(As filed June 5, 2000)
File No. 70-9559
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-1/A
AMENDMENT NO. 2
TO
APPLICATION OR DECLARATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
CP&L Energy, Inc.
(formerly CP&L Holdings, Inc.)
411 Fayetteville Street Mall
Raleigh, North Carolina 27601
(Name of company filing this statement
and address of principal executive offices)
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None.
(Name of top registered holding company parent
of each applicant or declarant)
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Robert B. McGehee, Esq.
Executive Vice President and General Counsel
Carolina Power & Light Company
411 Fayetteville Street 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.
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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TABLE OF CONTENTS
ITEM 1.DESCRIPTION OF PROPOSED TRANSACTION....................................1
1.1.INTRODUCTION.......................................................1
1.2.OTHER REGULATORY FILINGS...........................................2
1.3 DESCRIPTION OF CP&L AND ITS SUBSIDIARIES...........................3
1.4 THE EXCHANGE AGREEMENT.............................................8
1.5 REASONS FOR THE PROPOSED REORGANIZATION...........................11
ITEM 2.FEES, COMMISSIONS AND EXPENSES........................................13
ITEM 3.APPLICABLE STATUTORY PROVISIONS.......................................14
3.1 GENERAL...........................................................14
3.2 APPROVAL OF THE REORGANIZATION UNDER SECTION 10...................16
Section 10(b).....................................................16
Section 10(b)(1)...............................................16
Section 10(b)(2)...............................................18
Section 10(b)(3)...............................................18
Section 10(c)..................................................19
Section 10(c)(1)...............................................20
Section 10(c)(2)...............................................21
Section 10(f)..................................................23
ITEM 4.REGULATORY APPROVAL...................................................24
ITEM 5.PROCEDURE.............................................................24
ITEM 6.EXHIBITS AND FINANCIAL STATEMENTS.....................................24
ITEM 7.INFORMATION AS TO ENVIRONMENTAL EFFECTS...............................27
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The Application/Declaration filed in this proceeding on October 18, 1999,
as amended by Amendment No. 1, filed December 3, 1999, is hereby amended and
restated in its entirety to read as follows:
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION.
1.1. Introduction.
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CP&L Energy, Inc. (formerly CP&L Holdings, Inc.), a North Carolina
corporation ("CP&L Energy"), requests authorization from the Securities and
Exchange Commission ("Commission") under Sections 9(a)(2) and 10 of the Public
Utility Holding Company Act of 1935, as amended (the "1935 Act" or "Act"), to
acquire all of the issued and outstanding shares of common stock of Carolina
Power & Light Company ("CP&L" or the "Company"), a North Carolina corporation
and an "electric utility company" within the meaning of Section 2(a)(3) of the
Act. As a result of the transaction, CP&L Energy will acquire directly all of
the outstanding shares of CP&L's common stock ("CP&L Common Stock"), and,
indirectly, all of the outstanding common stock of North Carolina Natural Gas
Corporation ("NCNG"), which is a wholly-owned subsidiary of CP&L and a "gas
utility company" within the meaning of Section 2(a)(4) of the Act.
CP&L and CP&L Energy (then named CP&L Holdings, Inc.) have entered into an
Agreement and Plan of Share Exchange, dated as of August 22, 1999 (the "Exchange
Agreement"), which is filed herewith as Exhibit B-1. CP&L's shareholders
approved the Exchange Agreement at a special meeting of shareholders on October
20, 1999. The Exchange Agreement was approved by the affirmative vote of both a
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majority of all votes entitled to be cast by holders of CP&L $5 Preferred Stock,
Serial Preferred Stock, and CP&L Common Stock, voting together as a single
class, and a majority of all of the votes entitled to be cast by the holders of
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CP&L Common Stock, voting as a separate class.
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It is expected that the transactions contemplated in the Exchange Agreement
will be implemented as soon as practicable after all regulatory approvals are
obtained. The share exchange (the exchange of the outstanding CP&L Common Stock
on a share-for-share basis for shares of common stock of CP&L Energy ("CP&L
Energy Common Stock") pursuant to the Exchange Agreement) will become effective
immediately following the close of business on the date of the filing with the
North Carolina Secretary of State of Articles of Exchange pursuant to Section
55-11-05(a) of the North Carolina Business Corporation Act or at such later time
and date as may be stated in such Articles of Exchange ("Effective Time").
1.2. Other Regulatory Filings
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The North Carolina Utilities Commission ("NCUC") and South Carolina Public
Service Commission ("SCPSC") have approved the reorganization of CP&L into a
"holding company" structure. The orders of the NCUC and SCPSC are filed herewith
as Exhibits D-2 and D-4, respectively.
The Federal Energy Regulatory Commission ("FERC") has held that the
transfer of common stock of a public utility company, such as CP&L, from its
existing stockholders to a holding company constitutes a transfer of the
"ownership and control" of the facilities of such utility, and is thus a
"disposition of facilities" subject to FERC review and approval under Section
203 of the Federal Power Act. The order of the FERC approving the transfer of
CP&L's facilities is filed herewith as Exhibit D-6.
