DC 175808 v4
06/20/00 3:21 PM
File No. 70-9703
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO FORM U-1
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
VECTREN UTILITY HOLDINGS INC.
20 N.W. Fourth Street
Post Office Box 209
Evansville, Indiana 47702-0209
(Names of company or companies filing this statement
and addresses of principal executive offices)
(Name of top registered holding company parent of
each applicant or declarant)
Ronald E. Christian
Senior Vice President, General Counsel and Secretary
Post Office Box 209
Evansville, Indiana 47702-0209
(Name and address of agent for service)
The Commission is requested to send copies of all notices,
orders and communications in connection with this
Joanne C. Rutkowski
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
1875 Connecticut Avenue, N.W.
Washington, D.C. 20009
TABLE OF CONTENTS
Item 1. Description of Proposed Transactions
B. Description of the Companies
1. Vectren Corporation
2. The Dayton Power & Light
C. The Proposed Transactions
1. The Intermediate Holdco
2. Acquisition of the DP&L Assets
D. Utility Regulation
Item 2. Fees, Commissions and Expenses
Item 3. Statutory Analysis
A. Applicable Statutory Provisions
B. Legal Analysis
1. Section 10(b)(1)
2. Section 10(b)(2)
3. Section 10(b)(3)
4. Section 10(c)(1)
5. Section 10(c)(2)
6. Section 10(f)
7. Section 3(a)(1)
Item 4. Regulatory Approvals
B. State Regulation
Item 5. Procedure
Item 6. Exhibits and Financial Statements
B. Financial Statements
Item 7. Information as to Environmental Effects
This Pre-Effective Amendment No. 1 amends the form U-1
Declaration in this proceeding, originally filed with the
Securities and Exchange Commission on June 16, 2000 in its
entirety as follows.
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTIONS
Vectren Corporation ("Vectren") is seeking
approval under the Public Utility Holding Company Act of
1935 (the "1935 Act" or "Act") in connection with: (i) the
formation of an intermediate holding company over its public-
utility subsidiaries and (ii) the indirect acquisition,
through the Intermediate Holdco, of a public utility company
that will hold certain of the natural gas distribution
assets of The Dayton Power & Light Company ("DP&L")
(collectively, the "Transactions"). Vectren is a recently
created Indiana public utility holding company that claims
exemption from registration pursuant to Rule 2 under Section
3(a)(1) of the Act. Following completion of the
Transactions, Vectren and the intermediate holding company
will qualify as exempt intrastate holding companies and so
ask the Commission to issue an order granting them
exemptions under Section 3(a)(1) of the Act.
B. Description of the Companies
Vectren was formed on March 31, 2000 from the
combination of Indiana Energy, Inc. and SIGCORP, Inc.
VECTREN CORPORATION, Holding Co. Act Release No. 27150
(March 8, 2000) (the "March Order"). Through its public-
utility subsidiary companies, Southern Indiana Gas and
Electric Company ("SIGECO"), Community Natural Gas Company,
Inc. ("Community") and Indiana Gas Company, Inc. ("Indiana
Gas"), Vectren provides electric and/or gas utility service
to customers in Southern and Central Indiana.
Indiana Gas provides gas distribution service to
approximately 510,000 customers in Indiana. In 1999,
Indiana Gas had operating revenues of approximately $431.4
million and net income of approximately $29.7 million.
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. Indiana Gas
purchases approximately 50% of its total system gas supply
requirements from the Gulf Coast production basin, and
approximately 48% from production in the Mid-Continent
basin. The interstate pipelines that transport pipeline
supplies to the Indiana Gas service territory include ANR
Pipeline Company ("ANR"), CMS Panhandle Eastern Pipeline
Company, Texas Eastern Transmission Company, Texas Gas
Transmission Corporation and Midwestern Gas Transmission
Company (via ANR).
SIGECO provides electric distribution service at
retail to approximately 126,000 customers and retail gas
distribution to approximately 107,000 customers in Indiana.
In 1999, SIGECO had operating revenues of approximately
$375.8 million and net income of approximately $46.7
million. SIGECO's gas utility operations are located in a
single contiguous area in southwestern Indiana. SIGECO
purchases nearly 100% of its system supply gas requirements
from the Gulf Coast production basin, particularly in the on-
shore and offshore Texas and Louisiana producing regions.
SIGECO has contracted for firm transmission capacity on five
interstate gas pipelines: Texas Gas Transmission
Corporation, Midwestern Gas Transmission Company, Tennessee
Gas Pipeline Company, ANR Gas Pipeline Company and Texas
Eastern Transmission Corporation.
In the March Order, the Commission found
"substantial" evidence that Indiana Gas, SIGECO and
Community share a common source of supply, within the
meaning of Section 2(a)(29)(B), in that the utilities
"derive their gas supply predominantly from the Gulf Coast
production basin." The Commission further found that the
SIGECO electric operations constitute an integrated electric
utility system within the meaning of Section 2(a)(29)(A)
and, further, that there is "de facto integration" of the
Vectren electric and gas systems.
