EXHIBIT L
LEGAL BASIS FOR RETENTION OF NONUTILITY
BUSINESSES OF CP&L ENERGY AND FLORIDA PROGRESS
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I. NONUTILITY BUSINESSES OF CP&L ENERGY:
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CP&L Energy, Inc. ("CP&L Energy," incorporated in North Carolina) engages
indirectly through its subsidiaries in various nonutility businesses. CP&L
Energy owns directly all of the voting securities of two utility companies,
Carolina Power & Light Company ("CP&L") and North Carolina Natural Gas
Corporation ("NCNG") and of four nonutility subsidiary companies: Strategic
Resource Solutions Corp. ("SRS"), which directly and through subsidiaries of its
own designs, develops, installs, and provides facilities and energy management
software systems and other services for educational, commercial, industrial and
governmental markets nationwide, and designs, engineers, installs and maintains
building automation systems that control heating, ventilation, air conditioning
and lighting; Monroe Power Company ("Monroe Power"), an "exempt wholesale
generator;" CPL Energy Ventures, Inc. ("Energy Ventures"), an intermediate
holding company that indirectly holds interests in synthetic fuel production
facilities located in Virginia, West Virginia, and Kentucky; and CP&L Service
Company LLC ("CP&L Service"), a subsidiary service company.
CP&L directly provides fleet vehicle repair and servicing, transformer
maintenance services, and data processing services to unaffiliated third parties
utilizing resources and personnel who perform these same functions for CP&L.
CP&L also sells standing timber on lands that it holds for utility purposes in
North and South Carolina. In addition, CP&L owns all of the voting securities of
five direct nonutility subsidiaries: Caronet, Inc. ("Caronet"), an "exempt
telecommunications company;" Capitan Corporation ("Capitan"), which holds
certain land and water rights in Tennessee that are used in CP&L's utility
operations; CaroFund, Inc. ("CaroFund") and CaroHome, LLC ("CaroHome"), which
are investors in housing projects that qualify for low-income housing tax
credits and in historic building renovation projects that also qualify for
income tax credits; and CaroFinancial, Inc. ("CaroFinancial"), an inactive
company whose only remaining asset is a receivable evidencing debt incurred by a
CP&L employee stock ownership plan. CP&L also holds a 50% membership interest in
Eastern North Carolina Natural Gas, LLC ("Eastern NCNG"), which has undertaken
the development and construction of a gas pipeline and distribution system in 14
eastern North Carolina counties that are not currently served. In addition to
its direct and indirect subsidiaries, CP&L holds passive or small minority
investments in several venture capital funds, local economic development
ventures and in an "exempt telecommunications company."
NCNG holds all of the outstanding voting securities of four nonutility
subsidiaries: Cape Fear Energy Corporation ("Cape Fear"), an inactive company
that was previously engaged in marketing natural gas and providing energy
management services; NCNG Cardinal Pipeline Investment Corporation ("Cardinal
Investment"), which was formed to acquire and hold a 5% membership interest in
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an intrastate gas pipeline; NCNG Pine Needle Investment Corporation ("Pine
Needle Investment"), which was formed to acquire and hold a 5% interest in a
liquefied natural gas project in North Carolina; and NCNG Energy Corporation
("NCNG Energy"), an inactive subsidiary.
Set forth below is a description of the nonutility businesses of CP&L
Energy's direct and indirect subsidiaries, along with a citation of authority
that justifies retention of such businesses, where applicable.
A. Direct Nonutility Activities of CP&L
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1. Fleet Vehicle Repair and Servicing: CP&L provides a full range of
fleet services (preventive and corrective maintenance, recertification,
hydraulic system repairs, etc.) associated with the maintenance, repair and
management of governmental and commercial vehicle fleets. CP&L provides and will
continue to provide these services to nonassociates after the merger using
personnel and facilities that are required for public utility operations.1
2. Transformer Maintenance Services: CP&L provides transformer repair
services, primarily to other utilities and municipalities, including
single-phase polemount and padmount, three-phase padmount, and small power
transformers. Work includes both shop and field service and sale of refurbished
transformers. CP&L provides and will continue to provide these services to
nonassociates after the merger using personnel and facilities that are required
for public utility operations.2
3. Data Processing Services: CP&L operates a division called
statusgo.com, an application services provider that provides, supports and
manages a broad range of specialized facilities management software and
information systems designed to help businesses and organizations manage and
maintain facilities and equipment more efficiently. The division provides
information technology infrastructure, application software, and business
process and program management to nonassociates. CP&L provides and will continue
to provide these services to nonassociates after the merger using personnel and
data processing equipment that are required for public utility operations.3
4. Sales of Timber: CP&L makes sales of standing timber on land held
for utility uses.4
5. Other Services: CP&L sells products and services providing for
protection from electrical surges resulting from lightning strikes and other
surge anomalies (principally to residential and commercial customers), and
transmission and distribution system services (principally to industrial and
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1 The Commission has authorized subsidiaries of registered holding
companies to offer services to nonassociates utilizing equipment and facilities
acquired for their own purposes during periods of nonutilization. See Indiana &
Michigan Electric Co., Holding Co. Act Release 24039 (Mar. 4, 1986) (use of coal
transportation equipment); Ohio Power Company, Holding Co. Act Release No. 25427
(Dec. 11, 1991) (railcar repair services).
2 Id.
3 The Commission has authorized subsidiaries of registered holding
companies to sell data processing services. See e.g., Cinergy Corp., Holding Co.
Act Release No. 26662 (Feb. 7, 1997).
4 See National Fuel Gas Company, et al., Holding Co. Act Release No. 19088
(July 15, 1975).