A provision in the Atomic Energy Act requires Nuclear Regulatory Commission
("NRC") consent for the transfer of control of NRC licenses. The NRC has
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approved the transfer of control, resulting from the share exchange, of the
operating licenses held by CP&L for H.B. Robinson Unit No. 2, Brunswick Unit
Nos. 1 and 2, and Shearon Harris Unit No.1, and the Materials License No.
SNM-2502 for the Robinson Independent Spent Fuel Storage Installation. The NRC's
order is filed herewith as Exhibit D-8.
CP&L holds certain licenses issued by the Federal Communications Commission
("FCC"). CP&L has obtained the FCC's approval of a pro forma change of control
of the licenses. The FCC's order is filed herewith as Exhibit D-10.
The Virginia State Corporation Commission ("VSCC") has jurisdiction over
the indirect transfer of the stock of CP&L's subsidiary, Interpath
Communications, Inc. ("Interpath"), a telephone public service company with
operations in Virginia. The VSCC order approving the transfer of Interpath's
stock, resulting from the share exchange, is filed herewith as Exhibit D-12.
1.3. Description of CP&L and its Subsidiaries.
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CP&L is a regulated public utility incorporated under the laws of the State
of North Carolina. It is primarily engaged in the business of generating,
purchasing, transmitting and distributing electricity in portions of North
Carolina and South Carolina. The Company provides electric service to more than
1.2 million customers in a 30,000 square-mile area, including a substantial
portion of the coastal plain of North Carolina extending to the Atlantic Ocean
between the Pamlico River and the South Carolina border, the lower Piedmont
section of North Carolina, an area of northeastern South Carolina and an area in
western North Carolina in and around the City of Asheville. The estimated total
population of the area served is approximately 3.9 million.
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At December 31, 1999, CP&L had a total system installed generating
capability (including the North Carolina Eastern Municipal Power Agency's share
of certain jointly-owned generating units that are operated by CP&L) of 10,128
MW, 5,857 pole miles of transmission lines, including 292 miles of 500 kV lines
and 2,857 miles of 230 kV lines, and approximately 44,294 pole mile of overhead
lines and approximately 13,842 miles of underground lines. CP&L is subject to
regulation by the NCUC and the SCPSC with respect to retail electric rates,
securities issuances, affiliate transactions, and other matters, and by FERC
with respect to wholesale electric and electric transmission rates.
CP&L is also a "holding company" by reason of its ownership of all of the
issued and outstanding common stock of NCNG, a gas utility company that CP&L
acquired on July 15, 1999.1 NCNG, a Delaware corporation, is engaged in the
transportation and distribution of natural gas through approximately 1,128 miles
of transmission pipeline and approximately 2,865 miles of distribution mains.
NCNG sells and delivers gas to approximately 115,000 customers in 110 cities and
towns in eastern and south central North Carolina and four municipal gas
distribution systems that serve an additional 46,764 end users. The estimated
total population of the territory served by NCNG is 2.6 million. There is
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1 See Re: Carolina Power & Light Company, et al., 194 P.U.R. 4th 258
(July 13, 1999). Through another subsidiary, CP&L is engaged in a venture to
develop a natural gas pipeline and distribution system in several counties in
eastern North Carolina that are not now served with gas. The acquisition of and
ownership of that entity will be the subject of a separate application with the
Commission.
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substantial overlap between CP&L's electric service area and NCNG's gas service
area. It is estimated that approximately 29% of NCNG's retail and wholesale gas
customers are also electric customers of CP&L. NCNG is also subject to
regulation by the NCUC with respect to rates, securities issuances, affiliate
transactions, and other matters.
CP&L currently claims an exemption from the registration requirements of
the Act pursuant to Section 3(a)(2) and Rule 2 promulgated thereunder because it
is predominantly a public utility company whose operations as such are confined
to North Carolina and states contiguous thereto. See File No. 69-477.
CP&L's principal direct and indirect non-utility subsidiaries include:
Cape Fear Energy Corporation, a gas marketer that is engaged in the
business of purchasing natural gas for NCNG's system supply and for resale to
large industrial users and the municipalities served by NCNG, as well as the
business of providing energy management services.
Capitan Corporation, which was organized to hold title to certain land and
water rights.
CaroFinancial, Incorporated, which holds various passive investments.
CaroFund, Incorporated, which participates through CaroHome, LLC and other
ventures in which CaroHome, LLC has invested, in affordable housing projects for
low-income individuals in North Carolina.
NCNG Energy Corporation, which holds certain energy-related investments
and sells natural gas to resellers.
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Interpath Communications, Inc., which, through subsidiaries, provides
internet-based services and markets fiber optics capacity to telecommunications
carriers.
Monroe Power Company, an "exempt wholesale generator" within the meaning of
Section 32 of the Act, which owns and operates a 160 MW simple-cycle combustion
turbine unit in Monroe, Georgia.2
Strategic Resource Solutions Corp., which directly and through subsidiaries
designs, develops, installs and provides facilities and energy management
software systems and other services for educational, commercial, industrial and
governmental markets nationwide.
CP&L also holds interests in several partly-owned subsidiaries which are
engaged in, among other businesses, making investments in affordable housing
projects, renovating historic buildings in North Carolina, and providing venture
capital to entrepreneurial ventures formed to develop and commercialize new
technology to benefit electric utilities.