Vectren owns a number of additional non-utility
subsidiaries that are described in Appendix A.
DP&L is a wholly owned subsidiary of DPL, Inc., a
public utility holding company that claims exemption from
registration pursuant to Rule 2 under Section 3(a)(1). DP&L
provides electric and gas service to customers in west
central Ohio. Of interest here, DP&L provides retail gas
distribution to approximately 300,000 customers. Under
DP&L's operation, the gas assets were supported by long-term
firm pipeline transportation agreements with ANR Gas
Pipeline Company, Texas Gas Transmission Corporation, CMS
Panhandle Eastern Pipe Line Company, Columbia Gas
Transmission Corporation and Columbia Gulf Transmission
Corporation. Along with firm transportation services, DP&L
has approximately 14 billion cubic feet of firm storage
service with various pipelines.
In addition, DP&L is interconnected with CNG
Transmission Corporation. Interconnections with interstate
pipelines provide DP&L the opportunity to purchase
competitively priced natural gas supplies and pipeline
services. DP&L purchases its natural gas supplies using a
portfolio approach that minimizes price risks and ensures
sufficient firm supplies at peak demand times. The portfolio
consists of long-term, short-term and spot supply
agreements. In 1999, firm agreements provided approximately
60% of total supply, with the remaining supplies purchased
on a spot/short-term basis.
DP&L interstate pipeline contracts that are used
in connection with the operation of the gas assets will be
transferred to Vectren as part of the asset acquisition.
The existing DP&L commodity purchase contracts will not be
transferred to Vectren. Instead, Vectren will access
commodity through the use of transferred transportation
contracts from the same sources that historically have been
available to DP&L.
C. The Proposed Transactions
1. Intermediate Holdco
Vectren has established a new Indiana subsidiary,
Vectren Utility Holdings, Inc. ("VUHI"), that will serve as
the intermediate holding company for Vectren's utility
interests. Vectren will contribute the common stock of its
public-utility subsidiary companies to VUHI, which will
qualify for exemption under Section 3(a)(1) of the Act.
Although it is not entirely clear that the intermediate
holding company transaction requires FERC approval, SIGECO
is filing an application under Section 203 of the Federal
Power Act. In the event that the notice period has closed
prior to the receipt of the FERC order, Vectren requests the
Commission reserve jurisdiction over the acquisition of the
Intermediate Holding Company pending completion of the
2. Acquisition of the DP&L Assets
Vectren and one of its subsidiaries, Vectren
Energy Delivery of Ohio, Inc. (formerly Number-3CHK, Inc.)
(referred to here as "OhioCo") have entered into an
agreement to purchase certain of the natural gas
distribution assets of DP&L (the "DP&L Assets"). Vectren
proposes to acquire the DP&L Assets as a tenancy in common
through two separate subsidiaries: Indiana Gas will acquire
an approximately 47% ownership interest in the DP&L Assets
and OhioCo will acquire the remaining approximately 53%
ownership interest in the DP&L Assets. OhioCo will be the
operator of DP&L Assets. Because Ohio law requires domestic
incorporation of any entity providing utility services in
Ohio, to ensure that it complies with Ohio law, Indiana Gas
has incorporated under Ohio, as well as Indiana, law.
D. Utility Regulation
Indiana Gas, SIGECO and Community are subject to
broad regulation as to rates and other matters, including
affiliate transactions, by the Indiana Utility Regulatory
Commission ("Indiana Commission"). After the acquisition of
the DP&L Assets, the gas distribution system jointly
owned by OhioCo and Indiana Gas (the "Ohio System") will be
subject to broad regulation as to rates and other matters by
The Public Utilities Commission of Ohio ("Ohio Commission").
The Ohio Commission's approval is necessary for transfer of
DP&L's gas assets.
SIGECO's electric operations are subject to the
jurisdiction of the FERC under the Federal Power Act with
respect to wholesale electric rates and other matters.
ProLiance Energy, LLC is also subject to the jurisdiction of
the FERC under the Federal Power Act, as a marketer of
electric power. The gas distribution operations of Indiana
Gas, SIGECO and OhioCo are 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. Moreover, that
portion of Indiana Gas' system that extends into Kentucky
solely for the purpose of interconnecting with the pipeline
of Texas Gas Transmission Corporation is subject to a
certificate issued by the FERC under Section 7f of the
Natural Gas Act.
Following the acquisition, the Ohio System will be
covered by the Hinshaw Amendment to the Natural Gas Act and
thus exempt from FERC regulation pursuant to Section 1(c) of
that act. The Ohio System will be subject to comprehensive
rate regulation by the Ohio Commission. In addition, the
costs of purchased gas charged to customers through
adjustment clauses in the Ohio System's rate schedules will
be subject to periodic audits by, and proceedings before,
the Ohio Commission.
The transportation of natural gas to eligible end-
use customers through the Ohio System will be provided on an
open-access, non-discriminatory basis, overseen by the Ohio
Commission which establishes guidelines for pricing, terms
and conditions for such service.
