File No. 70-9119
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3 TO
FORM U-1 APPLICATION-DECLARATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
--------------------------------
CENTRAL AND SOUTH WEST CORPORATION
1616 Woodall Rodgers Freeway
P.O. Box 660164
Dallas, Texas 75266
CENTRAL AND SOUTH WEST SERVICES, INC.
1616 Woodall Rodgers Freeway
P.O. Box 660164
Dallas, Texas 75266
(Name of company filing this statement and address
of principal executive office)
---------------------------------
CENTRAL AND SOUTH WEST CORPORATION
(Name of top registered holding company parent)
---------------------------------
Wendy G. Hargus
Treasurer
Central and South West Corporation
1616 Woodall Rodgers Freeway
P.O. Box 660164
Dallas, Texas 75266-0164
Joris M. Hogan, Esq.
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
(Names and addresses of agents for service)
<PAGE>
Central and South West Corporation ("CSW"), a Delaware
corporation and a registered holding company under the Public Utility Holding
Company Act of 1935, as amended (the "Act"), and Central and South West
Services, Inc. ("Services" and, together with CSW, the "Applicants"), a Texas
corporation and a wholly-owned service company subsidiary of CSW, hereby file
this Amendment No. 3 (this "Amendment") to the Form U-1 Application in File No.
70-9119 (the "Application") for the purpose of amending and restating in its
entirety the Application to update certain information in connection with Rule
54 under the Act. The Applicants request authority to (a) permit Services to
engage in the business of marketing, selling, leasing and renting to consumers
electric bicycles, electric tricycles, electric skateboards and electric
scooters ("Electric Vehicles" or "EVs"), as well as retrofit kits to convert
traditional bicycles to electric bicycles, each of which is described in Exhibit
1 attached hereto (collectively referred to herein as "EV Sales & Leasing"); (b)
permit Services to provide financing to, or guarantee borrowings by,
creditworthy non-commercial customers in connection with their purchase or lease
of EVs ("EV Customer Financing"), utilizing funds available to Services through
its participation in the CSW money pool system; and (c) permit CSW to use
borrowings from the CSW money pool system to finance the EV Business by making
loans and providing guarantees and other credit support through Services up to
an aggregate amount outstanding at any time of $25 million ("EV Business
Financing", and together with EV Sales & Leasing and EV Customer Financing, the
"EV Business"). Applicants request authority to engage in the EV Business
through December 31, 2003. Item 1. Description of Proposed Transaction.
EV Sales & Leasing.
As part of their effort to increase the demand for electricity
and to prepare for retail competition, the Applicants propose to engage in EV
Sales & Leasing and EV Customer Financing to promote the development of Electric
Vehicles as viable alternative energy vehicles and the creation of a market for
such Electric Vehicles. Specifically, Services proposes to engage in the
business of marketing, selling, leasing and renting to consumers those electric
bicycles, electric tricycles, electric skateboards and electric scooters, which
are described in Exhibit 1 attached to this Amendment. Services proposes to
provide such EV Sales & Leasing activities to sporting equipment stores, bicycle
shops, non-commercial entities such as universities and government organizations
and, on a smaller scale, to individuals via the Internet. In connection with EV
Sales & Leasing, CSW proposes to provide EV Business Financing through Services
to support the purchase of Electric Vehicles and thereby encourage public
utilization of Electric Vehicles for transportation. Such EV Business Financing
would be coordinated by CSW through use of the CSW money pool system, as
authorized by Commission orders dated March 31, 1993, September 28, 1993, March
18, 1994, June 15, 1994, February 1, 1995, March 21, 1995, March 28, 1997 and
April 3, 1998 (HCAR Nos. 25777, 25897, 26007, 26066, 26226, 26254, 26697 and
26854, respectively).
By increasing the availability of Electric Vehicles through
their sales and financing efforts, the Applicants hope to aid in the advancement
of new electro-technologies and the use of electricity as an alternative source
of fuel for vehicles. Electric Vehicles offer customers a functional, efficient
and affordable method of using electricity as a fuel source. For example, the
sale of electric bicycles which are equipped with, and may be powered by
rechargeable batteries, the most developed market of the Electric Vehicles
included in this Amendment, may either be pedaled like a normal bike or powered
by a rechargeable battery. Electric bicycles also feature the latest
technological innovations, including advanced batteries with improved
performance and weight/energy densities and new solid state control circuits.
