(As filed October 18, 1999)
File No. 70-[ ]
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-1
APPLICATION OR DECLARATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
CP&L Holdings, Inc.
411 Fayetteville Street
Raleigh, North Carolina 27601-1748
(Name of company filing this statement
and address of principal executive offices)
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None.
(Name of top registered holding company parent
of each applicant or declarant)
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Robert B. McGehee, Esq.
Executive Vice President and General Counsel
Carolina Power & Light Company
411 Fayetteville Street
Raleigh, North Carolina 27601-1748
(Name and address of agent for service)
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The Commission is requested to mail copies of all orders, notices
and other communications to:
Frank A. Schiller, Esq. William T. Baker, Jr.
Associate General Counsel Thelen Reid & Priest LLP
Carolina Power & Light Company 40 W. 57th Street, 25th Floor
411 Fayetteville Street New York, New York 10019-4097
Raleigh, North Carolina 27601-1748
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TABLE OF CONTENTS
ITEM 1 DESCRIPTION OF PROPOSED TRANSACTION....................1
1.1 INTRODUCTION...........................................1
1.2 OTHER REGULATORY FILINGS...............................2
1.3 DESCRIPTION OF CP&L AND ITS SUBSIDIARIES...............3
1.4 THE EXCHANGE AGREEMENT.................................7
1.5 REASONS FOR THE PROPOSED REORGANIZATION...............11
ITEM 2. FEES, COMMISSIONS AND EXPENSES........................13
ITEM 3. APPLICABLE STATUTORY PROVISIONS.......................13
3.1 APPROVAL OF THE REORGANIZATION UNDER SECTION 10.......15
Section 10(b)..........................................15
Detrimental "Interlocking Relations"or
"Concentration of Control."..........................15
Fairness of Consideration and Fees...................17
Complication of Capital Structure....................18
Section 10(c)..........................................19
Section 10(c)(1).....................................19
Section 10(c)(2).....................................21
Section 10(f)..........................................22
ITEM 4. REGULATORY APPROVAL...................................23
ITEM 5. PROCEDURE.............................................23
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.....................24
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS...............26
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ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION.
1.1. Introduction.
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CP&L Holdings, Inc., a North Carolina corporation ("Holdings"),
requests authorization from the Securities and Exchange Commission
("Commission") under Sections 9(a)(2) and 10 of the Public Utility Holding
Company Act of 1935, as amended (the "1935 Act" or "Act"), to acquire all of the
issued and outstanding shares of common stock of Carolina Power & Light Company
("CP&L" or the "Company"), a North Carolina corporation and an "electric utility
company" within the meaning of Section 2(a)(3) of the Act. As a result of the
transaction, Holdings will acquire directly all of the outstanding shares of
CP&L's common stock ("CP&L Common Stock"), and, indirectly, all of the
outstanding common stock of North Carolina Natural Gas Corporation ("NCNG"),
which is a wholly-owned subsidiary of CP&L and a "gas utility company" within
the meaning of Section 2(a)(4) of the Act.
CP&L and Holdings have entered into an Agreement and Plan of Share
Exchange, dated as of August 22, 1999 (the "Exchange Agreement"), which is filed
herewith as Exhibit B-1. CP&L's shareholders will be asked to approve the
Exchange Agreement at a special meeting of shareholders called for such purpose
to be held on October 20, 1999. The Exchange Agreement must be approved by the
affirmative vote of both a majority of all votes entitled to be cast by holders
of CP&L's $5 Preferred Stock, Serial Preferred Stock, and CP&L's Common Stock,
voting together as a single class, and a majority of all of the votes entitled
to be cast by the holders of CP&L's Common Stock, voting as a separate class.
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It is expected that the transactions contemplated in the Exchange
Agreement will be implemented as soon as practicable after all regulatory
approvals are obtained. The share exchange (the exchange of the outstanding CP&L
Common Stock on a share-for-share basis for shares of common stock of Holdings
("Holdings Common Stock") pursuant to the Exchange Agreement) will become
effective immediately following the close of business on the date of the filing
with the North Carolina Secretary of State of Articles of Exchange pursuant to
Section 55-11-05(a) of the North Carolina Business Corporation Act or at such
later time and date as may be stated in such Articles of Exchange ("Effective
Time").
1.2. Other Regulatory Filings
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The North Carolina Utilities Commission ("NCUC") and South Carolina
Public Service Commission ("SCPSC") must both approve the share exchange which
will result in Holdings becoming a statutory "holding company" over CP&L.
Applications have been filed with such commissions requesting the necessary
approvals. See Exhibits D-1 and D-3, respectively.
The Federal Energy Regulatory Commission ("FERC") has held that the
transfer of common stock of a public utility company, such as CP&L, from its
existing stockholders to a holding company in a transaction such as the share
exchange constitutes a transfer of the "ownership and control" of the facilities
of such utility, and is thus a "disposition of facilities" subject to FERC
review and approval under Section 203 of the Federal Power Act. CP&L has filed
an application with FERC requesting the required approvals. See Exhibit D-5.
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A provision in the Atomic Energy Act requires Nuclear Regulatory
Commission ("NRC") consent for the transfer of control of NRC licenses. CP&L has
applied for NRC approval under the Atomic Energy Act for the transfer of
control, resulting from the share exchange, of all of its operating licenses,
specifically, the licenses for H.B. Robinson Unit No. 2, Brunswick Unit Nos. 1
and 2, and Shearon Harris Unit No.1, and the Materials License No. SNM-2502 for
the Robinson Independent Spent Fuel Storage Installation. See Exhibit D-7.
CP&L holds certain licenses issued by the Federal Communications
Commission ("FCC"). CP&L expects to file applications for the FCC's approval of
a pro forma change of control of the licenses. See Exhibit D-9.
