SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
December 29, 1993
Date of Report (Date of earliest event reported)
SOUTHERN UNION COMPANY
(Exact name of registrant as specified in charter)
Delaware 1-6407 75-0571592
(State of (Commission (IRS Employer
incorporation) File Number) Identification No.)
504 Lavaca Street, 8th Floor, Austin, Texas 78701
(Address of principal executive offices including zip code)
(512) 477-5852
Registrant's telephone number, including area code
Not applicable
(Former name or address, if changed since last report)
<PAGE>
-2-
Item 5. Other Events.
As described in the Press Release attached hereto as Exhibit
99.1, on December 29, 1993, the Missouri Public Service
Commission ("MPSC") issued a Report and Order that provides all
MPSC approvals necessary for the acquisition by the Registrant
from Western Resources, Inc. of certain natural gas distribution
properties serving approximately 462,000 customers in western
Missouri. The Registrant currently anticipates that closing of
the acquisition will occur on January 31, 1994.
As indicated in the attached Press Release, the Registrant
intends to fund the acquisition with the proceeds from the sale
by the Registrant of: 2,000,000 shares of its common stock at a
price of $25.00 per share through a subscription rights offering
that was completed on December 31, 1993; and debt securities in
January 1994 in an underwritten offering.
Item 7. Financial Statements, ProForma Financial Information and
Exhibits.
(a) Financial Statements of the Business Acquired.
Not Applicable
(b) Pro Forma Financial Information.
Not Applicable
(c) Exhibits.
99.1 Press Release dated December 30, 1993.
99.2 Report and Order of the Missouri Public
Services Commission including the Stipulation and
Settlement Agreement attached as Exhibit A
thereto.
<PAGE>
-3-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
SOUTHERN UNION COMPANY
Dated January 3, 1994 By: /s/Dennis K. Morgan
Dennis K. Morgan
Vice President - Legal
<PAGE>
BEFORE THE PUBLIC SERVICE COMMISSION
OF THE STATE OF MISSOURI
In the Matter of the Joint Application of )
Western Resources, Inc., d/b/a Gas Service, )
a Western Resources Company, a Kansas )
Corporation, and Southern Union Company, )
d/b/a Missouri Gas Energy, a Delaware )
corporation, for an order authorizing the ) Case No. GM-94-40
sale, transfer and assignment of certain )
assets relating to the provision of gas )
service in Missouri from Western Resources, )
Inc. to Southern Union Company, and in )
connection therewith, certain other related )
transactions. )
APPEARANCES: J. Michael Peters, Western Resources, Inc. 818
Kansas Avenue, Topeka, Kansas 66612, for Western
Resources, Inc. d/b/a Gas Service, a Western
Resources Company.
James C. Swearengen and Gary W. Duffy, Brydon,
Swearengen & England, P.C., 312 East Capitol
Avenue, P. O. Box 456, Jefferson City, Missouri
65102, for Southern Union Company.
Dennis K. Morgan, Southern Union Company, 504
Lavaca, Suite 900, Austin, Texas 78701, for
Southern Union Company.
Richard S. Brownlee, Hendren and Andrae, 235 East
High Street, P. O. Box 1069, Jefferson City,
Missouri 65102, for Williams Natural Gas.
Stuart W. Conrad, Lathrop & Norquist, 2345 Grand
Avenue, Kansas City, Missouri 64108, for Armco,
Inc. and Midwest Gas Users Association.
James P. Zakoura, Smithyman & Zakoura, 650
Commerce Plaza, 7300 West 110th Street, Overland
Park, Kansas 66210, for Riverside Pipeline
Company, L.P.
Paul W. Phillips, Deputy Assistant General
Counsel, U.S. Department of Energy, 1000
Independence Avenue, Southwest, Washington, D. C.
20585, for United States Department of Energy,
Federal Executive Agencies.<PAGE>
Douglas E. Micheel, Office of Public Counsel, P.
O. Box 7800, Jefferson City, Missouri 65102, for
Office of the Public Counsel and the Public.
Patrick A. Baumhoer, Andereck, Evans, Milne, Peace
& Baumhoer, P. O. Box 1438, Jefferson City,
Missouri 65102-1438, for Mountain Iron & Supply
Company.
William G. Higgins, Staff Attorney, Kansas City
Power & Light Company, 1201 Walnut Street, Kansas
City, Missouri 65106, for Kansas City Power &
Light Company.
Penny G. Baker, David Woodsmall, and Eugene
Mitchell, Jr., Staff Attorneys, Missouri Public
Service Commission, P. O. Box 360, Jefferson City,
Missouri 65102, for Staff of the Missouri Public
Service Commission.
HEARING
EXAMINER: Joseph A. Derque III<PAGE>
REPORT AND ORDER
Procedural History
On August 5, 1993, Western Resources, Inc., d/b/a Gas
Service (WRI) and Southern Union Company, d/b/a Missouri Gas
Energy (SU) filed a joint application requesting an order from
the Commission authorizing the sale, transfer, and assignment of
assets of WRI to SU related to the provision of gas service in
the State of Missouri, and, in connection therewith, approval to
perform certain other related transactions. After various
procedural motions, interventions, and scheduling orders were
made, and after the submission of testimony, a unanimous
stipulation and agreement was submitted by the parties on
December 16, 1993, having been agreed to by WRI, SU, the Staff of
the Commission, Office of Public Counsel (OFC), and all
intervenors.
A hearing was held on December 20, 1993, for the
presentation of that agreement and for the entry of the agreement
and testimony of witnesses into evidence.
