(As filed with the Securities and Exchange Commission April 14, 2000)
File No. 70-[____]
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 Energy, Inc.
Carolina Power & Light Company
North Carolina Natural Gas Corporation
Strategic Resource Solutions Corp.
411 Fayetteville Street Mall
Raleigh, North Carolina 27601
Florida Progress Corporation
Progress Capital Holdings, Inc.
Florida Progress Funding Corporation
FPC Del, Inc.
One Progress Plaza
St. Petersburg, Florida 33701
(Names of companies filing this statement and addresses of
principal executive offices)
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CP&L Energy, Inc.1
(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 Mall
Raleigh, North Carolina 27601
(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., Esq
Director, Legal Department Thelen Reid & Priest LLP
Carolina Power & Light Company 40 W. 57th Street, 25th Floor
411 Fayetteville Street Mall New York, New York 10019
Raleigh, North Carolina 27601
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1 CP&L Energy, Inc. will register upon completing its acquisition of Florida
Progress Corporation.
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TABLE OF CONTENTS
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION ............................. 1
1.1. INTRODUCTION .............................................. 1
1.2. DESCRIPTION OF CP&L ENERGY AND ITS SUBSIDIARIES ........... 1
1.3. CAPITAL STRUCTURE OF CP&L ENERGY .......................... 2
1.4. SUMMARY OF REQUESTED APPROVALS ............................ 3
1.5 USE OF PROCEEDS ........................................... 5
1.6 DESCRIPTION OF PROPOSED FINANCING PROGRAM ................. 6
1.6.1. Continuation, Extension, or Renewal of
Acquisition Debt ............................... 6
1.6.2. CP&L Holdings External Financing after the Share
Exchange ....................................... 6
1.6.3. Utility Subsidiary Financing ..................... 10
1.6.4 Non-Utility Subsidiary Financing ................. 11
1.7 GUARANTEES ................................................ 12
1.7.1. CP&L Energy Guarantees ........................... 12
1.7.2. Non-Utility Subsidiary Guarantees ................ 12
1.7.3 Guarantees Issued by Florida Progress ............ 12
1.8 HEDGING TRANSACTIONS ...................................... 14
1.8.1 Interest Rate Hedges ............................. 14
1.8.2 Anticipatory Hedges .............................. 14
1.9 MONEY POOLS ............................................... 15
1.9.1. Utility-Money Pool ............................... 15
1.9.2. Non-Utility Money Pool ........................... 17
1.9.3. Other Contributions to Money Pool ................ 17
1.9.4. Operation of the Money Pools and Administrative
Matters ........................................ 18
1.9.5. Use of Proceeds .................................. 18
1.10 CHANGES IN CAPITAL STOCK OF SUBSIDIARIES .................. 18
1.11 FINANCING SUBSIDIARIES .................................... 19
1.12 INTERMEDIATE SUBSIDIARIES ................................. 19
1.13 INVESTMENTS IN ENERGY-RELATED ASSETS ...................... 21
1.14 SALES OF SERVICES AND GOODS AMONG NON-UTILITY SUBSIDIARIES. 22
1.15 ACTIVITIES OF RULE 58 SUBSIDIARIES OUTSIDE THE
UNITED STATES ........................................... 23
1.16 PAYMENT OF DIVIDENDS OUT OF CAPITAL AND UNEARNED SURPLUS .. 25
1.16.1. Payment of Dividends by CP&L Energy .............. 25
1.16.2. Payment of Dividends by NCNG ..................... 27
1.16.3. Payment of Dividends by Non-Utility Subsidiaries.. 28
1.17 TAX ALLOCATION AGREEMENT .................................. 29
1.18 CERTIFICATES OF NOTIFICATION .............................. 30
ITEM 2. FEES, COMMISSIONS AND EXPENSES .................................. 31
ITEM 3. APPLICABLE STATUTORY PROVISIONS ................................. 31
3.1 GENERAL ................................................... 32
3.2 COMPLIANCE WITH RULES 53 AND 54 ........................... 32
ITEM 4. REGULATORY APPROVAL ............................................. 33
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ITEM 5. PROCEDURE ....................................................... 33
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS ............................... 33
A. EXHIBITS .................................................. 33
B. FINANCIAL STATEMENTS ...................................... 34
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS ......................... 35
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ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION
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1.1 INTRODUCTION. CP&L Energy, Inc. ("CP&L Energy"), a North Carolina
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corporation, is currently a wholly owned subsidiary of Carolina Power & Light
Company ("CP&L"). In a separate proceeding,2 CP&L Energy has filed an
Application/Declaration on Form U-1 (the "Merger Application") pursuant to
Sections 9 and 10 and other applicable provisions of the Act in which it is
seeking approval to acquire all of the issued and outstanding common stock of
Florida Progress Corporation ("Florida Progress"), a Florida corporation and an
exempt holding company pursuant to Section 3(a)(1) of the Act and Rule 2
thereunder.3 CP&L Energy is proposing in the Merger Application to acquire the
common stock of Florida Progress for a combination of cash and CP&L Energy
common stock in a taxable share exchange transaction (the "Share Exchange"). In
addition, Florida Progress shareholders will receive one contingent value
obligation for each share of Florida Progress common stock that they hold, which
will entitle them to a pro rata portion of certain contingent payments that may
be made based on the net after-tax cash flow to CP&L Energy generated by four
synthetic fuel plants owned by subsidiaries of Florida Progress. Upon
consummation of the Share Exchange, CP&L Energy intends to register as a holding
company pursuant to Section 5 of the Act.
This Application/Declaration seeks authorization and approval of the
Commission with respect to the ongoing financing activities of CP&L Energy and
its subsidiaries, intrasystem extensions of credit, the creation of specified
types of new subsidiaries, the payment of dividends out of capital and unearned
surplus and other related matters pertaining to CP&L Energy and its subsidiaries
following the Share Exchange.
1.2 DESCRIPTION OF CP&L ENERGY AND ITS SUBSIDIARIES. Upon completion
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of the Share Exchange, CP&L Energy will own, directly or indirectly, all of the
issued and outstanding common stock of three public utility subsidiary
companies, namely, CP&L, a North Carolina corporation which generates,
transmits, purchases and sells electricity in parts of North Carolina and South
Carolina; Florida Power Corporation ("Florida Power"), a Florida corporation
which generates, transmits, purchases and sells electricity in west central
Florida; and North Carolina Natural Gas Corporation ("NCNG"), a Delaware
corporation which distributes gas at retail in parts of eastern and south
central North Carolina (collectively, CP&L, Florida Power and NCNG are referred
to as the "Utility Subsidiaries"). Together, the Utility Subsidiaries provide
electric service to approximately 2.6 million wholesale and retail electric
customers in parts of three states and natural gas or gas transportation service
to approximately 115,000 residential, commercial, agricultural and industrial
customers, all in North Carolina.
Following the Share Exchange, CP&L Energy will hold, directly or
indirectly, all of the outstanding equity securities of CP&L Services Company
("CP&L Services"), a service company subsidiary formed to provide the Utility
Subsidiaries and other companies in the CP&L Energy system certain management
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2 See File No. 70-9643.
3 CP&L Energy will become a holding company over CP&L upon receipt of the
Commission's order in File No. 70-9559. See Holding Co. Act Release No. 27108
(Dec. 3, 1999) (notice of filing of application). CP&L Energy intends to claim
an exemption pursuant to Section 3(a)(1) of the Act and Rule 2 thereunder after
it becomes a holding company, which exemption it will maintain until it
completes its acquisition of Florida Progress.
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and administrative services, and CP&L's current non-utility subsidiaries, which
include Monroe Power Company, an "exempt wholesale generator" ("EWG") within the
meaning of Section 32 of the Act; Strategic Resource Solutions Corp., 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,
designs and manufactures advanced cogeneration energy systems for efficient
on-location power generation, and designs, engineers, installs and maintains
building automation systems that control heating, ventilation, air conditioning
(HVAC) and lighting; and Interpath Communications, Inc. ("Interpath"), a
telecommunications company primarily engaged in providing Internet-based
services and marketing of fiber optic capacity to telecommunications carriers.4
Florida Progress will also be maintained as a direct wholly owned
subsidiary of CP&L Energy after the Share Exchange. Florida Progress will
continue to hold all of the common stock of Florida Power, Progress Capital
Holdings, Inc. ("Progress Capital"), which serves as the holding company for
most of Florida Progress's non-utility operations, FPC Del, Inc., which was
formed to hold accounts receivable for certain of its associate companies, and
Florida Progress Funding Corporation ("Progress Funding"), a special purpose
entity that was formed in early 1999 to facilitate a quarterly income preferred
securities ("QUIPs") financing transaction.
A more complete description of CP&L Energy and Florida Progress and
their respective subsidiaries is contained in the Merger Application, to which
reference is made.
As used in this Application/Declaration, the term "Non-Utility
Subsidiaries" means each of the direct and indirect non-utility subsidiaries of
CP&L Energy as of the effective date of the Share Exchange. The term
"Non-Utility Subsidiaries" also includes any direct or indirect non-utility
subsidiary acquired or formed by CP&L Energy after the effective date of the
Share Exchange in a transaction that has been approved by the Commission in this
proceeding (see specifically Items 1.11 and 1.12) or in a separate proceeding,
or in a transaction that is exempt under the Act (specifically, Sections 32, 33
and 34) or the rules thereunder (including, specifically, Rule 58). The term
"Subsidiaries" means the Utility Subsidiaries and the Non-Utility Subsidiaries.
CP&L Energy and the Subsidiaries are sometimes hereinafter collectively referred
to as the "CP&L Energy System" or as the "Applicants."
1.3 CAPITAL STRUCTURE OF CP&L ENERGY. CP&L Energy is authorized under
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its Amended and Restated Articles of Incorporation (see Exhibit A-1 hereto) to
issue 500,000,000 shares of common stock, without par value ("Common Stock") and
20,000,000 shares of preferred stock, no par value, which may be designated in
one or more series ("Preferred Stock"). Immediately following the Share
Exchange, CP&L Energy expects that it will have issued and outstanding
approximately 210 million shares of Common Stock.5 CP&L Energy has not issued
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4 It is contemplated that Interpath will be certified as an "exempt
telecommunications company" ("ETC") pursuant to Section 34 of the Act prior to
the Share Exchange.
5 CP&L Energy expects to issue approximately 160 million shares of Common
Stock to the current shareholders of CP&L to complete the reorganization of CP&L
into a holding company structure (see n. 3, supra), and approximately 50 million
shares to the shareholders of Florida Progress in the Share Exchange.
2
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any Preferred Stock and will not issue any Preferred Stock in the Share
Exchange. The cash portion of the consideration to be paid in the Share
Exchange, which is currently estimated at approximately $3.5 billion, and other
expenses associated with the Share Exchange, will be financed by unsecured bank
borrowings or unsecured borrowings from other institutional lenders under credit
lines totaling $3.75 billion (the "Acquisition Debt"). The terms and conditions
of the Acquisition Debt have not been fully negotiated as of the time of this
filing. However, it is expected that the Acquisition Debt will have maturities
of up to 3 years. Immediately after the Share Exchange, common equity as a
percentage of the pro forma consolidated capitalization as of September 30,
1999, of CP&L Energy and its subsidiaries will be approximately 36.2%.
1.4 SUMMARY OF REQUESTED APPROVALS. The Applicants request approval
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for a program of external financing, credit support arrangements, and other
related proposals following CP&L Energy's registration under the Act for the
period through September 30, 2003 ("Authorization Period"),6 as follows:
(i) CP&L Energy requests authorization to maintain the credit
arrangements under which the Acquisition Debt will be issued,
including any extensions or renewals thereof, for a period of
up to three years following the Share Exchange.
(ii) CP&L Energy requests authority to issue and sell from time to
time Common Stock, Preferred Stock or other forms of preferred
securities (collectively, "Preferred Securities") and
unsecured long-term indebtedness having maturities of up to 50
years ("Debentures") in an aggregate amount not to exceed $3.8
billion, and unsecured short-term indebtedness having
maturities of one year or less ("Short-term Debt") in an
aggregate principal amount at any time outstanding not to
exceed $1 billion, provided that the aggregate principal
amount of all indebtedness of CP&L Energy at any time
outstanding (including, specifically, Acquisition Debt,
Debentures and Short-term Debt) shall not exceed $5.0 billion
(the "CP&L Energy Debt Limit").
(iii) CP&L and NCNG request authority to issue and sell from time to
time during the Authorization Period debt and equity
securities which are not exempt pursuant to Rule 52(a), as
follows: (A) CP&L requests authority to issue and reissue from
time to time notes evidencing up to $1 billion aggregate
principal amount of indebtedness outstanding at any time with
maturities of two years or less; and (B) NCNG requests
authority to issue and sell from time to time short-term debt,
long-term debt having maturities of up to 50 years, and trust
preferred securities in an aggregate amount at any one time
outstanding not to exceed $750 million.
(iv) To the extent that such transactions are not exempt under Rule
52(b), the Non-Utility Subsidiaries request authority to issue
and sell from time to time during the Authorization Period
debt and equity securities in order to finance their
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6 The Applicants request, however, that the proposed dividend relief
requested in Item 1.16.1 and 1.16.2, below, be granted for the duration of the
goodwill amortization period described therein.
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operations and future non-utility investments, provided that
such future investments are exempt under the Act or rules
thereunder or have been authorized in a separate proceeding.
(v) CP&L Energy requests authority to provide guarantees and other
forms of credit support ("CP&L Energy Guarantees") on behalf
or for the benefit of its Subsidiaries in an aggregate
principal or nominal amount not to exceed $750 million at any
one time outstanding.
(vi) Non-Utility Subsidiaries request authority to provide
guarantees and other forms of credit support ("Non-Utility
Subsidiary Guarantees") on behalf or for the benefit of other
Non-Utility Subsidiaries in an aggregate principal or nominal
amount not to exceed $500 million at any one time outstanding,
exclusive of any guarantees that are exempt pursuant to Rule
45(b) and Rule 52.