1.3. Description of CP&L and its Subsidiaries.
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CP&L is a regulated public utility incorporated under the laws of the
State of North Carolina. It is primarily engaged in the business of generating,
purchasing, transmitting and distributing electricity in portions of North
Carolina and South Carolina. The Company provides electric service to more than
1.2 million customers in a 30,000 square-mile area, including a substantial
portion of the coastal plain of North Carolina extending to the Atlantic Ocean
between the Pamlico River and the South Carolina border, the lower Piedmont
section of North Carolina, an area of northeastern South Carolina and an area in
western North Carolina in and around the City of Asheville. The estimated total
population of the area served is approximately 3.9 million.
At December 31, 1998, CP&L had a total system installed generating
capability (including the North Carolina Eastern Municipal Power Agency's share)
of 9,963 MW, 5,628 pole miles of transmission lines, including 292 miles of 500
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kV lines and 2,848 miles of 230 kV lines, and approximately 44,033 pole mile of
overhead lines and approximately 12,759 miles of underground lines. CP&L is
subject to regulation by the NCUC and the SCPSC with respect to retail electric
rates, securities issuances, affiliate transactions, and other matters, and by
FERC with respect to wholesale electric and electric transmission rates.
CP&L is also a "holding company" by reason of its ownership of all of
the issued and outstanding common stock of NCNG, a gas utility company which
CP&L acquired on July 15, 1999.(1) NCNG, a Delaware corporation, is engaged in
the transportation and distribution of natural gas through approximately 1,069
miles of transmission pipeline and approximately 2,772 miles of distribution
mains. NCNG sells and delivers gas to approximately 178,000 customers in 86
cities and towns and four municipal gas distribution systems in eastern and
south central North Carolina. The estimated total population of the territory
served by NCNG is 2.6 million. There is substantial overlap between CP&L's
electric service area and NCNG's gas service area. It is estimated that
approximately 29% of NCNG's retail and wholesale gas customers are also electric
customers of CP&L. NCNG is also subject to regulation by the NCUC with respect
to rates, securities issuances, affiliate transactions, and other matters.
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1 See Re: Carolina Power & Light Company, et al., 194 P.U.R. 4th 258 (July
13, 1999).
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CP&L currently claims an exemption from the registration requirements
of the Act pursuant to Section 3(a)(2) and Rule 2 promulgated thereunder because
it is predominantly a public utility company whose operations as such are
confined to North Carolina and states contiguous thereto. See File No. 69-477.
CP&L owns 100% of the outstanding voting securities of the following
non-utility subsidiaries:
Cape Fear Energy Corporation, a gas marketer which is engaged in the
business of purchasing natural gas for NCNG's system supply and for resale to
large industrial users and the municipalities served by NCNG, as well as the
business of providing energy management services.
Capitan Corporation, which was organized to hold title to certain land
and water rights.
CaroFinancial, Incorporated, which holds various passive investments.
CaroFund, Incorporated, which participates through CaroHome, LLC and
other ventures in which CaroHome, LLC has invested, in affordable housing
projects for low-income individuals in North Carolina.
NCNG Energy Corporation, which holds certain energy-related investments
and sells natural gas to resellers.
Interpath Communications, Inc., which provides internet-based services
and markets fiber optics capacity to telecommunications carriers.
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Monroe Power Company, an "exempt wholesale generator" within the
meaning of Section 32 of the Act, which owns and operates a 160 MW simple-cycle
combustion turbine unit in Monroe, Georgia.(2)
Strategic Resource Solutions Corp., which directly and through various
subsidiaries designs, develops, installs and provides facilities and energy
management software systems and other services for educational, commercial,
industrial and governmental markets nationwide.
CP&L also holds interests in several partly-owned subsidiaries which
are engaged in, among other businesses, making investments in affordable housing
projects, renovating historic buildings in North Carolina, and providing venture
capital to entrepreneurial ventures formed to develop and commercialize new
technology to benefit electric utilities.
For the year ended December 31, 1998, CP&L's consolidated operating
revenues (pro forma to include the results of operations for NCNG in 1998) were
$3.4 billion, of which $3.1 billion (92%) were derived from electric utility
operations, $152 million (4.5%) from regulated natural gas operations, and $122
million (3.5%) from diversified non-utility activities. At December 31, 1998,
CP&L reported pro forma consolidated assets of $8.63 billion, including net
electric utility plant of $5.8 billion and net gas utility plant of $209
million. As of August 20, 1999, CP&L had issued and outstanding 159,589,744
shares of Common Stock, without par value. CP&L's Common Stock is listed for
trading on the New York and Pacific Stock Exchanges.
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2 See Monroe Power Company, 87 F.E.R.C. ss.61,238 (May 28, 1999).
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On August 22, 1999, CP&L, Holdings and Florida Progress Corporation
("Florida Progress"), an exempt electric utility holding company pursuant to
Section 3(a)(1) of the Act and Rule 2 thereunder,(3) entered into an Agreement
and Plan of Exchange pursuant to which Holdings has agreed to acquire all of the
issued and outstanding common stock of Florida Progress for a combination of
cash and shares of Holdings Common Stock. The transaction is subject to
shareholder approvals and approvals by various state and federal regulatory
commissions, including this Commission, and satisfaction of other conditions
precedent. Holdings intends to file a separate application pursuant to Sections
9(a) and 10 of the Act requesting approval for the merger with Florida Progress.
Upon consummation of the merger transaction, Holdings intends to register as a
holding company pursuant to Section 5 of the Act.(4)
1.4. The Exchange Agreement.
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To carry out the proposed reorganization, CP&L has organized Holdings
under the laws of the State of North Carolina. Holdings is currently a direct,
wholly-owned subsidiary of CP&L with nominal capitalization. Holdings owns no
utility assets and is not currently a "public utility company" or a "holding
company" for purposes of the 1935 Act.
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3 See Statement by Florida Progress Corporation on Form U-3A-2 filed pursuant
to Rule 2. File No. 69-267.
4 For more information concerning the proposed merger with Florida Progress,
including a copy of the Agreement and Plan of Exchange, see CP&L's Current
Report on Form 8-K, dated August 30, 1999, in File No. 1-3382.
