SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d)
OF THE SEURITIES EXCHANGE ACT OF 1934
Date of Report: November 12, 1999
SEMCO ENERGY, INC.
(Exact name of registrant as specified in its charter)
MICHIGAN 0-8503 38-2144267
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
405 WATER STREET, PORT HURON, MICHIGAN 48060
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 810-987-2200
<PAGE>
ITEM 2. ACQUISITION OF ASSETS.
On November 1, 1999, SEMCO Energy, Inc. ("SEMCO Energy") closed on its
previously announced acquisition of ENSTAR Natural Gas Company and Alaska
Pipeline Company (together known as "ENSTAR"). The Anchorage-based natural gas
distribution and natural gas transmission companies were formerly owned by Ocean
Energy, Inc. SEMCO Energy acquired ENSTAR for approximately $290.5 million in
cash, which includes adjustments for working capital and the purchase of
approximately $58.7 million of ENSTAR debt held by Ocean Energy, and the accrued
interest thereon.
The acquisition was approved by the Regulatory Commission of Alaska and the
Federal Trade Commission and has been financed initially through a short-term
credit facility from a syndicate of banks until permanent financing of equity
and long-term debt is arranged. With the completion of the acquisition, the
Company will be reorganized so that ENSTAR Natural Gas Company and SEMCO Energy
Gas Company operate as divisions of SEMCO Energy and Alaska Pipeline Company
operates as a subsidiary of SEMCO Energy. The acquisition will be accounted for
using the purchase method of accounting.
Within 60 days of the date of this report, SEMCO Energy will file a Form
8-K containing ENSTAR's combined statements of financial position as of
September 30, 1999, December 31, 1998 and December 31, 1997, and the related
combined statements of income and cash flows for each of the years in the
three-year period ended December 31, 1998 and for the nine months ended
September 30, 1999 and 1998. In addition, the Form 8-K will include a pro forma
combined statement of financial position as of September 30, 1999 and pro forma
statements of income for the year ended December 31, 1998 and the nine months
ended September 30, 1999.
ITEM 7.(c) EXHIBITS.
99.1 Regulatory Commission of Alaska Order Approving Applications,
Subject to Conditions; and Requiring Filings.
<PAGE>
SIGNATURES
----------
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 thereunto duly authorized.
SEMCO Energy, Inc.
(Registrant)
Dated: November 12, 1999 By:/s/Sebastian Coppola
_________________________________
Sebastian Coppola
Senior Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Form 8-K
November 12, 1999
- 4 -
<TABLE>
<CAPTION>
EXHIBIT INDEX
Form 8-K
November 12, 1999
Exhibit No. Description Filed
- ----------- --------------------------------------------------------------------- --------------------------------------
Herewith By Reference
--------- ------------
<C> <S> <C> <C>
99.1 Regulatory Commission of Alaska Order Approving Applications, X
Subject to Conditions; and Requiring Filings.
</TABLE>
STATE OF ALASKA
THE REGULATORY COMMISSION OF ALASKA
BEFORE COMMISSIONERS: G. NANETTE THOMPSON, CHAIR
BERNIE SMITH
PATRICIA M. DEMARCO
WILL ABBOTT
JAMES S. STRANDBERG
IN THE MATTER OF THE APPLICATION FOR )
TRANSFER OF THE CERTIFICATE OF PUBLIC ) U-99-93
CONVENIENCE AND NECESSITY NO. 4 TO )
OPERATE AS A NATURAL GAS DISTRIBUTION ) ORDER NO. 1
PUBLIC UTILITY FROM OCEAN ENERGY, )
INC., TO SEMCO ENERGY, INC. )
- --------------------------------------------
IN THE MATTER OF THE APPLICATION FOR ) U-99-94
APPROVAL OF THE TRANSFER OF CONTROL )
OF ALASKA PIPELINE COMPANY, HOLDER OF ) ORDER NO. 1
CERTIFICATE OF PUBLIC CONVENIENCE AND )
NECESSITY NO. 141 TO OPERATE AS A )
NATURAL GAS PIPELINE, FROM OCEAN )
ENERGY, INC., TO SEMCO ENERGY, INC. )
- --------------------------------------------
ORDER APPROVING APPLICATIONS, SUBJECT TO
CONDITIONS; AND REQUIRING FILINGS
BY THE COMMISSION:
ON JULY 30, 1999, OCEAN ENERGY, INC. (OCEAN), AND SEMCO
ENERGY, INC. (SEMCO), FILED JOINT APPLICATIONS FOR APPROVAL OF THE
TRANSFER OF CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY
(CERTIFICATE) NO. 4, HELD BY ENSTAR NATURAL GAS COMPANY (ENSTAR),
AND FOR A TRANSFER OF CONTROLLING INTEREST IN ALASKA PIPELINE
COMPANY (APLC), HOLDER OF CERTIFICATE NO. 141 (DOCKETS U-99-93 AND
U-99-93(1)/U-99-94(1) - (10/19/99)
PAGE 1 OF 6
<PAGE>
U-99-94, RESPECTIVELY). IN EACH CASE THE REQUESTED TRANSFERS WERE
FROM OCEAN TO SEMCO.
