EXHIBIT D-4
BEFORE
THE PUBLIC SERVICE COMMISSION OF
SOUTH CAROLINA
DOCKET NO. 1999-434-E/C - ORDER NO. 2000-0229
MARCH 6, 2000
IN RE:
Application of Carolina Power & Light ) ORDER APPROVING TRANSFER OF
Company and Interpath Communications, Inc. ) OWNERSHIP TO A HOLDING
to Transfer Ownership of CP&L and Interpath ) COMPANY AND APPROVING
to a Holding Company. ) STIPULATION
INTRODUCTION
This matter comes before the Public Service Commission of South
Carolina ("Commission") on the application filed by Carolina Power & Light
Company ("CP&L") and Interpath Communications, Inc. ("Interpath") to transfer
the ownership of CP&L and Interpath to CP&L Holdings, Inc. ("Holdings"), a
holding company. The Application was filed pursuant to S.C. Code Ann. Section
58-27-1300 (Supp. 1998) and S.C. Code Ann. Section 58-9-310 (Supp. 1998).
CP&L is a corporation organized and existing under the laws of the
State of North Carolina. CP&L is a public utility engaged in the business of
developing, generating, transmitting, distributing, and selling electric power
in North and South Carolina. Interpath is a subsidiary of CP&L. Interpath is a
telecommunications company authorized by the Commission to provide local and
interexchange long distance switched and dedicated services in the State of
South Carolina.
The Commission's Executive Director instructed CP&L to publish a
prepared Notice of Filing in newspapers of general circulation in the areas
affected by the Application. The purpose of the Notice of Filing was to inform
interested parties of the nature of the application and of the manner and time
in which to file the appropriate pleadings for participation in the proceedings.
CP&L complied with this instruction and provided the Commission with proof of
publication of the Notice of Filing. Petitions to Intervene were received from
the Consumer Advocate for the State of South Carolina ("Consumer Advocate") and
Nucor Steel, a division of Nucor Corporation ("Nucor").
APPLICATION
In its Application, CP&L sets forth its position that the requested
reorganization is appropriate and in the best interest of the companies involved
and the consumers. A brief synopsis of the Application will aid in understanding
the request of CP&L and Interpath. Effective July 14, 1999, CP&L acquired North
Carolina Natural Gas Corporation ("NCNG"). NCNG is a local distribution natural
gas public utility providing natural gas, propane, and natural gas
transportation services to customers in south-central and eastern North
Carolina. NCNG is now a wholly-owned subsidiary of CP&L. Upon CP&L's acquisition
of NCNG, CP&L became a holding company under the Public Utility Holding Company
Act of 1935 ("PUHCA"). However, CP&L is exempt from registration with the
Securities and Exchange Commission under Section 3(a)(2) of PUHCA.
By its application, CP&L seeks reorganization of its corporate
structure into a registered holding company. CP&L asserts that a reorganization
of its corporate structure into a registered holding company with operating
subsidiaries and a service subsidiary will benefit the State of South Carolina
and CP&L, NCNG, Interpath, and their customers. To accomplish the restructuring,
CP&L has established a North Carolina corporation, CP&L Holdings, Inc., which
now has a minimal amount of stock and no present business or properties of its
own. All of the currently outstanding shares of Holdings common stock are owned
by CP&L.
CP&L and Holdings have entered into an Agreement and Plan of Share
Exchange, which provides for the exchange of CP&L common stock for Holdings
common stock. CP&L will become a wholly owned subsidiary of Holdings, and no new
CP&L stock will be issued. Likewise, the common stock of NCNG and Interpath will
be exchanged for Holdings common stock resulting in NCNG and Interpath becoming
wholly owned subsidiaries of Holdings. Strategic Resource Solutions ("SRS"), a
subsidiary of CP&L, is also planned to become a subsidiary of Holdings.
CP&L's outstanding preferred stock will not be exchanged in the share
exchange but will continue to be shares of CP&L preferred stock. The share
exchange will not change the rights of the holders of these preferred shares as
currently provided in CP&L's charter. CP&L's debt will remain unchanged and will
continue as outstanding obligations of CP&L after the share exchange. CP&L's
common equity will be adjusted for the transfer of any subsidiaries to Holdings
but in all other respects will not be affected by the conversion to a new
holding company structure. The CP&L Articles of Incorporation will not be
changed in any way as a result of the share exchange. A services company
subsidiary will be created that will provide all shared services to the
companies owned by Holdings. The allocation of costs between and among all of
the Holdings subsidiaries will be performed in accordance with CP&L's Cost
Allocation Manual.
Further, the application provides that all of the companies within the
Holdings structure will be subject to and governed by the Code of Conduct
approved by the Commission in its Order No. 1999-508 in Docket No. 1999-077-E.
CP&L intends that its capital structure following the conversion to a holding
company structure will remain consistent with past practice. While future
events, such as a changing business environment in the utility industry or new
accounting requirements issued by the appropriate regulatory authorities, could
cause CP&L to change its capital structure, there are no intentions to effect a
change at this time. CP&L intends that its capital structure will remain in its
current status and not be influenced by any financing activity at Holdings. CP&L
also recognizes, and will not object to, the Commission's authority to utilize a
reasonable hypothetical capital structure for ratemaking purposes. According to
the Application, the holding company structure proposed by CP&L is in the best
interest of CP&L, Interpath, NCNG, their customers, and the State of South
Carolina because a holding company structure will allow CP&L and NCNG to more
clearly segregate their core utility businesses from their non-utility
businesses. This will allow for improved regulatory oversight of CP&L's and
NCNG's utility operations because the holding company structure will provide a
clearer separation between utility and non-utility activities. CP&L also offers
that the creation of a services company will further assist in providing a
clearer separation between utility and non-utility services. Under the holding
company structure, shared services will be provided by a separate services
company to CP&L, NCNG, Interpath, SRS, and all other subsidiaries. These
services will be provided pursuant to the Cost Allocation Manual, and record
keeping will clearly separate costs that should be allocated to the regulated
businesses from those costs that should be allocated to the unregulated
subsidiaries. CP&L asserts that a parent holding company structure with separate
subsidiaries, as proposed, allows a regulated utility to be maintained as a
separate legal entity and allows new regulated and non-regulated entities to be
added without affecting the legal entities already established under the holding
company. The parent holding company structure also provides for a clearer
separation of the capital structure that is supporting each legal entity.