2
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municipal customers, e.g., system operations and maintenance services,
substation construction and maintenance, reconductoring, etc.).5
B. Nonutility Subsidiaries of CP&L Energy
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1. SRS 6 directly and through four wholly-owned subsidiaries designs,
develops, installs, and provides facilities and energy management software
systems and other services for educational, commercial, industrial and
governmental markets nationwide, and designs, engineers, installs and maintains
building automation systems that control heating, ventilation, air conditioning
and lighting. SRS's subsidiaries are: (i) Applied Computer Technologies Corp.,
which develops and sells energy and facilities management systems for
educational institutions; (ii) ACT Controls, Inc., which also develops and sells
energy and facilities management systems for educational institutions; (iii)
Spectrum Controls, Inc., which develops, installs and services energy and
facilities management systems for educational institutions as well as for
commercial and industrial customers; and (iv) SRS Engineering Corp., an inactive
subsidiary whose sole purpose is to hold a professional engineering license in
the State of North Carolina.
2. Monroe Power 7 is an "exempt wholesale generator" ("EWG") within the
meaning of Section 32 of the Act. It owns and operates a 160 MW simple-cycle
combustion turbine unit located in Monroe, Georgia, the output of which is sold
to the Municipal Electric Authority of Georgia under a 5-year contract that
commenced in December 1999.
3. Energy Ventures, an intermediate nonutility holding company,8 is
the sole member of CPL Synfuels, LLC ("CPL Synfuels"), a North Carolina limited
liability company. CPL Synfuels, in turn, holds (i) a 90% interest in Solid
Fuel, LLC, a Delaware limited liability company, which owns a facility located
in Virginia that produces synthetic fuel from coal fines and other by-products
of coal, (ii) a 90% interest in Sandy River Synfuel, LLC, a Delaware limited
liability company, which owns a facility located in West Virginia that produces
synthetic fuel from coal fines and other by-products of coal, and (iii) a 9%
interest in Colona Synfuel, LLLP, a registered Delaware limited liability
limited partnership, which owns a facility located in Kentucky that produces
synthetic fuel from coal fines and other by-products of coal. Each of these
facilities produces synthetic fuel from coal that is intended to qualify for
federal income tax credits under Section 29 of the Internal Revenue Code of
1986, as amended.9
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5 See New Century Energies, Inc., Holding Co. Act Release No. 26748 (Aug.
1, 1997) (permitting Public Service Company of Colorado to retain business of
marketing various electrotechnology products and services, including surge
protection equipment); and Rule 58(b)(vii).
6 Rule 58(b)(1)(i); the Commission has authorized registered holding
companies to engage in substantially identical businesses in Cinergy Corp.,
supra n. 3, and Conectiv, Inc., Holding Co. Act Release No. 26832 (Feb. 25,
1998).
7 See Monroe Power Company, 87 FERC P. 61,238 (May 28, 1999).
8 See, e.g., New Century Energies, Inc., Holding Co. Act Release No. 27000
(Apr. 7, 1999) (authorizing organization and capitalization of one or more
"intermediate" nonutility subsidiaries to act as holding companies over other
nonutility subsidiaries).
9 Rule 58(b)(vi) (production and sale of alternative fuels); also Rule
58(b)(x) (processes for utilization of coal waste by-products).
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4. CP&L Service has been formed as a subsidiary service company to
provide management, administrative and other corporate support services to its
associate companies in the CP&L Energy system. The Commission has been asked to
approve its organization as such pursuant to Section 13(b) of the Act and Rule
88.
C. Nonutility Subsidiaries of CP&L
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1. Caronet,10 an "exempt telecommunications company" ("ETC") within
the meaning of Section 34 of the Act, was organized to hold CP&L's interests in
other companies that own and operate fiber optic telecommunications facilities
and provide Internet-based services. Caronet holds (i) a 20% interest in CFN
FiberNet, LLC, a North Carolina limited liability company that is engaged in
marketing wholesale capacity on an asynchronous transfer mode network to network
carriers for its five members (which include Caronet) in Virginia, North
Carolina, and South Carolina, and (ii) a 35% interest in Interpath
Communications, Inc. ("Interpath"), a Delaware corporation that offers a full
range of managed application services, Internet-protocol based applications and
Internet consulting services to businesses. Interpath in turn holds a 33-1/3%
interest in Autonomous Networks, LLC, a Delaware limited liability company,
which owns and operates a national Internet-protocol network with points of
presence in four major cities of the United States connected by a full mesh ATM
(asynchronous transfer mode) network implemented on leased circuits.
2. Capitan,11 a Tennessee corporation, was organized in the 1920s to
acquire and hold certain land and water rights in Tennessee that are used to
assure the supply of water for the production of hydroelectric power in CP&L's
hydroelectric operations on the Pigeon River. It does not conduct any active
business operations.
3. CaroFund holds a 1% membership interest in CaroHome 12 and
participates with CaroHome and other ventures in which CaroHome has invested in
affordable housing projects that qualify for affordable housing credits under
the provisions of the Low Income Housing Tax Credit Program ("LIHTC") under
Section 42 of the Internal Revenue Code of 1986, as amended ("Code"), and in
historic building renovation projects that qualify for historic building
rehabilitation credits under Section 47 of the Code.13
CP&L, CaroHome and CaroFund together have investments in a total of 53
entities that own or are developing LIHTC properties or properties that qualify
for historic building rehabilitation credits. Five of these investments are in
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10 Section 34. Caronet filed an application with the Federal Communications
Commission ("FCC") requesting a determination of ETC status, which was deemed
granted following expiration of the 60-day notice period.
11 See WPL Holdings, Inc., Holding Co. Act Release No. 26856 (Apr. 14,
1998); New Century Energies, Inc., et al. ("Xcel"), Holding Co. Act Release No.
27212 (Aug. 16, 2000).
12 CP&L holds the remaining 99% membership interest in CaroHome directly.
13 The Commission has permitted other new registered holding companies to
retain similar passive interests in tax-credit affordable housing and historic
building properties. See WPL Holdings, Inc., supra, n. 11, and Ameren
Corporation, Holding Co. Act Release No. 26809 (Dec. 30, 1997) (permitting
retention of tax-credit properties located in the states in which those systems
operate as utilities); and Exelon Corporation, Holding Co. Act Release No. 27256
(Oct. 19, 2000) (permitting retention of passive interests in funds holding
national portfolios of tax-credit properties).