Findings of Fact
Western Resources is a Kansas corporation in good standing
and currently owns and operates a gas distribution system in the
Western portion of the State of Missouri, which is the subject of
this transaction. WRI operates subject to certificates of
convenience and necessity issued by the Commission and subject to
the rules, regulations and jurisdiction of the Commission.
3<PAGE>
Southern Union is a Delaware corporation authorized to do
business in Missouri and is in good standing. Should this
agreement be approved by the Commission, Southern Union will do
business in Missouri as Missouri Gas Energy and will have its
principal office in Kansas City, Missouri.
The unanimous stipulation and agreement, filed December 16,
1993, seeks the approval of the Commission for WRI and SU to
engage in the proposed sale of assets as set out in the original
and amended applications and contract as filed by the joint
applicants and per the terms of the stipulation and agreement.
As all parties in this matter have reached agreement concerning
the issues presented in this case, the Commission finds that an
evidentiary hearing is not necessary.
The basic transaction, as set out in the contractual
agreement between SU and WRI is as follows:
Section 3.02 Purchase Price for Assets
(a) As consideration for the Assets and subject to the
terms, conditions, and limitations set forth in
this Agreement, the purchase price ("Purchase
Price" payable by Buyer to Seller shall be an
amount equal to $327,940,490 plus (i) to the
extent permitted by Section 8.01(f) hereof, and
capital expenditures made by Seller (net of third-
person contributions or advances) after March 31,
1993 and relating to the Gas Pipelines and Plants,
net of depreciation, amortizations and retirements
of all Gas Pipelines and Plants in accordance with
applicable regulatory principles, practices and
orders; plus (ii) the amounts payable by Buyer for
Total Inventory pursuant to Sections 4.01 and 4.02
hereof, plus or minus (iii) changes in the book
value of intangible personal property rights and
regulatory assets set forth on Schedule 1.01(a)
after March 31, 1993, net of depreciation or
amortization in accordance with applicable
regulatory principles, practices and orders, plus
4<PAGE>
(iv) an amount payable by Buyer for Accounts
Receivable net of allowance for uncollectible
customer accounts receivable of .96% of the gross
amount of the receivable); minus (v) the amount of
the Accounts Payable; and minus or plus (vi)
amounts payable to or by Buyer under Section 3.04.
In addition, the contract contains various specific matters.
In testimony, the Staff of the Commission and the OPC deal with
those specifics which they felt might be detrimental to the
public interest.
The Staff of the Commission and the OPC present 12 points,
11 by the Staff and one by OPC, that they maintain could be
considered detrimental to the public interest. The following is
a summary of the concerns expressed by the Staff:
1) Western Resources keeps excess pension assets over the
related projected benefit obligation.
2) Southern Union pays a significant premium for the
Missouri property.
3) Western Resources transfers the FAS 106 liability (TSO)
and keeps COLI assets.
4) The sale results in elimination of the deferred income
tax offset to rate base.
5) The sale results in cost shifts to Missouri. For
example, employees in Missouri will be transferred to
Southern Union that performed service for Kansas and
Oklahoma.
6) Western Resources overcharges Southern Union for
accounts receivable because of the net allowance for
uncollectible accounts.
7) Western Resources transfers FAS 106 liability to
Missouri related to work performed for other assets.
8) Western Resources transfers supplemental retirement
contract expense to Missouri related to work performed
in other states.
5<PAGE>
9) Southern Union has a lower debt rating and higher cost
of capital than Western Resources.
10) Western Resources will retain all investment tax credit
benefits.
11) Western Resources is transferring any employee and
retiree obligation related to its Palmyra operations to
Southern Union.
In addition, the Office of Public Counsel took the position
that the capital structure of Southern Union after the proposed
transaction, that being 28% equity and 72% debt, could place SU
in a difficult financial position in light of anticipated expense
for pipeline replacement and other expenditures for physical
plant necessitated by the aging infrastructure of parts of the
WRI system. The OPC was concerned that, as a result of this
acquisition, the cash necessary to complete these projects would
be obtained by SU from the ratepayers in the form of rate
increases.
Finally, both the Staff and OPC were opposed to SU passing
on the cost of this acquisition, that being principally the
purchase premium, known commonly as an acquisition adjustment, in
the form of increased rates.
In the stipulation and agreement some 25 matters were agreed
to by the parties and intervenors. Those matters can be
summarized as follows:
1) SU will not seek recovery on two retirement contracts;
2) SU will not seek a rate or complaint case within at
least three years (also see #7 below);
3) The acquisition premium will be below the line;
6<PAGE>
4) An AAO will be requested authorizing a plan to offset
costs as the result of FAS 106;
5) SU agrees to monthly surveillance reporting per the WRI
operating procedure;
6) SU will obtain $9 million over the FBO from WRI for
pensions and SU will make an additional contribution of
$3 million;
7) SU will not request a general rate increase until
obtaining a total capital ratio in line with lowest
investment grade S&P rating;
8) SU agrees to a rate base offset to compensate for rate
base deductions eliminated by this transaction;
9) SU will follow the gas safety rules as promulgated by
the Commission;
10) An AAO will be sought for expenses connected with the
gas safety program similar to that in place for WRI;
11) and 12) All parties reserve the right to various
additional adjustments;
13) SU will file a cost-of-service study with its first
non-gas general rate case;
14) WRI will assign all rights to SU from Wyoming Tight
Sands litigation;
15) SU will file tariffs at least ten days before closing;
16) SU will discuss take or pay costs with intervenors;
17) SU will reduce regulatory income tax expense in its
next rate case;
18) through 24) are standard clauses;
25) The Staff reserves the right to file a confidential
brief with the Commission presenting its rationale for
this agreement.