ENSTAR IS CURRENTLY A DIVISION OF OCEAN. APLC IS
CURRENTLY A WHOLLY-OWNED SUBSIDIARY OF OCEAN. CERTIFICATE NO. 4
AUTHORIZES ENSTAR TO OPERATE AS A NATURAL GAS DISTRIBUTION PUBLIC
UTILITY AND CERTIFICATE NO. 141 AUTHORIZES APLC TO OPERATE A
NATURAL GAS TRANSMISSION PIPELINE SYSTEM. ENSTAR AND APLC ARE
SUBJECT TO ECONOMIC REGULATION AND ARE MANAGED AND REGULATED
TOGETHER AS A SINGLE UNIT.
OCEAN AND SEMCO REQUESTED THAT THE APPLICATIONS BE
APPROVED BY THE COMMISSION IN A FINAL ORDER ISSUED NO LATER THAN
NOVEMBER 30, 1999, AND THAT THE ORDER ALSO STATE THAT NO OTHER
REGULATORY APPROVALS ARE REQUIRED FROM THE COMMISSION.
THE APPLICATIONS WERE NOTICED TO THE PUBLIC ON AUGUST 5,
1999, WITH A CLOSING DATE OF SEPTEMBER 7, 1999, FOR SUBMISSION OF
COMMENTS IN FAVOR OF, OR IN OPPOSITION TO, THE FILINGS.
ON SEPTEMBER 7, 1999, MARATHON OIL COMPANY AND MARATHON
ALASKA NATURAL GAS COMPANY (COLLECTIVELY MARATHON) FILED COMMENTS
EXPRESSING CONCERN THAT SEMCO WAS PAYING CONSIDERABLY MORE THAN
BOOK VALUE FOR THE ASSETS OF ENSTAR/APLC AND WAS CONCERNED ABOUT
THE ASSOCIATED IMPACT ON RATES. MARATHON POINTED OUT THAT
ENSTAR/APLC ARE LONG OVERDUE FOR A RATE CASE AND EXPRESSED CONCERN
REGARDING THE POTENTIAL FOR SUBSIDIZATION OF SEMCO'S OTHER
OPERATIONS. MARATHON ALSO RECOMMENDED THAT THE COMMISSION ADDRESS
RISKS TO THE PUBLIC AND IMPOSE THE SAME CONDITIONS ON ENSTAR/APLC
U-99-93(1)/U-99-94(1) - (10/19/99)
PAGE 2 OF 6
<PAGE>
AS IT DID IN DOCKET NO. U-84-67.(1) ON SEPTEMBER 14, 1999,
ENSTAR/APLC FILED ITS RESPONSE TO MARATHON'S COMMENTS.
ON SEPTEMBER 22, 1999, STAFF SUBMITTED ITS ANALYSIS AND
RECOMMENDATION (REPORT) REGARDING THE JOINT APPLICATIONS. STAFF'S
REPORT SETS OUT IN DETAIL THE HISTORY OF THE PROCEEDINGS, THE
PUBLIC NOTICING OF THE APPLICATIONS, AND STAFF'S FINDINGS AND
RECOMMENDATIONS REGARDING DISPOSITION OF THE APPLICATIONS. A COPY
OF STAFF'S REPORT IS ATTACHED TO THIS ORDER AS AN APPENDIX.