For the year ended December 31, 1999, CP&L's consolidated operating
revenues (pro forma to include the results for a full year of operations of NCNG
in 1999) were $3.5 billion, of which $3.14 billion (90.6%) were derived from
electric utility operations, $201 million (5.8%) from regulated natural gas
operations, and $125 million (3.6%) from diversified non-utility activities. At
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2 See Monroe Power Company, 87 F.E.R.C.ss.61,238 (May 28, 1999).
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December 31, 1999, CP&L had consolidated assets of $9.5 billion, including net
utility plant of $6.8 billion. As of April 30, 2000, CP&L had issued and
outstanding 159,636,055 shares of Common Stock, without par value, which is
listed for trading on the New York and Pacific Stock Exchanges.
On August 22, 1999, CP&L, CP&L Energy and Florida Progress Corporation
("Florida Progress"), an exempt electric utility holding company pursuant to
Section 3(a)(1) of the Act and Rule 2 thereunder,3 entered into an Agreement
and Plan of Exchange, which was amended and restated on March 3, 2000, pursuant
to which CP&L Energy has agreed to acquire all of the issued and outstanding
common stock of Florida Progress for a combination of cash and shares of CP&L
Energy Common Stock. The transaction is subject to shareholder approvals and
approvals by various state and federal regulatory commissions, including this
Commission, and satisfaction of other conditions precedent. CP&L Energy has
filed a separate application pursuant to Sections 9(a) and 10 of the Act
requesting approval for the merger with Florida Progress. See File No. 70-9643.
Upon consummation of the merger transaction, CP&L Energy intends to register as
a holding company pursuant to Section 5 of the Act.4
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3 See Statement by Florida Progress Corporation on Form U-3A-2 filed
pursuant to Rule 2. File No. 69-267.
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1.4. The Exchange Agreement.
----------------------
To carry out the proposed reorganization, CP&L has organized CP&L Energy
under the laws of the State of North Carolina. CP&L Energy is currently a
direct, wholly-owned subsidiary of CP&L with nominal capitalization. CP&L Energy
owns no utility assets and is not currently a "public utility company" or a
"holding company" for purposes of the 1935 Act. In the share exchange:
(1) each share of CP&L Common Stock outstanding immediately prior to
the Effective Time of the share exchange shall be automatically
exchanged for one new share of CP&L Energy Common Stock;
(2) CP&L Energy shall acquire and become the owner of all of the
issued and outstanding shares of CP&L Common Stock;
(3) the shares of CP&L Energy Common Stock outstanding immediately
prior to the Effective Time shall be canceled;
(4) the former holders of CP&L Common Stock shall be entitled only to
receive shares of CP&L Energy Common Stock in exchange therefor; and
(5) the directors of CP&L shall become the directors of CP&L Energy.
As a result, upon completion of the share exchange, CP&L Energy will become
a statutory "holding company," CP&L will be a direct wholly-owned subsidiary of
CP&L Energy, and all of the CP&L Energy Common Stock outstanding immediately
after the share exchange will be owned by the former holders of CP&L Common
Stock outstanding immediately prior to the share exchange. Following the share
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4 For more information concerning the proposed merger with Florida
Progress, including a copy of the Agreement and Plan of Exchange, see the Form
U-1 application in File No. 70-9643, dated March 14, 2000.
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exchange, the stock of NCNG and of some of CP&L's existing non-utility
subsidiaries may be transferred to CP&L Energy and become direct subsidiaries of
CP&L Energy.
Except for the possible exercise of dissenters' rights, CP&L's outstanding
preferred stock will not be exchanged or otherwise affected in the share
exchange and will continue to be the preferred stock of CP&L. CP&L preferred
stock will continue to rank senior to CP&L Common Stock as to dividends and as
to the distribution of CP&L's assets upon a liquidation. The current
indebtedness of CP&L will continue to be direct obligations of CP&L and will be
neither assumed nor guaranteed by CP&L Energy in connection with the share
exchange. CP&L's first mortgage bonds will continue to be secured by first
mortgage liens on all of the properties of CP&L that are currently subject to
such liens.
The Board of Directors' decision to exchange CP&L Common Stock for CP&L
Energy Common Stock was primarily based on the Board's desire to confer the
expected benefits of the share exchange on those investors who are best placed
to enjoy such benefits, namely the holders of CP&L Common Stock. The Board's
decision not to exchange CP&L's preferred stocks in the share exchange was
primarily based on the Board's desire not to alter, or potentially alter, the
nature of the investment decision represented by CP&L's preferred stocks
(namely, a direct investment in a regulated utility) and the priority position
of the CP&L's preferred stockholders with respect to dividends and assets on
liquidation.
The consolidated assets and liabilities of CP&L and its subsidiaries before
the Effective Time will be the same as the consolidated assets and liabilities
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of CP&L Energy and its subsidiaries after the Effective Time. All the business
and operations conducted before the Effective Time by CP&L and its subsidiaries
will continue to be conducted after the Effective Time by CP&L and such
subsidiaries, as direct or indirect subsidiaries of CP&L Energy.
