. Box 12090
Harrisburg, PA 17108-2090
(717) 234-1250
A. Background on the Proposed Stock Acquisition
3. The purpose of this Application is to obtain
Commission approval of a proposal to purchase all of the
outstanding common stock tendered by the shareholders of an
<PAGE 2> existing investor-owned public utility regulated by this
Commission. As of the date of this Joint Application, those
shareholders have tendered 99.46% of the stock. C&T will seek to
purchase the remaining shares at the earliest possible date.
This stock acquisition makes eminent sense. Tri-County is
currently the indirect holder of all of the shares of stock of
another investor-owned public utility, Wellsboro Electric
Company, ("Wellsboro"). By Commission Order entered November 14,
1994, the Commission approved Wilderness Area Utilities, Inc's.,
("Wilderness"), purchase of all Wellsboro's common stock. Since
that acquisition, Wellsboro has not been required to increase
rates. Despite this lack of a rate increase, Wellsboro has
implemented the following improvements. Under the management
provided by Tri-County, Wellsboro has replaced 12.7 miles of
distribution lines and added 15.3 miles of new distribution line
all at a cost of $1.4 million. The new management recently
completed a GIS-based map of the entire Wellsboro system. It has
improved the work order accounting system for the company. It
has improved the safety training program for company employees.
It established standards for assembly and materials for new line
construction. It has negotiated a new power supply agreement.
It has increased the right-of-way maintenance program $275,000
annually at a rate of 13 miles per year. It has updated
Wellsboro's entire vehicle fleet. It has purchased a modern
computer system for the system. It has established a substation
and distribution system maintenance program. Finally, it has
created an employee training program for its lineman.
<PAGE 3>
4. By this Joint Application, Tri-County and
Claverack have jointly formed a holding company, C&T, to purchase
another investor-owned public utility. A copy of its articles of
incorporation are attached as Appendix A hereto. As will be
indicated below, Tri-County and Claverack have extensive
experience in the operation of electric utility systems.
5. The stock acquisition is designed to implement
economies of scale in terms of the operations of Citizens' as
well as those of Wellsboro. In addition, five to ten percent
(5%-10%) of existing costs can be achieved as savings through the
integration of certain operations of Citizens' and Wellsboro with
those of Tri-County and Claverack.
6. This acquisition also makes sense in that the
rural electric cooperatives are essentially seasonal and
residentially oriented electric suppliers. On the other hand,
Citizens' and Wellsboro render service to a more urban and
commercialized/industrialized customer base as compared to Tri-
County's and Claverack's customer base. The marriage of these
two customer bases will allow achievement of certain cost savings
to the benefit of Citizens' customers.
7. This stock acquisition presents the Commission
with a unique opportunity to continue its expansion of a
competitive electric market in this Commonwealth. To the Joint
Applicants' knowledge, this is only the second electric utility
transaction seeking Commission approval under the Electric
<PAGE 4> Generation Customer Choice and Competition Act,
("Competition Act"). 66 Pa. C.S. Section 2801, et seq. This
stock acquisition represents one of the strategic options
available for companies seeking to position themselves for
competition in the electric industry.
8. Citizens' is an investor-owned public utility
incorporated under the laws of Pennsylvania. Citizens' articles
of incorporation are attached hereto as Appendix B. It is a
regulated public utility rendering electric utility service to
parts of Union and Northumberland counties in Central
Pennsylvania. As of December 31, 1997, Citizens' rendered
electrical service to approximately 6,300 customers in an area
encompassing 55 square miles.
9. Citizens' is subject to regulation as a public
utility under the Code as to retail electric rates and other
matters by the Commission. Citizens' has 17 full-time employees.
Approximately eighty-two percent (82%) of Citizens' customers are
classified as residential. Nearly seventeen percent (17%) of its
remaining customers are small commercial/industrial. There is
one large commercial/industrial account. Under the proposed
stock acquisition, all current Citizens' employees who are
covered by employment agreements will be retained by Citizens'.
No employee transfers to the other Joint Applicants will occur
without the express consent and approval of that employee covered
by the employee agreement. For employees not covered by an
existing employment agreement, such employees who are terminated
<PAGE 5> within 3 years of this stock purchase will be offered a
severance package consisting of one weeks pay for each year of
service in employment with Citizens', up to a maximum of $5,000.