Comparison of the concerns of the Staff and OPC and the
resultant conditions in the stipulation and Agreement indicate
that major concerns of the parties were at least partially
alleviated. The ratepayer has been, at least for a period of
7<PAGE>
time, protected from any attempt by SU to recoup many of the
costs of the transaction through an increase in rates. The
acquisition cost itself, called a purchase premium, will clearly
not be passed on to the ratepayer. The current WRI pension fund,
a concern of various intervenors and other interested parties,
was adequately protected. Finally, emphasis was placed on
compliance by SU with the regulatory requirements, particularly
in the area of the Commission's gas safety and pipeline
replacement programs.
The Commission has reviewed the testimony, contractual
agreement and stipulation and agreement proposed in this case and
will approve the stipulation and agreement and, therefore, the
proposed transaction. In approving this agreement, the
Commission relies on the testimony of SU and the expertise of
both the Staff and OPC in regard to the capabilities of SU to
provide safe and adequate service over a period of years without
detriment to the ratepayers or the general public.
The Commission would express concern regarding the resultant
financial condition of SU subsequent to the sale. In this
regard, the Commission is aware that the approximate capital
structure of SU immediately following the proposed transaction
will be 72% debt and 28% equity. The Commission would note that,
in such a heavily leveraged position, SU has agreed to forego the
filing of a general rate case for a period of at least three
years from the date the transaction is consummated. Testimony
reveals that SU has considered the nature of the financial
8<PAGE>
position in which it will be placed and feels secure that it will
have adequate cash resources to provide safe and efficient
service over the next three to five years. In addition, SU
states that it will be able to comply with the various safety and
replacement regulations in this state and will replace aging
physical plant in the current system as appropriate.
The Commission, therefore, for the reasons set out above,
finds the pro-posed stipulation and agreement to be reasonable
and in the public interest. In addition, the Commission finds
the proposed transaction not to be detrimental to the public
interest as amended by the stipulation and agreement and will,
there-fore, approve the proposed transaction as set out in the
applications, con-tractual agreement, and stipulation and
agreement.
Conclusions of Law
The principal issue before the Commission, based on
substantial and competent evidence contained in the record as a
whole, and in accordance with the controlling rule in this case,
4 CSR 240-2.050(7), can be stated as follows: "Is the proposed
sale of 100 percent of the Missouri assets of WRI to SU not
detrimental to the public interest?" See State ex rel. City of
St. Louis v. Public Service Commission, 73 S.W.2d 393 (no. banc
1934); and State ex rel. Fee Fee Trunk Sewer, Inc. v. Litz, 596
S.W.2nd 466 (No. App. 1980).
9<PAGE>
In Case No. EM-91-290, in the matter of UtiliCorp United and
Colorado Transfer Company, the Commission created a supplemental
set of standards for acquisitions and mergers, those being:
"a. All documentation generated relative to the analysis of
the merger and acquisition in question must be
maintained.
b. The Company must present an estimate of the impact of
the merger on its Missouri jurisdictional operations.
c. The Company must provide an assessment of the relative
risk regarding items that impact its Missouri
operations.
d. The Company must propose assurances or conditions that
will address the overall merger components that pose
the risk of being detri-mental to the Missouri public
interest."
In the above-stated case, in Ordered Paragraph 7, the
Commission stated, "that future applications involving
acquisitions and mergers shall be subject to the four conditions
outlined in this order."
Finally, in State v. PSC, 73 S.W.2nd at 400, the Court
states:
"The respondents found that the public would not be
affected by the transfer of the stock. The owners of
this stock should have some-thing to say as to whether
they can sell it or not. To deny them that right would
be to deny them an incident important to ownership of
property. City of Ottawa v. Public Service Commission,
130 Kan. 867, 288, p. 556. A property owner should be
allowed to sell his property unless it would be
detrimental to the public."
The Commission therefore finds that the stipulation and
agreement and transaction to which it applies should not be
denied unless good reason exists to do so. The Commission
further finds that substantial and competent evidence exists, on
10<PAGE>
the record, to support the Commission's finding that the proposed
stipulation and agreement, and purchase proposal is not
detrimental to the public interest.
The Commission finds that the additional standards
prescribed by the UtiliCorp case, supra, which apply to
acquisitions have been satisfied for purposes of this case.
IT IS THEREFORE ORDERED:
1. That the stipulation and agreement filed in this matter
on December 16, 1993, and attached hereto as Attachment
A, is hereby approved.
2. That Southern Union and Western Resources are hereby
authorized to perform the terms and conditions of the
contractual agreement for sale of assets as amended by
the stipulation and agreement approved in #1 above, and
do all things necessary or incidental to the per-
formance of those agreements.
3. That Western Resources is authorized to transfer all
pertinent certificates of convenience and necessity to
Southern Union upon closing of this transaction.
4. That Southern Union is authorized to purchase and
acquire the assets of Western Resources as set out in
the various approved agreements above and to own,
operate, control, manage, and maintain those assets and
to provide natural gas service in the State of Missouri
subject to the regulations and jurisdiction of the
Commission.
11<PAGE>
5. That Southern Union may encumber the assets acquired in
the approved transaction as may be necessary in
accordance with the terms and con-ditions as set out in
any of Southern Union's financing agreements.
6. That Southern Union is authorized to adopt the rates,
rules, regu-lations, and tariffs of Western Resources
currently on file with the Commission at the time of
closing of this transaction.