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syndicated national funds; the remaining 48 are direct investments in limited
partnerships or limited liability companies that own or are developing
individual tax-credit properties in North and South Carolina. They are described
in greater detail as follows:
(a) Syndicated National Affordable Housing Funds. CP&L directly holds
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a 99% limited partnership interest in WNC Institutional Tax Credit Fund, LP.
CaroHome holds limited partnership interests in four syndicated funds, as
follows (percentage interest indicated): ARV Partners IV - Anaheim, LP (19.8%),
Dominion ARV Villa, LP (19.3%), Cedar Tree Properties LP (25%), and First
Partners II, LP (15.8%). Each of these five funds holds interests in a
geographically diversified portfolio of affordable housing projects that are
located throughout the United States. The investments by CP&L and CaroHome were
made exclusively for the purpose of obtaining the available income tax credits
provided under the Code. CP&L's and CaroHome's interests in these entities are
passive in every case. They have no role in the management or operation of any
of these entities. Further, the investments in all five funds are
"self-liquidating," i.e., the assets wind down as the tax-credits expire.14
(b) Direct Investments in Individual Affordable Housing and Historic
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Rehabilitation Tax Credit Properties. CP&L has direct investments in four
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limited partnerships that own affordable housing properties that are located
inside CP&L's service territory, as follows (percentage interest indicated):
Absolut Limited Partnership LP (99%), Better Homes for Garner LP (99%), Capital
City Low Income Housing LP (99%), and Walnut Street LP (99.9%). In addition,
CP&L holds an interest in Powerhouse Square, LLC (99%), which owns an historic
building renovation project, also located in CP&L's service territory. CP&L is a
passive investor in all five of these entities.
CaroHome and CaroFund together hold a total of 43 direct investments in
LIHTC and historic building rehabilitation tax credit projects, as follows
(percentage interest indicated): Affordable Housing Developers, LLC (51%),
Bradford Place of Fuquay-Varina LP (99%), Siler City- Cateland Place LLC
(99.99%), Creston Commons, LLC (99.99%), Lumberton-Chestnut Place LLC (99%),
Dillon Apartments of South Carolina (99%), Enston Home LP (99%), Excelsior
Apartments LP (99%), Garden Spring Housing Association, LLC (99%), The Garner
School Apartments LP (99%), Wilmington-Hooper School Apts, LLC (99.99%),
Mountainside LLC (99.99%), Meadow Spring Housing Assoc. LLC (99.99%), Hartsville
Apartments LP (99%), Manor Associates LP (99%), Asheboro-North Forest LLC (99%),
Northgate II LLC (99.99%), Knightdale Development LLC (99.99%), Parkview Housing
Associates LP (99%), Prairie Limited Liability Company (99.99%), Ridgewood
Housing Assoc LLC (99%), Arden-River Glen LLC (99%), Rockwood North LLC
(99.99%), Rockwood AH-1 LP (99%), Marion Apartments LP (99%), Spring Forest
Housing Assoc, LLC (99.99%), Bishopville Apartments LP (99%), Havelock-Tyler
Place Apartments LLC (99%), West Cary Apartments LLC (99.99%), Westridge Woods
LLC (99%), Wilrik Hotel Apartments LLC (99.9%), Asheville-Woodridge LP (99.99%),
Knightdale Apts. LLC (99%), Savannah Place Apartments, LLC (99.99%), Willow Run,
LLC (99.99%), Wind Ridge, LLC (99.99%), Baker House Apartments LLC (99.99%),
Mount Olive School Apartments LLC (99.99%), HGA Development, LLC (99.99%), Grove
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14 CP&L's and CaroHome's investments in these syndicated national
affordable housing funds satisfy the criteria for retention set forth in Exelon
Corporation, supra n. 13.
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Arcade Restoration, LLC (99.99%), Historic Property Management LLC (51%),
Raleigh - CaroHome/WCK, LLC (99.99%), and Trinity Ridge LLC (99.99%).
CaroHome is co-developing and, under the organizational documents, will act
as co-manager of five of the projects listed in the preceding paragraph: Grove
Arcade Restoration LLC, HGA Development, LLC, and Historic Property Management,
LLC, which are involved in an historic building restoration project in
Asheville, North Carolina; and Raleigh-CaroHome/WCK, LLC and Trinity Ridge LLC,
which are developing affordable housing projects in the Raleigh area.15 On or
before November 1, 2003, CP&L Energy will either cause CaroHome and CaroFund to
sell these investments or convert their ownership interests into passive
interests. In every other case, CaroHome and CaroFund are passive investors.
With two exceptions, all of the projects listed above are located in CP&L's
and NCNG's combined service territory. The exceptions are Enston Home LP and
Willow Run, LLC.16 Enston Home LP owns an historic building rehabilitation
property in Charleston, South Carolina. Willow Run, LLC is building a low-income
housing project in Morganton, North Carolina, which is in western North Carolina
but is not in CP&L's retail service territory.
The principal objectives of CP&L, CaroHome and CaroFund in investing in
individual LIHTC and historic building renovation projects that are located in
North and South Carolina are to (i) assist the residents in CP&L's and NCNG's
service areas by providing funds for sound and affordable housing for income
qualifying individuals and families; (ii) assist in efforts to preserve
architecturally significant and historic structures; (iii) realize income tax
credits provided under the Code as well as under state law; and (iv) achieve
possible long-term gains through the appreciation and future sale of these
investments. Although they are passive investors in these ventures (with the
five exceptions already noted), they exercise investment oversight, which
includes reviewing and analyzing financial statements generated by third-party
property management firms against the approved budgets for the investments and
conducting due diligence assessments to determine whether properties remain in
compliance with the provisions of the Code and state tax laws. Investment
management also includes on-site inspections to determine that the physical
structure and grounds are properly maintained. The term of the LIHTC investments
is generally 15 years and the term of the historic building restoration projects
is generally five years.
