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FILE NO. ________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM U-1 APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
VECTREN CORPORATION
20 N.W. FOURTH STREET
EVANSVILLE, INDIANA 47741
(NAME OF COMPANY FILING THIS STATEMENT AND
ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
Niel C. Ellerbrook
VECTREN CORPORATION
20 N.W. FOURTH STREET
EVANSVILLE, INDIANA 47741
(NAME AND ADDRESS OF AGENT FOR SERVICE)
The Commission is requested to send copies of all notices, orders and
communications in connection with this Application/Declaration to:
MICHAEL F. CUSICK
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004
(212) 858-1000
and
RONALD E. CHRISTIAN
Indiana Energy, Inc.
1630 North Meridian Street
Indianapolis, Indiana 46202
(317) 321-0357
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ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION
INTRODUCTION
Pursuant to Sections (9)(a)(2) and 10 of the Public Utility Holding
Company Act of 1935 (the "1935 Act" or the "Act"), Vectren Corporation, an
Indiana corporation ("Vectren" or the "Applicant"), 50% of whose outstanding
capital stock is owned by SIGCORP, Inc., an Indiana corporation ("SIGCORP"), and
50% of whose outstanding capital stock is owned by Indiana Energy, Inc., an
Indiana corporation ("Indiana Energy"), hereby requests that the Securities and
Exchange Commission (the "Commission") issue an order (i) approving the direct
acquisition by Vectren of all of the issued and outstanding voting securities
("Common Stock") of SIGCORP and Indiana Energy (other than certain Common Stock
to be cancelled as described in Item 1(B)1) and (ii) granting such other
authorizations as may be necessary in connection therewith.
Vectren's proposed direct acquisition of the Common Stock of SIGCORP
and the Common Stock of Indiana Energy is contemplated by the Agreement and Plan
of Merger, dated as of June 11, 1999 (the "Merger Agreement"), by and among
Indiana Energy, SIGCORP and Vectren. The Merger Agreement is attached hereto as
Exhibit B-1. The Merger Agreement provides for, among other things, (i) the
merger of each of SIGCORP and Indiana Energy with and into Vectren in accordance
with the laws of Indiana (the "Merger") and (ii) Vectren continuing as the sole
surviving corporation.
SIGCORP is a holding company under the 1935 Act. It has claimed an
exemption from all provisions of the 1935 Act (except for Section 9(a)(2)
thereof) pursuant to Rule 2 under the 1935 Act. See SIGCORP Form U-3A-2,
"Statement by Holding Company Claiming Exemption Under Rule U-2 from the
Provisions of the Public Utility Holding Company Act of 1935," dated February
25, 1999, attached hereto as Exhibit G-1.
Indiana Energy is a holding company under the 1935 Act. It has claimed
an exemption from all provisions of the 1935 Act (except for Section 9(a)(2)
thereof) pursuant to Rule 2 under the 1935 Act. See Indiana Energy Form U-3A-2,
"Statement by Holding Company Claiming Exemption Under Rule U-2 from the
Provisions of the Public Utility Holding Company Act of 1935," dated February
23, 1999, attached hereto as Exhibit G-2.
Vectren is not currently a holding company under the 1935 Act because
it does not own, control or hold with power to vote ten percent or more of the
voting securities of a public-utility company. Following the consummation of the
Merger, Vectren will become a holding company under the 1935 Act. Vectren will
claim an exemption from all provisions of the 1935 Act (except for Section
9(a)(2) thereof) pursuant to Rule 2 under the 1935 Act immediately following the
consummation of the Merger.
A. DESCRIPTION OF PARTIES TO THE TRANSACTION
1. General Description.
a. Vectren. Vectren is an Indiana corporation organized on
June 10, 1999 solely for the purpose of effecting the Merger and carrying on the
combined businesses of SIGCORP and Indiana Energy after the Merger. It currently
does not conduct any business or
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own any utility assets. Upon consummation of the Merger, Vectren will become a
holding company under the 1935 Act.
b. SIGCORP. SIGCORP is a holding company incorporated on
October 19, 1994 under the laws of the State of Indiana. SIGCORP is located in
Evansville, Indiana. SIGCORP has eleven wholly-owned subsidiaries, including its
principal subsidiary, Southern Indiana Gas and Electric Company ("SIGECO"),
which is a public-utility company involved in the gas and electric utility
business, and ten non-utility subsidiaries.
SIGECO is a public-utility company incorporated on June 10, 1912 under
the laws of the State of Indiana. SIGECO is located in Evansville, Indiana and
is engaged in the generation, transmission, distribution and sale of electricity
and the distribution and sale of natural gas in a service area covering ten
counties in southwestern Indiana.
SIGECO owns approximately 33% of the outstanding common stock of
Community Natural Gas Company, Inc. ("Community"), a small Indiana gas
distribution public-utility company with offices in Mt. Carmel, Illinois.
In addition to SIGECO, SIGCORP has several other subsidiaries. They
include the following:
(i) Southern Indiana Properties, Inc., formed in 1986, which
invests in real estate and equipment, real estate partnerships and
joint ventures and other financial and business arrangements.
(ii) Energy Systems Group, Inc., incorporated in 1994, has a
one-third ownership interest in Energy Systems Group, LLC, an
energy-related performance contracting firm serving industrial and
commercial customers.
(iii) Southern Indiana Minerals, Inc., incorporated in 1994 to
process and market coal combustion by-products.
(iv) SIGCORP Energy Services, Inc., which was formed in 1996
as an energy marketer and currently provides natural gas, pipeline
management and other natural gas-related services.
(v) SIGCORP Capital, Inc., incorporated in 1996, which is the
primary financing vehicle for SIGCORP's non-regulated subsidiaries.
(vi) SIGCORP Fuels, Inc., incorporated in 1996 to own and
operate coal mining properties and to provide coal and related services
to SIGCORP and other customers.
(vii) SIGCORP Power Marketing, Inc., formed in 1996 to
purchase power for SIGECO and to market power for SIGECO. This company
is not currently active.
(viii) SIGCORP Communications Services, Inc., incorporated in
1997, was formed to undertake communications-related strategic
initiatives.
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(ix) SIGECO Advance Communications, Inc., incorporated in
1998, holds SIGCORP's investment in SIGECOM, LLC and Utilicom Networks,
Inc. It is a joint venture between Advanced Communications, Inc. and
Utilicom Networks, Inc. to provide and to market enhanced
communications services over a high-capacity fiber-optic network in
SIGECO's service territory.
(x) SIGCORP Environmental Services, Inc., formed in 1998,
holds SIGCORP's investment in Air Quality Services, a joint venture
created to provide air quality monitoring and testing services to
industry and utilities.
c. Indiana Energy. Indiana Energy is a holding company with
subsidiaries and affiliates engaged in natural gas distribution, gas portfolio
administrative services and marketing of natural gas, electric power and related
services and services and products unrelated to energy. It was incorporated
under the laws of the State of Indiana on October 24, 1985. Indiana Energy has
four wholly-owned direct subsidiaries, including its principal subsidiary,
Indiana Gas Company, Inc. ("Indiana Gas"), and three non-regulated subsidiaries,
IEI Services, LLC, IEI Capital Corp. and IEI Investments, Inc.
Indiana Gas is a public-utility company engaged in the business of
providing gas utility service in the State of Indiana. Indiana Gas is also a
holding company because it owns all of the voting securities of public-utility
companies, Richmond Gas Corporation ("Richmond Gas") and Terre Haute Gas
Corporation ("Terre Haute"). While Richmond Gas and Terre Haute technically
exist as separate corporate entities, in accordance with an order issued by the
Indiana Utility Regulatory Commission (the "IURC"), Indiana Gas, Richmond Gas
and Terre Haute have combined their operations for all purposes and are
transacting business under the name of "Indiana Gas Company, Inc." Pursuant to
that order, accounting records and financial reports are maintained and
presented on a consolidated basis. For purposes of this Application/
Declaration, any reference to Indiana Gas will, in effect, be inclusive of the
separate corporate entities of Richmond Gas and Terre Haute.
The other three wholly-owned direct subsidiaries of Indiana Energy are
IEI Services, LLC, IEI Capital Corp. and IEI Investments, Inc. IEI Services, LLC
provides support services to Indiana Energy and its subsidiaries. Those services
include information technology, financial services, human resources support and
building and fleet services.
IEI Capital Corp. was formed to carry out the financing activities of
Indiana Energy and its non-regulated subsidiaries. IEI Investments, Inc. was
formed for the purpose of grouping and controlling Indiana Energy's
non-regulated businesses and investments therein and to separate them from
regulated businesses. It has three wholly-owned subsidiaries, IGC Energy, Inc.,
Energy Realty, Inc. and Energy Financial Group, Inc. IGC Energy owns a 50%
interest in ProLiance Energy, LLC ("ProLiance"), a firm that provides Indiana
Gas with its natural gas supply and related services. ProLiance is also a
provider of energy services to other customers, including utilities. IEI
Investments is committed to invest in a minority interest in Haddington Energy
Partners, L.P., a firm that will participate in the financing of six to eight
projects, including natural gas gathering and storage and electric power
generation. IEI Investments also holds interests in companies that are engaged
in materials management, underground facilities locating and facilities
construction, debt collection, and other non-jurisdictional activities.
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2. Description of Utility Operations.
a. Vectren. Currently, Vectren does not own any utility
properties or perform any utility operations.
b. SIGECO. SIGECO's electric distribution service at retail is
supplied to customers in Evansville and 74 other cities, town and communities,
as well as adjacent rural areas. SIGECO provides wholesale electric service to
an additional eight communities. As of December 31, 1998, SIGECO served 124,340
retail electric customers. It is a party to an interconnection agreement under
which it provides firm power to the City of Jasper, Indiana. It also has an
agreement with Hoosier Energy Rural Electric Cooperative, Inc. ("Hoosier
Energy") for the sale of firm peaking power to Hoosier Energy during the annual
winter heating season (November 15 - March 15). The contract with Hoosier Energy
expires on March 15, 2000.
SIGECO is a member of the East Central Area Reliability Group ("ECAR")
under an agreement that obligates it to maintain a spinning reserve margin.
SIGECO is interconnected with Louisville Gas and Electric Co., Cinergy Services,
Inc., Indianapolis Power & Light Co., Hoosier Energy, Big Rivers Electric
Corporation, Wabash Valley Power Association and the City of Jasper. Its 1998
peak load was 1,082,500kW.
As of December 31, 1998, SIGECO supplied natural gas service to 108,335
customers in Evansville and 64 other nearby communities and their environs.
The principal generating facilities of SIGECO include the Culley
Station with 406,000 kW of capacity and Warrick Unit No. 4 with 135,000 kW of
capacity, both located in Warrick County near Yankeetown, Indiana; and the A. B.
Brown Station with 500,000 kW of capacity, located in Posey County about eight
miles east of Mt. Vernon, Indiana. These facilities include six coal-fired
generating units and have a combined generating capacity of 1,041,000 kW.
SIGECO's Broadway Gas Turbine Units, with a capacity of 115,000 kW, are
located in Evansville, Vanderburgh County, Indiana. This generating facility is
equipped to burn oil and/or natural gas. These units generally are used only for
reserve, peaking or emergency purposes due to the higher unit cost per kilowatt
hour of generation when using oil or gas as fuel.
SIGECO's Brown Gas Turbine I, with capacity of 80,000 kW, is located at
the A. B. Brown Station. The unit is fueled by natural gas, although fuel oil
can also be used if gas is unavailable. The main function of the gas turbine is
to generate adequate power during times of peak demand. However, it is also used
to assist in maintaining voltage support on the west end of the system, and can
be used to "black start" the Brown plant if a catastrophe should cause a partial
or total system blackout.
SIGECO also owns two gas fired turbine generating units with a capacity
of 20,000 kW, which are used for peaking and emergency purposes only. These
units are known as the Northeast Gas Turbine Units and are located northeast of
Evansville, in Vanderburgh County, Indiana.
SIGECO's transmission system consists of 823 circuit miles of 138,000
and 69,000 volt lines. The transmission system also includes 26 substations with
an installed capacity of 3,897,700 kilovolt amperes. The electric distribution
system includes 3,188 pole miles of lower
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voltage overhead lines and 211 trench miles of conduit containing 1,271 miles of
underground distribution cables. The distribution system also includes 96
distribution substations with an installed capacity of 2,001,384 kilovolt
amperes and 48,651 distribution transformers with an installed capacity of
2,159,957 kilovolt amperes.
SIGECO owns and operates three underground gas storage fields with an
estimated ready delivery from storage capability of 3.8 billion cubic feet of
gas. The Oliver Field, in service since 1954, is located in Posey County,
Indiana, about 13 miles west of Evansville; the Midway Field, in service since
1966, is located in Spencer County, Indiana, about 20 miles east of Evansville
near Richland, Indiana; and, the Monroe City Field, in service since 1958, is
located 10 miles east of Vincennes, Indiana.
SIGECO's gas transmission system includes 131 miles of transmission
mains, and the gas distribution system includes 2,751 miles of distribution
mains.
The only utility property SIGECO owns outside of Indiana is
approximately eight miles of 138,000 volt electric transmission line which is
located in Kentucky and which interconnects with Louisville Gas and Electric
Company's transmission system at Cloverport, Kentucky.
SIGECO's 33% owned subsidiary, Community, is a small gas public-utility
company that has several service territories in southwestern Indiana. Much of
its service territories are adjacent to or near the gas service territory of
SIGECO. Community has 6,733 natural gas customers consisting of residential,
commercial, industrial and public authority classes of service. Its gas
distribution system includes approximately 470 miles of distribution mains.
Community has no underground gas storage facilities.
c. Indiana Energy. As of the date of the filing of this
Application/Declaration, Indiana Energy directly owns no utility properties and
is solely a holding company owning all of the Common Stock of its four
subsidiaries.
Indiana Gas, the principal subsidiary of Indiana Energy, supplied
natural gas in 1998 to approximately 491,000 consumers in 281 communities in 48
of the 92 counties in the state of Indiana. The largest communities served are
Muncie, Anderson, Lafayette-West Lafayette, Bloomington, Terre Haute, Marion,
New Albany, Columbus, Jeffersonville, New Castle and Richmond. While Indiana Gas
does not provide utility services in Indianapolis, it does serve the counties
and communities that border that city.
The properties of Indiana Gas used for the production, storage and
distribution of gas are located solely within the State of Indiana except for
pipeline facilities extending from points in northern Kentucky to points in
southern Indiana by means of which gas is transported to Indiana for sale or
transportation by Indiana Gas to ultimate customers in Indiana. As of December
31, 1998, these included approximately 10,716 miles of distribution mains;
512,351 meters, five reservoirs for underground storage of purchased gas with
approximately 71,484 acres of land owned and/or held under storage easements
with 8,972,000 Dth of gas in storage providing a daily deliverability capacity
of 134,160 Dth. Indiana Gas has five liquified petroleum air gas manufacturing
plants with a total daily capacity of 36,700 Dth of gas.
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Indiana Gas purchases all of its natural gas from ProLiance. Gas is
transported to Indiana Gas' system by interstate pipe line suppliers under
Federal Energy Regulatory Commission ("FERC") approved rate schedules.
d. Utility Regulation. SIGECO and Community are subject to
broad regulation as to rates and other matters by the IURC. When an affiliate
provides services to SIGECO, SIGECO is required to file such contracts with the
IURC. Indiana Gas is subject to broad regulation as to rates and other matters
by the IURC. When an affiliate provides services to Indiana Gas, Indiana Gas is
required to file such contracts with the IURC.
SIGECO is subject to the jurisdiction of the FERC under the Federal
Power Act with respect to wholesale electric rates and other matters. ProLiance
is also subject to the jurisdiction of the FERC under the Federal Power Act, as
a marketer of electric power. Indiana Gas is a local distribution company,
having most of its operations covered by the Hinshaw Amendment and thus exempt
from regulation by the FERC under sections 1(b) and 1(c) of the Natural Gas Act.
B. DESCRIPTION OF THE PROPOSED TRANSACTION
1. Merger. SIGCORP, Indiana Energy and Vectren have entered into the
Merger Agreement. Pursuant to the Merger Agreement, the holders of the Common
Stock of SIGCORP ("SIGCORP Common Stock") and the holders of the Common Stock of
Indiana Energy ("Indiana Energy Common Stock") will become the holders of the
Common Stock of Vectren ("Vectren Common Stock"), which will, upon consummation
of the Merger, be the only outstanding equity securities of Vectren.
As more fully described in the Merger Agreement, each of SIGCORP and
Indiana Energy will merge with and into Vectren, with Vectren as the surviving
corporation. When the Merger becomes effective (the "Effective Time"), the
following shall occur pursuant to the Merger Agreement:
(i) Each share of the capital stock of Vectren issued and
outstanding immediately prior to the Effective Time shall be cancelled and cease
to exist, and no consideration shall be delivered in exchange therefor.
