(As filed with the Securities and Exchange Commission August 18, 2000)
File No. 70-9659
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1
on
FORM U-1/A
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
CP&L Service LLC
Strategic Resource Solutions Corp.
CPL Energy Ventures, Inc.
411 Fayetteville Street Mall
Raleigh, North Carolina 27601
Florida Progress Corporation
Florida Power 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...............................3
1.4. Summary of Requested Approvals.................................3
1.5 Use of Proceeds................................................6
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...........................11
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 and Its
Non-Utility Subsidiaries..............................13
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.................................18
1.9.3. Other Contributions to Money Pool......................18
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.....................................20
1.13 Investments in Energy-Related Assets..........................22
1.14 Sales of Services and Goods Among Non-Utility Subsidiaries....23
1.15 Activities of Rule 58 Subsidiaries Outside the United States..24
1.16 Payment of Dividends Out of Capital and Unearned Surplus......25
1.16.1 Payment of Dividends by CP&L Energy and NCNG...........25
1.16.2 Dividends and other Payments by Non-Utility
Subsidiaries..........................................28
1.17 Tax Allocation Agreement......................................29
1.18 Certificates of Notification..................................31
Item 2. Fees, Commissions and Expenses......................................32
Item 3. Applicable Statutory Provisions.....................................32
3.1 General.......................................................32
3.2 Compliance with Rules 53 and 54...............................33
Item 4. Regulatory Approval.................................................33
Item 5. Procedure...........................................................34
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Item 6. Exhibits and Financial Statements...................................34
A. Exhibits.......................................................34
B. Financial Statements...........................................35
Item 7. Information as to Environmental Effects.............................36
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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 an exempt holding company pursuant to Section 3(a)(1) of the Act
and Rule 2 thereunder. 2 CP&L Energy owns all of the issued and outstanding
common stock of two public utility companies: Carolina Power & Light Company
("CP&L"), a North Carolina corporation, and North Carolina Natural Gas
Corporation ("NCNG"), a Delaware corporation. In a separate proceeding, 3 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. 4 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 that are owned by indirect subsidiaries
of Florida Progress and CP&L Energy. 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 of
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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 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 NCNG,
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.
In addition, following the Share Exchange, CP&L Energy will hold, directly
or indirectly, all of the outstanding equity securities of CP&L Service LLC
("CP&L Service"), 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. 69-487.
3 See File No. 70-9643.
4 See File No. 69-267.
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and administrative services, and CP&L Energy's current direct and indirect
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; CPL Energy
Ventures, Inc., an intermediate subsidiary through which CP&L Energy holds
interests in two synthetic fuels plants; Caronet, Inc. ("Caronet"), which owns
and operates fiber optics telecommunications facilities and holds minority
investments in four telecommunications and information services companies that
are primarily engaged in providing Internet-based managed applications services,
mobile telephony services, and marketing of fiber optic capacity to
telecommunications carriers; 5 CaroFund, Inc. and CaroHome, LLC, which hold
various passive investments (primarily low-income housing projects that qualify
for federal income tax credits); NCNG Cardinal Pipeline Investment Corporation,
which holds a minority interest in an intrastate gas pipeline company in North
Carolina; and NCNG Pine Needle Investment Corporation, which holds a minority
interest in a company that owns and operates a liquefied natural gas project in
North Carolina.
Florida Progress will 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."
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5 It is contemplated that Caronet will be certified as an "exempt
telecommunications company" ("ETC") pursuant to Section 34 of the Act prior to
the Share Exchange.
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1.3 CAPITAL STRUCTURE OF CP&L ENERGY. CP&L Energy is authorized under its
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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. 6 CP&L Energy has not issued
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 March 31, 2000, of
CP&L Energy and its subsidiaries will be approximately 34.0%.
1.4 SUMMARY OF REQUESTED APPROVALS. The Applicants request approval for a
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program of external financing, credit support arrangements, intrasystem
financing and other related proposals following CP&L Energy's registration under
the Act for the period through September 30, 2003 ("Authorization Period"), 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) In addition to the Acquisition Debt, CP&L Energy requests authority to
issue and sell from time to time (A) additional 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 (B) 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) (A) CP&L requests authority to issue and reissue from time to time
Short-term Debt in an aggregate principal amount not to exceed $1
billion; 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.
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6 CP&L Energy currently has outstanding approximately 159.6 million shares
of Common Stock and expects to issue approximately 50 million shares to the
shareholders of Florida Progress in the Share Exchange.
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(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 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, in addition to 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 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.
(xi) 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
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substantially all of whose physical assets consist of such
Energy-Related Assets.