With the assistance from the Applicants described in this Amendment, Applicants
expect to facilitate further development of new technologies to improve the
overall efficiency, performance and cost to customers of electric bicycles and
other Electric Vehicles.
The Applicants also anticipate that the marketing and sale of
new technologies associated with the Electric Vehicles will increase customer
awareness of other potential uses of electricity, resulting in an increase in
overall demand for electric service, both within the states in CSW's service
areas and in surrounding regions. CSW has four operating company
subsidiaries--Public Service Company of Oklahoma, Southwestern Electric Power
Company, West Texas Utilities and Central Power & Light Company (the "Operating
Companies")--which service portions of Texas, Oklahoma, Louisiana and Arkansas
(the "Service Areas"). The promotion of a new market for Electric Vehicles will
spur demand for electricity and help the Operating Companies make a successful
transition from a regulated industry to a competitive one. EV Sales & Leasing
activities are also expected to enhance CSW's name recognition and customer
loyalty.
In addition, the Applicants request authority to facilitate
the sale of a "critical mass" of Electric Vehicles through the use of EV
Customer Financing to creditworthy non-commercial entities like large
universities and government organizations. Applicants will check the
creditworthiness of such non-commercial entities by requesting information
concerning the size of a university's endowment available to support operations
and the credit-rating of state and local government entities that seek financing
from Applicants. The Applicants believe that EV Customer Financing will expedite
the growth of ownership and use of EVs and increase public familiarity with the
new electro-technologies associated with them. EV Customer Financing provided by
Services may take the form of guarantees, capital leases, operating leases or
promissory notes with terms of one to five years, with pricing to be competitive
with that readily available in the market for similar financial instruments.
Loans made by Services directly or, with respect to which Services is providing
a guarantee, will have an average annual interest rate not to exceed prime plus
7%. Such loans may be unsecured or secured by a lien or other security interest
in the Electric Vehicle or other real or personal property other than utility
assets. Services will obtain funding through its participation in the CSW money
pool system. The Applicants expect that most of the EV Customer Financing will
be placed by Services with third party lenders and leasing companies.
Scope of EV Business.
The Applicants request that they be permitted to engage in the
EV Business both within the Service Areas of the CSW Operating Companies and in
all other areas of the United States (the "Target Market"). During the
twelve-month period beginning on the first day of January in the year following
the date the Applicants commence the EV Business pursuant to the approval of the
Commission, and for each subsequent calendar year thereafter, total revenues of
Services derived from the EV Business in the states comprising the Service Areas
will exceed total revenues of Services derived from the EV Business in all other
states.
Services proposes to engage in EV Sales & Leasing directly
with sporting equipment stores, bicycle shops and non-commercial entities such
as universities and government organizations, in each case, in the Target
Market. The Applicants also propose to create a computer web page for
informational viewing by and sales to the general public. The Applicants propose
to offer EV Customer Financing to non-commercial entities, such financing to be
on the terms and conditions set forth above.
The Applicants propose to engage in EV Sales & Leasing and EV
Customer Financing through Services. The Applicants will treat the EV Business
as a separate cost and revenue center for accounting purposes. CSW proposes to
provide EV Business Financing to Services in an aggregate amount outstanding at
any time of up to $25 million, with financing to be coordinated by CSW through
Services' participation in the CSW money pool system. These funds would be
designated for specific use by Services in support of the EV Business. CSW
further proposes to guarantee or to act as surety on bonds, indebtedness and
performance and other obligations undertaken by Services in connection with its
EV Business. Such guarantees or arrangements may be made from time to time
through December 31, 2002, and will expire or terminate no later than December
31, 2003. The total amount of all loans and guarantees for which authorization
is sought will not exceed $25 million at any time outstanding. The Applicants
will obtain funds to finance the EV Business through the CSW money pool system
as authorized by Commission orders dated March 31, 1993, September 28, 1993,
March 18, 1994, June 15, 1994, February 1, 1995, March 21, 1995, March 28, 1997
and April 3, 1998 (HCAR Nos. 25777, 25897, 26007, 26066, 26226, 26254, 26697 and
26854, respectively).