As a public utility under Ohio law, the Ohio
System will also be subject to regulation by the Ohio
Commission as to: (1) record keeping and accounting,
including depreciation rates; (2) abandonment of utility
facilities; (3) service quality and safety; (4) issuances of
stocks, bonds, notes and other securities; and (5) mergers
and certain acquisitions and leases with other
public utilities. The Ohio Commission requires Ohio public
utilities to file various reports and other information with
the Ohio Commission on a periodic basis, including an annual
report containing information regarding their utility
operations and results.
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, are estimated to be
approximately $4.3 million.
ITEM 3. APPLICABLE STATUTORY PROVISIONS
A. Applicable Provisions
The acquisition by VUHI of the securities of the
Vectren public-utility subsidiary companies, including
OhioCo, and the indirect acquisition by Vectren of OhioCo
are subject to Sections 9 and 10 of the Act. The standards
for exemption of Vectren and VUHI are set forth in Section
3(a)(1) of the 1935 Act.
B. Legal Analysis
Section 9(a)(2) makes it unlawful, without
approval of the Commission under Section 10, "for any person
to acquire directly or indirectly any security of any public
utility company if such person is an affiliate ... of such
company and of any other public utility or holding company,
or will by virtue of such acquisition become such an
affiliate." As a result of the proposed Transactions,
Vectren and VUHI will be affiliates of Indiana Gas, SIGECO,
Community and OhioCo. The statutory standards to be
considered by the Commission in evaluating the proposed
Transactions are set forth in Section 10 of the Act. As set
forth more fully below, the Transactions comply with all of
the applicable provisions of Section 10 and, so, should be
1. Section 10(b)(1).
Section 10(b)(1) precludes approval of an
acquisition that "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 interests of investors or consumers."
a. Interlocking Relationships.
By its nature, any acquisition results in new
links between theretofore unrelated companies. Cf.
Northeast Utilities, Holding Co. Act Release No. 25221 (Dec.
21, 1990), as modified, Holding Co. Act Release No. 25273
(March 15, 1991), aff'd sub nom. City of Holyoke v. SEC, 972
F.2d 358 (D.C. Cir. 1992) (stating that interlocking
relationships are necessary to integrate two merging
entities). While it is contemplated that there will be some
overlap between the Vectren Board of Directors, on the one
hand, and the boards of VUHI and OhioCo, on the other,
interlocking boards are typical of wholly-owned subsidiaries
and necessary to integrate VUHI and OhioCo into the Vectren
system. The interlocks, therefore, will be in the public
interest and the interests of investors and consumers, and
thus not prohibited by Section 10(b)(1).
b. Concentration of Control.
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 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 NUCLEAR CORP., 43
S.E.C. 693, 700 (1968).
In the March Order, the Commission found that the
Vectren system did not involve "the concentration of control
of public utility companies, of a kind or to an extent
detrimental to the public interest or the interests of
investors or consumers." The proposed Transactions will not
affect the scope or provision of services in Indiana. While
the acquisition of the DP&L Assets will result in
subsidiaries of Vectren (Indiana Gas and OhioCo) owning a
gas utility system in Ohio, it must be noted that Vectren
will serve approximately 308,000 customers, only
approximately 9% of the total natural gas customers in Ohio.
In the combined region of Indiana and Ohio, Vectren's
utility companies will serve only approximately 19% of
natural gas customers. In comparison to those of other
utilities, Vectren's presence will not threaten competition.
The competitive effects of the proposed
Transactions will also be considered by other regulators.
SEE, E.G., NORTHEAST UTILITIES, Holding Co. Act Release No.
25221 (Dec. 21, 1990) (finding that "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"). The creation of the Intermediate
Holding Company is subject to approval under Section 203 of
the Federal Power Act. Notification and Report Forms have
been filed with the Department of Justice and Federal Trade
Commission pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, 15 U.S.C. 1311 et seq. (1996),
describing the competitive impact of the acquisition of the
For these reasons, the proposed Transactions will
not "tend toward interlocking relations or the concentration
of control" of public utility companies, of a kind or to the
extent detrimental to the public interest or the interests
of investors or customers within the meaning of Section
2. Section 10(b)(2)
Section 10(b)(2) requires the Commission to
determine whether the consideration Vectren will give DP&L
for the gas assets is reasonable and whether it bears a fair
relation to investment in and earning capacity of the
utility assets being acquired. The determination of the
acquiror of the DP&L Assets was made as a result of an
auction process conducted by an investment banking firm.
There were multiple participants in that process and the
resulting price and terms and conditions for the acquisition
are the product of arms'-length negotiations between the
buyer and seller.
In light of this evidence, Vectren believes that
the consideration for the acquisition bears a fair
relationship to the sums invested in and the earning
capacity of the DP&L Assets.
Further, Vectren believes that the estimated fees
and expenses in this matter bear a fair relation to the
value of the DP&L Assets and the strategic benefits to be
achieved by the Transaction, and further that the fees and
expenses are fair and reasonable. See NORTHEAST UTILITIES,
Holding Co. Act Release No. 25548 (June 3, 1992), modified
on other grounds, Holding Co. Act Release No. 25550 (June 4,
1992) (noting that fees and expenses must bear a fair
relation to the value of the company to be acquired and the
benefits to be achieved in connection with the acquisition).