(vii) CP&L Energy and, to the extent not exempt under Rule 52, the
Subsidiaries request authority to enter into hedging
transactions ("Interest Rate Hedges") with respect to existing
indebtedness of such companies in order to manage and minimize
interest rate costs. Such companies also request authority to
enter into hedging transactions ("Anticipatory Hedges") with
respect to anticipatory debt issuances in order to lock-in
current interest rates and/or manage interest rate risk
exposure.
(viii) Florida Progress and its non-utility subsidiaries request
authorization to maintain in effect all guarantees and other
forms of credit support outstanding on the date of the Share
Exchange relating to credit facilities and other financing
arrangements of Progress Capital and Progress Funding and to
other existing obligations of Florida Progress's non-utility
subsidiaries, and to amend, renew, extend or replace any such
guarantees during the Authorization Period.
(ix) CP&L Energy proposes to establish and fund separate system
money pool agreements for the Utility Subsidiaries ("Utility
Money Pool") and certain of the Non-Utility Subsidiaries
("Non-Utility Money Pool").
(x) CP&L Energy, on behalf of the Subsidiaries, requests
authorization to change the terms of any wholly owned
Subsidiary's authorized capital stock capitalization.
(xi) CP&L Energy and the Subsidiaries request authority to acquire
the equity securities of one or more special-purpose
subsidiaries ("Financing Subsidiaries") organized solely to
facilitate a financing and to guarantee the securities issued
by such Financing Subsidiaries, to the extent not exempt
pursuant to Rule 45(b) and Rule 52.
(xii) CP&L Energy requests authority to acquire, directly or
indirectly, the equity securities of one or more intermediate
subsidiaries ("Intermediate Subsidiaries") organized
exclusively for the purpose of acquiring, financing, and
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holding the securities of one or more existing or future
Non-Utility Subsidiaries, including but not limited to EWGs,
exempt "foreign utility companies" ("FUCOs"), companies
engaged or formed to engage in activities permitted by Rule 58
("Rule 58 Subsidiaries"), or ETCs, provided that Intermediate
Subsidiaries may also provide management, administrative,
project development, and operating services to such entities.
(xiii) Non-Utility Subsidiaries request authority to invest up to
$500 million in certain types of non-utility energy-related
assets ("Energy-Related Assets") that are incidental to energy
marketing activities of such companies, or the capital stock
of companies substantially all of whose physical assets
consist of such Energy-Related Assets.
(xiv) As permitted by Rule 87(b)(1), Non-Utility Subsidiaries may
from time to time provide services and sell goods to each
other. To the extent not exempt pursuant to Rule 90(d), such
companies request authority to perform such services and to
sell such goods to each other at fair market prices, without
regard to "cost," as determined in accordance with Rules 90
and 91, subject to certain limitations that are noted below.
(xv) CP&L Energy requests authority on behalf of any current and
future Rule 58 Subsidiaries to engage in certain categories of
activities permitted thereunder both within and outside the
United States, subject to certain limitations.
(xvi) CP&L Energy and NCNG request authority to pay dividends out of
capital and unearned surplus, subject to certain proposed
limitations. Non-Utility Subsidiaries request authority to pay
dividends out of capital and unearned surplus to the extent
permitted under applicable law and the terms of any credit
arrangements to which they may be parties.
(xvii) CP&L Energy requests approval for an agreement among CP&L
Energy and its Subsidiaries to allocate consolidated income
tax liabilities.
1.5 USE OF PROCEEDS. The proceeds from the financings authorized by
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the Commission pursuant to this Application/Declaration will be used for general
corporate purposes, including (i) financing, in part, investments by and capital
expenditures of CP&L Energy and its Subsidiaries, including, without limitation,
the funding of future investments in EWGs, FUCOs, and Rule 58 Subsidiaries, (ii)
the repayment, redemption, refunding or purchase by CP&L Energy or any
Subsidiary of any of its own securities pursuant to Rule 42, and (iii) financing
working capital requirements of CP&L Energy and its Subsidiaries.
The Applicants represent that no financing proceeds will be used to
acquire the equity securities of any company unless such acquisition has been
approved by the Commission in this proceeding or in a separate proceeding or in
accordance with an available exemption under the Act or rules thereunder,
including Sections 32 and 33 and Rule 58. CP&L Energy states that the aggregate
amount of proceeds of financing and CP&L Energy Guarantees approved by the
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Commission in this proceeding which are used to fund investments in EWGs and
FUCOs will not, when added to CP&L Energy's "aggregate investment" (as defined
in Rule 53) in all such entities at any point in time, exceed 50% of CP&L
Energy's "consolidated retained earnings" (also as defined in Rule 53). Further,
CP&L Energy represents that proceeds of financing and CP&L Energy Guarantees and
Non-Utility Guarantees utilized to fund investments in Rule 58 Subsidiaries will
be subject to the limitations of that rule. Lastly, CP&L Energy represents that
it will not seek to recover through higher rates of any of the Utility
Subsidiaries losses attributable to any operations of its Non-Utility
Subsidiaries.
1.6 DESCRIPTION OF PROPOSED FINANCING PROGRAM.
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1.6.1 Continuation, Extension, or Renewal of Acquisition Debt
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As indicated, CP&L Energy will finance the cash portion of the consideration to
be paid in the Share Exchange (estimated at approximately $3.5 billion) and
other costs associated with the Share Exchange through unsecured bank borrowings
or unsecured borrowings from other institutional lenders having maturities of up
to 3 years (the "Acquisition Debt"). After the Share Exchange, CP&L Energy
intends to refinance some or all of the Acquisition Debt from the proceeds of
issuances of equity securities and long-term debt securities, as described
below, and/or cash proceeds from sales of assets. Pending such refinancing, CP&L
Energy requests authorization to maintain the credit arrangements for the
Acquisition Debt in place and renew or extend the maturities of borrowings under
such credit facilities for up to three years following the date of the Share
Exchange.
1.6.2 CP&L Energy External Financing after the Share Exchange.
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CP&L Energy requests authority to issue and sell from time to time during the
Authorization Period Common Stock, Preferred Securities and Debentures in an
aggregate amount not to exceed $3.8 billion, and Short-term Debt in an aggregate
principal amount at any time outstanding not to exceed $1 billion, subject to
the CP&L Debt Limit.
CP&L Energy contemplates that the Common Stock, Preferred Securities
and Debentures would be issued and sold directly to one or more purchasers in
privately-negotiated transactions or to one or more investment banking or
underwriting firms or other entities who would resell such securities without
registration under the Securities Act of 1933 in reliance upon one or more
applicable exemptions from registration thereunder, or to the public either (i)
through underwriters selected by negotiation or competitive bidding or (ii)
through selling agents acting either as agent or as principal for resale to the
public either directly or through dealers.
(a) Common Stock. CP&L Energy may issue and sell Common Stock,
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or options, warrants or other stock purchase rights exercisable for Common
Stock, pursuant to underwriting agreements of a type generally standard in the
industry. Public distributions may be pursuant to private negotiation with
underwriters, dealers or agents, as discussed below, or effected through
competitive bidding among underwriters. In addition, sales may be made through
private placements or other non-public offerings to one or more persons. All
such Common Stock sales will be at rates or prices and under conditions
negotiated or based upon, or otherwise determined by, competitive capital
markets.
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Specifically, CP&L Energy may issue and sell Common Stock through
underwriters or dealers, through agents, or directly to a limited number of
purchasers or a single purchaser. If underwriters are used in the sale of Common
Stock, such securities will be acquired by the underwriters for their own
account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. Common Stock may be offered to
the public either through underwriting syndicates (which may be represented by a
managing underwriter or underwriters designated by CP&L Energy) or directly by
one or more underwriters acting alone. Common Stock may be sold directly by CP&L
Energy or through agents designated by CP&L Energy from time to time. If dealers
are utilized in the sale of Common Stock, CP&L Energy will sell such securities
to the dealers, as principals. Any dealer may then resell such Common Stock to
the public at varying prices to be determined by such dealer at the time of
resale. If Common Stock is being sold in an underwritten offering, CP&L Energy
may grant the underwriters thereof a "green shoe" option permitting the purchase
from CP&L Energy at the same price additional shares then being offered solely
for the purpose of covering over-allotments.
CP&L Energy may also issue Common Stock or options, warrants or other
stock purchase rights exercisable for Common Stock in public or
privately-negotiated transactions as consideration for the equity securities or
assets of other companies, provided that the acquisition of any such equity
securities or assets has been authorized in this proceeding (see Item 1.13,
below) or in a separate proceeding or is exempt under the Act or the rules
thereunder (specifically Rule 58).7
CP&L Energy also proposes to issue Common Stock and/or purchase shares
of its Common Stock in the open market for purposes of reissuing such shares
pursuant to plans maintained for stockholders, employees and directors. In this
regard, after it becomes a holding company, CP&L Energy will adopt and maintain
for its shareholders CP&L's existing Automatic Dividend Reinvestment and
Customer Stock Purchase Plan ("DRP"), dated January 15, 1993.8 The DRP will
provide CP&L Energy's shareholders with a simple and convenient method of
purchasing shares of Common Stock. In addition, customers of CP&L who are at
least eighteen years of age and whose principal legal residence is in the State
of North Carolina or South Carolina are eligible to participate in the DRP.
Participants may elect to have cash dividends paid on CP&L Energy Common Stock
that they own automatically invested in additional shares of Common Stock and
may also make optional cash payments of a minimum of $20 and maximum of $2,000
per month to be invested in such shares. The purchase price of shares purchased
under the DRP on the open market will be the weighted average price (including
brokerage commissions) of all shares acquired by the managing bank during the
relevant investment period. The purchase price of original issue shares will be
the average of the high and low sale prices for Common Stock (on the composite
tape as reported in The Wall Street Journal) on the day on which such shares are
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7 The Commission has previously approved the issuance of common stock as
consideration for the acquisition of a new business in an exempt transaction or
transaction that has been approved in a separate proceeding. See e.g., SCANA
Corp., Holding Co. Act Release No. 27137 (Feb. 14, 2000).
8 CP&L Energy will file a post-effective amendment to CP&L's registration
statement on Form S-3 adopting and amending the DRP shortly after completing the
reorganization in which CP&L Energy becomes a holding company. As amended, the
DRP will be open to participation by customers of NCNG and Florida Power.
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purchased. There will be no brokerage fees paid when shares are purchased
directly from the company. A copy of the DRP is filed herewith as Exhibit J-1.
CP&L Energy will also adopt and maintain in effect CP&L's existing
1997 Equity Incentive Plan ("Incentive Plan"), which authorizes grants of common
stock, stock options and other stock-based awards to eligible executives and
other key employees, as well as to directors of the company and its
subsidiaries. The Incentive Plan is a broad umbrella plan that will allow CP&L
Energy to adopt various sub-plans under which it may issue non-qualified stock
options, incentive stock options, stock appreciation rights, restricted stock,
performance units, performance shares and other stock unit awards or stock-based
forms of awards. CP&L has adopted and issues performance-based shares under a
Performance Share Sub-Plan, and issues restricted stock under Restricted Stock
Agreements with individual employees. The Incentive Plan originally authorized
CP&L to issue a maximum of five million shares of common stock (or options,
performance shares or other rights with respect thereto) of which approximately
550,000 have been issued through December 31, 1999. The Incentive Plan will
expire January 1, 2007. A copy of the Incentive Plan is filed herewith as
Exhibit J-2.
CP&L Energy may issue shares of its Common Stock under the
authorization and within the limitations set forth herein in order to satisfy
its obligations under the DRP and the Incentive Plan. Shares of Common Stock for
use under these stock-based plans may either be newly issued shares or shares
purchased in the open market. CP&L Energy will make open-market purchases of
Common Stock in accordance with the terms of or in connection with the operation
of the plans pursuant to Rule 42. CP&L Energy also proposes to issue and/or
purchase shares of Common Stock pursuant to these existing stock plans, as they
may be amended or extended, and similar plans or plan funding arrangements
hereafter adopted without any additional prior Commission order. Stock
transactions of this variety would thus be treated the same as other stock
transactions permitted pursuant to this Application/Declaration.
(b) Preferred Securities and Debentures. CP&L Energy will not
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issue any shares of its authorized Preferred Stock in the Share Exchange and
does not currently expect that it will have any shares of Preferred Stock
outstanding at the time that it registers as a holding company. However, after
it registers, CP&L Energy seeks to have the flexibility to issue its authorized
Preferred Stock or other types of Preferred Securities (including, specifically,
trust preferred securities) and/or Debentures directly or indirectly through one
or more special-purpose financing subsidiaries organized by CP&L Energy
specifically for such purpose (see Item 1.11, below). The proceeds of Preferred
Securities and Debentures would enable CP&L Energy to reduce the Acquisition
Debt and Short-term Debt with more permanent capital, and provide an important
source of future financing for the operations of and investments in non-utility
businesses which are exempt under the Act.9
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9 Recently, the Commission approved a similar financing application filed
by Southern Company in which Southern Company requested approval to issue
preferred securities and long-term debt, directly or indirectly through
special-purpose financing entities. See The Southern Company, Holding Co. Act
Release No. 27134 (Feb. 9, 2000). In that case, the Commission took account of
the changing needs of registered holding companies for sources of capital other
than common equity and short-term debt brought about primarily by the
elimination of restrictions under the Act on investments in various types of
non-core businesses (e.g., EWGs, FUCOs, ETCs and businesses allowed by Rule 58).
The Commission noted that, without the ability to raise capital in external
markets that is appropriate for such investments, registered holding companies
would be at a competitive disadvantage to other energy companies that are not
subject to regulation under the Act.
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Preferred Stock or other types of Preferred Securities may be issued
in one or more series with such rights, preferences, and priorities as may be
designated in the instrument creating each such series, as determined by CP&L
Energy's board of directors. All Preferred Securities will be redeemed no later
than 50 years after the issuance thereof. The dividend rate on any series of
Preferred Securities will not exceed the greater of (a) 500 basis points over
the yield to maturity of a U.S. Treasury security having a remaining term equal
to the term of such series of Preferred Securities and (b) a rate that is
consistent with similar securities of comparable credit quality and maturities
issued by other companies. Dividends or distributions on Preferred Securities
will be made periodically and to the extent funds are legally available for such
purpose, but may be made subject to terms which allow the issuer to defer
dividend payments for specified periods. Preferred Securities may be convertible
or exchangeable into shares of CP&L Energy Common Stock.