(ii) Each share of SIGCORP Common Stock that is owned by
SIGCORP or any of its subsidiaries or by Indiana Energy or any of its
subsidiaries shall be cancelled and cease to exist. Each share of Indiana Energy
Common Stock that is owned by Indiana Energy or any of its subsidiaries or by
SIGCORP or any of its subsidiaries shall be cancelled and cease to exist. For
purposes of this paragraph, "subsidiaries" are defined in Section 4.1 of the
Merger Agreement.
(iii) Each share of SIGCORP Common Stock (other than shares to
be cancelled as described in the preceding paragraph) shall be converted into
1.333 shares of Vectren Common Stock. Each share of Indiana Energy Common Stock
(other than shares to be cancelled as described in the preceding paragraph)
shall be converted into 1 share of Vectren Common Stock. No fractional shares
will be issued. Instead, each holder of SIGCORP Common Stock who would otherwise
receive a fractional share of Vectren Common Stock will receive
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cash in payment for that fractional share based on the prevailing price on the
New York Stock Exchange ("NYSE").
The Merger Agreement also provides, among other things, that upon such
conversions of shares in the Merger, all such shares of SIGCORP Common Stock and
Indiana Energy Common Stock exchanged respectively for the shares of Vectren
Common Stock shall be cancelled and cease to exist, and after the Merger each
holder of shares of SIGCORP Common Stock and each holder of shares of Indiana
Energy Common Stock shall cease to have any rights with respect thereto, except
the right to receive the number of whole shares of Vectren Common Stock to be
issued in consideration therefor and any cash in lieu of fractional shares.
After the Effective Time, certificates representing shares of SIGCORP Common
Stock and certificates representing shares of Indiana Energy Common Stock will
be exchangeable for certificates representing shares of Vectren Common Stock.
Approval of the Merger by a majority of all votes entitled to be cast
by all holders of SIGCORP Common Stock and by a majority of all votes entitled
to be cast by all holders of Indiana Energy Common Stock is a condition
precedent to the consummation of the Merger. The Merger will be voted upon for
approval by SIGCORP shareholders at a meeting to be held on December 17, 1999,
and by Indiana Energy shareholders at a meeting to be held on December 17, 1999.
Proxies for such meetings will be solicited pursuant to Regulation 14A under the
Securities Exchange Act of 1934 (the "1934 Act"). The joint proxy statement for
the shareholders meeting is included in the Registration Statement on form S-4
filed by Vectren with the Commission on November 12, 1999, and amended on
November 15, 1999, for the purpose of registering under the Securities Act of
1933 (the "1933 Act") the shares of Vectren Common Stock to be issued in the
Merger. The Registration Statement was declared effective on November 15, 1999.
The Registration Statement and the Joint Proxy Statement/Prospectus are included
as Exhibits C-1 and C-2 to this Application/Declaration.
Vectren will apply for the listing on the NYSE of Vectren Common Stock
issuable in the Merger. Approval of the listing on the NYSE, upon official
notice of issuance, is a condition precedent to the consummation of the Merger.
Upon consummation of the Merger, SIGCORP Common Stock and Indiana Energy Common
Stock will be delisted from each exchange on which they are listed. Following
the Merger, Vectren will be required to file reports with the Commission
pursuant to Section 13(a) of the 1934 Act.
Vectren proposes to account for the Merger on a "pooling-of-interests"
basis under generally accepted accounting principles ("GAAP"). Under the
pooling-of-interests accounting, the financial statements of SIGCORP and Indiana
Energy will be combined into Vectren as though they had always been together;
accordingly, the asset, liability and equity accounts of each company will be
carried forward at existing amounts to the new consolidated financial
statements. Reported income and expense of the separate companies for prior
periods will be combined and restated as income and expense of Vectren.
2. Option Agreements. Pursuant to the SIGCORP, Inc. Stock Option
Agreement and the Indiana Energy, Inc. Stock Option Agreement, each dated as of
June 11, 1999 (collectively, the "Stock Option Agreements"), SIGCORP has granted
to Indiana Energy and Indiana Energy has granted to SIGCORP, the right to
acquire under certain circumstances specified in the Stock Option Agreements up
to 4,702,483 shares and 5,927,524 shares,
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respectively, of authorized but unissued common stock of the other company (the
"Options") at prices of $29.70 and $22.27 per share, respectively. The exercise
price is payable, at the election of the holder of either option, in cash or in
shares of its common stock.
The Options are exercisable, in whole or in part, at any time or from
time to time after the Merger Agreement becomes terminable, upon the occurrence
of certain events specified in the Stock Option Agreements. In each case, an
event that triggers either Option (a "Trigger Event") generally involves breach
of representation, warranty, covenant or agreement, failure to obtain
shareholders' approval of the Merger, board withdrawal or modification of
approval and third party acquisition of greater than 25% of the outstanding
voting securities of the other party.
Each Option will terminate upon the earlier of: (i) the Effective Time;
(ii) the termination of the Merger Agreement pursuant to Section 9.1 thereof
(other than upon or during the continuance of a Trigger Event); or (iii) 180
days following any termination of the Merger Agreement upon or during the
continuance of a Trigger Event (or if, at the expiration of such 180 day period
the Option cannot be exercised by reason of any applicable judgment, decree,
order, law or regulation, ten business days after such impediment to exercise
shall have been removed or shall have become final and not subject to appeal,
but in no event under this clause (iii) later than the third anniversary of June
11, 1999).
The Stock Option Agreements provide that neither of the Options may be
exercised until all necessary regulatory approvals (including approval of the
Commission pursuant to the 1935 Act) have been obtained for the acquisitions of
common stock pursuant to such Options. Pursuant to Section 9(a)(2) and Rule 51
under the 1935 Act, the Applicant hereby requests the Commission to approve the
transactions contemplated by the respective Stock Option Agreements to the
extent required by Rule 51.
3. Negotiations Leading to the Proposed Merger. The energy industry is
undergoing consolidation and diversification of services. Each of Indiana Energy
and SIGCORP has considered mergers and acquisitions as part of its strategic
planning.
On September 27, 1996, the Indiana Energy board met and discussed a
strategic plan for growth through mergers and acquisitions. The Indiana Energy
board identified five entities as possible merger partners or targets for
acquisition, with SIGCORP the most promising of the five because:
- a transaction with SIGCORP presented the fewest regulatory
hurdles;
- the utility facilities were in relatively close proximity;
- the earnings of the principal utility operations of the two
companies seasonally complemented each other; and
- the management of Indiana Energy had enjoyed a good working
relationship with the management of SIGCORP.
Since September 27, 1996, Indiana Energy has not given material
consideration to potential merger partners other than SIGCORP.
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The Indiana Energy board then recommended that Indiana Energy's
officers contact the officers of SIGCORP to discuss a possible merger. In
September 1996, Mr. L.A. Ferger, Indiana Energy's then Chief Executive Officer,
called Mr. Ronald G. Reherman, SIGCORP's Chief Executive Officer, and a meeting
was scheduled between Indiana Energy and SIGCORP for October 1996.
In October 1996, Mr. Ferger, Mr. Reherman, Mr. Niel Ellerbrook, then
Indiana Energy's Vice President, Treasurer and Chief Financial Officer, and Mr.
Andrew E. Goebel, then Senior Vice President and Chief Financial Officer of
SIGCORP, met and discussed the possible merger of Indiana Energy and SIGCORP.
They agreed to engage Deloitte Consulting LLC to assist the managements of
Indiana Energy and SIGCORP in their analysis of the potential synergies that
might result from the potential merger, as well as investment bankers and
attorneys to consider various issues relating to a merger, all of whom were then
engaged. Indiana Energy engaged Merrill Lynch, Pierce, Fenner & Smith as its
investment banker and Sommer & Barnard, PC and Simpson Thacher & Bartlett as its
attorneys. SIGCORP retained Goldman, Sachs & Co. as its investment banker and
Winthrop, Stimson, Putnam & Roberts as its attorneys.
The services to be provided by Deloitte & Touche Consulting LLC
included:
- identification of required data;
- identification by activity and quantification of potential cost
savings;
- identification of potential additional cost savings which may not
be quantifiable; and
- identification and quantification of potential costs to achieve
the identified potential cost savings.
On November 1, 1996, Mr. Ferger presented the Indiana Energy board with
a preliminary status report of the continuing negotiations and an evaluation of
the proposed merger of Indiana Energy and SIGCORP. The Indiana Energy board
found the report favorable and as a result, on November 4, 1996, Indiana Energy
and SIGCORP executed a Confidentiality and Standstill Agreement under which the
parties continued their discussions.
In December 1996, Indiana Energy and SIGCORP continued their merger
discussions. The primary focus of those discussions was the identity of the
Chief Executive Officer of the new company, the location of the new company's
corporate headquarters and the potential synergies resulting from the merger.
On January 22, 1997, the Indiana Energy board met and approved
management's recommendation to terminate merger discussions with SIGCORP because
the differences between Indiana Energy and SIGCORP appeared to be
irreconcilable. At that time, the companies could not agree regarding the
location of the headquarters of the new company, and the energy marketplace had
not yet evolved to the point where either party had concluded that a combination
was necessary for the continued success of the companies. Indiana Energy advised
SIGCORP's management of the decision and the parties mutually agreed to formally
terminate merger discussions. The parties notified the advisors engaged to
assist them and instructed the advisors to discontinue all work related to the
merger discussions.
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A second round of merger discussions between Indiana Energy and SIGCORP
commenced in September 1997, when Mr. Ferger contacted Mr. Reherman to discuss
reestablishing merger negotiations. Mr. Reherman indicated that he would not
consider the resumption of merger discussions without obtaining the support and
approval of both companies' boards of directors.
Consequently, the Indiana Energy board met on September 22, 1997, and
the SIGCORP board met in October 1997. Each board decided in favor of commencing
a second round of merger discussions.
Indiana Energy and SIGCORP started the second round of merger
negotiations and began due diligence in October 1997. The parties undertook
negotiations and due diligence until December 1997 when the parties, by mutual
agreement, again terminated their merger discussions. The companies could not
agree on the location of the headquarters of the new company and the energy
marketplace still had not yet evolved to the point where either party had
concluded that a combination was necessary for the continued success of the
companies.
No merger discussions were held between Indiana Energy and SIGCORP in
1998. However, a third round of merger discussions commenced in 1999. Mr.
Ellerbrook and Mr. Goebel met in person on February 4, 1999 with the intent of
discussing whether a merger between the two companies would be mutually
beneficial. A merger between the companies was seen as a means of meeting the
challenges caused by continued industry deregulation and as a means of possibly
increasing the companies' shareholder values. Mr. Ellerbrook and Mr. Goebel
determined that, in light of the ongoing changes in the energy marketplace, a
business combination would contribute to the continued success of the companies.
Accordingly, Mr. Ellerbrook and Mr. Goebel decided to start a third round of
merger discussions initially focusing their energies on negotiating through the
matters that had caused merger discussions to be formally terminated twice in
the past, including the resolution of the location of the headquarters for the
new company.
On March 10, 1999, the Executive Committee of the SIGCORP board met and
determined that it would be beneficial for the parties to reengage Deloitte
Consulting LLC to assist management in updating the synergies analysis that had
been prepared by management in connection with the prior merger discussions.
Deloitte was not engaged to prepare and did not provide, any report, opinion or
appraisal, whether written or oral, for or to the managements or the boards of
directors of Indiana Energy or SIGCORP.
On March 17, 1999, Mr. Ellerbrook and Mr. Goebel met again to further
discuss a business combination. Having previously reached the conclusion that a
combination of the companies would contribute to the continued success of the
companies, at this meeting they determined that the two primary and remaining
issues to be resolved were the location of the new company's corporate
headquarters and the identity of its Chief Executive Officer. The parties agreed
to recommend to their respective boards of directors the following: the new
company's corporate headquarters would be located in Evansville, Indiana, the
location of SIGCORP's current headquarters, and the new company would be headed
by Mr. Ellerbrook. Ellerbrook and Goebel further agreed to meet collectively
with a few members of each company's board of directors to further discuss the
proposed merger.
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On March 26, 1999, Mr. Ellerbrook, Mr. Goebel and Mr. Carl L. Chapman,
Senior Vice President and Chief Financial Officer of Indiana Energy, met and
agreed to reengage Deloitte Consulting LLC to assist management in updating the
managements' synergies analysis. At that meeting the attendees also confirmed
that the parties' strategic plans for growth were remarkably similar. On April
6, 1999, the parties executed a Confidentiality and Standstill Agreement under
which negotiations were to proceed.
On April 16, 1999, Mr. Goebel, Mr. Chapman and Mr. Richard G. Lynch,
SIGCORP's Vice President of Human Resources, met with the consultant and
reviewed the progress of the updating of the prior synergies analysis.
On April 20, 1999, Mr. Ellerbrook and Mr. Goebel met with selected
members of each company's board of directors (specifically, Mr. Robert L. Koch
II, Mr. Richard W. Shymanski and Mr. Donald E. Smith from SIGCORP and Mr. Anton
H. George, Mr. J. Timothy McGinley and Ms. Jean L. Wojtowicz from Indiana
Energy). At this meeting Mr. Ellerbrook, Mr. Goebel and the board members
discussed the updated synergies analysis as well as the strategic benefits of
the merger and concluded that negotiations should go forward.
On April 23, 1999, the Executive Committee of the SIGCORP board held a
meeting at which the Committee resolved in favor of continuing merger
negotiations.
On April 27, 1999, the SIGCORP board met and approved the engagement of
the consultant to assist management in performing a full and current synergies
analysis. On April 30, 1999, the Indiana Energy board held a meeting at which
the Indiana Energy board approved the engagement of the consultant to assist
management in performing a full and current synergies analysis.
On each of May 6, 10, 13 and 25, 1999, Mr. Ellerbrook and Mr. Goebel
met to discuss various issues affecting the merger, including the structure of
the post-merger board of directors and the new company's management structure.
These negotiations were also held through various telephone conferences in the
same time period.
On May 18, 1999, the SIGCORP board met and authorized the hiring of
various professionals, including attorneys and investment bankers, to proceed
with the merger and proposed a schedule of approving and executing a definitive
agreement by June 11, 1999. After this meeting, members of Indiana Energy's
management and SIGCORP's management continued discussions regarding the merger
telephonically. Also on May 18, 1999, Mr. Jerome A. Benkert, Indiana Energy's
Vice President and Controller, Mr. Chapman, Mr. Ellerbrook, Mr. Goebel, Mr.
Timothy Burke, SIGCORP's Secretary/Treasurer, and Mr. Lynch met with investment
bankers in Indianapolis to discuss business valuation issues.
On June 4, 1999, the Indiana Energy board met and discussed various
issues affecting the merger. Additional presentations were made to the Indiana
Energy board by counsel, investment bankers and the management, with the
assistance of Deloitte Consulting LLC. The Indiana Energy board decided to
reconvene on June 11, 1999 to approve or disapprove the definitive agreement. On
June 7, 1999, the SIGCORP board met and discussed various issues affecting the
merger. Additional presentations were made to the SIGCORP board by outside
counsel, investment bankers and management with the assistance of Deloitte
Consulting LLC. The
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<PAGE> 13
SIGCORP board decided to reconvene on June 11, 1999 to approve or disapprove the
definitive agreement.
On June 8, 1999, an ad hoc committee of the board of Indiana Energy met
with a compensation consultant regarding Vectren.
On June 11, 1999, the Indiana Energy board met and the SIGCORP board
met and each approved the form of definitive agreement which was executed by the
parties as of that date.
C. REASONS FOR AND ANTICIPATED EFFECTS OF THE PROPOSED TRANSACTION
Vectren believes that the Merger is a natural alliance of two companies
with complementary products and services. Vectren believes the Merger will
create a company that is better positioned to compete in the energy industry and
expects the Merger to enhance long-term value to shareholders while providing
customers with reliable service at more stable and competitive prices. Vectren
expects to achieve such results by:
(i) offering a broad array of products and services;
(ii) eliminating duplicative activities;
(iii) reducing operating expenses and cost of capital;
(iv) eliminating or postponing some capital expenditures; and
(v) enhancing purchasing capabilities for goods and services.
These benefits are described in greater detail in the discussion of the
economies and efficiencies resulting from the Merger in Item 3.B.2.
D. ADDITIONAL INFORMATION
No associate company or affiliate of SIGCORP or Indiana Energy or any
affiliate of any such associate company has any direct or indirect material
interest in the proposed transaction except as stated herein.