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The Exchange Agreement has been unanimously adopted by the Board of
Directors of CP&L and is subject to approval by CP&L's shareholders at a special
meeting called for such purpose to be held October 20, 1999. In the share
exchange:
(1) each share of CP&L Common Stock outstanding immediately prior to
the Effective Time of the share exchange shall be automatically
exchanged for one new share of Holdings Common Stock;
(2) Holdings shall acquire and become the owner of all of the issued
and outstanding shares of CP&L Common Stock;
(3) the shares of Holdings Common Stock outstanding immediately prior
to the Effective Time shall be canceled;
(4) the former holders of CP&L Common Stock shall be entitled only to
receive shares of Holdings Common Stock in exchange therefor; and
(5) the directors of CP&L shall become the directors of Holdings.
As a result, upon completion of the share exchange, Holdings will
become a statutory "holding company," CP&L will be a direct wholly-owned
subsidiary of Holdings, and all of Holdings Common Stock outstanding immediately
after the share exchange will be owned by the former holders of CP&L Common
Stock outstanding immediately prior to the share exchange. Following the share
exchange, the stock of NCNG and of some of CP&L's existing non-utility
subsidiaries may be transferred to Holdings and become direct subsidiaries of
Holdings.
Except for the possible exercise of dissenters' rights, CP&L's
outstanding preferred stocks will not be exchanged or otherwise affected in the
share exchange and will continue to be preferred stock of CP&L. CP&L's preferred
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stocks will continue to rank senior to CP&L Common Stock as to dividends and as
to the distribution of CP&L's assets upon a liquidation. The current
indebtedness of CP&L will continue to be direct obligations of CP&L and will be
neither assumed nor guaranteed by Holdings in connection with the share
exchange. CP&L's first mortgage bonds will continue to be secured by first
mortgage liens on all of the properties of CP&L that are currently subject to
such liens.
The Board of Directors' decision to exchange CP&L Common Stock for
Holdings Common Stock was primarily based on the Board's desire to confer the
expected benefits of the share exchange on those investors who are best placed
to enjoy such benefits, namely the holders of CP&L Common Stock. The Board's
decision not to exchange CP&L's preferred stocks in the share exchange was
primarily based on the Board's desire not to alter, or potentially alter, the
nature of the investment decision represented by CP&L's preferred stocks
(namely, a direct investment in a regulated utility) and the priority position
of the CP&L's preferred stockholders with respect to dividends and assets on
liquidation.
The consolidated assets and liabilities of CP&L and its subsidiaries
before the Effective Time will be the same as the consolidated assets and
liabilities of Holdings and its subsidiaries after the Effective Time. All the
business and operations conducted before the Effective Time by CP&L and its
subsidiaries will continue to be conducted after the Effective Time by CP&L and
such subsidiaries, as direct or indirect subsidiaries of Holdings.
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The share exchange will have no impact on the regulation of CP&L's and
NCNG's utility operations. CP&L and NCNG will both continue to be subject to
regulation by the NCUC as to rates, securities issuances and other matters, and
CP&L will also continue to be subject to such regulation by the SCPSC. FERC will
continue to regulate the terms and conditions of CP&L's transmission of
electricity, along with transmission interconnections and ancillary services, as
well as the terms and conditions of its sales of electric energy for resale. The
NRC will continue to review and regulate CP&L's operation of the two Brunswick
nuclear units and the H.B. Robinson nuclear unit. The FCC will continue to
regulate CP&L's use of radio and microwave frequencies for utility operations.
CP&L will remain a reporting company under the Securities Exchange Act
of 1934, as amended ("1934 Act"). Prior to the share exchange, Holdings will
apply to have its common stock listed on the New York Stock Exchange. It is
anticipated that Holdings Common Stock will be listed and traded on such stock
exchange upon consummation of the share exchange, whereupon Holdings will be
required to file reports with the Commission pursuant to Section 13(a) of the
1934 Act. The CP&L Common Stock will cease to be listed on the New York Stock
Exchange following the share exchange.
The share exchange is subject to the satisfaction of the following
conditions (in addition to approval of the Exchange Agreement by CP&L's
shareholders): (i) all necessary orders, authorizations, approvals, or waivers
from state and federal regulatory bodies, boards, or agencies having
jurisdiction have been obtained, remain in full force and effect, and do not
include, in the sole judgment of the Board of Directors of CP&L, unacceptable
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conditions; and (ii) shares of Holdings Common Stock to be issued in connection
with the exchange have been listed, subject to official notice of issuance, by
the New York Stock Exchange.
Holdings has filed with the Commission a Registration Statement on Form
S-4 ("Registration Statement") under the Securities Act of 1933, as amended. See
Exhibit C-1 hereto. The Prospectus/Proxy Statement contained in the Registration
Statement was filed for the purpose of (i) registering the shares of Holdings
Common Stock to be issued in exchange for the CP&L Common Stock pursuant to the
share exchange and (ii) complying with the requirements of the 1934 Act in
connection with the solicitation of proxies of CP&L's common and preferred
shareholders.
1.5. Reasons for the Proposed Reorganization.
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Transformation to a holding company structure will enable CP&L to
respond more effectively to the changes facing the energy industry today and to
take better advantage of the opportunities that will be available in the coming
years. Among other benefits, the formation of a holding company will permit a
clearer separation of regulated and unregulated businesses, and will provide
greater flexibility in establishing and financing new business initiatives.
The electric power industry has gone through rapid change in recent
years. Although it is impossible to predict the precise nature of the regulatory
environment in coming years, it is likely that such changes will affect CP&L's
existing businesses, and may also create opportunities for new initiatives. In
keeping with CP&L's long-term strategy to become a regional provider of energy
products and services and its previously announced goals for increasing revenues
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and earnings, Holdings will likely explore new business opportunities and
acquisitions in the future. Some of these opportunities will be within the
regulated portions of Holdings' business; others will be unregulated.
The holding company structure is quite common, particularly where
regulated and non-regulated businesses are both part of one corporate family.
Several electric utilities have undergone a similar conversion in recent years.
This structure will provide CP&L the optimal regulatory and financial
flexibility to compete effectively, no matter what the competitive landscape
looks like.