7. That the joint applicants are ordered to file tariffs
consistent with paragraph #15 of the stipulation and
agreement, attachment a, within ten (10) days of the
date of issuance of this order.
8. That this order shall become effective on January [9:
per ERRATA issued December 29, 1993] 1994.
BY THE COMMISSION
\s\David L. Rauch
David L. Rauch
Executive Secretary
(S E A L)
McClure, Parkins, Kincheloe and
Crumpton, CC., Concur. Mueller,
Chm., Absent.
Dated at Jefferson City, Missouri,
on this 29th day of December, 1993.
12580
12<PAGE>
BEFORE THE PUBLIC SERVICE COMMISSION
OF THE STATE OF MISSOURI
In the matter of the joint application)
of Western Resources, Inc., d/b/a/ Gas)
Service, a Western Resources Company, )
a Kansas corporation, and Southern )
Union Company, d/b/a Missouri Gas )
Energy, a Delaware corporation, for an)
order authorizing the sale, transfer ) Case No. GM-94-40
and assignment of certain assets )
relating to the provision of gas )
service in Missouri from Western )
Resources, Inc. to Southern Union )
Company, and in connection therewith, )
certain other related transactions. )
UNANIMOUS STIPULATION AND AGREEMENT
On August 5, 1993, Western Resources, Inc. d/b/a Gas Service
(Western Resources) and Southern Union Company, d/b/a Missouri
Gas Energy (Southern Union) filed a Joint Application for an
order authorizing among other things the sale, transfer and
assignment of certain assets relating to the provision of gas
service in Missouri from Western Resources to Southern Union. On
October 19, 1993, a First Amended Application was filed by the
applicants. The Joint Application and First Amended Joint
Application are referred to herein collectively as "the
Application".
Direct testimony was filed September 24, 1993 by the
applicants. By order dated October 8, 1993, the Commission
established a procedural schedule and granted applications to
intervene to Williams Natural Gas, Kansas City Power & Light
Company, Mountain Iron and Supply Company, Midwest Gas Users
Association and Armco Inc., Riverside Pipeline Company, L. P.,
and the United States Department of Energy on behalf of Federal<PAGE>
Executive Agencies. The City of St. Joseph, Missouri was granted
participation without intervention. The City of Kansas City,
Missouri filed its Motion for Intervention on December 6, 1993
and was granted participation without intervention on December 7,
1993.
Staff, Public Counsel and other intervenors filed Rebuttal
testimony pursuant to the Commission's order on November 29,
1993.
On December 6, 1993, a prehearing conference commenced during
which time the parties reached the following stipulations and
agreements which are set forth in this Unanimous Stipulation and
Agreement and dispose of all the issues in this case.
1. Southern Union agrees not to seek recovery from
Missouri ratepayers for the expense related to the retirement
contracts of William Johnson and Henry Meyers.
2. Subject to the limitations of paragraph 18, Southern
Union will not implement a general increase in non-gas rates for
three years from the date of closing of the subject transaction.
Subject to the limitations of paragraph 18, no party hereto shall
bring a complaint with regard to non-gas rates, or assist anyone
else in the instigation or processing of a complaint with regard
to non-gas rates, for three years from the date of closing of the
subject transaction. This agreement shall not be interpreted to
preclude any proper party from bringing a complaint with regard
to the terms and conditions upon which service is provided,
2<PAGE>
including promotional practices, (i.e., not related to rates) or
fully participating in any other complaint not related to rates.
3. The amount of any acquisition premium (i.e., the amount
of the purchase price above net book value) paid by Southern
Union to Western Resources for the gas properties of Western
Resources shall be treated below the line for ratemaking purposes
in Missouri and neither amortization nor inclusion of the premium
in rate base shall be sought to be recovered by Southern Union in
rates in any Missouri proceeding.
4. Staff will agree to recommend approval of an Accounting
Authority Order (AAO) for Southern Union for FAS 106 and a
Company Owned Life Insurance Program (COLI) program similar to
that previously granted to Western Resources in Case No. GO-93-
201. Southern Union agrees to a COLI similar to the one
currently employed by Western Resources. No other party to this
agreement shall oppose a request for an AAO for purposes of FAS
106 and the COLI program pursuant to this agreement.
5. Southern Union agrees to continue monthly surveillance
reporting in the same format currently used by Western Resources.
6. Western Resources agrees to transfer (or cause the plan
administrators and trustees of Western Resources' defined benefit
plant to transfer) to Southern Union's defined benefit plan for
Missouri employees, as defined in the Agreement for Purchase of
Assets between Western Resources Inc. and Southern Union Company
dated July 9, 1993 ("the July 9 Agreement), an additional
3<PAGE>
$9,000,000 in pension assets or other funds in excess of the
Projected Benefit Obligation (PBO) as of January 31, 1994.
Southern Union agrees to make certain additional
contributions as specified below to Southern Union's defined
benefit plan for Missouri Gas Energy employees in excess of the
minimum required contribution under Internal Revenue Code Section
412 as determined by the plan's Enrolled Actuary. For 1994 such
additional contributions will be equal to the lesser of: (a)
$3,000,000 or (b) the difference between the maximum deductible
contribution under Internal Revenue Code Section 404 and the
minimum required contribution under Internal Revenue Code Section
412, each as determined for the plan year by the plan's Enrolled
Actuary.