10. C&T is a public utility holding company
established specifically for the acquisition of Citizens' stock.
It is organized under Pennsylvania law for the purpose of
managing the electric operations of Citizens' at this time. C&T
will operate Citizens' as a separate operating unit. C&T is a
wholly owned subsidiary of Tri-County and Claverack. Tri-County
and Claverack will each own 50% of the common shares of C&T.
Tri-County and Claverack will equally control C&T. The officers
and directors of C&T shall be selected by Tri-County and
Claverack.
11. Tri-County is a member-owned rural electric
cooperative. Tri-County was incorporated as a rural electric
cooperative in 1936 under the Pennsylvania Rural Electric
Cooperative Corporation Act. Tri-County's articles of
incorporation are attached hereto as Appendix C. Tri-County is
engaged in rendering electric utility service to the public in a
service area encompassing the following Pennsylvania counties:
Bradford
Cameron
Clinton
Lycoming
McKean
Potter; and
Tioga.
<PAGE 6>
12. As of December 31, 1997, Tri-County provided
retail electric service to approximately 17,000 customers in an
area encompassing 4484 square miles in the geographical territory
noted above.
13. Its distribution system consists of approximately
3,000 miles of 34.5 kV and 12 kV distribution lines.
Approximately ninety-five percent (95%) of Tri-County's customers
are either residential or seasonal in nature. The remaining five
percent (5%) of its customers are public authority, commercial or
industrial in nature. The U.S. Department of Agriculture's Rural
Utilities Services Division provides administrative oversight to
Tri-County. Furthermore, Tri- County's service territory
encircles Wellsboro's existing service territory.
14. Claverack is a rural electric cooperative
incorporated under the Pennsylvania Rural Electric Cooperative
Corporation Act. Claverack's articles of incorporation are
attached as Appendix D hereto. As of December 31, 1997, it
rendered service to approximately 17,000 customers in an 8 county
region in Northeastern Pennsylvania. Its service territory is
approximately 1,820 square miles in area. Its service territory
includes parts of the following Pennsylvania counties:
Bradford
Susquehanna
Wyoming
Sullivan
Lackawanna
Luzerne
Lycoming; and
Tioga. <PAGE 7>
15. Approximately ninety-seven percent (97%) of
Claverack's customers are either residential or seasonal in
nature. The remaining three percent (3%) are commercial or
industrial customers. Claverack operates a 2,600 mile
distribution system consisting of 12.5 kV lines. Like Tri-
County, the Department of Agriculture provides administrative
oversight to Claverack.
16. Wellsboro is a investor-owned public utility
incorporated in 1894 under the laws of Pennsylvania. It is
currently regulated by the Commission. Wellsboro is engaged in
the business of supplying and selling electricity. Wellsboro
serves approximately 5,500 customers in a 226 square mile service
territory. As noted above, Wellsboro's service territory is
surrounded by Tri-County. Wellsboro has 16 full-time employees.
Approximately eighty-five percent (85%) of its customers are
residential with the remaining fifteen percent (15%) classified
as commercial/industrial.
17. There are currently 227 common stockholders of
Citizen. There is no outstanding preferred stock. C&T has
agreed to pay $79.00 per share for all 139,472 shares of
Citizens' outstanding common stock. The purchase price has been
determined by C&T based on the current and future earnings of
Citizens', its projected cash flow, savings from economies of
sale, savings resulting from customer diversity, savings
resulting from the ability to coordinate the operations,
<PAGE 8> administration and management of the system and savings
resulting from the geographical proximity of the Joint
Applicants. Tri-County employed the services of a management
consulting firm specializing in the purchase of utility systems
by rural utility cooperatives to determine this offering price.
18. At this time, there are remaining 748 shares
outstanding of Citizens' common stock. C&T plans to purchase the
remaining shares of outstanding Citizens' common stock at the
earliest possible opportunity.
19. C&T plans to operate, administer and manage
Citizens' as a wholly-owned subsidiary following the acquisition
of the controlling interest of the outstanding stock. A Board of
Directors has been selected to oversee C&T's operation and
management. The Citizens' Board of Directors will be selected by
Tri-County and Claverack. Citizens' will be operated as a
separate for-profit subsidiary subject to the regulatory
oversight of the Commission.