As indicated, some of CP&L's current subsidiaries may become direct
subsidiaries of Holdings following the share exchange, and in the future new
entities or acquisitions may also be direct subsidiaries of Holdings.(5) This
will allow a more complete functional and financial separation in Holdings'
regulated and unregulated businesses. Importantly, investments in non-utility
businesses will not have to be financed by CP&L, which should help to minimize
concerns about cross-subsidization of the costs of new enterprises by CP&L and
its customers.
The holding company structure will also allow management to make
decisions based on the specific needs and characteristics of these
non-traditional businesses, such as financing requirements and capital
structures, outside of the regulatory regime. At the same time, CP&L will
continue, in a substantially unchanged form, as a separate subsidiary of
Holdings and will remain subject to the jurisdiction of the NCUC, the SCPSC, the
FERC, the NRC and other governmental authorities.
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5 Following the share exchange, Holdings intends to form a
subsidiary service company to provide shared services to Holdings' subsidiaries.
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ITEM 2. FEES, COMMISSIONS AND EXPENSES
The estimated fees, commissions and expenses paid or incurred, or to be
paid or incurred, directly or indirectly, in connection with the reorganization,
by the applicant or any associate company of the applicant, will be filed by
amendment.
ITEM 3. APPLICABLE STATUTORY PROVISIONS
Sections 9(a)(2) and 10 of the 1935 Act are applicable to the share
exchange. Section 9(a)(2) of the 1935 Act requires Commission approval before
any person may acquire, directly or indirectly, 5% or more of the voting
securities of any public-utility company if such person is already an
"affiliate," as defined in Section 2(a)(11)(A) of the Act, of any other
public-utility company or would, by reason of such acquisition, become an
"affiliate" of more than one "public-utility company." As a result of the share
exchange, Holdings will become an "affiliate" of both CP&L and NCNG.
In addition, upon consummation of the share exchange, Holdings will be
a "holding company" within the meaning of Section 2(a)(7)(A) of the 1935 Act and
would be required to register unless it can qualify for an exemption. Holdings
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intends to claim an exemption under Section 3(a)(1) of the Act pursuant to Rule
2 by filing a statement on Form U-3A-2 immediately after the share exchange.(6)
The Commission has approved the formation of a holding company over
existing public-utility companies on numerous occasions. See, e.g.; NSTAR,
Holding Co. Act Release No. 27067 (Aug. 24, 1999); Niagara Mohawk Holdings,
Inc., Holding Co. Act Release No. 26986 (March 4, 1999); Atlanta Gas Light Co.,
Holding Co. Act Release No. 26482 (March 5, 1996); SIGCORP, Holding Co. Act
Release No. 26431 (Dec. 14, 1995); Providence Energy Corporation, Holding Co.
Act Release No. 26420 (Nov. 30, 1995); PP&L Resources, Inc., Holding Co. Act
Release No. 26248 (March 10, 1995); WPS Resources Corporation, Holding Co. Act
Release No. 26101 (Aug. 10, 1994); Unicom Corporation, Holding Co. Act Release
No. 26090 (July 22, 1994); Illinova Corporation, Holding Co. Act Release No.
26054 (May 18, 1994); KU Energy Corporation, Holding Co. Act Release No. 25409
(Nov. 13, 1991); and CIPSCO Incorporated, Holding Company Act Release No. 25152
(Sept. 18, 1990).
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6 Section 3(a)(1) of the Act provides an exemption for a holding
company if:
"such holding company, and every subsidiary 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 and every
such subsidiary company thereof are organized."
Holdings will not derive a "material" part of its income from NCNG
which, although it operates exclusively in North Carolina, is incorporated in
Delaware. Further, CP&L believes the public-utility operations of CP&L outside
of North Carolina are not so large as to affect the essentially intrastate
(i.e., North Carolina) character of its business.
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For the reasons explained below, the Commission should grant approval
of the reorganization pursuant to Section 9(a)(2) of the 1935 Act based upon the
transaction's compliance with the applicable standards of Section 10.
3.1. Approval of the Reorganization under Section 10.
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The standards for approval of the share exchange are contained in
Sections 10(b), 10(c) and 10(f) of the Act. The reorganization should be found
to meet these standards.
Section 10(b). Section 10(b) requires the Commission to approve an
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acquisition if the requirements of Section 10(f) (see discussion below) are
satisfied unless the Commission finds that:
(1) such acquisition will tend towards interlocking relations or
the concentration of control of public utility companies, of a
kind or to an extent detrimental to the public interest or the
interest of investors or consumers;
(2) in case of the acquisition of securities or utility assets,
the consideration, including all fees, commissions, and other
remuneration, to whomsoever paid, to be given, directly or
indirectly, in connection with such acquisition is not
reasonable or does not bear a fair relation to the sums
invested in or the earning capacity of the utility assets to
be acquired or the utility assets underlying the securities to
be acquired; or
(3) such acquisition will unduly complicate the capital structure
of the holding company system of the applicant or will be
detrimental to the public interest or the interest of
investors or consumers or the proper functioning of such
holding company system.
Holdings respectfully submits that no adverse finding should be made under any
of these paragraphs.
Detrimental "Interlocking Relations " or "Concentration of Control " The share
exchange merely involves an internal corporate reorganization which will result
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in the imposition of Holdings, a holding company within the meaning of the 1935
Act, over CP&L and NCNG. No other "public utility company" will be involved in
the reorganization. The consolidated assets and liabilities of CP&L and its
subsidiaries before the Effective Time will be the same as the consolidated
assets and liabilities of Holdings and its subsidiaries after the Effective
Time. All the business and operations conducted before the Effective Time by
CP&L and its subsidiaries will continue to be conducted after the Effective Time
by CP&L and such subsidiaries as direct or indirect subsidiaries of Holdings.
The reorganization will not involve the acquisition of any utility assets not
already owned directly or indirectly by CP&L. Consequently, the reorganization
should not be deemed to "tend towards interlocking relations ... of public
utility companies, of a kind or to an extent detrimental to the public interest
or the interest of investors or consumers" within the meaning of Section
10(b)(l).