ITEM 2. FEES, COMMISSIONS AND EXPENSES
The fees, commissions and expenses to be paid or incurred, directly or
indirectly, in connection with the transactions contemplated herein, including
the solicitation of proxies and other related matters, are estimated as follows:
<TABLE>
<S> <C>
Commission filing for the Registration Statement on Form S-4...................................... *
Accountants' fees................................................................................. *
Legal fees and expenses relating to the Act....................................................... *
Other legal fees.................................................................................. *
Stockholder communication and proxy solicitation.................................................. *
NYSE listing fee.................................................................................. *
Exchanging, printing and engraving of stock certificates.......................................... *
</TABLE>
13
<PAGE> 14
<TABLE>
<S> <C>
Investment bankers' fees and expenses
Goldman Sachs & Co........................................................................... *
Merrill Lynch, Pierce, Fenner & Smith Incorporated........................................... *
Consultant's Fees
Deloitte Consulting.......................................................................... *
Miscellaneous..................................................................................... *
TOTAL............................................................................................. *
</TABLE>
* To be filed by amendment.
ITEM 3. APPLICABLE STATUTORY PROVISIONS
It is believed that Sections 9(a)(2) and 10 of the Act are applicable
to the proposed transaction. To the extent that the proposed transaction is
considered by the Commission to require authorization, approval or exemption
under any section of the Act or provision of the rules or regulations thereunder
other than those specifically referred to herein, request for such
authorization, approval or exemption is hereby made.
SIGCORP's subsidiary, SIGECO, is both an "electric utility company" as
defined in Section 2(a)(3) of the Act and a "gas utility company" as defined in
Section 2(a)(4) of the Act. SIGECO's 33% owned subsidiary, Community, is a "gas
utility company" as defined in Section 2(a)(4) of the Act. Indiana Energy's
subsidiaries, Indiana Gas, Terre Haute and Richmond, are "gas utility companies"
as defined in Section 2(a)(4) of the Act. Indiana Gas is also a "holding
company" as defined in Section 2(a)(7) of the Act with respect to Terre Haute
and Richmond. Thus, all of the above companies are "public-utility companies" as
defined in Section 2(a)(5) of the Act. Because Vectren will, as a result of the
Merger, be indirectly acquiring five percent or more of the outstanding voting
securities of each of these public-utility companies, the transaction is subject
to Section 9(a)(2) of the Act. Thus the proposed transaction cannot proceed
without the Commission's approval pursuant to Section 10 of the Act. The
relevant statutory standards to be satisfied are set forth in Sections 10(b),
10(c), and 10(f) of the Act.
A. SECTION 10(b)
Section 10(b) of the 1935 Act provides that, if the requirements of
Section 10(f) are satisfied, the Commission shall approve an acquisition under
Section 9(a) unless the Commission finds that:
(1) such acquisition will tend towards interlocking relations
or the concentration of control of public-utility companies, of a kind
or to an extent detrimental to the public interest or the interest of
investors or consumers;
(2) in case of the acquisition of securities or utility
assets, the consideration, including all fees, commissions, and other
remuneration, to whomsoever paid, to be given, directly or indirectly,
in connection with such acquisition is not reasonable or does not bear
a fair relation to the sums invested in or the earning capacity of the
utility assets to be acquired or the utility assets underlying the
securities to be acquired; or
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<PAGE> 15
(3) such acquisition will unduly complicate the capital
structure of the holding company system of the applicant or will be
detrimental to the public interest or the interest of investors or
consumers or the proper functioning of such holding company system.
The Merger and the requests contained in this Application/Declaration
are well within the precedent of transactions approved by the Commission as
consistent with the 1935 Act. In addition, a number of the recommendations made
by the Division of Investment Management (the "Division") in the report issued
by the Division in June 1995 entitled "The Regulation of Public Utility Holding
Companies" (the "1995 Report") support the applicants' analysis. The
Commission's approval of the Merger would be consistent with previous Commission
rulings and would also be consistent with the Division's overall recommendation
in the 1995 Report that the Commission "act administratively to modernize and
simplify holding company regulation . . . and minimize regulatory overlap, while
protecting the interests of consumers and investors," since, as demonstrated
below, the Merger will benefit both consumers and stockholders of Vectren, and
the other federal regulatory authorities with jurisdiction over the Merger will
have approved it as in the public interest.
1. Section 10(b)(1).
a. Interlocking Relations. The Merger will not tend towards
"interlocking relations or the concentration of control of public-utility
companies, of a kind or to an extent detrimental to the public interest or the
interest of investors or consumers." Although the Merger will result, as in any
transaction subject to Section 9(a)(2), in certain interlocking relations and
concentration of control, they are not of a kind or to an extent detrimental to
the public interest or the interest of investors or consumers.
Following the Merger, there will exist among Vectren and its public
utility subsidiaries interlocking directors and officers only of such nature and
to such extent as normally exist in public utility holding company systems among
affiliated and associated companies. See CIPSCO, Inc., Holding Co. Act Release
No. 25152, 47 S.E.C. Docket 174, 178 (1990). Upon completion of the Merger, it
is contemplated that Niel C. Ellerbrook, who is the President and Chief
Executive Officer of Indiana Energy, will be Chairman of the Board and Chief
Executive Officer of Vectren. Andrew E. Goebel, who is the President and Chief
Operating Officer of SIGCORP, will be President and Chief Operating Officer of
Vectren. The Vectren board of directors will consist of sixteen members. Eight
members will be former members of the SIGCORP board and the other eight will be
former members of the Indiana Energy board.
b. Concentration of Control. It is well settled that the
public interest is to be judged primarily in the context of the problems with
which the 1935 Act was designed to deal, as set forth in Section 1(b) thereof.
Vermont Yankee Nuclear Power Corporation, 43 S.E.C. 693, 700 (1968), rev'd on
other grounds, 413 F.2d 1052 (D.C. Cir. 1969). Viewed from this perspective, the
Merger in no way contradicts the requirements of Section 10 (b)(1).
Section 10 (b)(1) is intended to avoid "an excess of concentration and
bigness" while preserving the "opportunities for economies of scale, the
elimination of duplicate facilities and activities, the sharing of production
capacity and reserves and generally more efficient operations" afforded by the
coordination of local utilities into an integrated system. American Electric
Power Co., 46 S.E.C. 1299, 1309 (1978). In applying Section 10 (b)(1) to utility
15
<PAGE> 16
acquisitions, the Commission must determine whether the acquisition will create
"the type of structures and combinations at which the Act was specifically
directed." Vermont Yankee, 43 S.E.C. at 700. As discussed below, the Merger will
not create a "huge, complex, and irrational system" of a type at which the 1935
Act is directed, but rather will afford the opportunity to achieve economies of
scale and efficiencies which are expected to benefit investors and consumers.
American Electric Power Co., 46 S.E.C. at 1307 (1978).
When considering the issue of concentration of control pursuant to
Section 10(b)(1), the Commission "considers various factors, including the size
of the resulting system and the competitive effects of the acquisition." Entergy
Corp., Holding Co. Act Release No. 25952 (December 17, 1993), request for
reconsideration denied, Holding Co. Act Release No. 26037 (April 28, 1994),
remanded sub nom. Cajun Elec. Power Coop. Inc. v. SEC, 1994 WL 704047 (D.C. Cir.
November 16, 1994).
SIZE: As of December 31, 1998, SIGECO supplied electricity to 124,340
electric customers in Evansville and 74 other communities, and supplied gas
service to 108,335 gas customers in Evansville and 64 other nearby communities.
As of December 31, 1998, Indiana Gas supplied gas service to 491,000 gas
customers in 281 communities in 48 of 92 counties in the State of Indiana. The
Merger will bring the utility assets and operations of SIGECO and those of
Indiana Gas under the common control of Vectren. The utility operations of
Vectren will not create a huge, complex and irrational system. Giving effect to
the Merger, (i) as of June 30, 1999, the combined unaudited assets of SIGCORP
and Indiana Energy would have totaled approximately $1.76 billion, and (ii) for
the year ended December 31, 1998, the combined unaudited operating revenues of
the two companies would have totaled approximately $1.02 billion.
By comparison, the Commission has approved a number of acquisitions
involving larger utilities. See, e.g., Sempra Energy, Holding Co. Act Release
No. 26890 (June 26, 1998); Ameren Corporation, Holding Co. Act Release No. 26809
(December 30, 1997); New Century Energies, Inc., Holding Co. Act Release No.
26748 (August 1, 1997); TUC Holding Co. Inc., Holding Co. Act Release No. 26749
(August 1, 1997); Houston Industries Inc., Holding Co. Act Release No. 26744
(July 24, 1997); CINergy Corp., Holding Co. Act Release No. 26146 (Oct. 21,
1994); Entergy Corp., Holding Co. Act Release No. 25952 (December 17, 1993);
Centerior Energy Corp., Holding Co. Act Release No. 24073 (April 29, 1986).
EFFICIENCIES AND ECONOMIES: The Commission has rejected a mechanical
size analysis under Section 10(b)(1) in favor of assessing the size of the
resulting system with reference to the efficiencies and economies that can be
achieved through the integration and coordination of utility operations.
American Electric Power Co., 46 S.E.C. at 1309. More recent pronouncements of
the Commission confirm that size alone is not determinative. Thus, in Centerior
Energy Corp., SUPRA, the Commission stated that a "determination of whether to
prohibit enlargement of a system by acquisition is to be made on the basis of
all the circumstances, not on the basis of size alone." See also Entergy Corp.,
SUPRA. In addition, the Division recommended in the 1995 Report that the
Commission approach its analysis of merger and acquisition transactions in a
flexible manner with emphasis on whether a merger creates an entity subject to
effective regulation and is beneficial for stockholders and customers as opposed
to focusing on rigid, mechanical tests. 1995 Report at 73-74.
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<PAGE> 17
.
By virtue of the Merger, Vectren will be in a position to realize the
"opportunities for economies of scale, the elimination of duplicate facilities
and activities, the sharing of production capacity and reserves and generally
more efficient operations" described by the Commission in American Electric
Power Co., 46 S.E.C. at 1309. Among other things, the Merger is expected to make
possible offering of a broader array of products and services; savings through
reduction of operating expenses and cost of capital; savings through elimination
or postponement of certain capital expenditures; and savings through greater
purchasing power. These expected economies and efficiencies from the combined
utility operations are described in greater detail in Item 3.B.2 below.
COMPETITIVE EFFECTS: As the Commission noted in Northeast Utilities,
Holding Co. Act Release No. 25221, 47 SEC Docket 1270 (December 21, 1990),
supplemented, Holding Co. Act Release No. 25273 (March 15, 1991), aff'd, City of
Holyoke Gas & Elec. Dept. v. S.E.C., 792 F.2d 358 (D.C. Cir. 1992), the
"antitrust ramifications of an acquisition must be considered in light of the
fact that public utilities are regulated monopolies and that federal and state
administrative agencies regulate the rates charged consumers." Under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Merger may not be consummated until the applicable waiting periods
have expired or been terminated. Filings have been made with the Department of
Justice (the "DOJ") and the Federal Trade Commission (the "FTC") under the HSR
Act, describing the effects of the Merger on competition in the relevant market.
The DOJ has since requested additional information.
In addition, the competitive impact of the Merger is being fully
considered by the FERC before its approval of the Merger. A detailed explanation
of the reasons why the transaction will not threaten competition in relevant
geographic and product markets is set forth in the joint application of SIGECO,
Indiana Energy and Vectren filed with the FERC. The Commission may appropriately
rely upon the FERC with respect to such matters. Entergy Corp., SUPRA, citing
City of Holyoke Gas & Electric Dept. v. S.E.C., 972 F.2d at 363-64, quoting
Wisconsin Environmental Decade, Inc. v. S.E.C., 882 F.2d 523, 527 (D.C. Cir.
1989).
The Merger will result in a holding company system whose management
will remain based in Indiana. Among the purposes of the Merger are (1) to foster
the economic management and operations of that system by obtaining
Merger-dependent cost savings and (2) to further the integration and
coordination of those operations.
Following the Merger, which will not cause any change in their
regulated status, Vectren's public utility subsidiaries will continue to be
subject to the oversight of the IURC. The public utility operations of SIGECO,
Community and Indiana Gas will continue to be confined to the State of Indiana.
In considering the Merger pursuant to Section 10(b)(1) of the Act in light of
Section 1(b)(4) thereof, there is no basis for concluding that the Merger will
involve the growth or extension of a holding company that bears no relation to
economies of management and operation or the integration and coordination of
related operating properties.
2. Section 10(b)(2) -- Fairness of Consideration and Fees.
a. Fairness of Consideration. Section 10(b)(2) of the 1935 Act
requires the Commission to determine whether the consideration in connection
with a proposed acquisition of securities is reasonable and whether it bears a
fair relation to the investment in and the earning capacity of the utility
assets underlying the securities being acquired. As noted earlier, when the
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<PAGE> 18
Merger is consummated, each share of SIGCORP Common Stock will be converted into
1.333 shares of Vectren Common Stock and each share of Indiana Energy Stock will
be converted into 1 share of Vectren Common Stock.
These ratios were reached through a process of vigorous arm's-length
negotiations, accommodation, and compromise. Such negotiations were preceded by
extensive due diligence, analysis and evaluation of the assets, liabilities and
business prospects of each of the respective companies. As recognized by the
Commission in Ohio Power Co., 44 S.E.C. 340, 346 (1970), prices arrived at
through arm's-length negotiations are particularly persuasive evidence that
Section 10(b)(2) is satisfied.
Finally, nationally recognized investment bankers for each of SIGCORP
and Indiana Energy have reviewed extensive information concerning the companies
and analyzed the exchange ratios employing a variety of valuation methodologies,
and have opined that the exchange ratios are fair, from a financial point
of view, to the respective holders of SIGCORP Common Stock and Indiana Energy
Common Stock. The investment bankers' opinions are attached hereto as
Exhibits H - 1 and H - 2. The assistance of independent consultants in setting
consideration has been recognized by the Commission as evidence that the
requirements of Section 10 (b) (2) have been met. See Consolidated Natural Gas
Company, Holding Co. Act Release 25040 (February 14, 1990).
b. Reasonableness of Fees. An estimate of the fees and
expenses to be paid in connection with the Merger is set forth in Item 2 hereof.
The estimated amounts to be paid are fees required to be paid to governmental
bodies, fees for necessary professional services, and other expenses incurred or
to be incurred in connection with carrying out the Merger. Vectren believes that
such fees and commissions incurred in connection with the Merger are reasonable
and fair in light of the size and nature of the Merger and comparable
transactions and thus meet the standards of Section 10 (b)(2).
3. Section 10(b)(3). Section 10(b)(3) requires the Commission to
determine whether the proposed Merger will unduly complicate Vectren's capital
structure or will be detrimental to the public interest, the interests of
investors or consumers or the proper functioning of Vectren's system.
a. Capital Structure. The corporate capital structure of
Vectren after the consummation of the proposed transactions will not be unduly
complicated. In the Merger, Vectren will directly acquire, by operation of law,
all of the Common Stock of SIGCORP and Indiana Energy, and thus there will be no
minority Common Stock interest in either such company. The existing senior debt
and senior equity securities of SIGCORP and Indiana Energy will not be affected
by the Merger.
Moreover, acquisitions do not unduly complicate the capital structure
of the holding company system where the acquiror's capital structure negligibly
is affected and the debt-to-equity ratio of the merged holding company following
the acquisition falls within the seventy-to-thirty percent of debt-to-common
equity generally prescribed by the Commission. Entergy Corp., SUPRA, citing
Northeast Utilities, Holding Co. Act Release No. 25221 (December 21, 1990);
Georgia Power Company, 45 S.E.C. 610, 615 (1974). Furthermore, the Commission
has approved common equity to total capitalization ratios as low as 27.6
percent. See Northeast Utilities, SUPRA.
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<PAGE> 19
The proposed combination of SIGCORP and Indiana Energy will not unduly
complicate the capital structure of the merged company. The summaries of the
historical capital structures of SIGCORP and Indiana Energy as of September 30,
1999 are set forth below:
SIGCORP and Indiana Energy Historical Capital Structures
(Thousands - Unaudited)
<TABLE>
<CAPTION>
SIGCORP Indiana Energy
$ % $ %
<S> <C> <C> <C> <C>
Long-term Debt 338,094 45.3 183,363 37.0
Preferred 19,282 2.6 -- 0
Common Equity 389,462 52.1 311,625 63.0
------- ----- ------- -----
Total Capitalization 746,838 100.0 494,988 100.0
======= ===== ======= =====
</TABLE>
The pro forma combined capital structure of SIGCORP and Indiana Energy
following the proposed Merger as of June 30, 1999 would have been as follows:
Vectren Pro Forma Consolidated Capital Structure
(Thousands - Unaudited)
<TABLE>
<CAPTION>
$ %
<S> <C> <C>
Long-term Debt 521,457 42.3
Preferred 19,282 1.6
Common Equity 692,087 56.1
--------- -----
Total Capitalization 1,232,826 100.0
========= =====
</TABLE>
As the above tables reveal, the merged company's common equity to total
capitalization ratio significantly exceeds the Commission's traditionally
acceptable 30 to 35 percent level.
b. Public Interest, Interest of Investors and Consumers, and
Proper Functioning of Holding Company System. Section 10(b)(3) also requires the
Commission to determine whether the proposed Merger will be detrimental to the
interests of the general public, investors or consumers, or the proper
functioning of the combined system.