At June 30, 2000, CP&L's direct and indirect investments in all of the
entities listed above totaled approximately $83.2 million.
4. CaroFinancial 17 holds a receivable evidencing debt incurred by a
CP&L employee stock ownership plan. It does not conduct any active business
operations.
5. Eastern NCNG,18 a North Carolina limited liability company, is 50%
owned by CP&L and 50% owned by Albemarle Pamlico Economic Development
Corporation, a North Carolina non-member, non-profit, tax-exempt corporation
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15 Jurisdiction reserved.
16 Jurisdiction reserved.
17 Inactive.
18 See Joint Application of Albemarle Pamlico Economic Development
Corporation et al., Order Granting Certificate, NCUC Docket No. G-44, Sub 0
(June 15, 2000). Eastern NCNG will become a "gas utility company" at such time
as its distribution system is placed in service. CP&L Energy intends to file a
separate application under Sections 9(a) and 10 of the Act with respect to the
acquisition and retention of Eastern NCNG.
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created to encourage infrastructure and economic development in eastern North
Carolina. Eastern NCNG was recently awarded a certificate of public convenience
and necessity to serve 14 counties in eastern North Carolina that are not now
served with natural gas. When Eastern NCNG commences delivery of natural gas at
retail in 2001, it will become a "gas utility company" within the meaning of
Section 2(a)(4) of the Act. CP&L Energy intends to file a separate application
with the Commission pursuant to Sections 9(a)(1) and 10 of the Act to acquire
and retain Eastern NCNG as an additional public utility subsidiary.
D. Other Passive Investments of CP&L
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CP&L holds passive investments in the following nonutility companies
(percentage interest indicated):
1. Utech Venture Capital Corporation (9.76%),19 a Delaware corporation
in which CP&L holds a 9.76% interest, is a venture capital fund that provides
capital for the development and commercialization of new technologies intended
to benefit electric utilities, augment research and development, provide
investors with a window on technical developments, and provide partnering
opportunities to new start-up companies that offer new products and services to
the utility industry. CP&L's investment in this entity is approximately $4.5
million.
2. Utech Climate Challenge Fund, LP (9.8%),20 a Delaware limited
partnership in which CP&L holds a 9.8% limited partnership interest, invests in
existing and start-up companies that offer products or services that will
generate greenhouse gas emission reductions for submission to the Department of
Energy as "Climate Challenge" credits pursuant to Title XVI of the Energy Policy
Act of 1992. CP&L's investment in this entity is approximately $2.2 million.
3. Utility Competitive Advantage Fund, LLC (11.1%),21 a Delaware
limited liability company, makes venture capital investments in companies that
assist utilities in retaining and building their customer base, improving cost
efficiencies, and/or generating new revenue opportunities. CP&L's investment in
this entity is approximately $8.1 million.
4. Utility Competitive Advantage Fund II, LLC (15.79%),22 a Delaware
limited liability company, makes venture capital investments in companies that
assist utilities in retaining and building their customer base, improving cost
efficiencies, and/or generating new revenue opportunities. CP&L's investment in
this entity is approximately $3.0 million.
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19 Rule 58(b)(1)(ii). See also General Public Utilities Corp., Holding Co.
Act Release No. 26230 (Feb. 8, 1995); and Exelon Corporation, supra n. 13
(authorizing retention of 24.4% interest in UTECH Climate Challenge Fund, L.P.).
20 Id.
21 Jurisdiction reserved.
22 Jurisdiction reserved.
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5. Carousel Capital Partners, LP (3.1%),23 a North Carolina limited
partnership in which CP&L holds a 3.1% limited partnership interest, focuses on
investments in established, strategically positioned, mid-sized companies
located in the Southeast. CP&L's investment in this entity is approximately $3.2
million.
6. South Atlantic Private Equity Fund IV, LP (8.9%),24 a Florida
limited partnership in which CP&L holds an 8.9% limited partnership interest,
provides equity funds to emerging growth companies in both technology and
non-technology related markets, with an emphasis on investments located in
Florida, the southeastern United States and Texas. CP&L's investment in this
entity is approximately $3.0 million.
7. NC Enterprise Fund, LP (5%),25 a North Carolina limited partnership
in which CP&L holds a 5% limited partnership interest, was established to assist
new business ventures in North Carolina by investing in start-ups who commit to
operating businesses that will provide employment opportunities in North
Carolina. NCNG also holds a .25% limited partnership interest in this entity.
CP&L's and NCNG's combined investment in this entity is approximately $1.4
million.
8. I-40 Enterprises, LLC (49%),26 a North Carolina limited liability
company in which CP&L holds a 49% interest, was organized to build and to sell
or lease an industrial building on Interstate 40 in New Hanover County, North
Carolina, which is in CP&L's service territory, for economic development
purposes. CP&L's investment in this entity is approximately $500,000.
9. Southeast Regional Park Development Company, LLC (33.33%),27 a
North Carolina limited liability company in which CP&L holds a 33.33% interest,
was organized to build and sell or lease an industrial building in Columbus
County, North Carolina, which is in CP&L's service territory, for economic
development purposes. CP&L's investment in this entity is approximately
$400,000.
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23 Jurisdiction reserved.
24 Jurisdiction reserved.
25 The Commission has authorized registered holding companies to retain
passive and/or de minimis interests in industrial and other nonutility
enterprises located in the service territory of the registered holding company
that were formed to promote local economic development by creating new job
opportunities, expanding the local tax base, attracting new industries, and
retaining existing industries. See WPL Holdings, supra n. 11 (retention of
54.55% interest in company organized to promote economic development in downtown
Cedar Rapids, Iowa); and Exelon Corporation, supra n. 13. The Commission has
also authorized registered holding companies to make such investments. See e.g.,
Union Electric Co, Holding Co. Act Release No. 14608 (Mar. 22, 1962). See also
Rule 40(a)(5), which permits such investments without approval, subject to
specified investment limitations. In addition, the Commission has approved
investments in limited partnerships formed to make venture capital investments
within the utility service area. See e.g., Georgia Power Company, Holding Co.