The share exchange will have no impact on the regulation of CP&L and NCNG.
CP&L and NCNG will both continue to be subject to regulation by the NCUC as to
rates, securities issuances and other matters, and CP&L will also continue to be
subject to such regulation by the SCPSC. FERC will continue to regulate the
terms and conditions of CP&L's transmission of electricity, along with
transmission interconnections and ancillary services, as well as the terms and
conditions of its sales of electric energy for resale. The NRC will continue to
review and regulate CP&L's operation of the two Brunswick nuclear units and the
H.B. Robinson nuclear unit. The FCC will continue to regulate CP&L's use of
radio and microwave frequencies for utility operations.
CP&L will remain a reporting company under the Securities Exchange Act of
1934, as amended ("1934 Act"). Prior to the share exchange, CP&L Energy will
apply to have its common stock listed on the New York Stock Exchange. It is
anticipated that CP&L Energy Common Stock will be listed and traded on such
stock exchange upon consummation of the share exchange, whereupon CP&L Energy
will be required to file reports with the Commission pursuant to Section 13(a)
of the 1934 Act. The CP&L Common Stock will cease to be listed on the New York
Stock Exchange following the share exchange.
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The share exchange is subject to the satisfaction of the following
conditions (in addition to approval of the Exchange Agreement by CP&L's
shareholders, which has been obtained): (i) all necessary orders,
authorizations, approvals, or waivers from state and federal regulatory bodies,
boards, or agencies having jurisdiction have been obtained, remain in full force
and effect, and do not include, in the sole judgment of the Board of Directors
of CP&L, unacceptable conditions; and (ii) shares of CP&L Energy Common Stock to
be issued in connection with the exchange have been listed, subject to official
notice of issuance, by the New York Stock Exchange.
CP&L Energy has filed with the Commission a Registration Statement on Form
S-4 ("Registration Statement") under the Securities Act of 1933, as amended
("1933 Act"). See Exhibit C-1 hereto. The Prospectus/Proxy Statement contained
in the Registration Statement was filed for the purpose of (i) registering the
shares of CP&L Energy Common Stock to be issued in exchange for the CP&L Common
Stock pursuant to the share exchange and (ii) complying with the requirements of
the 1934 Act in connection with the solicitation of proxies of CP&L's common and
preferred shareholders.
1.5. Reasons for the Proposed Reorganization.
---------------------------------------
Transformation to a holding company structure will enable CP&L to respond
more effectively to the changes facing the energy industry today and to take
better advantage of the opportunities that will be available in the coming
years. Among other benefits, the formation of a holding company will permit a
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clearer separation of regulated and unregulated businesses, and will provide
greater flexibility in establishing and financing new business initiatives.
The electric power industry has gone through rapid change in recent years.
Although it is impossible to predict the precise nature of the regulatory
environment in coming years, it is likely that such changes will affect CP&L's
existing businesses, and may also create opportunities for new initiatives. In
keeping with CP&L's long-term strategy to become a regional provider of energy
products and services and its previously announced goals for increasing revenues
and earnings, CP&L Energy will likely explore new business opportunities and
acquisitions in the future. Some of these opportunities will be within the
regulated portions of CP&L Energy's business; others will be unregulated.
The holding company structure is quite common, particularly where regulated
and non-regulated businesses are both part of one corporate family. Several
electric utilities have undergone a similar conversion in recent years. This
structure will provide CP&L the optimal regulatory and financial flexibility to
compete effectively, no matter what the competitive landscape looks like.
As indicated, some of CP&L's current subsidiaries may become direct
subsidiaries of CP&L Energy following the share exchange, and in the future new
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entities or acquisitions may also be direct subsidiaries of CP&L
Energy.5 This will allow a more complete functional and financial separation
in CP&L Energy's regulated and unregulated businesses. Importantly, investments
in non-utility businesses will not have to be financed by CP&L, which should
help to minimize concerns about cross-subsidization of the costs of new
enterprises by CP&L and its customers.
The holding company structure will also allow management to make decisions
based on the specific needs and characteristics of these non-traditional
businesses, such as financing requirements and capital structures, outside of
the regulatory regime. At the same time, CP&L will continue, in a substantially
unchanged form, as a separate subsidiary of CP&L Energy and will remain subject
to the jurisdiction of the NCUC, the SCPSC, the FERC, the NRC and other
governmental authorities.
ITEM 2. FEES, COMMISSIONS AND EXPENSES
The fees, commissions and expenses paid or incurred, or to be paid or
incurred, directly or indirectly, in connection with the reorganization, by the
applicant or any associate company of the applicant, are estimated at
approximately $2,300,000, which includes the Commission's filing fee under the
1933 Act of $1,632,952, legal fees and expenses of approximately $325,000, costs
of printing, mailing, proxy solicitation and proxy tabulation totaling
approximately $327,000, and other miscellaneous costs.
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5 Following the share exchange, CP&L Energy intends to form a
subsidiary service company to provide shared services to CP&L Energy's
subsidiaries.
