<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-1/A
-------------------------
AMENDMENT NO. 2
TO
APPLICATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
-------------------------
Houston Industries Incorporated and
Houston Lighting & Power Company
Houston Industries Plaza
1111 Louisiana, 47th Floor
Houston, TX 77002-5231
(Name of company filing this statement
and address of principal executive offices)
-------------------------
None
(Name of top registered holding company
parent of each applicant or declarant)
-------------------------
Hugh Rice Kelly
Executive Vice President and General Counsel
Houston Industries Incorporated
Houston Industries Plaza
1111 Louisiana, 47th Floor
Houston, TX 77002-5231
(Names and addresses of agent for service)
-------------------------
The Commission is also requested to send copies
of any communications in connection with this matter to:
James R. Doty Stephen A. Massad
Baker & Botts, L.L.P. Baker & Botts, L.L.P.
The Warner One Shell Plaza
1299 Pennsylvania Avenue, N.W. 910 Louisiana Street
Washington, D.C. 20004-2400 Houston, TX 77002-4995
<PAGE> 2
Houston Industries Incorporated ("HI") and Houston Lighting & Power
Company ("HL&P") are filing this Amendment No. 2 to file certain additional
exhibits with the Securities and Exchange Commission.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
Exhibits
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<S> <C>
Exhibit A: Agreement and Plan of Merger (attached as Appendix A to the Form S-4 Registration Statement
attached as Exhibit B hereto)*
Exhibit B: Form S-4 Registration Statement of HI (Commission File Number 1-7629) and HL&P (Commission File
Number 1-3187), filed on September 4, 1996*
Exhibit C: 1995 State-by-State Gross Operating Utility Revenues*
Exhibit D: Notice pursuant to 17 C.F.R. Section 250.23(f)*
Exhibit E: Certain Orders of State Regulators:
E.1. Order, dated November 6, 1996, of the Arkansas Public Service Commission conditionally
approving the Merger*
E.2. Final Order, dated October 15, 1996, of the Corporation Commission of the State of Oklahoma
approving the Merger*
E.3. Final Order Approving Merger Transaction, dated December 11, 1996, of the Public Service
Commission of the State of Mississippi*
E.4. Letter of Non-Opposition to the Merger, dated December 23, 1996, of the Louisiana Public
Service Commission*
E.5. Amendment, dated January 23, 1997, to Letter of Non-Opposition to the Merger, dated December
23, 1996, of the Louisiana Public Service Commission
E.6. Final Order Approving Merger Subject to Conditions, dated February 24, 1997, of the Minnesota
Public Utilities Commission
E.7. Final Order, dated March 12, 1997, of the Arkansas Public Service Commission approving the
Merger
Exhibit F: Opinion of Counsel **
Exhibit G: Response to February 13, 1997 data request of the Securities and Exchange Commission
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</TABLE>
* Previously filed.
** Not applicable.
2
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the undersigned companies have duly caused this statement
to be signed on their behalf by the undersigned thereunto duly authorized.
Date: March 18, 1997 Houston Industries Incorporated
By: /s/ HUGH RICE KELLY
-------------------------------------------
Hugh Rice Kelly
Executive Vice President, General Counsel
and Corporate Secretary
Houston Lighting & Power Company
By: /s/ HUGH RICE KELLY
------------------------------------------
Hugh Rice Kelly
Executive Vice President, General Counsel
and Corporate Secretary
3
<PAGE> 4
EXHIBIT INDEX
<TABLE>
<S> <C>
Exhibit A: Agreement and Plan of Merger (attached as Appendix A to the Form S-4 Registration
Statement attached as Exhibit B hereto)*
Exhibit B: Form S-4 Registration Statement of HI (Commission File Number 1-7629) and HL&P (Commission
File Number 1-3187), filed on September 4, 1996*
Exhibit C: 1995 State-by-State Gross Operating Utility Revenues*
Exhibit D: Notice pursuant to 17 C.F.R. Section 250.23(f)*
Exhibit E: Certain Orders of State Regulators:
E.1. Order, dated November 6, 1996, of the Arkansas Public Service Commission conditionally
approving the Merger*
E.2. Final Order, dated October 15, 1996, of the Corporation Commission of the State of Oklahoma
approving the Merger*
E.3. Final Order Approving Merger Transaction, dated December 11, 1996, of the Public Service
Commission of the State of Mississippi*
E.4. Letter of Non-Opposition to the Merger, dated December 23, 1996, of the Louisiana Public
Service Commission*
E.5. Amendment, dated January 23, 1997, to the Letter of Non-Opposition to the Merger, dated
December 23, 1996, of the Louisiana Public Service Commission
E.6. Final Order Approving Merger Subject to Conditions, dated February 24, 1997, of the Minnesota
Public Utilities Commission
E.7. Final Order, dated March 12, 1997, of the Arkansas Public Service Commission approving the
Merger
Exhibit F: Opinion of Counsel**
Exhibit G: Response to February 13, 1997 data request of the Securities and Exchange Commission
</TABLE>
- ------------
* Previously filed.
** Not applicable.
4
<PAGE> 1
EXHIBIT E.5
AMENDMENT, DATED JANUARY 23, 1997, TO THE
LETTER OF NON-OPPOSITION TO THE MERGER,
DATED DECEMBER 23, 1996, OF THE LOUISIANA
PUBLIC SERVICE COMMISSION
<PAGE> 2
Louisiana Public Service Commission
Post Office Box 91154
Baton Rouge, Louisiana 70821-9154
(504) 342-4427
January 23, 1997
Mr. John O. Shirley
Roedel, Parsons, Hill & Koch
8440 Jefferson Hwy.
Baton Rouge, LA 70809-7652
Re: Joint Application by Arkla, Entex, NorAm Energy Corp., Houston
Industries Incorporated, Houston Lighting and Power Company and HI Merger, Inc.
For Non-opposition to a Merger Transaction.
Dear Mr. Shirley:
This letter is to amend the December 23, 1996 letter of
non-opposition issued by the Louisiana Public Service Commission
("Commission"). As per our discussion, the last sentence of paragraph 2 on
page 3 of the December 23, 1996 letter of non-opposition will be revised to
read:
"Such debt will not be secured by the utility property of
Houston Lighting and Power Company or NorAm, but will be
secured by preferred stock issued by Houston Industries, Inc.,
the stock of Houston Industries, Inc's direct and indirect
subsidiaries, Houston Industries, Inc.'s stock in Time Warner
and/or intracompany notes."
Enclosed is a copy of page 3 reflecting the revision. Please
notify all parties with interest in the transaction.
This revision to the December 23, 1996 letter of
non-opposition issued by the Commission is done without prejudice to the
authority of the Commission to make investigations and require any reasonably
necessary change it may legally find to be in the public interest.
Sincerely,
Lawrence C. St. Blanc
Secretary
Encl.:
E.5-1
<PAGE> 3
The Parties pledge that the manner of financing the merger
will not encumber the utility property of Entex and Arkla and will have no
impact on rates charged to customers of Arkla and Entex. However, none of
NorAm's $1.4 billion debt will be retired in connection with the transactions.
Under the Merger Agreement, Houston Industries, Inc. will pay
approximately $2.5 billion for NorAm common stock and equivalents. Houston
Industries, Inc. will pay $16.00 for each NorAm common share outstanding,
approximately 50% of which will be paid in the aggregate in cash and
approximately 50% in Houston Industries Inc. common stock. Debt may be
incurred to fund payments to NorAm shareholders who choose to take cash as part
of the merger consideration. Such debt will not be secured by the utility
property of Houston Lighting and Power Company or NorAm, but will be secured by
preferred stock issued by Houston Industries, Inc., the stock of Houston
Industries, Inc.'s direct and indirect subsidiaries, Houston Industries, Inc.'s
stock in Time Warner and/or intracompany notes.
In the proposed merger, Houston Industries Inc. will pay a
premium over book value for NorAm as a whole. Houston Industries Inc. has
committed that it will not seek to collect the acquisition premium resulting
from the merger through the rates of any of the regulated business units.
Accordingly, the Parties attest that the merger will not increase rates to
customers in any of the states served by NorAm, including Louisiana.
Because the principal objectives of the merger are strategic,
the Parties expect no significant near-term cost savings to result from the
merger transaction, so there is little opportunity to generate near-term rate
reductions. To the extent that there are net savings that result from the
merger, those benefits will be shared with Louisiana customers through the
operation of the prevailing LPSC rate orders of Arkla and Entex.