(xii) Non-Utility Subsidiaries request authority to pay dividends out of
capital and unearned surplus and to acquire, retire or redeem
securities of such companies that are held by any associate company or
affiliate to the extent permitted under applicable law and the terms
of any credit arrangements to which they may be parties.
In addition, the Applicants request authorization for each of the following
additional proposals:
(xiii) CP&L Energy, on behalf of the Subsidiaries, requests authorization
to change the terms of any wholly owned Subsidiary's authorized
capital stock capitalization.
(xiv) 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 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.
(xv) 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.
(xvi) 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.
(xvii) CP&L Energy and NCNG request authority to pay dividends out of
capital and unearned surplus, subject to certain proposed limitations.
(xviii) CP&L Energy requests that the Commission reserve jurisdiction over
the terms of a proposed 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 the
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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,
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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, 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
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 As
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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. CP&L
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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 Energy Debt Limit. CP&L Energy will maintain common equity as a
percentage of consolidated capitalization (inclusive of Short-term Debt) at 30%
or above during the Authorization Period. Accordingly, CP&L Energy will not
issue any securities unless, on a pro forma basis to take into account the
issuance of such securities and the application of proceeds, common equity as a
percentage of consolidated capitalization will remain at or above 30%.
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
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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, or
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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.
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 If Common Stock or other securities linked to Common Stock is used as
consideration in connection with any such authorized or exempt acquisition, the
market value of the Common Stock on the day before closing of the acquisition,
or the average high and low market prices for a period prior to the closing, as
negotiated by the parties, will be counted against the proposed $3.8 billion
limitation on new long-term financing.
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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).
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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. CP&L
Energy currently maintains a Dividend Reinvestment and Customer Stock Purchase
Plan ("DRP"). 8 The DRP provides CP&L Energy's shareholders with a simple and
convenient means to purchase 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 is equal to 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 is equal to 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 purchased. There are 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 also intends to 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 requests authority to issue shares of its Common Stock,
including options, warrants, stock appreciation rights and similar securities,
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, including options, warrants, stock
appreciation rights and similar securities, pursuant to these existing stock
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8 CP&L Energy adopted CP&L's existing Dividend Reinvestment and Customer
Stock Purchase Plan following CP&L's reorganization into a holding company
structure. On June 27, 2000, CP&L Energy filed a post-effective amendment to
CP&L's registration statement on Form S-3 adopting such registration statement
as its own. See Exhibit C-1. CP&L Energy will further amend the DRP following
the Share Exchange to permit participation by customers of Florida Power.
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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. Securities
issued by CP&L Energy under all stock-based plans will be included within the
$3.8 billion limitation on long-term financing. Common Stock issued under such
plans will be valued at the closing price on the New York Stock Exchange as
reported in The Wall Street Journal on the last trading day before the award;
other securities (e.g., options) will be valued using a reasonable and
consistent method applied at the time of the award.
(b) Preferred Securities and Debentures. CP&L Energy will not 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 that are exempt under the Act. 9
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
------------------------
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.
9
<PAGE>
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 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.
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
------------------------
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.
11 Most securities offerings by CP&L must also be approved by the South
Carolina Public Service Commission ("SCPSC").
10
<PAGE>
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
Short-term Debt 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 programs. The effective cost of
money on Short-term Debt 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, which, when added to short-term
debt of NCNG, will not exceed $750 million. NCNG may issue such securities
directly or indirectly through a Financing Subsidiary, as described in Item
1.11. NCNG requests authority to guarantee any securities issued by a Financing
Subsidiary. The interest rate on long-term debt and trust preferred securities
issued by NCNG, or any Financing Subsidiary of NCNG, will not exceed 500 basis
points over the yield to maturity of a United States Treasury Note having
comparable maturities.
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).
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
------------------------
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>
such subsidiaries at interest rates and maturities designed to provide a return
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")
during the Authorization Period 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") during the Authorization
Period in an aggregate principal amount not to exceed $500 million outstanding
at any one time, in addition to any guarantees and other forms of credit support
that are exempt pursuant to Rule 45(b) and Rule 52(b), 14 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
------------------------
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).
14 Rule 45(b)(7) and Rule 52(b) would, in most cases, exempt the guaranty
by a Non-Utility Subsidiary of securities issued by any other Non-Utility
Subsidiary.
12
<PAGE>
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 $2.4
billion.