The total estimated fees and expenses of $4.2 million
represent less that 1% of the value of the consideration
Vectren will pay for the DP&L Assets, and are consistent
with percentages previously approved by the Commission.
SEE, E.G., ENTERGY CORP., Holding Co. Act Release No. 25952
(Dec. 17, 1993) (fees and expenses represented approximately
1.7% of the value of the consideration paid to the
shareholders of Gulf States Utilities); NORTHEAST
UTILITIES, Holding Co. Act Release No. 25548 (June 3, 1992)
(approximately 2% of the value of the assets to be
3. Section 10(b)(3).
Section 10(b)(3) requires the Commission to
determine whether a proposed acquisition will unduly
complicate the acquirer's capital structure or will be
detrimental to the public interest or the interest of
investors or consumers or the proper functioning of the
The proposed Transactions will not unduly
complicate the capital structure of Vectren or its
subsidiaries. The proposed Transactions do not involve the
creation of any minority interests nor will the existing
senior debt and senior equity securities of Vectren be
affected by the merger. As demonstrated below, post-
transactions, Vectren and each of its utility subsidiaries
will continue to fall within the seventy-to-thirty percent
debt-to-common equity ratio generally prescribed by the
Commission. SEE, E.G., NATIONAL GRID GROUP PLC, Holding Co.
Act Release No. 27154 (March 15, 2000). Vectren provides
projected debt ratios in FS-1.
Section 10(b)(3) also directs the Commission to
consider whether an acquisition will be detrimental to the
public interest or the interest of investors or consumers,
or the proper functioning of the resulting holding company
system. In this matter, the creation of the Intermediate
Holdco will serve to further integrate the operations of the
Vectren utilities, within the meaning of the Act, and to
provide an additional degree of structural separation and
protection for those companies. Nor will the acquisition of
the DP&L Assets be detrimental to the protected interests or
to the proper functioning of the resulting holding company
system. As a practical matter, OhioCo will operate the Ohio
System on its own behalf and on behalf of Indiana Gas. The
DP&L Assets will be operationally combined so that the Ohio
customers will perceive that they are served by a single
entity that will do business under the name of the OhioCo.
Moreover, for Ohio regulatory purposes, the Ohio System will
be treated as a single entity that is being operated by
OhioCo. Vectren's predecessor, Indiana Energy, Inc.,
successfully employed a similar model for the past ten years
with Richmond Gas Corporation and Terre Haute Gas
which were separate subsidiaries of Indiana Gas, but which
were operationally combined for service and regulatory
purposes. Perhaps more importantly, this structure cannot
be implemented until it is approved by the Ohio Commission,
the agency that is most directly responsible for the
protection of Ohio utility consumers.
4. Section 10(c)(1)
Under this section, the Commission cannot approve
"an acquisition of securities, 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." Section 8, which governs the combination of electric
and gas operations, does not apply to the instant
Transactions. Section 11, which again is directed to
registered rather than exempt holding companies, stands for
the principle that a registered holding company should be
generally limited to a single integrated public-utility
As noted above, the Commission in the March Order,
found that Vectren comprised an integrated electric utility
system and an integrated gas utility system and, further,
that there was "de facto" integration of the gas and
electric systems. The creation of the intermediate holding
company will not affect the integration of the underlying
utility systems. The question, then, for the Commission is
whether the DP&L Assets, together with Vectren's existing
gas operations, will constitute a single, integrated gas-
utility system within the meaning of the Act.
Section 2(a)(29)(A) 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.
The DP&L Assets are located in a single area that is
adjacent to, and contiguous with, the service territory of
the existing Vectren gas operations. Further, the DP&L
Assets and the Vectren gas operations derive their gas from
common sources of supply, as established above in the
discussion regarding common interstate pipeline systems that
deliver commodity to the respective Vectren utilities. SEE
NIPSCO INDUSTRIES, INC., Holding Co. Act Release No. 26975
(Feb. 10, 1999) (finding integration between Indiana and
Massachusetts utility companies based upon coordinated gas
supply departments, obtaining gas from common basins and
using trading hubs).
The DP&L Assets will be included in Vectren's on-
going process of consolidating and integrating the operating
departments, as well as the administrative functions, of its
utility subsidiaries. The first phase of the consolidation
of the service dispatching function has been announced.
Vectren is planning full integration of operating
departments such as corporate engineering, gas control, gas
system design, sales and marketing into a single
organizational framework. Corporate and administrative
functions will also be integrated and centralized. These
functions include planning and forecasting, budgeting, tax,
investor relations, treasury, human resources, corporate
communications and accounting. Ultimately, other customer
services such as billing, call center and collections are
expected to be centralized as well.
5. Section 10(c)(2)
The standards of Section 10(c)(2) are satisfied
because the Transactions will tend toward the economical and
efficient development of an integrated public utility
system, thereby serving the public interest, as required by
that section of the Act.