B. C&T Possesses The Requisite Financial Fitness To Operate
Citizens'
20. Applicant C&T possesses the financial fitness to
provide the proposed electrical service. Because of its recent
formation, however, there is no summary financial data
information currently existing for C&T. Attached to the instant
Joint Application, however, are Tri-County's, Claverack's and
<PAGE 9> Citizen's financial statements for the six months ended
June 30, 1998. They are attached as Appendixes E, F, and G
respectively.
21. Tri-County currently possesses identifiable
electric plant-in-service of approximately $36 million and other
corporate assets $10 million. Tri-County had operating revenues
of approximately $16 million in 1997. Claverack currently
possesses identifiable electric plant-in-service of approximately
$40 million and other corporate assets of approximately $8
million. Claverack's 1997 operating revenues were $18 million.
Citizens' currently possesses identifiable electric plant-in-
service of approximately $5 million and other corporate assets of
approximately $3 million. Citizens' 1997 operating revenues were
approximately $9 million.
22. The Citizens' stock acquisition will be funded in
part by a capital contribution from Tri-County and Claverack, and
with the remaining portion financed through the National
Cooperative Services Corporation, ("NCSC"), of which Tri-County
and Claverack are members/borrowers in good standing. Funds to
purchase the Citizens' shares will include a loan from CFC. The
loan from NCSC will be equal to 80% of the stock purchase price.
The remaining 20% of the purchase price will be funded equally by
contributions from Tri-County and Claverack. C&T will be
capitalized by a $400,000 capital contribution from Claverack and
by a $100,000 capital contribution from Tri-County. NCSC has met
with C&T, Tri-County, and Claverack management and indicated that
<PAGE 10> it will advance necessary funding to secure the stock
acquisition. See Appendix H attached hereto. C&T, Tri-County
and Claverack management and NCSC officials will determine any
other appropriate long-term financing and security terms as found
necessary.
C. C&T Possesses The Technical Fitness To Operate Citizens'
23. Applicant C&T possesses the technical fitness to
render the proposed services. Its parents', Tri-County and
Claverack, possess over 120+ combined years of experience in the
retail electricity industry. Their management and employees
possess extensive experience in the service dependability
functions of electric utility operations. Their management,
staff and employees possess extensive experience in all phases of
the operations of an electric system. Tri-County and Claverack
management and staff intend to be instrumental in designing,
developing and implementing programs for customer service,
marketing, rate stabilization, communications and public
relations all to the benefit of the ratepayers in Citizens'
service territory. Tri-County and Claverack can assist in
developing additional employee safety training programs for
Citizens' staff. They can assist in an action plan to design,
construct, maintain and upgrade needed repairs and improvements
to the Citizens' existing system. Tri-County and Claverack are
unique in that they both possess a significant and experienced
in-house engineering staff. In particular, Tri-County possesses
significant experience in the operations of the newly constituted
<PAGE 11> PJM Control Area. That staff possesses significant
experience in the creation of contract path flows that implement
wholesale power purchases within the confines of the PJM Control
Area.
24. Citizens' currently possesses a sufficient number
of employees through which it now renders service to its
customers. Such employees will be encouraged to remain employees
of Citizens'. Those employees render billing, administrative and
customer services to the public. Other employees maintain the
operations of the system. Still others are responsible for
emergency repairs to the system as a result of outages. It is
anticipated that future economies of scale can be achieved in all
of these areas by combining the expertise of Citizens',
Wellsboro, Tri-County and Claverack. Such economies of scale
will allow for cost savings to the benefit of Citizens'
customers.
25. As a result of the above, there is ample evidence
to support the conclusion that C&T is financially and technically
fit to continue to render the service currently provided by
Citizens' to its customers. C&T and its subsidiary Citizens'
will continue to improve upon the provision of safe and reliable
service to all Citizens' customers. The Joint Applicants
anticipate consolidation of certain system operations and
functions resulting in significant cost savings. These would
include the following:
<PAGE 12>
- Employee safety and training;
- Vehicle and equipment leasing;
- Outage dispatching service;
- Pole and material joint purchasing;
- Rights-of-way maintenance program;
- Vegetation control program;
- Pole inspection program;
- Joint maintenance/construction projects;
- Consumer power quality reviews;
- Pole lease agreements;
- Joint billing;
- Public safety presentations;
- Combined mass mailings;
- Stray voltage investigation;
- Radio and TV interference detection;
- Voltage monitoring;
- Energy use services;
- Advertising and public announcements;
- Brochure development and printing;
- Marketing and sales; and
- Joint dispatch and purchasing of electricity
supplies on a wholesale basis.