AMONG OTHER THINGS, STAFF CONCLUDED THAT SEMCO IS FIT,
WILLING, AND ABLE TO ASSUME CONTROLLING INTEREST IN ENSTAR/APLC,
THAT THE PROPOSED TRANSFERS ARE IN THE PUBLIC INTEREST, AND THAT
CONTINGENT UPON CLOSING THE TRANSFERS, THEY SHOULD BE APPROVED,
SUBJECT TO CONDITIONS.
DISCUSSION
THE COMMISSION'S STANDARD FOR EVALUATING APPLICATIONS
OF THIS TYPE IS WHETHER THE PROPOSED TRANSFER IS AFFIRMATIVELY
CONSISTENT WITH THE PUBLIC INTEREST UNDER THE CRITERIA FOR
CERTIFICATION SET OUT IN AS 42.05. THE COMMISSION HAS CAREFULLY
CONSIDERED THE EVIDENCE PRESENTED IN THIS PROCEEDING, INCLUDING
STAFF'S RECOMMENDATION IN LIGHT OF THIS STANDARD, AND CONCLUDES
THAT THE APPLICATION SHOULD BE APPROVED. THE COMMISSION FINDS
______________
(1) THIS DOCKET IS ENTITLED: IN THE MATTER OF THE APPLICATION
BY SEAGULL ENERGY CORPORATION TO ACQUIRE FROM ENSTAR CORPORATION
THE GAS DISTRIBUTION DIVISION ENSTAR NATURAL GAS COMPANY, HOLDER
OF CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY NO. 4, AND THE
STOCK OF ALASKA PIPELINE COMPANY, HOLDER OF CERTIFICATE OF PUBLIC
CONVENIENCE AND NECESSITY NO. 141.
U-99-93(1)/U-99-94(1) - (10/19/99)
PAGE 3 OF 6
<PAGE>
THAT BENEFITS WOULD RESULT FROM THE PROPOSED TRANSFER, THAT THE
TRANSFER IS CONSISTENT WITH THE PUBLIC INTEREST, AND THAT ANY
POTENTIAL RISKS CAN BE MITIGATED BY PLACING CONDITIONS ON THE
CERTIFICATE. ACCORDINGLY, THE COMMISSION ACCEPTS STAFF'S
RECOMMENDATION TO APPROVE THE APPLICATIONS SUBJECT TO CONDITIONS
MORE FULLY DELINEATED IN STAFF'S REPORT AND AS DISCUSSED IN THIS
ORDER. STAFF'S REPORT IS INCORPORATED HEREIN BY REFERENCE AND
ADOPTED AS THE COMMISSION'S FINDINGS OF FACT AND CONCLUSIONS OF
LAW.
THE COMMISSION REMINDS ENSTAR AND APLC THAT ALL
COMMITMENTS AND OBLIGATIONS MADE BY THEM OR PLACED ON THEM BY THIS
COMMISSION REMAIN IN EFFECT UNDER THE OWNERSHIP CHANGE APPROVED
BY THIS ORDER.
ORDER
THE COMMISSION FURTHER ORDERS:
1. THE JOINT APPLICATION FILED BY OCEAN ENERGY, INC.,
AND SEMCO ENERGY, INC., TO TRANSFER OWNERSHIP OF CERTIFICATE OF
PUBLIC CONVENIENCE AND NECESSITY NO. 4 HELD BY ENSTAR NATURAL GAS
COMPANY TO SEMCO ENERGY, INC., IS APPROVED, CONTINGENT UPON
CLOSING THE TRANSFER AND SUBJECT TO THE CONDITIONS SET OUT IN
ORDERING PARAGRAPH NOS. 3 THROUGH 10 OF THIS ORDER.
2. THE JOINT APPLICATION FILED BY OCEAN ENERGY, INC.,
AND SEMCO ENERGY, INC., TO TRANSFER CONTROLLING INTEREST IN ALASKA
PIPELINE COMPANY TO SEMCO ENERGY, INC., IS APPROVED, CONTINGENT
U-99-93(1)/U-99-94(1) - (10/19/99)
PAGE 4 OF 6
<PAGE>
UPON CLOSING THE TRANSFER AND SUBJECT TO CONDITIONS SET OUT IN
ORDERING PARAGRAPH NOS. 3 THROUGH 10, BELOW.