The Commission has previously found that the
creation of a holding company results in financial and
organizational benefits for the utility system. WPL
HOLDINGS, INC., Holding Co. Act Release No. 25377 (Sept. 18,
1991); SEE ALSO CHEVRON CORP., Holding Co. Act Release
No. 27122 (Dec. 27, 1999); ROANOKE GAS CO., Holding Co. Act
Release No. 26996 (April 1, 1999); BEC ENERGY, Holding Co.
Act Release No. 26874 (May 15, 1998); WESTERN RESOURCES,
INC., Holding Co. Act Release No. 26783 (Nov. 24, 1997).
With respect to the acquisition of the DPL Assets,
the Transaction will result in benefits to investors,
consumers and the public interest. The transaction
represents an opportunity for growth. The DP&L Assets are a
logical fit in that they are geographically close to
Vectren's existing utility operations, and, thus, there will
be enhanced economies of scale from the provision of common
support to the Vectren public-utility subsidiary companies.
In addition, the overlap of interstate pipeline suppliers
and common supply basins will create opportunities for
synergies in the gas cost area. Because this matter
involves an asset transaction and not the sale of the DP&L
business as such, relatively few corporate personnel are
being transferred to the buyer, since they will continue to
be needed to serve DP&L's continuing electric utility
operations. Opportunities for savings will thus arise as
Vectren's existing personnel expand their duties and
responsibilities by working on behalf of the Ohio System.
Further, there will be savings and efficiencies associated
with the acquisition itself, both in financial and
operational terms, as the DP&L Assets are fully integrated
into the Vectren system. Among other things, Vectren's
larger scale, both in financial and operational terms, will
enhance the utilities' ability to utilize new developments
in technology and information systems.
Although some of the anticipated benefits are
strategic and will be fully realizable only in the longer
term, they are properly considered in determining whether
the standards of Section 10(c)(2) are met. NATIONAL GRID
GROUP PLC, SUPRA; SEE AMERICAN ELECTRIC POWER CO., 46 S.E.C.
1299, 1320-1321 (1978). The Commission has recognized that
potential benefits are entitled to be considered,
regardless of whether they can be precisely estimated:
"[S]pecific dollar forecasts of future savings are not
necessarily required; a demonstrated potential for economies
will suffice even where these are not precisely
quantifiable." CENTERIOR ENERGY CORP., Holding Co. Act
Release No. 24073 (April 29, 1986) (citation omitted). SEE
ALSO ENERGY EAST CORPORATION, Holding Co. Act Release No.
26976 (Feb. 12, 1999) (authorizing acquisition based on
strategic benefits and potential, but unquantifiable,
6. Section 10(f)
Section 10(f) provides that:
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 to such acquisition have been
complied with, except where the
Commission finds that compliance with
such State laws would be detrimental to
carrying out the provisions of section
The Ohio Commission is the sole state regulator with
jurisdiction over the proposed acquisition of the DP&L
Assets. As explained in Item 4, below, Vectren has applied
for the necessary approval under Ohio law. No state
approval is required for the intermediate holding company.
7. Section 3(a)(1)
Following the proposed Acquisition, both VC and
VUHI will be holding companies within the meaning of Section
2(a)(7) of the Act. As such they will be required to
register with the Commission , and comply with the various
requirements for registered holding companies, unless they
are able to qualify for exemption. Section 3(a)(1)
provides a presumptive exemption from registration under the
1935 Act if:
such holding company, and every subsidiary
company thereof which is a public-utility
company from which such holding company
derives, directly or indirectly, any material
part of its income, are predominantly
intrastate in character and carry on their
business substantially in a single state in
which such holding company and every such
subsidiary company are organized.
In other words, the objective requirements of Section
3(a)(1) are that the holding company and each of its (a)
"material" public utility subsidiaries be, (b)
"predominantly" intrastate in character and carry on its
business "substantially" in a single state in which the
holding company and the material subsidiaries are organized.
If an applicant satisfies the objective requirements of the
statute, Section 3(a) directs the Commission to grant an
exemption, "unless and except insofar as [the Commission]
finds the exemption detrimental to the public interest or
the interest of investors or consumers."
Although the statute speaks of "income," the
Commission has traditionally considered a wide range of
numerical factors and, in practice, given the greatest
deference to revenues in determining materiality. SEE,
E.G., NIPSCO INDUSTRIES, INC., Holding Co. Act Release No.