Act Release No. 25949 (Dec. 15, 1993) (limited partnership formed to provide
venture capital to high-technology companies with primary operations in the
State of Georgia), Hope Gas, Inc., Holding Co. Act Release No. 25739 (Jan. 26,
1993) (venture capital partnership designed to provide venture capital to local
businesses), and The Potomac Edison Co., Holding Co. Act Release No. 25312 (May
14, 1991) (for-profit, economic development corporation created to stimulate and
promote growth and retain jobs).
26 Id.
27 Id.
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10. Palmetto Seed Capital Challenge Fund LP (3.7%),28 a South Carolina
limited partnership in which CP&L holds a 3.7% limited partnership interest, was
established to assist new business ventures in South Carolina. CP&L's investment
in this entity is approximately $800,000.
11. Maxey Flats, LLC (3%), a Virginia limited liability company in
which CP&L holds a 3% interest, was organized to handle environmental clean up
at the Maxey Flats Superfund site in Fleming County, Kentucky. In the past, CP&L
has shipped low level nuclear waste to this site. The contributions by CP&L and
the other members to this entity are used for remediation of the site, to
satisfy obligations to perform the Initial Remediation Phase under the De
Maximus Consent Decree filed in the United States District Court for the Eastern
District of Kentucky (Civil Action No. 95-58).
12. Pantellos Corporation (1%),29 a Delaware corporation in which CP&L
holds an approximate 1% interest, is an ETC. The company was recently organized
to provide e-supply chain solutions to the electric utility, gas utility,
natural gas pipeline and other energy sectors, by providing an open environment
that enables participants to conduct supply chain activities and transactions
through its secure Internet-based eMarketplace.
E. Subsidiaries of NCNG
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1. Cape Fear 30 was previously engaged in purchasing natural gas for
resale to large industrial and commercial users and the municipalities served by
NCNG, as well as the business of providing energy management services.
2. Cardinal Investment is an intermediate nonutility holding company
whose sole asset is a 5% membership interest in Cardinal Pipeline Company, LLC
("Cardinal Pipeline"). 31 Cardinal Pipeline was formed to acquire an existing
intrastate pipeline in North Carolina and to extend it.
3. Pine Needle Investment is an intermediate nonutility holding
company whose sole asset is a 5% membership in Pine Needle LNG Company, LLC
("Pine Needle LNG").32 Pine Needle LNG owns and operates a liquefied natural
gas project in North Carolina.
4. NCNG Energy 33 previously held certain nonutility, energy-related
investments of NCNG that have been transferred to Cardinal Investment and Pine
Needle and sold natural gas to resellers.
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28 Id.
29 Section 34. Pantellos Corporation filed an application with the FCC
requesting a determination of ETC status, which was deemed granted following
expiration of the 60-day notice period.
30 Inactive.
31 New Century Energies, Inc., supra n. 5; SCANA Corporation, Holding Co.
Act Release No. 27133 (Feb. 9, 2000); and Xcel, supra n. 11.
32 Id.
33 Inactive.
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II. NONUTILITY BUSINESSES OF FLORIDA PROGRESS:
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Florida Progress Corporation ("Florida Progress," incorporated in Florida)
owns directly all of the voting securities of one public utility company,
Florida Power Corporation ("Florida Power"), and three nonutility subsidiaries:
Progress Capital Holdings, Inc.; FPC Del, Inc.; and Florida Progress Funding
Corporation.
Florida Power directly provides transmission and distribution facilities
construction services and outage maintenance services to unaffiliated utilities
and construction services for relay towers for mobile phones utilizing personnel
and facilities required for public utility operations.
Progress Capital serves as the holding company for substantially all of
Florida Progress's nonutility operations. Its principal subsidiary is Electric
Fuels Corporation ("Electric Fuels"), an energy and transportation company with
operations organized into three primary business units: energy and related
services; inland marine transportation; and rail services. The energy and
related services business unit of Electric Fuels mines and sells coal to Florida
Power for use at its Crystal River generating plant and to other utility and
industrial customers. This business unit also produces and sells natural gas and
synthetic fuel, and provides marine terminal services and offshore marine
transportation. The inland marine transportation business unit transports coal
and dry-bulk cargoes using a fleet of river barges and tow boats. The rail
services business unit, conducted primarily through Progress Rail Services
Corporation, is one of the largest integrated processors and suppliers of
railroad materials in North America.
Other subsidiaries of Progress Capital are engaged in the wholesale
telecommunications business and the insurance business. Progress
Telecommunications Corporation sells wholesale fiber optic based capacity in
Florida to long-distance carriers, Internet service providers and other
telecommunications companies, as well as to large industrial, commercial and
governmental entities. Progress Capital also holds all of the outstanding voting
securities of Mid-Continent Life Insurance Company, a life insurance company
that was placed in receivership in the spring of 1997 based on assertions that
its policy reserves were understated.
Set forth below is a description of each of the nonutility activities of
Florida Progress's direct and indirect subsidiaries, along with a citation of
authority that justifies retention of the activity, where applicable.
A. Direct Nonutility Activities of Florida Power
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1. Construction of Transmission and Distribution Facilities: Florida
Power provides transmission and distribution construction services to
unaffiliated utilities. Florida Power provides and will continue to provide
these services after the merger using personnel and other resources that are
required for public utility operations.34
2. Outage Maintenance Services: Florida Power provides outage
maintenance services to unaffiliated utilities. Florida Power provides and will
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34 Indiana & Michigan Electric and Ohio Power, supra n. 1. Also, Rule
58(b)(1)(vii).
