EXHIBIT D-1
STATE OF NORTH CAROLINA
UTILITIES COMMISSION
RALEIGH
DOCKET NO. E-2, SUB 753
BEFORE THE NORTH CAROLINA UTILITIES COMMISSION
IN THE MATTER OF:
) APPLICATION OF CAROLINA POWER &
Application by Carolina Power & Light ) LIGHT COMPANY, INTERPATH
Company, Interpath Communications, Inc. ) COMMUNICATIONS, INC. AND NORTH
and North Carolina Natural Gas Corporation ) CAROLINA NATURAL GAS CORPORATION
to Transfer Ownership of Carolina Power & ) TO TRANSFER OWNERSHIP OF
Light Company, Interpath Communications, ) CAROLINA POWER & LIGHT COMPANY,
Inc. and North Carolina Natural Gas ) INTERPATH COMMUNICATIONS, INC.
Corporation to a Holding Company ) AND NORTH CAROLINA NATURAL GAS
) CORPORATION TO A HOLDING COMPANY
Carolina Power & Light Company ("CP&L"), Interpath Communications, Inc.
("Interpath") and North Carolina Natural Gas Corporation ("NCNG") apply to the
North Carolina Utilities Commission ("the Commission") pursuant to G.S.
ss.ss.62-111 for authorization to transfer ownership of CP&L, Interpath and NCNG
to a holding company in the manner described in this pleading. In support of
this Application, CP&L shows the following:
1. CP&L is a corporation organized and existing under the laws of the
State of North Carolina. Its principal office is located at 411 Fayetteville
Street Mall, Post Office Box 1551, Raleigh, North Carolina 27602-1551. CP&L is a
public utility engaged in the business of developing, generating, transmitting,
distributing and selling electric power in North and South Carolina. CP&L's
service territory consists of an area approximately 30,000 square miles in size,
which includes a substantial portion of the coastal plain in North Carolina
extending to the Atlantic Coast between the Pamlico River and the South Carolina
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border, the lower Piedmont section of North Carolina, an area in Northeastern
South Carolina, and an area in Western North Carolina in and around the City of
Asheville.
2. Effective July 14, 1999 CP&L acquired NCNG, which is now a wholly
owned subsidiary of CP&L. NCNG is a local distribution natural gas public
utility incorporated in Delaware authorized to do business in North Carolina.
NCNG provides natural gas, propane, and natural gas transportation services to
customers in south-central and eastern North Carolina.
3. Interpath is a telecommunications company authorized to provide
local and interexchange long distance switched and dedicated services throughout
the State of North Carolina. Interpath is a subsidiary of CP&L.
4. Upon CP&L's acquisition of NCNG, CP&L became a holding company under
the Public Utility Holding Company Act of 1935 ("PUHCA") but is exempt from
registration with the Securities and Exchange Commission under Section 3(a)(2)
of such Act.
5. The names and addresses of the applicant's attorneys who are
authorized to receive notices and communications with respect to this
application are:
William D. Johnson, Senior Vice President and Corporate Secretary
Len S. Anthony, Deputy General Counsel
Carolina Power & Light Company
P. O. Box 1551
Raleigh, North Carolina 27602-1551
Telephone: (919) 546-6367
6. CP&L believes that a reorganization of its corporate structure into
a registered holding company structure with operating subsidiaries and a service
subsidiary will benefit the State, CP&L, NCNG, Interpath and their customers. To
implement this restructuring, CP&L has established a North Carolina corporation,
CP&L Holdings, Inc. ("Holdings") which now has a nominal amount of stock
outstanding and no present business or properties of its own. All of the
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currently outstanding shares of Holdings common stock are owned by CP&L. CP&L
and Holdings have entered into an Agreement and Plan of Share Exchange
("Exchange Agreement") (see Exhibit 1), which provides for the exchange of CP&L
common stock for Holdings common stock. Under the terms of the proposed plan of
exchange, holders of the common stock of CP&L will exchange their shares for a
like number of shares of Holdings common stock. Shares of CP&L common stock will
be exchanged automatically for shares of Holdings common stock without the
necessity of a physical exchange of share certificates and Holdings will become
the owner of the CP&L common stock formerly represented by the CP&L common stock
certificates. As a result, CP&L will become a wholly owned subsidiary of
Holdings. No new CP&L stock will be issued. The common stock of NCNG and
Interpath will be exchanged for Holdings common stock in an arrangement
identical to that described above with regard to CP&L common stock. As a result,
NCNG and Interpath will become wholly owned subsidiaries of Holdings. Strategic
Resource Solutions ("SRS") is also planned to become a subsidiary of Holdings.