3. WITHIN TEN DAYS AFTER CLOSING THE TRANSFER, OCEAN
ENERGY, INC., AND SEMCO ENERGY, INC., SHALL NOTIFY THE COMMISSION
OF THE FINAL CLOSING DATE OF THE PURCHASE AND SALE AGREEMENT
REFERRED TO IN THE COMMISSION STAFF REPORT ATTACHED AS AN APPENDIX
HERETO.
4. BY THIS ORDER, ENSTAR NATURAL GAS COMPANY/ALASKA
PIPELINE COMPANY ARE PUT ON NOTICE THAT NO ACQUISITION ADJUSTMENT
WILL BE ALLOWED IN ASSOCIATION WITH THESE TRANSACTIONS FOR
PURPOSES OF SETTING RATES IN FUTURE RATE PROCEEDINGS UNLESS THE
COMMISSION WERE TO DETERMINE A SHOWING HAS BEEN MADE THAT IT WOULD
BE IN THE PUBLIC INTEREST.
5. BY 4 P.M., JULY 1, 2000, ENSTAR NATURAL GAS
COMPANY/ALASKA PIPELINE COMPANY SHALL FILE WITH THE COMMISSION,
IN A NEW DOCKET, THE DOCUMENTATION REQUIRED BY 3 AAC 48.275(A) AND
3 AAC 48.275(H) USING FINANCIAL DATA FOR THE YEAR 1999.
MEANWHILE, THE CURRENT RATES OF ENSTAR NATURAL GAS COMPANY/ALASKA
PIPELINE COMPANY SHALL BE ALLOWED TO REMAIN IN EFFECT ON AN
INTERIM BASIS.
6. SEMCO ENERGY, INC., SHALL MAINTAIN THE ACCOUNT AND
OPERATING BOOKS AND RECORDS OF ENSTAR NATURAL GAS COMPANY AND
ALASKA PIPELINE COMPANY SEPARATE FROM EACH OTHER AND FROM THE
BOOKS OF SEMCO ENERGY, INC., AND ITS AFFILIATES.
U-99-93(1)/U-99-94(1) - (10/19/99)
PAGE 5 OF 6
<PAGE>
7. SEMCO ENERGY, INC., IS PROHIBITED FROM ENCUMBERING
ENSTAR NATURAL GAS COMPANY/ALASKA PIPELINE COMPANY ASSETS BY USING
THEM AS COLLATERAL FOR FINANCING NON-UTILITY OR NON-REGULATED
UTILITY BUSINESS ACTIVITIES.
8. SEMCO ENERGY, INC., IS PROHIBITED FROM SELLING GAS
CURRENTLY UNDER CONTRACT TO ENSTAR NATURAL GAS COMPANY/ALASKA
PIPELINE COMPANY TO ANOTHER ENTITY AND SHALL CONTINUE TO BE
REQUIRED TO SUBMIT FUTURE GAS SUPPLY CONTRACTS TO THE COMMISSION
FOR APPROVAL.
9. WITHIN FIFTEEN DAYS OF THE FINAL CLOSING DATE
REPORTED TO THE COMMISSION IN ORDERING PARAGRAPH NO. 3 OF THIS
ORDER, SEMCO ENERGY, INC., SHALL ADOPT, IN ACCORDANCE WITH
3 AAC 48.400 AND 3 AAC 48.410, THE EXISTING TARIFF FILED BY ENSTAR
NATURAL GAS COMPANY/ALASKA PIPELINE COMPANY.
10. WITHIN THIRTY DAYS OF THE FINAL CLOSING DATE
REPORTED TO THE COMMISSION IN ORDERING PARAGRAPH NO. 3 OF THIS
ORDER, ENSTAR NATURAL GAS COMPANY/ALASKA PIPELINE COMPANY SHALL
FILE A COMPLETE TARIFF REFLECTING THE CHANGE IN OWNERSHIP FROM
OCEAN ENERGY, INC., TO SEMCO ENERGY, INC.
