EXHIBIT D-5
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
)
Carolina Power & Light Company ) Docket No. EC00-
) --------
APPLICATION OF CAROLINA POWER &
LIGHT COMPANY FOR AUTHORITY TO
IMPLEMENT PROPOSED CORPORATE REORGANIZATION
Frank Schiller
Associate General Counsel
Carolina Power & Light Company
411 Fayetteville Street
Raleigh, N.C. 27601-1748
919-546-5362
919-546-3805 (fax)
[email protected]
James K. Mitchell
Thelen Reid & Priest LLP
701 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
(202) 508-4002
(202) 508-4321 (fax)
[email protected]
October 26, 1999
<PAGE>
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
)
Carolina Power & Light Company ) Docket No. EC00-
) --------
APPLICATION OF CAROLINA POWER &
LIGHT COMPANY FOR AUTHORITY TO IMPLEMENT
PROPOSED CORPORATE REORGANIZATION
Carolina Power & Light Company ("CP&L") requests that the Commission
authorize implementation of a corporate reorganization described herein that
will create a holding company structure through a share exchange (the
"Transaction"). The Transaction will create a new holding company that will hold
the common stock of CP&L. Because the Transaction might be deemed to result in a
"disposition of jurisdictional facilities" in light of the Commission's decision
in Central Vermont Public Service Corporation, 39 FERC P. 61,295 (1987), CP&L
------------------------------------------
seeks this authorization under Section 203 of the Federal Power Act ("FPA"), 16
U.S.C. ss.824b, and the Commission's regulations at 18 C.F.R. Part 33 (1998).
As demonstrated below, the Transaction will have no effect on CP&L's
jurisdictional facilities, rates or services. The Transaction therefore will be
consistent with the public interest.
The Board of Directors of CP&L has approved the share exchange and
recommended shareholder approval, and CP&L's shareholders recently approved the
transaction at the shareholder meeting and vote on October 20, 1999.
The Transaction is anticipated to be implemented as soon as
practicable after all necessary regulatory approvals have been obtained. To
facilitate completion of the Transaction and the benefits resulting therefrom,
CP&L requests that the Commission provide a 30-day notice period for comments. A
<PAGE>
30-day notice period is appropriate since this corporate reorganization does not
involve a merger or disposition of assets to a third-party and thus raises no
issues under the Commission's Section 203 guidelines.
I. INTRODUCTION AND BACKGROUND
---------------------------
CP&L is a North Carolina corporation engaged primarily in the
generation, transmission and distribution of electricity. CP&L is a "public
utility" as defined in Section 201(e) of the FPA, 16 U.S.C.A. ss.824(e).1 CP&L
sells electricity at wholesale to, and transmits electricity in interstate
commerce for, other electric utilities under rate schedules on file with the
Commission. CP&L also sells electricity at retail in North Carolina and South
Carolina. North Carolina Natural Gas Corporation ("NCNGC"), a direct subsidiary
of CP&L, distributes natural gas to retail customers in North Carolina.
II. DESCRIPTION OF THE PROPOSED RESTRUCTURING
-----------------------------------------
The Board of Directors of CP&L has made a business decision to
restructure CP&L so that it will become a separate subsidiary of a new parent
holding company, with the current holders of CP&L common stock becoming the
holders of the common stock of the new parent. To implement this restructuring,
CP&L has established a North Carolina corporation, CP&L Holdings, Inc.
("Holdings") which now has a nominal amount of stock outstanding and no present
business or properties of its own. All of the currently outstanding shares of
Holdings common stock are owned by CP&L.
--------------
1 16 U.S.C.A. ss.824(e) (Law. Coop 1994).
<PAGE>
CP&L and Holdings have entered into an Agreement and Plan of Share
Exchange ("Exchange Agreement") which provides for the exchange of CP&L common
stock for Holdings common stock (see, Exhibit H). The principal terms of the
Exchange Agreement are as follows:
o each share of CP&L common stock outstanding immediately prior to
the effective time of the share exchange will be exchanged
automatically for one new share of Holdings common stock;
o Holdings will become the owner of all outstanding CP&L common
stock; and
o the shares of Holdings common stock held by CP&L immediately
prior to the share exchange will be canceled.