If, as a result of the limitation in (b) above, the
contribution for 1994 is less than $3,000,000, then Southern
Union will agree to make additional contributions in succeeding
years, subject to the limitation in (b) above applicable to such
year. Such subsequent year contributions shall continue to be
made until the sum of the present value of each contribution
equals $3,000,000. For purposes of the preceding sentence, the
present value of each contribution shall be determined using an
interest rate which is equal to the composite net investment
return on the Missouri Gas Energy pension plan assets from the
date of the transfer of such assets to the Missouri Gas Energy
pension plan to the date such contribution is made to the
Missouri Gas Energy pension plan.
4<PAGE>
In the event that Southern Union files for a general
increase in non-gas rates prior to contributing the full
$3,000,000 to the pension fund, Southern Union agrees that
pension expense under FAS 87 or the Employee Retirement Income
Security Act of 1974 (ERISA) minimum will be calculated as if the
full $3,000,000 (plus any related earnings that would have been
realized had the full $3,000,000 been transferred on the date of
closing of the subject transaction) in assets were in the fund
for purposes of determining pension expense for cost of service
in a rate case.
7. Southern Union agrees not to implement a general
increase in non-gas rates until Southern Union has attained a
total debt to total capital ratio which does not exceed Standard
and Poor's Corporation's Utility Financial Benchmark ratio for
the lowest investment grade investor-owned natural gas
distribution company at the time a general rate increase case is
filed. Southern Union agrees to attain this total debt to total
capital ratio within three years of the closing date of the
subject transaction in order to be in compliance with this
Unanimous Stipulation and Agreement.1
1Public Counsel's position on capital structure is that
Missouri ratepayers should not be required to bear the cost of
increased financial risk associated with extremely low equity
levels resulting from this sale. Public Counsel's concern is
that projected post-acquisition equity levels are well below the
range of the optimum capital structure necessary to minimize
costs paid by the ratepayer while also providing for financial
stability for the utility. The agreement to use Standard &
Poor's total debt to total capital investment grade benchmark for
bonds has the practical effect of raising the equity level of
Southern Union. Standard & Poor's bond investment benchmark for
5<PAGE>
The ratio calculations will be performed according to the
definitions found in the Standard and Poor's Corporation's
publication which contains the previously mentioned Utility
Financial Benchmark. Additionally, the definition of "investment
grade" for purposes of this Unanimous Stipulation and Agreement
will be that definition as found in the Standard and Poor's
Corporation's publication used to determine the benchmark.
8. Southern Union agrees to use an additional offset to
rate base in any Southern Union filing for a general increase in
non-gas rates in Missouri completed in the next ten years to
compensate for rate base deductions that have been eliminated by
this transaction. The amount of the offset for the first year
debt to total capital currently is less than Southern Union's
proposed level of debt immediately after the sale. Since equity
ratios are inversely related to debt ratios, requiring Southern
Union to decrease its debt ratio will cause the equity ratio to
increase.
The signing of this Stipulation & Agreement does not mean
that Public Counsel agrees that Standard & Poor's current bond
investment benchmark represents the optimum capital structure so
as to provide the ratepayer the lowest possible cost while
meeting other Commission determined standards of a utility's
performance. Neither does Public Counsel agree that some future
unknown Standard & Poor's benchmark or method of calculating that
benchmark would do so. Standard & Poor's publication CORPORATE
FINANCE CRITERIA underscores the limits of its ratings when it
states that "A rating is not a general purpose evaluation of an
issuer" and "The rating performs the isolated function of credit
risk evaluation, which is one element of the entire investment
decision-making process." Standard & Poor's goes on to state
that "S&P questions whether linkage of a company's long-term
financial strategy to a specific rating category makes sense" and
"The more appropriate approach is to operate for the good of the
business as management sees it, and to let the rating follow."
Public Counsel believes that the Missouri Public Service
Commission has the obligation to determine the appropriate
capital structure for a Missouri utility after consideration of
all relevant factors.
6<PAGE>
shall be $30.0 million. The amount shall reduce by $3.0 million
per year on each anniversary date of the closing of the subject
transaction.
9. Southern Union agrees to the following conditions:
a. Southern Union must follow the pipeline safety
regulations as contained in 4 CSR 240-40.020, 240-40.030,
and anti-drug regulations contained in 4 CSR 240-40.080;
b. Southern Union must comply with the meter change-out
intervals and record-retention requirements for historic
meter accuracy, as required by order in Case No. GO-91-353;
c. Southern Union must adhere to the unprotected steel
service and yard line replacement program contained in Case
No. GO-91-239, as modified by waiver in Case No. GO-92-295;
d. Southern Union must adhere to the unprotected steel
main protection/replacement program and the cast iron main
replacement program contained in Case No. GO-91-277;
e. Southern Union must follow the schedule of replacements
in the St. Joseph and Joplin distribution systems, as
described to the Staff and as contained in Case No. GO-94-
130, that permits Gas Service more than five (5) years to
repair Class 3 Leaks in the two noted distribution systems;
f. Southern Union must follow the schedule agreed to
between the Gas Safety Staff and Gas Service personnel
addressing the upgrading of regulator stations that, due to
consideration of the maximum allowable operating pressure,
are identified as having deficient over-pressure protection;
7<PAGE>
g. Southern Union must follow the replacement and leakage
survey schedules, agreed to between the Gas Safety Staff and
Gas Service personnel during revisions to the tariffs for
master-metered mobile home courts; and,
h. Southern Union should follow all other Commission
orders addressing pipeline safety and informal
agreements/commitments between the Commission's Gas Safety
Staff and Gas Service that are not specifically noted in
this Unanimous Stipulation and Agreement but which have been
presented by Staff to and discussed with Southern Union or
those contained in correspondence between Staff and Gas
Service.
i. Southern Union must follow the Commission's promotional
practices rules.
j. During any major Commission proceeding involving
Southern Union, Southern Union will make its books and
records, or a true copy thereof, available for audit by
Staff in Southern Union's Kansas City, Missouri offices.