26975 (Feb. 10, 1999) ("NIPSCO"). In NIPSCO, the Commission
also determined that it was appropriate to consider
"operating margin" or "net operating revenues," which are
defined as gross revenues minus costs of purchased gas for
retail gas distribution and the cost of fuel for electric
generation, when considering combination gas and electric
a. Materiality of Utility Subsidiaries
In NIPSCO, the Commission found that an out-of-
state utility subsidiary which contributed the following
percentages of the consolidated holding company figures
would not be material for purposes of Section 3(a)(1):
Measure NIPSCO Range of Values
Gross Operating 16.0-16.2%
Operating Margin 10.8-11.2%
Utility Operating 7.1-8.7%
In the instant matter, VC, VUHI and the utility subsidiaries
other than OhioCo will continue to be incorporated in
Indiana. For purposes of analysis under Section 3(a)(1),
the only out-of-state utility will be
OhioCo., which would have contributed the following
revenues, margin and income on a pro-forma basis for 1999.*
Measure OhioCo Values
Gross Operating 11.3%
Operating Margin 8.8%
Utility Operating 10.9%
The OhioCo contributions fall within the range of acceptable
values under NIPSCO for both gross operating revenues and
operating margin. While utility operating income is higher
than that considered in NIPSCO, it is within the 10% to 12%
range generally considered the bright-line limit on
contributions by immaterial subsidiaries and so, neither VC
nor VUHI will have any "material" out-of-state public-
utility subsidiary companies.
b. Predominantly and Substantially Intrastate
In NIPSCO, the Commission found the "predominantly
and substantially" standard satisfied where the out-of-state
utility operations represented no more than the following
percentage of total utility operations:
Measure NIPSCO Range of Values
Gross Operating 19.2-19.8%
Operating Margin 13.0-13.7%
Utility Operating 8.7-11.1%
*(1) Although Indiana Gas will be an Ohio, as well as an
Indiana, utility, it is treated as an Indiana utility for
purposes of the analysis under Section 3(a)(1). This
approach is consistent with that approved by the Commission
in KU Energy Corp;, Holding Co. Act Release No. 25409 ( Nov.
13, 1991). In that matter, Kentucky Utilities Company, a
Kentucky public-utility company and exempt holding company,
merged with its Virginia subsidiary public-utility company.
Kentucky Utilities then incorporated in Virginia, as well as
in Kentucky, in order to satisfy the requirements of
Virginia law. For purposes of analysis under Section
3(a)(1), Kentucky Utilities was treated as a Kentucky
Under the language of the statute, the "predominantly and
substantially" test must be applied both, on a consolidated
basis, to the holding company and, on a corporate basis, to
each material utility subsidiary. In the instant matter, we
understand that the out-of-state utility operations of VC
and the VUHI, on a pro forma basis for 1999, would have had
revenues, margins and income slightly higher than that
approved in NIPSCO but well within the range established by
Rule 2 filings and the Commission's interpretation of
similar language in Section 3(a)(2) of the Act: *(2)
Gross Operating 21.3%
Operating Margin 16.6%
Utility Operating 20.6%
On a corporate basis, Indiana Gas will be the only
subsidiary with out-of-state utility operations. The
contributions of revenues, margins and income by the Ohio
operations of Indiana Gas will fall within the NIPSCO
Measure Indiana Gas Values
Gross Operating 19.3%
Operating Margin 17.0%
Utility Operating 22.5%
c. "Unless and Except" Clause Considerations
*(2) See, e.g., 1999 Form U-3A-1 filed by Southwestern
Energy company (24% of utility revenues and retail gas
sales, on an Mcf basis, from out-of-state), 1997 Form U-3A-2
filed by LG&E Energy Corporation (20.43% out-of-state
electric utility sales, on a Kwh basis), and 1997 Form U-3A-
2 filed by MidAmerican Energy Holdings company (31.98% out-
of-state electric utility sales, on a Kwh basis, and 17.36%
out-of-state utility customers). In addition, the
Commission, in HOUSTON INDUSTRIES INC., Hold Co. Act Release
No. 26744 (July 24, 1997), found that a holding company
which receives approximately one-third of its utility
operating revenues from a subsidiary company is still
"predominantly" a public-utility company within the meaning
of Section 3(a)(2) of the Act.
As noted above, notwithstanding an applicant's
compliance with the objective requirements of Section
3(a)(1), the Commission can deny or condition an exemption,
"insofar as [the Commission] finds the exemption detrimental
to the public interest or the interest of investors or
consumers." In assessing this standard, the Commission has
traditionally focused on the presence of state regulation on
the theory that federal intervention is unnecessary when
state control is adequate. SEE, E.G., KU ENERGY CORP.,
Holding Co. Act Release No. 25409 (Nov. 13, 1991); CIPSCO
INC., Holding Co. Act Release No. 25212 (Sept. 18, 1990).
The proposed Acquisition will have not have an adverse
effect on VC's existing electric and gas operations, or on
the way that rates are regulated by the Indiana and Ohio
Commissions, or the ability of those commissions to
effectively regulate the operations of the Vectren utility
Accordingly, the Commission should find that
sufficient safeguards exist under state law to ensure that
no potential adverse consequences will result from the
proposed Transactions, and that Vectren and VUHI are
entitled to orders of exemption under Section 3(a)(1) of the
ITEM 4. REGULATORY APPROVAL.
Set forth below is a summary of the regulatory
approvals that will be obtained in connection with the
The acquisition is subject to the requirements of
the Hart-Scott-Rodino Act and the rules and regulations
thereunder, which provide that certain acquisition
transactions may not be consummated until certain
information has been furnished to the Antitrust Division of
the Department of Justice (the "Antitrust Division") and the
Federal Trade Commission (the "FTC") and until certain
waiting periods have been terminated or have expired.