The Applicants state that Services currently has an
insufficient staff to engage in the EV Business as described in this Amendment
and will hire outside individuals or firms to conduct the EV Business
activities. Such hiring will be done on a contract basis, and such persons will
be deemed independent contractors of Services. Such independent contractors
shall be paid by Applicants through commissions only and will receive no salary
or employee benefits from Applicants. Through the date of this Amendment,
Applicants have executed two agreements with manufacturers and suppliers
of Electrical Vehicles pursuant to which Applicants have the right to market,
sell, lease and rent Electric Vehicles in several states within the Target
Market.
The Applicants will file certificates pursuant to Rule 24
under the Act within 60 days after the end of each calendar quarter setting
forth the following information: (1) the dollar amount of revenues from each of
EV Sales & Leasing and EV Customer Financing during the quarter, including a
separate calculation of dollar amount revenues from the EV Business in the
states comprising the Service Areas and in all other states; (2) the type and
dollar amount of any EV Business Financing by CSW in support of the EV Business
during the quarter; (3) the aggregate outstanding amount of EV Customer
Financing as of the end of the quarter; and (4) with respect to Services, an
unaudited profit and loss statement for the quarter and a statement of accounts
as of the end of the quarter for the EV Business. The Applicants will also
provide a description of any State utility commission findings concerning the EV
Business or related transactions and will file as exhibits copies of all
applications to, or orders issued by, State utility commissions pertaining to
the EV Business or related transactions. Item 2. Fees, Commissions and Expenses.
An estimate of the fees and expenses to be paid or incurred by
the Applicants in connection with the proposed transactions set forth in this
Amendment is set forth below:
Amount
Counsel fees:
Milbank, Tweed, Hadley & McCloy
New York, New York.............................$15,000
Miscellaneous and incidental expenses
.........including travel, telephone and
postage.........................................$1,000
-----
Total $16,000
======
Item 3. Applicable Statutory Provisions.
Sections 6(a), 7, 9(a), 10, 11 and 12(b) of the Act and Rule
54 thereunder are or may be applicable to the transactions proposed in this
Amendment. Section 9(a) of the Act makes unlawful the acquisition by a
subsidiary of a registered holding company of "any securities . . . or any other
interest in any business" without the prior approval of the Commission under
Section 10. Under Section 10(c)(1), the Commission may not approve an
acquisition of securities or any other interest in any business if the proposed
acquisition is "detrimental to the carrying out of the provisions of Section
11." Under Section 11(b)(1), the Commission must limit the operations of public
utility holding companies and their subsidiaries to such other businesses as are
reasonably incidental, or economically necessary or appropriate, to the
operations of an integrated public-utility system. The Commission may permit as
reasonably incidental, or economically necessary or appropriate, to the
operations of one or more integrated public-utility systems the retention of an
interest in any business (other than the business of a public-utility company as
such) which the Commission shall find necessary or appropriate in the public
interest or for the protection of investors or consumers and not detrimental to
the proper functioning of such system or systems.
The proposed establishment of an EV Business satisfies the
two-pronged "functional relationship" test of Section 11 as articulated in
Michigan Consolidated Gas Co. v. SEC, 444 F.2d 913 (D.C. Cir. 1971), a case
often used by the Commission in applying Section 11(b)(1) of the Act. Under the
"functional relationship" test, an integrated public-utility system may acquire
or retain an interest in another business if (i) the additional business is
"reasonably incidental or economically necessary or appropriate" to the
integrated system, and (ii) the retention of the additional business is in the
public interest. Michigan Consolidated at 916. The Applicants' engagement in the
EV Business is reasonably incidental and economically appropriate to the core
business of CSW, namely the generation, distribution and transmission of
electricity to customers. The Applicants will use their staff, facilities,
knowledge and expertise helping to create and maintain a market for Electric
Vehicles, which Applicants believe will increase demand for electricity--the
very heart of CSW's business.
The Applicants' proposal represents an integrated effort to
open a new, potentially large market for electricity consumption by
commercializing cutting-edge electro-technology in Electric Vehicles.
Additionally, the Applicants' indirect participation in the manufacturing and
promotion of more efficient electro-technologies in connection with Electric
Vehicles enhances the possibility for new uses of electricity in the future.
Moreover, entrance into the EV Business may ease the transition of Operating
Companies into the world of electric service competition by creating a new way
in which customers may take advantage of the electricity services offered by the
CSW system. The Applicants also hope to create enhanced brand identification and
loyalty for CSW and its Operating Companies through EV Sales & Leasing, which
Applicants believe will support the CSW system as it moves into a competitive
marketplace.
