File No. 70-9119
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 5 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
CSW ENERGY 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)
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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 CSW Energy Services, Inc.
("Services" and, together with CSW, the "Applicants"), a Delaware corporation
and a wholly-owned subsidiary of CSW, hereby file this Amendment No. 5 (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
amend the structure through which the Applicants will conduct the EV Business,
as described herein. 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 commercial and non-commercial customers other than individuals in
connection with their purchase or lease of EVs ("EV Customer Financing"),
utilizing funds borrowed from CSW, as described herein; and (c) permit CSW to
fund the management, operation and administrative costs of the EV Business by
making loans to Services from time to time, and CSW to provide guarantees and
other credit support on behalf of Services, and to finance the EV Business by
making loans and providing guarantees and other credit support to commercial and
institutional customers through Services up to an aggregate amount outstanding
at any time of $25 million, as described herein ("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. CSW intends to finance such
EV Business Financing through the use of its external short-term borrowing
program (See HCAR No. 26254, March 21, 1995; HCAR No. 26697, March 28, 1997;
HCAR No. 26854, April 3, 1998).
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. 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. Profits and
losses will be absorbed by investors of Services. Services proposes to provide
EV Customer Financing utilizing funds borrowed from CSW, as described herein.
CSW proposes to provide EV Business Financing to Services by making loans from
time to time to Services through December 31, 2002, with maturity no later than
December 31, 2003. Such loans will bear an interest rate that does not exceed
the prime rate in effect on the date of the loan at a bank designated by CSW,
and will be evidenced by a note payable to CSW. 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. CSW will obtain funds to finance
the EV Business through use of its external short-term borrowing program (See
HCAR No. 26254, March 21, 1995; HCAR No. 26697, March 28, 1997; HCAR No. 26854,
April 3, 1998).
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.
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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 24,1998
CENTRAL AND SOUTH WEST CORPORATION
CSW ENERGY SERVICES, INC.
By: /s/WENDY G. HARGUS
Wendy G. Hargus
Treasurer
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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).
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