The Parties expect that the cost allegations impact of the
merger will provide a modest benefit to Entex and Arkla. The expected
near-term savings are attributable to a reduction in management personnel and
the elimination of certain non-management redundancies in certain aspects of
some NorAm and Houston Industries Inc. headquarters functions. The total
corporate cost of the combined company are thus expected to be somewhat less
than the total of the NorAm and Houston Industries Inc. stand-alone costs.
The Parties assert that the merger will have no adverse effect
on the operation of Arkla and Entex or their ability to provide reliable and
adequate service. Arkla and Entex will each retain its name and separate
identity, will continue to operate in Louisiana in the same way that they
operate today and will continue to maintain the level of service they now
provide. The merger does not seek any changes in the rates charged by Arkla
and Entex to their customers, or in any of their policies with respect to
service, employees, operations, financing, accounting,
E.5-2
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EXHIBIT E.6
FINAL ORDER APPROVING MERGER SUBJECT TO CONDITIONS,
DATED FEBRUARY 24, 1997, OF THE
MINNESOTA PUBLIC UTILITIES COMMISSION
<PAGE> 2
BEFORE THE MINNESOTA PUBLIC UTILITIES COMMISSION
Edward A. Garvey Chair
Joel Jacobs Commissioner
Marshall Johnson Commissioner
Mac McCollar Commissioner
Don Storm Commissioner
<TABLE>
<S> <C>
In the Matter of a Joint Petition by ISSUE DATE: February 24, 1997
Minnegasco, a Division of NorAm Energy
Corp., NorAm Energy Corp., Houston DOCKET NO. G-008/PA-96-950
Industries Incorporated, Houston Lighting &
Power Company, and HI Merger, Inc. for ORDER APPROVING MERGER
Approval of the Transaction Pursuant to the SUBJECT TO CONDITIONS
Agreement and Plan of Merger Among
Houston Industries Incorporated, Houston
Lighting & Power Company, HI Merger, Inc.
and NorAm Energy Corp.
</TABLE>
PROCEDURAL HISTORY
On September 6,1996 Minnegasco filed a petition under Minn. Stat. Section
216B.50 for approval of the purchase of its parent company, NorAm Energy Corp.
(NorAm), by Houston Industries Incorporated (Houston Industries). The petition
was filed jointly by Minnegasco, NorAm, Houston Industries, Houston Lighting &
Power Company (a subsidiary of Houston Industries, to be merged with Houston
Industries before NorAm is purchased), and HI, Merger, Inc. (a transitional
entity which will merge with NorAm and be renamed NorAm).
On September 10, 1996 the Commission issued a notice establishing time frames
for commenting on the filing.
On September 12, 1996 petitioners filed supplemental information and
corrections to one of the exhibits attached to the petition. On October 7,1996
petitioners filed additional information. On November 7, 1996 petitioners
filed the Joint Proxy Statement/Prospectus of the petitioning companies.
On November 26, 1996 the Residential and Small Business Utilities Division of
the Office of the Attorney General (RUD-OAG) filed comments recommending
approving the merger and prohibiting any recovery from ratepayers of any
acquisition adjustment, transaction costs, or severance costs.
On November 26, 1996 the Minnesota Utility Investors, Inc. filed comments
recommending approving the merger.
E.6-1
<PAGE> 3
On November 27, 1996 the Minnesota Department of Public Service (the
Department) filed comments which recommended approving the merger, prohibiting
rate recovery of any merger-related cost or acquisition adjustment, and
requiring a series of filings over the next four years to establish
merger-related costs and clarify accounting and cost allocation procedures.
On December 9, 1996 petitioners filed reply comments, agreeing to all
conditions proposed by the Department and the RUD-OAG, with the exception of
the prohibition on rate recovery of transaction costs and severance costs.
(Petitioners had stated in the petition that they would not seek rate recovery
of any portion of the acquisition adjustment.)
On January 23, 1997 petitioners filed a stipulation agreeing to take the
following actions: provide local access to books and records required for
Minnesota regulatory purposes; reduce corporate cost allocations sought in the
next rate case below those allowed in the last rate case; relinquish any claim
to rate recovery of transaction costs and severance costs;(1) provide detailed
information in the next rate case on Minnegasco's hypothetical capital
structure and on the actual capital structures of corporate affiliates NorAm
and Houston Industries.
On January 27, 1997 the Department filed a list of questions about the
stipulation, asked to meet with petitioners and Commission staff to discuss
them, and asked the Commission to postpone acting on the petition until the
Department had analyzed and filed comments on the stipulation. The Commission
agreed.
On February 4, 1997 the Department filed comments stating it did not object to
the stipulation as clarified by petitioners' written responses to the questions
the Department filed on January 27. The agency urged that petitioners be bound
by their responses to those questions as well as by the text of the
stipulation. Petitioners agreed.
The matter came before the Commission on February 6, 1997.
FINDINGS AND CONCLUSIONS
I. THE MERGER
A. THE COMPANIES
Minnegasco is a natural gas distribution company headquartered in Minneapolis.
The Company is engaged in the sale and distribution of natural gas to
approximately 625,000 customers in 200 Minnesota communities. The largest
metropolitan areas served by Minnegasco are Minneapolis and its western
suburbs.
__________________________________
(1)Petitioners also confirmed on the record at the hearing that they were
waiving all present and future claims to rate recovery of theses costs.
E.6-2
<PAGE> 4
Since late 1990 Minnegasco has been an operating division of NorAm Energy,
formerly known as Arkla, Inc. NorAm is a diversified energy company engaged
primarily in the interstate transmission and local distribution of natural gas.
NorAm owns three local distribution companies serving a total of 2.7 million
natural gas customers.
Houston Industries is a holding company with two subsidiaries, Houston Lighting
& Power Company and Houston Industries Energy, Inc. Houston Lighting & Power,
serving Houston, Texas, is the ninth largest electric utility in the United
States. It accounts for nearly all of Houston Industries' income from
continuing operations. Houston Lighting & Power has no natural gas operations.
Houston Industries Energy, Inc., Houston Industries' other subsidiary, is an
unregulated company providing energy management and other energy-related
services.
B. THE PROCESS
The petitioning parties propose a two-step merger process. First, Houston
Industries Incorporated will merge with its subsidiary, Houston Lighting &
Power Company, forming a new company, Houston Industries, Inc. Houston
Industries, Inc. will then buy NorAm at a purchase price of approximately $2.4
billion or $16 per share, half in cash and half in Houston Industries stock.
Minnegasco will remain an operating division of NorAm, which will be a wholly
owned subsidiary of Houston Industries, Inc.
NorAm's existing subsidiaries will remain NorAm subsidiaries. Houston
Industries' unregulated subsidiary, Houston Industries Energy, Inc. will become
a subsidiary of the new company, Houston Industries, Inc. Petitioners
anticipate that Houston Industries, Inc. will be an exempt holding company
under the federal Public Utility Holding Company Act of 1935.
C. THE PURPOSE AND ANTICIPATED EFFECTS
Petitioners explained that the merger is proposed for strategic reasons.
Houston Industries is convinced that current trends toward utility competition
and convergence of the gas and electric industries will continue. By combining
the nation's ninth largest electric utility with one of the nation's largest
distributors of natural gas, Houston Industries hopes to become a frontrunner
in the new competitive era, both nationally and internationally.
Since Houston Industries and NorAm have no significantly overlapping operations
(a NorAm company does deliver natural gas to approximately 600,000 customers in
Houston Lighting & Power's service area), petitioners expect no significant
cost savings from combining their operations. They see the benefits of the
merger as improving the participants' competitive positions, ensuring
Minnegasco's continued ability to provide high quality service through greater
financial strength, positioning Minnesota to reap maximum benefits from
competitive energy markets, and increasing the value of the holdings of NorAm
stockholders, which include many pension funds.
E.6-3
<PAGE> 5
Petitioners believe the merger will have no immediate or significant rate
effects for Minnegasco customers. They state there is reason to believe that
in the long term the merger could reduce rates due to the financial strength
of the new parent and the presence of a strong competitor in the Minnesota
market. They also contend these factors could contribute to the development of
innovative services and service options.