As set forth more fully in Item 3.B.2 and elsewhere herein, the
proposed Merger is expected to result in substantial cost savings and synergies,
and will integrate and improve the efficiency of the operations of the parties
to the transaction. The Merger, therefore, will be in the public interest and
the interests of investors and consumers, and will not be detrimental to the
proper functioning of the resulting holding company system.
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<PAGE> 20
B. SECTION 10(C)
Section 10(c) of the 1935 Act provides that:
Notwithstanding the provisions of subsection (b), the Commission shall
not approve:
(1) an acquisition of securities or utility assets, or of any
other interest, which is unlawful under the provisions of Section 8 or
is detrimental to the carrying out of the provisions of Section 11; or
(2) the acquisition of securities or utility assets of a
public-utility or holding company unless the Commission finds that such
acquisition will serve the public interest by tending towards the
economical and the efficient development of an integrated
public-utility system . . . .
1. Section 10(c)(1). Consistent with the standards set forth in Section
10(c)(1) of the Act, the proposed acquisition of securities will not be unlawful
under the provisions of Section 8 of the Act (inasmuch as Section 8 applies only
to registered holding companies), or detrimental to the carrying out of the
provisions of Section 11 of the 1935 Act, which also applies, by its terms, only
to registered holding companies. This is because Vectren believes that following
the consummation of the Merger it will be a holding company entitled to an
exemption under Section 3(a)(1) of the 1935 Act from all of the provisions of
the 1935 Act (except for Section 9(a)(2) thereof), including provisions relating
to registration.
a. Section 8 Analysis. Section 8 prohibits a registered
holding company or any of its subsidiaries from acquiring, owning interests in
or operating both a gas utility company and an electric utility company serving
substantially the same area if prohibited by state law. Indiana law does not
prohibit, or require approval or authorization of, the ownership or operation by
a single company of the utility assets of electric and gas utilities serving
substantially the same territory. Moreover, the IURC already regulates SIGECO, a
combination electric and gas utility, and will extensively regulate the
operations of SIGECO, Indiana Gas and Community. Accordingly, the Merger will
not be unlawful under the provisions of Section 8.
b. Section 11 Analysis - Integration. Section 10(c)(1) also
requires that an acquisition not be detrimental to carrying out the provisions
of Section 11 of the Act. Section 11(b)(1), in pertinent part, requires, with
limited exceptions, a registered holding company and its subsidiaries to limit
their operations to "a single integrated public-utility system."
Section 2(a)(29)(A) of the Act defines an integrated public-utility
system with respect to electric utility companies as:
a system consisting of one or more units of generating plants
and/or transmission lines and/or distribution facilities,
whose utility assets, whether owned by one or more electric
utility companies, are physically interconnected or capable of
interconnection and which under normal circumstances may be
economically operated as a single interconnected and
coordinated system confined in its operations to a single area
or region, in one or more states, not so large as to impair
(considering the state of the art and area or region affected)
the advantages of localized management, efficient operation,
and the effectiveness of regulation.
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<PAGE> 21
The existing SIGCORP electric utility system is, and following the Merger, will
continue to be, an integrated electric utility system. SIGECO operates in a
single contiguous service territory in southwestern Indiana, and the Merger will
not have any impact on the current operation of SIGCORP's electric utility
system.
Section 2(a)(29)(B) of the Act defines an integrated public utility
system with respect to gas utility companies as:
a system consisting of one or more gas utility companies which
are so located and related that substantial economies may be
effectuated by being operated as a single coordinated system
confined in its operations to a single area or region, in one
or more states, not so large as to impair (considering the
state of the art and area or region affected) the advantages
of localized management, efficient operation, and the
effectiveness of regulation: Provided, That gas utility
companies deriving natural gas from a common source of supply
may be deemed to be included in a single area or region.
SIGECO's gas utility operations are located in a single contiguous area in
southwestern Indiana and are currently integrated. Moreover, much of Community's
service territory is adjacent to or near the gas service territory of SIGECO.
Indiana Gas's gas utility operations are also located in a single
contiguous area and are currently integrated. The properties of Indiana Gas used
for the production, storage and distribution of gas are located solely within
the State of Indiana except for pipeline facilities extending from points in
northern Kentucky to points in southern Indiana by means of which gas is
transported to Indiana for sale or transportation by Indiana Gas to ultimate
customers in Indiana.
On a combined basis SIGCORP's and Indiana Energy's gas utility systems
will also meet the definition of Section (2)(a)(29)(B) of the Act. Although
their service territories do not necessarily overlap, there can be little
question that the State of Indiana, generally, constitutes a single area or
region.
The Commission has also looked to coordination of gas supply and common
gas supply sources such as common pipeline suppliers and supply coming from
common gas basins as an indication of an integrated gas utility system. See
NIPSCO Industries, Holding Co. Act Release No. 26975 (February 10, 1999)
(finding integration between gas utility companies in Indiana and Massachusetts
based on coordinated gas supply departments, obtaining gas from common basins
and using trading hubs). SIGCORP and Indiana Energy's combined gas system will
satisfy Section 2(a)(29)(B) of the Act because it will take gas from common
sources of supply. SIGECO's gas utility system and Indiana Gas' gas utility
system are each interconnected with, and receive deliveries from, ANR Pipeline
Company, Texas Eastern Transmission Corporation and Texas Gas Transmission
Corporation. Thus, through these common interstate pipeline companies, SIGECO
and Indiana Gas can access the same supply basins.
c. Section 11 Analysis - ABC Clauses. Section 11(b)(1) permits
a registered holding company to own one or more additional integrated
public-utility systems only if the requirements of Section 11(b)(1)(A)-(C) (the
"ABC clauses") are satisfied. The Commission has also previously held that a
holding company may acquire additional utility assets that will not,
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<PAGE> 22
when combined with its existing utility assets, make up an integrated system or
comply fully with the "ABC" clauses, provided that there is de facto integration
of contiguous utility properties and the holding company will be exempt from
registration under Section 3(a) of the Act following the acquisition. See TUC
Holding Co. Inc., SUPRA; BL Holding Corp., Holding Co. Act Release No. 26875
(May 15, 1998); and CMP Group, Inc., Holding Co. Act Release No. 26977 (February
12, 1999). The respective service territories of SIGECO and Indiana Gas are
adjacent or contiguous in Indiana as shown in the map attached hereto as Exhibit
E-1. Following consummation of the Merger, Vectren will provide the two systems
with shared administrative services. Further, the Merger will not give rise to
any of the abuses, such as ownership of scattered utility properties,
inefficient operations, lack of local management or evasion of state regulation,
that the Act, including Section 11(b)(1), was intended to address.
2. Section 10(c)(2). Because the Merger is expected to result in cost
savings and synergies, it will tend toward the economical and efficient
development of an integrated public utility system, thereby serving the public
interest, as required by Section 10(c)(2) of the Act. "The Commission has
previously determined . . . that where a holding company will be exempt from
registration under section 3 of the Act following an acquisition of
non-integrating utility assets, it suffices for purposes of section 10(c)(2) to
find benefits to one integrated system." TUC Holding Co. Inc., SUPRA at 306. The
Merger clearly satisfies this requirement as it will produce benefits to the gas
and electric utility businesses of the two systems.
The Merger will produce economies and efficiencies sufficient to
satisfy the standards of Section 10(c)(2) of the Act. Although some of the
anticipated economies and efficiencies will be fully realizable only in the
longer term, they are properly considered in determining whether the standards
of Section 10(c)(2) have been met. See In The Matter of American Electric Power
Co., SUPRA at 1320-1321. Some potential benefits cannot be precisely estimated,
nevertheless they too are entitled to be considered. "[S]pecific dollar
forecasts of future savings are not necessarily required; a demonstrated
potential for economies will suffice even when these are not precisely
quantifiable." Centerior Energy Corp., SUPRA at 775.
The Merger is expected to yield several types of currently quantifiable
benefits and savings, which are identified by area below:
an estimated $200 million reduction in operating and capital costs over
the next ten years, allowing a delay or avoidance of future rate
increases;
the creation of a larger Indiana-based energy company focused on local
economic development, jobs and customers, with greater scale that will
contribute to sustaining long-term growth as a viable energy provider;
and
the creation of a larger company capable of raising and investing the
financial and intellectual capital required to develop and market
products and services designed to attract and retain customers.
C. SECTION 10(f)
Section 10(f) provides that
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The Commission shall not approve any acquisition as to which
an application is made under this section unless it appears to
the satisfaction of the Commission that such State laws as may
apply in respect of such acquisition have been complied with,
except where the Commission finds that compliance with such
State laws would be detrimental to the carrying out of the
provisions of section 11.
SIGECO, Community, and Indiana Gas are currently subject to the
jurisdiction of the IURC. Indiana Energy and SIGCORP have filed a joint petition
with the IURC requesting approval of the Merger. However, as more fully
discussed below, in an unrelated decision issued in July 1999, the Indiana
Supreme Court determined that the IURC does not have jurisdiction over holding
company mergers. As a result, Indiana Energy and SIGCORP have jointly moved to
have their joint petition converted from one in which preapproval of the Merger
is sought to an informational/investigatory proceeding where the IURC is
provided with a forum where pertinent information relating to the transaction
can be submitted and reviewed.
ITEM 4. REGULATORY APPROVALS
Set forth below is a summary of the regulatory approvals that the
applicants have obtained or expect to obtain in connection with the Merger.
A. ANTITRUST
Under the HSR Act and the rules promulgated thereunder by the FTC,
transactions such as the Merger may not be completed unless notice has been
given and information has been furnished to the Antitrust Division of the DOJ
and the FTC and specified waiting period requirements have been satisfied. On
July 16, 1999, Vectren, SIGCORP and Indiana Energy filed Pre-Merger Notification
and Report Forms with the FTC and the DOJ under the HSR Act. The waiting period
with respect to the Pre-Merger Notification and Report Forms would have expired
on August 15, 1999. However, prior to such date, the DOJ requested further
information. Accordingly, the waiting period will now expire 20 days after the
requested information is furnished to the DOJ. If the Merger is not completed
within twelve months after the expiration or termination of the waiting period,
SIGCORP and Indiana Energy would be required to submit new notices to the DOJ
and the FTC and a new waiting period would have to expire or be terminated
before the Merger could be completed.
At any time before or after the Effective Time of the Merger, the FTC
or the DOJ could take any action under the antitrust laws as it deems necessary
or desirable in the public interest, including seeking to enjoin the Merger or
seeking divestiture of substantial assets of SIGCORP or Indiana Energy or their
respective subsidiaries. Private parties and state attorneys general may also
bring an action under the antitrust laws under certain circumstances. Completion
of the Merger is subject to no action having been instituted by the DOJ or the
FTC that is not withdrawn or terminated prior to the effective time of the
respective transactions.
B. FEDERAL POWER ACT
Section 203 of the Federal Power Act of 1935, as amended (the "Federal
Power Act"), provides, among other things, that no public utility shall sell or
otherwise dispose of its
23
<PAGE> 24
jurisdictional facilities or, directly or indirectly, merge or consolidate such
facilities with those of any other person or acquire any security of any other
public utility without first having obtained authorization from the FERC. As a
result, the approval of the FERC is required in order to complete the Merger.
Under Section 203 of the Federal Power Act, the FERC will approve a merger if it
finds the merger to be "consistent with the public interest." In undertaking its
review of a utility merger transaction, the FERC generally has evaluated (i)
whether the merger will adversely affect competition, (ii) whether the merger
will adversely affect operating costs and rates, (iii) whether the merger will
impair the effectiveness of regulation, (iv) whether the purchase price is
reasonable, (v) whether the merger is the result of coercion and (vi) whether
the accounting treatment is reasonable. However, the FERC has indicated in its
new merger policy statement issued on December 18, 1996 that rather than
utilizing the six-factor test described above, it will instead focus only on the
following three factors: (i) the effect on competition; (ii) the effect on
rates; and (iii) the effect on federal regulation. On August 13, 1999, SIGECO,
Indiana Energy and Vectren filed a joint application with the FERC requesting
that the FERC approve the Merger under Section 203 of the Federal Power Act.
That case is now pending before the FERC in Docket No. EC 99-106-000.
C. STATE PUBLIC UTILITY REGULATION
On June 17, 1999, Indiana Energy and SIGCORP filed a joint petition
with the IURC requesting approval of the Merger. The petition alleges that the
Merger is in the public interest and should be approved because it enhances the
financial strength of the companies; it creates an Indiana-based company better
able to compete in the future; it creates opportunities to reduce costs and
avoid certain capital expenditures which should delay the need for rate relief
and over time result in lower rates; and it leaves intact the IURC's regulatory
oversight over the two public utilities.
On July 30, 1999, in an unrelated case, the Indiana Supreme Court
issued a decision wherein it determined that the merger of two public-utility
holding companies does not require authorization from the IURC. In light of that
determination, and to provide the IURC with a forum to review the Merger's
implications for SIGECO and Indiana Gas, on September 9, 1999, SIGCORP and
Indiana Energy, together with SIGECO and Indiana Gas, voluntarily filed a joint
motion to amend the petition from one requesting preapproval of the Merger to a
petition requesting the IURC to convert the proceeding into an
informational/investigatory proceeding. In response to this motion, the IURC
established a procedural schedule for the proceeding, including a public hearing
to be held on January 18, 2000.
D. OTHER
Vectren may file other applications for, or request, certain other
consents or authorizations by federal, state or municipal agencies in connection
with the issuance of securities, system operations and franchises or any other
activities subject to regulatory approval.
ITEM 5. PROCEDURE
The Applicant requests that there be no 30-day waiting period between
the issuance of the Commission's order and the date on which it is to become
effective. The Applicant submits that a recommended decision by a hearing or
other responsible officer of the Commission is not
24
<PAGE> 25
needed with respect to the proposed transaction and that the Division may assist
with the preparation of the Commission's decision and/or order in this matter
unless such Division opposes the matters covered hereby.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
A. EXHIBITS
EXHIBIT
A-1 Articles of Incorporation of Vectren, effective June 10, 1999.
(Incorporated by reference to the Joint Proxy
Statement/Prospectus filed as Exhibit C-2 herein, as Appendix
B).
A-2 Restated Articles of Incorporation of SIGCORP (Incorporated by
reference to the Form S-4 Registration Statement filed February
23, 1995, File No. 33-57381, as Exhibit 3(a)).
A-3 Amended and Restated Articles of Incorporation of Indiana
Energy (Incorporated by reference to the Form 10-Q Quarterly
Report of Indiana Energy for the quarterly period ended
December 31, 1997, File No. 1-9091, as Exhibit 3-A).
B-1 Agreement and Plan of Merger dated as of June 11, 1999, among
Indiana Energy, SIGCORP and Vectren (Incorporated by reference
to the Form 8-K Current Report of SIGCORP filed June 11, 1999,
File No. 1-11603, as Exhibit 2).
B-2 SIGCORP, Inc. Stock Option Agreement between Indiana Energy and
SIGCORP (Incorporated by reference to the Form 8-K Current
Report of SIGCORP filed June 11, 1999, File No. 1-11603, as
Exhibit 4.1).
B-3 Indiana Energy, Inc. Stock Option Agreement between Indiana
Energy and SIGCORP (Incorporated by reference to the Form 8-K
Current Report of SIGCORP filed June 11, 1999, File No.
1-11603, as Exhibit 4.2).
C-1 Registration Statement on Form S-4 (including all exhibits
thereto) (Incorporated by reference to the Registration
Statement filed with the Commission on November 12, 1999
pursuant to the 1933 Act, File No. 333-90763).
C-2 Joint Proxy Statement/Prospectus (Included in Registration
Statement on Form S-4 filed as Exhibit C-1 herein).
D-1 Form of Pre-Merger Notification and Report Forms filed with
the FTC and the DOJ.*
D-2 Joint Application of SIGECO, Indiana Energy and Vectren to the
FERC (exhibits to be filed supplementally upon request of
staff).
D-3 Order of the FERC.*
E-1 Map showing combined SIGECO and Indiana Gas service areas.*
F-1 Preliminary Opinion of Counsel.*
F-2 Past Tense Opinion of Counsel (to be filed with certificate of
notification)
25
<PAGE> 26
EXHIBIT
F-3 Opinion of counsel re: Indiana jurisdiction.*
G-1 SIGCORP Form U-3A-2, "Statement by Holding Company Claiming
Exemption Under Rule U-2 from the Provisions of the Public
Utility Holding Company Act of 1935," dated February 25, 1999
(Incorporated by reference to such filing, File No. 69-397).