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continue to provide these services after the merger using personnel and other
resources of Florida Power that are required for public utility operations.35
3. Construction of Relay Towers for Mobile Phones: Florida Power
provides construction services to unaffiliated third parties for communications
relay towers. Florida Power provides and will continue to provide these services
after the merger using personnel and other resources of Florida Power that are
required for public utility operations.36
B. Direct Nonutility Subsidiaries of Florida Progress
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1. Progress Capital Holdings, Inc.37 is the holding company for
substantially all of Florida Progress's nonutility subsidiary companies.
2. FPC Del, Inc., a Delaware corporation, generates tax savings by
temporarily holding accounts receivable for Florida Power Corporation and
Progress Rail Services Corporation.38
3. Florida Progress Funding Corporation 39 is a special-purpose
financing entity organized in early 1999 to facilitate a trust preferred stock
financing transaction. It owns FPC Capital I, a Delaware business trust,40 and
FPC Capital II, which is currently inactive.
C. Subsidiaries of Progress Capital
--------------------------------
1. Mid-Continent Life Insurance Company,41 an Oklahoma corporation,
provides life insurance services in numerous states. Florida Progress is in the
process of divesting this company.
2. PIH, Inc.42 is an intermediate holding company for passive
investments in affordable housing projects that qualify for income tax credits
under Section 42 of the Code.
3. Progress Reinsurance Company, Ltd.,43 a British West Indies
Corporation, is a captive insurance company.
------------------------
35 Id.
36 Id.
37 See New Century Energies, supra. n. 8.
38 See Central and South West Corporation, Holding Co Act Release No. 23578
(Jan. 22, 1985).
39 The Southern Company, Holding Co. Act Release No. 27134 (Feb. 9, 2000);
New Century Energies, Inc., supra n. 5 (SEC approved a special purpose
subsidiary of trust that was formed for the purpose of facilitating a financing
transaction); and Exelon Corporation, supra n. 13 (authorizing retention of
several existing special-purpose financing entities).
40 Id.
41 Proposed divestiture.
42 See New Century Energies, supra n. 8.
43 Conectiv, Holding Co. Act Release No. 27135 (Feb. 10, 2000); GPU, Inc.,
Holding Co. Act Release No. 27196 (July 6, 2000).
11
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4. Progress Telecommunications Corporation,44 a Florida corporation,
is an ETC under Section 34 of the Act.
5. Progress Energy Corporation 45 is a Florida corporation that was
formed to develop independent and cogeneration power projects and is currently
inactive. The corporation's sole investment is an indirect interest in the Black
River Limited Partnership, a Delaware limited partnership.
(a) PEC Fort Drum, Inc.46 is an intermediate holding company that
owns interests in: Westmoreland-Ft. Drum, L.P.47 and Westpower-Ft. Drum,
L.L.P.,48 both intermediate holding companies that own interests in Black River
Limited Partnership, a Delaware limited partnership that operates an EWG.49
(b) Progress Desal, Inc.50 is a Florida corporation that proposed
to develop and operate a desalinization facility that would supply potable water
for the Tampa Bay area but is now inactive since its proposal was not accepted.
(c) Progress Power Marketing, Inc,51 a Florida corporation that
is currently inactive.
6. Progress Holdings, Inc.52 is a Florida corporation that is an ETC.
It owns Cadence Network, Inc., a Delaware corporation that is also an ETC.53
7. Progress Provisional Holdings, Inc.54 leases an apartment that is
used for temporary lodging by senior management of Florida Progress and its
subsidiaries in connection with company business in order to minimize lodging
expenses.
8. Electric Fuels Corporation,55 a Florida corporation, is an energy
and transportation company with operations organized into three primary business
units: energy and related services; inland marine transportation; and rail
services. Electric Fuels engages directly in fuel procurement and owns railcars
and locomotives that are used for coal transportation. Electric Fuels also owns
------------------------
44 Section 34. Progress Telecommunications filed an application with the
FCC requesting a determination of ETC status, which was deemed granted following
expiration of the 60-day notice period.
45 Inactive.
46 See New Century Energies, supra n. 8.
47 Id.
48 Id.
49 See Black River Limited Partnership, 91 FERCP. 62,038 (Apr. 18, 2000).
50 Inactive.
51 Inactive.
52 Section 34. Progress Holdings filed an application with the FCC
requesting a determination of ETC status, which was deemed granted following
expiration of the 60-day notice period.
53 Section 34. Cadence Network filed an application with the FCC requesting
a determination of ETC status, which was deemed granted following expiration of
the 60-day notice period.
54 UNITIL Corp, Holding Co. Act Release No. 25524 (April 24, 1992); WPL
Holdings, Inc., supra n. 11; Xcel, supra n. 11.
55 Rule 58(b)(1)(ix).
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a number of subsidiaries, which are described below. Electric Fuels was formed
for the purpose of being an efficient coal purchasing arm of Florida Power that
would provide Florida Power's Crystal River generating plant with all of its
coal needs. As part of Electric Fuels' corporate plan to develop two modes of
transporting coal to the Crystal River plant (rail and barge), additional coal
mining operations, terminals, rail repair and transportation companies were
acquired. Electric Fuels' energy and transportation subsidiaries have operations
in numerous states, Canada and Mexico. The Commission is requested to reserve
jurisdiction over CP&L Energy's retention of certain specified subsidiaries of
Electric Fuels Corporation (as indicated in the footnotes hereto) for a period
of three years following the Share Exchange and CP&L Energy's registration under
the Act.
D. Nonutility Subsidiaries of Electric Fuels Corporation
-----------------------------------------------------
1. Awayland Coal Company, Inc. and Homeland Coal Company Inc., both
wholly owned by Electric Fuels, mine coal in Kentucky and Virginia through their
partnership in Powell Mountain Joint Venture.56
2. Dixie Fuels Limited,57 a Texas partnership, was formed to operate an
ocean-going barge system for the transportation of coal from the New Orleans
area to Florida Power's Crystal River plant and other bulk commodities. Dixie
Fuels also backhauls limestone from a quarry at Crystal River to a cement plant
near Mobile, Alabama, owned by a third party. Electric Fuels owns a 65 percent
interest in the partnership, and the remaining interest is held by an unrelated
company.