II. THE LEGAL STANDARD
Under Minnesota law, the Commission is to approve the merger upon a showing
that it is "consistent with the public interest." The statutory text reads as
follows:
No public utility shall sell, acquire, lease, or rent any plant as an
operating unit or system in this state for a total consideration in
excess of $1,000,000, or merge or consolidate with another public utility
operating in this state, without first being authorized so to do by the
commission. Upon the filing of an application for the approval and
consent of the commission thereto the commission shall investigate, with
or without public hearing, and in case of a public hearing, upon such
notice as the commission may require, and if it shall find that the
proposed action is consistent with the public interest it shall give its
consent and approval by order in writing. . . .
Minn. Stat. Section 216B.50.
The statute does not require that proposed mergers affirmatively benefit
ratepayers or the public or that they otherwise promote the public interest.
They cannot contravene the public interest, however, and must be shown to be
compatible with it.
III. COMMENTS OF THE PARTIES
A. THE DEPARTMENT
The Department analyzed the merger by examining its potential effects on
Minnegasco's costs and rates, Minnegasco's day to day operations, the
Minnesota regulatory process, and the combined market power of the merging
companies.
The Department determined that market power and operational effects were
non-issues, because Minnegasco, was and would remain the only party to the
merger with operations in Minnesota. Also, since the acquiring company has no
natural gas operations, there is no risk of it imposing on Minnegasco its
standard operating procedures for distributing natural gas.
The Department concluded the merger would not impair Minnesota regulators'
ability to perform their duties under the Public Utilities Act, since the
holding company structure that would result from the merger has not been a
barrier to the effective regulation of other Minnesota utilities.
E.6-4
<PAGE> 6
Examining the cost and rate effects of the merger was another matter. Although
the Department believed the merger held some potential to reduce costs and
rates, the agency considered those reductions speculative. The Department also
took strong exception to any rate recovery of merger-related costs, arguing
that since strategic corporate concerns were driving the merger, it would be
inappropriate to assess any of its costs to ratepayers.
Ultimately, the Department concluded the merger was consistent with the public
interest and should be approved. The agency emphasized, however, that this
recommendation rested on the fact that the statutory standard was no more
exacting than consistent with the public interest.
To permit proper review of accounting procedures and ensure adequate tracking
of the financial effects of the merger, the Department recommended imposing
four requirements, summarized below:
(1) requiring the filing of final journal entries within 90 days of
closing;
(2) prohibiting rate recovery of any acquisition adjustment, transaction
costs, or severance costs;
(3) requiring annual reports for four years from completion of the
merger showing the following:
o each cost or expense charged to Minnegasco by HI Merger, Inc.;
o an explanation of the allocator and formula used for allocating
corporate costs to Minnegasco;
o the 1995 level of Minnegasco's comparable pre-merger costs;
(4) requiring Minnegasco to include in its next rate case filing the
information required above in annual filings.
B. THE RUD-OAG
Like the Department, the RUD-OAG believed that the proposed merger met the
statutory test for Commission approval. The agency saw no realistic potential
for harm and some potential for benefit, in the form of reduced corporate
overhead and capital costs. The agency considered petitioners' pledges to keep
Minnegasco headquarters in Minneapolis, to continue to rely on Minnegasco's
current management and to maximize local control as important safeguards.
The RUD-OAG urged the Commission to require Minnegasco to continue to maintain
all books and records necessary for regulatory oversight in Minneapolis and to
prohibit any rate recovery of any merger-related costs, including the
acquisition adjustment, severance costs, and transaction costs.
E.6-5
<PAGE> 7
C. MINNESOTA UTILITY INVESTORS
The Minnesota Utility Investors (MUI) believed the proposed merger would
benefit ratepayers, shareholders, and the general public. They agreed with
petitioners that the post-merger companies would be premier contenders in the
coming age of competition.
They argued that the financial strength of Houston Industries would bolster
Minnegasco's ability to provide safe and reliable service at reasonable rates.
They believed the merger would produce synergies that would benefit the
shareholders of both NorAm and Houston Industries.
IV. THE STIPULATION
On January 23, 1997 Minnegasco filed a stipulation in response to concerns;
raised by other parties and by staff. Its provisions are detailed, but can be
summarized as requiring petitioners to take the following actions:
(1) provide local access to books and records required for Minnesota
regulatory purposes;
(2) reduce corporate cost allocations sought in the next rate case below
those allowed in the last rate case;
(3) relinquish any claim to rate recovery of merger-related transaction
costs and severance costs;(2)
(4) provide detailed information in the next rate case on Minnegasco's
hypothetical capital structure and on the actual capital structures of
NorAm and Houston Industries.
On January 27, 1997 the Department filed a list of questions about the
stipulation, to which petitioners made written responses. On February 4, 1997
the Department filed comments stating it did not object to the stipulation as
clarified by petitioners' written responses to its questions.(3) The agency
urged that merger approval be conditioned upon petitioners' being bound by
their responses to those questions, as well as by the text of the stipulation.
Petitioners agreed.
__________________________________
(2)In brief, severance costs were defined as severance costs incurred
within twelve months of closing and severance costs relating to NorAm's top 87
employees.
(3) The Department noted that the stipulation's definition of "severance
costs" was arguably more restrictive than leaving the term undefined. The
Department did not oppose the stipulation, including the definition, however.
E.6-6
<PAGE> 8
V. COMMISSION ACTION
The Commission agrees with the parties that the Proposed merger meets the
statutory standard of "consistent with the public interest." Minn. Stat.
Section 216B.50. There is nothing in the record to suggest any reasonable
likelihood that the merger will harm ratepayers or the public, and there is
evidence suggesting it will produce at least modest benefits. Any potential
risks to ratepayers are adequately addressed by the conditions recommended by
the parties and the safeguards offered by petitioners in the stipulation.
The chief benefit is that Houston Industries is a much stronger company
financially than Minnegasco's present parent, NorAm. The two companies'
financial risk indicators as of June 30, 1996 compare as follows:
<TABLE>
<CAPTION>
INDICATOR NORAM HI HI MERGER, INC.
--------- ----- --- ---------------
<S> <C> <C> <C>
Funds from Operations/Interest 1.69 2.53 1.92
Pre-Tax Interest Coverage 1.98 2.90 2.14
Net Cash Flow/Capital Expenditures 102% 90% 89%
Total Debt/Total Capital 64% 57% 58%
</TABLE>
The Commission has expressed deep concern about NorAm's financial action in
the past:
Furthermore, the Commission is not as convinced as the parties appear to
be that NorAm's financial condition will never affect Minnegasco's
long-term performance and prospects. It is clearly conceivable that a
long uphill struggle against insolvency could deprive Minnegasco of the
resources necessary to remain a sound, let alone thriving, local
distribution company. A parent company in serious financial trouble
might not make the investments necessary to maintain a solid
infrastructure, reliable long term gas supplies, and a quality work
force. Without these things, Minnegasco's long term ability to provide
high quality service would be at risk.
In the Matter of the Application of Minnegasco, a Division of Arkla, Inc.
for Authority to Increase Its Rates for Natural Gas Service in Minnesota,
Docket No. G-008/GR-93-1090, FINDINGS OF FACT, CONCLUSIONS OF LAW, AND
ORDER (October 24,1994).
This acquisition alleviates that concern. Less importantly, but quite
insignificantly, it also carries the potential for reduced rates, since the
financial strength of Houston Industries could reduce Minnegasco's cost of
capital.
It is also possible that Minnegasco's long term corporate overhead expenses
will decline under new ownership, given the capital-intensive nature of Houston
Lighting & Power and the emphasis on capital investment in many methods of
allocating corporate overhead. Any such reduction would translate into lower
rates for Minnegasco ratepayers. Furthermore,
E.6-7
<PAGE> 9
petitioners have stipulated that Minnegasco's next rate case filing will
reflect lower corporate overhead costs than its last filing, translating into
same measure of immediate rate relief.
Finally, the public interest is clearly served by Petitioners' plans to keep
Minnegasco's headquarters in Minneapolis, to continue to rely on Minnegasco's
current management, and to maximize local decisionmaking. Safe, reliable,
affordable natural gas service is critical to the public interest; there is no
margin for error during transitions or other times.
Minnegasco has a solid history delivering safe and reliable service at
reasonable rates. Petitioners' recognition of this and their plans to
capitalize on it signify good business judgment and concern for the public
interest, both essential qualities in a utility.