Debentures (a) may be convertible into any other securities of CP&L
Energy, (b) will have maturities ranging from one to 50 years, (c) may be
subject to optional and/or mandatory redemption, in whole or in part, at par or
at various premiums above the principal amount thereof, (d) may be entitled to
mandatory or optional sinking fund provisions, (e) may provide for reset of the
coupon pursuant to a remarketing arrangement, and (f) may be called from
existing investors by a third party.
The maturity dates, interest rates, redemption and sinking fund
provisions and conversion features, if any, with respect to the Debentures of a
particular series, as well as any associated placement, underwriting or selling
agent fees, commissions and discounts, if any, will be established by
negotiation or competitive bidding. The interest rate on Debentures will not
exceed the greater of (a) 300 basis points over U.S. Treasury securities having
comparable maturities and (b) a gross spread over U.S. Treasury securities that
is consistent with similar securities of comparable credit quality and
maturities issued by other companies.10
(c) Short-term Debt. CP&L Energy proposes to issue and sell
---------------
from time to time Short-term Debt in an aggregate principal amount at any time
outstanding not to exceed $1 billion, subject to the CP&L Debt Limit. The
effective cost of money on Short-term Debt authorized in this proceeding will
not exceed 300 basis points over the London Interbank Offered Rate ("LIBOR") for
maturities of 1 year or less.
Specifically, CP&L Energy may sell commercial paper, from time to
time, in established domestic or European commercial paper markets. Such
commercial paper would typically be sold to dealers at the discount rate per
annum prevailing at the date of issuance for commercial paper of comparable
quality and maturities sold to commercial paper dealers generally. It is
expected that the dealers acquiring commercial paper from CP&L Energy will
reoffer such paper at a discount to corporate, institutional and, with respect
to European commercial paper, individual investors. It is anticipated that CP&L
- ------------------------
10 The proposed dividend and interest rate parameters on the Preferred
Securities and Debentures are the same as approved in The Southern Company,
supra n. 9.
9
<PAGE>
Energy's commercial paper will be reoffered to investors such as commercial
banks, insurance companies, pension funds, investment trusts, foundations,
colleges and universities, finance companies and nonfinancial corporations.
CP&L Energy also proposes to establish bank lines in an aggregate
principal amount not to exceed the proposed Short-term Debt limitation. Loans
under these lines will have maturities not more than two years from the date of
each borrowing. CP&L Energy may engage in other types of short-term financing
generally available to borrowers with comparable credit ratings as it may deem
appropriate in light of its needs and market conditions at the time of issuance.
(d) Other Securities. In addition to the specific securities
----------------
for which authorization is sought herein, CP&L Energy may also find it necessary
or desirable in order to minimize financing costs or to obtain new capital under
then existing market conditions to issue and sell other types of securities from
time to time during the Authorization Period. CP&L Energy requests that the
Commission reserve jurisdiction over the issuance of additional types of
securities and the amount thereof. CP&L Energy also undertakes to file a
post-effective amendment in this proceeding which will describe the general
terms of each such security and the amount thereof to be issued and request a
supplemental order of the Commission authorizing the issuance thereof by CP&L
Energy.
1.6.3 Utility Subsidiary Financing. The issue and sale of most
----------------------------
securities by CP&L will be exempt from the preapproval requirements of Sections
6(a) and 7 of the Act pursuant to Rule 52(a), as most securities offerings by
CP&L must be approved by the North Carolina Utilities Commission ("NCUC").11
However, the NCUC does not have jurisdiction over the issuance of indebtedness
having a maturity of two years or less or renewals thereof for a six-year or
shorter term. The issuance of all securities issued by Florida Power, including
short-term debt, have been approved by the Florida Public Service Commission
("FPSC") and are therefore exempt under Rule 52(a). Rule 52(a) will not provide
an exemption for any securities issued by NCNG, inasmuch as NCNG is incorporated
in Delaware. Accordingly, CP&L and NCNG request authorization herein to issue
and sell the following securities during the Authorization Period:
(a) Short-term Debt of CP&L and NCNG. CP&L and NCNG request
--------------------------------
authority to issue and sell from time to time during the Authorization Period
notes and other evidence of indebtedness having a maturity of two years or less
or renewals thereof for a six-year or shorter term in an aggregate principal
amount outstanding at any one time not to exceed $1 billion, in the case of
CP&L, and $125 million, in the case of NCNG. Subject to such limitations, CP&L
and NCNG may engage in short-term financing as they may deem appropriate in
light of their needs and market conditions at the time of issuance. Such
short-term financing could include, without limitation, commercial paper sold in
established domestic or European commercial paper markets in a manner similar to
CP&L Energy, bank lines and debt securities issued under its indentures and note
- ------------------------
11 Most securities offerings by CP&L must also be approved by the South
Carolina Public Service Commission ("SCPSC").
10
<PAGE>
programs. The maximum interest rate on short-term indebtedness of CP&L and NCNG
will not exceed 300 basis points over LIBOR for maturities of 1 year or less.
(b) Long-term Securities of NCNG. NCNG requests authority to
----------------------------
issue and sell from time to time during the Authorization Period long-term debt
securities and trust-preferred securities having maturities of up to 50 years in
an aggregate amount at any one time outstanding, when added to short-term debt
of NCNG, not to exceed $750 million. The interest rate on long-term debt and
trust preferred securities issued by NCNG will not exceed 500 basis points over
the yield to maturity of a United States Treasury Note having comparable
maturities.
(c) Other Securities. The Utility Subsidiaries may also issue
----------------
and sell other types of securities to non-associate purchasers which do not
qualify for use of Rule 52 but which are considered appropriate during the
Authorization Period. The Utility Subsidiaries request that the Commission
reserve jurisdiction over the issuance of such additional types of securities
and the amounts thereof. They also undertake to cause a post-effective amendment
to be filed in this proceeding which will describe the general terms of each
such security and the amounts thereof and request a supplemental order of the
Commission authorizing the issuance thereof by the subject Utility Subsidiary.
1.6.4 Non-Utility Subsidiary Financing. CP&L Energy, through
--------------------------------
its Non-Utility Subsidiaries, is engaged in and expects to continue to be active
in the development and expansion of energy-related, transportation,
telecommunications or otherwise functionally-related, non-utility businesses.12
In order to finance investments in such competitive businesses, it will be
necessary for the Non-Utility Subsidiaries to have the ability to engage in
financing transactions which are commonly accepted for such types of
investments. It is believed that, in almost all cases, such financings will be
exempt from prior Commission authorization pursuant to Rule 52(b). It is
requested that the Commission reserve jurisdiction over the issuance by any
Non-Utility Subsidiary of any other securities with respect to which the
exemption under Rule 52(b) would not apply. CP&L Energy undertakes to cause a
post-effective amendment to be filed in this proceeding which will describe the
general terms of each such non-exempt security and the amounts thereof and
request a supplemental order of the Commission authorizing the issuance thereof.
In order to be exempt under Rule 52(b), any loans by CP&L Energy to a
Non-Utility Subsidiary or by one Non-Utility Subsidiary to another must have
interest rates and maturities that are designed to parallel the lending
company's effective cost of capital. However, in the limited circumstances where
the Non-Utility Subsidiary making the borrowing is not wholly owned by CP&L
Energy, directly or indirectly, authority is requested under the Act for CP&L
Energy or a Non-Utility Subsidiary, as the case may be, to make such loans to
such subsidiaries at interest rates and maturities designed to provide a return
- ------------------------
12 As described in the Merger Application, these non-utility businesses
include investments in EWGs and ETCs, the design, installation and servicing of
energy management products, coal mining, barge transportation, and low income
housing, among others.
11
<PAGE>
to the lending company of not less than its effective cost of capital.13 If such
loans are made to a Non-Utility Subsidiary, such company will not sell any
services to any associate Non-Utility Subsidiary unless such company falls
within one of the categories of companies to which goods and services may be
sold on a basis other than "at cost," as described below in Item 1.14.
Furthermore, in the event any such loans are made, CP&L Energy will include in
the next certificate filed pursuant to Rule 24 in this proceeding substantially
the same information as that required on Form U-6B-2 with respect to such
transaction.
1.7 GUARANTEES.
----------
1.7.1 CP&L Energy Guarantees. CP&L Energy requests
----------------------
authorization to enter into guarantees, obtain letters of credit, enter into
expense agreements or otherwise provide credit support (collectively, "CP&L
Energy Guarantees") with respect to the obligations of any Subsidiary as may be
appropriate to enable such Subsidiary to carry on in the ordinary course of its
business, in an aggregate principal amount not to exceed $750 million
outstanding at any one time, provided however, that the amount of any CP&L
Energy Guarantees in respect of obligations of any Subsidiaries shall also be
subject to the limitations of Rule 53(a)(1) or Rule 58(a)(1), as applicable.
CP&L Energy proposes to charge each Subsidiary a fee for each guarantee provided
on its behalf that is not greater than the cost, if any, of obtaining the
liquidity necessary to perform the guarantee (for example, bank line commitment
fees or letter of credit fees, plus other transactional expenses) for the period
of time the guarantee remains outstanding.
1.7.2 Non-Utility Subsidiary Guarantees. In addition to
---------------------------------
guarantees that may be provided by CP&L Energy, Non-Utility Subsidiaries request
authority to provide to other Non-Utility Subsidiaries guarantees and other
forms of credit support ("Non-Utility Subsidiary Guarantees") in an aggregate
principal amount not to exceed $500 million outstanding at any one time,
exclusive of any guarantees and other forms of credit support that are exempt
pursuant to Rule 45(b) and Rule 52(b), provided however, that the amount of
Non-Utility Guarantees in respect of obligations of any Rule 58 Subsidiaries
shall remain subject to the limitations of Rule 58(a)(1). The Non-Utility
Subsidiary providing any such credit support may charge its associate company a
fee for each guarantee provided on its behalf determined in the same manner as
specified above.
1.7.3 Guarantees Issued by Florida Progress and Its Non-Utility
---------------------------------------------------------
Subsidiaries. Florida Progress does not currently have any preferred stock,
- ------------
long-term debt or short-term debt outstanding, and will not issue any such
securities externally following the Share Exchange. However, Florida Progress
has provided guarantees with respect to certain long-term and short-term
indebtedness of Progress Capital and QUIPs issued by Progress Funding, the
proceeds of which are used to provide financing for Florida Progress's other
subsidiaries. Florida Progress and certain of its non-utility subsidiaries have
also provided guarantees and other forms of credit support with respect to
various other obligations of subsidiaries, as described below. The aggregate
maximum exposure under all of these existing guarantees is approximately $2.2
billion.
- ------------------------
13 The Commission has granted similar authority to another registered
holding company. See Entergy Corporation, et al., Holding Co. Act Release No.
27039 (June 22, 1999).
12
<PAGE>
Progress Capital currently has in place a $400 million commercial
paper facility supported by two revolving bank credit facilities: a $100 million
facility under which it may make borrowings with a term of up to 364 days, and a
$300 million facility under which it may make borrowings with a term of up to
five years. The 364-day facility has a current expiration date of November 16,
2000, and the 5-year facility expires November 30, 2003. At December 31, 1999,
Progress Capital had issued and outstanding $283.5 million in commercial paper.
The lines of credit were not drawn upon. In addition, Progress Capital has
uncommitted bank bid facilities authorizing it to borrow and re-borrow, and have
outstanding at any one time, up to $300 million principal amount of indebtedness
with maturities of up to one year. At December 31, 1999, there were no loans
outstanding under these bid facilities. Progress Capital also has a private
medium-term note program providing for the issuance of up to $844 million of
fixed or floating interest rate notes with maturities ranging from nine months
to 30 years. At December 31, 1999, there were $444 million of notes outstanding
under this program. Florida Progress has unconditionally guaranteed all of the
debt of Progress Capital.
In April 1999, Progress Funding, through a special purpose trust,
completed the sale of $300 million of QUIPs, which are fully and unconditionally
guaranteed by Florida Progress. Quarterly distributions are payable at the
annual rate of 7.10%.
In addition to the foregoing, Progress Capital has guaranteed an
aggregate of $200 million of payment obligations of an indirect subsidiary,
MEMCO Barge Line, Inc. ("MEMCO"), under a synthetic lease covering barges and
towboats, and Florida Progress, Progress Capital, Electric Fuels and other
subsidiaries of Progress Capital have guaranteed and/or provided other forms of
credit support for an aggregate of $125 million of obligations of subsidiaries,
including the obligations of MEMCO under various operating leases covering
barges ($76 million), obligations of Progress Capital and Electric Fuels under
stand-by letters of credit covering workers' compensation, black lung and
similar liabilities ($36 million), and a guarantee of tax-exempt bonds issued by
an industrial development authority in Louisiana to finance port facilities ($13
million).
The Applicants request authorization to maintain in effect all of the
outstanding guarantees and other forms of credit support provided by Florida
Progress and its non-utility subsidiaries, as described above, and, as
necessary, to amend, renew, extend or replace such guarantees.14 Further, the
Applicants request that such guarantees and other forms of credit support not
count against the limit proposed in Item 1.7.2, above, on future Non-Utility
Subsidiary Guarantees.
1.8 HEDGING TRANSACTIONS.
--------------------
1.8.1 Interest Rate Hedges. CP&L Energy, and to the extent not
--------------------
exempt pursuant to Rule 52, the Subsidiaries, request authorization to enter
into interest rate hedging transactions with respect to existing indebtedness
("Interest Rate Hedges"), subject to certain limitations and restrictions, in
order to reduce or manage interest rate cost. Interest Rate Hedges would only be
- ------------------------
14 In some cases, guarantees described in this section may be exempt under
Rule 45(b)(6) or 45(b)(7).
13
<PAGE>
entered into with counterparties ("Approved Counterparties") whose senior debt
ratings, or the senior debt ratings of the parent companies of the
counterparties, as published by Standard and Poor's Ratings Group, are equal to
or greater than BBB, or an equivalent rating from Moody's Investors Service,
Fitch Investor Service or Duff and Phelps.