7. CP&L's outstanding preferred stock will not be exchanged in the
share exchange but will continue to be shares of CP&L preferred stock. The share
exchange will not change the rights of the holders of these preferred shares as
currently provided in CP&L's charter. CP&L's debt will remain unchanged and will
continue as outstanding obligations of CP&L after the share exchange. CP&L's
common equity will be adjusted for the transfer of any subsidiaries to Holdings,
but in all other respects will not be affected by the conversion to a new
holding company structure. The CP&L Articles of Incorporation will not be
changed in any way as a result of the share exchange. A proxy statement and
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registration statement have been filed with the Securities and Exchange
Commission, and a copy is attached to this pleading as Exhibit 2. Holdings stock
is expected to be listed on the New York Stock Exchange.
8. A services company subsidiary will be created that will provide all
shared services to the companies owned by Holdings. The allocation of costs
between and among all of the Holdings subsidiaries will be performed in
accordance with CP&L's Cost Allocation Manual and the relationships of CP&L and
NCNG with Holdings and all of the companies within the Holdings structure will
be subject to and governed by the Code of Conduct approved by the Commission in
its Order issued July 13, 1999 in Docket No. E-2, Sub 740/G-21, Sub 377.
9. CP&L intends that its capital structure following the conversion to
a holding company structure will remain consistent with past practice.
Subsequent to CP&L's acquisition of NCNG all outstanding debt was paid and its
capital structure became 100% equity. No decision has been made to issue
long-term debt at NCNG. While future events, such as a changing business
environment in the utility industry or new accounting requirements issued by the
appropriate regulatory authorities, could cause CP&L and/or NCNG to change their
respective capital structures, there are no intentions to effect a change at
this time. CP&L and NCNG understand that their capital structures are a key
component in ratemaking practices. Therefore, it is CP&L's intent that its and
NCNG's capital structures will remain in their current status and not be
influenced by any financing activity at Holdings. CP&L and NCNG recognize (and
will not object to) the Commission's authority to utilize a reasonable
hypothetical capital structure for ratemaking purposes.
10. The holding company structure proposed by CP&L is in the best
interest of CP&L, NCNG, their customers and the State because a holding company
structure will allow CP&L and NCNG to more clearly segregate their utility
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businesses from their non-utility businesses. This will allow improved
regulatory oversight of CP&L's and NCNG's utility operations because it will
provide a clearer separation between utility and non-utility activities. The
creation of a services company will further assist in this area. In a holding
company structure, shared services will be provided by a separate services
company to CP&L, NCNG, Interpath, SRS and all other subsidiaries. These services
will be provided pursuant to the Cost Allocation Manual described above and
record keeping will clearly separate costs that should be allocated to the
regulated businesses from those costs that should be allocated to the
unregulated subsidiaries.
11. PUHCA allows for two different types of holding companies,
registered and exempt. There are two potential methods available to CP&L to be
an exempt holding company:1 (a) the holding company and every subsidiary that
is a public utility from which the holding company derives a material part of
its income are predominately intrastate in character; or (b) the holding company
itself is predominately a public utility whose operations do not extend beyond
the state in which it is organized and contiguous states.
12. Currently, as mentioned earlier, as a result of CP&L's merger with
NCNG, CP&L is an exempt holding company under the second option (Section 3(a)(2)
of PUHCA (15 U.S.C. 79c(a)(2)).) CP&L, which is predominately a public utility,
is the holding company operating in the state in which it is organized and
states contiguous thereto. This option will not be available to CP&L if it
engages in any additional mergers or acquisitions of any size because CP&L, the
holding company, would no longer predominately be a public utility. Rather, it
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1 Exempt holding companies are not subject to the majority of PUHCA's
conditions and limitations.