DATED AND EFFECTIVE AT ANCHORAGE, ALASKA, THIS 19TH DAY OF
OCTOBER, 1999.
BY DIRECTION OF THE COMMISSION
(COMMISSIONERS G. NANETTE THOMPSON, CHAIR, AND
WILL ABBOTT, NOT PARTICIPATING.)
( S E A L )
U-99-93(1)/U-99-94(1) - (10/19/99)
PAGE 6 OF 6
<PAGE>
STATE OF ALASKA
THE REGULATORY COMMISSION OF ALASKA
1016 WEST SIXTH AVENUE, SUITE 400
ANCHORAGE, ALASKA 99501
M E M O R A N D U M
TO: COMMISSIONERS DATE: SEPTEMBER 22, 1999
G. NANETTE THOMPSON, CHAIR
BERNIE SMITH
PATRICIA M. DEMARCO
WILL ABBOTT
JAMES S. STRANDBERG
FROM: DONALD W. BAXTER, P.E.
UTILITY ENGINEERING ANALYST IV
SUBJECT: DOCKETS U-99-93/94; APPLICATIONS FOR TRANSFER OF
CERTIFICATE AND CONTROLLING INTEREST
STATEMENT OF CASE
BEFORE THE COMMISSION ARE JOINT APPLICATIONS FILED BY OCEAN
ENERGY, INC. (OCEAN) AND SEMCO ENERGY, INC. (SEMCO) FOR APPROVAL
OF THE TRANSFER OF THE CERTIFICATE OF PUBLIC CONVENIENCE AND
NECESSITY (CERTIFICATE) FOR ENSTAR NATURAL GAS COMPANY (ENSTAR),
AND FOR TRANSFER OF CONTROLLING INTEREST IN ALASKA PIPELINE
COMPANY (APLC), FROM OCEAN TO SEMCO (DOCKETS U-99-93 AND U-99-94,
RESPECTIVELY).
RECOMMENDATION
1. THE COMMISSION STAFF (STAFF) RECOMMENDS THAT SEMCO BE FOUND
FIT, WILLING, AND ABLE TO ACQUIRE CONTROLLING INTEREST IN
ENSTAR AND APLC, AND THAT THE PROPOSED TRANSFERS BE FOUND TO BE
IN THE PUBLIC INTEREST. CONTINGENT UPON CLOSING THE
TRANSFERS, THE APPLICATIONS SHOULD BE APPROVED SUBJECT TO THE
FOLLOWING CONDITIONS:
- -- THAT OCEAN/SEMCO BE REQUIRED TO NOTIFY THE COMMISSION OF THE
FINAL CLOSING DATE OF THE PURCHASE AND SALE AGREEMENT (PURCHASE
AGREEMENT) WITHIN TEN (10) DAYS THEREAFTER
- -- THAT ENSTAR/APLC BE PLACED ON NOTICE THAT NO ACQUISITION
ADJUSTMENT WILL BE ALLOWED IN ASSOCIATION WITH THESE
STAFF RECOMMENDATION - U-99-93/U-99-94 ORDER U-99-93(1)/U-99-94(1)
SEPTEMBER 22, 1999 APPENDIX
PAGE 1 OF 10 PAGE 1 OF 10
<PAGE>
TRANSACTIONS FOR PURPOSES OF SETTING RATES IN FUTURE RATE
PROCEEDINGS UNLESS THE COMMISSION WERE TO DETERMINE A SHOWING
HAS BEEN MADE THAT IT WOULD BE IN THE PUBLIC INTEREST
- -- THAT ENSTAR/APLC'S RATES BE ALLOWED TO REMAIN IN EFFECT ON AN
INTERIM BASIS AND THAT THEY BE REQUIRED TO MAKE A FILING IN
COMPLIANCE WITH 3 AAC 48.275(A) AND 3 AAC 48.275(H) BY JULY 1,
2000, USING FINANCIAL DATA FOR THE YEAR 1999
- -- THAT SEMCO BE REQUIRED TO CONTINUE THE ESTABLISHED PRACTICE
OF MAINTAINING THE ACCOUNT AND OPERATING BOOKS AND RECORDS OF
ENSTAR AND APLC SEPARATE FROM EACH OTHER AND FROM THE BOOKS