Interest Rate Hedges will involve the use of financial instruments
commonly used in today's capital markets, such as interest rate swaps, caps,
collars, floors, and structured notes (i.e., a debt instrument in which the
principal and/or interest payments are indirectly linked to the value of an
underlying asset or index), or transactions involving the purchase or sale,
including short sales, of U.S. Treasury obligations. The transactions would be
for fixed periods and stated notional amounts. In no case will the notional
principal amount of any interest rate swap exceed that of the underlying debt
instrument and related interest rate exposure. Thus, CP&L Energy and its
Subsidiaries will not engage in speculative transactions. Fees, commissions and
other amounts payable to the counterparty or exchange (excluding, however, the
swap or option payments) in connection with an Interest Rate Hedge will not
exceed those generally obtainable in competitive markets for parties of
comparable credit quality.
1.8.2 Anticipatory Hedges. In addition, CP&L Energy and the
-------------------
Subsidiaries request authorization to enter into interest rate hedging
transactions with respect to anticipated debt offerings (the "Anticipatory
Hedges"), subject to certain limitations and restrictions. Such Anticipatory
Hedges would only be entered into with Approved Counterparties, and would be
utilized to fix and/or limit the interest rate risk associated with any new
issuance through (i) a forward sale of exchange-traded U.S. Treasury futures
contracts, U.S. Treasury obligations and/or a forward swap (each a "Forward
Sale"), (ii) the purchase of put options on U.S. Treasury obligations (a "Put
Options Purchase"), (iii) a Put Options Purchase in combination with the sale of
call options on U.S. Treasury obligations (a "Zero Cost Collar"), (iv)
transactions involving the purchase or sale, including short sales, of U.S.
Treasury obligations, or (v) some combination of a Forward Sale, Put Options
Purchase, Zero Cost Collar and/or other derivative or cash transactions,
including, but not limited to structured notes, caps and collars, appropriate
for the Anticipatory Hedges.
Anticipatory Hedges may be executed on-exchange ("On-Exchange Trades")
with brokers through the opening of futures and/or options positions traded on
the Chicago Board of Trade ("CBOT"), the opening of over-the-counter positions
with one or more counterparties ("Off-Exchange Trades"), or a combination of
On-Exchange Trades and Off-Exchange Trades. CP&L Energy or Subsidiary will
determine the optimal structure of each Anticipatory Hedge transaction at the
time of execution. CP&L Energy or a Subsidiary may decide to lock in interest
rates and/or limit its exposure to interest rate increases.
The Applicants will comply with the then existing financial disclosure
requirements of the Financial Accounting Standards Board associated with hedging
transactions.15
- ------------------------
15 The proposed terms and conditions of the Interest Rate Hedges and
Anticipatory Hedges are substantially the same as the Commission has approved in
other cases. See New Century Energies, Inc., et al., Holding Co. Act Release No.
27000 (April 7, 1999); and Ameren Corp., et al., Holding Co. Act Release No.
27053 (July 23, 1999).
14
<PAGE>
1.9 MONEY POOLS. CP&L Energy and the Utility Subsidiaries hereby
-----------
request authorization to establish the Utility Money Pool and the Utility
Subsidiaries, to the extent not exempted by Rule 52, also request authorization
to make unsecured short-term borrowings from the Utility Money Pool and to
contribute surplus funds to the Utility Money Pool and to lend and extend credit
to (and acquire promissory notes from) one another through the Utility Money
Pool. Certain of the Non-Utility Subsidiaries (other than Florida Progress) may
participate in the Non-Utility Money Pool. The Non-Utility Money Pool activities
of all of the Non-Utility Subsidiaries are exempt from the prior approval
requirements of the Act under Rule 52. To the extent not exempt by Rule 45(b) or
Rule 52(d), as applicable, CP&L Energy is requesting authorization to contribute
surplus funds and/or to lend and extend credit to (a) the Utility Subsidiaries
through the Utility Money Pool and (b) the Non-Utility Subsidiaries through the
Non-Utility Money Pool.16
The Applicants believe that the cost of the proposed borrowings
through the two Money Pools will generally be more favorable to the borrowing
participants than the comparable cost of external short-term borrowings, and the
yield to the participants contributing available funds to the two Money Pools
will generally be higher than the typical yield on short-term investments.
1.9.1 Utility-Money Pool. Under the proposed terms of the
------------------
Utility Money Pool, short-term funds would be available from the following
sources for short-term loans to the Utility Subsidiaries from time to time: (1)
surplus funds in the treasuries of Utility Money Pool participants other than
CP&L Energy, (2) surplus funds in the treasury of CP&L Energy, and (3) proceeds
from bank borrowings by Utility Money Pool participants or the sale of
commercial paper by CP&L Energy or the Utility Subsidiaries for loan to the
Utility Money Pool ("External Funds"). Funds would be made available from such
sources in such order as CP&L Services, as administrator of the Utility Money
Pool, may determine would result in a lower cost of borrowing, consistent with
the individual borrowing needs and financial standing of the companies providing
funds to the pool. The determination of whether a Utility Money Pool participant
at any time has surplus funds to lend to the Utility Money Pool or shall lend
funds to the Utility Money Pool would be made by such participant's chief
financial officer or treasurer, or by a designee thereof, on the basis of cash
flow projections and other relevant factors, in such participant's sole
discretion. See Exhibit B-1 for a copy of the form of Utility Money Pool
Agreement.
As discussed in more detail below, a separate Non-Utility Money Pool
will be established by CP&L Energy with certain of its Non-Utility Subsidiaries
(other than Florida Progress). Funds made available by CP&L Energy for loans
through the money pools will be made available first for loans through the
Utility Money Pool and thereafter for loans through the Non-Utility Money Pool.
- ------------------------
16 The Commission has authorized substantially similar money pool
arrangements of other holding companies. See New Century Energies, Inc., Holding
Co. Release No. 26750 (Aug. 1, 1997); Conectiv, Holding Co. Release No. 26833
(Feb. 26, 1998); and Interstate Energy Corporation, et al., Holding Co. Act
Release No. 26956 (December 18, 1998).
15
<PAGE>
Utility Money Pool participants that borrow would borrow pro rata from
each participant that lends, in the proportion that the total amount loaned by
each such lending company bears to the total amount then loaned through the
Utility Money Pool. On any day when more than one fund source (e.g., surplus
treasury funds of CP&L Energy and other Utility Money Pool participants
("Internal Funds") and External Funds), with different rates of interest, is
used to fund loans through the Utility Money Pool, each borrower would borrow
pro rata from each such fund source in the Utility Money Pool in the same
proportion that the amount of funds provided by that fund source bears to the
total amount of short-term funds available to the Utility Money Pool.
Borrowings from the Utility Money Pool would require authorization by
the borrower's chief financial officer or treasurer, or by a designee thereof.
No party would be required to effect a borrowing through the Utility Money Pool
if it is determined that it could (and had authority to) effect a borrowing at
lower cost directly from banks or through the sale of its own commercial paper.
No loans through the Utility Money Pool would be made to, and no borrowings
through the Utility Money Pool would be made by, CP&L Energy.
The cost of compensating balances, if any, and fees paid to banks to
maintain credit lines and accounts by Utility Money Pool participants lending
External Funds to the Utility Money Pool would initially be paid by the
participant maintaining such line. A portion of such costs -- or all of such
costs in the event a Utility Money Pool participant establishes a line of credit
solely for purposes of lending any External Funds obtained thereby into the
Utility Money Pool -- would be retroactively allocated every month to the
companies borrowing such External Funds through the Utility Money Pool in
proportion to their respective daily outstanding borrowings of such External
Funds.
If only Internal Funds make up the funds available in the Utility
Money Pool, the interest rate applicable and payable to or by subsidiaries for
all loans of such Internal Funds will be the rates for high-grade unsecured
30-day commercial paper sold through dealers by major corporations as quoted in
The Wall Street Journal.
If only External Funds comprise the funds available in the Utility
Money Pool, the interest rate applicable to loans of such External Funds would
be equal to the lending company's cost for such External Funds (or, if more than
one Utility Money Pool participant had made available External Funds on such
day, the applicable interest rate would be a composite rate equal to the
weighted average of the cost incurred by the respective Utility Money Pool
participants for such External Funds).
In cases where both Internal Funds and External Funds are concurrently
borrowed through the Utility Money Pool, the rate applicable to all loans
comprised of such "blended" funds would be a composite rate equal to the
weighted average of (a) the cost of all Internal Funds contributed by Utility
Money Pool participants (as determined pursuant to the second preceding
paragraph above) and (b) the cost of all such External Funds (as determined
pursuant to the immediately preceding paragraph above). In circumstances where
Internal Funds and External Funds are available for loans through the Utility
16
<PAGE>
Money Pool, loans may be made exclusively from Internal Funds or External Funds,
rather than from a "blend" of such funds, to the extent it is expected that such
loans would result in a lower cost of borrowings.
Funds not required by the Utility Money Pool to make loans (with the
exception of funds required to satisfy the Utility Money Pool's liquidity
requirements) would ordinarily be invested in one or more short-term
investments, including: (i) interest-bearing accounts with banks; (ii)
obligations issued or guaranteed by the U.S. government and/or its agencies and
instrumentalities, including obligations under repurchase agreements; (iii)
obligations issued or guaranteed by any state or political subdivision thereof,
provided that such obligations are rated not less than "A" by a nationally
recognized rating agency; (iv) commercial paper rated not less than "A-1" or
"P-1" or their equivalent by a nationally recognized rating agency; (v) money
market funds; (vi) bank certificates of deposit; (vii) Eurodollar funds; and
(viii) such other investments as are permitted by Section 9(c) of the Act and
Rule 40 thereunder.
The interest income and investment income earned on loans and
investments of surplus funds would be allocated among the participants in the
Utility Money Pool in accordance with the proportion each participant's
contribution of funds bears to the total amount of funds in the Utility Money
Pool and the cost of funds provided to the Utility Money Pool by such
participant.
Each Applicant receiving a loan through the Utility Money Pool would
be required to repay the principal amount of such loan, together with all
interest accrued thereon, on demand and in any event not later than one year
after the date of such loan. All loans made through the Utility Money Pool could
be prepaid by the borrower without premium or penalty.
1.9.2 Non-Utility Money Pool. The Non-Utility Money Pool will
----------------------
be operated on the same terms and conditions as the Utility Money Pool, except
that CP&L Energy's funds made available to the Money Pools will be made
available to the Utility Money Pool first and thereafter to the Non-Utility
Money Pool. See Exhibit B-2 for a copy of the form of Non-Utility Money Pool
Agreement. All contributions to, and borrowings from, the Non-Utility Money Pool
are exempt pursuant to the terms of Rule 52 under the Act.
1.9.3 Other Contributions to Money Pool. CP&L Energy and the
---------------------------------
Utility Subsidiaries may contribute funds from the issuance of Short-term Debt
as authorized above to the Utility Money Pool. CP&L Energy may also contribute
funds from the issuance of Short-term Debt to the Non-Utility Money Pool.
Non-Utility Subsidiaries may contribute funds from the issuance of short-term
debt to the Non-Utility Money Pool.
1.9.4 Operation of the Money Pools and Administrative Matters.
-------------------------------------------------------
Operation of the Utility and Non-Utility Money Pools, including record keeping
and coordination of loans, will be handled by CP&L Services under the authority
of the appropriate officers of the participating companies. CP&L Services will
administer the Utility and Non-Utility Money Pools on an "at cost" basis and
will maintain separate records for each money pool. Surplus funds of the Utility
Money Pool and the Non-Utility Money Pool may be combined in common short-term
investments, but separate records of such funds shall be maintained by CP&L
Services as administrator of the pools, and interest thereon shall be separately
allocated, on a daily basis, to each money pool in accordance with the
17
<PAGE>
proportion that the amount of each money pool's surplus funds bears to the total
amount of surplus funds available for investment from both money pools.
1.9.5 Use of Proceeds. Proceeds of any short term borrowings by
---------------
the Applicants may be used by each such Applicant (i) for the interim financing
of its construction and capital expenditure programs; (ii) for its working
capital needs; (iii) for the repayment, redemption or refinancing of its debt
and preferred stock; (iv) to meet unexpected contingencies, payment and timing
differences, and cash requirements; and (v) to otherwise finance its own
business and for other lawful general corporate purposes. CP&L proposes to
borrow up to $400 million at any one time outstanding from the Utility Money
Pool, Florida Power proposes to borrow up to $400 million at any one time
outstanding, and NCNG proposes to borrow up to $125 million at any one time
outstanding.
1.10 CHANGES IN CAPITAL STOCK OF SUBSIDIARIES. The portion of an
----------------------------------------
individual Subsidiary's aggregate financing to be effected through the sale of
stock to CP&L Energy or other immediate parent company during the Authorization
Period pursuant to Rule 52 and/or pursuant to an order issued in this proceeding
cannot be ascertained at this time. It may happen that the proposed sale of
capital securities may in some cases exceed the then authorized capital stock of
such Subsidiary. In addition, the Subsidiary may choose to use capital stock
with no par value. Also, a wholly owned Subsidiary may wish to engage in a
reverse stock split to reduce franchise taxes. As needed to accommodate such
proposed transactions and to provide for future issues, request is made for
authority to change the terms of any such wholly owned Subsidiary's authorized
capital stock capitalization by an amount deemed appropriate by CP&L Energy or
other intermediate parent company in the instant case. A Subsidiary would be
able to change the par value, or change between par value and no-par stock,
without additional Commission approval. Any such action by a Utility Subsidiary
would be subject to and would only be taken upon the receipt of any necessary
approvals by the state commission in the state or states where the utility
Subsidiary is incorporated and doing business.17
1.11 FINANCING SUBSIDIARIES. CP&L Energy and the Subsidiaries request
----------------------
authority to acquire, directly or indirectly, the equity securities of one or
more corporations, trusts, partnerships or other entities (hereinafter,
"Financing Subsidiaries") created specifically for the purpose of facilitating
the financing of the authorized and exempt activities (including exempt and
authorized acquisitions) of CP&L Energy and the Subsidiaries through the
issuance of long-term debt or equity securities, including but not limited to
monthly income preferred securities, to third parties. Financing Subsidiaries
may dividend, loan or otherwise transfer the proceeds of such financings to or
as directed by the Financing Subsidiary's parent company. CP&L Energy may, if
required, guarantee or enter into expense agreements in respect of the
obligations of any Financing Subsidiary which it organizes. The Subsidiaries may
also provide guarantees and enter into expense agreements, if required, on
behalf of any Financing Subsidiaries which they organize pursuant to Rules
- ------------------------
17 The Commission has granted similar approvals to other registered holding
companies. See Conectiv, Inc., Holding Co. Act Release No. 26833 (Feb. 26,
1998); and New Century Energies, Inc., Holding Co. Act Release No. 26750 (Aug.