G-2 Indiana Energy Form U-3A-2, "Statement by Holding Company
Claiming Exemption under Rule U-2 from the Provisions of the
Public Utility Holding Company Act of 1935," dated February 23,
1999 (Incorporated by reference to such filing, File No.
69-312).
G-3 Form 10-K Annual Report of SIGCORP for the year ended December
31, 1998 (Incorporated by reference to such filing, File No.
1-11603).
G-4 Form 10-K/A Amended Annual Report of SIGCORP for the year ended
December 31, 1998, filed November 3, 1999 (Incorporated by
reference to such filing, File No. 1-11603).
G-5 Form 10-K Annual Report of Indiana Energy for the year ended
September 30, 1998 (Incorporated by reference to such filing,
File No. 1-9091).
G-6 Form 10-Q Quarterly Report of SIGCORP for the Quarter ended
September 30, 1999 (Incorporated by reference to such filing,
File No. 1-11603).
G-7 Form 10-Q Quarterly Report of Indiana Energy for the Quarter
ended June 30, 1999 (Incorporated by reference to such filing,
File No. 1-9130).
H-1 Goldman Sachs Fairness Opinion (Incorporated by reference to
Joint Proxy Statement/Prospectus filed as Exhibit C-2 herein,
as Appendix E).
H-2 Merrill Lynch Fairness Opinion (Incorporated by reference to
Joint Proxy Statement/ Prospectus filed as Exhibit C-2 herein,
as Appendix D).
I-1 Form of Notice.
* To be filed by amendment.
26
<PAGE> 27
B. FINANCIAL STATEMENTS
EXHIBIT
FS-1 SIGCORP Consolidated Balance Sheet as of June 30, 1999 (see
Quarterly Report of SIGCORP on Form 10-Q for the Quarter ended
September 30, 1999 (Exhibit G-6 hereto)).
FS-2 SIGCORP Consolidated Statements of Income for its last three
months (see Quarterly Report of SIGCORP on Form 10-Q for the
Quarter ended September 30, 1999 (Exhibit G-6 hereto)).
FS-3 Indiana Energy Quarterly Consolidated Balance Sheet as of March
31, 1999 (see Quarterly Report of Indiana Energy on Form 10-Q
for the Quarter ended June 30, 1999 (Exhibit G-7 hereto)).
FS-4 Indiana Energy Consolidated Statements of Income for its last
twelve months (see Quarterly Report of Indiana Energy on Form
10-Q for the Quarter ended June 30, 1999 (Exhibit G-7 hereto)).
Financial Statements of Vectren are not included herein because it has
no assets and has not engaged in any business operations.
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
The Merger neither involves a "major federal action" nor "significantly
affects the quality of the human environment" as those terms are used in Section
102(2)(C) of the National Environmental Policy Act, 42 U.S.C. Sec. 4321 et seq.
Consummation of the Merger will not result in changes in the operations of
Vectren, SIGCORP, Indiana Energy or their subsidiaries that would have any
impact on the environment. No federal agency is preparing an environmental
impact statement with respect to this matter.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned company has duly caused this Application/Declaration to
be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 23, 1999
VECTREN CORPORATION
By:/s/ Niel C. Ellerbrook
Chairman of the Board and
Chief Executive Officer
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<PAGE> 28
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
A-1 Articles of Incorporation of Vectren, effective June 10, 1999.
(Incorporated by reference to the Joint Proxy
Statement/Prospectus filed as Exhibit C-2 herein, as Appendix
B).
A-2 Restated Articles of Incorporation of SIGCORP (Incorporated by
reference to the Form S-4 Registration Statement filed February
23, 1995, File No. 33-57381, as Exhibit 3(a)).
A-3 Amended and Restated Articles of Incorporation of Indiana
Energy (Incorporated by reference to the Form 10-Q Quarterly
Report of Indiana Energy for the quarterly period ended
December 31, 1997, File No. 1-9091, as Exhibit 3-A).
B-1 Agreement and Plan of Merger dated as of June 11, 1999, among
Indiana Energy, SIGCORP and Vectren (Incorporated by reference
to the Form 8-K Current Report of SIGCORP filed June 11, 1999,
File No. 1-11603, as Exhibit 2).
B-2 SIGCORP, Inc. Stock Option Agreement between Indiana Energy and
SIGCORP (Incorporated by reference to the Form 8-K Current
Report of SIGCORP filed June 11, 1999, File No. 1-11603, as
Exhibit 4.1).
B-3 Indiana Energy, Inc. Stock Option Agreement between Indiana
Energy and SIGCORP (Incorporated by reference to the Form 8-K
Current Report of SIGCORP filed June 11, 1999, File No.
1-11603, as Exhibit 4.2).
C-1 Registration Statement on Form S-4 (including all exhibits
thereto) (Incorporated by reference to the Registration
Statement filed with the Commission on November 12, 1999
pursuant to the 1933 Act, File No. 333-90763).
C-2 Joint Proxy Statement/Prospectus (Included in Registration
Statement on Form S-4 filed as Exhibit C-1 herein).
D-1 Form of Pre-Merger Notification and Report Forms filed with
the FTC and the DOJ.*
D-2 Joint Application of SIGECO, Indiana Energy and Vectren to the
FERC (exhibits to be filed supplementally upon request of
staff).
D-3 Order of the FERC.*
E-1 Map showing combined SIGECO and Indiana Gas service areas.*
F-1 Preliminary Opinion of Counsel.*
F-2 Past Tense Opinion of Counsel (to be filed with certificate of
notification)
<PAGE> 29
EXHIBIT NO. DESCRIPTION
F-3 Opinion of counsel re: Indiana jurisdiction.*
G-1 SIGCORP Form U-3A-2, "Statement by Holding Company Claiming
Exemption Under Rule U-2 from the Provisions of the Public
Utility Holding Company Act of 1935," dated February 25, 1999
(Incorporated by reference to such filing, File No. 69-397).
G-2 Indiana Energy Form U-3A-2, "Statement by Holding Company
Claiming Exemption under Rule U-2 from the Provisions of the
Public Utility Holding Company Act of 1935," dated February 23,
1999 (Incorporated by reference to such filing, File No.
69-312).
G-3 Form 10-K Annual Report of SIGCORP for the year ended December
31, 1998 (Incorporated by reference to such filing, File No.
1-11603).
G-4 Form 10-K/A Amended Annual Report of SIGCORP for the year ended
December 31, 1998, filed November 3, 1999 (Incorporated by
reference to such filing, File No. 1-11603).
G-5 Form 10-K Annual Report of Indiana Energy for the year ended
September 30, 1998 (Incorporated by reference to such filing,
File No. 1-9091).
G-6 Form 10-Q Quarterly Report of SIGCORP for the Quarter ended
September 30, 1999 (Incorporated by reference to such filing,
File No. 1-11603).
G-7 Form 10-Q Quarterly Report of Indiana Energy for the Quarter
ended June 30, 1999 (Incorporated by reference to such filing,
File No. 1-9130).
H-1 Goldman Sachs Fairness Opinion (Incorporated by reference to
Joint Proxy Statement/Prospectus filed as Exhibit C-2 herein,
as Appendix E).
H-2 Merrill Lynch Fairness Opinion (Incorporated by reference to
Joint Proxy Statement/ Prospectus filed as Exhibit C-2 herein,
as Appendix D).
I-1 Form of Notice.
* To be filed by amendment.
<PAGE> 1
EXHIBIT D-2
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
Southern Indiana Gas and )
Electric Company, ) Docket No. EC99-106-000
Indiana Energy, Inc. and )
Vectren Corporation )
APPLICATION FOR AUTHORIZATION
AND APPROVAL OF MERGER
Pursuant to section 203 of the Federal Power Act ("FPA"), 16 U.S.C.
Section 824b, and Part 33 of the Commission's regulations, 18 C.F.R. Sections
33.1-33.10 (1999), Southern Indiana Gas and Electric Company ("SIGECO"), a
wholly-owned subsidiary of SIGCORP, Inc. ("SIGCORP"), Indiana Energy, Inc.
("Indiana Energy") and Vectren Corporation ("Vectren"), on behalf of themselves
and their jurisdictional affiliates (collectively the "Applicants"), hereby
apply for any and all authorizations necessary under the FPA for approval of the
merger of SIGCORP and Indiana Energy into Vectren (the "merger transaction").
Under the merger transaction, SIGCORP, a public utility holding company would
disappear and its wholly-owned subsidiary, SIGECO, would emerge as a
wholly-owned subsidiary of Vectren. Similarly, Indiana Energy, a public utility
holding company that owns, inter alia, 100% of the capital stock of Indiana Gas
Company, Inc. ("Indiana Gas"), two other local distribution companies and,
indirectly, a 50% interest in a power marketer, ProLiance Energy, LLC.
("ProLiance Energy") would disappear and its former subsidiaries would become
subsidiaries of Vectren. The merger would be accomplished through a tax-free
exchange of common stock. It would result in the shareholders of SIGCORP and
Indiana Energy becoming shareholders in Vectren, a newly-formed
<PAGE> 2
corporation, which would continue to carry on the business of both SIGCORP and
Indiana Energy.
The Applicants are treating this merger transaction as a
jurisdictional transaction under the guidance provided in Illinois Power Co., 67
FERC Paragraph 61,136 (1994), a case in which the Commission established a
presumption that section 203 approval is required for the merger of public
utility holding companies.
I. DESCRIPTION OF THE APPLICANTS
(a) Southern Indiana Gas and Electric Company. SIGECO, a wholly
owned subsidiary of SIGCORP, is a public utility incorporated under the lawsof
the State of Indiana. It is engaged in the generation, transmission,
distribution and sale of electric energy, as well as the purchase of natural
gas and its transportation, transmission, distribution and sale in a service
area covering all or parts of ten counties in southwestern Indiana. Electric
distribution service at retail is supplied to customers in Evansville and 74
other cities, towns and communities, as well as adjacent rural areas. SIGECO
provides wholesale sales service to an additional five communities. As of
December 31, 1998, SIGECO served 124,000 retail electric customers, 108,241 of
whom were residential customers. It is a party to an interconnection agreement
under which it provides firm power to the City of Jasper, Indiana. It also has
an agreement with Hoosier Energy Rural Electric Cooperative, Inc. ("Hoosier
Energy") for the sale of firm peaking power to Hoosier Energy during the annual
winter heating season (November 15-March 15.) The contract with Hoosier Energy
expires on March 15, 2000. Under an agreement dated June 26, 1969, filed with
the Commission as SIGECO's FERC Rate Schedule No. 29, as amended, SIGECO makes
sales to Alcoa Generating Corporation.
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<PAGE> 3
SIGECO is a member of the East Central Area Reliability Group
("ECAR") under an agreement that obligates it to maintain a spinning reserve
margin. SIGECO is interconnected with Louisville Gas and Electric Co., PSI
Energy, Inc., Indianapolis Power & Light Co., Hoosier Energy, Big Rivers
Electric Corporation, Wabash Valley Power Association and the City of Jasper.
Its 1998 peak load was 1,082.5 MW.
Since March 1999, SIGECO applied to become, and was accepted as, a
Participant in the Midwest Independent Transmission System Operator. 1/
SIGECO has filed an open-access transmission tariff with the
Commission in accordance with Order No. 888. The Commission approved the
non-rate terms and conditions of the tariff in 1996 (Atlantic City Electric Co.,
77 FERC Paragraph 61,144 (1996)) and approved the rates provided for therein the
following year (Allegheny Power System, Inc., 80 FERC Paragraph 61,143 (1997)).
SIGECO has also adopted Standards of Conduct which the Commission has held to be
consistent with Order No. 889. American Services Co., 86 FERC Paragraph 61,079
(1999).
In Southern Indiana Gas & Electric Co., 77 FERC Paragraph 61,024
(1996), the Commission approved SIGECO's application for authority to sell
electricity at wholesale at market-based rates. The Commission's action was
based in part upon a finding that Southern Indiana's "market share of installed
and uncommitted capacity will not exceed levels that the Commission previously
has found to be acceptable." Id. at 61,092
SIGECO's retail electric service is regulated by the Indiana Utility
Regulatory Commission ("IURC"). The IURC also regulates SIGECO's natural gas
business. SIGECO
- ------------------------
1/ The Midwest Independent System Operator was conditionally authorized in
September 1998. Midwest Independent System Operator, 84 FERC P. 61,231
(1998). A formal application for authorization for SIGECO's transmission
facilities to be administered by the Midwest ISO (along with those of
other new members) is currently being prepared.
-3-
<PAGE> 4
supplies natural gas service to 108,335 customers, including 98,636 residential
customers, 9,481 commercial customers and 218 industrial customers. It operates
2,932 miles of gas transmission and distribution lines. The SIGECO gas system
also includes three underground gas storage fields.
On January 1, 1996, SIGECO became a wholly-owned subsidiary of
SIGCORP, a newly-formed public utility holding company. The Commission approved
the transaction, in which all of the shares of common stock of SIGECO were
exchanged for shares of SIGCORP stock on a one-for-one basis, on November 7,
1995. Southern Indiana Gas and Electric Co., 73 FERC Paragraph 62,090 (1995).
SIGECO's utility operations produce approximately 80% of SIGCORP's
total revenues. In addition to SIGECO, SIGCORP has several other subsidiaries.
They include the following:
- Southern Indiana Properties, Inc., formed in 1986, which
invests in real estate and equipment, real estate
partnerships and joint ventures and other financial and
business arrangements.
- Energy Systems Group, Inc., incorporated in 1994, which
has a one-third ownership interest in Energy Systems
Group, LLC. The firm provides energy-related performance
contracting services.
- Southern Indiana Minerals, Inc., incorporated in 1994 to
process and market coal combustion by-products.
- SIGCORP Energy Services, Inc., which was formed in 1996
as an energy marketer and currently provides natural
gas, pipeline management and other natural gas-related
services. SIGCORP Energy Services has filed in Docket
No. ER99-2181-000 a tariff for sales of electric power
at market-based rates. The tariff was accepted by
Commission order dated May 12, 1999. Rocky Road Power,
L.L.C., 87 FERC Paragraph 61,163 (1999). However,
SIGCORP Energy Services has never taken part in any
power marketing transactions.
- SIGCORP Capital, Inc., incorporated in October 1996,
which is a primary financing vehicle for SIGCORP's
non-regulated subsidiaries.
-4-
<PAGE> 5
- SIGCORP Fuels, Inc., incorporated in December 1996 to
own and operate coal mining properties and to provide
coal and related services to SIGCORP and other
customers.
- SIGCORP Power Marketing, Inc., formed in December 1996
to purchase power for SIGECO and to market power for
SIGECO. This company is not currently active.
- SIGCORP Communications Services, Inc., incorporated in
August 1997, was formed to undertake
communications-related strategic initiatives.
- SIGECO Advance Communications, Inc., incorporated in
April 1998, holds SIGCORP's investment in SIGECOM, LLC
and Utilicom Networks, Inc. It is a joint venture
between Advanced Communications, Inc. and Utilicom
Networks, Inc. to provide and to market enhanced
communications services over a high-capacity fiber-optic
network in SIGECO's service territory.
- SIGCORP Environmental Services, Inc., formed in November
1998, holds SIGCORP's investment in Air Quality
Services, a joint venture created to provide air quality
monitoring and testing services to industry and
utilities.
Both SIGECO and SIGCORP are incorporated in the State
of Indiana. The Securities and Exchange Commission has determined that SIGCORP
is a public utility holding company that is exempt from the registration
requirements and other regulatory requirements of the Public Utility Holding
Company Act of 1935 ("PUHCA") pursuant to section 3(a)(1) of PUHCA, 15 U.S.C.
Section 79c(a)(1) (the so-called "single-state" exemption).
(b) Indiana Energy, Inc. Indiana Energy is also an exempt public
utility holding company. It is a publicly-owned corporation with subsidiaries
and affiliates engaged in natural gas distribution, gas portfolio administrative
services and marketing of natural gas, electric power and related services and
services and products unrelated to energy. It was incorporated under the laws of
the State of Indiana on October 24, 1985. Indiana Energy has four wholly-owned
subsidiaries, Indiana Gas , IEI Services, LLC, IEI Capital Corp. and IEI
Investments, Inc.
Indiana Gas is the principal subsidiary and business entity in the
Indiana Energy family. In 1998, it supplied natural gas to about 490,000
residential, small commercial and contract
-5-
<PAGE> 6
(large commercial and industrial) customers in 281 communities in 48 of the 92
counties in the State of Indiana. The largest communities served include Muncie,
Anderson, Lafayette-West Lafayette, Bloomington, Terre Haute, Marion, New
Albany, Columbus, Jeffersonville, New Castle and Richmond.