For the same reasons, the reorganization will not tend toward any
"concentration of control of public utility companies" that might be detrimental
to the public interest or the interests of consumers or investors. Importantly,
the reorganization will not involve the acquisition of any utility assets not
already owned directly or indirectly by CP&L and 44 will therefore have no
effect on the concentration of control of public utility companies." Wisconsin
Energy Corp., Holding Co. Act Release No. 24267, 37 SEC Docket 296,300 (Dec.
18, 1986). In addition, the competitive impact of the reorganization will be
fully considered by the FERC. A detailed explanation of the reasons why the
reorganization will not adversely affect competition is set forth in the FERC
application filed as D-5 hereto. The Commission may "watchfully defer" to FERC
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in such matters. See City of Holyoke v. SEC, 972 F.2d 3 5 8, 3 63 -64 (D.C.
Cir. 1992), quoting Wisconsin's Environmental Decade v. SEC, 882 F.2d 523, 527
(D.C. Cir. 1989).
Fairness of Consideration and Fees. Section 1O(b)(2) of the
l935 Act requires the Commission to determine whether the consideration to be
given in connection with a proposed acquisition of securities is reasonable and
bears a fair relation to the investment in and earning capacity of the utility
assets underlying the securities being acquired. As discussed above, the share
exchange involves the exchange of each share of CP&L Common Stock for a share of
Holdings Common Stock; no cash or other form of consideration will be given in
exchange for CP&L Common Stock. Because the proportion of each common
shareholder's ownership will be unchanged, the consideration is fair and
reasonable. See Wisconsin Energy Corp., supra, 37 SEC Docket at 300.
As stated in Item 2 above, an estimate of the fees and expenses to be
paid in connection with the reorganization will be filed by amendment hereto. It
is expected that such fees and expenses will be reasonable and customary for a
transaction of this kind and will not be material when measured against CP&L's
consolidated book value or the earning capacity of its assets.
Complication of Capital Structure. Section 10(b)(3) of the
1935 Act requires the Commission to determine if a proposed transaction will
unduly complicate the capital structure of the holding company, or will be
detrimental to the public, investors or consumers. No such effect will result
from the reorganization.
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The reorganization will not involve the creation of any ownership
interests other than those necessary to maintain the basic corporate
relationships of the holding company system to be established. Pursuant to the
reorganization, Holdings will acquire all of the CP&L Common Stock. No minority
common stock interest in CP&L will remain and the rights of the existing debt
and preferred equity securities holders of CP&L will be unaffected. The
consolidated assets and liabilities of CP&L and its subsidiaries before the
Effective Time will be the same as the consolidated assets and liabilities of
Holdings and its subsidiaries after the Effective Time.
All the business and operations conducted before the Effective Time by
CP&L and its subsidiaries will continue to be conducted after the Effective Time
by CP&L and such subsidiaries, as direct or indirect subsidiaries of Holdings.
Moreover, control of the system will remain in the hands of CP&L common
shareholders, who will become the holders of all of Holdings' issued and
outstanding shares of common stock. Consequently, as the Commission has found in
similar circumstances, the reorganization will not result in any complexity of
capital structure contrary to Section 10(b)(3). See, e.g., CIPSCO Incorporated,
supra; Wisconsin Energy Corp., supra.
Finally, the reorganization will have only a limited effect on the
rights of the holders of CP&L Common Stock. The material differences between the
voting and other rights of holders of Holdings Common Stock and CP&L Common
Stock are described at pages 21-24 of the Prospectus/Proxy Statement (included
in Exhibit C-1).
Section 10(c). Section 10(c) of the Act states that, notwithstanding
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the provisions of Section 10(b), the Commission shall not approve:
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(1) an acquisition of securities or utility assets, or of any
other interest, which is unlawful under the provisions of
section 8 or is detrimental to the carrying out of the
provisions of section 11; or
(2) the acquisition of securities or utility assets of a
public utility or holding company unless the Commission finds
that such acquisition will serve the public interest by
tending towards the economical and the efficient development
of an integrated utility system.
In this case, the requirements of Section I 0(c) are satisfied.
Section 10(c)(1). Under Section 10(c)(1), the Commission may
not approve an acquisition that "is unlawful under the provisions of section 8
(7) or is detrimental to the carrying out of the provisions of section 11."
Section 11(b)(1) of the Act, with an exception, provides that a registered
holding company must limit its operations to a single integrated public-utility
system, either electric or gas. In this case, CP&L's electric utility properties
constitute an integrated electric system, as defined in Section 2(a)(29)(A) of
the Act and NCNG's gas utility properties constitutes an integrated gas system
within the meaning of Section 2(a)(29)(B) of the Act.
Section 11(b)(1) permits a registered holding company to own one or
more additional integrated public-utility systems only if the requirements of
Section 11(b)(1)(A) - (C) (the "ABC clauses") are satisfied. By its terms,
however, Section 11(b)(1) applies only to registered holding companies and
therefore does not preclude the acquisition and ownership of a combination gas
and electric system by a holding
- -------------------
7 Section 8 prohibits an acquisition by a registered holding company
of an interest in an electric utility and a gas utility serving substantially
the same territory unless expressly approved by a State commission where State
law prohibits or requires approval of any such acquisition.
19
<PAGE>
company, such as Holdings, which will be exempt and whose ownership of both gas
and electric operations in North Carolina is permitted and subject to
"affirmative state regulation." See WPL Holdings, Inc., 49 S.E.C. 761 at
770(1988), a@d in part and rev'd in part sub nom., Wisconsin's Environmental
Decade v. SEC, 882 F.2d 523 (D.C. Cir. 1989), reaffirmed, 50 S.E.C. 728 (1991);
Dominion Resources, Inc., Holding Company Act Release No. 24618 (April 5, 1988).