OF SEMCO AND ITS AFFILIATES
- -- THAT SEMCO BE PROHIBITED FROM ENCUMBERING ENSTAR/APLC'S
ASSETS BY USING THEM AS COLLATERAL FOR FINANCING NON-UTILITY
OR NON-REGULATED UTILITY BUSINESS ACTIVITIES
- -- THAT SEMCO BE PROHIBITED FROM SELLING GAS CURRENTLY UNDER
CONTRACT TO ENSTAR/APLC TO ANOTHER ENTITY AND CONTINUE TO BE
REQUIRED TO SUBMIT FUTURE GAS SUPPLY CONTRACTS TO THE
COMMISSION FOR APPROVAL
2. SEMCO SHOULD BE ALLOWED TO ADOPT ENSTAR/APLC'S EXISTING TARIFF
IN ITS ENTIRETY AND BE REQUIRED TO FILE AN ADOPTION NOTICE FOR
THE TARIFF AS REQUIRED IN 3 AAC 48.400, AND FOLLOW THE
REQUIREMENTS OF THAT REGULATION. THE ADOPTION NOTICE SHOULD
BE FILED WITHIN 15 DAYS AFTER THE DATE OF CLOSING OF THE
PURCHASE AGREEMENT. STAFF ALSO RECOMMENDS THAT ENSTAR BE
REQUIRED TO FILE A COMPLETE TARIFF REFLECTING THE CHANGE IN
OWNERSHIP OF ENSTAR AND APLC FROM OCEAN TO SEMCO NO LATER THAN
30 DAYS AFTER THE DATE THE PURCHASE AGREEMENT IS CLOSED.
PROCEDURAL HISTORY
ON JULY 30, 1999, OCEAN AND SEMCO FILED JOINT APPLICATIONS
REQUESTING APPROVAL OF THE TRANSFER OF ENSTAR'S CERTIFICATE AND
FOR TRANSFER OF CONTROLLING INTEREST IN APLC, BOTH FROM OCEAN TO
SEMCO. OCEAN AND SEMCO REQUESTED THAT THESE REQUESTS BE APPROVED
BY THE COMMISSION IN A FINAL ORDER ISSUED NO LATER THAN NOVEMBER
30, 1999, AND THAT THE ORDER ALSO STATE THAT NO OTHER REGULATORY
APPROVALS ARE REQUIRED FROM THE COMMISSION BY OCEAN, ENSTAR/APLC
OR SEMCO TO EFFECTUATE THESE TRANSACTIONS.
ON AUGUST 12, SEPTEMBER 7, SEPTEMBER 10, SEPTEMBER 14, AND
SEPTEMBER 17, 1999, ADDITIONAL INFORMATION WAS FILED TO SUPPLEMENT
THE APPLICATIONS.
THE APPLICATIONS WERE NOTICED TO THE PUBLIC ON AUGUST 5, 1999,
WITH COMMENTS DUE BY SEPTEMBER 7, 1999. ON SEPTEMBER 7, 1999,
STAFF RECOMMENDATION - U-99-93/U-99-94 ORDER U-99-93(1)/U-99-94(1)
SEPTEMBER 22, 1999 APPENDIX
PAGE 2 OF 10 PAGE 2 OF 10
<PAGE>
MARATHON OIL COMPANY AND MARATHON ALASKA NATURAL GAS COMPANY
(COLLECTIVELY MARATHON) FILED COMMENTS EXPRESSING CONCERN THAT
SEMCO WAS PAYING CONSIDERABLY MORE THAN BOOK VALUE FOR THE ASSETS
OF ENSTAR/APLC AND WAS CONCERNED ABOUT THE ASSOCIATED IMPACT ON
RATES. MARATHON POINTED OUT THAT ENSTAR/APLC ARE LONG OVER DUE
FOR A RATE CASE AND EXPRESSED CONCERN REGARDING THE POTENTIAL FOR
SUBSIDIZATION OF SEMCO'S OTHER OPERATIONS. MARATHON ALSO
RECOMMENDED THAT THE COMMISSION ADDRESS RISKS TO THE PUBLIC AND
IMPOSE THE SAME CONDITIONS ON ENSTAR/APLC AS IT DID IN DOCKET NO.