Indiana Gas owns two local distribution companies, Richmond Gas
Corporation and Terre Haute Gas, Inc. Pursuant to Indiana law and regulations,
both of these subsidiaries are operationally combined with, and do business
under the name of, "Indiana Gas Company, Inc." Indiana Gas is itself a local
distribution company, having most of its operations covered by the Hinshaw
Amendment and exempt from regulation by the Commission under sections 1(b) and
1(c) of the Natural Gas Act, 15 U.S.C. Sections 717(b), 717(c). 2/ The remaining
activities of Indiana Gas have been granted a "service area" exemption under
section 7(f) of the Act, 15 U.S.C. Section 717f(f). See Ohio River Pipeline
Corp. 55 FERC Paragraph 61,365 (1991). Indiana Gas's business is regulated by
the IURC.
The other three subsidiaries of Indiana Energy are IEI Services,
LLC, IEI Capital Corp. and IEI Investments, Inc. IEI Services provides support
services to Indiana Energy and its subsidiaries. Those services include
information technology, financial services, human resources support and building
and fleet services.
IEI Capital Corp. was formed to carry out the financing of Indiana
Energy and its non-regulated subsidiaries. IEI Investments, Inc. was formed to
conduct the operations of Indiana Energy's other businesses. It has three
subsidiaries, IGC Energy, Inc., Energy Realty, Inc. and
- --------------------------
2/ The Commission's Hinshaw determination was rendered in 1954. Indiana Gas and
Water Co., 13 F.P.C. 1373 (1954).
-6-
<PAGE> 7
Energy Financial Group, Inc. IGC Energy also owns a 50% interest in ProLiance
Energy.3/ ProLiance Energy provides Indiana Gas with its gas supply. ProLiance
Energy is also engaged in the power marketing business. Although ProLiance
Energy does not own or control any generation or transmission assets or hold
power purchase contracts with durations longer than one year, it is a "public
utility" for purposes of the FPA. 4/ IEI Investments is committed to invest in a
minority interest in Haddington Energy Partners, L.P., a firm that will
participate in the financing of six to eight projects, including natural gas
gathering and storage and electric power generation. IEI Investments also holds
interests in companies that are engaged in materials management, underground
facilities locating and facilities construction, debt collection, and other
non-jurisdictional activities.
II. THE TRANSACTION
The merger is proposed to take place in accordance with an Agreement
and Plan of Merger ("Merger Agreement") dated as of June 11, 1999 among Indiana
Energy, SIGCORP and Vectren. A copy of the Merger Agreement is attached to this
Application as Exhibit A. As we have noted above, Vectren is a newly-formed
corporation, created to carry out, and be the surviving corporation of, the
merger transaction. Today, prior to the merger, SIGCORP and Indiana Energy each
owns 50% of the common stock of Vectren.
- ---------------------------
3/ The other 50% interest in ProLiance Energy is owned by a non-affiliated firm.
4/ ProLiance Energy received authorization to operate as a power marketer by
order issued January 16, 1997 in Docket No. ER97-420-000, 62 Fed. Reg. 4993
(February 3, 1997).
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<PAGE> 8
On the effective date of the merger, 5/ each share of Vectren common
stock will be cancelled. Each full share of Indiana Energy's common stock that
is issued and outstanding shall be converted into the right to receive one share
of Vectren common stock, and each share of SIGCORP's common stock that is issued
and outstanding shall be converted into the right to receive 1.333 shares of
Vectren common stock. Treasury stock in both Indiana Energy and SIGCORP shall be
cancelled and fractional shares of common stock in both Indiana Energy and
SIGCORP issued and outstanding shall be converted into the right to receive
cash. Indiana Energy and SIGCORP will both be merged into Vectren, which will be
the surviving corporation, in accordance with the Indiana Business Corporation
Law.
Once the merger transaction is carried out, the former shareholders
of SIGCORP will own 51.4% of the common stock of Vectren. The remaining 48.6% of
Vectren's common stock will be owned by former shareholders of Indiana Energy.
Vectren will own all of the common stock of SIGECO which, in turn, will own
assets that are jurisdictional facilities for purposes of section 203 of the
Federal Power Act. Vectren will also become the indirect owner of a one-half
interest in ProLiance Energy, a power marketer, as well as the owner of SIGCORP
Energy Services, Inc., the holder of authorization to engage in power marketing
activities.
The merger transaction is intended to be a tax-free corporate
reorganization under section 368(a) of the Internal Revenue Code of 1986, so
that the existing shareholders of both SIGCORP
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5/ The Merger Agreement provides that the closing will take place after all
conditions, including the receipt of all regulatory approvals, have been
met. Under section 9.1 of the Merger Agreement, either SIGCORP or Indiana
Energy may terminate the Agreement if the closing has not taken place by
June 11, 2000, except that the termination date shall be moved back to
December 31, 2000 if the cause of the delay is the failure to obtain one
or more regulatory or statutory approvals which "are being pursued with
diligence."
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<PAGE> 9
and Indiana Energy will not recognize gain or loss on the exchange of their
stock for shares of Vectren stock.
The parties to the merger transaction intend that it shall be
treated as a "pooling of interests" business transaction for accounting
purposes. The Commission has described this method as follows:
The pooling of interests method accounts for
a business combination as the uniting of the ownership
interests of companies by exchange of equity securities.
No acquisition [premium or discount] is recognized
because the combination is accomplished without
disbursing resources of the constituents. Ownership
interests continue and the former bases of accounting
are retained.
Allegheny Energy, Inc. and DQE, Inc., 84 FERC Paragraph 61,223, 62,075 n.60
(1998).
The pooling of interests methodology has been recognized as a proper
way to account for a merger involving a jurisdictional public utility. See,
e.g., American Electric Power Co. Central and Southwest Corp., 85 FERC Paragraph
61,201 (1998).
An application for approval of the merger transaction has been
submitted to the IURC. A copy of the joint application filed by SIGCORP and
Indiana Energy is found at Exhibit B to this Application. After the joint
application was filed with the IURC, the Indiana Supreme Court determined that,
under Indiana law, pre-approval by the IURC of a merger of utility holding
companies is not required. Indiana Bell Tel. Co. v. Indiana Util. Regulatory
Comm'n, 1999 Ind. LEXIS 548 (July 30, 1999). The effect of that decision on the
joint application filed by SIGCORP and Indiana Energy has not been addressed by
the IURC, nor has the IURC acted upon the merits of the joint application. If it
does so before the Commission acts in the instant proceeding, a copy of the
IURC's order will be promptly forwarded to the Commission for its information.
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<PAGE> 10
III. MERGER ANALYSIS
The merger of the jurisdictional subsidiaries of SIGCORP and Indiana
Energy is consistent with the public interest under section 203 of the FPA.
Section 203 provides:
No public utility shall sell, lease, or otherwise
dispose of the whole of its facilities subject to the
jurisdiction of the Commission, or any part thereof of a
value in excess of $50,000, or by any means whatsoever,
directly or indirectly, merge or consolidate such
facilities or any part thereof with those of any other
person, or purchase, acquire, or take any security of
any other public utility without having secured an order
of the Commission authorizing it to do so. * * * After
notice and opportunity for hearing, if the Commission
finds that the proposed disposition, consolidation,
acquisition or control will be consistent with the
public interest, it shall approve the same.
16 U.S.C. Section 824b(a) (emphasis added). This statutory provision requires
the Commission to approve a merger if it finds that the merger is in the public
interest. The Commission has stated that an applicant need not show that a
positive benefit will result from the merger. The applicant need only show that
the merger or disposition is consistent with the public interest. See, e.g., IES
Industries, Inc., 65 FERC Paragraph 61,191 at 64,416 (1993).
In its Merger Policy Statement, 6/ the Commission set forth its
policy for determining whether a merger is in the public interest. The
Commission there stated that its analysis of a proposed merger would focus on
three factors: (1) the merger's effect on competition; (2) the merger's effect
on rates and ratepayers, i.e., whether the merger could cause wholesale
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6/ Inquiry Concerning the Commission's Merger Policy Under the Federal Power
Act: Policy Statement, Order No. 592, 61 Fed. Reg. 68,595 (1996), FERC Stats,
& Regs. P. 31,044 (1996), order on reconsideration, Order No. 592-A, 62 Fed.
Reg. 33,341 (1997), 79 FERC P. 61,321 (1997).
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<PAGE> 11
ratepayers to incur higher costs as a result of the merger; and (3) the merger's
effect on regulation. See Merger Policy Statement at 30,111.
As discussed below, the proposed merger between SIGCORP and Indiana
Energy will not have an adverse effect on competition. SIGCORP's subsidiary,
SIGECO, is primarily an electric utility and natural gas distribution company
and is one of the smallest electric utilities and gas distributors in the
region. Indiana Energy's principal subsidiary, Indiana Gas, is primarily a
natural gas distribution company. Although this type of "convergence" merger has
raised the Commission's sensitivity to potential vertical market power concerns,
there are no such concerns in this case. The Applicants' market power analysis
shows that they have very small shares of the electric and natural gas markets
in their service areas, indicating that they have no ability to affect market
prices. Thus, the proposed merger will not, among other things, create or
enhance the merged company's ability to exercise market power in natural gas
markets to increase its electric utility rivals' gas costs.
The Commission has recently approved a number of similar
"convergence" mergers, citing the lack of market power concerns. See PG&E Corp.,
80 FERC Paragraph 61,179 (1997); Duke Power Co., 79 FERC Paragraph 61,236
(1997); Enron Corp., 78 FERC Paragraph 61,179 (1997). Those proceedings, like
the one now before the Commission, involved proposed mergers between entities
that were predominantly electric utilities and entities that were predominantly
natural gas utilities.
With respect to the second factor mentioned in the Merger Policy
Statement, the Applicants cannot increase rates to wholesale customers because
the majority of the wholesale power sales are made under contracts that call for
the payment of market-based rates. Most of the remaining contracts are due to
expire soon, rendering any future sales subject to market
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<PAGE> 12
forces as well. Finally, in connection with the Merger Policy Statement's third
factor, the proposed merger will not impair the effectiveness of regulation of
the merged utilities by either the Commission or the IURC, as we show below.
The proposed merger, therefore, presents no concerns under the
Merger Policy Statement's criteria. On the other hand, the proposed merger will
provide substantial benefits by creating a company that is better able to
compete in the newly restructured industry by reducing its operating costs and
by increasing the company's ability to raise capital and market new products.
Accordingly, the proposed merger should be approved as consistent with the
public interest.
A. EFFECT ON COMPETITION
In the Merger Policy Statement, the Commission said that it would
apply the Department of Justice-Federal Trade Commission Horizontal Merger
Guidelines as its analytical methodology for evaluating the effect of a proposed
merger on competition. The Merger Policy Statement adopted a complex analytical
screen, set forth in Appendix A to the Statement. The Commission made it clear,
however, that the screen analysis need not be performed or filed when the
Applicants "do not have facilities or sell relevant products in common
geographical markets." See Merger Policy Statement, FERC Stats. & Regs. at
30,136. See also MidAmerican Energy Co. and MidAmerican Energy Holdings Co., 85
FERC Paragraph 61,354 at 61,367-68 (1998); Boston Edison Co., 82 FERC Paragraph
61,311 at 62,236 (1998); San Diego Gas & Elec. Co., 81 FERC Paragraph 61,410 at
62,860 (1997); Duke Power Co. and PanEnergy Corp., 79 FERC Paragraph 61.236 at
62,037-038 (1997).
It is well-established that, with regard to the effect of a merger
on competition, mergers may raise horizontal competitive concerns, vertical
competitive concerns, or both. This merger
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<PAGE> 13
raises no horizontal competitive issues, since such issues arise only when
consolidation of electric generation or transmission assets is contemplated. By
contrast, this is a "vertical merger," according to the affidavit of Applicants'
expert economic witness, David B. Patton, 7/ "because its principal effect is to
consolidate ownership of an input product (delivered gas supply) with the
ownership of electric generation assets." Patton Aff. Paragraph 8. The proposed
merger is a transaction involving two holding companies, one of which owns a
combination public utility and local natural gas distribution company, and the
other of which owns no electric utility property except a one-half interest in a
power marketer which has only short-term contracts as its jurisdictional
property. Mr. Patton has concluded that a horizontal market power analysis is
not required in this case. According to Mr. Patton, the only horizontal aspect
of this merger within the purview of the Commission would be the potential
combination of electric generation or transmission assets. In this case, the
consolidation of Indiana Energy's interest in ProLiance, an electric and natural
gas marketer, with SIGCORP's public utility subsidiaries does not cause
horizontal competitive effects because, as noted above, ProLiance does not own
any generation or transmission properties, and it engages only in short-term
energy transactions. Thus, ProLiance Energy's market share is zero under the
Commission's analytic methodology for dealing with horizontal mergers. Id.
The Commission has considered, and approved, a number of similar
"convergence" mergers -- all of them involving much larger firms than SIGCORP
and Indiana Energy or the
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7/ Mr. Patton, the head of the natural gas and electric utility practice at
Capital Economics, was a Senior Economist in the Commission's Office of
Economic Policy from 1995 to 1997, where he worked principally on electric
utility open access matters. Mr. Patton's affidavit will be found at Exhibit
C to this Application.
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<PAGE> 14
operating companies they own. See San Diego Gas & Electric Co. and Enova Energy,
Inc., 79 FERC Paragraph 61,372 (1997); Long Island Lighting Co., 80 FERC
Paragraph 61,035 (1997); Pacific Gas & Electric Co. and Valero Energy Corp., 80
FERC Paragraph 61,041 (1997); Enron Corp. on behalf of Enron Power Marketing,
Inc. and Portland General Corp. on behalf of Portland General Electric Co., 78
FERC Paragraph 61,179 (1997). In each case, the Commission has made it clear
that under the Merger Policy Statement, it was unnecessary for the applicants to
provide either a horizontal screen analysis or, for that matter, any analysis of
horizontal market power issues that might arise out of the proposed merger.
Instead, the Commission has said, the competitive impact analysis of a
convergence merger must focus on the vertical competitive effects that might be
caused by such a merger. Specifically, the Commission is concerned with the
possibility that the merged company might use its control of natural gas
facilities or transportation capacity to raise the costs of the merged company's
rivals in the downstream electricity market, thereby allowing the merged company
to profitably raise electricity prices. See San Diego Gas & Electric Co. and
Enova Energy, Inc., 79 FERC Paragraph 61,372 at 62,560 (1997).
Mr. Patton's affidavit presents a thorough analysis of the
likelihood this merger would present vertical market power issues of concern to
the Commission. He notes that in its recent Notice of Proposed Rulemaking on
filing requirements for public utility mergers,8/ the Commission provided
guidance with respect to the analysis of mergers to ascertain whether they raise
significant vertical market power issues. The Filing Requirements NOPR describes
a vertical screen analysis for analyzing vertical competitive issues, which
assesses competitive
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8/ Revised Filing Requirements Under Part 33 of the Commission's Regulations;
Notice of Proposed Rulemaking, FERC Stats. & Regs. P. 32,528 (1998), 63
Fed. Reg. 20340 (1998) (hereinafter cited as Filing Requirements NOPR).
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<PAGE> 15
conditions in both the upstream and downstream markets. However, the Filing
Requirements NOPR also provides for a de minimis exception to the requirement
for performing a vertical screen analysis. After examining this merger in
relation to the standard for application of the de minimis exception, Mr. Patton
concludes that a full vertical screen analysis is unnecessary.
Mr. Patton highlights three types of vertical market power concerns.
Patton Aff. Paragraph 9. The first, and primary, concern is that the merged
entity will be able to use its control over one or more upstream businesses to
raise input costs for its competitors in downstream markets. The second is that
the merger will induce formerly competing concerns to collude on pricing or
otherwise to share information. The third concern is the possibility that the
merger could allow the merged firm to evade regulatory scrutiny of
intra-corporate transactions that, pre-merger, took place between independent
entities.
To assess whether any or all of these concerns were present, Mr.
Patton performed a study of the upstream natural gas market to ascertain
Vectren's affiliates' probable market share of the pipeline capacity that would
be available to serve their competitors in the relevant geographic market and
the extent to which this market is concentrated. In order to perform such a
study, Mr. Patton made alternative assumptions about the nature of the market
for delivered gas. These assumptions include -
- Definition of geographic market. The larger the geographic
market, the lower the applicant's market power will appear to
be. Mr. Patton conservatively selected only the area of central
and southern Indiana that encompasses both SIGECO's and Indiana
Energy's affiliates' service territories, notwithstanding the
fact that potential competitors could receive service from
interstate pipelines that currently serve surrounding regions.
Patton Aff. Paragraph 30.