10. Staff will agree to recommend approval of an AAO for
gas safety purposes for Southern Union similar to that previously
granted to Western Resources in Case No. GO-92-185 for a period
equal to the rate moratorium described in paragraph 2. herein.
No other party to this agreement shall oppose a request for an
AAO for gas safety expenditures pursuant to this agreement.
11. The parties reserve the right to propose adjustments in
any future proceedings for all alleged detrimental aspects
8<PAGE>
relating to the acquisition other than those specifically
addressed in this Unanimous Stipulation and Agreement. These
adjustments include, but are not limited to, concerns related to
the Wyoming Tight Sands gas supplies, recovery of environmental
costs by Southern Union, and transfer of FAS 106 liabilities
related to work performed for other states. The foregoing shall
not operate as a limitation upon Southern Union's ability to
contest such proposed adjustments or to pursue any remedy it may
have under the July 9 Agreement, or otherwise.
12. Southern Union reserves the right to propose
adjustments in any future proceedings to recognize any alleged
benefits resulting from the acquisition which is the subject of
this case. The foregoing shall not operate as a limitation upon
any other signatory's ability to contest such proposed
adjustments.
13. Southern Union confirms that it is committed to cost-
based rates for its Missouri service territory. Southern Union
agrees to file a fully-distributed cost of service study
contemporaneously with the filing of tariffs in Southern Union's
first Missouri general non-gas rate increase case, and to base
its proposed rates therein upon such study. This shall not be
construed to require a filing of such a study with any rate
filing made pursuant to paragraph 18 of this Unanimous
Stipulation and Agreement, but Southern Union will provide such a
study within six months of such a filing.
9<PAGE>
14. Southern Union confirms that pursuant to the July 9
Agreement, Southern Union and Western Resources have agreed that
procedures have been established and approved by the Commission
in Case No. GR-91-286 for the distribution to Western Resources'
customers of certain proceeds resulting from the settlement of
the Wyoming Tight Sands antitrust litigation; that pursuant to
that July 9 Agreement, Western Resources will use its best
efforts to assign or otherwise transfer to Southern Union all
legal rights and authority Western Resources has to fulfill
Western Resource's obligations under such procedures so as to
ensure, to the fullest extent possible, that such proceeds will
continue to be distributed to such customers or customer classes
in the manner and to the extent contemplated by previous order of
the Commission; and that Western Resources has agreed to seek any
regulatory approvals that may be required to complete such
assignment or transfer.
As agreements to be assumed under the July 9 Agreement, the
Wyoming Tight Sands agreements, the grantor trust agreement, and
related agreements (Item 4 on Schedule 6.07(a) of the July 9
Agreement), and subject to the terms and conditions of the July 9
Agreement, Southern Union has agreed to perform and discharge
said agreements. Midwest Gas Users Association and Armco Inc.
confirm that the pricing and other terms of the gas and related
services that are procured pursuant to and in accord with said
agreements and in compliance with the Commission's order in Case
No. GR-91-286, are fair, reasonable and prudent.
10<PAGE>
15. Southern Union expressly assumes those rights and
obligations of Western Resources contained in the current tariffs
of Western Resources filed with and approved by the Commission,
except as such tariffs apply to the properties addressed in Case
No. GM-94-87. If authorized by the Commission, Southern Union
agrees to file for Commission approval a complete set of tariff
sheets applicable to the Missouri properties (excluding Palmyra)
at least ten days prior to the closing date of the subject
transaction. The effective date will be the day after the
closing date. Western Resources agrees to reconfigure its tariff
sheets and file such for Commission approval consistent with the
testimony of Staff witness Craig Jones to apply only to the
Palmyra properties at least ten days prior to the closing date of
the subject transaction unless the Palmyra properties have been
transferred prior to that time. Additionally, Southern Union
expressly assumes those rights and obligations of Western
Resources set out in the Unanimous Stipulation and Agreement
filed September 28, 1993 in Case No. GR-93-240, particularly
those in Paragraph 4.B. thereof.
16. Southern Union agrees that, prior to the filing of a
tariff seeking to recover transition costs under FERC Order 636,
or the recovery of any remaining take or pay costs, it will meet
with Midwest Gas Users' Association and Armco Inc. and discuss
the proposed method and treatment of recovery of any such costs.
17. Southern Union agrees to reduce regulatory income tax
expense by $296,363 in any Southern Union general non-gas rate
11<PAGE>
increase case completed within ten years of the date of closing
of the subject transaction.
18. The provisions above relating to a moratorium on
Southern Union filing a general non-gas rate increase and the
prohibition on the filing of complaints shall not apply if an
unusual event or events which would have a significant impact on
the Missouri gas business of Southern Union occurs, such as (a)
an act of God (b) a significant change in federal or state laws
or (c) a significant change in Missouri regulatory law or
policies.
19. The parties agree that this Unanimous Stipulation and
Agreement is based upon the understanding that the Commission
will issue a final order approving the transaction which is the
subject of this case effective no later than January 9, 1994, to
allow for closing by January 31, 1994.
20. This Unanimous Stipulation and Agreement represents a
negotiated settlement for the sole purpose of disposing of the
issues addressed herein, and none of the signatories to this
Unanimous Stipulation and Agreement shall be prejudiced or bound
in any manner by the terms of the Unanimous Stipulation and
Agreement, and this Unanimous Stipulation and Agreement shall be
inadmissible in and shall not be cited or referred to as
precedent in any other proceeding, except as otherwise specified
herein.