Further, CP&L offers that the formation of a holding company provides
CP&L and NCNG greater flexibility in carrying out business than they are
currently able to do today because the holding company makes business
combinations and business expansion easier while protecting traditional
regulated utility business. Tracking of costs will be more simple as each
subsidiary will have revenues it generated, costs it incurred, and its allocated
portion of any shared service costs.
CP&L states that it will continue to own and operate all electric
distribution and transmission facilities within South Carolina and all existing
and certificated electric generating facilities upon completion of the creation
of the holding company structure. CP&L will also continue to provide electric
service to all customers within its assigned territories. Further, CP&L commits
that the Commission will continue to have access to all books and records
consistent with the regulatory conditions established by the Commission in its
Order No. 1999-508 in Docket No. 1999-077-E, approving the merger of CP&L and
NCNG.
Further, CP&L asserts that the holding company organization proposed
by CP&L is common in the utility industry, particularly where regulated and
non-regulated businesses are both conducted within the same corporate structure.
STIPULATION
On January 28, 2000, the Consumer Advocate, Nucor, and CP&L filed a
joint stipulation for Commission approval. The joint stipulation stated that the
parties had reached agreement regarding the appropriate Regulatory Conditions
and revisions to CP&L's Code of Conduct that should be adopted in conjunction
with CP&L's application to transfer ownership of CP&L and Interpath to the new
holding company. Further, the joint stipulation stated that in consideration of
and in reliance upon CP&L's agreement to be bound by the agreed upon Regulatory
Conditions and revised Code of Conduct that the Consumer Advocate and Nucor
agree not to object to Commission approval of CP&L's application to transfer
ownership of CP&L and Interpath to the new holding company. The parties request
that the Commission approve CP&L's application to transfer ownership of CP&L and
Interpath to the new holding company and that such approval be conditioned upon
the adoption of the revised Code of Conduct and Regulatory Conditions.
FINDINGS AND CONCLUSIONS
Upon consideration of this matter, the Commission finds that the
application of CP&L and Interpath to transfer the ownership of CP&L and
Interpath to CP&L Holdings, Inc., a holding company, should be, and hereby is,
approved. Further, the joint stipulation of the parties setting forth the
Regulatory Conditions and revised Code of Conduct is also approved and adopted
as part of this Order. (Order Exhibit 1, attached hereto, is a copy of the joint
stipulation with the Regulatory Conditions and revised Code of Conduct.)
The Commission finds and concludes that the reorganization of CP&L's
corporate structure into a registered holding company structure with operating
subsidiaries and a service subsidiary is in the best interest of the State of
South Carolina and of CP&L, NCNG, Interpath, and their respective customers. The
holding company structure will allow CP&L and NCNG to more clearly segregate
their core businesses from their non- utility businesses. This situation will
allow improved regulatory oversight of CP&L's and NCNG's utility operations by
providing a clear separation between utility and non-utility activities.
Additionally, a parent holding company structure allows a regulated utility to
be maintained as a separate legal entity, and it allows new, regulated entities
as well as non-regulated entities to be added without affecting the legal
entities already established under the holding company.
With regard to the joint stipulation with the Regulatory Conditions
and revised Code of Conduct, the Commission concludes that the joint stipulation
with the Regulatory Conditions and revised Code of Conduct is reasonable and
appropriate and should be approved. The parties have agreed to the terms and
conditions set forth in the stipulation and attached Regulatory Conditions and
revised Code of Conduct. As nothing contained therein appears contrary to the
public interest, the Commission finds approval of the joint stipulation with
Regulatory Conditions and revised Code of Conduct appropriate. Further, as the
parties have expressly agreed that approval of CP&L's and Interpath's request
for transfer of ownership to a new holding company be conditioned upon the
adoption of the Regulatory Conditions and revised Code of Conduct, the
Commission hereby adopts that position of the parties as a part of this Order.
IT IS THEREFORE ORDERED THAT:
1. The application of CP&L and Interpath to transfer the ownership of
CP&L and Interpath to CP&L Holdings, Inc., a holding company, is approved.
2. The joint stipulation of the parties setting forth the Regulatory
Conditions and revised Code of Conduct is also approved and adopted as part of
this Order. To the extent that the Regulatory Conditions and revised Code of
Conduct approved herein deviate from or are inconsistent with the Code of
Conduct approved by this Commission in Order No. 1999-508 in Docket No.
1999-077-E (approving the merger of CP&L and NCNG), the Regulatory Conditions
and revised Code of Conduct approved herein shall take precedence over and
supercede the Code of Conduct approved by this Commission in Order No. 1999-508
in Docket No. 1999-077-E.
3. This Order shall remain in full force and effect until further
Order of the Commission.
BY ORDER OF THE COMMISSION:
Chairman
ATTEST:
Executive Director
(SEAL)