The Applicants believe that they need to be able to sell and
lease EVs directly because no current participant in the transportation market
has a strong incentive to vigorously promote the EV Business and the new
electro-technology associated with it. Indeed, the EV Business might be viewed
as disruptive to the existing transportation market due to the potential
displacement of existing primary businesses of current market participants.
Electric utilities have been identified by Electric Vehicle manufacturers, such
as ZAP ("Zero Air Pollution") Power Systems, as their natural partners in the EV
Business because of the potential for higher long-term electricity demand and
enhanced brand identification for the participating electric utility.
Public policy also supports Applicants in their bid to enter
the EV Business. In accordance with the aims of Congress, as embodied in the
Energy Policy Act of 1992, the Applicants' proposed EV Business is designed to
actively encourage the use of electricity as an alternative to conventional fuel
sources, which are often both harmful to the environment and of finite supply.
See Energy Policy Act of 1992, 42 USCS ss.13201, et. seq. (West Supp 1997)
(advocating and encouraging use of alternative fuels and alternative fuel
vehicles). The proposed EV Business is aimed at making Electric Vehicles more
affordable and easily accessible to the public, so that the environmental
benefits of Electric Vehicles over conventional fuels and vehicles can be
realized by the public. Indeed, the EVs produced by ZAP Power Systems are
designed to significantly reduce air pollution. See also, Energy Policy Act of
1992, 42 USCS ss.ss.13212 and 13235, (West Supp 1997) (mandating federal use of
alternative fuel vehicle fleets and funding state programs to encourage EV use).
Additionally, CSW customers and investors will benefit because Applicants'
entrance into the EV Business will assist CSW Operating Companies in
transitioning to a competitive market and will create jobs for the economy. See
Executive Order No. 12844, Apr. 21, 1993, 50 F.R. 21885, as amended, Executive
Order No. 12974, Sept. 29, 1995, 60 F.R. 51875 (stating that the use of
alternative fuels and alternative fuel vehicles increases domestic economic
activity and stimulates job creation).
As originally proposed, Rule 58, paragraph (b)(1)(iii), would
have exempted from Section 9(a) of the Act the sale of Electric Vehicles, but
the Commission chose to exclude the sale of EVs because it had not yet approved
such activities by order. The Commission's initial inclusion of EVs, however,
suggests that it views the activities as logically connected to the core
business of a registered holding company system, even though such activities
were eventually excluded from the rule for procedural reasons related to the
statutory provision under which the rule was promulgated.
In addition, the Applicants' proposal to conduct EV Sales &
Leasing is comparable to the proposal by Consolidated Natural Gas Company
("CNG") to finance customers' purchases of equipment within and outside of the
states of its service area to promote new natural gas technologies and enable
the use of natural gas as an alternative fuel, which the Commission approved by
order in HCAR No. 26234 (Feb. 23, 1995) (File No. 70-7508) (the "First CNG
Order"). The Commission determined that CNG's proposed activities satisfied the
functional relationship test because the activities encouraged the sale of
energy through the development, promotion and financing of gas or electric
appliances or equipment that had not yet received widespread public acceptance
and promoted competition of electricity and gas with other types of fuel.
Similarly, the Commission authorized General Public Utilities
Corporation ("GPU") to make an investment in a company that promoted and
marketed electrical equipment employing a new "vortex fan." See HCAR No. 15184
(Feb. 9, 1965) (File No. 70-4239) (the "GPU Order") (cited by CNG in the First
CNG Order). GPU's primary justification for its investment was its belief that
the use of vortex fans in electrical products would significantly increase the
consumption of electricity both within and outside the service area of the GPU
system and that the encouragement of the use of electricity is functionally
related to the core business of the GPU system.
The Commission also granted CNG authority to (1) buy and
resell or lease natural gas conversion equipment, (2) install and maintain
conversion equipment and provide training with respect to such equipment and (3)
design, construct, own, lease, sell and maintain refueling stations and provide
training with respect to such stations. See CNG, HCAR No. 25615 (Aug. 27, 1992)
(File No. 70-7845) (the "Second CNG Order"). The rationale behind each of the
CNG Orders and the GPU Order applies equally to the Applicants' proposed EV
Sales & Leasing activities and supports favorable action by the Commission.