- The number of pipelines to consider. There are five pipelines
that serve SIGECO and Indiana Energy's affiliates but only three
that serve both SIGECO and the Indiana
- -------------------
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<PAGE> 16
Energy affiliates. Patton Aff. Paragraph 31. Mr. Patton
performed alternative studies, first looking at available
capacity on all five pipelines and then looking at capacity on
just the three pipelines that serve both sets of companies.
- Uncommitted downstream capacity and released capacity. In
dealing with these two forms of capacity that conceivably could
become available in the event of a significant price increase
in the relevant market, Mr. Patton included in his study both
uncommitted capacity held to serve downstream markets and
released capacity on the pipelines that can be used to serve
Indiana. He did not, however, include either interruptible
capacity or unsubscribed capacity, owing to the lack of
reliable data for these parameters. Patton Aff. Paragraph 32.
- How much downstream capacity to include. One of the "unknowns"
that Mr. Patton faced was how much of the capacity held by
downstream entities is deemed "uncommitted," i.e., available to
respond to an significant price increase in the relevant
geographic market. In performing his study, Mr. Patton decided
to measure market share and market concentration using four
different assumptions about the percentage of downstream
capacity (as well as SIGECO's and Indiana Energy affiliates'
non-marketing capacity) that would be available to serve the
geographic market: (1) 20% of the capacity; (2) 35% of the
capacity; (3) 50% and (4) 100%. Patton Aff. Paragraph 38.
- What about TETCO's "two-leg" system? Only the northern leg of
Texas Eastern's system serves Indiana. In recognition of this
fact, Mr. Patton's analysis of the availability of TETCO
capacity serving downstream markets was scaled down by 75%, to
account for the fact that some 75% of TETCO's capacity is found
on its southern leg. Patton Aff. Paragraph 43.
- What capacity release data should be used? Mr. Patton chose to
use data for historical capacity release averages on the
relevant pipelines, including only those releases that could
have been acquired to serve Indiana customers, each of the last
two winters. He made this choice because it tends to be very
conservative, owing to the fact that released capacity is
generally lower in the winter when customer demand is highest.
In addition, Mr. Patton excluded releases by marketers and the
Applicants; he also subtracted the amount of uncommitted
downstream capacity assumed for each case to eliminate any
possibility of double-counting. Patton Aff. Paragraph Paragraph
40-44.
The results of Mr. Patton's upstream analysis are shown in
Attachment C to his affidavit. Mr. Patton's study "show[s] that even under the
most conservative assumptions, the applicants lack significant control over the
pipeline capacity serving the region. Further, the low levels of
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market concentration found in each of the cases suggests that the Midwest
delivered gas market is not conducive to the exercise of market power." Patton
Aff. Paragraph 45.
The post merger Herfindahl-Hirschman Index calculated by Mr. Patton
ranged from 316 to 848. This result means that the market will continue to be
markedly unconcentrated and competitive after the proposed merger takes place.
As the Commission has said, "[i]f the HHI is below 1000, adverse anticompetitive
effects are unlikely." New England Power Pool, 85 FERC Paragraph 61,379 at
62,472 (1998). The merged company's affiliates' market share, ranging from 5.6%
to 16.2%, is also relatively insignificant regardless of which assumptions are
used. Patton Aff. Paragraph 46.
A number of other factors, not susceptible of precise calculation
but significant nonetheless, support Mr. Patton's conclusion that the merger
will not permit the merged company to exercise market power in the upstream
market. New capacity is being constructed in the Midwest. At the same time, a
substantial number of long-term contracts for capacity on the pipelines serving
SIGECO and Indiana Energy's affiliates are scheduled to expire by their terms
during the next six years. This capacity will be available to compete with the
pipeline capacity held by the firms that will be in the Vectren family. Mr.
Patton also found that gas supplies can be delivered by displacement from the
Chicago market, one of the most competitive and liquid natural gas markets in
the Nation, to serve Indiana. Patton Aff. Paragraph 51. None of this additional
capability is included in Mr. Patton's market analysis, although it will have a
powerful effect in disciplining attempts to raise prices. In addition, this
capability will ensure that utilities in Indiana that rely on natural gas as an
input fuel will have no difficulty in securing abundant supplies, regardless of
what Vectren may do.
Mr. Patton also examined vertical competitive issues raised by the
Applicants' or their affiliates' control of natural gas distribution facilities,
to determine whether they could use their
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ownership of such facilities to raise their rivals' costs or engage in
anticompetitive coordination. He found that SIGECO's distribution system serves
only its own generation facilities. Likewise, Indiana Gas's distribution system
serves a very small share of its potential rivals' generation facilities,
amounting to only 243 MW of gas turbine capacity or less than 0.5% of the total
generation in the Southwest ECAR region. Based on this insignificant amount of
generation owned by potential competitors and served by the Applicants' or their
affiliates' distribution systems, as well as the de minimis role that natural
gas plays in the broader Midwest electric market, Mr. Patton concluded that the
control of distribution facilities by the Applicants and their affiliates poses
no vertical market power concerns. Patton Aff. Paragraph 59.
Mr. Patton also looked at coal as an input, in light of the fact
that SIGECO owns coal resources and because many of its competing utilities are
base-loaded on coal. He determined that, for several reasons, the merger will
not produce anticompetitive results for coal-burning utilities. Patton Aff.
Paragraph Paragraph 60-62. First, SIGCORP affiliates own both the electric
assets and all of the coal resources that the merged company will own after the
merger. So there are no vertical market power concerns related to coal holdings
that arise out of the merger. Second, the output of SIGECO's mine "represents an
insignificant amount of coal for the region" - only 0.2% of coal production in
the Midwest, and less than 3% of Indiana's coal output. Patton Aff. Paragraph
61; see also Attachment F. Finally, SIGECO uses 100% of the coal its mine can
produce, leaving no excess capacity to be withheld from the market to raise the
costs of competing generators.
As we have noted above, the Commission's application of the de
minimis rule to vertical mergers makes it unnecessary to perform a full Appendix
A screen when the upstream input (natural gas and coal) that the Applicants
control has little or no significance to the production of the downstream
product (electricity). Mr. Patton's study shows definitively that that is the
case
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with respect to the relationship between control of natural gas pipeline
capacity and coal resources, on the one hand, and production of electricity, on
the other, in the Midwest.
Attachment G to Mr. Patton's affidavit shows that only about six
percent of the electric generation in the Midwest (regardless of how the term
"Midwest" is defined) is fueled by natural gas; the vast bulk of the generation
is coal-fired. Even this figure tends to overstate the importance of natural
gas, most of which is burned in facilities that are kept in reserve and are
rarely dispatched. To demonstrate this fact, Mr. Patton examined the use of
natural gas versus the use of other fossil fuels by Midwestern utilities in
1998. As is shown in Attachment H to his affidavit, measured in terms of heat
input, gas represented just 1.1% of the fossil fuel used by ECAR utilities, 0.6%
of fossil fuel used by utilities in the Southwestern portion of ECAR and 0.8% of
the fossil fuel used in Indiana. Examination of the relative role of gas in
terms of the amount paid by utilities for fossil fuel produced only slightly
larger, though still not very significant, figures: gas costs represented 2.3%
of the fossil fuel purchases by utilities within ECAR, 1.5% of the fossil fuel
purchases in Southwestern ECAR and 2% of the fossil fuel purchases in Indiana.
Again, natural gas does not appear to be a significant fuel.
Finally, Mr. Patton asked whether natural gas could be deemed the
"marginal" fuel, so that its relative abundance or scarcity might have a
significant impact on rates for electric generation. His analysis shows that
gas-fired generators are operated so infrequently that they are unlikely to
constitute the marginal facilities in the region. Patton Aff. Paragraph 75.
The overall conclusion Mr. Patton reached is undeniable: The
proposed merger of SIGCORP and Indiana Energy into VECTREN "poses none of the
potential competitive concerns outlined in the Commission's Merger Policy for
vertical mergers." Patton Aff. Paragraph 76. The "upstream market results show
that the upstream market [for natural gas] is not conducive
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to an exercise of market power, which should eliminate the possibility that the
merged company could profitably execute a strategy to raise its rivals' costs."
Id. at Paragraph 77.
Mr. Patton also concluded that "anticompetitive coordination is not
a concern in this case." His primary grounds for this conclusion rested on the
fact that natural gas is relatively insignificant as an input to electric
generation and on the fact that neither of the merger partners' affiliates has a
substantial share of the available pipeline capacity. Id. at Paragraph 79.
However, to ensure that there is no concern about collusion between SIGECO and
ProLiance Energy, a power marketer in which Vectren will own a half interest,
the Applicants commit that SIGECO and ProLiance will comply with a Code of
Conduct guaranteeing that they will not sell to and buy from each other or
exchange sensitive information about competitors except to the same extent such
information is made generally available to the trade. A copy of that Code of
Conduct is attached to this Application as Exhibit D.
This Application does not raise any significant questions with
respect to transmission market power. SIGECO has on file with the Commission an
open-access transmission tariff that conforms fully to the Commission's pro
forma transmission tariff and is otherwise in compliance with Order No. 888. In
addition, as noted above, SIGECO will be a full Participant in the Midwest ISO.
Hence, the use of its transmission system will be available to all utilities in
the region and will be administered by an ISO that is independent of SIGECO's
management. In these circumstances, SIGECO lacks the wherewithal to exercise
undue market power in the market for bulk power transmission service or any of
its sub-markets. See Central Illinois Light Co. and The AES Corp., 87 FERC
Paragraph 61,293 (1999).
This Application, therefore, does not present the Commission with
market power issues that would suggest that approval of the merger is not in the
public interest.
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B. EFFECT ON RATES
SIGECO has three principal wholesale customers. It sells firm power
to the City of Jasper, Indiana, firm peaking power to Hoosier Energy and backup
and emergency power to Alcoa Generating Company. The contract with Hoosier
Energy expires in less than nine months. The contract with the City of Jasper is
a partial requirements contract, as Jasper has limited generation capacity of
its own.
In addition to its wholesale sales to Alcoa Generating Co., Hoosier
Energy and Jasper, SIGECO engages in economy energy and exchange transactions
with all of the utilities with which it is interconnected. As a member of ECAR,
SIGECO provides ancillary services, e.g., spinning reserves, to the regional
entity.
In 1996, the Commission analyzed SIGECO's generation market power
and found that it was so insignificant as to warrant authorizing SIGECO to sell
electricity at wholesale at market-based rates. Southern Indiana Gas & Electric
Co., 77 FERC Paragraph 61,024 (1996). Nothing that has transpired in the
succeeding three years has altered the basis for that determination. Four of the
six agreements under which SIGECO sells power at wholesale to municipal
customers were negotiated under SIGECO's market-based rate authority. To impose
rate conditions upon those agreements would be inimicable to the idea of using
market forces, rather than regulatory fiat, as the mechanism for assuring that
rates are just and reasonable. The remaining two wholesale sales with SIGECO's
municipal customers were made under SIGECO's Rate Schedule "RS" and provide that
the customer may terminate SIGECO's service upon five years' notice. One of such
customers has given the requisite notice, and its service will expire on March
31, 2001. The other agreement remains in force solely because the customer has
elected not to give notice of termination.
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As noted above, the Commission's authorization to charge
market-based rates was based on a finding that SIGECO's share of the relevant
market for bulk power is so small as to make it impossible, as a practical
matter, for the utility to increase its rates above a just and reasonable level.
Southern Indiana Gas & Electric Co., 77 FERC at 61,092 (1996). The merger
transaction will not appreciably change this state of affairs. Indiana Energy's
only venture in the wholesale electric market consists of a 50% interest in
ProLiance Energy, a power marketer that has also been authorized to charge
market-based rates. The joinder of SIGECO and ProLiance Energy under the Vectren
umbrella will not alter the fact that market forces, rather than the wishes of
Vectren's management, will determine the rates the jurisdictional members of the
Vectren family can obtain for their wholesale electric services.
For this reason, the proposed merger does not raise any cognizable
issues with respect to wholesale rates for electric power and energy; those
rates will be kept at just and reasonable levels by market forces, just as they
are now. If SIGECO attempts to institute an unjustified increase in its
wholesale rates, its customers will simply go elsewhere to purchase their bulk
power supplies. The same is true for ProLiance Energy. The marketplace is
literally brimming with alternative suppliers from which they can purchase
power.
The Commission has held that wholesale sales at market-based rates
do not raise any concerns about a merger's possible adverse effect on rates See,
e.g., Destec Energy, Inc. and NGC Corporation, 79 FERC Paragraph 61,373 at
62,574-75 (1997); Enron Corp., 78 FERC Paragraph 61,179 at 61,737 (1997). In
these circumstances, this merger proposal does not call for the implementation
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of any special conditions, such as a rate moratorium or "hold-harmless"
provision, in order to protect wholesale customers from the market power of the
merged entity. 9/
C. EFFECT ON REGULATION
Approval of this merger transaction will have no effect on the
regulatory status of SIGECO. After the merger takes place, its wholesale rates,
as well as its rates for transmission service, will remain, as they are today,
subject to the Commission's regulatory jurisdiction. ProLiance Energy will also
remain subject to the Commission's regulatory authority over power marketers.
SIGECO's retail electric rates will continue to be regulated by the IURC after
the merger. Similarly, the IURC's regulatory jurisdiction over the natural gas
sales, transmission and distribution activities of both SIGECO and Indiana Gas
will be unaffected by the merger.
Since this is a proposed merger of two exempt public utility holding
companies, the Commission's primary regulatory concern, as expressed in its
Merger Policy Statement, is to avoid the loss of jurisdiction over transactions
between SIGECO and affiliated suppliers of inputs, e.g., fuel, under the
doctrine of Ohio Power Co. v. FERC, 954 F.2d 779, 782-86 (D.C. Cir.), cert.
denied, 498 U.S. 73 (1992). The Applicants anticipate that such a loss of
jurisdiction will not occur. After the merger takes place, Vectren, the
surviving corporation, will qualify for exempt status under section 3(a)(1) of
PUHCA, and the Applicants fully intend to seek and obtain such an exemption for
Vectren. Since Ohio Power applies only to registered holding
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9/ If the Commission so conditions its grant of merger authority, Vectren is
willing to guarantee that none of the costs arising out of the merger
transaction will be used as a vehicle for an increase in its
jurisdictional entities' wholesale electric rates.
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companies, the Commission's jurisdiction over intra-corporate transactions will
not be endangered by the proposed merger. In these circumstances, the Commission
has held that there is no reason to conduct further inquiry with respect to the
effect of a merger on regulation. See PG&E Corp., 80 FERC Paragraph 61,041 at
61,138 (1997); Enova Corp., 79 FERC Paragraph 61,107 at 62,567 (1997).
Recently, however, in Central Illinois Light Co. and The AES
Corporation, 87 FERC Paragraph 61,293 (1999), the Commission, in its order
considering a proposed merger of two holding companies, expressed concern that
the surviving corporation's application for exempt status might be withdrawn or
denied by the Securities and Exchange Commission, thereby allowing it to invoke
the Ohio Power doctrine to defeat FERC jurisdiction over abusive intra-corporate
transactions. The Commission required the applicants to commit to abide by its
policies with regard to such transactions. In light of the Commission's concern
as expressed in that case, Vectren hereby offers the same commitment: regardless
of whether or not Vectren enjoys exempt status under PUHCA or becomes a
registered holding company, all of the jurisdictional members within the Vectren
family agree not to invoke the Ohio Power doctrine.
As the Applicants have noted above, the IURC's jurisdiction will not
be adversely affected by the proposed merger.
For the foregoing reasons, this Application presents no cognizable
issues with respect to the effect of the merger on regulation.
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IV. COMPLIANCE WITH 18 C.F.R. SECTION 33.2
(a) Name and address of principal business office
Southern Indiana Gas and Electric Company,
SIGCORP, Inc., and
Vectren Corporation
20 N.W. Fourth Street
Evansville, IN 47741
(812) 465-5300
(812) 464-4554 (fax)
Indiana Energy, Inc.
1630 North Meridian Street
Indianapolis, IN 46202
(317) 926-3351
(317) 321-0747 (fax)
(b) Names and addresses of persons authorized to receive service
For SIGCORP, SIGECO and Vectren
George A. Porch
Bamberger, Foreman, Oswald and Hahn
P.O. Box 657
Evansville, IN 47704
(812) 425-1591
(812) 421-4936 (fax)
Isaac D. Benkin
Winthrop, Stimson, Putnam & Roberts
1133 Connecticut Avenue, N.W.
Washington, D.C. 20036
(202) 775-9880
(202) 833-8491 (fax)
For Indiana Energy
Ronald E. Christian
Robert Heidorn
Indiana Energy, Inc.