21. None of the signatories to this Unanimous Stipulation
and Agreement shall be deemed to have approved or acquiesced in
12<PAGE>
any ratemaking principle or any method of cost determination or
cost allocation underlying or allegedly underlying this Unanimous
Stipulation and Agreement.
22. In the event the Commission accepts the specific terms
of this Unanimous Stipulation and Agreement, the signatories
waive, with respect to the issues resolved herein, their
respective rights to cross-examine witnesses, their respective
rights to present oral argument and written briefs pursuant to
Section 536.080.1 RSMo 1986; their respective rights to the
reading of the transcript by the Commission pursuant to Section
536.080.2 RSMo 1986; and their respective rights to judicial
review pursuant to Section 386.510 RSMo 1986.
23. This Unanimous Stipulation and Agreement has resulted
from extensive negotiations among the signatories and the terms
hereof are interdependent. In the event the Commission does not
approve and adopt this Unanimous Stipulation and Agreement in
total, or in the event the Commission does not issue a final
order approving the subject transaction, effective no later than
January 9, 1994, in accordance with the provisions contained
herein, this Unanimous Stipulation and Agreement shall be void
and no signatory shall be bound by any of the agreements or
provisions hereof.
24. The parties agree that all prefiled testimony,
schedules and exhibits submitted by Western Resources, Southern
Union, Staff, Office of Public Counsel, Midwest Gas Users'
Association, Armco Inc., and Mountain Iron & Supply Company shall
13<PAGE>
be received into evidence without the necessity of their
respective witnesses taking the stand.
25. At the Commission's request, the Staff shall have the
right to submit to the Commission, in confidential memorandum or
oral briefing form, an explanation of its rationale for entering
into this Unanimous Stipulation and Agreement, and to provide to
the Commission whatever further explanation the Commission
requests. The Staff's confidential memorandum or briefing shall
not become part of the record of this proceeding and shall not
bind or prejudice the Staff in any further proceeding. In the
event the Commission does not approve this Unanimous Stipulation
and Agreement, the Staff's confidential memorandum or briefing
shall not bind or prejudice the Staff in this proceeding. Any
rationales advanced by the Staff in such a confidential
memorandum or briefing are its own and are not acquiesced in or
otherwise adopted by the other signatories.
26. Because of Southern Union's committment as expressed in
paragraph 9 i., KCPL does not oppose paragraphs 1 through 18 of
this Unanimous Stipulation and Agreement. KCPL does support
paragraphs 9 i., and 19 through 26.
WHEREFORE, the parties hereto respectfully request that the
Commission issue its order:
(a) Authorizing Western Resources and Southern Union to
perform in accordance with the terms and conditions of the July 9
Agreement to the extent that it is not in conflict with the terms
and conditions of this Unanimous Stipulation and Agreement;
14<PAGE>
(b) Authorizing Western Resources to sell, transfer and
assign the assets described in the July 9 Agreement to Southern
Union;
(c) Authorizing the transfer of Western Resources'
pertinent certificates of convenience and necessity to Southern
Union or granting a new certificate to Southern Union which is
identical in scope;
(d) Authorizing Southern Union to purchase and acquire the
assets and to undertake the related transactions all as more
particularly described in the July 9 Agreement, upon the terms
and conditions set out therein;
(e) Authorizing Southern Union to own, operate, control,
manage and maintain the assets and to provide gas service to the
public as a gas corporation and public utility subject to the
jurisdiction of the Commission in those areas in which Western
Resources now operates in Missouri which are subject to the
Agreement;
(f) Authorizing Southern Union to encumber the assets to be
acquired from Western Resources in the subject transaction as may
be necessary in accordance with the terms and conditions of any
of Southern Union's financing instruments. Specifically, in this
regard, authorizing Southern Union to encumber, pursuant to terms
and conditions consistent with the Bank's Security Agreement,
Schedule 6 to the First Amended Joint Application, and the Notes'
Security Terms, Schedule 7 to the First Amended Joint
Application, the assets to be acquired from Western Resources in
15<PAGE>
the subject transaction, as well as any assets that may
thereafter be acquired by Southern Union and which are necessary
or useful in the performance of Southern Union's duties to the
public in Missouri;
(g) Authorizing Southern Union to adopt the rates, rules
and regulations and other tariffs of Western Resources as may be
on file with and approved by the Commission on the date of
closing of the subject transaction under the July 9 Agreement,
and to operate under the same as they may be changed from time to
time as provided by law;
(h) Authorizing the transfer from Western Resources to
Southern Union of all security deposits held by Western Resources
on the date of closing of the subject transaction which are
applicable to accounts for customers located in the affected
service areas;
(i) Authorizing Southern Union to keep and maintain certain
books and records for Southern Union's Missouri operations at
Southern Union's principal office in Austin, Texas on and after
the closing of the subject transaction;
(j) Authorizing Western Resources and Southern Union to
enter into, execute and perform in accordance with the terms of,
all other documents which may be reasonably necessary and
incidental to the performance of the transactions which are the
subject of the July 9 Agreement and joint application; and
(k) Authorizing Western Resources, effective upon the
closing of the involved transactions, to terminate its
16<PAGE>
responsibilities as a gas corporation and a public utility in
Missouri with respect to the assets and areas covered by the July
9 Agreement.
(l) Authorizing Western Resources and Southern Union to
file tariffs consistent with paragraph 15 of the Unanimous
Stipulation and Agreement in this case.