1, 1997).
18
<PAGE>
45(b)(7) and 52, as applicable. The amount of any long-term debt or preferred
securities issued by any Financing Subsidiary shall be counted against any
limitation on the amounts of similar types of securities that may be issued
directly by the parent company of a Financing Subsidiary, as set forth in this
Application/Declaration (see Item 1.6, above) or in any other
Application/Declaration that may be filed in the future, to the extent that such
securities are guaranteed by such parent company. In such cases, however, the
guaranty by the parent company would not also be counted against the limitations
on CP&L Energy Guarantees or Subsidiary Guarantees, as the case may be, set
forth in Item 1.7.1 or Item 1.7.2, above.18
1.12 INTERMEDIATE SUBSIDIARIES. CP&L Energy proposes to acquire,
-------------------------
directly or indirectly, the securities of one or more Intermediate Subsidiaries,
which would be organized exclusively for the purpose of acquiring, holding
and/or financing the acquisition of the securities of or other interest in one
or more EWGs or FUCOs, Rule 58 Subsidiaries, ETCs or other non-exempt
Non-Utility Subsidiaries (as authorized in this proceeding or in a separate
proceeding), provided that Intermediate Subsidiaries may also engage in
development activities ("Development Activities") and administrative activities
("Administrative Activities") relating to such subsidiaries.19 To the extent
such transactions are not exempt from the Act or otherwise authorized or
permitted by rule, regulation or order of the Commission issued thereunder, CP&L
Energy requests authority for Intermediate Subsidiaries to provide management,
administrative, project development and operating services to such entities.
Such services may be rendered at fair market prices to the extent they qualify
for any of the exceptions from the "at cost" standard proposed in Item 1.14,
below.
Development Activities will be limited to due diligence and design
review; market studies; preliminary engineering; site inspection; preparation of
bid proposals, including, in connection therewith, posting of bid bonds;
application for required permits and/or regulatory approvals; acquisition of
site options and options on other necessary rights; negotiation and execution of
contractual commitments with owners of existing facilities, equipment vendors,
construction firms, power purchasers, thermal "hosts," fuel suppliers and other
project contractors; negotiation of financing commitments with lenders and other
third-party investors; and such other preliminary activities as may be required
in connection with the purchase, acquisition, financing or construction of
facilities or the acquisition of securities of or interests in new businesses.
Intermediate Subsidiaries request authority to expend up to $250 million during
the Authorization Period on all such Development Activities. Administrative
Activities will include ongoing personnel, accounting, engineering, legal,
financial, and other support activities necessary to manage CP&L Energy's
investments in Non-Utility Subsidiaries.
- ------------------------
18 The Commission has previously authorized registered holding companies
and their subsidiaries to create financing subsidiaries, subject to
substantially the same terms and conditions. See New Century Energies, Inc., et
al., Holding Co. Act Release No. 27000 (April 7, 1999); and Ameren Corp., et
al., Holding Co. Act Release No. 27053 (July 23, 1999); and Southern Company,
Holding Co. Act Release No. 27134 (Feb. 9, 2000).
19 The Commission has previously authorized registered holding companies to
organize intermediate subsidiary companies to acquire and hold various
non-utility subsidiaries, and for such intermediate companies to provide
administrative and development services to such subsidiaries. See New Century
Energies, Inc., et al., Holding Co. Act Release No. 27000 (April 7, 1999);
Entergy Corporation, et al., Holding Co. Act Release No. 27039 (June 22, 1999);
and Ameren Corp., et al., Holding Co. Act Release No. 27053 (July 23, 1999).
19
<PAGE>
An Intermediate Subsidiary may be organized, among other things, (1)
in order to facilitate the making of bids or proposals to develop or acquire an
interest in any EWG or FUCO, Rule 58 Subsidiary, ETC or other non-exempt
Non-Utility Subsidiary; (2) after the award of such a bid proposal, in order to
facilitate closing on the purchase or financing of such acquired company; (3) at
any time subsequent to the consummation of an acquisition of an interest in any
such company in order, among other things, to effect an adjustment in the
respective ownership interests in such business held by CP&L Energy and
non-affiliated investors; (4) to facilitate the sale of ownership interests in
one or more acquired non-utility companies; (5) to comply with applicable laws
of foreign jurisdictions limiting or otherwise relating to the ownership of
domestic companies by foreign nationals; (6) as a part of tax planning in order
to limit CP&L Energy's exposure to U.S. and foreign taxes; (7) to further
insulate CP&L Energy and the Utility Subsidiaries from operational or other
business risks that may be associated with investments in non-utility companies;
or (8) for other lawful business purposes.
Investments in Intermediate Subsidiaries may take the form of any
combination of the following: (1) purchases of capital shares, partnership
interests, member interests in limited liability companies, trust certificates
or other forms of equity interests; (2) capital contributions; (3) open account
advances with or without interest; (4) loans; and (5) guarantees issued,
provided or arranged in respect of the securities or other obligations of any
Intermediate Subsidiaries. Funds for any direct or indirect investment in any
Intermediate Subsidiary will be derived from (1) financings authorized in this
proceeding; (2) any appropriate future debt or equity securities issuance
authorization obtained by CP&L Energy from the Commission; and (3) other
available cash resources, including proceeds of securities sales by a
Non-Utility Subsidiary pursuant to Rule 52. To the extent that CP&L Energy
provides funds or guarantees directly or indirectly to an Intermediate
Subsidiary which are used for the purpose of making an investment in any EWG or
FUCO or a Rule 58 Subsidiary, the amount of such funds or guarantees will be
included in CP&L Energy's "aggregate investment" in such entities, as calculated
in accordance with Rule 53 or Rule 58, as applicable.
CP&L Energy may determine from time to time to consolidate or
otherwise reorganize all or any part of its direct and indirect ownership
interests in Non-Utility Subsidiaries, and the activities and functions related
to such investments, under one or more Intermediate Subsidiaries. To effect any
such consolidation or other reorganization, CP&L Energy may wish to either
contribute the equity securities of one Non-Utility Subsidiary to another
Non-Utility Subsidiary or sell (or cause a Non-Utility Subsidiary to sell) the
equity securities of one Non-Utility Subsidiary to another one. To the extent
that these transactions are not otherwise exempt under the Act or Rules
thereunder,20 CP&L Energy hereby requests authorization under the Act to
consolidate or otherwise reorganize under one or more direct or indirect
Intermediate Subsidiaries CP&L Energy's ownership interests in existing and
- ------------------------
20 Sections 12(c), 32(g), 33(c)(1) and 34(d) and Rules 43(b), 45(b), 46(a)
and 58, as applicable, may exempt many of the transactions described in this
paragraph.
20
<PAGE>
future Non-Utility Subsidiaries.21 Such transactions may take the form of a
Non-Utility Subsidiary selling, contributing or transferring the equity
securities of a subsidiary as a dividend to an Intermediate Subsidiary, and
Intermediate Subsidiaries acquiring, directly or indirectly, the equity
securities of such companies, either by purchase or by receipt of a dividend.
The purchasing Non-Utility Subsidiary in any transaction structured as an
intrasystem sale of equity securities may execute and deliver its promissory
note evidencing all or a portion of the consideration given. Each transaction
would be carried out in compliance with all applicable U.S or foreign laws and
accounting requirements, and any transaction structured as a sale would be
carried out for a consideration equal to the book value of the equity securities
being sold. CP&L Energy will report each such transaction in the next quarterly
certificate filed pursuant to Rule 24 in this proceeding, as described below.
1.13 INVESTMENTS IN ENERGY-RELATED ASSETS. Non-Utility Subsidiaries
------------------------------------
request authority to acquire or construct in one or more transactions from time
to time through the Authorization Period, non-utility energy assets in the
United States, including, without limitation, natural gas production, gathering,
processing, storage and transportation facilities and equipment, liquid oil
reserves and storage facilities, and associated facilities (collectively,
"Energy-Related Assets"), that would be incidental to the energy marketing,
brokering and trading operations of CP&L Energy's subsidiaries. Non-Utility
Subsidiaries request authorization to invest up to $500 million (the "Investment
Limitation") during the Authorization Period in such Energy-Related Assets or in
the equity securities of existing or new companies substantially all of whose
physical properties consist or will consist of such Energy-Related Assets.22
Such Energy-Related Assets (or equity securities of companies owning
Energy-Related Assets) may be acquired for cash or in exchange for Common Stock
or other securities of CP&L Energy or a Non-Utility Subsidiary of CP&L Energy,
or any combination of the foregoing. If Common Stock of CP&L Energy is used as
consideration in connection with any such acquisition, the market value thereof
on the date of issuance will be counted against the proposed Investment
Limitation. The stated amount or principal amount of any other securities issued
as consideration in any such transaction will also be counted against the
Investment Limitation. Under no circumstances will any Non-Utility Subsidiary
acquire, directly or indirectly, any assets or properties the ownership or
operation of which would cause such company to be considered an "electric
utility company" or "gas utility company" as defined under the Act.
As this Commission has recognized in American Electric Power Company,
Inc., et al., Holding Co. Act Release No. 26933 (Nov. 2, 1998) and SEI Holdings,
Inc., Holding Co. Act Release No. 26581 (Sept. 26, 1996) and other decisions, a
successful marketer of energy commodities must be able to control some level of
physical assets that are incidental and reasonably necessary in its day-to-day
operations. For example, gas marketers today must be able to offer their
- ------------------------
21 The Commission has granted similar authority to another holding company.
See Entergy Corporation, et al., Holding Co. Act Release No. 27039 (June 22,
1999).
22 Companies whose physical properties consist of Energy-Related Assets may
also be currently engaged in energy (gas or electric or both) marketing
activities. To the extent necessary, the Applicants request authorization to
continue such activities in the event they acquire such companies.
21
<PAGE>
customers a variety of value-added, or "bundled," services, such as gas storage
and processing, that the interstate pipelines offered prior to FERC Order 636.23
In order to provide such value-added services, many of the leading gas marketers
have invested in production, gathering, processing, and storage capacity at or
near the principal gas producing areas and hubs and market centers in the U.S.
Similarly, in order to compete with both interstate pipelines and local
distribution companies for industrial and electric utility sales, marketers must
have the flexibility to acquire or construct such supply facilities. In fact,
most of the larger energy marketers today own, directly or through affiliates,
substantial physical assets of the type described herein.
The acquisition of production, gathering, processing, and storage
capacity provide energy marketers the opportunity to hedge the price of future
supplies of natural gas against changes in demand brought about due to weather,
increased usage requirements by end use customers, or other volatility imposed
by the market. Storage and pipeline assets allow energy marketers to "bank" low
cost supplies for use during periods of high volatility or take advantage of
differential price spreads between different markets. Energy marketers with
strong and balanced physical asset portfolios are able to originate tolling or
reverse tolling of gas and electric commodities, whereby the payment is made in
one or the other commodity. The integration of production, gathering, and
storage assets offer energy marketers the opportunity to provide either gas or
electric products and services to energy users, at their discretion, depending
on user requirements and needs. Finally, the physical assets underlying an
energy marketer's balance sheet may provide substantial credit support for the
financial transactions undertaken by the marketer.
1.14 SALES OF SERVICES AND GOODS AMONG NON-UTILITY SUBSIDIARIES. CP&L
----------------------------------------------------------
Energy's Non-Utility Subsidiaries propose to provide services and sell goods to
each other at fair market prices determined without regard to cost, and
therefore request an exemption (to the extent that Rule 90(d) does not apply)
pursuant to Section 13(b) from the cost standards of Rules 90 and 91 as
applicable to such transactions, in any case in which the Non-Utility Subsidiary
purchasing such goods or services is:
(i) A FUCO or foreign EWG which derives no part of its income,
directly or indirectly, from the generation, transmission, or distribution of
electric energy for sale within the United States;
(ii) An EWG which sells electricity at market-based rates which have
been approved by the Federal Energy Regulatory Commission ("FERC"), provided
that the purchaser is not one of the Utility Subsidiaries;
(iii) A "qualifying facility" ("QF") within the meaning of the Public
Utility Regulatory Policies Act of 1978, as amended ("PURPA") that sells
electricity exclusively (a) at rates negotiated at arms-length to one or more
- ------------------------
23 See FERC Order 636, FERC Stats. & Regs.P. 30,939, "Pipeline Service
Obligations and Revisions to Regulations Governing Self-Implementing
Transportation; and Regulation of Natural Gas Pipelines After Partial Wellhead
Decontrol," 57 Fed. Reg. 13,270 (Apr. 16, 1992).