1630 N. Meridian Street
Indianapolis, IN 46202
(317) 321-0357
(317) 321-0747 (fax)
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<PAGE> 26
Stephen Angle
Howrey & Simon
1299 Pennsylvania Ave., N.W.
Washington, D.C. 200004
(202) 383-7621
(202) 383-6610 (fax)
(c) Designation of territories served
SIGECO provides retail electric service in the following counties of
the State of Indiana: Vanderburgh, Posey, Gibson, Warrick, Spencer and Pike. A
map of SIGECO's system is attached as Exhibit E to this Application.
(d) Description of jurisdictional facilities
The facilities used by SIGECO to provide FERC-jurisdictional sales
and transmission service consist of the generation facilities listed on Exhibit
F attached to this Application and the transmission facilities shown on Exhibit
E to this Application.
(e) Nature of the transaction
A full and complete description of the transaction is set forth in
the preceding sections of this Application.
(f) Statement of facilities to be merged
Because the merger transaction will consist of the exchange of
capital stock and not the disposition of assets, no facilities used to provide
jurisdictional service will be alienated in any way as a result of the merger.
Those facilities will remain the property of SIGECO and ProLiance Energy.
(g) Accounting treatment
This merger transaction will take place at the holding company
level, not at the operating company level. After the merger, SIGECO's books of
account will continue to be maintained in
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accordance with the Commission's Uniform System of Account for Public Utilities,
just as they are today. No entries will be necessary to reflect the merger,
particularly in light of the principals' intention to use the pooling of
interests method of accounting for the effect of the merger at the holding
company level. As the Commission is aware, under the pooling of interests
method, assets are reflected on the books of the merged corporation at the same
value they had on the books of the merging corporations prior to the merger; no
gain or loss is recognized on account of the merger.
In light of the foregoing, therefore, the Applicants respectfully
request a waiver of the requirement in section 33.2(g) of the Commission's
regulations that they provide a statement of the cost of the jurisdictional
assets involved in the merger, as well as any requirement to provide accounting
entries reflecting the impact of the merger on the books of SIGECO. Such a
waiver was granted in the Central Illinois Light Co. and The AES Corp. case,
supra, and the Applicants respectfully submit that the same reasons for waiving
the requirement to file accounting data relating to a merger are present in the
instant case.
(h) Effect of transaction upon jurisdictional contracts
Because the merger will take place entirely at the holding company
level, it will have no effect on the performance of any contract for the sale of
electricity in interstate commerce at wholesale. Nor will it have any effect on
the performance of interstate transmission service. SIGECO will continue to
perform its purchase and wholesale sale contracts without regard to the fact
that its parent corporation will be Vectren rather than SIGCORP, and it will
continue to have an open access transmission tariff on file with the Commission
in accordance with Order No. 888. Similarly, ProLiance Energy will continue to
fulfill its contractual obligations notwithstanding the consummation of the
merger transaction. There are no plans by the
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<PAGE> 28
Applicants to alter the performance of their obligations or those of their
subsidiaries under jurisdictional contracts in any way.
(i) Applications to other state and federal regulatory bodies
As noted above, Indiana Energy and SIGCORP have filed a joint
application with the IURC for approval of the merger transaction. A copy of the
application is attached hereto as Exhibit B. At or about the time the merger is
scheduled to take place, the Securities and Exchange Commission will be asked to
rule that Vectren will be exempt from registration and certain other regulatory
requirements under PUHCA.
(j) Facts relied upon to show the merger will be consistent with the public
interest
This merger transaction will bring together two relatively small
energy companies, each of which has traditionally had a local, Indiana focus.
Today, they are low-cost utilities providing service with a high degree of
reliability. But the future does not look bright for such utilities. There has
been a growing trend towards consolidation and globalization of the utility
industry. The SIGECO service territory, for example, is surrounded by three
newly-formed utility giants that have resulted from mergers approved by the
Commission. Central Illinois Public Service Company and Union Electric Company
have merged to form Ameren; PSI Energy and Cincinnati Gas and Electric have
formed Cinergy; and Louisville Gas and Electric Company and Kentucky Utilities
have been merged into LG&E Energy. Under the Commission's initiatives, the
business has become competitive. To compete with these utility giants,
relatively small companies, such as SIGCORP and Indiana Energy, must take action
to increase their scale and reduce their costs.
As the affidavit of Niel C. Ellerbrook, attached to this Application
as Exhibit G, states, the competitors that SIGCORP and Indiana Energy face -
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<PAGE> 29
have vast financial resources to invest in product
development and marketing. They can offer compensation
packages to attract the best employees. They can spread
costs over many customers. They can absorb start-up
costs as the try innovative strategies. They can finance
large business transactions. 10/
To survive in this competitive atmosphere, Mr. Ellerbrook says, small utilities
must undergo a substantial increase in scale, so that they can reduce their
costs and increase their ability to raise capital, to attract management talent,
to increase the customer base and to market new products.11/
As Mr. Ellerbrook points out, SIGCORP and Indiana "are virtually
identical in terms of financial size." This means that the proposed merger is "a
true merger of equals," under which neither merger partner is acquiring the
other. As a result, neither set of shareholders will pay an acquisition premium
to the other. Vectren, Mr. Ellerbrook concludes, will serve more than 650,000
customers located in central and southern Indiana, a critical mass of customers
over which to spread costs, thus creating more stable earnings and a base of
operations for the merged company. He concludes:
As a result of this merger, the following
benefits should be achieved: (1) the creation of a
larger Indiana-based energy company focused on local
economic development, jobs and customers, with greater
scale that will contribute to sustaining long-term
growth as a viable energy provider; (2) the creation of
a larger company capable of raising and investing the
financial and intellectual capital required to develop
and market products and services designed to attract and
retain customers; (3) the continued
- -------------------------
10/ Ex. G at p. 2, P. 5. Mr. Ellerbrook is President and Chief Executive
Officer of Indiana Energy.
11/ The merger is expected to reduce operating and capital costs by over $200
million over the next ten years. A substantial portion of these savings
arises through the consolidation of support services which will result in
the more efficient provision of such services for all of the operating
companies. Id..
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<PAGE> 30
provision of low cost utility services to the public,
and delay/avoidance of future rate increases due to an
estimated $200 million in merger savings (net of costs
to achieve); and (4) the maintenance of quality service
to customers.
Ex. G at p. 2, Paragraph 7.
Of special note, according to Mr. Ellerbrook, is the creation of a
$1.4 billion company which will be able to stimulate much greater investment
from outside sources of capital. This will produce a financially stable company
without compromising regulatory oversight. Id.
For these reasons, the Applicants submit that this proposed merger
is unquestionably in the public interest.
(k) Statement of franchises held
A full and complete description of the franchises held by both
SIGECO and Indiana Energy's affiliates is set forth in Section I of this
Application, supra.
(l) Federal Register notice
A form of notice of this Application, suitable for publication in
the Federal Register, will be found in Exhibit H to this Application. We are
also submitting a 3.5" diskette containing a copy of the form of Notice in ASCII
format.
V. ADDITIONAL MATTERS
In the Filing Requirements NOPR, the Commission proposed to
eliminate as "unnecessary" some of the mandatory exhibits called for in the
existing version of Part 33 and to require applicants for approval of mergers
and other dispositions to file certain material not now called for in the Part
33 regulations.
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<PAGE> 31
In light of their "unnecessary" character and for other reasons
indicated below, the Applicants hereby respectfully request a waiver of certain
exhibits required under section 33.3 of the Commission's regulations, as
indicated below:
- Exhibit A: Copies of resolutions of the Boards of
Directors of SIGCORP and Indiana Energy. Applicants
request a waiver of the requirement to file these
documents. Characterized as "unnecessary" in the Filing
Requirements NOPR, the requirement to file such material
appears to suggest that perhaps an applicant would file
for approval or a merger or disposition that had not
been approved by the governing board of the applicant, a
rather unlikely premise.
- Exhibit B: A statement of the extent to which the
participants in the merger are controlled by a bank,
underwriter, supplier or public utility. The provenance
and governing structure of both Indiana Energy and
SIGCORP are described in Section I, supra. The capital
stock of each of those corporations is publicly held and
traded on national exchanges. Applicants respectfully
request a waiver of the requirement to file this
separate statement.
- Exhibits C-F: Certain financial statements. As we have
indicated supra, the financial statements of SIGECO, the
only jurisdictional entity required to File a Form No. 1
or keep its books and records in accordance with the
Uniform System of Accounts, will not be in any way
affected by the proposed merger. Hence, no useful
purpose would be served by requiring the filing of
financial data showing the impact of the merger on a pro
forma basis, and the Applicants request a waiver of the
requirement to file this information.
- Exhibit G: A copy of each application filed with an
other federal or state agency. The IURC application will
be found at Exhibit B hereto.
- Exhibit H: All contracts in respect of the merger
transaction: This material will be found at Exhibit A
hereto.
- Exhibit I: A map showing the properties of the
Applicants A map of SIGECO's electric system will be
found at Exhibit E hereto. ProLiance Energy has no
jurisdictional assets that can appear on a map.
In addition to the foregoing, the Applicants are
submitting the following
supplemental material:
Exhibit I - Verification.
Exhibit J - List of all persons upon whom copies of this Application have been
served.
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VI. CONCLUSION
For the foregoing reasons, the Applicants ask the Commission to
determine that the proposed merger of Indiana Energy and SIGCORP into Vectren is
consistent with the public interest and to issue an order approving said merger.
Respectfully submitted,
--------------------------
Isaac D. Benkin
Winthrop, Stimson, Putnam & Roberts
1133 Connecticut Avenue, N.W.
Washington, DC 20036
(202) 775-9880
----------------------------
George A. Porch
Bamberger, Foreman, Oswald
and Hahn, LLP
P.O. Box 657
Evansville, IN 47704
(812) 452-4321
Counsel for Vectren Corporation and
Southern Indiana Gas and Electric Company
----------------------------
Stephen Angle
Howrey & Simon
1299 Pennsylvania Ave., N.W.
Washington, DC 20004
(202) 383-7261
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<PAGE> 33
-----------------------------
Ronald E. Christian
Robert Heidorn
Indiana Energy, Inc.
1630 North Meridian Street
Indianapolis, IN 46202
(317) 321-0357
Counsel for Indiana Energy, Inc.
Filed: August 13, 1999
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<PAGE> 34
Index to Exhibits
Exhibit A - Merger Agreement
Exhibit B - Joint Application to IURC
Exhibit C. - Affidavit of David B. Patton
Exhibit D - Code of Conduct Agreement between SIGECO and ProLiance Energy
Exhibit E - Map of SIGECO's Electric System
Exhibit F.- List of SIGECO's Generating Facilities
Exhibit G - Affidavit of Niel C. Ellerbrook
Exhibit H - Federal Register Notice
Exhibit I - Verification
Exhibit J - List of Persons Served With This Application
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<PAGE> 1
Exhibit I-1
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35- )
Filings under the Public Utility Holding Company Act of 1935 ("Act")
December , 1999
Notice is hereby given that the following filing(s) has/have been made with
the Commission pursuant to provisions of the Act and rules promulgated
thereunder. All interested persons are referred to the application(s) and/or
declaration(s for complete statements of the proposed transaction(s) summarize
below. The application(s) and/or declaration(s) and any amendments thereto is/
are available for public inspection through the Commission's Office of Public
Reference.
Interested persons wishing to comment or request a hearing on the
application(s) and/or declaration(s) should submit their views in writing by
, to the Secretary, Securities and Exchange Commission, Washington,
D.C. 20549, and serve a copy on the relevant applicant(s) and/or declarant(s) at
the address(es) as specified below. Proof of service (by affidavit or, in case
of an attorney at law, by certificate) should be filed with the request. Any
request for hearing shall identify specifically the issues of fact or law that
are disputed. A person who so requests will be notified of any hearing, if
ordered, and will receive a copy of any notice or order issued in the matter.
After said date, the application(s) and/or declaration(s), as filed or as
amended, may be granted and/or permitted to become effective.
* * * * * *
VECTREN CORPORATION.
Vectren Corporation, 20 N.W. Fourth Street, Evansville, Indiana 47741, an
Indiana corporation ("Vectren"), has filed an application/declaration under
Sections (9)(a)(2) and 10 of the Act to (i) directly acquire all of the issued
and outstanding voting securities ("Common Stock") of SIGCORP, Inc., an Indiana
corporation ("SIGCORP"), and Indiana Energy, Inc., an Indiana corporation
("Indiana Energy"), (other than certain Common Stock to be cancelled as
described in the following paragraph) and (ii) request such other authorizations
as may be necessary in connection therewith.
Each share of SIGCORP Common Stock that is owned by SIGCORP or any of its
subsidiaries or by Indiana Energy or any of its subsidiaries shall be cancelled
and cease to exist.
<PAGE> 2
Each share of Indiana Energy Common Stock that is owned by Indiana Energy or any
of its subsidiaries or by SIGCORP or any of its subsidiaries shall be cancelled
and cease to exist. For purposes of this paragraph, "subsidiaries" are defined
in Section 4.1 of the Agreement and Plan of Merger, dated as of June 11, 1999
(the "Merger Agreement").
Vectren states that the proposed merger contemplated by the Merger
Agreement (the "Merger") is expected to result in substantial cost savings and
synergies, and will integrate and improve the efficiency of the operations of
the parties to the transaction. The Merger, therefore, will be in the public
interest and the interests of investors and consumers, and will not be
detrimental to the proper functioning of the resulting holding company system.
Vectren is an Indiana corporation organized on June 10, 1999 solely for the
purpose of effecting the Merger and carrying on the combined businesses of
SIGCORP and Indiana Energy after the Merger. It currently does not conduct any
business or own any utility assets. Upon consummation of the Merger, Vectren
will become a holding company under the 1935 Act.
SIGCORP is a holding company incorporated on October 19, 1994 under the
laws of the State of Indiana. SIGCORP is located in Evansville, Indiana. SIGCORP
has eleven wholly-owned subsidiaries, including its principal subsidiary,
Southern Indiana Gas and Electric Company ("SIGECO"), which is a public-utility
company involved in the gas and electric utility business, and ten non-utility
subsidiaries.
SIGECO owns approximately 33% of the outstanding common stock of Community
Natural Gas Company, Inc. ("Community"), a small Indiana gas distribution
public-utility company with offices in Mt. Carmel, Illinois.
In addition to SIGECO, SIGCORP has several other subsidiaries. They include
the following: Southern Indiana Properties, Inc., Energy Systems Group, Inc.,
Southern Indiana Minerals, Inc., SIGCORP Energy Services, Inc., SIGCORP Capital,
Inc., SIGCORP Fuels, Inc., SIGCORP Power Marketing, Inc., SIGCORP Communications
Services, Inc., SIGECO Advance Communications, Inc., and SIGCORP Environmental
Services, Inc.
Indiana Energy is a holding company with subsidiaries and affiliates
engaged in natural gas distribution, gas portfolio administrative services and
marketing of natural gas, electric power and related services and services and
products unrelated to energy. It was incorporated under the laws of the State of
Indiana on October 24, 1985. Indiana Energy has four wholly-owned direct
subsidiaries, including its principal subsidiary, Indiana Gas Company, Inc.
("Indiana Gas"), and three non-regulated subsidiaries, IEI Services, LLC, IEI
Capital Corp. and IEI Investments, Inc.
Indiana Gas is a public-utility company engaged in the business of
providing gas utility service in the State of Indiana. Indiana Gas is also a
holding company because it owns all of the voting securities of public-utility
companies, Richmond Gas Corporation ("Richmond Gas") and Terre Haute Gas
Corporation ("Terre Haute"). While Richmond Gas and Terre Haute technically
exist as separate corporate entities, in accordance with an order issued by the
Indiana Utility Regulatory Commission (the "IURC"), Indiana Gas, Richmond Gas
and Terre Haute have combined their operations for all purposes and are
transacting business under the name of
2
<PAGE> 3
"Indiana Gas Company, Inc." Pursuant to that order, accounting records and
financial reports are maintained and presented on a consolidated basis.
Vectren states that the proposed transaction will be accomplished through
Vectren's proposed direct acquisition of the Common Stock of SIGCORP and the
Common Stock of Indiana Energy as contemplated by the Merger Agreement. The
Merger Agreement provides for, among other things, (i) the merger of each of
SIGCORP and Indiana Energy with and into Vectren in accordance with the laws of
Indiana and (ii) Vectren continuing as the sole surviving corporation.
Vectren states that, after the consummation of the proposed transactions,
the corporate capital structure of Vectren will not be unduly complicated. In
the Merger, Vectren will directly acquire, by operation of law, all of the
Common Stock of SIGCORP and Indiana Energy, and thus there will be no minority
Common Stock interest in either such company. The existing senior debt and
senior equity securities of SIGCORP and Indiana Energy will not be affected by
the Merger.
3