17<PAGE>
Respectfully submitted, ___________________________
Richard S. Brownlee III
P.O. Box 1069
235 East High Street
__________________________ Jefferson City, Missouri 65102
Penny G. Baker
Deputy General Counsel Attorney for
David Woodsmall Williams Natural Gas Company
Eugene Mitchell, Jr.
P.O. Box 360
Jefferson City, MO 65102
Attorneys for the Staff of the ___________________________
Missouri Public Service Dennis K. Morgan
Commission Vice President - Legal and
Secretary
Southern Union Company
504 Lavaca, Suite 900
___________________________ Austin, Texas 78701
Lewis R. Mills, Jr.
Deputy Public Counsel James C. Swearengen
Douglas E. Micheel Gary W. Duffy
P.O. Box 7800 312 East Capitol Avenue
Jefferson City, MO 65102 P.O. Box 456
Jefferson City, Missouri 65102
Attorney for Office of the
Public Counsel Attorneys for Southern Union
Company
___________________________
J. Michael Peters ___________________________
Western Resources, Inc. James P. Zakoura
818 Kansas Avenue 650 Commerce Plaza
P.O. Box 889 7300 West 100th St.
Topeka, Kansas 66612 Overland Park, Kansas 66210
Attorney for Western Resources Attorney for Riverside
Pipeline Company, L.P.
___________________________
Stuart W. Conrad ___________________________
2345 Grand Avenue Mark G. English
2600 Mutual Benefit Life 1201 Walnut
Kansas City, Missouri 64108 P.O. Box 418679
Kansas City, Missouri 64141
Attorney for
Midwest Gas Users' Association Attorney for Kansas City Power
and Armco, Inc. & Light Company
18<PAGE>
____________________________
Patrick A. Baumhoer
P.O. Box 1280
Jefferson City, MO 65102
Attorney for Mountain Iron &
Supply Company
___________________________
Paul W. Phillips
U.S. Department of Energy
1000 Independence Ave., S.W.
Rm. 6D-033
Washington, D.C. 20585
Attorney for U.S. Department
of Energy
12572
19<PAGE>
For More Information:
Sarah Russ
Southern Union Company
512-370-8240
Tom Sloan
Director
Corporate Communications
Western Resources, Inc.
913-575-6436
MISSOURI PSC APPROVES SOUTHERN UNION COMPANY'S
PURCHASE OF GAS PROPERTIES FROM WESTERN RESOURCES, INC.
____________________
SOUTHERN UNION COMPANY COMPLETES RIGHTS OFFERING
AUSTIN, TX (December 30, 1993) - Southern Union Company
(AMEX: SUG) and Western Resources, Inc. (NYSE:WR) announced that
on Wednesday, December 29, the Missouri Public Service Commission
(MPSC) issued all MPSC approvals necessary for Southern Union to
purchase the western Missouri natural gas distribution operations
of Western Resources. The acquisition will almost double the
size of Southern Union, with the addition of 462,000 customers in
service areas including Kansas City, Joplin and St. Joseph. The
acquisition is expected to close on January 31, 1994.
The MPSC's order is effective January 9, 1994. Its approval
of the acquisition is subject to the terms of a stipulation and
settlement agreement among Southern Union, Western Resources, the
MPSC Staff and all intervenors in this MPSC proceeding, including
the Missouri Office of Public Counsel. The stipulations to the
acquisition include:
1) Southern Union must, within three years of the
closing of the sale, attain a total debt to total
--MORE--
<PAGE>
-2-
capital ratio that does not exceed Standard and
Poor's Corporation's Utility Financial Benchmark
ratio for the lowest investment grade investor-
owned natural gas distribution company (at this
time, such ratio would be approximately 58%) or it
will not be able to implement any general rate
increase;
2) Southern Union cannot implement a general rate
increase in Missouri for at least three years
after the closing of the sale except in certain
unusual events;
3) Western Resources must transfer an additional $9
million to the Missouri employees' pension funds
to be transferred to Southern Union;
4) Southern Union must, beginning in 1994, contribute
an additional $3 million to the Missouri
employees' pension funds;
5) The MPSC Staff will recommend that the MPSC issue
new accounting orders with respect to the Missouri
business that would essentially continue certain
MPSC accounting orders now in effect with respect
to Western Resources;
--MORE--
<PAGE>
-3-
6) Southern Union will establish a corporate-owned
life insurance program to offset retiree medical
costs reflected pursuant to FASB 106; and
7) Southern Union will continue all Western Resources
natural gas safety programs.
Southern Union stated that it intends to fund the
acquisition with the proceeds from its subscription rights
offering for common stock that expired December 23, 1993, and its
previously announced underwritten offering of debt securities.
The rights offering for 2 million shares at $25 per share was
oversubscribed and is expected to be closed out on December 31,
1993. The debt offering, to be managed by Merrill Lynch & Co.
and Smith Barney Shearson, Inc., is scheduled to occur in January
1994.
Southern Union and Western Resources entered into an
agreement with respect to the acquisition on July 9, 1993, which
includes as conditions to closing the receipt of certain other
consents and approvals.
Southern Union presently provides natural gas service to
approximately 475,000 customers in Texas and Oklahoma.
Western Resources, through its operating companies KPL,
KG&E, and Gas Service, provides natural gas service to
approximately 1,083,000 customers in Kansas, western Missouri and
northern Oklahoma, and electric service to 578,000 customers in
eastern and central Kansas. Western Resources is headquartered
in Topeka, Kansas.
--END--
12538.2
<PAGE>