22
<PAGE>
industrial or commercial customers purchasing such electricity for their own use
and not for resale, and/or (ii) to an electric utility company (other than one
of the Utility Subsidiaries ) at the purchaser's "avoided cost" as determined in
accordance with the regulations under PURPA;
(iv) A domestic EWG or QF that sells electricity at rates based upon
its cost of service, as approved by FERC or any state public utility commission
having jurisdiction, provided that the purchaser thereof is not one of the
Utility Subsidiaries; or
(v) A Rule 58 Subsidiary or any other Non-Utility Subsidiary that
(a) is partially-owned by CP&L Energy, provided that the ultimate purchaser of
such goods or services is not a Utility Subsidiary or CP&L Services (or any
other entity that CP&L Energy may form whose activities and operations are
primarily related to the provision of goods and services to the Utility
Subsidiaries or CP&L Services), (b) is engaged solely in the business of
developing, owning, operating and/or providing services or goods to Non-Utility
Subsidiaries described in clauses (i) through (iv) immediately above, or (c)
does not derive, directly or indirectly, any material part of its income from
sources within the United States and is not a public-utility company operating
within the United States.24
1.15 ACTIVITIES OF RULE 58 SUBSIDIARIES OUTSIDE THE UNITED STATES.
------------------------------------------------------------
CP&L Energy, on behalf of any current or future Rule 58 Subsidiaries, requests
authority to engage in business activities permitted by Rule 58 both within and
outside the United States. Such activities may include:
(i) the brokering and marketing of electricity, natural gas and other
energy commodities ("Energy Marketing");
(ii) energy management services ("Energy Management Services"),
including the marketing, sale, installation, operation and
maintenance of various products and services related to energy
management and demand-side management, including energy and
efficiency audits; facility design and process control and
enhancements; construction, installation, testing, sales and
maintenance of (and training client personnel to operate) energy
conservation equipment; design, implementation, monitoring and
evaluation of energy conservation programs; development and
review of architectural, structural and engineering drawings for
energy efficiencies, design and specification of energy consuming
equipment; and general advice on programs; the design,
construction, installation, testing, sales and maintenance of new
and retrofit heating, ventilating, and air conditioning ("HVAC"),
electrical and power systems, alarm and warning systems, motors,
pumps, lighting, water, water-purification and plumbing systems,
and related structures, in connection with energy-related needs;
and the provision of services and products designed to prevent,
- ------------------------
24 The five circumstances in which market based pricing would be
allowed are substantially the same as those approved by the Commission in other
cases. See Entergy Corporation, et al., Holding Co. Act Release No. 27039 (June
22, 1999); Ameren Corp., et al., Holding Co. Act Release No. 27053 (July 23,
1999); and Interstate Energy Corporation, Holding Co. Act Release No. 27069
(August 26, 1999).
23
<PAGE>
control, or mitigate adverse effects of power disturbances on a
customer's electrical systems; and
(iii) engineering, consulting and other technical support services
("Consulting Services") with respect to energy-related
businesses, as well as for individuals. Such Consulting Services
would include technology assessments, power factor correction and
harmonics mitigation analysis, meter reading and repair, rate
schedule design and analysis, environmental services, engineering
services, billing services (including consolidation billing and
bill disaggregation tools), risk management services,
communications systems, information systems/data processing,
system planning, strategic planning, finance, feasibility
studies, and other similar services.
CP&L Energy requests that the Commission (i) reserve jurisdiction over
Energy Marketing activities outside the United States and Canada pending
completion of the record in this proceeding,25 (ii) authorize CP&L Energy and
its direct and indirect subsidiaries to provide Energy Management Services and
Consulting Services anywhere outside the United States,26 and (iii) reserve
jurisdiction over other activities of Rule 58 Subsidiaries outside the United
States, pending completion of the record.
1.16 PAYMENT OF DIVIDENDS OUT OF CAPITAL AND UNEARNED SURPLUS.
--------------------------------------------------------
1.16.1 Payment of Dividends by CP&L Energy. After the
-----------------------------------
reorganization of CP&L into a holding company structure (as proposed in File No.
70-9559), CP&L Energy, as a new company, will not have any retained earnings on
a stand-alone basis. Instead, CP&L Energy's initial capital structure will
consist solely of common stock. Over time, CP&L Energy will record its share of
the earnings of its subsidiaries (including CP&L) under the equity method of
accounting as prescribed in Rule 26(c) under the Act. However, there will be no
recognition in CP&L Energy's retained earnings of CP&L's retained earnings
immediately prior to the holding company reorganization. Likewise, because the
acquisition of Florida Progress will be accounted for using the purchase method
of accounting for business combinations, CP&L Energy's retained earnings after
the Share Exchange will not reflect the pre-merger retained earnings of Florida
Progress. CP&L Energy will record its share of the earnings of Florida Progress
under the equity method on a going-forward basis.
- ------------------------
25 See Southern Energy, Inc., Holding Co. Act Rel. No. 27020 (May 13,
1999) (supplemental order amending prior order to permit registered holding
company subsidiary to engage in power and gas marketing activities in Canada and
reserving jurisdiction over such activities outside the United States and
Canada); Interstate Energy Corporation, Holding Co. Act Release No. 27069
(August 26, 1999).
26 The Commission has heretofore authorized non-utility subsidiaries
of a registered holding company to sell similarly-defined energy management
services and technical consulting services to customers both within and outside
the United States. See Columbia Energy Group, et al., Holding Co. Act Release
No. 26498 (March 25, 1996); and Cinergy Corp., Holding Co. Act Release No. 26662
(February 7, 1997); and Interstate Energy Corporation, Holding Co. Act Release
No. 27069 (August 26, 1999).
24
<PAGE>
In July 1999, CP&L acquired all of the outstanding stock of NCNG. That
transaction was also accounted for under the purchase method of account. As a
result, CP&L's retained earnings only reflect NCNG's earnings since the date of
the acquisition.
Under the purchase method of accounting, the excess of the purchase
price over the fair value of the identifiable net tangible assets of the company
acquired is typically allocated to goodwill. As a result of the Share Exchange,
approximately $3 billion could be allocated to goodwill and amortized by CP&L
Energy over a period not to exceed 40 years. In addition, approximately $240
million of the $364 million CP&L paid for NCNG in July 1999 was recorded as
goodwill and is also being amortized over a period not to exceed 40 years. As
goodwill is amortized, it reduces earnings but does not reflect a cash outflow.
Section 12 (c) of the Act and Rule 46 thereunder generally prohibit
the payment of dividends by a registered holding company or subsidiary thereof
out of capital or unearned surplus except pursuant to an order of the
Commission. The legislative history explains that this provision was intended to
"prevent the milking of operating companies in the interest of the controlling
holding company groups." See S. Rep. No. 621, 74th Cong., 1st Sess. p. 34
(1935).27 In determining whether to permit a registered holding company to pay
dividends out of capital and unearned surplus, the Commission considers various
factors, including: (i) the asset value of the company in relation to its
capitalization, (ii) the company's prior earnings, (iii) the company's current
earnings in relation to the proposed dividend, and (iv) the company's projected
cash position after payment of a dividend. See Eastern Utilities Associates,
Holding Co. Act Release No. 25330 (June 13, 1991) ("EUA"), and cases cited
therein. Further, the payment of the dividend must be "appropriate in the public
interest." Id., citing Commonwealth & Southern Corporation, 13 S.E.C. 489, 492
(1943).
CP&L Energy requests authority to pay dividends out of capital and
unearned surplus in an amount equal to the sum of (i) CP&L's consolidated
retained earnings prior to formation of the holding company structure, (ii)
Florida Progress's retained earnings prior to the Share Exchange, and (iii)
NCNG's retained earnings prior to the acquisition of NCNG by CP&L. In addition,
CP&L Energy requests authorization to pay dividends out of earnings before the
amortization of goodwill ("Gross Earnings") created by the acquisition of NCNG
and by the Share Exchange.
In support of its request, CP&L Energy asserts that each of the
standards of Section 12(c) of the Act enunciated in the EUA case are satisfied:
(i) CP&L Energy anticipates that its consolidated cash flow and Gross
Earnings after the Share Exchange should remain stable and therefore will be
sufficient to support anticipated dividends. On a pro forma basis based on the
year ended December 31, 1999, and with no recognition given to expected cost
------------------------------------------
savings resulting from the Share Exchange and integration of the companies, pro
- -------
forma common stock dividends reflect a dividend payout ratio of approximately
72% of Gross Earnings. This payout ratio would decrease if costs savings
- ------------------------
27 Compare Section 305(a) of the Federal Power Act.
25
<PAGE>
expected to be realized as a result of the Share Exchange were considered. CP&L
Energy believes that dividends paid out of future earnings will reflect a
dividend payout ratio of between 65% and 75% of Gross Earnings.
(ii) The projected cash flow of CP&L Energy and its subsidiaries
after the Share Exchange will be adequate to meet the obligations of each
company. The amortization of goodwill is a non-cash expense that will not affect
cash flow of the companies in the CP&L Energy group. CP&L Energy expects to have
sufficient cash to pay dividends in the amounts contemplated.
(iii)CP&L and Florida Progress have a favorable history of prior
earnings and a long record of consistent dividend payments, as did NCNG before
being acquired in 1999.28
(v) After the Share Exchange, CP&L Energy's common equity as a
percentage of total capital structure on a consolidated basis is estimated to be
approximately 36%, a capital structure consistent with other registered holding
company systems. CP&L Energy commits to maintain the capitalization of CP&L
Energy at or above 30% common equity on a consolidated basis.
1.16.2 Payment of Dividends by NCNG. As indicated, the
----------------------------
acquisition of NCNG in July 1999 was accounted for under the purchase method of
accounting for business combinations. Due to the effects of the application of
the purchase method, the retained earnings of NCNG was recharacterized as
paid-in-capital. In addition, the transaction gave rise to approximately $240
million of goodwill. Consistent with the Commission's Staff Accounting Bulletin
No. 54, Topic 5J ("Staff Accounting Bulletin"), such goodwill was "pushed down"
to the NCNG and reflected as paid-in-capital in its financial statements.29 The
effect of these accounting practices was to leave NCNG with no retained
earnings, the traditional source of dividend payment, but, nevertheless, a
strong balance sheet showing significant equity.
- ------------------------
28 The table below presents diluted earnings per share and dividends per
common share for the five fiscal years ending December 31, 1999 for CP&L and
Florida Progress and for the five fiscal years ending September 30, 1998 for
NCNG, with the most recent fiscal year listed first:
- --------------------------------------------------------------------------------
CP&L CP&L Florida Florida NCNG NCNG
Earnings Dividends Progress Progress Earnings Dividends
Earnings Dividends
- --------------------------------------------------------------------------------
$2.55 $2.015 $3.21 $2.18 $1.70 $0.983
- --------------------------------------------------------------------------------
2.75 1.955 2.90 2.14 1.77 0.917
- --------------------------------------------------------------------------------
2.66 1.895 0.56 * 2.10 1.55 0.853
- --------------------------------------------------------------------------------
2.66 1.835 2.32 2.06 1.23 0.803
- --------------------------------------------------------------------------------
2.48 1.775 2.50 2.02 1.17 0.760
- --------------------------------------------------------------------------------
* Includes charges for extended nuclear outage costs and a provision
for loss on Florida Progress's investment in Mid-Continent Life Insurance
Company.
29 Pushdown accounting was applied to NCNG since NCNG did not have
outstanding publicly-held debt or preferred stock, nor did it have a significant
minority interest. In contrast, pushdown accounting will not be applied to
Florida Power, which has publicly-held debt and preferred stock.
26
<PAGE>
NCNG requests authorization to pay dividends out of paid-in-capital up
to the amount of its retained earnings just prior to its acquisition by CP&L and
out of Gross Earnings thereafter.
In support of its request, NCNG asserts that each of the standards of
Section 12(c) of the Act enunciated in the EUA case is satisfied:30
(i) NCNG's cash flow has not differed and is not expected to differ
significantly from its cash flow prior to being acquired by CP&L, and Gross
Earnings has remained and is expected to remain stable.
(ii) The projected cash flow of NCNG will be adequate to meet its
obligations. CP&L Energy expects NCNG to have sufficient cash to pay dividends
in the amounts contemplated.
(iii) NCNG has a favorable history of prior earnings and a long record
of consistent dividend payments. (See fn. 28, above).
(iv) Immediately after CP&L's acquisition of NCNG, and giving effect
to the pushdown of goodwill, NCNG's common equity as a percentage of total
capitalization was approximately 87%, which is substantially in excess of
traditional levels of equity capitalization that the Commission has approved for
other registered holding company systems.
In summary, CP&L Energy's and NCNG's request to pay dividends from
capital and unearned surplus does not contravene the intent of Section 12(c).
The request is motivated by exceptional circumstances, i.e., the impact of
purchase accounting and amortization of the goodwill created in the Share
Exchange and in the earlier acquisition of NCNG, and is not the type of
situation that Section 12(c) was designed to address. Accordingly, the granting
of the request would not contravene the intent of Section 12(c). 31
1.16.3 Payment of Dividends by Non-Utility Subsidiaries. CP&L
------------------------------------------------
Energy also proposes, on behalf of itself and each of its current and future
non-exempt Non-Utility Subsidiaries that such companies be permitted to pay
dividends with respect to the securities of such companies, from time to time
through the Authorization Period, out of capital and unearned surplus (including
revaluation reserve), to the extent permitted under applicable corporate law.32
CP&L Energy anticipates that there will be situations in which it or
one or more Non-Utility Subsidiaries will have unrestricted cash available for
distribution in excess of any such company's current and retained earnings. In
such situations, the declaration and payment of a dividend would have to be
- ------------------------
30 NCNG did not have any publicly held debt outstanding as of December 31,
1999. Accordingly, NCNG cannot provide any debt ratings.
31 The Commission recently approved a similar request in a case involving
another acquisition accounted for under the purchase method. See National Grid
Group plc, et al., Holding Co. Act Release No. 27154 (March 15, 2000).
32 The Commission has granted similar approvals to other registered holding
companies. See Entergy Corporation, et al., Holding Co. Act Release No. 27039
(June 22, 1999); and Interstate Energy Corporation, et al., Holding Co. Act
Release No. 27069 (August 26, 1999).
27
<PAGE>
charged, in whole or in part, to capital or unearned surplus. As an example, if
an Intermediate Subsidiary of CP&L Energy were to purchase all of the stock of
an EWG or FUCO, and following such acquisition, the EWG or FUCO incurs
non-recourse borrowings some or all of the proceeds of which are distributed to
the Intermediate Subsidiary as a reduction in the amount invested in the EWG or
FUCO (i.e., return of capital), the Intermediate Subsidiary (assuming it has no
earnings) could not, without the Commission's approval, in turn distribute such
cash to CP&L Energy or its other parent.33
Similarly, using the same example, if an Intermediate Subsidiary,
following its acquisition of all of the stock of an EWG or FUCO, were to sell
part of that stock to a third party for cash, the Intermediate Subsidiary would
again have substantial unrestricted cash available for distribution, but
(assuming no profit on the sale of the stock) would not have current earnings
and therefore could not, without the Commission's approval, declare and pay a
dividend to its parent out of such cash proceeds.
Further, there may be periods during which unrestricted cash available
for distribution by a Non-Utility Subsidiary exceeds current and retained
earnings due to the difference between accelerated depreciation allowed for tax
purposes, which may generate significant amounts of distributable cash, and
depreciation methods required to be used in determining book income.