This plan may entail the sharing of certain services. As a
result, Chapter 21 of the Code may be implicated thus
necessitating the filing of affiliated interest agreements
between and among the Joint Applicants. See 66 Pa. C.S.
Section 2101, et seq. Joint Applicants will adhere to the
requirements of the Code.
D. Analysis Pursuant To Section 2811 of the Code
26. This is the first stock acquisition and only the
second business transaction to be reviewed pursuant to
Section 2811(e) of the Competition Act. 66 Pa. C.S.
Section 2811(e). Section 2811(e) of the Competition Act provides
for an additional approval standard which provides the Commission
with authority regarding stock purchase applications in the
<PAGE 13> context of the retail electric industry. Section
2811(e)(1) gives the Commission the authority to approve or
disapprove such stock acquisitions depending on whether:
[T]he proposed merger...[or] acquisition is
likely to result in anticompetitive or
discriminatory conduct, including the
unlawful exercise of market power, which will
prevent retail electricity customers...from
obtaining the benefits of a properly
functioning and workable competitive retail
electricity market.
66 Pa. C. S. Section 2811(e)(1)
Finally, Section 2811(e)(2) of the Code provides that:
[I]f the commission finds, after hearing,
that a proposed merger...[or] acquisition...
is likely to result in anticompetitive or
discriminatory conduct, including the
unlawful exercise of market power...[in] the
retail electricity market, the commission
shall not approve such proposed merger...
[or] acquisition...except upon such terms and
conditions as it finds necessary to preserve
the benefits of a properly functioning and
workable competitive retail electricity
market.
66 Pa. C. S. Section 2811(e)(2)
27. As the Commission noted in Joint Application of
DQE, Inc., Allegheny Power System, Inc. and AYP Sub, Inc. for
approval of the transfer by merge of the property and right of
Duquesne Light Company to Allegheny Power System, Inc., Docket
No. A-110150 F.0015 (Order entered May 29, 1998), Section 2811(e)
of the Code clearly grants the Commission the right to
investigate and determine whether a stock acquisition of an
electric public utility doing business in the Commonwealth may
result in the unlawful exercise of market power.
<PAGE 14>
1. Market Power Implications
28. In Joint Application of DQE, Inc., et. al., above,
the Commission required that a proposed merger of two electric
utility systems be reviewed in the context of the Federal Trade
Commission's, ("FTC"), Merger Guidelines and the Federal Energy
Regulatory Commission's, ("FERC"), Merger Policy Statement,
Inquiry Concerning the Commission's Merger Policy Under the
Federal Power Act: Policy Statement, Order No. 592, 77 FERC
Paragraph 61, 263 (1996). That analytical framework is discussed
below. While it is clear that the instant Application is not a
merger proposal, it is assumed that the Commission will rely upon
this type of inquiry in performance of its regulatory duty under
Section 2811 of the Code.
2. FTC Merger Guidelines
29. The FTC's Merger guidelines use a five step
analytical process to identify business combinations that likely
will create or enhance market power. The Commission has
indicated that this is the same test incorporated by the
Legislature into Section 2811 of the Competition Act. The first
step in the Merger Guidelines analysis is a determination of:
(1) the relevant product and geographic markets, (2) the level of
concentration in the relevant market before and after the
business combination and (3) the amount of increased
concentration caused by the business transaction. Second, the
transaction is evaluated as to whether the factors characterizing
<PAGE 15> the market raise potential adverse competitive effects.
Third, there is an examination of whether the transaction will
prohibit the entry of other competitors into the relevant market.
Fourth, efficiencies resulting from the transaction are examined.
The fifth and final factor, a failing company, is not applicable
to this stock purchase transaction.