The Commission has also previously held that a holding company may
acquire utility assets that will not, when combined with its existing utility
assets, make up an integrated system or comply fully with the "ABC" clauses,
provided that there is defacto integration of contiguous utility properties and
the holding company is exempt from registration under Section 3(a) of the Act
following the acquisition.(8) In this case, Holdings intends to claim an
exemption from the registration requirements under the Act pursuant to Section
3(a)(1). Further, there is and will continue to be following the reorganization
defacto integration of CP&L's electric and NCNG's gas utility properties.(9) As
stated, there is substantial overlap of the service areas of CP&L and NCNG in
North Carolina. Further, since acquiring NCNG on July 15, 1999, CP&L has
- ------------------
8 See e.g., TUC Holding Co., et al., Holding Company Act Release No.
26749 (August 1, 1997); Sempra Energy, Holding Company Act Release No. 26890
(June 26, 1998); and PP&L Resources, Inc., et al., Holding Company Act Release
No. 26905 (August 12, 1998).
9 CP&L also believes that the retention of NCNG by Holdings as an
additional integrated public-utility system following Holdings registration
under the Act will satisfy the standards under the "ABC" clauses. This issue
will be addressed in Holdings' application for approval to acquire Florida
Progress.
20
<PAGE>
been in engaged in the process of coordinating the operations and corporate
functions of these two companies in such areas as coordinated gas purchases.
Section 10(c)(2). In the context of the formation of a new
holding company over an existing public utility, the Commission has held that
the structural change must result in significant benefits to the holding company
system. CIPSCO Inc., Holding Co. Act Release No. 25152 (Sept. 18, 1990).
As discussed above in Item 1, the holding company structure resulting
from the share exchange will yield significant benefits in the form of economies
and efficiencies. Among other benefits, the holding company structure will
permit CP&L to adjust capital ratios to appropriate levels through dividends to,
or equity investments from, Holdings. See, e.g., WPL Holdings, Inc., Holding Co.
Act Release No. 25377 (1991). This ability to adjust the components of CP&L's
capital structure would also increase general financial flexibility, allowing
CP&L to take advantage of more attractive financing opportunities that might not
otherwise be available. See CIPSCO Inc., supra.
The reorganization should also help to broaden CP&L's financial base
and its investment appeal by reducing the system's dependence on its utility
operations. This diversity should also increase financing alternatives and
efficiencies, since financing may be tailored to the specific needs and
circumstances of the individual utility and non-utility businesses. As the
Commission has noted in similar circumstances, "[l]ower-cost financing can
enhance efficient utility operations and benefit ratepayers and senior security
holders." KU Energy Corp., supra. 50 SEC Docket at 296.
21
<PAGE>
The Commission has noted in analogous cases that such financial and
organizational advantages satisfy Section 10(c)(2). See WPL Holdings, Inc.,
supra. Moreover, a Commission finding of "efficiencies and economies" may be
based "on the potential for economies presented by the acquisition even where
these are not precisely quantifiable." American Electric Power Co., 46 SEC 1299,
1322 (1978). Accord, Centerior Energy Corp., 35 SEC Docket 769, 775 (April 29,
1986) ("specific dollar forecasts of future savings are not necessarily
required; a demonstrated potential for economies will suffice even when these
are not precisely quantifiable"). In this case, Holdings believes that the
reorganization will provide significant financial and organizational advantages
and the resulting substantial potential economies and efficiencies should be
found to meet the standard of Section 10(c)(2).
The Commission has held that the economical and efficient development
of an existing integrated system satisfies the requirements of Section 10(c)(2)
of the 1935 Act. See WPL Holdings, Inc., supra. The electric utility system of
CP&L and the gas utility system of NCGC constitute an integrated electric
utility system and an integrated gas utility system within the meaning of
Section 2(a)(29) (A) and (B) of the 1935 Act, respectively, and will remain so
after the reorganization. CP&L's service territory will not change as a result
of the proposed corporate reorganization. Consequently, the standards of Section
10(c)(2) are satisfied.
Section 10(f). Section 10(f) provides that:
--------------
The Commission shall not approve any acquisition ... under this section
unless it appears to the satisfaction of the Conunission that such
state laws as may apply in respect of such acquisition have been
complied with, except where the Commission finds that compliance with
22
<PAGE>
such State laws would be detrimental to the carrying out of the
provisions of section 11.
As indicated in Item 1, the reorganization must be approved by the NCUC
and the SCPSC. In addition, the reorganization will be consummated in
compliance with all other applicable North Carolina laws.
ITEM 4. REGULATORY APPROVAL
In addition to approval by this Commission, the proposed corporate
restructuring requires the approval of the NCUC, the SCPSC, the FERC, the NRC,
and the FCC. CP&L has filed or will file applications with each of these
commissions. No other state or federal commission has jurisdiction over the
reorganization.
ITEM 5. PROCEDURE
The reorganization is anticipated to be implemented as soon as
practicable. To facilitate this schedule, Holdings respectfully requests the
Commission to issue and publish promptly the requisite notice under Rule 23 with
respect to the filing of this application to provide for the filing of comments
in a time frame that permits the Commission to enter an order granting and
permitting this application to become effective by January 31, 2000. A form of
notice suitable for publication in the Federal Register is included herewith as
Exhibit H.
Holdings waives a recommended decision by a hearing officer or any
other responsible officer of the Commission and requests that there be no 30-day
waiting period between the issuance of the Commission's order and the date on
which it is to become effective. Holdings consents to the Division of Investment
Management assisting in the preparation of the Commission's decision or order
in this matter, unless such Division opposes this application.
23
<PAGE>
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
EXHIBITS:
- ---------
A-1 Amended and Restated Articles of Included as "Exhibit B" to
Incorporation of CP&L Holdings, Exhibit C-1 hereto
Inc.