Vectren and DP&L filed their notifications on March 16,
If the acquisition is not completed within twelve
months after the expiration or termination of the waiting
period, Vectren and DP&L would be required to submit new
notices to the Antitrust Division and the FTC and a new
waiting period would have to expire or be terminated before
the acquisition could be completed.
(2) Federal Energy Regulatory Commission
As noted earlier, although it is not entirely
clear that the intermediate holding company transaction
requires FERC approval, SIGECO is filing an application
under Section 203 of the Federal Power Act. In the event
that the notice period has closed prior to the receipt of
the FERC order, Vectren requests the Commission reserve
jurisdiction over the acquisition of the Intermediate
Holding Company pending completion of the record.
(3) State Regulatory Approval
The Ohio Commission has jurisdiction over the
acquisition of the DP&L Assets. Indiana Gas, Ohio Co. and
DP&L have requested the Ohio Commission's authorization for
the acquisition. Exhibits D-1 and D-2.
ITEM 5. PROCEDURE.
The Commission is respectfully requested to issue
and publish not later than June 26, 2000 the requisite
notice under Rule 23 with respect to the filing of this
Application, such notice to specify a date not later than
July 21, 2000 by which comments may be entered and a date
not later than July 24, 2000 as the date after which an
order of the Commission granting and permitting this
Application to become effective may be entered by the
Commission. The amended date by which Vectren requests that
the Commission issue an order is necessitated by business
concerns, including the need for Vectren to perform gas
planning and acquisition for the 2000-2001 heating season.
Vectren believes that a recommended decision by a
hearing or other responsible officer of the Commission is
not needed for approval of the proposed acquisition. The
Division of Investment Management may assist in the
preparation of the Commission's decision. There should be
no waiting period between the issuance of the Commission's
order and the date on which it is to become effective.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
A-1 Vectren Corporation's Articles of Incorporation and
By-Laws, incorporated by reference to SEC Form S-4,
File No. 333-90763, November 12, 1999.
A-2 Constituent documents of Intermediate Holdco (to be
filed by amendment).
B-1 Asset Purchase Agreement by and between The Dayton
Power and Light Company, Indiana Energy, Inc. and
Number-3CHK, Inc., filed by incorporation to Form 8-K,
File No. 01-9091, December 28, 1999, Exhibit2.
D-1.1 Joint Petition to the Ohio Commission, dated March 20,
D-1.2 Supplement to Joint Petition to the Ohio Commission,
dated June 8, 2000.
D-1.3 Order of the Ohio Commission (to be filed by
D-2.1 FERC application (to be filed by amendment).
D-2.2 FERC Order (to be filed by amendment).
E-1 Map of proposed combined service territory (filed in
paper format on Form SE) (to be filed by amendment).
F-1 Opinion of counsel - Vectren Corporation (to be filed
F-2 Past tense opinion of Vectren Corporation's counsel
(to be filed by amendment).
H-1 Vectren's 1999 Annual Report, incorporated by
reference to SEC Form 10-K, File No.
001-15467, March 30, 2000.
H-2 1999 Form U-3A-2 for Indiana Energy, Inc., March 1,
incorporated by reference to SEC File No. 69-00312,
H-3 1999 Form U-3A-2 for SIGCORP, Inc., incorporated by
reference to SEC File No. 69-00397, February 29, 2000.
H-4 DP&L's 1999 Annual Report, incorporated by reference
to SEC Form 10-K, File No. 001-02385, March 31, 2000.
I-1 Proposed Form of Notice.
J-1 Section 3(a)(1) financial projections (CONFIDENTIAL
TREATMENT, filed under Form SE).
FS-1 Vectren Corporation's Unaudited Pro Forma Condensed
Consolidated Balance Sheet and Statement of Income for
the 12 months ending December 31, 1999 and projected
data for 2000, 2001 and 2002 (CONFIDENTIAL TREATMENT,
filed under Form SE).
FS-2 Vectren Corporation's Consolidated Balance Sheet and
Statement of Income for the quarter ended March 31,
2000, incorporated by reference to SEC Form 10-Q, File
No. 001-15467, May 15, 2000.
FS-3 March 31, 2000, incorporated by reference to SEC Form 10-
Q, File No. 001-02385, May 15, 2000.
FS-4 Vectren Corporation's Consolidated Balance Sheet and
Statement of Income for the year ended December 31,
1999, incorporated by reference to SEC Form 10-K, File
No. 001- 15467, March 30, 2000.
FS-5 DP&L's Consolidated Balance Sheet and Statement of
Income for the year ended December 31, 1999,
incorporated by reference to SEC Form 10-K, File No. 001-
02385, March 31, 2000.