VI. CONCLUSION
For the reasons set forth above, the Commission will approve the proposed
merger, subject to the conditions agreed to by the parties and to the
conditions contained in the January 23, 1997 stipulation, as clarified by
petitioners' written responses to the questions filed by the Department on
January 27.
ORDER
1. The Commission grants the petition for approval of the transaction
pursuant to the agreement and plan of merger among Houston Industries
Incorporated, Houston Lighting & Power Company, HI Merger, Inc. and NorAm
Energy Corp., subject to
(a) the annual filing requirements and rate case filing requirements
proposed by the Department and concurred in by the Company;
(b) the terms of the stipulation filed by petitioners January 23, 1997;
(c) petitioners' written responses to the question on the stipulation
filed by the Department of Public Service.
E.6-8
<PAGE> 10
2. This Order shall become effective immediately.
BY ORDER OF THE COMMISSION
Burl W. Haar
Executive Secretary
(S E A L)
This document cannot be made available in alternative formats (i.e., large
print or audio tape) by calling (612) 297-4596 (voice), (612) 297-1200 (TTY),
or 1-800-627-3529 (TTY relay service).
E.6-9
<PAGE> 1
EXHIBIT E.7
FINAL ORDER, DATED MARCH 12, 1997, OF THE
ARKANSAS PUBLIC SERVICE COMMISSION
APPROVING THE MERGER
<PAGE> 2
ARKANSAS PUBLIC SERVICE COMMISSION
IN THE MATTER OF THE JOINT APPLICATION )
OF HOUSTON INDUSTRIES INCORPORATED, )
HOUSTON LIGHTING & POWER COMPANY, HI )
MERGER, INC. AND ARKLA, A DIVISION OF )
NORAM ENERGY CORP., FOR APPROVAL OF ) DOCKET NO. 96-286-U
AN AGREEMENT PROVIDING FOR THE MERGER ) ORDER NO. 8
OF NORAM ENERGY CORP. WITH HOUSTON )
INDUSTRIES INCORPORATED, ET AL. )
ORDER
On November 6, 1996, the Arkansas Public Service Commission
("Commission") issued Order No. 7 granting conditional approval of a Joint
Application filed by Houston Industries Incorporated ("HI"), Houston Lighting &
Power Company ("HP&L"), HI Merger, Inc. ("HI Merger") (collectively referred to
as "HI Applicants"), and Arkla, a division of NorAm energy Corp. ("NorAm")
(collectively referred to as "the Applicants") for approval of an agreement by
which NorAm would be merged with HI Applicants. The primary plan of the
proposed merger was approved on a conditional basis pending the Commission's
review and consideration of the final resolution of related proceedings pending
before the Public Utility Commissions of Louisiana, Mississippi, and Minnesota
and the Federal Energy Regulatory Commission ("FERC") and the United States
Securities and Exchange Commission ("SEC"). The proposed merger was further
conditioned on the continued compliance by the Applicants and NorAm with the
various regulatory assurances referenced in Order No. 7 and as contained in the
record of this proceeding.
E.7-1
<PAGE> 3
On February 28, 1997, the Applicants filed a Motion For Entry of Final
Order ("Motion") in this docket requesting that the Commission issue a "final"
order approving the proposed merger.
Prior to the issuance of Order No. 7, a copy of the final order of the
Oklahoma Public Service Commission approving the proposed merger was provided
to this Commission. A copy of the Oklahoma Commission's final order was filed
in this docket on November 6, 1996.
Since the issuance of Order No. 7, the Mississippi Public Service
Commission and the Louisiana Public Service Commission have each granted the
necessary approvals for completion of the proposed merger. A copy of the order
of the Mississippi Commission approving the proposed merger and a copy of the
Louisiana Commission's Letter of Non-Opposition to the proposed merger were
filed in this docket on December 13, 1996, and December 31, 1996, respectively.
The Louisiana Commission subsequently issued an amendment to its earlier Letter
of Non-Opposition, and that amendment was filed in this docket on January 31,
1997. The Applicants made no commitments in either of these jurisdictions or
in Oklahoma that were not similarly made by the Applicants in this docket.
In Minnesota, the Applicants did enter into a Stipulation, a copy of
which is attached as Exhibit A to the Applicant's February 28, 1997, Motion, by
which a number of commitments were made by the Applicants to the Minnesota
Public Service Commission. The order of the Minnesota Commission approving the
proposed merger subject to certain conditions was issued on February 24, 1997,
and attached as Exhibit B to the Applicant's Motion. The Minnesota
Commission's order
E.7-2
<PAGE> 4
incorporated the Stipulation, the written responses to questions regarding the
Stipulation, attached as Exhibit C to the Applicant's Motion, and certain
agreed to filing/reporting requirements, attached as Exhibit D to the
Applicant's Motion.
By its February 28, 1997, Motion, the Applicants commit to the Arkansas
Commission to observe in Arkansas the various commitments, agreements and
conditions adopted by the Minnesota Commission to the extent to which the
Arkansas Commission deems appropriate.
The only remaining documentation required by Order No. 7 relates to
pending proceedings before the FERC and SEC. By its Motion, the Applicants
further commit that, upon issuance of any final and non-appealable FERC or SEC
order adopting any stipulation or otherwise providing any benefits to
ratepayers of any state jurisdiction, or imposing any conditions on Applicants
that would benefit the ratepayers of any state jurisdiction, such benefits or
conditions will be extended to Arkansas ratepayers to the extent the Arkansas
Commission deems appropriate, provided the proposed merger is ultimately
consummated.
Based upon the foregoing commitments, the Applicant's request that this
Commission issue a final order approving the proposed merger. Having
considered the Applicant's Motion, as well as the Exhibits thereto, the
Commission finds that the Motion is in the public interest and, therefore,
should be approved. Accordingly, the Commission orders as follows:
E.7-3
<PAGE> 5
1. Applicant's February 28, 1997, Motion For Entry of Final Order is
granted subject to the Applicants continuing compliance with the various
regulatory assurances referenced in Order No. 7 and as otherwise contained in
the record of this proceeding, and the Applicants compliance with the
additional commitments, agreements and conditions set forth in said Motion and
Exhibits A, B, C and D thereto.
2. In consideration of and reliance on such commitments, agreements and
conditions, the proposed merger, conditionally approved by Order No. 7 herein,
is hereby granted final approval.
BY ORDER OF THE COMMISSION.
This 12th day of March, 1997.
/s/ Lavenski R. Smith
-------------------------------------
Lavenski R. Smith, Chairman
/s/ Sam I. Bratton, Jr.
-------------------------------------
Sam I. Bratton, Jr., Commissioner
/s/ Julius D. Kearney
-------------------------------------
Julius D. Kearney, Commissioner
/s/ Glenna Hooks (acting)
- -----------------------------
Jan Sanders
Secretary of the Commission
`
E.7-4
<PAGE> 1
EXHIBIT G
RESPONSE TO FEBRUARY 13, 1997 DATA REQUEST OF
THE SECURITIES AND EXCHANGE COMMISSION
<PAGE> 2
1. PLEASE INCLUDE IN THE RECORD OPERATING REVENUES, OPERATING INCOME
AND NET INCOME FOR THE MOST RECENT AVAILABLE 12-MONTH PERIOD, AND
ASSETS AND NUMBER OF CUSTOMERS AS OF THE MOST RECENT AVAILABLE DATE,
ATTRIBUTABLE TO THE UTILITY OPERATIONS OF HOUSTON INDUSTRIES
INCORPORATED AND NORAM ENERGY CORP., AND RELATED RATIOS WITH RESPECT
TO EACH ITEM.