Upon completion of the share exchange, Holdings will become the parent
company of CP&L and will own all of the common stock of CP&L. All of the
Holdings common stock outstanding immediately after the share exchange will be
owned by the former holders of CP&L common stock (i.e., each former CP&L common
---
shareholder will receive an identical number of Holdings common shares so that
there will be no real change in the pool of shareholders). Following the share
exchange, the stock of some of CP&L's existing subsidiaries may be transferred
to Holdings, causing those companies to become direct subsidiaries of Holdings.2
Under the Transaction, CP&L's outstanding preferred stock will not be
exchanged in the share exchange and will continue to be shares of CP&L preferred
stock. The share exchange will not change the rights of the holders of these
preferred shares as currently provided in CP&L's charter. Debt of CP&L will
remain unchanged and will continue as outstanding obligations of CP&L after the
share exchange.
--------------
2 The proposed corporate structure after completion of the Transaction is
shown on page 2 of the Proxy Statement issued by CP&L in conjunction
with the Transaction, copies of which are included in Exhibit G hereto.
<PAGE>
III. REASONS FOR THE CORPORATE REORGANIZATION
----------------------------------------
Transformation to a holding company structure will enable CP&L to
respond more effectively to the ongoing changes in the electric power industry
today and to take better advantage of the opportunities that will become
available in the future. Formation of the new holding company structure also
will facilitate regulation by providing a clearer separation of regulated and
unregulated businesses, while providing the company with greater flexibility in
establishing and financing new business initiatives.
The electric power industry has gone through rapid change in recent
years. Federal legislation and actions by this Commission have resulted in
significant changes in regulation of the wholesale power segment of the utility
business. Although it is impossible to predict the precise nature of the future
business environment for the electric power industry, these changes will
inevitably impact CP&L's existing businesses and will also create opportunities
for new regulated and unregulated ventures.
The holding company organization contemplated in the Transaction is
quite common in the utility industry, particularly where regulated and
non-regulated businesses are both conducted within the same corporate structure.
A number of electric utilities have received Commission approval to implement
such restructurings in recent years. CP&L anticipates that, after the
Transaction is completed, some of its current non-utility subsidiaries will
become direct (first-tier) subsidiaries of Holdings, and that future new
entities or acquisitions will also be structured as subsidiaries of Holdings.
This will allow a better separation of the various lines of businesses,
including a separation of the regulated utility businesses from unregulated
ventures. Such separation is expected to simplify regulation of each regulated
subsidiary of Holdings.
<PAGE>
Overall, the Transaction will allow management to make decisions and
respond more effectively to the specific needs and characteristics of new
business ventures in such areas as financing requirements and capital
structures. At the same time, CP&L would continue, in a substantially unchanged
form, as a separate regulated public utility subsidiary of Holdings and would
remain subject to the jurisdiction of this Commission, the North Carolina
Utilities Commission and the South Carolina Public Service Commission.
IV. THE TRANSACTION IS CONSISTENT WITH THE PUBLIC INTEREST
------------------------------------------------------
A. Jurisdictional Issues
---------------------
The Commission has held that the transfer of a public utility's common
stock from its existing shareholders to a newly created holding company
constitutes a transfer of the ownership and control of the utility's
jurisdictional facilities and is thus a "disposition of facilities" subject to
Commission review and approval under Section 203 of the FPA. Accordingly,
because the Transaction would entail the transfer of the ownership of its common
stock from existing shareholders to Holdings, CP&L is seeking the Commission's
approval under Section 203.
B. Standards of Review
-------------------
Section 203 of the FPA requires that a proposed disposition of
facilities be approved by the Commission if it would be "consistent with the
public interest." The Commission routinely has found that a corporate
reorganization involving the creation of a holding company structure is
consistent with the public interest.3 CP&L submits that, consistent with these
prior decisions, its proposed restructuring is consistent with the public
interest.
--------------
3 See, e.g., New York State Electric & Gas Corp., 81 FERC P. 62,201
(1997); Consolidated Edison Company of New York, 81 FERC P. 62, 070
(1997); Pennsylvania Power & Light Company, 69 FERC P. 62,267 (1994).