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ITEM 3. APPLICABLE STATUTORY PROVISIONS
3.1. General.
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Sections 9(a)(2) and 10 of the 1935 Act are applicable to the share
exchange. Section 9(a)(2) of the 1935 Act requires Commission approval before
any person may acquire, directly or indirectly, 5% or more of the voting
securities of any public-utility company if such person is already an
"affiliate," as defined in Section 2(a)(11)(A) of the Act, of any other
public-utility company or would, by reason of such acquisition, become an
"affiliate" of more than one "public-utility company." As a result of the share
exchange, CP&L Energy will become an "affiliate" of both CP&L and NCNG.
In addition, upon consummation of the share exchange, CP&L Energy will be a
"holding company" within the meaning of Section 2(a)(7)(A) of the 1935 Act and
would be required to register unless it can qualify for an exemption. CP&L
Energy intends to claim an exemption under Section 3(a)(1) of the Act pursuant
to Rule 2 by filing a statement on Form U-3A-2 immediately after the share
exchange.6
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6 Section 3(a)(1) of the Act provides an exemption for a holding
company if:
"such holding company, and every subsidiary thereof which is a
public-utility company from which such holding company derives, directly
or indirectly, any material part of its income, are predominantly
intrastate in character and carry on their business substantially in a
single State in which such holding company and every such subsidiary
company thereof are organized."
CP&L Energy will not derive a "material" part of its income from NCNG
which, although it operates exclusively in North Carolina, is incorporated in
Delaware. Further, CP&L Energy believes the public-utility operations of CP&L
outside of North Carolina are not so large as to affect the essentially
intrastate (i.e., North Carolina) character of its business. For the year ended
December 31, 1999, CP&L had operating electric utility revenues of $3.14
billion, of which approximately 85% were derived from operations in North
Carolina. In 1999, CP&L sold 54,759,160,807 kilowatt-hours of electricity, of
which approximately 85% were sold in North Carolina. Including NCNG's
operations, the CP&L Energy system as a whole will derive approximately 86% of
utility revenues from operations in North Carolina, based on 1999 results
(including a full year of results of NCNG).
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The Commission has approved the formation of a holding company over
existing public-utility companies on numerous occasions. See, e.g.; NSTAR,
Holding Co. Act Release No. 27067 (Aug. 24, 1999); Niagara Mohawk Holdings,
Inc., Holding Co. Act Release No. 26986 (March 4, 1999); Atlanta Gas Light Co.,
Holding Co. Act Release No. 26482 (March 5, 1996); SIGCORP, Holding Co. Act
Release No. 26431 (Dec. 14, 1995); Providence Energy Corporation, Holding Co.
Act Release No. 26420 (Nov. 30, 1995); PP&L Resources, Inc., Holding Co. Act
Release No. 26248 (March 10, 1995); WPS Resources Corporation, Holding Co. Act
Release No. 26101 (Aug. 10, 1994); Unicom Corporation, Holding Co. Act Release
No. 26090 (July 22, 1994); Illinova Corporation, Holding Co. Act Release No.
26054 (May 18, 1994); KU Energy Corporation, Holding Co. Act Release No. 25409
(Nov. 13, 1991); and CIPSCO Incorporated, Holding Company Act Release No. 25152
(Sept. 18, 1990).
For the reasons explained below, the Commission should grant approval of
the reorganization pursuant to Section 9(a)(2) of the 1935 Act based upon the
transaction's compliance with the applicable standards of Section 10.
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3.2. Approval of the Reorganization under Section 10.
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The standards for approval of the share exchange are contained in Sections
10(b), 10(c) and 10(f) of the Act. The reorganization should be found to meet
these standards.
Section 10(b). Section 10(b) requires the Commission to approve an
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acquisition if the requirements of Section 10(f) (see discussion below) are
satisfied unless the Commission finds that:
(1) such acquisition will tend towards interlocking relations or the
concentration of control of public utility companies, of a kind or to
an extent detrimental to the public interest or the interest of
investors or consumers;
(2) in case of the acquisition of securities or utility assets, the
consideration, including all fees, commissions, and other
remuneration, to whomsoever paid, to be given, directly or indirectly,
in connection with such acquisition is not reasonable or does not bear
a fair relation to the sums invested in or the earning capacity of the
utility assets to be acquired or the utility assets underlying the
securities to be acquired; or
(3) such acquisition will unduly complicate the capital structure of
the holding company system of the applicant or will be detrimental to
the public interest or the interest of investors or consumers or the
proper functioning of such holding company system.
CP&L Energy respectfully submits that no adverse finding should be made
under any of these paragraphs.
Section 10(b)(1). The share exchange merely involves an internal corporate
reorganization that will result in CP&L Energy becoming a "holding company"
within the meaning of the 1935 Act over CP&L and NCNG. No other "public utility
company" will be involved in the reorganization. The consolidated assets and
liabilities of CP&L and its subsidiaries before the Effective Time will be the
same as the consolidated assets and liabilities of CP&L Energy and its
subsidiaries after the Effective Time. All the business and operations conducted
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before the Effective Time by CP&L and its subsidiaries will continue to be
conducted after the Effective Time by CP&L and such subsidiaries as direct or
indirect subsidiaries of CP&L Energy. The reorganization will not involve the
acquisition of any utility assets not already owned directly or indirectly by
CP&L. Consequently, the reorganization should not be deemed to "tend towards
interlocking relations...of public utility companies, of a kind or to an extent
detrimental to the public interest or the interest of investors or consumers"
within the meaning of Section 10(b)(1).