3. Dixie Fuels II, Limited 58 is an inactive Texas partnership that
formerly owned and operated one tug/barge unit used primarily for hauling bulk
cargo for unaffiliated companies. The vessel has been sold and the partnership
is in the process of being liquidated. Electric Fuels owns a 50 percent
partnership interest.
4. EFC Synfuel L.L.C.59 is an intermediate holding company of
interests in the following synthetic fuel plant entities which own secondary
coal recovery system facilities: Ceredo Synfuel L.L.C.; Sandy River Synfuel
L.L.C.; Solid Energy L.L.C.; and Solid Fuel L.L.C.60
5. Kentucky May Coal Company, Inc.,61 a Virginia corporation, owns
coal mines and leases coal reserves in Kentucky. Kentucky May was purchased by
Electric Fuels in 1985 in order to position Electric Fuels strategically in the
coal market to mine coal competitively. Electric Fuels, through Kentucky May
Coal Company, Inc. owns the following companies:
(a) Diamond May Coal Company 62 is a Kentucky corporation that
operates coal facilities and mines coal in Kentucky.
------------------------
56 Jurisdiction reserved.
57 Jurisdiction reserved.
58 Jurisdiction reserved.
59 See New Century Energies, supra n. 8.
60 Rule 58(b)(1)(vi); also Rule 58(b)(1)(x).
61 Jurisdiction reserved.
62 Jurisdiction reserved.
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(1) Diamond May Mining Company 63 is a Florida Corporation that
mines coal in Kentucky.
(b) Cincinnati Bulk Terminals, Inc.64 is a Delaware corporation
that serves as a transloading and distribution point for coal and other bulk
materials in the greater Cincinnati, Ohio area.
(1) Kanawha River Terminals, Inc.65 is a Florida corporation
that sells and terminals coal and other bulk materials in West Virginia and
Kentucky. It is also an intermediate holding company with interests in the
following synthetic fuel plant entities: Colona Sub No. 2, L.L.C. and Colona
Newco, L.L.C., both partners in Colona Synfuel Limited Partnership, L.L.L.P.,
which sells and produces solid synthetic fuel; Black Hawk Synfuel L.L.C. has an
ownership interest in New River Synfuel L.L.C., which produces synthetic fuel
and markets various services; Coal Recovery V, L.L.C. a Missouri corporation
that conducts research and develops synthetic fuel; and Ceredo Liquid Terminal,
Inc. a Florida corporation that operates a terminal for the storage, production
and processing of an emulsion product that is the chemical change agent used
with coal fines to produce the synthetic fuel.66
(2) Marigold Dock, Inc.,67 an Alabama corporation, owns a coal
loading facility in Kentucky
(c) Kentucky May Mining Company 68 is a Florida corporation that
mines coal in Kentucky.
6. Murphy Land Company, Inc., a Virginia corporation owns a 20 percent
partnership interest in Dulcimer Land Company.69 Dulcimer Land Company leases
33,000 acres of coal-producing land in Kentucky and Virginia from the Little
Black Mountain Land Company 70 and subleases the land to Powell Mountain Joint
Venture. It also manages coal reserves in Kentucky and Virginia.
7. Little Black Mountain Coal Reserves, Inc.,71 a Kentucky
corporation, owns an 80 percent partnership interest in Dulcimer Land Company.
8. MEMCO Barge Line, Inc. ("MEMCO"),72 a Delaware corporation, is
Electric Fuels' inland marine transportation unit. It hauls coal, petroleum
coke, synthetic coal fuel, wood chips, limestone, steel products, lime, salt,
fertilizer, grain and grain products and other bulk commodities. MEMCO operates
------------------------
63 Jurisdiction reserved.
64 Jurisdiction reserved.
65 Jurisdiction reserved.
66 Rule 58(b)(1)(vi).
67 Jurisdiction reserved.
68 Jurisdiction reserved.
69 Jurisdiction reserved.
70 Jurisdiction reserved.
71 Jurisdiction reserved.
72 Jurisdiction reserved.
14
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primarily on the Illinois, Ohio and Mississippi rivers and the Gulf Intracoastal
Canal. The following are subsidiaries of MEMCO:
(a) Elmwood Marine Services, Inc,73 a Louisiana corporation,
engages in the fleeting, washing and repair of barges in Louisiana and maintains
a 33-1/3 percent ownership interest in International Marine Terminals
Partnership.
(1) Conlease, Inc.74 is a Louisiana corporation that owns
batture leases in Louisiana. (Batture is the right to use a river bank area to
fleet barges).
(2) International Marine Terminals Partnership ("IMT")75 was
formed to develop and operate a bulk commodities terminal facility on the
Mississippi River south of New Orleans. IMT transloads coal from barges to Dixie
Fuels vessels. It also stores and blends coal destined for Crystal River. IMT
also is the receiving point for import coal destined for Crystal River, since
the Crystal River channel is too shallow to handle import ships directly. IMT's
subsidiary I.M.T. Land Corp.76 owns terminal land in Louisiana that it leases
to IMT.
9. Mesa Hydrocarbons, Inc.77 is a Florida corporation that owns
natural gas reserves and operates wells in Colorado and sells natural gas.
10. Powell Mountain, Inc. is a holding company that owns interests in
the following coal mining companies: Powell Mountain Coal Company, Inc. and
PMCC, Inc., both Virginia corporations.78
11. Progress Land Corporation,79 a Florida corporation, owns and
manages coal reserves in Kentucky.
12. Progress Materials, Inc.,80 a Florida corporation, commercializes
and manufactures ash management technologies. Progress Materials owns the carbon
burnout technology which combusts the excess carbon in fly ash, recovers the
heat and generates useable fly ash for the cement industry.