3. FERC Merger Guidelines
30. In its analysis, FERC also examines the
competitive impact of a proposed transaction involving two
electric utilities. First, it examines the transaction's impact
upon competition. Second, it examines the transaction's impact
upon rates. Finally, it examines the transaction's impact upon
regulation. Order 592, supra. In regard to the first component
of the FERC analysis, it too utilizes the aforementioned FTC
guidelines adopted by the Commission. In regard to the second
component, the FERC requires applicants to propose appropriate
rate protection for customers. Finally, in regard to the last
component of the FERC analysis, the Applicants must adhere to the
FERC's affiliate interest policies and FERC will defer to state
Commissions which have authority to act upon a transaction
pursuant to state legislation.
4. The Stock Acquisition Comports With All Regulatory
Analytical Tools Relating To Competitive Markets
(a) FTC Guidelines <PAGE 16>
31. There is little doubt that the proposed
transaction involving the purchase of Citizens' common stock will
have no impact upon competition in the Commonwealth. No matter
which relevant market is selected for analysis, their should be
no diminution of a competitive retail market.
32. To obtain market power in this instance, both
entities must sell electricity in the same territory. Neither
Citizens', Wellsboro, Tri-County nor Claverack sell power in the
same service territories. All four entities have separate and
distinct service territories. Indeed by law, rural electric
cooperatives and Commission-regulated utilities may not compete
with each other.
33. Further, if the relevant market is considered to
be the PJM Control Area, again there is no diminution of
competition. Citizens' is simply too small to exercise market
power.
34. Citizens' possesses neither transmission
facilities nor generation facilities through which it could
exercise market power. Likewise, Wellsboro owns neither
transmission facilities nor generation facilities through which
it could exercise control of the market.
35. Citizens' retail load represents less than a
fraction of the PJM market. Other Pennsylvania investor-owned
utilities dwarf Citizens' in terms of customer load. <PAGE 17>
Specifically, Citizens' load represents less than one-tenth of
one percent (1/10 of 1%) of the total PJM Control Area load.
36. Even a combined Wellsboro/Citizens' combination
cannot exercise market power. Their combined load represents
less than one-quarter of one percent (1\4 of 1%) of the total PJM
Control Area load. Citizens'/Wellsboro's native retail load is
dwarfed by its surrounding neighboring investor-owned electric
utilities.
37. Since there is no existing or new resulting market
concentration from the stock acquisition, there is no harmful
affect upon the retail market. Citizens' retail market will be
highly competitive as it joins other Pennsylvania electric
utilities opening their markets to retail choice effective
January 1, 1999. There can simply be no harmful competitive
effects since Citizens' is too small vis-a-vis its neighboring
electric utilities or nationwide electric power marketing firms
seeking to enter Citizens' market.
38. There are also no entry conditions to a
competitive retail market. Citizens' service territory shall
become open to retail electric choice consistent with the
requirements of the Competition Act. Thus, entry into the market
shall be likely, timely and of a sufficient nature to counteract
any competitive concerns.
<PAGE 18>
39. Finally, the verifiable economies of scale are
real. The ability to reduce costs will allow Citizens' to
survive in the ever increasingly competitive markets. It will
permit a sharing of resources and expertise which is consistent
with the Code and beneficial to all customers.
40. Thus, the FTC Merger Guidelines indicate that the
proposed stock acquisition is desirable and highly beneficial to
Citizens' market territory. Neither Citizens' alone nor a
combined Citizens'/Wellsboro combination can exercise market
power.
(b) FERC Analysis
41. The FERC's merger analysis also is complied with
in the context of this proposed stock acquisition. There shall
be no harm to competition as a result of the stock acquisition.
See, discussion above. Second, there shall be no ability to
increase rates to Citizens' customers. The Competition Act
mandates rate caps for all Citizens' customers. This includes
both nongeneration rates and generation rates. Further, the
Competition Act permits a Commission investigation and a
resultant reduction in rates under certain defined circumstances.
Thus, there are quantifiable rate protections available to all
customers.
42. Finally, the Commission will continue to possess
full authority to regulate the rates, terms and conditions under
<PAGE 19> which Citizens' will continue to render service. The
Commission possesses full authority to review affiliate
transactions which may be proposed in the future. Finally,
Citizens' must comply with all other provisions of the Code,
including Chapter 28.
43. The Commission regulated Joint Applicant has paid
all special and general assessments made against it by the
Commission pursuant to Section 510 of the Code. That Joint
Applicant will remain responsible for the payment of any and all
future lawful special and general assessments.