<PAGE>
As outlined above, the Transaction will provide CP&L with a corporate
structure that will facilitate the separation of regulated from currently
unregulated business activities as well as those activities that currently are
regulated but may become unregulated or competitive in the future. Thus, under
the proposed corporate structure, it would be easier in the future to
disaggregate the currently vertically integrated and regulated utility business
into its constituent retail and wholesale business segments. The Transaction
also will further insulate utility ratepayers, both wholesale and retail, from
the financial risks of present and future unregulated business activities.
Moreover, as explained below, the Transaction will have no effect on CP&L
jurisdictional facilities, rates or services.
As outlined above, the Transaction is a reorganization of an existing
business and not a merger or disposition of physical facilities to a third-party
necessitating application of the Commission's merger guidelines. 4 Even if the
Transaction were reviewed relative to those guidelines, creation of the new
holding company structure is consistent with the public interest because it does
not affect competition, does not affect rates, and does not affect regulation
under Federal or state law.
1. THE TRANSACTION WILL NOT HAVE AN ADVERSE EFFECT ON COMPETITION
While the Transaction may technically be deemed to result in a "change
in ownership" of jurisdictional facilities by virtue of the creation of a new
holding company, the Transaction involves only CP&L and its affiliates. The
Transaction does not result in any change in the ownership or operation of
CP&L's physical facilities, its jurisdictional contracts or any change in the
concentration of control over assets for generation, transmission, or inputs to
--------------
4 F.E.R.C. Order No. 592, Docket No. RM96-6-000, 77 F.E.R.C. P. 61,263
("Guidelines").
<PAGE>
generation that could be used as barriers to entry. Accordingly, the Transaction
will have no effect on competition in any relevant market. In similar cases, the
Commission has not required the applicants to file detailed competitive analyses
pursuant to Appendix A of its merger guidelines. See, e.g., Central Maine Power
-------------------
Company, 84 FERC P. 61,030 at 61,133 (1998). Thus, CP&L submits that the
-------
Comission should likewise find that the proposed restructuring would have no
effect on competition.
2. THE TRANSACTION WILL NOT AFFECT RATE LEVELS.
The Transaction will have no effect on either CP&L's operating costs or
rate levels or its capital structure. The administrative costs of implementing
the Transaction will not affect CP&L's existing retail or wholesale rates and
CP&L commits that these costs will not be included in rates in the future. Any
changes to CP&L's wholesale power or transmission rates will continue to be
subject to the Commission's review under the Federal Power Act.
CP&L will still exist as a separate corporate entity subject to the
Commission's regulation after the Transaction. Pursuant to the share exchange,
the only effect is to exchange common shares in CP&L for a like number of common
shares in Holdings, which will then become the sole shareholder of CP&L. The
assets and the financial statements of CP&L will be unaffected by the exchange
except for adjustments to reflect the transfer to Holdings of CP&L's ownership
interests in certain subsidiaries.5 CP&L's books and records will continue to be
maintained in accordance with the Commission's Uniform System of Accounts. Thus,
there will be no affect on rate levels as a consequence of the Transaction.
--------------
5 Existing CP&L subsidiaries, including North Carolina Natural Gas
Corporation and Interpath Communications, Inc., may be transferred to
Holdings. CP&L's financial statements, therefore, will treat such
subsidiaries differently in the future. There will be a charge to the
equity accounts of CP&L to reflect the removal of these subsidiaries as an
investment.
<PAGE>
3. THE TRANSACTION WILL NOT IMPAIR THE EFFECTIVENESS OF STATE OR
FEDERAL REGULATION
The proposed Transaction will not impair effective regulation of CP&L's
utility operations by either state or Federal agencies or create any regulatory
gap. CP&L became an "exempt" holding company under Section 3(a)(2) of the Public
Utility Holding Company Act ("PUHCA") upon completion of its recent acquisition
of NCNGC. Following completion of the share exchange, Holdings, as the owner of
all of the outstanding CP&L common stock, will also be an exempt holding company
under PUHCA. In particular, Holdings will claim an exemption from most of the
provisions of PUHCA under Section 3(a)(1), as a company whose utility
subsidiaries generating material portions of its income are incorporated and
carry on their business substantially in a single state.
CP&L's utility services, rates and facilities will be unaffected by the
transaction and will continue to be regulated by the FERC, the North Carolina
Utilities Commission, and the South Carolina Public Service Commission. Further,
since Holdings will qualify for an exemption from PUHCA registration, there will
be no shift of regulatory authority from the Commission to the Securities and
Exchange Commission, and the Commission will continue to have jurisdiction over
CP&L.