<TABLE>
<CAPTION>
NORAM/NORAM
FOR 12-MONTH HI/HL&P LOCAL GAS
PERIOD AT HOUSTON NORAM ENERGY PERCENTAGE OF PERCENTAGE
12/31/96 INDUSTRIES INCORPORATED CORP. TOTAL OF TOTAL
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES Consolidated* Consolidated* 49% 51%
$3,984,157,000 $4,176,349,000
GROSS OPERATING HL&P NorAm Local Gas 66% 34%
UTILITY REVENUE $4,025,000,000 Distribution
$2,144,000,000
- --------------------------------------------------------------------------------------------------------------
CONSOLIDATED $990,000,000 $314,093,000 76% 24%
OPERATING INCOME
- --------------------------------------------------------------------------------------------------------------
NET OPERATING HI NorAm 81% 19%
UTILITY INCOME $405,000,000 $91,000,000
CONSOLIDATED HL&P $732,000,000 NorAm Local Gas 82% 18%
NET INCOME Distribution
$178,000,000
- --------------------------------------------------------------------------------------------------------------
CONSOLIDATED $12,136,000,000* $3,474,000,000* 78% 22%
ASSETS
Total Utility Assets Total Utility Assets 85% 15%
HL&P $10,596,000,000 NorAm Local Gas
Distribution
$1,921,000,000
- --------------------------------------------------------------------------------------------------------------
CUSTOMERS HL&P 1,528,000* Local Gas Distribution 36% 64%
2,736,000*
(Texas customers:
Arkla 45,728
Entex 1,166,119)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* For 12-month period at 9/30/96
G-1
<PAGE> 3
2. PLEASE INCLUDE A BRIEF NARRATIVE EXPLANATION OF WHY NORAM HAS
SIGNIFICANTLY MORE CUSTOMERS THAN HL&P.
The different nature of the utility services provided by
electric utility and gas distribution companies would suggest that meaningful
comparisons probably cannot be made based on number of customers. It is our
impression, for example, that the Commission has only considered the relative
number of customers as one of many contextual facts, not as a determining
standard, in evaluating utility combinations.
In the case of HL&P and NorAm, direct comparisons of customer
bases may be confusing. HL&P serves 1,528,000 customers, but all are located
within the City of Houston and its surrounding areas, a highly concentrated and
industrialized area. Within this area, the number of HL&P's customers
predominates over the number of NorAm's customers. However, NorAm's local
distribution companies provide gas service to a much larger geographic area,
encompassing not only the Houston area, but rural areas in other parts of Texas,
Louisiana, Arkansas and Oklahoma, and NorAm provides gas service in the City of
Minneapolis. Within this much larger geographic area, NorAm serves a total of
2,736,000 customers.
The number of customers served by a retail public utility
depends on three factors: the nature of the utility service, the size of the
geographic area in which the utility is authorized to provide service and the
population density within that geographic area. Under traditional public
utility regulation, the regulatory authority grants each retail public utility a
"certificate of convenience and necessity" to provide utility service within a
defined geographic boundary. While minor overlaps in such territories are
frequent, the bulk of the retail customers in a given area will usually be
served by a single public utility, and within that defined area the public
utility generally has an obligation to provide utility service at
nondiscriminatory rates to all who request such service. If the certificated
area encompasses a large municipality, the potential customer base, of course,
is larger than an area that is primarily rural in nature. Also, the nature of
the utility service can influence the willingness of individual customers to
obtain service from the utility. For example, the cost of natural gas line
extensions and the availability of alternatives to natural gas tend to reduce
the number of rural natural gas customers in some areas, though rural electric
service can be more prevalent as a result of the efforts of the Rural
Electrification Administration and retail electric co-ops.
To provide electric service, HL&P, as with other electric
utilities, has constructed large generating facilities at high capital cost, and
creates the electricity HL&P sells through the transformation into electric
energy of the fuels HL&P purchases from others (natural gas, coal, lignite and
uranium). Today, relatively minor amounts of the electric energy sold are
purchased from other producers. HL&P distributes electric energy to its
customers through a network of power lines which HL&P has constructed and
maintains. While the costs associated with that function are not insubstantial,
they are relatively small when compared with the cost associated with generation
of electric energy.
G-2
<PAGE> 4
Natural gas utilities such as the NorAm distribution companies,
on the other hand, operate principally as distributors of natural gas purchased
from others. The facilities used for that distribution constitute the gas
utility's primary assets, which are relatively small in comparison with the
total assets of an electric generating company such as HL&P. The fuel component
of the distribution company's business is a pass-through of purchased gas costs.
Therefore, the actual portion of NorAm's revenues that relate to the gas
distribution company's activities are relatively small.
3. THE APPLICATION STATES THAT HOUSTON WILL GET AN OPINION OF A
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION AS TO THE
EFFECT OF THE BASIC MERGERS ON THE OUTSTANDING DEBT OF HOUSTON AND
NORAM. PLEASE UPDATE THE STATUS OF THIS MATTER.
On December 12, 1996, Moody's Investors Service issued the following HI/HL&P
ratings for HI/HL&P debt, after giving effect to the Merger:
HI Commercial Paper (existing Rating is P-2; no rating was issued
giving effect to the Merger; the HI commercial paper will not
continue after the Merger);
HI Senior Unsecured Debentures (Baa2 to Baa1);
HL&P Commercial Paper (P-1 to P-2);
HL&P First Mortgage Bonds (A2 to A3).
On October 1, 1996, Standard & Poor's issued the following ratings for HI/HL&P
debt, after giving effect to the Merger:
HI Senior Unsecured Debentures (A-to BBB+);
HL&P Commercial Paper (A-1 to A-2);
HL&P First Mortgage Bonds (A to A-).
On December 12, 1996, Moody's Investors Service issued the following rating
changes for NorAm debt, after giving effect to the Merger:
NorAm Notes and Debentures (no change);
NorAm Subordinated Debt (no change).
On October 1, 1996, Standard & Poor's issued the following rating changes for
NorAm debt, after giving effect to the Merger:
NorAm Notes and Debentures (BBB-to BBB);
G-3
<PAGE> 5
NorAm Subordinated Debt (BB+ to BBB-).
On January 31, 1997, Moody's rated FinanceCo, the newly created Borrower, as
follows:
FinanceCo Commercial Paper (P-2);
Bank debt of $2.7 billion (Baa1).
Further information is provided in Appendix 1, a summary of rating information
for Houston Industries.
4. PLEASE DESCRIBE THE APPROVALS AND CONSENTS RECEIVED FROM
MUNICIPALITIES IN TEXAS, INCLUDING THE CITY OF HOUSTON, AND FILE ANY
RELATED DOCUMENTS AS EXHIBITS.
Section 6.01 of the Texas Gas Utility Regulatory Act requires
that gas utilities provide notice to the Texas Railroad Commission when they
acquire gas utilities, but does not require notice to the Texas Railroad
Commission of electric utility acquisitions of gas utilities. Most of Entex's
franchise agreements negotiated with municipalities for the use of the
municipalities' streets are silent regarding merger approvals. Several
franchises require municipal approval of mergers with other gas utilities, but
do not require approval of mergers with an electric utility. The City of Tyler
required notice of the Merger, with approval granted by operation of law, when
the City did not object to the Merger by a date certain. Franchises in the
cities of Houston, Longview and Stafford required City Council action, as
reflected in the attached ordinances (see Appendix 2, Exhibits 1-3).
Four municipal approvals were required under the terms of
various NorAm franchise contracts:
o On December 18, 1996, the Houston City Council adopted an ordinance
approving the transfer of Entex's franchise through the Merger. The
ordinance was adopted without dissent. See Appendix 2: Exhibit 1.
o On October 2, 1996, Stafford's City Council adopted an ordinance
approving the Merger. See Appendix 2: Exhibit 2.
o On November 7, 1996, Longview's City Council adopted an ordinance
approving a transfer of Arkla's franchise and recognizing the Merger.
See Appendix 2: Exhibit 3.
o On December 15, 1996, approval for the transfer of franchise application
before the City of Tyler became effective by operation of law. There
exists no formal order or approval.
5. PLEASE UPDATE THE STATUS OF THE NUCLEAR REGULATORY COMMISSION
DETERMINATIONS WITH RESPECT TO THE OPERATING LICENSE FOR THE SOUTH TEXAS
PROJECT.
G-4
<PAGE> 6
On December 9, 1996, the Nuclear Regulatory Commission ("NRC")
informed HL&P that the NRC staff believes that no NRC action is required
for the Merger to occur. See Appendix 3, Letter from NRC to HL&P
(December 9, 1996).
6. PLEASE EXPLAIN WHY THE APPLICANTS BELIEVE THAT PUBLIC SERVICE
COMMISSIONS PREFER A STRUCTURE THAT PROVIDES LEGAL SEPARATION
BETWEEN THE ENTITIES PROVIDING GAS AND ELECTRIC SERVICE.