44. All of the annual reports, tariffs, certificates
applications and other documents filed with the Commission by
Citizens' and its respective predecessors are made a part hereof
by reference.
45. The Joint Applicants believe the acquisition of
Citizens' common stock is in the public and the consumers'
interest and is necessary for the provision of safe and reliable
electric service for the following reasons:
(a) It will allow all of the shareholders of each
of the companies to participate in a larger, financially stronger
company, through the combination of the equity, management, human
resources and technical experience of each supporting company;
<PAGE 20>
(b) It would allow achievement of increased
financial stability and strength for Citizens';
(c) It will allow for achievement of greater
opportunity for earnings growth for Citizens' which in turn can
be used to stabilize rates;
(d) It will allow Citizens' the opportunity to
experience a reduction of overall operating costs;
(e) It will allow achievement of efficiencies of
operations;
(f) It will allow an improved ability to use new
technologies in a highly competitive electricity market;
(g) It will allow for improvement and
modernization of Citizens' current infrastructure;
(h) It will allow for better use and management
of facilities for the benefit of all customers;
(i) It will achieve a potential for greater
retail and industrial sales thereby stabilizing Citizens' market;
(j) It will allow for a diversity and an improved
capability to make wholesale power purchases and possible sales
to achieve cost reductions; <PAGE 21>
(k) It will allow for maintenance of competitive
rates, or an achievement of rates that will be lower than they
would be in the absence of the acquisition, which will improve
Citizens' and Wellsboro's ability to meet the challenges of the
increasingly competitive environment in the electric industry;
(l) It will allow for the future integration of
corporate and administrative funds, limiting duplicative capital
expenditures of administrative facilities and information
systems, and savings in areas such as legal, auditing and
consulting fees;
(m) It will allow for an expanded management
resource pool and the ability to select leadership from a larger
and more diverse management pool;
(n) It will allow greater purchasing power for
items such as purchased power, transportation services and the
streamlining of inventories;
(o) It will offer to increase geographic
diversity of service territories, reducing exposure to local
changes in economic, competitive and climatic conditions;
(p) It will allow the entities to play a
continuingly strong role in the economic development efforts of
the communities served by Citizens', Wellsboro and the two
electric cooperatives; <PAGE 22>
(q) It will allow for increased electric load
diversity by combining the electric cooperative's rural and
residential focused service territories with Citizens' and
Wellsboro's relatively larger orientation to urban and
commercial/industrial load area;
(r) C&T's purchase of Citizens' stock will not
result in any immediate change to Citizens' rate but Citizens'
customers will receive enhanced services;
(s) The Commission will continue to have
jurisdiction over Citizens' as an operating investor-owned
utility; and
(t) The Pennsylvania Rural Electric Association
supports the Application and has indicated that C&T, through its
parents Tri-County and Claverack, will make its numerous services
available to Citizens' for the benefit of Citizens' customers.
WHEREFORE, for the foregoing reasons, the Joint
Applicants respectfully request this Commission, pursuant to the
<PAGE 23> provisions of the Pennsylvania Public Utility Code to
approve the instant Joint Application.
Kenneth Zielonis, Esquire
STEVENS & LEE
Suite 310
208 North Third Street
P.O. Box 12090
Harrisburg, PA 17108-2090
(717) 234-1250
Dated: September 15, 1998 Attorneys for Joint Applicants, C&T
Enterprises, Inc., Tri-County Rural
Electric Cooperative, Inc.,
Claverack Rural Electric
Cooperative, Inc. and Citizens'
Electric Company
PAGE 24
<PAGE>
EXHIBIT G-1
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35- )
Filing under the Public Utility Holding Company Act of 1935
, 1998
C&T Enterprises, Inc., et. al. (70- )
Notice is hereby given that the following filing(s)
has/have been made with the Commission pursuant to provisions of
the Act and rules promulgated thereunder. All interested persons
are referred to the application(s) and/or declaration(s) for
complete statements of the proposed transaction(s) summarized
below. The application(s) and/or declaration(s) in any
amendments thereto is/are available for public inspection through
the Commission's Office of Public Reference.