Progress Capital currently has in place a $600 million commercial paper
facility supported by three revolving bank credit facilities: a $100 million
facility under which it can make borrowings with a term of up to 364 days, a
$200 million facility under which it can make borrowings with a term of up to
364 days, and a $300 million facility under which it can make borrowings with a
term of up to five years. The 364-day facilities have a current expiration date
of November 16, 2000, and July 12, 2001, and the 5-year facility expires
November 30, 2003. At March 31, 2000, Progress Capital had issued and
outstanding $366.6 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 March 31, 2000, there were $35 million in 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 March 31,
2000, 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 $198.6 million of payment obligations of an indirect subsidiary, MEMCO Barge
Line, Inc. ("MEMCO"), under a synthetic lease covering barges and towboats, and
Florida Progress, Florida Power, Progress Capital, Electric Fuels and other
subsidiaries of Progress Capital have guaranteed and/or provided other forms of
credit support for an aggregate of $133 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 ($44 million), and a guarantee of tax-exempt bonds issued by
an industrial development authority in Louisiana to finance port facilities ($13
million).
Florida Progress and its subsidiaries named above do not charge any fee for
providing credit support to associate companies.
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. 15 Further, the
Applicants request that such guarantees and other forms of credit support not
------------------------
15 In some cases, guarantees described in this section may be exempt under
Rule 45(b)(6) or 45(b)(7).
13
<PAGE>
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
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
14
<PAGE>
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 existing and future financial disclosure
requirements of the Financial Accounting Standards Board associated with hedging
transactions. 16
1.9 MONEY POOLS. CP&L Energy and the Utility Subsidiaries hereby request
-----------
authorization to establish the Utility Money Pool. CP&L and NCNG request
authorization to make unsecured short-term borrowings from the Utility Money
Pool. Borrowings by Florida Power will be exempt under Rule 52(a). The Utility
Subsidiaries request authorization 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. 17
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 Service, 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
------------------------
16 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).
17 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>
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.
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).
16
<PAGE>
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
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.
CP&L proposes to borrow up to $400 million at any one time outstanding from
the Utility Money Pool, and NCNG proposes to borrow up to $125 million at any
one time outstanding. As indicated, borrowings by Florida Power will be exempt
under Rule 52(a).
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.
Borrowings from the Non-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 Non-Utility Money
Pool if it is determined that it could (and had authority to) effect a borrowing
17
<PAGE>
at lower cost directly from banks or through the sale of its own commercial
paper. No loans through the Non-Utility Money Pool would be made to, and no
borrowings through the Non-Utility Money Pool would be made by, CP&L Energy.
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 Service under the authority
of the appropriate officers of the participating companies. CP&L Service 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
Service as administrator of the pools, and interest thereon shall be separately
allocated, on a daily basis, to each money pool in accordance with the
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.
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 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
18
<PAGE>
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. 18
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, provided, however,
that a Financing Subsidiary of a Utility Subsidiary will dividend, loan or
otherwise transfer proceeds of a financing only to such Utility Subsidiary. CP&L
Energy may, if required, guarantee or enter into expense agreements in respect
of the obligations of any Financing Subsidiary that it organizes. The
Subsidiaries also request authorization to provide guarantees and enter into
expense agreements, if required, on behalf of any Financing Subsidiaries that
they organize, to the extent not otherwise exempt pursuant to Rules 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 Non-Utility Subsidiary Guarantees, as the case may
be, set forth in Item 1.7.1 or Item 1.7.2, above. 19
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. 20 To the extent
------------------------
18 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).
19 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).
20 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>
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.
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
20
<PAGE>
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,21
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 future
Non-Utility Subsidiaries. 22 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
------------------------
21 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.
22 The Commission has granted similar authority to another holding company.
See Entergy Corporation, et al., Holding Co. Act Release No. 27039 (June 22,
1999).
21
<PAGE>
physical properties consist or will consist of such Energy-Related Assets. 23
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
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. 24 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
------------------------
23 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.
24 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>
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
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 Service (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 Service), (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. 25
------------------------
25 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>
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 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, 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, 26 (ii) authorize CP&L Energy and
its direct and indirect subsidiaries to provide Energy Management Services and
Consulting Services anywhere outside the United States, 27 and (iii) reserve
------------------------
26 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).
27 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>
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 and NCNG. CP&L Energy, as a
--------------------------------------------
new company, does not have any retained earnings on a stand-alone basis.
Instead, CP&L Energy's initial capital structure following its formation as a
holding company over CP&L on June 19, 2000, consists solely of common stock.