The legal separation of the gas and electricity operations
serves several ends, each of which are consistent with the goals and duties of
state regulatory agencies. First, the segregation of the gas and utility
operations is well understood and familiar to both state regulators and to
financial markets. In Texas, for example, the separation of regulation by the
establishment of two, separate regulatory bodies having quite distinct
responsibilities--one for gas and one for electric utilities--further reflects
this operational division. Financing sources and financial analysts have
familiarity with evaluating the financial positions of the gas company and the
electric company as separate entities. Accordingly, a corporate structure which
keeps those entities separate, does no violence to the pattern of state
regulation. Rather, this separation facilitates the combined company's access
to capital markets, serving the preferences of lower cost financing specifically
designed for the separate and different businesses.
Similarly, state regulators are comfortable with analyzing gas
and electric utilities separately. The Minnesota Public Utilities Commission
("Minnesota"), for example, voiced concern about the increased difficulty in
regulation that would transpire if Minnesota became obligated to consider issues
related to nuclear generating facilities owned by the same entity that Minnesota
regulated for gas rates. Minnesota noted that the risk pattern for a company
with nuclear generating facilities is different from that of a gas distribution
utility.
That difference obviously extends beyond the presence of nuclear
plants. For example, an electric utility can have different capital needs and
cost issues by virtue of its need to build and maintain generating facilities.
While there are many similarities among gas distribution utilities, even in
different geographical areas, the state regulators of NorAm's gas operations are
not necessarily fully conversant with the types of business and regulatory
issues that HL&P would face in providing electric service in Houston, Texas.
Naturally, more regulatory effort would be required if the staffs of NorAm's
current state regulators were obligated to consider how to allocate capital
costs across a fully merged "Utilicorp-type" entity and to understand the
interrelationship among regulatory concerns facing HL&P electric customers and
NorAm gas customers.
While the regulatory tasks associated with a "Utilicorp-type"
structure would not be insurmountable, regulatory issues are more easily
addressed by maintaining the separately regulated businesses in individual
corporate subsidiaries. Each business would be better situated to address its
particular capital needs and regulators would be able to focus on only those
issues and requirements related to the utility services being provided in their
jurisdictions.
G-5
<PAGE> 7
7. PLEASE STATE IN THE RECORD WHETHER HOUSTON INDUSTRIES INCORPORATED AND
NORAM WILL CONTINUE TO BE SUBJECT TO STATE AND LOCAL UTILITY REGULATION
BY THE SAME REGULATORS AND TO THE SAME EXTENT AS ARE CURRENTLY APPLICABLE
TO HL&P AND NORAM.
Nothing in the proposed Merger will modify any state or local
regulatory authority over the HI and NorAm entities. Each state and local
regulatory authority will continue to exercise its regulatory jurisdiction.
The only regulatory complication is an additional regulatory
scrutiny of the parent corporation by state regulators. Because HI's
unregulated subsidiary, Houston Industries Energy, Inc. ("HI Energy"), is
engaged in foreign utility investments, the state regulators in Oklahoma,
Arkansas, Mississippi and Louisiana have been asked to provide the
certifications provided for under Section 33 of the Act for HI investments in
addition to those investments NorAm is pursuing.
8. PLEASE INCLUDE A BRIEF NARRATIVE DESCRIPTION OF THE TYPES OF NONUTILITY
BUSINESSES IN WHICH HOUSTON INDUSTRIES AND ITS SUBSIDIARIES ARE CURRENTLY
ENGAGED.
HI owns one million shares of Time Warner Inc. common stock
and 11 million shares of non-publicly traded Time Warner Inc. convertible
preferred stock, which securities HI received in July 1995 as consideration for
the sale of its cable television subsidiary. HI has recorded its investment in
these securities at the then current combined fair value of approximately
$1 billion on its consolidated balance sheets. Also, through its Development
Ventures, Inc. subsidiary, HI continues to hold minor, largely inactive
investments that were made previously but which have been written off for
financial purposes.(1)
HI recently formed a subsidiary to pursue certain energy
services businesses. These would include providing appliance services, assisting
in energy audits for industrial and commercial facilities and in developing
projects to use electrotechnologies to enhance efficiency and cost effectiveness
for industrial and commercial facilities. In addition, HI is currently pursuing,
through another subsidiary, investments in power generation projects involving
domestic exempt wholesale generation facilities.
HI Energy has the following foreign utility company investments
(all of which are the subject of U-57 filings), which are utility businesses but
are not regulated by domestic regulatory authorities:
EDELAP S.A. (Argentine electric utility in La Plata, Argentina);
Central Dique S.A. (Argentine electric utility associated with EDELAP
S.A.);
Edese S.A. (Argentine electric utility in Santiago del Estero, Argentina);
Rain Calcining Limited (petroleum coke calcination facility and
associated cogeneration facility under construction but expected to sell
electricity at wholesale to the Andhra Pradesh State Electricity Board);
and
Light-Servicos de Eletricidade S.A. (Brazilian electric utility servicing
Rio de Janeiro).
See Appendix 4 for a summary of aggregate investments in foreign utility
companies and exempt wholesale generators by HI Energy.
In addition, a subsidiary of HI Energy currently serves as
contract operator of a cogeneration facility owned by Shell Oil Company at its
Deer Park Refinery, near Houston.(2)
- -------------------
(1) In the past, HI has held investments in cable television, oil and
gas properties and rail car maintenance facilities. These businesses have been
sold, but HI has retained the corporate entities through which those businesses
were conducted.
(2) HI Energy also owns interests in two waste-to-energy projects near
Chicago, but those projects are inactive due to a change in Illinois regulatory
treatments.
G-6
<PAGE> 8
APPENDIX 1
SUMMARY OF RATINGS
<PAGE> 9
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
SUMMARY OF RATINGS
02/14/97
<TABLE>
<CAPTION>
Duff & Phelps Moody's Standard & Poor's
------------------ -------------------------- -------------------------------
Est. of
Post
Merger Prior New Date of Prior New Date of
Rating Rating Rating Rating Change Rating Rating Change
------ ------ ------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Houston Industries Incorporated
- -------------------------------
Commercial Paper D-2 D-1 P-2 None 12/12/96 A-2 A-2
Senior Unsecured Debentures BBB+ A- Baa2 Baa1 12/12/96 A- BBB+ 10/1/96
Houston Lighting & Power Company
- --------------------------------
Domestic Commercial Paper D-1 D-1 P-1 P-2 12/12/96 A-1 A-2 10/1/96
Euro Commercial Paper NR P-1 P-2 12/12/96 A-1 A-2 10/1/96
First Mortgage Bonds A+ A A2 A3 12/12/96 A A- 10/1/96
Unsecured Pollution Control Bonds A A- A3 Baa1 12/12/96 A BBB+ 10/1/96
Preferred Stock A BBB+ baa1 baa2 01/31/97 A- BBB+ 10/1/96
Trust Preferred and Capital A BBB+ baa1 01/31/97 BBB+ 1/31/97
Securities
Subordinated Debt Related to Trust Baa2 01/31/97
Preferred and Capital Security
</TABLE>
G-1-1
<PAGE> 10
<TABLE>
<CAPTION>
Duff & Phelps Moody's Standard & Poor's
-------------------- --------------------------- -------------------------------
Est. of
Post
Merger Prior New Date of Prior New Date of
Rating Rating Rating Rating Change Rating Rating Change
------ ------ ------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Houston Industries FinanceCo LP
- --------------------------------
Commercial Paper P-2 01/31/97 BBB+ 12/4/96
Bank Debt of $2.7 billion Baal 01/31/97
NorAm Energy Corp.