Interested persons wishing to comment or request a
hearing on the application(s) and/or declaration(s) should submit
their views in writing by October 26, 1998, to the Secretary,
Securities and Exchange Commission, Washington, DC, 20549, and
serve a copy on the relevant applicant(s) and/or declarant(s) at
the address(es) specified below. Proof of service (by affidavit
or, in the case of an attorney at law, by certificate) should be
filed with the request. Any request for hearing should 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(s) and/or <PAGE 1>
declaration(s), as filed or as amended, may be granted and/or
permitted to become effective.
C&T Enterprises, Inc., ("C&T"), RR 2, Box 17, Wysox, PA
18854; Tri-County Rural Electric Cooperative, Inc., ("Tri-
County"), 22 North Main Street, Box 256, Mansfield, PA 16933-
0448; Claverack Rural Electric Cooperative, Inc., ("Claverack"),
RR 2, Box 17, Wysox, PA 18854; Citizens' Electric Company,
("Citizens'"), 1775 Industrial Boulevard, Lewisburg, PA 17837-
0551; and Wilderness Area Utilities, Inc., ("Wilderness"), P.O.
Box 448, 22 North Main Street, Mansfield, PA 16933-0448; have
filed an application/ declaration under Sections 3(a), 9(a), and
10 of the Act. C&T, Claverack and Citizens' are currently not
subject to the Act. Both Wilderness and Tri-County currently are
exempted from all provisions of the Act except Section 9(a)(2)
through a Commission ordered exemption pursuant to 3(a)(1) of the
Act.
Tri-County, Claverack and C&T propose to acquire,
through a tender offer, all of the outstanding shares of
Citizens' common stock. Citizens' is an investor-owned public
utility subject to regulation by the Pennsylvania Public Utility
Commission.
The acquisition is the result of a tender offer for the
common stock of Citizens' originally submitted by Wilderness.
The tender offer was to purchase all of the outstanding shares of
that stock. Subsequently, Wilderness' right to purchase was
assigned to a newly created holding company, C&T. Tri-County and
Claverack will each own 50% of the shares of common stock of C&T.
In turn, C&T will own 100% of the common stock tendered by
<PAGE 2> Citizens' shareholders. The Boards of Directors of C&T,
Tri-County, Claverack and Citizens' have approved the
transaction.
Tri-County serves approximately 17,000 customers in
Northcentral Pennsylvania. Tri-County owns 100% of the stock of
the exempt holding company, Wilderness, which in turn owns 100%
of the stock of Wellsboro Electric Company, ("Wellsboro").
Wellsboro serves approximately 5,500 customers in Northcentral
Pennsylvania. Tri-County surrounds Wellsboro's service
territory.
Claverack's service territory is contiguous to that of
Tri-County. It serves approximately 17,000 customers in
Northcentral and Northeastern Pennsylvania. Citizens' serves
approximately 6,300 customers in Central Pennsylvania in and
around the Borough of Lewisburg. It is not contiguous to any
other applicant(s)/declarant(s). All of the applicant(s)/
declarant(s) are interconnected through various transmission-
owning members of the PJM Control Area. Due to changes in the
operating structure of PJM, Wellsboro and Citizens' now can
become members of the PJM and intend to do so in the near future.
Upon consummation of the acquisition, Citizens' and
Wellsboro will remain subject to localized management and
control. Citizens' will retain its existing management team.
The applicant(s)/declarant(s) intend to operate the
systems as a fulling integrated and coordinated electrical system
achieving various economies of scale and efficiencies estimated
at $5.8 million over the 1998-2007 time period. The Federal
Energy Regulatory Commission has approved a restructured PJM.
<PAGE 3> PJM now operates as a fully coordinated power grid
integrating all transmission-owning members of PJM, including
those entities interconnecting with the applicant(s)/declarant(s)
which operate public utility systems.
Applicant(s)/declarant(s) contend that after the
acquisition, C&T, Wilderness, Tri-County and Claverack will
remain predominantly intrastate (i.e., Pennsylvania) holding
companies that will not derive any material part of their income
from any out-of-state utility subsidiary and have requested
exemption under Section 3(a)(1) from all aspects of the Act
except Section 9(a)(2). Further, Tri-County and Claverack have,
in the alternative, requested, under Section 3(a)(2), an
exemption from all provisions of the Act except 9(a)(2).
For the Commission, by the Division of Investment
Management, under delegated authority. <PAGE 4>