Finally, even under circumstances in which a Non-Utility Subsidiary
has sufficient earnings, and therefore may declare and pay a dividend to its
immediate parent, such immediate parent may have negative retained earnings,
even after receipt of the dividend, due to losses from other operations. In this
instance, cash would be trapped at a subsidiary level where there is no current
need for it.
CP&L Energy, on behalf of each current and future non-exempt
Non-Utility Subsidiary represents that it will not declare or pay any dividend
out of capital or unearned surplus in contravention of any law restricting the
payment of dividends. In this regard, it should be noted that all U.S.
jurisdictions limit to one extent or another the authority of corporations to
make dividend distributions to shareholders. Most State corporation statutes
contain either or both an equity insolvency test or some type of balance sheet
test. CP&L Energy also states that its subsidiaries will comply with the terms
of any credit agreements and indentures that restrict the amount and timing of
distributions to shareholders.
1.17 TAX ALLOCATION AGREEMENT. The Applicants ask the Commission to
------------------------
approve an agreement for the allocation of consolidated tax among CP&L Energy
and the Subsidiaries (the "Tax Allocation Agreement"). Approval is necessary
because the Tax Allocation Agreement provides for the retention by CP&L Energy
of certain payments for tax losses that it has incurred, rather than the
allocation of such losses to Subsidiaries without payment as would otherwise be
- ------------------------
33 The same problem would arise where an Intermediate Subsidiary is
over-capitalized in anticipation of a bid which is ultimately unsuccessful. In
such a case, CP&L Energy would normally desire a return of some or all of the
funds invested.
28
<PAGE>
required by Rule 45(c)(5). A copy of the proposed Tax Allocation Agreement is
filed herewith as Exhibit B-5.
Provisions in a tax allocation agreement between a registered holding
company and its subsidiaries must comply with Section 12 of the Act and Rule 45
thereunder. Rule 45(a) of the Act generally prohibits any registered holding
company or subsidiary company from, directly or indirectly, lending or in any
manner extending its credit to or indemnifying, or making any donation or
capital contribution to, any company in the same holding company system, except
pursuant to a Commission order. Rule 45(c) provides, however, that no approval
is required for a tax allocation agreement between eligible associate companies
in registered holding company system which "provides for allocation among such
associate companies of the liabilities and benefits arising from such
consolidated tax return for each tax year in a manner not inconsistent with" the
conditions of the rule. Of interest here, Rule 45(c)(5) provides that:
The agreement may, instead of excluding members as provided in
paragraph (c)(4), include all members of the group in the tax
allocation, recognizing negative corporate taxable income or a
negative corporate tax, according to the allocation method chosen. An
agreement under this paragraph shall provide that those associate
companies with a positive allocation will pay the amount allocated and
those subsidiary companies with a negative allocation will receive
current payment of their corporate tax credits. The agreement shall
provide a method for apportioning such payments, and for carrying over
uncompensated benefits, if the consolidated loss is too large to be
used in full. Such method may assign priorities to specified kinds of
benefits. (Emphasis added).
Under the rule, only "subsidiary companies," as opposed to "associate
companies" (which includes the holding company in a holding company system), are
entitled to be paid for corporate tax credits. However, if a tax allocation
agreement does not fully comply with the provisions of Rule 45(c), it may
nonetheless be approved by the Commission under Section 12(b) and Rule 45(a).
In connection with the 1981 amendments to Rule 45, the Commission
explained that the distinction between "associate companies," on the one hand,
and "subsidiary companies," on the other, represented a policy decision to
preclude the holding company from sharing in consolidated return savings. The
Commission noted that exploitation of utility companies by holding companies
through the misallocation of consolidated tax return benefits was among the
abuses examined in the investigations underlying the enactment of the Act.34 It
must be noted, however, that the result in Rule 45(c)(5) is not dictated by the
statute and, as the Commission has recognized, there is discretion on the part
of the agency to approve tax allocation agreements that do not, by their terms,
comply with Rule 45(c) -- so long as the policies and provisions of the Act are
- ------------------------
34 See Holding Co. Act Release No. 21968 (March 25, 1981), citing Sen. Doc.
92, Part 72A, 70th Congress, 1st Sess. at 477-482.
29
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otherwise satisfied. In this matter, where the holding company is seeking only
to receive payment for tax losses that have been generated by it, the proposed
arrangement will not give rise to the types of problems (e.g., upstream loans)
that the Act was intended to address.35
As a result of the Share Exchange, CP&L Energy will be creating tax
losses (chiefly in the form of deductions for interest expense on the
Acquisition Debt) that are non-recourse to the Subsidiaries. Under the proposed
Tax Allocation Agreement, CP&L Energy would retain the benefit of those losses.
1.18 CERTIFICATES OF NOTIFICATION. It is proposed that, with respect
----------------------------
to CP&L Energy, the reporting system of the 1933 Act and the 1934 Act be
integrated with the reporting system under the 1935 Act. This would eliminate
duplication of filings with the Commission that cover essentially the same
subject matters, resulting in a reduction of expense for both the Commission and
CP&L Energy. To effect such integration, the portion of the 1933 Act and 1934
Act reports containing or reflecting disclosures of transactions occurring
pursuant to the authorization granted in this proceeding would be incorporated
by reference into this proceeding through Rule 24 certificates of notification.
The certificates would also contain all other information required by Rule 24,
including the certification that each transaction being reported on had been
carried out in accordance with the terms and conditions of and for the purposes
represented in this Application/Declaration. Such certificates of notification
would be filed within 60 days after the end of each of the first three calendar
quarters, and 90 days after the end of the last calendar quarter, in which
transactions occur.
The Rule 24 certificates will contain the following information for
the reporting period:
(a) The sales of any Common Stock or Preferred Securities by CP&L
Energy and the purchase price per share and the market price per share
at the date of the agreement of sale;
(b) The total number of shares of Common Stock issued or issuable
under options granted during the quarter under CP&L Energy's benefit
plans or otherwise;
(c) If Common Stock has been transferred to a seller of
securities of a company being acquired, the number of shares so
issued, the value per share and whether the shares are restricted to
the acquiror;
(d) The name of the guarantor and of the beneficiary of any
Guaranteed Note, CP&L Energy Guarantee or Non-Utility Subsidiary
Guarantee issued during the quarter, and the amount, terms and purpose
of the guarantee;
(e) The amount and terms of any Debentures issued during the
quarter;
(f) The amount and terms of any financings consummated by any
Non-Utility Subsidiary during the quarter that are not exempt under
Rule 52;
- ------------------------
35 See e.g., Section 12(a) of the Act.
30
<PAGE>
(g) The notional amount and principal terms of any Interest Rate
Hedge or Anticipatory Hedge entered into during the quarter and the
identity of the parties to such instruments;
(h) The name, parent company, and amount invested in any new
Intermediate Subsidiary or Financing Subsidiary during the quarter;
(i) A list of Form U-6B-2 statements filed with the Commission
during the quarter, including the name of the filing entity and the
date of the filing;
(j) Consolidated balance sheets as of the end of the quarter, and
separate balance sheets as of the end of the quarter for each company,
including CP&L Energy, that has engaged in financing transactions
during the quarter.
ITEM 2. FEES, COMMISSIONS AND EXPENSES
------------------------------
The fees, commissions and expenses incurred or to be incurred in
connection with the transactions proposed herein are estimated at $20,000. The
above fees do not include underwriting fees and all other expenses incurred in
consummating financings covered hereby. It is estimated that such fees and
expenses will not exceed 5% of the proceeds.
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
-------------------------------
3.1 GENERAL. Sections 6(a) and 7 of the Act are applicable to the
-------
issuance and sale of Common Stock, Preferred Securities, Short-term Debt and
Debentures by CP&L Energy and to the issuance and sale of securities by the
Utility Subsidiaries and Non-Utility Subsidiaries that are not exempt under Rule
52. In addition, Sections 6(a) and 7 of the Act are applicable to Interest Rate
Hedges, except to the extent that they may be exempt under Rule 52, and to
Anticipatory Hedges. Section 12(b) of the Act and Rule 45(a) are applicable to
the issuance of CP&L Energy Guarantees and to Non-Utility Subsidiary Guarantees,
to the extent not exempt under Rules 45(b) and 52, and to the continuation of
existing guarantees previously issued by Florida Progress. Sections 9(a)(1) and
10 of the Act are also applicable to CP&L Energy's or any Non-Utility
Subsidiary's acquisition of the equity securities of any Financing Subsidiary or
Intermediate Subsidiary, the acquisition of Energy-Related Assets or the
securities of companies substantially all of whose assets consist of
Energy-Related Assets, and the activities of Rule 58 Subsidiaries outside the
United States. Section 12(c) of the Act and Rule 46 are applicable to the
payment of dividends from capital and unearned surplus by CP&L Energy, NCNG any
Non-Utility Subsidiary. Section 13(b) of the Act and Rules 80 - 92 are
applicable to the performance of services and sale of goods among Non-Utility
Subsidiaries, but may be exempt from the requirements thereof in some cases
pursuant to Rules 87(b)(1), 90(d) and 92, as applicable. Section 12(b) of the
Act and Rule 45(c) are applicable to the proposed Tax Allocation Agreement.
3.2 COMPLIANCE WITH RULES 53 AND 54. The transactions proposed herein
-------------------------------
are also subject to Rules 53 and 54. Under Rule 53(a), the Commission shall not
make certain specified findings under Sections 7 and 12 in connection with a
31
<PAGE>
proposal by a holding company to issue securities for the purpose of acquiring
the securities of or other interest in an EWG, or to guarantee the securities of
an EWG, if each of the conditions in paragraphs (a)(1) through (a)(4) thereof
are met, provided that none of the conditions specified in paragraphs (b)(1)
through (b)(3) of Rule 53 exists. Rule 54 provides that the Commission shall not
consider the effect of the capitalization or earnings of subsidiaries of a
registered holding company that are EWGs or FUCOs in determining whether to
approve other transactions if Rule 53(a), (b) and (c) are satisfied. These
standards are met.
Rule 53(a)(1): CP&L Energy's "aggregate investment" in EWGs and FUCOs
is approximately $110 million, or approximately 6.1% of CP&L Energy's pro forma
"consolidated retained earnings" at December 31, 1999 ($1.8 billion).
Rule 53(a)(2): CP&L Energy will maintain books and records enabling it
to identify investments in and earnings from each EWG and FUCO in which it
directly or indirectly acquires and holds an interest. CP&L Energy will cause
each domestic EWG in which it acquires and holds an interest, and each foreign
EWG and FUCO that is a majority-owned subsidiary, to maintain its books and
records and prepare its financial statements in conformity with U.S. generally
accepted accounting principles ("GAAP"). All of such books and records and
financial statements will be made available to the Commission, in English, upon
request.
Rule 53(a)(3): No more than 2% of the employees of the Utility
Subsidiaries will, at any one time, directly or indirectly, render services to
EWGs and FUCOs.
Rule 53(a)(4): CP&L Energy will submit a copy of the
Application/Declaration in this proceeding and each amendment thereto, and will
submit copies of any Rule 24 certificates required hereunder, as well as a copy
of CP&L Energy' Form U5S, to each of the public service commissions having
jurisdiction over the retail rates of the Utility Subsidiaries.
In addition, CP&L Energy states that the provisions of Rule 53(a) are
not made inapplicable to the authorization herein requested by reason of the
occurrence or continuance of any of the circumstances specified in Rule 53(b).
Rule 53(c) is inapplicable by its terms.
ITEM 4. REGULATORY APPROVAL.
-------------------
As described in Item 1.6, the NCUC, SCPSC and FPSC generally have
jurisdiction over the issuance of securities by public utility companies subject
to their jurisdiction. No state commission, and no federal commission, other
than the Commission, has jurisdiction over any of the other transactions
proposed in this Application/Declaration.
32
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ITEM 5. PROCEDURE.
---------
The Commission is requested to publish a notice under Rule 23 with
respect to the filing of this Application/Declaration as soon as practicable.
The Applicants request that the Commission's order be issued as soon as the
rules allow, and that there should not be a 30-day waiting period between
issuance of the Commission's order and the date on which the order is to become
effective. The Applicants hereby waive a recommended decision by a hearing
officer or any other responsible officer of the Commission and consent that the
Division of Investment Management may assist in the preparation of the
Commission's decision and/or order, unless the Division opposes the matters
proposed herein.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
---------------------------------
A. EXHIBITS.
--------
A-1 Amended and Restated Articles of Incorporation of CP&L
Energy (incorporated by reference to Exhibit B to
Registration Statement on Form S-4 of CP&L Energy in File
No. 333-86243).
A-2 Amended and Restated By-Laws of CP&L Energy (incorporated by
reference to Exhibit C to Registration Statement on Form S-4
of CP&L Energy in File No. 333-86243).
B-1 Form of Utility Subsidiary Money Pool Agreement (to be filed
by amendment).
B-2 Form of Non-Utility Subsidiary Money Pool Agreement (to be
filed by amendment).
B-3 Form of Utility Money Pool Note (to be filed by amendment).
B-4 Form of Non-Utility Money Pool Note (to be filed by
amendment).
B-5 Form of Tax Allocation Agreement (to be filed by amendment).
D-1 Application of NCNG to the NCUC for financing authority (to
be filed by amendment).
D-2 Order of the NCUC (to be filed by amendment).
F Opinion of Counsel (to be filed by amendment).
H Proposed Form of Federal Register Notice.
33
<PAGE>
J-1 Automatic Dividend Reinvestment and Customer Stock Purchase
Plan (incorporated by reference to Registration Statement on
Form S-8, which includes Prospectus dated January 15, 1993,
of CP&L in File No. 33-38349).
J-2 1997 Equity Incentive Plan (incorporated by reference to
Appendix A to CP&L's 1997 Proxy Statement in File No.
1-03382).