For the same reasons, the reorganization will not tend toward any
"concentration of control of public utility companies" that might be detrimental
to the public interest or the interests of consumers or investors. Importantly,
the reorganization will not involve the acquisition of any utility assets not
already owned directly or indirectly by CP&L and "will therefore have no effect
on the concentration of control of public utility companies." Wisconsin Energy
Corp., Holding Co. Act Release No. 24267, 37 SEC Docket 296, 300 (Dec. 18,
1986). In addition, the competitive impact of the reorganization was fully
considered by the FERC. A detailed explanation of the reasons why the
reorganization will not adversely affect competition is set forth in the FERC
application filed as D-5 hereto. The Commission may "watchfully defer" to FERC
in such matters. See City of Holyoke v. SEC, 972 F.2d 358, 363-64 (D.C. Cir.
1992), quoting Wisconsin's Environmental Decade v. SEC, 882 F.2d 523, 527 (D.C.
Cir. 1989).
Section 10(b)(2). Section 10(b)(2) of the 1935 Act requires the Commission
to determine whether the consideration to be given in connection with a proposed
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acquisition of securities is reasonable and bears a fair relation to the
investment in and earning capacity of the utility assets underlying the
securities being acquired. As discussed above, the share exchange involves the
exchange of each share of CP&L Common Stock for a share of CP&L Energy Common
Stock; no cash or other form of consideration will be given in exchange for CP&L
Common Stock. Because the proportion of each common shareholder's ownership will
be unchanged, the consideration is fair and reasonable. See Wisconsin Energy
Corp., supra, 37 SEC Docket at 300.
Finally, CP&L Energy believes that the fees, commissions and expenses paid
or to be paid in connection with the share exchange are reasonable and customary
for a transaction of this kind and are not material when measured against CP&L's
consolidated book value or the earning capacity of its assets.
Section 10(b)(3). Section 10(b)(3) of the 1935 Act requires the Commission
to determine if a proposed transaction will unduly complicate the capital
structure of the holding company, or will be detrimental to the public,
investors or consumers. No such effect will result from the reorganization.
The reorganization will not involve the creation of any ownership interests
other than those necessary to maintain the basic corporate relationships of the
holding company system to be established. Pursuant to the reorganization, CP&L
Energy will acquire all of the CP&L Common Stock. No minority common stock
interest in CP&L will remain and the rights of the existing debt and preferred
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equity securities holders of CP&L will be unaffected. The consolidated assets
and liabilities of CP&L and its subsidiaries before the Effective Time will be
the same as the consolidated assets and liabilities of CP&L Energy and its
subsidiaries after the Effective Time.
All the business and operations conducted before the Effective Time by CP&L
and its subsidiaries will continue to be conducted after the Effective Time by
CP&L and such subsidiaries, as direct or indirect subsidiaries of CP&L Energy.
Moreover, control of the system will remain in the hands of CP&L's common
shareholders, who will become the holders of all of the issued and outstanding
shares of CP&L Energy Common Stock. Consequently, as the Commission has found in
similar circumstances, the reorganization will not result in any complexity of
capital structure contrary to Section 10(b)(3). See, e.g., CIPSCO Incorporated,
supra; Wisconsin Energy Corp., supra.
Finally, the reorganization will have only a limited effect on the rights
of the holders of CP&L Common Stock. The material differences between the voting
and other rights of holders of CP&L Energy Common Stock and CP&L Common Stock
are described at pages 21-24 of the Prospectus/Proxy Statement (included in
Exhibit C-1).
Section 10(c). Section 10(c) of the Act states that, notwithstanding the
------------
provisions of Section 10(b), the Commission shall not approve:
(1) an acquisition of securities or utility assets, or of any other
interest, which is unlawful under the provisions of section 8 or is
detrimental to the carrying out of the provisions of section 11; or
(2) the acquisition of securities or utility assets of a public
utility or holding company unless the Commission finds that such
acquisition will serve the public interest by tending towards the
economical and the efficient development of an integrated utility
system.
In this case, the requirements of Section 10(c) are satisfied.
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Section 10(c)(1). Under Section 10(c)(1), the Commission may not approve an
acquisition that "is unlawful under the provisions of section 87 or is
detrimental to the carrying out of the provisions of section 11." Section
11(b)(1) of the Act, with an exception, provides that a registered holding
company must limit its operations to a single integrated public-utility system,
either electric or gas. In this case, CP&L's electric utility properties
constitute an integrated electric system, as defined in Section 2(a)(29)(A) of
the Act, and NCNG's gas utility properties constitute an integrated gas system
within the meaning of Section 2(a)(29)(B) of the Act.