A-2 Amended and Restated By-Laws of Included as "Exhibit C" to
CP&L Holdings, Inc. Exhibit C-1 hereto
B-1 Agreement and Plan of Share Included as "Exhibit A" to
Exchange, dated as of August 22, Exhibit C-1 hereto
1999
C-1 Registration Statement on Form Incorporated by reference
S-4 filed August 31, 1999 by to File No. 333-86243
CP&L Holdings, Inc. (including
Proxy Statement)
D-1 NCUC Application of CP&L and To be filed by amendment
NCNG to Transfer Ownership
D-2 NCUC Order To be filed by amendment
D-3 SCPSC Application of CP&L to To be filed by amendment
Transfer Ownership
D-4 SCPSC Order To be filed by amendment
D-5 FERC Application Under Section To be filed by amendment
203 of the Federal Power Act
D-6 FERC Order of Approval To be filed by amendment
D-7 NRC Application under Atomic To be filed by amendment
Energy Act
D-8 NRC Order To be filed by amendment
24
<PAGE>
D-9 FCC Application for Transfer To be filed by amendment
of Licenses
D-10 FCC Order To be filed by amendment
E Map of Service Territories of To be filed by amendment
CP&L and NCNG (Paper format filing)
F-1 Preliminary Opinion of Counsel To be filed by amendment
F-2 Past-Tense Opinion of Counsel To be filed pursuant to
Rule 24
H Form of Federal Register Notice Filed herewith
FINANCIAL STATEMENTS:
- ---------------------
FS-1 CP&L Consolidated Statements of Incorporated by reference to
Income for year ended Annual Report of CP&L on Form
December 31, 1998 10-K for the year ended December
31, 1998 in File No. 1-3382.
FS-2 CP&L Consolidated Balance Sheets Incorporated by reference to
as of December 31, 1998 Annual Report of CP&L on Form
10-K for the year ended December
31, 1998 in File No. 1-3382.
FS-3 CP&L Consolidating and Pro Forma Incorporated by reference to
Combined Balance Sheets Statement on Form U-3A-2 of CP&L
as of December 31, 1998 for the year ended December 31,
1998 in File No. 69-477
FS-4 CP&L Consolidating and Pro Forma Incorporated by reference to
Combined Income Statements Statement on Form U-3A-2 of CP&L
for the year ended December 31,
1998 in File No. 69-477.
25
<PAGE>
FS-5 CP&L Consolidated Statements Incorporated by reference to
of Income for the period ended Quarterly Report of CP&L on Form
June 30, 1999 10-Q for the period ended June
30, 1999 in File No. 1-3382.
FS-6 CP&L Consolidated Balance Sheets Incorporated by reference to
as of June 30, 1999 Quarterly Report of CP&L on Form
10-Q for the period ended June
30, 1999 in File No. 1-3382.
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
Holdings does not believe that the proposed transaction will involve a
"major federal action" or will "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 proposed transaction will not result in changes in
the operations of CP&L that would have any impact on the environment. No Federal
agency has prepared or is preparing an environmental impact statement with
respect to the reorganization.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned company has duly caused this statement to be signed on
its behalf by the undersigned thereunto duly authorized.
CP&L Holdings, Inc.
/s/ William Cavanaugh III
--------------------------------
Name: William Cavanaugh III
Title: President and Chief Executive Officer
Date: October 18, 1999
26
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
H Proposed form of Federal Register notice. (Filed herewith).
EXHIBIT H
PROPOSED FORM OF FEDERAL REGISTER NOTICE
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35- )
-----
Filings under the Public Utility Holding Company Act of 1935, as amended ("Act")
November , 1999
--
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) and 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
December , 1999 to the Secretary, Securities and Exchange Commission,
--
Washington, D.C. 20549, and serve a copy on the relevant applicant(s) and/or
declarant(s) at the address(es) as specified below. Proof of service (by
affidavit or, in case of an attorney at law, by certificate) should be filed
with the request. Any request for hearing shall identify specifically the issues
of fact or law that are disputed. A person who so requests will be notified of
any hearing, if ordered, and will receive a copy of any notice or order issued
in the matter. After December , 1999, the application(s) and/or
--
declaration(s), as filed or as amended, may be granted and/or permitted to
become effective.
* * * * * *
CP&L HOLDINGS, INC. (70-[ ])
------------------- ----
CP&L Holdings, Inc. ("Holdings"), 411 Fayetteville Street, Raleigh,
North Carolina 27601-1748, a North Carolina corporation, has filed an
application-declaration pursuant to Sections 9(a)(2) and 10 of the Public
Utility Holding Company Act of 1935, as amended (the "Act"), in which it
requests authorization to acquire all of the issued and outstanding shares of
common stock of Carolina Power & Light Company ("CP&L"), an "electric utility
company" within the meaning of Section 2(a)(3) of the Act. As a result of the
transaction, Holdings will also indirectly acquire all of the voting securities
of North Carolina Natural Gas Corporation ("NCNG"), a "gas utility company"
within the meaning of Section 2(a)(4) of the Act and a wholly-owned subsidiary
of CP&L.
<PAGE>
CP&L is a regulated public utility incorporated under the laws of the
State of North Carolina. It is primarily engaged in the business of generating,
purchasing, transmitting and distributing electricity in portions of North
Carolina and South Carolina. CP&L provides electric service to more than
1.2 million customers in an approximately 30,000 square-mile area which includes
a substantial portion of the coastal plain of North Carolina extending to the
Atlantic Ocean between the Pamlico River and the South Carolina border, the
lower Piedmont section of North Carolina, an area of northeastern South Carolina
and an area in western North Carolina in and around the City of Asheville. The
estimated total population of the area served is approximately 3.9 million.
At December 31, 1998, CP&L had a total system installed generating
capability (including the North Carolina Eastern Municipal Power Agency's share)
of 9,963 MW, 5,628 pole miles of transmission lines, including 292 miles of
500 kV lines and 2,848 miles of 230 kV lines, and approximately 44,033 pole mile
of overhead lines and approximately 12,759 miles of underground lines. CP&L is
subject to regulation by the North Carolina Utilities Commission ("NCUC") and
the South Carolina Public Service Commission ("SCPSC") with respect to retail
electric rates, securities issuances, affiliate transactions, and other matters,
and by the Federal Energy Regulatory Commission ("FERC") with respect to
wholesale electric and electric transmission rates.