V. INFORMATION REQUIRED BY THE COMMISSION'S REGULATIONS
-----------------------------------------------------
The following information is required by Section 33.2 of the
Commission's regulations:
(a) NAME AND ADDRESS OF PRINCIPAL BUSINESS OFFICE
Carolina Power & Light Company
411 Fayetteville Street
Raleigh, N.C. 27601-1748
<PAGE>
(b) PERSONS AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS
Frank Schiller
Associate General Counsel
Carolina Power & Light Company
411 Fayetteville Street
Raleigh, N.C. 27601-1748
(919) 546-5362
(919) 546-7474 (fax)
James K. Mitchell
Thelen Reid & Priest LLP
701 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
(202) 508-4002
(202) 508-4321 (fax)
(c) DESIGNATION OF TERRITORIES SERVED, BY COUNTY AND STATE
CP&L's retail service territory (gas and electric) is entirely within
the States of North Carolina and South Carolina, and includes the following
counties:
-------------------------------------------------------------------------------
NORTH CAROLINA SOUTH CAROLINA
-------------- --------------
-------------------------------------------------------------------------------
Alamance Chesterfield
Anson Clarendon
Avery Darlington
Beaufort Dillon
Bertie Florence
Bladen Georgetown
Brunswick Horry
Buncombe Kershaw
Carteret Lancaster
Caswell Lee
Chatham Marion
Columbus Marlboro
Craven Sumter
Cumberland Williamsburg
Duplin
Durha,
Edgecombe
Franklin
Granville
Greene
Guilford
Halifax
Harnett
Haywood
Henderson
Hertford
Hoke
Jackson
Johnston
Jones
Lee
Lenoir
Madison
Martin
McDowell
Mitchell
Montgomery
Moore
Nash
New Hanover
Northhampton
Onslow
Orange
Pamlico
Pender
Person
Pitt
Randolph
Richmond
Robeson
Rutherford
Sampson
Scotland
Stanly
Union
Vance
Wake
Warren
Wayne
Wilson
Yancey
-------------------------------------------------------------------------------
<PAGE>
(d) STATEMENT OF JURISDICTIONAL FACILITIES
CP&L owns and operates 5,852 miles of transmission facilities ranging
from 115 KV to 500 KV.
(e) NATURE OF TRANSACTION AND DESCRIPTION OF CONSIDERATION
As described above, this application is for authorization to implement
a corporate reorganization by means of a share exchange. There is no cash
consideration or sales price involved.
(f) STATEMENT OF FACILITIES; PRESENT AND PROPOSED USES
The facilities to be "disposed of, consolidated or merged" include all
of the facilities currently owned by CP&L. However, the Transaction does not
entail the actual disposition of any physical facilities or jurisdictional
contracts. After the Transaction, title, possession and use of all
jurisdictional facilities will remain with CP&L. Ultimate control of CP&L will
remain in the hands of CP&L's current stockholders because all of Holdings
common stock will be owned by CP&L's common stockholders. There will be no
change in the use of CP&L's facilities after the Transaction.
(g) COST OF FACILITIES
The cost of CP&L's net utility plant in the form prescribed by the
Commission's Uniform System of Accounts is shown at page 5 of Exhibit C to this
application.
(h) EFFECT OF TRANSACTION ON CONTRACTS FOR PURCHASE, SALE OR
INTERCHANGE OF ELECTRIC ENERGY
The proposed Transaction will have no effect on any of CP&L's contracts
for the purchase, sale or interchange of electric energy.
<PAGE>
(i) OTHER REGULATORY FILINGS
CP&L has filed for or will file for several regulatory approvals, in
addition to those required from this Commission. The following approvals are
required:
State Utility Commissions. CP&L is subject to the jurisdiction of the
-------------------------
North Carolina Utilities Commission and the South Carolina Public Service
Commission, both of which must approve the share exchange. CP&L has filed
applications with the North Carolina Utilities Commission and the South Carolina
Public Service Commission seeking the necessary approvals for the holding
company transaction.