13. Progress Metal Reclamation Company,81 a Kentucky corporation has a
railcar scrapping and general metal recycling facility in Kentucky. It also has
an ownership interest in West Virginia Auto Shredding, a West Virginia
corporation.82
------------------------
73 Jurisdiction reserved.
74 Jurisdiction reserved.
75 Jurisdiction reserved.
76 Jurisdiction reserved.
77 See WPL Holdings, supra n. 11 (authorizing retention of Whiting
Petroleum Corporation, an oil and gas exploration and production subsidiary).
78 Jurisdiction reserved.
79 Jurisdiction reserved.
80 Rule 58(b)(1)(x).
81 Jurisdiction reserved.
82 Jurisdiction reserved.
15
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14. Progress Rail Services Corporation ("Progress Rail")83 is an
Alabama corporation that provides rail and track material, new and reconditioned
car parts, car repair and car leasing services in the United States, Mexico and
Canada. It has ownership interests in the following companies:
(a) Chemetron-Railway Products, Inc.84 is a Delaware corporation
that sells and leases rail welding and handling equipment and provides rail
welding services throughout the United States and in Canada.
(b) FM Industries, Inc.85 is a Texas corporation that
manufactures original railcar parts in Texas.
(c) Kentuckiana Railcar Repair and Storage Facility, L.L.C.86 is
an Indiana limited liability company that operates a railcar repair facility in
Indiana.
(d) PRS International Sales Company, Inc.,87 a Virgin Islands
corporation, is a foreign sales corporation agent for Progress Rail.
(e) Progress Rail Services de Mexico, S.A. de C.V. 88 is a
Mexican company that markets, leases and sells railcars and railcar parts in
Mexico.
(f) Progress Rail Canada Corporation 89 is a Canadian company that
supplies rail and railcar parts and maintenance-of-way equipment. It also
repairs and leases railcars and locomotives.
(g) Progress Rail Holdings, Inc.90 is an Alabama intermediate
holding company. It owns Progress Rail Transcanada Corporation,91 a Nova Scotia
company that owns and operates a facility that repairs, manufactures and
supplies railway equipment.
(h) Progress Vanguard Corporation 92 is a Delaware corporation
that repairs and leases railcar and supplies new and reconditioned rail and new
and reconditioned railcar parts and maintenance-of-way equipment in several
states.
(i) Railcar, Ltd. 93 is a Georgia corporation that leases and
sells railcars and manages railcar rolling stock. It has an ownership interest
in Servicios Administrativos Progress, S. de R.L. de C.V., a Mexican limited
------------------------
83 Jurisdiction reserved.
84 Jurisdiction reserved.
85 Jurisdiction reserved.
86 Jurisdiction reserved.
87 Jurisdiction reserved.
88 Jurisdiction reserved.
89 Jurisdiction reserved.
90 Jurisdiction reserved.
91 Jurisdiction reserved.
92 Jurisdiction reserved.
93 Jurisdiction reserved.
16
<PAGE>
liability company that provides personnel and administrative services for
Servicios Ferroviarios Progress S. de R.L. de C.V., a Mexican holding and
operating limited liability company that performs railcar repair services in
Mexico in which Railcar, Ltd. also has an ownership interest.94
(j) Southern Machine and Tool Company 95 is a Georgia corporation
that operates a design and fabrication machine shop in Georgia.
(k) United Industries, Inc.96 is a Kentucky corporation that
operates a railcar repair facility in Kentucky.
(l) DAPCO Rail Services, L.L.C. 97 is an Alabama limited liability
company that engages in ultrasonic scanning, inspecting and testing of railway
rails.
15. Progress Synfuel Holdings, Inc. 98 is a Delaware intermediate
holding company with interests in the following synthetic fuel plant entities
that own secondary coal recovery system facilities:99 Ceredo Synfuel L.L.C.;
Sandy River Synfuel L.L.C.; Solid Energy L.L.C.; and Solid Fuel L.L.C.100
E. Other Passive Investments of Florida Progress
---------------------------------------------
1. Tampa Bay Devil Rays, Ltd. Florida Progress invested $5 million for
a limited partnership interest in the Tampa Bay Devil Rays, Ltd. ("Devil Rays"),
a Florida limited partnership that in 1995 acquired a Major League Baseball
franchise to play scheduled home baseball games at Tropicana Field in St.
Petersburg, Florida. Florida Progress's rights as a class B limited partner are
minimal, consisting primarily of rights relating to distributions in its capital
account.101
2. PIH, Inc. holds interests in affordable housing projects that
qualify for income tax credits under Section 42 of the Code through the
following entities: American Tax Credit Corporate Fund III, L.P., Boston Capital
Corporate Tax Credit Fund VII, Boston Capital Corporate Tax Credit Fund, VIII;
KeyCorp Investment Limited Partnership II, Lehman Housing Tax Credit Fund, L.P.,
McDonald Corporate Tax Credit Fund 1996 Limited Partnership; and National
Corporate Tax Credit Fund VI. Each of these funds holds a geographically
diversified portfolio of properties in the United States. Florida Progress has
no involvement, directly or through any affiliate, in the development or
management of the properties but is solely a passive investor. Each investment
is "self-liquidating," i.e., the assets wind down as the tax credits expire.
------------------------
94 Jurisdiction reserved.
95 Jurisdiction reserved.
96 Jurisdiction reserved.
97 Jurisdiction reserved.
98 See New Century Energies, supra n. 8.
99 Rule 58(b)(1)(vi).
100 Rule 58(b)(1)(vi).
101 Proposed divestiture.
17
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Florida Progress's total investment in these entities as of June 30, 2000 is
approximately $49.5 million.102
3. Progress-Centrus, Inc. is inactive.
4. Energy Solutions, Inc. marketed Centrus L.L.P.'s telecommunications
products. This company is inactive during Centrus L.L.P.'s dissolution.
------------------------
102 See Exelon Corp., supra n. 13.
18