B. FINANCIAL STATEMENTS.
--------------------
FS-1 CP&L Consolidated Statements of See Annual Report of CP&L
Income for last three fiscal years on Form 10-K for the year
ended December 31, 1999 ended December 31, 1999
in File No. 1-3382
FS-2 CP&L Consolidated Balance Sheets as See Annual Report of CP&L
of December 31, 1999 on Form 10-K for the year
ended December 31, 1999 in
File No. 1-3382
FS-3 NCNG Consolidated Statements of See Annual Report of NCNG
Income for the last three fiscal on Form 10-K for the
years ended September 30, 1998 fiscal year ended
September 30, 1998 in File
No. 0-82
FS-4 NCNG Consolidated Balance Sheet See Annual Report of NCNG
as of September 30, 1998 on Form 10-K for the
fiscal year ended
September 30, 1998 in
File No. 0-82
FS-5 Florida Progress Consolidated See Annual Report of
Statements of Income for the last Florida Progress on Form
three fiscal years ended December 10-K for the year ended
31, 1999 December 31, 1999 in File
No. 1-8349
FS-6 Florida Progress Consolidated See Annual Report of
Balance Sheet as of December 31, Florida Progress on
1999 Form 10-K for the year
ended December 31, 1999 in
File No. 1-8349
FS-7 Florida Power Statements of Income See Annual Report of
for last three fiscal years ended Florida Power on Form 10-K
December 31, 1999 for the year ended
December 31, 1999 in File
No. 1-3274
34
<PAGE>
FS-8 Florida Power Balance Sheet as of See Annual Report of
December 31, 1999 Florida Power on Form 10-K
for the year ended
December 31, 1999 in File
No. 1-3274
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
---------------------------------------
None of the matters that are the subject of this
Application/Declaration involves a "major federal action" nor do such matters
"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
transactions that are the subject of this Application/Declaration will not
result in changes in the operation of the Applicants that will have an impact on
the environment. The Applicants are not aware of any federal agency that has
prepared or is preparing an environmental impact statement with respect to the
transactions that are the subject of this Application/Declaration.
35
<PAGE>
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, each of the undersigned companies has duly caused this
Application/Declaration to be signed on its behalf by the undersigned thereunto
duly authorized.
CP&L ENERGY, INC.
CAROLINA POWER & LIGHT COMPANY
NORTH CAROLINA NATURAL GAS CORPORATION
STRATEGIC RESOURCE SOLUTIONS CORP.
/s/ William D. Johnson
-----------------------------------------
Name: William D. Johnson
Title: Secretary
FLORIDA PROGRESS CORPORATION
PROGRESS CAPITAL HOLDINGS, INC.
FLORIDA PROGRESS FUNDING CORPORATION
/s/ Kenneth E. Armstrong
-----------------------------------------
Name: Kenneth E. Armstrong
Title: Vice President and General Counsel
FPC DEL, INC.
/s/ Kenneth E. McDonald
-----------------------------------------
Name: Kenneth E. McDonald
Title: President
Date: April 14, 2000
36
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")
April __, 2000
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 May
__, 2000 to the Secretary, Securities and Exchange Commission, 450 5th Street,
N.W., 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 April __, 2000, the application(s) and/or declaration(s),
as filed or as amended, may be granted and/or permitted to become effective.
* * * * * *
CP&L ENERGY, INC., ET AL. (70-[___])
------------------------
CP&L Energy, Inc. ("CP&L Energy"), 411 Fayetteville Street Mall,
Raleigh, North Carolina 27601, and Florida Progress Corporation ("Florida
Progress"), One Progress Plaza, St. Petersburg, Florida 33701, have filed a
joint application-declaration pursuant to Sections 6(a), 7, 9(a), 10, 12(b),
12(c), and 13(b) of the Public Utility Holding Company Act of 1935, as amended
(the "Act"), and Rules 45, 46, 52, 53, 54, 87 and 90 - 92 thereunder.
CP&L Energy is currently a wholly owned subsidiary of Carolina Power &
Light Company ("CP&L"). In a separate proceeding (File No. 70-9643), CP&L Energy
is seeking approval pursuant to Sections 9 and 10 of the Act to acquire all of
the issued and outstanding common stock of Florida Progress, an exempt holding
whose predominant subsidiary is Florida Power Corporation ("Florida Power"), in
a share exchange (the "Share Exchange"). Upon consummation of the Share
Exchange, CP&L Energy intends to register as a holding company pursuant to
1
<PAGE>
Section 5 of the Act. As a result of the Share Exchange, CP&L Energy will own,
directly or indirectly, all of the issued and outstanding common stock of three
public utility subsidiary companies, namely, CP&L, which operates as an electric
utility in parts of North Carolina and South Carolina; Florida Power, which
operates as an electric utility in west central Florida; and North Carolina
Natural Gas Corporation ("NCNG"), a wholly owned subsidiary of CP&L, which
distributes gas at retail in parts of eastern and south central North Carolina
(collectively, CP&L, Florida Power and NCNG are referred to as the "Utility
Subsidiaries").
Florida Progress will be maintained as a direct wholly owned
subsidiary of CP&L Energy after the Share Exchange and will continue to hold all
of the common stock of Florida Power and several direct non-utility
subsidiaries, the largest of which is Progress Capital Holdings, Inc., which in
turn holds most of Florida Progress's non-utility subsidiaries and investments.
CP&L Energy, Florida Progress and their respective subsidiaries are
seeking approval for a program of external financing, credit support
arrangements, and other related proposals following CP&L Energy's registration
under the Act for the period through September 30, 2003 ("Authorization
Period"), as follows:
Acquisition Debt. CP&L Energy requests authorization to maintain the
----------------
credit arrangements under which it will incur up to $3.75 billion to finance the
cash portion of and pay other costs associated with the Share Exchange (the
"Acquisition Debt"), including any extensions or renewals thereof.
External Financing by CP&L Energy. CP&L Energy requests authority to
---------------------------------
issue and sell from time to time shares of its authorized common stock,
preferred stock or other forms of preferred securities, and unsecured long-term
indebtedness having maturities of up to 50 years ("Debentures") in an aggregate
amount not to exceed $3.8 billion, and unsecured short-term indebtedness having
maturities of one year or less ("Short-term Debt") in an aggregate principal
amount at any time outstanding not to exceed $1 billion, provided that the
aggregate principal amount of all indebtedness of CP&L Energy at any time
outstanding (including, specifically, Acquisition Debt, Debentures and
Short-term Debt) shall not exceed $5.0 billion (the "CP&L Energy Debt Limit").
The interest rate on the Debentures will not exceed 300 basis points over the
rate on a Treasury security having a comparable maturity, and the interest rate
on Short-term Debt will not exceed 300 basis points over the London Interbank
Offered Rate ("LIBOR").
External Financing by CP&L and NCNG. CP&L and NCNG request authority
-----------------------------------
to issue and sell from time to time debt and equity securities which are not
exempt pursuant to Rule 52(a), as follows: (A) CP&L and NCNG request authority
to issue and reissue from time to time notes evidencing up to $1 billion and
$125 million, respectively, of indebtedness outstanding at any one time having
maturities of two years or less, the interest rate on which would not exceed 300
basis points over LIBOR; and (B) NCNG requests authority to issue and sell from
time to up to $750 million of long-term debt securities having maturities of up
to 50 years and trust preferred securities, the interest rate on which would not
exceed 500 basis points over the rate on a Treasury security having comparable
maturities.
2
<PAGE>
Financing by Non-Utility Subsidiaries. To the extent that such
-------------------------------------
transactions are not exempt under Rule 52(b), CP&L Energy's direct and indirect
non-utility subsidiaries (the "Non-Utility Subsidiaries") request authority to
issue and sell from time to time debt and equity securities in order to finance
their operations and future non-utility investments, provided that such future
investments are exempt under the Act or rules thereunder or have been authorized
in a separate proceeding.
Guarantees. CP&L Energy requests authority to provide guarantees and
----------
other forms of credit support on behalf or for the benefit of its Subsidiaries
in an aggregate principal or nominal amount not to exceed $750 million at any
one time outstanding, subject to the limitations of Rules 53 and 58. In
addition, Non-Utility Subsidiaries request authority to provide guarantees and
other forms of credit support on behalf or for the benefit of other Non-Utility
Subsidiaries in an aggregate principal or nominal amount not to exceed $500
million at any one time outstanding, exclusive of any guarantees that are exempt
pursuant to Rule 45(b) and Rule 52, subject to the limitations of Rule 58.
Existing Florida Progress Guarantees. Florida Progress and its
------------------------------------
non-utility subsidiaries request authorization to maintain in effect all
guarantees and other forms of credit support outstanding on the date of the
Share Exchange relating to credit facilities and other financing arrangements of
certain non-utility subsidiaries, and to other existing obligations of Florida
Progress's non-utility subsidiaries, and to amend, renew, extend or replace any
such guarantees during the Authorization Period. The aggregate maximum exposure
under all of these existing guarantees is approximately $2.2 billion.
Hedging Transactions. CP&L Energy and, to the extent not exempt under
--------------------
Rule 52, the Subsidiaries request authority to enter into hedging transactions
("Interest Rate Hedges") with respect to existing indebtedness of such companies
in order to manage and minimize interest rate costs. Such companies also request
authority to enter into hedging transactions ("Anticipatory Hedges") with
respect to anticipatory debt issuances in order to lock-in current interest
rates and/or manage interest rate risk exposure.
Money Pool Transactions. CP&L Energy proposes to establish and fund
-----------------------
separate system money pool agreements for the Utility Subsidiaries ("Utility
Money Pool") and certain of the Non-Utility Subsidiaries ("Non-Utility Money
Pool"). CP&L and Florida Power each request authorization (to the extent needed)
to borrow up to $400 million at any time outstanding and NCNG up to $125 million
at any time outstanding under the Utility Money Pool.
Subsequent Changes in Capital Stock of Wholly Owned Subsidiaries. CP&L
----------------------------------------------------------------
Energy, on behalf of the Subsidiaries, requests authorization to change the
terms of any wholly owned Subsidiary's authorized capital stock capitalization.
Financing Subsidiaries. CP&L Energy and the Subsidiaries request
----------------------
authority to acquire the equity securities of one or more special-purpose
subsidiaries ("Financing Subsidiaries") organized solely to facilitate a
financing and to guarantee the securities issued by such Financing Subsidiaries,
to the extent not exempt pursuant to Rule 45(b) and Rule 52. The amount of
securities issued by any Financing Subsidiary will be counted against the
3
<PAGE>
limitations on amounts of similar types of securities that may be issued by the
parent company of the Financing Subsidiary.
Organization of Intermediate Subsidiaries. CP&L Energy requests
-----------------------------------------
authority to acquire, directly or indirectly, the equity securities of one or
more intermediate subsidiaries organized exclusively for the purpose of
acquiring, financing, and holding the securities of one or more existing or
future Non-Utility Subsidiaries, including but not limited to exempt wholesale
generators ("EWGs"), exempt foreign utility companies ("FUCOs"), companies
engaged or formed to engage in activities permitted by Rule 58, or exempt
telecommunications companies.
Acquisition of Energy Related Assets. Non-Utility Subsidiaries request
------------------------------------
authority to invest up to $500 million in certain types of non-utility
energy-related assets ("Energy-Related Assets") that are incidental to energy
marketing activities of such companies, or the capital stock of companies
substantially all of whose physical assets consist of such Energy-Related
Assets.
Exemption from "At Cost" Rule. As permitted by Rule 87(b)(1),
-----------------------------
Non-Utility Subsidiaries may from time to time provide services and sell goods
to each other. To the extent not exempt pursuant to Rule 90(d), such companies
request authority to perform such services and to sell such goods to each other
at fair market prices, without regard to "cost," as determined in accordance
with Rules 90 and 91, subject to certain limitations that are noted below.
Activities of Rule 58 Companies Outside the U.S. CP&L Energy requests
-----------------------------------------------
authority on behalf of any current and future Rule 58 subsidiaries to engage in
energy marketing in Canada and energy management and consulting activities
anywhere outside the United States.
Payment of Dividends Out of Capital. Because of the application of the
-----------------------------------
purchase method of accounting to the Share Exchange, CP&L Energy's retained
earnings will not reflect the pre-merger retained earnings of Florida Progress
or CP&L. Likewise, because CP&L's acquisition of NCNG in July 1999 was also
accounted for under the purchase method, CP&L's retained earnings do not reflect
the pre-acquisition retained earnings of NCNG. Both transactions also created or
will create significant amounts of goodwill, which CP&L Energy and NCNG are
required to amortize, thereby reducing current earnings. Accordingly, CP&L
Energy requests authority to pay dividends out of capital and unearned surplus
in amounts equal to the sum of the retained earnings of CP&L, Florida Progress
and NCNG at the time of the Share Exchange and acquisition of NCNG, and, on an
ongoing basis, to pay dividends out of earnings before amortization of goodwill.
NCNG requests authority to pay dividends out of capital and unearned surplus in
an amount equal to its retained earnings prior to being acquired by CP&L and, on
an ongoing basis, out of current earnings before amortization of goodwill.
Non-Utility Subsidiaries request authority to pay dividends out of capital and
unearned surplus to the extent permitted under applicable law and the terms of
any credit arrangements to which they may be parties.
4
<PAGE>
Consolidated Tax Allocation Agreement. CP&L Energy requests approval
-------------------------------------
for an agreement among CP&L Energy and its Subsidiaries to allocate consolidated
income tax liabilities in a manner that will allow CP&L Energy to retain the
benefit of losses (chiefly in the form of interest expense on the Acquisition
Debt) generated at the holding company level.
The applicants state that the proceeds of the financing requested in
this proceeding will be used for general corporate purposes, including (i)
financing, in part, investments by and capital expenditures of CP&L Energy and
its Subsidiaries, including, without limitation, the funding of future
investments in EWGs, FUCOs, and Rule 58 companies, (ii) the repayment,
redemption, refunding or purchase by CP&L Energy or any Subsidiary of any of its
own securities pursuant to Rule 42, and (iii) financing working capital
requirements. CP&L Energy states that the aggregate amount of proceeds of
financing and CP&L Energy guarantees approved by the Commission in this
proceeding which are used to fund investments in EWGs and FUCOs will not, when
added to CP&L Energy's "aggregate investment" (as defined in Rule 53) in all
such entities at any point in time, exceed 50% of CP&L Energy's "consolidated
retained earnings" (also as defined in Rule 53). Further, the proceeds of all
financings and guarantees, as requested in this proceeding, which are utilized
to fund investments in Rule 58 companies will be subject to the limitations of
that rule.
5