- ------------------
Notes and Debentures BBB- BBB Baa3 Baa3 12/12/96 BBB- BBB 10/1/96
Convertible Preferred Stock BB+ BBB-
Subordinated Debt Ba1 Ba1 12/12/96 BB+ BBB- 10/1/96
NorAm Financing I
- -----------------
Cv. TOPrS BB+ BBB- bal bal 12/12/96 BB+ BBB- 10/1/96
</TABLE>
G-1-2
<PAGE> 11
APPENDIX 2
APPROVALS AND CONSENTS FROM TEXAS MUNICIPALITIES
<PAGE> 12
APPENDIX 2: EXHIBIT 1
CITY OF HOUSTON, TEXAS ORDINANCE NO. 96-1342
AN ORDINANCE APPROVING THE TRANSFER OF NORAM ENERGY CORP. TO HI
MERGER, INC. (AN ENTITY TO BE RENAMED NORAM ENERGY, INC.) OF NORAM
ENERGY CORP.'S RIGHT, PRIVILEGE AND FRANCHISE TO USE ALL OF THE CITY
OF HOUSTON'S PRESENT AND FUTURE STREETS, AVENUES, ALLEYS, ROADS,
SIDEWALKS, EASEMENT AND OTHER RIGHTS OF WAY FOR ITS NATURAL GAS
OPERATIONS UNDER CITY OF HOUSTON ORDINANCE NO. 37-2031 (SAID
TRANSFER TO OCCUR THROUGH MERGER); EXPRESSLY MAKING THE RIGHTS AND
PRIVILEGES SO TRANSFERABLE SUBJECT TO ALL TERMS, CONDITIONS AND
LIMITATIONS OF CITY OF HOUSTON ORDINANCE NO. 37-2031; ACKNOWLEDGING
THAT NORAM ENERGY CORP. HAS COMPLIED WITH SECTION 20 OF CITY OF
HOUSTON ORDINANCE NO. 37-2031; PROVIDING FOR SEVERABILITY; AND
DECLARING AN EMERGENCY.
* * * * * *
BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF HOUSTON:
Section 1. The transfer by NorAm Energy Corp. to HI Merger, Inc. (a
wholly owned subsidiary of Houston Industries Incorporated which subsidiary
will be renamed NorAm Energy Corp. following the merger of NorAm Energy Corp.
into HI Merger, Inc.) of its right, privilege and franchise to use all of the
City of Houston's present and future streets, avenues, alleys, roads, highways,
sidewalks, easement and other public rights of way for its natural gas business
operations under City of Houston Ordinance No. 87-2031 is approved by the City
of Houston City Council contingent upon the completion of the proposed merger
proposal of Houston Industries Incorporated into Houston Lighting & Power
Company and of NorAm Energy Corp. into HI Merger, Inc. resulting in NorAm
G-2-1.1
<PAGE> 13
Energy Corp.'s becoming a wholly owned subsidiary of Houston Industries
Incorporated. It is further acknowledged that this approval complies with
Section 20 of City of Houston Ordinance No. 87-2031.
Section 2. The rights, privileges and franchise to be so
transferred are hereby expressly declared to be subject to all terms,
conditions and limitations of City of Houston Ordinance No. 87-2031.
Section 3. If any provision, section, subsection, clause or phrase
of this ordinance is for any reason held to be unconstitutional, void or
invalid or for any reason unenforceable, the validity of the remaining portions
of this ordinance shall not be affected thereby, it being the intent of the
City of Houston in enacting this ordinance that no portion hereof or provision
hereof shall become inoperative or fail by reason of any unconstitutionality or
invalidity of any other portion, provision or regulation and, to this end, all
provisions of this ordinance are declared to be severable.
Section 4. A public emergency exists requiring that this ordinance
by passed finally on the date of its introduction as requested in writing by
the Mayor; therefore, this ordinance shall be passed finally on such date and
shall take effect immediately upon its passage and approval by the Mayor;
however, if the Mayor fails to sign this ordinance within five days after its
passage and adoption, it shall take effect in accordance with Article VI,
Section 6 of the Houston City Charter.
PASSED AND APPROVED THIS 18th DAY OF Dec., 1996.
_____________________________________________________
Mayor of the City of Houston
G-2-1.2
<PAGE> 14
Pursuant to Article VI, Section 6, Houston City Charter, and Section
4 of the foregoing Ordinance, the effective date of the foregoing Ordinance is
December 24, 1996.
/s/ ANNA RUSSELL
----------------------------------------
City Secretary
Prepared by Legal Dept.
_________________________________________________________
Senior Assistant City Attorney
(Requested by Richard Lews, Director, Department of Finance and Administration)
(I.D. File No. 349633001)
G-2-1.3
<PAGE> 15
APPENDIX 2: EXHIBIT 2
RESOLUTION NO. 96-5
A RESOLUTION CONSENTING TO THE MERGER OF NORAM ENERGY CORP., INTO HI MERGER,
INC., A WHOLLY OWNED
SUBSIDIARY OF HOUSTON INDUSTRIES INCORPORATED.
* * * * * *
WHEREAS, by Ordinance No. 456, passed and approved the 14th day of
March 1990, the City of Stafford, Texas (the "City") granted to Entex, formerly
a division of Arkla, Inc., but now known as the Entex Division of NorAm Energy
Corp. (hereinafter referred to as "NorAm"), a franchise to supply natural gas
to the City for a period of twenty (20) years; and
WHEREAS, under the terms of such franchise agreement, Entex may not
combine with another company unless such combination is expressly authorized
and approved by the City Council of the City; and
WHEREAS, NorAm has recently announced its plan to merge into HI
Merger, Inc., a wholly owned subsidiary of Houston Industries Incorporated; and
WHEREAS, NorAm will continue to operate under the franchise
agreement and will be responsible for all existing obligations under such
agreement; now therefore BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF
STAFFORD, TEXAS:
Section 1. The merger of NorAm into HI Merger, Inc., a wholly owned
subsidiary of Houston Industries Inc., is hereby authorized and approved by the
City Council of the City of Stafford, Texas; provided, however, such consent to
the merger shall not be effective until HI Merger, Inc., has filed with the
City Secretary of the City an instrument,
G-2-2.1
<PAGE> 16
duly executed, accepting the terms of the franchise agreement and agreeing to
comply with all of the provisions thereof.
Section 2. This Resolution shall take effect and be in force from
and after the date of adoption hereof.
PASSED, APPROVED, AND RESOLVED this 2nd day of October, 1996.
/s/ LEONARD SCARCELLA
--------------------------------------
Leonard Scarcella
Mayor
ATTEST:
/s/ BONNIE BAIAMONTE
- ----------------------------------
Bonnie Baiamonte
City Secretary
ACCEPTANCE
HI Merger, Inc., a ___________ corporation hereby accepts the terms
of that certain franchise agreement entered into by and between Entex and the
City of Stafford,
G-2-2.2
<PAGE> 17
Texas, pursuant to City of Stafford Ordinance No. 456, passed and approved the
14th day of March 1990, a copy of which is attached hereto, and agrees to be
bound by and comply with all of the terms and provisions thereof.
HI MERGER, INC.
By:
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
Dated this _____ day of ___________, 1996
G-2-2.3
<PAGE> 18
THE STATE OF TEXAS )
)
COUNTY OF FORT BEND )
I, Bonnie Baiamonte, City Secretary of the City of Stafford, Texas,
hereby certify that the above and foregoing Acceptance was received and filed
in the office of the City Secretary on the ______ day of ____________, 1996.
EXECUTED UNDER MY HAND AND THE OFFICIAL SEAL of the City of
Stafford, Texas, this _____ day of _________, 1996.
________________________________________
Bonnie Baiamonte
(SEAL)
G-2-2.4
<PAGE> 19
APPENDIX 2: EXHIBIT 3
ORDINANCE NO. 2597
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF LONGVIEW, TEXAS,
APPROVING THE TRANSFER OF FRANCHISE ORDINANCE NO. 2389 WHICH GRANTED
AUTHORITY TO ENTEX, A DIVISION OF ARKLA, INC. (THE FORMER NAME OF
ENTEX, A DIVISION OF NORAM ENERGY CORPORATION), A FRANCHISE TO
FURNISH AND SUPPLY GAS TO THE GENERAL PUBLIC IN THE CITY OF
LONGVIEW, THE SAME TO BE TRANSFERRED TO HI MERGER, INC., THEREBY
RECOGNIZING THE MERGER OF ENTEX, AND ITS PARENT COMPANY NORAM ENERGY
CORPORATION, WITH HOUSTON INDUSTRIES, HOUSTON LIGHTING AND POWER
COMPANY, AND HI MERGER CORPORATION; PROVIDING A REPEALER; PROVIDER A
SEVERABILITY CLAUSE; MAKING OTHER FINDINGS AND PROVISIONS RELATED TO
THE SUBJECT; AND PROVIDING AN EFFECTIVE DATE.