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would predominately be a holding company. The first option (Section 3(a)(1))
also restricts CP&L's flexiblity because it prohibits CP&L from merging with
public utilities that are not predominately intrastate in nature. Thus, CP&L's
ability to remain an exempt holding company is limited.
13. A parent holding company structure with separate utility
subsidiaries provides a legal structure that is the most appropriate. It allows
a regulated utility to be maintained as a separate legal entity. It allows new
regulated and nonregulated entities to be added without affecting the legal
entities already established under the holding company. It provides for a
clearer separation of the capital structure that is supporting each legal
entity. The formation of a holding company provides CP&L and NCNG greater
flexibility in carrying out business than they are currently able to do today
because the holding company makes business combinations and business expansion
easier while protecting the traditional regulated utility business. The tracking
of costs is more simple. Each subsidiary will have revenues it generated, costs
it incurred, and its allocated portion of any shared services costs. The
relationship between the shared services company and the individual utilities
will be subject to any applicable State rules and regulations governing
affiliate transactions.
14. The holding company organization proposed by CP&L is quite common
in the utility industry, particularly where regulated and non-regulated
businesses are both conducted within the same corporate structure. A number of
electric and gas utilities have recently moved to a holding company structure,
including Cleco Corporation, Niagara Mohawk, Tucson Electric, Central Maine
Power, NSTAR, Atlanta Gas Light Co., SIGCORP, Providence Energy Corporation,
PP&L Resources, Inc., WPS Resources Corporation, Unicom Corporation, Illinova
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Corporation, and KU Energy Corporation. In addition, both NC Power and Public
Service Company of North Carolina, Inc. have recently become part of holding
company structures, e.g. Dominion Resource, Inc. and SCANA Corporation,
respectively.
15. Attached to this Application as Exhibit 3 is the affidavit of John
J. Gillen, an Assurance and Business Advisory Services Partner with
PricewaterhouseCoopers LLP. Mr. Gillen has extensive experience in the electric
and gas industries and the issues involved in holding company structures. In his
affidavit, Mr. Gillen affirms the representations made in this pleading with
regard to the advantages of, and CP&L's need for, a holding company structure.
16. Upon the completion of the creation of the holding company
structure described above, CP&L will continue to own and operate all electric
distribution and transmission facilities within the State and all existing and
certificated electric generating facilities. It will also continue to provide
electric service to all customers within its assigned territories. NCNG will
continue to own and operate all distribution and transmission facilities
necessary to provide service to all customers within its assigned service
territory.
17. The Commission and the Public Staff will continue to have access to
all books and records consistent with the regulatory conditions established by
the Commission in its order issued July 13, 1999 in Docket No. E-2, Sub
740/G-21, Sub 377, approving the merger of CP&L and NCNG.
18. In conjunction with the application of SCANA Corporation and Public
Service Company of North Carolina, Inc. ("PSNC") filed with the Commission in
Docket Nos. G-5, Sub 400; G-43, Sub 0 to engage in a business combination
transaction, the companies agreed to a set of holding company conditions.
Similarly, in conjunction with the application of Dominion Resources, Inc. and
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Consolidated Natural Gas Company filed with the Commission in Docket No. E-22,
Sub 380 to engage in a business combination transaction, the companies agreed to
a set of holding company conditions. Attached to this Application as Exhibit 4
is a list of holding company conditions which are identical to those agreed to
by DRI. CP&L is willing to adopt these conditions to address any concerns the
Commission may have regarding the creation of a holding company structure by
CP&L.
19. The benefits of a holding company structure, the conditions
contained in Exhibit 4, CP&L's and NCNG's commitments regarding capital
structure, and the Commission's authority to impute debt service rates to CP&L
and NCNG, ensure that allowing CP&L to create a holding company structure as
described above is in the overall best interests of the State, CP&L, NCNG and
their customers.
WHEREFORE, CP&L applies to the Commission to approve the transfer of
ownership of CP&L, Interpath and NCNG to a holding company.
Respectfully submitted, this 15th day of October, 1999.
/s/ Len S. Anthony
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Len S. Anthony