EV Customer Financing is similar in purpose, terms and
conditions to the financing offered by CNG and approved by the Commission in the
First CNG Order. In that order, CNG was authorized to finance customer purchases
of equipment, either through loans or guarantees of loans, to promote new
technologies that used natural gas or enabled the use of natural gas as an
alternative fuel.
Rule 54
No proceeds from the proposed transactions will be used by CSW
or any subsidiary thereof for the direct or indirect acquisition of an interest
in an exempt wholesale generator, as defined in Section 32 of the Act, or a
foreign utility company, as defined in Section 33 of the Act. Rule 54
promulgated under the Act states that in determining whether to approve the
issue or sale of a security by a registered holding company for purposes other
than the acquisition of an EWG or a FUCO, or other transactions by such
registered holding company or its subsidiaries other than with respect to EWGs
or FUCOs, the Commission shall not consider the effect of the capitalization or
earnings of any subsidiary which is an EWG or a FUCO upon the registered holding
company system if Rules 53(a), (b) and (c) are satisfied. As set forth below,
all applicable conditions set forth in Rule 53(a) are, and, assuming the
consummation of the transactions proposed herein, will be, satisfied and none of
the conditions set forth in Rule 53(b) exist or will exist as a result of the
transactions proposed herein, thereby satisfying such provision and making Rule
53(c) inapplicable.
CSW's "aggregate investment" (as defined under Rule 53(a) of
the Act) in EWGs and FUCOs as of June 15, 1998 was approximately $912 million,
or about 49.98% of $1,825 million, CSW's average consolidated retained earnings
for the four quarterly periods ended March 31, 1998. CSW thus satisfies Rule
53(a)(1). CSW will maintain and make available the books and records required by
Rule 53(a)(2). No more than 2% of the employees of CSW's operating subsidiaries
will, at any one time, directly or indirectly, render services to an EWG or FUCO
in which CSW directly or indirectly owns an interest, satisfying Rule 53(a)(3).
And lastly, CSW will submit a copy of Item 9 and Exhibits G and H of CSW's Form
U5S to each of the public service commissions having jurisdiction over the
retail rates of CSW's operating utility subsidiaries, satisfying Rule 53(a)(4).
To the extent that any other sections of the Act may be applicable to the
proposed transactions, the Company hereby requests appropriate authority
thereunder. Item 4. Regulatory Approval.
No federal or state regulatory authority, other than the
Commission under the Act, has any jurisdiction over the proposed transactions.
Item 5. Procedure
The Applicants respectfully request that the Commission issue
no later than June 19, 1998 the requisite notice under Rule 23 with respect to
the filing of this Amendment, such notice to specify a date not later than July
24, 1998, as the date after which an order granting and permitting this
Amendment to become effective may be entered by the Commission and the
Commission enter not later than July 27, 1998, an appropriate order granting and
permitting this Amendment to become effective.
No recommended decision by a hearing officer or any other
responsible officer of the Commission is necessary or required in this matter.
The Division of Investment Management of the Commission may assist in the
preparation of the Commission's decision in this matter. There should be no
30-day waiting period between the issuance and the effective date of any order
issued by the Commission in this matter; and it is respectfully requested that
any such order be made effective immediately upon the entry thereof.
Item 6. Exhibits and Financial Statements.
Exhibit 1 - EV Descriptions.
Exhibit 2 - Preliminary Opinion of Milbank, Tweed, Hadley & McCloy,
counsel to the Applicants.
Exhibit 3 - Financial Statements of each of the Applicants per
books and pro forma, as of March 31, 1998.
Exhibit 4 - Proposed Notice of Proceeding.
<PAGE>
S I G N A T U R E
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, as amended, each of the undersigned Applicants have duly
caused this document to be signed on their behalf by the undersigned thereunto
duly authorized.
Dated: August 6, 1998
CENTRAL AND SOUTH WEST CORPORATION
CENTRAL AND SOUTH WEST SERVICES, INC.
By: /s/ WENDY G. HARGUS
Wendy G. Hargus
Treasurer
<PAGE>
INDEX OF EXHIBITS
EXHIBIT TRANSMISSION
NUMBER DESCRIPTION METHOD
1 EV Descriptions.(previously filed). --
2 Preliminary Opinion of Milbank, Tweed, --
Hadley & McCloy, counsel to the
Applicants.(previously filed).
3 Proposed Notice of Proceeding. --
(previously filed).
4 Financial Statements of each of --
the Applicants per books and pro
forma, as of March 31, 1998
(previously filed).