CP&L acquired all of the issued and outstanding common stock of NCNG on
July 15, 1999.(1) NCNG, a Delaware corporation, is engaged in the transportation
and distribution of natural gas through approximately 1,069 miles of
transmission pipeline and approximately 2,772 miles of distribution mains. NCNG
sells and delivers gas to approximately 178,000 customers in 86 cities and towns
and four municipal gas distribution systems in eastern and south central North
Carolina. The estimated total population of the territory served by NCNG is
2.6 million. Holdings states that there is substantial overlap between CP&L's
electric service area and NCNG's gas service area. It is estimated that
approximately 29% of NCNG's retail and wholesale gas customers are also electric
customers of CP&L. NCNG is also subject to regulation by the NCUC with respect
to rates, securities issuances, affiliate transactions, and other matters.
CP&L currently claims an exemption from the registration requirements
of the Act pursuant to Section 3(a)(2) and Rule 2 promulgated thereunder because
it is predominantly a public utility company whose operations as such are
confined to North Carolina and states contiguous thereto.(2)
CP&L's principal non-utility subsidiaries include: Cape Fear Energy
Corporation, a gas marketer which is engaged in the business of purchasing
natural gas for NCNG's system supply and for resale to large industrial users
and the municipalities served by NCNG, as well as the business of providing
- -------------------
1 See Re: Carolina Power & Light Company, et al., 194
P.U.R. 4th 258 (July 13, 1999).
2 See File No. 69-477.
2
<PAGE>
energy management services; Capitan Corporation, which was organized to hold
title to certain land and water rights; CaroFund, Incorporated, which
participates through CaroHome, LLC and other ventures in which CaroHome, LLC has
invested, in affordable housing projects for low-income individuals in North
Carolina; NCNG Energy Corporation, which holds certain energy-related
investments and sells natural gas to resellers; Interpath Communications, Inc.,
which provides internet-based services and markets fiber optics capacity to
telecommunications carriers; Monroe Power Company, an "exempt wholesale
generator" within the meaning of Section 32 of the Act, which owns and operates
a 160 MW simple-cycle combustion turbine unit in Monroe, Georgia;(3) and
Strategic Resource Solutions Corp., which directly and through various
subsidiaries designs, develops, installs and provides facilities and energy
management software systems and other services for educational, commercial,
industrial and governmental markets nationwide.
For the year ended December 31, 1998, CP&L's consolidated operating
revenues (pro forma to include the results of operations for NCNG in 1998) were
$3.4 billion, of which $3.1 billion (92%) were derived from electric utility
operations, $152 million (4.5%) from regulated natural gas operations, and
$122 million (3.5%) from diversified non-utility activities. At December 31,
1998, CP&L reported pro forma consolidated assets of $8.63 billion, including
net electric utility plant of $5.8 billion and net gas utility plant of
$209 million.
Holdings is currently a wholly-owned subsidiary of CP&L with nominal
capitalization and no operations. Following consummation of the proposed
transactions, Holdings will become a "holding company" over CP&L and CP&L's
current common stockholders will acquire and own all of the issued and
outstanding common stock of Holdings through an exchange of their shares of CP&L
common stock for the common stock of Holdings. CP&L's board of directors and
shareholders have approved the reorganization. The transaction is also subject
to approval by the NCUC, the SCPSC, the FERC, and the NRC.
On August 22, 1999, CP&L, Holdings and Florida Progress Corporation
("Florida Progress"), an exempt electric utility holding company pursuant to
Section 3(a)(1) of the Act and Rule 2 thereunder,(4) entered into an Agreement
and Plan of Exchange pursuant to which Holdings has agreed to acquire all of the
issued and outstanding common stock of Florida Progress for a combination of
cash and shares of Holdings common stock. That transaction is subject to
shareholder approvals and approvals by various regulatory commissions, including
this Commission, and satisfaction of other conditions precedent. Holdings states
- -------------------
3 See Monroe Power Company, 87 F.E.R.C. Section 61,238 (May 28,
1999).
4 See Statement by Florida Progress Corporation on Form U-3A-2
filed pursuant to Rule 2. File No. 69-267.
3
<PAGE>
that it intends to file a separate application pursuant to Sections 9(a) and 10
of the Act requesting approval for the merger with Florida Progress and that,
upon consummation of the merger, Holdings intends to register as a holding
company pursuant to Section 5 of the Act.(5)
In the proposed reorganization, each share of CP&L common stock
outstanding immediately prior to the exchange will be automatically exchanged
for one new share of Holdings common stock. As a result, Holdings will acquire
and become the owner of all of the issued and outstanding shares of CP&L common
stock, and the former common stockholders of CP&L will own all of the issued and
outstanding common stock of CP&L. There will be no cash or other consideration
given in the share exchange. The directors of CP&L shall become the directors of
Holdings.
The consolidated assets and liabilities of CP&L and its subsidiaries
before the share exchange will be the same as the consolidated assets and
liabilities of Holdings and its subsidiaries afterwards. All the business and
operations conducted before the share exchange by CP&L and its subsidiaries will
continue to be conducted by such companies as direct or indirect subsidiaries of
Holdings. Some of CP&L's current subsidiaries may become direct subsidiaries of
Holdings following the share exchange, and in the future new entities or
acquisitions may also be direct subsidiaries of Holdings. It is stated that the
share exchange will have no impact on the regulation of CP&L's and NCNG's
utility operations.
It is stated that transformation to a holding company structure will
enable CP&L to respond more effectively to the changes facing the energy
industry today and to take better advantage of the opportunities that will be
available in the coming years. Among other benefits sited, the formation of a
holding company will permit a clearer separation of CP&L's regulated and
unregulated businesses, and will provide it greater flexibility in establishing
and financing new business initiatives. The holding company structure will also
allow CP&L's management to make decisions based on the specific needs and
characteristics of these non-traditional businesses, such as financing
requirements and capital structures, outside of the regulatory regime.
Holdings states that the proposed share exchange will satisfy the
requirements of Section 10(c) of the Act and that there is no basis for the
Commission to make any negative findings under Section 10(b). Holdings intends
to claim an exemption as a holding company following consummation of the
transaction pursuant to Section 3(a)(1) and Rule 2 thereunder.
- -------------------
5 For more information concerning the proposed merger with Florida
Progress, including a copy of the Agreement and Plan of Exchange, see CP&L's
Current Report on Form 8-K, dated August 30, 1999, in File No. 1-3382.
4