U-84-67.(1) ON SEPTEMBER 14, 1999, ENSTAR/APLC FILED ITS RESPONSE
TO MARATHON'S COMMENTS.
ISSUES
1. SHOULD ENSTAR'S CERTIFICATE AND CONTROLLING INTEREST IN APLC BE
TRANSFERRED TO SEMCO?
- -- IS SEMCO FIT, WILLING, AND ABLE TO ASSUME OWNERSHIP AND
OPERATION OF ENSTAR AND APLC?
- -- IS APPROVAL OF THE APPLICATIONS IN THE PUBLIC INTEREST?
2. IF THE TRANSFERS ARE APPROVED, SHOULD CONDITIONS OR
REQUIREMENTS BE IMPOSED UPON SEMCO, OCEAN, AND/OR ENSTAR/APLC?
3. IF THE TRANSFERS ARE APPROVED, SHOULD ANY ACTION BE TAKEN WITH
RESPECT TO THE ENSTAR/APLC TARIFF?
INFORMATION REGARDING ENSTAR AND APLC
ENSTAR, HOLDER OF CERTIFICATE NO. 4, IS CURRENTLY A DIVISION OF
OCEAN AND APLC, HOLDER OF CERTIFICATE NO. 141, IS A WHOLLY OWNED
SUBSIDIARY OF OCEAN.(2) CERTIFICATE NO. 4 AUTHORIZES ENSTAR TO
OPERATE AS A NATURAL GAS DISTRIBUTION PUBLIC UTILITY AND
CERTIFICATE NO. 141 AUTHORIZES APLC TO OPERATE A NATURAL GAS
________________
(1)THIS DOCKET IS ENTITLED IN THE MATTER OF THE APPLICATION BY SEAGULL ENERGY
CORPORATION TO ACQUIRE FROM ENSTAR CORPORATION THE GAS DISTRIBUTION DIVISION
ENSTAR NATURAL GAS COMPANY, HOLDER OF CERTIFICATE OF PUBLIC CONVENIENCE AND
NECESSITY NO. 4, AND THE STOCK OF ALASKA PIPELINE COMPANY, HOLDER OF CERTIFICATE
OF PUBLIC CONVENIENCE AND NECESSITY NO. 141.
(2)OCEAN WAS PREVIOUSLY NAMED SEAGULL ENERGY CORPORATION (SEAGULL). SEAGULL
RECENTLY ACQUIRED OCEAN'S PREDECESSOR THROUGH MERGER, AND THE SURVIVING
CORPORATION RETAINED THE NAME OCEAN. THE MERGER AND NAME CHANGE WERE APPROVED BY
ORDER U-98-184(1) DATED MARCH 3, 1999. THE APPLICANTS INDICATED THE REASON FOR
THE MERGER WAS TO ALLOW THE TWO COMPANIES TO BENEFIT FROM CONSOLIDATED
OPERATIONS AND ECONOMIES OF SCALE BECAUSE THEY WERE BOTH INVOLVED WITH OIL AND
GAS EXPLORATION AND PRODUCTION, AND WERE EXPERIENCING FINANCIAL DIFFICULTIES DUE
TO LOW ENERGY PRICES.
STAFF RECOMMENDATION - U-99-93/U-99-94 ORDER U-99-93(1)/U-99-94(1)
SEPTEMBER 22, 1999 APPENDIX
PAGE 3 OF 10 PAGE 3 OF 10
<PAGE>
TRANSMISSION PIPELINE SYSTEM, BOTH IN SOUTHCENTRAL ALASKA.(3)
ENSTAR AND APLC ARE SUBJECT TO ECONOMIC REGULATION AND ARE
MANAGED AND REGULATED TOGETHER AS A SINGLE UNIT. ACCORDING TO
ENSTAR/APLC'S FEDERAL ENERGY REGULATORY COMMISSION FORM NO. 2 FOR
THE YEAR ENDING DECEMBER 31, 1998 (FERC REPORT), THEY JOINTLY
HELD TOTAL ASSETS OF $194,646,291, REALIZED TOTAL OPERATING
REVENUES OF $93,592,155, AND REALIZED A NET UTILITY OPERATING
INCOME OF $15,925,997. THE APPLICANTS ASSERT THAT ENSTAR'S RATES
ARE AMONG THE LOWEST IN THE NATION.