Section 11(b)(1) permits a registered holding company to own one or more
additional integrated public-utility systems only if the requirements of Section
11(b)(1)(A) - (C) (the "ABC clauses") are satisfied. By its terms, however,
Section 11(b)(1) applies only to registered holding companies and therefore does
not preclude the acquisition and ownership of a combination gas and electric
system by a holding company, such as CP&L Energy, which will be exempt and whose
ownership of both gas and electric operations in North Carolina is permitted and
subject to "affirmative state regulation." See WPL Holdings, Inc., 49 S.E.C. 761
at 770 (1988), aff'd in part and rev'd in part sub nom., Wisconsin's
Environmental Decade v. SEC, 882 F.2d 523 (D.C. Cir. 1989), reaffirmed, 50
------------------------
7 Section 8 prohibits an acquisition by a registered holding company
of an interest in an electric utility and a gas utility serving substantially
the same territory unless expressly approved by a State commission where State
law prohibits or requires approval of any such acquisition.
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S.E.C. 728 (1991); Dominion Resources, Inc., Holding Company Act Release No.
24618 (April 5, 1988).
The Commission has also previously held that a holding company may acquire
utility assets that will not, when combined with its existing utility assets,
make up an integrated system or comply fully with the "ABC" clauses, provided
that there is de facto integration of contiguous utility properties and the
holding company is exempt from registration under Section 3(a) of the Act
following the acquisition.8 In this case, CP&L Energy intends to claim an
exemption from the registration requirements under the Act pursuant to Section
3(a)(1). Further, there is and will continue to be following the reorganization
de facto integration of CP&L's electric and NCNG's gas utility properties.9
As stated, there is substantial overlap of the service areas of CP&L and NCNG
in North Carolina. Further, since acquiring NCNG on July 15, 1999, CP&L has
been in engaged in the process of coordinating the operations and corporate
functions of these two companies in areas such as gas purchasing.
Section 10(c)(2). In the context of the formation of a new holding company
over an existing public utility, the Commission has held that the structural
------------------------
8 See e.g., TUC Holding Co., et al., Holding Company Act Release No.
26749 (August 1, 1997); Sempra Energy, Holding Company Act Release No. 26890
(June 26, 1998); and PP&L Resources, Inc., et al., Holding Company Act Release
No. 26905 (August 12, 1998).
9 CP&L Energy also believes that its retention of NCNG as an
additional integrated public-utility system following CP&L Energy's registration
under the Act will satisfy the standards under the "ABC" clauses. This issue has
been addressed in CP&L Energy's application for approval to acquire Florida
Progress.
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change must result in significant benefits to the holding company system. CIPSCO
Inc., Holding Co. Act Release No. 25152 (Sept. 18, 1990).
As discussed above in Item 1, the holding company structure resulting from
the share exchange will yield significant benefits in the form of economies and
efficiencies. Among other benefits, the holding company structure will permit
CP&L to adjust capital ratios to appropriate levels through dividends to, or
equity investments from, CP&L Energy. See, e.g., WPL Holdings, Inc., Holding Co.
Act Release No. 25377 (1991). This ability to adjust the components of CP&L's
capital structure would also increase general financial flexibility, allowing
CP&L to take advantage of more attractive financing opportunities that might not
otherwise be available. See CIPSCO Inc., supra.
The reorganization should also help to broaden CP&L's financial base and
its investment appeal by reducing the system's dependence on its utility
operations. This diversity should also increase financing alternatives and
efficiencies, since financing may be tailored to the specific needs and
circumstances of the individual utility and non-utility businesses. As the
Commission has noted in similar circumstances, "[l]ower-cost financing can
enhance efficient utility operations and benefit ratepayers and senior security
holders." KU Energy Corp., supra, 50 SEC Docket at 296.
The Commission has noted in analogous cases that such financial and
organizational advantages satisfy Section 10(c)(2). See WPL Holdings, Inc.,
supra. Moreover, a Commission finding of "efficiencies and economies" may be
based "on the potential for economies presented by the acquisition even where
these are not precisely quantifiable." American Electric Power Co., 46 SEC 1299,
1322 (1978). Accord, Centerior Energy Corp., 35 SEC Docket 769, 775 (April 29,
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1986) ("specific dollar forecasts of future savings are not necessarily
required; a demonstrated potential for economies will suffice even when these
are not precisely quantifiable"). In this case, CP&L Energy believes that the
reorganization will provide significant financial and organizational advantages
and the resulting substantial potential economies and efficiencies should be
found to meet the standard of Section 10(c)(2).
The Commission has held that the economical and efficient development of an
existing integrated system satisfies the requirements of Section 10(c)(2) of the
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1935 Act. See WPL Holdings, Inc., supra. The electric utility system of CP&L and
the gas utility system of NCNG constitute an integrated electric utility system
and an integrated gas utility system within the meaning of Section 2(a)(29) (A)
and (B) of the 1935 Act, respectively, and will remain so after the
reorganization. CP&L's service territory will not change as a result of the
proposed corporate reorganization. Consequently, the standards of Section
10(c)(2) are satisfied.
Section 10(f). Section 10(f) provides that:
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The Commission shall not approve any acquisition . . . under
this section unless it appears to the satisfaction of the
Commission that such state laws as may apply in respect of
such acquisition have been complied with, except where
the Commission finds that compliance with such State laws
would be detrimental to the carrying out of the provisions
of section 11.