Atomic Energy Act. A provision in the Atomic Energy Act requires NRC
-----------------
consent for the transfer of control of NRC licenses. CP&L filed an application
for NRC approval under the Atomic Energy Act for the indirect transfer of
control of its nuclear plant licenses resulting from the share exchange on
September 15, 1999.
Public Utility Holding Company Act of 1935. CP&L is currently an exempt
------------------------------------------
public utility holding company under Section 3(a)(2) of PUHCA. To implement the
Transaction, the new holding company (i.e. Holdings) must obtain the approval of
the SEC under Sections 9(a)(2) and 10 of PUHCA. In addition, Holdings intends to
claim an exemption as a holding company under PUHCA pursuant to Section 3(a)(1)
of PUHCA. Holdings will still be subject to the requirements of Section 9(a)(2)
of PUHCA concerning approval of the acquisition of the securities of any other
electric or gas utility company.
Federal Communications Commission. CP&L holds certain licenses issued
---------------------------------
by the Federal Communications Commission ("FCC"). CP&L expects to file
applications for approval of a pro forma change of control of the licensee in
the near future.
<PAGE>
(j) FACTS SHOWING THAT THE PROPOSED TRANSACTION WILL BE CONSISTENT
WITH THE PUBLIC INTEREST
The facts relied upon are set forth above in Sections I through IV of
this application. As stated herein, the Transaction will provide greater
flexibility to separate unregulated business activities from CP&L, thereby
facilitating the restructuring of the utility business while assuring the
continued ability of the Commission and state regulators to review utility costs
and revenues.
(k) STATEMENT OF FRANCHISES HELD
CP&L has electric and gas franchises in North Carolina and South
Carolina associated with the conduct of its utility business. A summary of
those franchises is attached hereto as Attachment No. 1
(l) FORM OF NOTICE
A form of notice of this filing, suitable for publication in the
Federal Register, is included as Attachment No. 2 hereto.
VI. REQUIRED EXHIBITS
-----------------
The following exhibits required by Section 33.3 of the Commission's
regulations are filed herewith, except as noted in the Exhibits:
EXHIBIT A. Resolutions of CP&L's Board of Directors.
EXHIBIT B. The statement of the measure of control or ownership
exercised by or over each party to the transaction as to any public utility, or
bank, trust company, banking association, or firm that is authorized by law to
underwrite or participate in the marketing or securities of a public utility, or
any company supplying electric equipment to such party.
<PAGE>
EXHIBIT C. Balance sheets and supporting plant schedules for the
12-month period ended June 30, 1999, in the form prescribed for Statement C of
the Commission's Annual Report Form No. 1, prescribed by ss.141.1 of the
Commission's regulations.
EXHIBIT D. A statement of all known material contingent liabilities.
EXHIBIT E. Income statement for the 12-month period ended June 30,
1999, in the form prescribed for Statement C of the Commission's Annual Report
Form No. 1 prescribed by ss.141.1 of the Commission's regulations.
EXHIBIT F. An analysis of retained earnings for the 12-month period
ended June 30, 1999.
EXHIBIT G. Copies of each application filed with a state or federal
regulatory commission other than the Commission and the Federal Communications
Commission ("FCC") in connection with the Transaction. The application for FCC
approval for the pro forma change in control over CP&L's radio licenses will be
submitted to the Commission as an addendum to this application as soon as it is
completed and filed with the FCC
EXHIBIT H. Contracts in respect of the Transaction.
EXHIBIT I. A map showing CP&L's properties and interconnections, and
the principal cities of the area served.
<PAGE>
VII. CONCLUSION
----------
The Transaction proposed by CP&L satisfies the standards of Section 203
of the Federal Power Act and consequently should be approved by the Commission.
The reorganization is not the type of merger transaction or disposition of
physical facilities or jurisdictional contracts to a third party contemplated by
the Guidelines. However, even if the Guidelines were applied, the Transaction
raises no material issues and should be approved expeditiously by the
Commission.
Respectfully submitted,
Counsel for Carolina Power & Light Company
/s/ James K. Mitchell
-------------------------------------
James K. Mitchell
Thelen Reid & Priest LLP
701 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
(202) 508-4002
Frank Schiller
Associate General Counsel
Carolina Power & Light Company
411 Fayetteville Street
Raleigh, N.C. 27601-1748
(919) 546-5362
October 26, 1999