Over time, CP&L Energy will record its share of the earnings of all of its
subsidiaries 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 ($1.81 billion at March 31, 2000). Thus, even though CP&L has the
ability to declare and pay dividends to CP&L Energy, its sole common
stockholder, out of its retained earnings existing at the time of the
reorganization, thereby transferring cash to CP&L Energy, those cash dividends
could not be used by CP&L Energy as a source of funds to make dividend payments
to its own shareholders since those funds would be classified as a return of
investment. Instead, without the relief requested below, CP&L Energy would be
restricted by Section 12(c) and Rules 26(c) and 46 to paying dividends out of
the distributed earnings of CP&L subsequent to the reorganization. There could
be situations in which this would impose an undue hardship on CP&L Energy and
its shareholders. For example, there could be a difference between the amount of
a dividend declared by CP&L Energy and the amount of CP&L's earnings that have
been recognized by CP&L Energy as of the dividend declaration date. If CP&L
Energy could not rely upon the existence of CP&L's historic retained earnings in
that case, then it would not be able to declare the normal dividend on its own
stock. Similarly, there may be instances in which CP&L may declare and pay an
extraordinary dividend or a dividend period (i.e., a quarter) in which CP&L's
current earnings are below expectations (an example might be an unusually cool
summer or unusually warm winter). In the latter case, CP&L, as a stand-alone
company, would not typically choose to cut its stated dividend rate; nor would
it need to, since it has substantial retained earnings. Thus, the effect of the
reorganization of CP&L into a holding company structure is that it could place
an unintentional limitation on the ability of CP&L Energy's shareholders - who
were formerly CP&L shareholders, to receive dividends paid from CP&L's retained
earnings, even in the absence of a limitation on the ability of CP&L to
transfer, by dividend, cash to CP&L Energy.
Moreover, as a consequence of the application of the purchase method of
accounting to both the July 1999 acquisition of NCNG by CP&L and to the Share
Exchange, CP&L Energy's retained earnings will not reflect NCNG's retained
earnings just prior to closing of that transaction ($63.3 million) or the
pre-Share Exchange retained earnings of Florida Progress ($819 million at June
30, 2000). As is the case with CP&L described above, CP&L Energy, in accordance
with Rule 26(c), will record its share of the earnings of Florida Progress under
the equity method on a going-forward basis; CP&L's retained earnings reflect
NCNG's earnings only since the date of that acquisition. Any cash dividends paid
to CP&L Energy by Florida Progress or NCNG out of retained earnings existing at
the time of their respective acquisitions could not be used by CP&L Energy as a
source of funds to make dividend payments to its own shareholders, as any such
dividends would be classified as a return of investment.
25
<PAGE>
Under the purchase method of accounting, the excess of the purchase price
over the fair value of the identifiable net tangible and intangible
(non-goodwill) assets of the company acquired is typically allocated to
goodwill. As goodwill is amortized, it reduces earnings but does not reflect a
cash outflow. 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 being amortized
by NCNG over a period not to exceed 40 years. 28
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). 29 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 30 and by the Share Exchange. NCNG requests authority to pay dividends
out of capital and unearned surplus in an amount equal to its retained earnings
------------------------
28 In accordance with the Commission's Staff Accounting Bulletin No. 54,
Topic 5J, "push down" accounting was applied to the NCNG acquisition. As a
consequence, NCNG's financial statements were restated to reflect the
recharacterization of NCNG's retained earnings as additional paid-in capital.
"Push down" accounting will not be applied to the Share Exchange because both
Florida Progress and Florida Power have substantial amounts of publicly-held
debt and Florida Power also has publicly-held preferred stock. Accordingly, the
financial statements of Florida Progress and Florida Power will not be restated
and both companies will continue to have the ability to declare and pay
dividends out of existing retained earnings. Moreover, the earnings of Florida
Progress and Florida Power will not be affected by amortization of the goodwill
created in the Share Exchange. CP&L Energy has addressed the application of
"push down" accounting to the Share Exchange in the Merger Application.
29 Compare Section 305(a) of the Federal Power Act.
30 CP&L Energy's request to pay dividends out of capital or unearned
surplus in an amount that equals NCNG's Gross Earnings is necessary because the
portion of any cash dividend paid by NCNG to CP&L Energy in excess of its
current earnings (that is, earnings after amortization of goodwill) would be
classified by CP&L Energy as a return of investment.
26
<PAGE>
just prior to its acquisition by CP&L in July 1999 and out of Gross Earnings
thereafter.
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 cost savings 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) 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. 31
(iii) The projected cash flow of CP&L Energy, Florida Progress, CP&L and
NCNG will be sufficient to pay the dividends in the amounts contemplated. The
amortization of goodwill is a non-cash expense that will not affect cash flow of
such companies.