As indicated in Item 1, the reorganization has been approved by the NCUC
and the SCPSC. In addition, the reorganization will be consummated in compliance
with all other applicable North Carolina laws.
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ITEM 4. REGULATORY APPROVAL
In addition to approval by this Commission, the proposed corporate
restructuring requires the approval of the NCUC, the SCPSC, the FERC, the NRC,
the FCC, and the VSCC. CP&L has obtained the approvals of each of these
commissions. No other state or federal commission has jurisdiction over the
reorganization.
ITEM 5. PROCEDURE
The reorganization is anticipated to be implemented as soon as practicable.
To facilitate this schedule, CP&L Energy respectfully requests the Commission to
enter an order granting and permitting this application to become effective by
June 15, 2000.
CP&L Energy waives a recommended decision by a hearing officer or any other
responsible officer of the Commission and requests that there be no 30-day
waiting period between the issuance of the Commission's order and the date on
which it is to become effective. CP&L Energy consents to the Division of
Investment Management assisting in the preparation of the Commission's decision
or order in this matter, unless such Division opposes this application.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
EXHIBITS:
---------
*A-1 Amended and Restated Articles of Included as "Exhibit B" to
Incorporation of CP&L Holdings, Exhibit C-1 hereto
Inc. (now CP&L Energy, Inc.)
*A-2 Amended and Restated By-Laws of Included as "Exhibit C" to
CP&L Holdings, Inc. (now CP&L Exhibit C-1 hereto
Energy, Inc.)
*B-1 Agreement and Plan of Share Included as "Exhibit A" to
Exchange, dated as of August 22, Exhibit C-1 hereto
1999
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*C-1 Registration Statement on Form Incorporated by reference
S-4 filed August 31, 1999 by to File No. 333-86243
CP&L Holdings, Inc. (including
Proxy Statement)
D-1 NCUC Application of CP&L and NCNG Filed herewith
to Transfer Ownership
D-2 NCUC Order Filed herewith
D-3 SCPSC Application of CP&L to Filed herewith
Transfer Ownership
D-4 SCPSC Order Filed herewith
D-5 FERC Application Under Section Filed herewith
203 of the Federal Power Act
D-6 FERC Order of Approval Filed herewith
D-7 NRC Application under Atomic Filed herewith
Energy Act
D-8 NRC Order Filed herewith (Paper format
filing on Form SE pursuant
to permanent hardship
exemption)
D-9 FCC Application for Transfer Filed herewith (Paper format
of Licenses filing on Form SE pursuant
to permanent hardship
exemption)
D-10 FCC Order Filed herewith (Paper format
filing on Form SE pursuant
to permanent hardship
exemption)
D-11 VSCC Petition for Authority to Filed herewith
Transfer Stock of Interpath
D-12 VSCC Order Filed herewith
E Map of Service Territories of Filed herewith (Paper format
CP&L and NCNG filing - Form SE)
F-1 Preliminary Opinion of Counsel Filed herewith
F-2 Past-Tense Opinion of Counsel To be filed pursuant to
Rule 24
25
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*H Form of Federal Register Notice
*/ Previously filed.
_
FINANCIAL STATEMENTS:
--------------------
FS-1 CP&L Consolidated Statements of Incorporated by reference
Income for year ended December to Annual Report of CP&L
31, 1999 on Form 10-K for the year
ended December 31, 1999 in
File No. 1-3382
FS-2 CP&L Consolidated Balance Sheets Incorporated by reference
as of December 31, 1999 to Annual Report of CP&L
on Form 10-K for the year
ended December 31, 1999 in
File No.1-3382.
FS-3 CP&L Consolidating and Pro Incorporated by reference
Forma Combined Balance Sheets to Statement on Form U-3A-2
as of December 31, 1999 of CP&L for the year ended
December 31, 1999 in File
No. 69-477.
FS-4 CP&L Consolidating and Pro Incorporated by reference
Forma Combined Income to Statement on Form U-3A-2
Statements for the year of CP&L for the year
ended December 31, 1999 ended December 31, 1999 in
File No. 69-477.
FS-5 CP&L Consolidated Statements of Incorporated by reference
Income for the period ended to Quarterly Report of
March 31, 2000 CP&L on Form 10-Q for the
period ended March 31, 2000
in File No.1-3382.
FS-6 CP&L Consolidated Balance Sheets Incorporated by reference
as of March 31, 2000 to Quarterly Report of CP&L
on Form 10-Q for the period
ended March 31, 2000 in
File No.1-3382.
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ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
CP&L Energy does not believe that the proposed transaction will involve a
"major federal action" or will "significantly affect the quality of the human
environment," as those terms are used in Section 102(2)(c) of the National
Environmental Policy Act. The proposed transaction will not result in changes in
the operations of CP&L that would have any impact on the environment. No Federal
agency has prepared or is preparing an environmental impact statement with
respect to the reorganization.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the undersigned company has duly caused this statement to be signed on its
behalf by the undersigned thereunto duly authorized.
CP&L Energy, Inc.
By: /s/ William Cavanaugh III
---------------------------
Name: William Cavanaugh III
Title: President and Chief
Executive Officer
Date: June 5, 2000
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