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
The acquisition 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 acquisition will not result in
changes in the operations of DP&L that would have any impact
on the environment. No federal agency is
preparing an environmental impact statement with respect to
Pursuant to the requirements of the Public Utility
Holding Company Act of 1935, the undersigned companies have
duly caused this Application to be signed on its behalf by
the undersigned thereunto duly authorized. The signature of
the applicants, through the undersigned, is restricted to
the information contained in this application which is
pertinent to the instant application.
Date: June 20, 2000 /signed/ Ronald E. Christian
Ronald E. Christian
Senior Vice President, General
Counsel and Secretary
List of Vectren Corporation's Non-Utility Subsidiaries
1. Vectren Utility Holdings, Inc. is a holding company
which provides environmental and other services to Vectren's
2. Vectren Generation Services, Inc. is an intermediate
holding company under Vectren for Southern Indiana Minerals,
Inc. and Vectren Fuels, Inc.
3. Southern Indiana Minerals, Inc. processes and markets
coal combustion by-products.
4. Vectren Fuels, Inc owns and operates coal mining
properties, including a one-hundred percent (100%) ownership
interest in Cypress Creek Mine, Inc., Prosperity Mine, LLC
and Cypress Creek Mine, LLC and a ninety-nine percent (99%)
ownership interest in SFI Coal Sales, LLC.
5. Vectren Foundation, Inc. is a non-profit corporation
under Vectren, which makes contributions to organizations
and communities in which Vectren provides utility services.
6. Vectren Resources, LLC primarily provides information
technology resources to Vectren and its subsidiaries.
7. Vectren Capital Corp., and its direct subsidiary, IEI
Capital Corp., are financing vehicles for Vectren's non-
8. Vectren Enterprises, Inc. is a intermediate holding
company for five non-regulated businesses: Vectren
Communications, Inc., Vectren Energy Services, Inc., Vectren
Financial Group, Inc., Vectren Utility Services, Inc. and
Vectren Ventures, Inc.
9. Vectren Communications, Inc. is a holding company for
SIGCORP Communications Services, Inc., which conducts
communications-related strategic initiatives.
10. SIGECO Advanced Communications, Inc. holds Vectren's
investment in SIGECOM, Inc. and Utilicom Networks, LLC.
Utilicom Networks, LLC is a joint venture between Advanced
Communications, Inc. and Utilicom Networks, Inc., which
markets and provides enhanced communications services over a
high-capacity fiber-optic network in SIGECO's service
11. Vectren Energy Services, Inc. is an intermediate
holding company for Vectren Energy Solutions, Inc., which
holds a one-hundred percent (100%) interest in SIGCORP
Energy Services, Inc., Energy Systems Group, Inc., Vectren
Environmental Services, Inc., Indiana Energy Services, Inc.
(dormant) and SIGCORP Power Marketing, Inc. (dormant), and a
fifty percent (50%) ownership interest in ProLiance Energy,
12. SIGCORP Energy Services, Inc. has a ninety-nine
percent (99%) ownership interest in SIGCORP Energy Services,
LLC, which provides natural gas, pipeline management and
other natural gas related services, through its ownership
interest in SIGCORP Gas Marketing, LLC, Ohio Valley Hub, LLC
and Signature Energy Management, LLC.
13. Energy Systems Group, Inc. has a two-thirds ownership
interest in Energy Systems Group, LLC, an energy-related
performance contracting firm serving industrial and
14. Vectren Environmental Services, Inc. holds a fifty-one
percent (51%) ownership interest in Air Quality Services,
LLC, a joint venture created to provide air quality
monitoring and testing services to industry and utilities.
15. ProLiance Energy, LLC provides gas and power to more
than 1,000 commercial, industrial, municipal, residential
and utility customers.
16. Vectren Financial Group, Inc. is an intermediate
holding company for the following entities: Southern Indiana
Properties, Inc., Vectren Synfuels, Inc. and Energy Realty,
17. Southern Indiana Properties, Inc. makes investments in
real estate, which include: SIP-GT I, Inc., Southwest Lease
Capital, Inc., Southern Indiana Joint Ventures, Inc., MCN
Equities, Inc. and Joint Ventures Affiliated, Inc.
18. Vectren Synfuels, Inc. owns a limited partnership in
Pace Carbon Synfuels Investors, L.P., which produces and
sells coal-based synthetic fuel that qualifies for federal
19. Energy Realty, Inc. invests in real estate and
affordable housing, including a ninety-eight percent (98%)
ownership interest in BCI Holding Co., LLC.
20. Vectren Utility Services, Inc. holds investments in
non-regulated subsidiaries which provide various services to
Vectren, and include Reliant Services, LLC, CIGMA, LLC, IEI
Financial Services, LLC and Utility Debt Collectors, Inc.
21. Reliant Services, LLC is an underground locating,
construction and meter reading company.
22. CIGMA, LLC is a regional supplier of materials and
integrated supply solutions to the energy market and related
23. IEI Financial Services, LLC performs third-party
collections, energy-related equipment leasing and related
24. Vectren Ventures, Inc. invests in energy-related
companies and projects and holds the remainder one percent
(1%) interests in Vectren Resources, LLC, SIGCORP Energy
Services, LLC and IEI Financial Services, LLC.