(iv) After the Share Exchange, CP&L Energy's common equity as a percentage
of total capital structure on a consolidated basis will be approximately 35.3%,
a capital structure consistent with other registered holding company systems. As
previously indicated, CP&L Energy commits to maintain the capitalization of CP&L
Energy at or above 30% common equity on a consolidated basis. On a pro forma
basis, common stock equity as a percentage of the consolidated capitalization of
Florida Progress and CP&L will be approximately 43.17% and 49.18%, respectively.
Common equity as a percentage of capitalization of NCNG following its
acquisition by CP&L in July 1999, and after giving effect to the "pushdown" of
------------------------
31 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.
27
<PAGE>
goodwill, was approximately 87%. These percentages are all substantially in
excess of the traditionally acceptable 30% level. CP&L Energy commits to
maintain the capitalization of CP&L, Florida Power and NCNG at or above 30%
common equity.
In summary, the request of CP&L Energy and NCNG 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 formation of a
new holding company and 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). 32
1.16.2. Dividends and other Payments 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 and/or acquire,
retire or redeem any securities of such companies that are held by any associate
company or affiliate from time to time, out of capital and unearned surplus
(including revaluation reserve), to the extent permitted under applicable
corporate law. 33
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
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. 34
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
------------------------
32 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).
33 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).
34 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.
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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 reserve
------------------------
jurisdiction over a proposed 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 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
-------------------
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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. 35 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 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. 36
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 the deduction for interest
expense on the Acquisition Debt. CP&L Energy requests that the Commission
reserve jurisdiction over the proposed Tax Allocation Agreement pending
completion of the record.
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
------------------------
35 See Holding Co. Act Release No. 21968 (March 25, 1981), citing Sen. Doc.
92, Part 72A, 70th Congress, 1st Sess. at 477-482.
36 See e.g., Section 12(a) of the Act.
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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;
(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
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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 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
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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.
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.
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B-2 Form of Non-Utility Subsidiary Money Pool Agreement.
B-3 Form of Utility Money Pool Note.
B-4 Form of Non-Utility Money Pool Note.
B-5 Form of Tax Allocation Agreement (to be filed by
amendment).
C-1 Post-Effective Amendment No. 2 of CP&L Energy, dated June
26, 2000, to Registration Statement of CP&L on Form S-3,
which includes the Prospectus of CP&L Energy for Automatic
Dividend Reinvestment and Customer Stock Purchase Plan
(incorporated by reference to File No. 33-38349).
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 (previously
filed).
J-1 CP&L Energy, Inc. Automatic Dividend Reinvestment and
Customer Stock Purchase Plan (included in Exhibit C).
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 on
Income for last three fiscal years Form 10-K for the year
ended ended December 31, 1999 December 31, 1999 in File No.
1-3382
FS-2 CP&L Consolidated Balance Sheets See Annual Report of CP&L on
as of December 31, 1999 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 on
Income for the last three fiscal Form 10-K for the fiscal
year years ended September 30, 1998 ended September 30, 1998 in
File No. 0-82
34
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FS-4 NCNG Consolidated Balance Sheet as See Annual Report of NCNG on
of September 30, 1998 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 Florida
Statements of Income for the last Progress on Form 10-K for
the three fiscal years ended December year ended December 31, 1999
31, 1999 in File No. 1-8349
FS-6 Florida Progress Consolidated See Annual Report of Florida
Balance Sheet as of December 31, Progress on Form 10-K for the
1999 year ended December 31, 1999
in File No. 1-8349
FS-7 Florida Power Statements of See Annual Report of Florida
Income for the last three fiscal Power on Form 10-K for the
years ended December 31, 1999 year ended December 31, 1999
in File No. 1-3274
FS-8 Florida Power Balance Sheet as of See Annual Report of Florida
December 31, 1999 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.
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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
CP&L SERVICE LLC
STRATEGIC RESOURCE SOLUTIONS CORP.
CPL ENERGY VENTURES, INC.
By: /s/ William D. Johnson
-------------------------------------
Name: William D. Johnson
Title: Secretary
FLORIDA PROGRESS CORPORATION
FLORIDA POWER CORPORATION
PROGRESS CAPITAL HOLDINGS, INC.
FLORIDA PROGRESS FUNDING CORPORATION
By: /s/ Kenneth E. Armstrong
-------------------------------------
Name: Kenneth E. Armstrong
Title: Vice President and General Counsel
FPC DEL, INC.
By: /s/ Kenneth E. McDonald
-------------------------------------
Name: Kenneth E. McDonald
Title: President
Date: August 18, 2000
36