WHEREAS, on April 28, 1994, the city of Longview, Texas, granted a
franchise to Entex, a division of Arkla, Inc. (the former name of Entex, a
Division of NorAm Energy Corporation), for the right to furnish and supply gas
to the general public in the city limits of the City of Longview; and,
WHEREAS, Article XIX of the aforesaid Ordinance No. 2389 provides in
part as follows:
"This franchise shall not be amended, renewed, extended, assigned,
or otherwise transferred without twenty (20) days advance written
notice to the City of such intended change and without official
approval of the City Council of the City in accordance with the
Charter and ordinances of the City. For the purposes hereof,
'transfer' shall include transfer of the rights hereunder to another
division of Grantee or the sale of Grantee or an affected division
of Grantee, whether by sale of stock, sale of assets, a combination
of both, or otherwise."; and,
G-2-3.1
<PAGE> 20
WHEREAS, Article XII, Section 12.02 of the City Charter contains
similar language related to the transfer of franchises; and,
WHEREAS, Entex, a division of NorAm Energy Corporation, has provided
sufficient and adequate notice to the City of its intent to merge with and
among Houston Industries, Houston Lighting and Power Company, HI Merger
Corporation and NorAm Energy Corporation, thereby requiring the transfer of
franchise No.2389 to the merged corporation now referred to as HI Merger
Corporation; NOW, THEREFORE,
BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF LONGVIEW, TEXAS:
Section 1. That the findings set out in the preamble to this
ordinance are hereby in all things approved.
Section 2. That the transfer of the franchise and franchise rights
previously afforded Entex, a division of Arkla, Inc. (the former name of Entex,
a Division of NorAm Energy Corporation), by Ordinance No. 2389, adopted on
second and final reading by the City Council of the city of Longview, Texas, on
April 28, 1994, the same to be transferred to HI Merger Corporation, is hereby
in all things approved effective the date of this ordinance; and thereafter,
the rights, privileges, and obligations of Entex shall likewise be transferred
to HI Merger Corporation and thereafter, the aforesaid HI Merger Corporation
shall for all things be considered the "Grantee" thereunder.
Section 3. That pursuant to Section XIX of Ordinance No. 2389, the
City Council of the City of Longview, Texas, hereby consents to the merger of
NorAm Energy Corporation into HI Merger Corporation.
G-2-3.2
<PAGE> 21
Section 4. That the consent granted herein is also deemed to apply
to the franchise granted Unit Gas Transmission Company pursuant to Ordinance
No. 2391, dated April 28, 1994, to the extent such consent is required under
Ordinance No. 2391.
Section 5. That to the extent that same may be repealed by this
ordinance, all ordinances and parts of ordinances in conflict herewith are
hereby repealed to the extent of such conflict only.
Section 6. That the approval granted herein satisfies the
requirements of Article XIX of the franchise with regard to transfer of said
franchise, but shall not be construed nor shall it act as a modification of,
amendment to, or extension of the aforesaid franchise.
Section 7. That the approval granted herein shall not be construed
in any way as a waiver or relinquishment of any claim or cause of action, or
other right related to the franchise that City may have against Entex or NorAm
Energy Corporation, and the same shall be and is hereafter preserved and
reserved unto the City of Longview against the aforesaid companies or against
HI Merger Corporation as the successor in interest under said franchise.
Section 8. That all provisions of this ordinance are hereby
declared to be severable, and each section of this ordinance, and each part of
each section hereof, is hereby declared to be an independent section or part of
section, and the holding of any section of part thereof to be unconstitutional,
void, illegal, ineffective, or contrary to the provisions of the Charter of the
City of Longview, Texas, any amendments thereto, or any state or federal law,
for any reason, shall not affect any other section or part of section of this
ordinance.
G-2-3.3
<PAGE> 22
Section 9. That this ordinance shall take effect from and after its
date of passage and publication as required by law.
PASSED, APPROVED AND ADOPTED this 7th day of November, 1996.
/s/ I.J. PATTERSON
-------------------------------------
Mayor
ATTEST:
/s/ LOIS McCALEB
- --------------------------------
City Secretary
APPROVED AS TO FORM
________________________________
City Attorney
G-2-3.4
<PAGE> 23
THE STATE OF TEXAS )
)
COUNTY OF GREGG )
I, Lois McCaleb, City Secretary of the City of Longview, Texas, am the legal
custodian of the City's files and records. I further certify that the attached
is a true, accurate, and complete copy of City of Longview instruments and
records as those instruments are filed with the records of the City.
/s/ LOIS McCALEB
--------------------------------------
Lois McCaleb
City Secretary
SWORN TO AND SUBSCRIBED BEFORE ME, the undersigned authority, by the said Lois
McCaleb, City Secretary, on this the 12th day of November, 1996.
/s/ MARY LEE ABLES
---------------------------------------
Mary Lee Ables
G-2-3.5
<PAGE> 24
APPENDIX 3
NRC LETTER
<PAGE> 25
UNITED STATES
NUCLEAR REGULATORY COMMISSION
WASHINGTON, D.C. 20555-0001
December 9, 1996
Mr. William T. Cottle
Executive Vice-President &
General Manager, Nuclear
Houston Lighting & Power Company
South Texas Project Electric
Generating Station
P.O. Box 289
Wadsworth, TX 77483
SUBJECT: MERGER OF HOUSTON LIGHTING & POWER COMPANY AND ITS PARENT, HOUSTON
INDUSTRIES INCORPORATED, WITH NORAM ENERGY CORPORATION, SOUTH TEXAS
PROJECT UNITS 1 AND 2 (TAC NOS. M96704 AND M96705)
Dear Mr. Cottle:
By letter dated October 3, 1996, Houston Lighting & Power Company (HL&P)
confirmed a presentation made to the Nuclear Regulatory Commission (NRC) staff
during a September 12, 1996, meeting, regarding the proposed merger of HL&P and
its parent, Houston Industries Incorporated (HII), with NorAm Energy
Corporation (NorAm). The letter describes the proposed merger and states that
HL&P will submit an administrative license amendment request to reflect the
planned name change from HL&P to HII.
The October 3, 1996, letter concludes that aside from the name change, there is
no impact on HL&P's licenses as a result of this transaction and no NRC action
is required. The letter then asks that NRC confirm this conclusion.
G-3-1
<PAGE> 26
The NRC staff has reviewed your October 3, 1996, letter and based on the
information provided, believes that no NRC action under 10 CFR 50.80 is
required before the proposed transactions occur.
Sincerely,
William D. Beckner, Director
Project Directorate IV-I
Division of Reactor Projects III/IV
Office of Nuclear Reactor Regulation
Docket Nos. 50-498 and 50-499
cc: See next page
G-3-2
<PAGE> 27
APPENDIX 4
AGGREGATE INVESTMENT IN FUCOS AND EWGS
(12/31/96)
<PAGE> 28
HI Energy Aggregate Investment in FUCOs and EWGs(1)
(12/31/96)
<TABLE>
<CAPTION>
Project Amount
------- ------------
<S> <C>
Empresa Distribuidora La Plata S.A./Central
Dique S.A. (FUCOs) $ 84,262,000
Empresa Distribuidora de Electricidad de Santiago
del Estero (FUCO) $ 15,655,000
Rain Calcining Limited (FUCO) $ 13,519,000(2)
Light Servicos de Electricidade S.A. (FUCO) $393,119,000
Hie Argener S.A./HIE Opco S.A. (EWGs) $ 50,440,000(3)
------------
Aggregate Investment $556,995,000
============
</TABLE>
__________________________________
(1)"Aggregate investment" means all amounts invested, or committed to
be invested, in exempt wholesale generators and foreign utility companies, for
which there is recourse, directly or indirectly, to HI. For purposes of
calculating aggregate investment, HI includes (i) the amounts contributed by HI
to HI Energy that are invested in exempt wholesale generators located outside
the United States and foreign utility companies (less amounts distributed to HI
from HI Energy as a result of such investments), plus (ii) development costs
(such as costs incurred in preparing a bid, conducting due diligence
examinations and engaging in preliminary discussions) that culminate in the
acquisition of the exempt wholesale generator or foreign utility company, plus
(iii) the amount of any guarantee or other funding commitment that is recourse
to HI.
(2)Includes $5,334,008 in contingent obligations under the terms of a
support agreement entered into by HI in favor of Citibank. Such support
agreement was entered into in connection with the issuance by Citibank of a
letter of credit to ensure the timely payment of amounts owed to the
construction contractor for the Rain Project.
(3)Does not include $53,000,000 in unfunded to go construction costs
which are non-recourse to HI.
G-4-1