ANALYSIS OF FITNESS, WILLINGNESS, AND ABILITY
IS SEMCO FIT, WILLING, AND ABLE TO ASSUME OWNERSHIP AND OPERATION
OF ENSTAR AND APLC?
SEMCO IS A MICHIGAN CORPORATION, INCORPORATED IN 1977, WITH ITS
PRINCIPAL OFFICES IN PORT HURON. IT IS PUBLICLY TRADED ON THE
NASDAQ STOCK EXCHANGE AND IS WIDELY HELD.(4) ACCORDING TO THE
APPLICATION SEMCO WAS MOTIVATED TO PURCHASE ENSTAR/APLC BY ITS
DESIRE TO EXPAND ITS CORE BUSINESS, THE OWNERSHIP AND OPERATION
OF NATURAL GAS DISTRIBUTION UTILITIES.(5)
STAFF BELIEVES THE COMMISSION SHOULD FIND SEMCO MANAGERIALLY AND
TECHNICALLY FIT, WILLING, AND ABLE TO ASSUME MANAGEMENT AND
CONTROL OF ENSTAR/APLC FOR A VARIETY OF REASONS. SEMCO OWNS THE
THIRD LARGEST GAS DISTRIBUTION UTILITY IN MICHIGAN WITH MORE THAN
250,000 CUSTOMERS AND THEREFORE HAS A PROVEN TRACK RECORD FOR
PROVIDING SERVICE. THE APPLICANTS ASSERT THAT SEMCO HAS
SIGNIFICANT MANAGEMENT SKILL AND EXPERIENCE. STAFF REVIEWED THE
RESUMES OF KEY SEMCO PERSONNEL AND FOUND THEM TO BE WELL
QUALIFIED FOR THEIR RESPECTIVE POSITIONS. THE APPLICANTS STATE
THAT SEMCO HAS CONTINUOUSLY MAINTAINED THE LOWEST DISTRIBUTION
CHARGES IN MICHIGAN FOR ITS CUSTOMERS. THEY ASSERT THIS IS A
REFLECTION OF SEMCO'S EMPHASIS ON HIGH QUALITY SERVICE AND
PRODUCTIVITY OF ITS EMPLOYEES. THESE ASSERTIONS ARE BACKED BY
THE RESULTS OF A 1997 SURVEY OF SEMCO'S CUSTOMERS THAT WAS
INCLUDED WITH THE APPLICATION WHICH SHOWS A HIGH DEGREE OF
CUSTOMER SATISFACTION. STAFF CONTACTED TWO STAFF MEMBERS AND ONE
_______________
(3)APLC'S PIPELINES CARRY NATURAL GAS FROM THE KENAI PENINSULA AND BELUGA GAS
FIELDS TO ENSTAR'S DISTRIBUTION NETWORK IN ANCHORAGE, THE MATANUSKA-SUSITNA
VALLEY, AND PORTIONS OF THE KENAI PENINSULA.
(4)SEMCO'S ONLY LARGE STOCKHOLDER, JIMMY C. FOSTER, IS AN INDIVIDUAL WHO
ACQUIRED A 5.1 PERCENT INTEREST AS A RESULT OF SEMCO'S ACQUISITION OF OILFIELD
MATERIALS CONSULTANTS, INC.
(5)IN ADDITION TO ITS REGULATED UTILITY BUSINESS, SEMCO OWNS A NUMBER OF
NON-REGULATED BUSINESSES. THESE INCLUDE SUBSIDIARIES IN SEVEN STATES PROVIDING
PIPELINE CONSTRUCTION, QUALITY ASSURANCE AND ENGINEERING SERVICES, AS WELL AS
PROPANE, PIPELINE AND STORAGE SERVICES.
STAFF RECOMMENDATION - U-99-93/U-99-94 ORDER U-99-93(1)/U-99-94(1)
SEPTEMBER 22, 1999 APPENDIX
PAGE 4 OF 10 PAGE 4 OF 10
<PAGE>
COMMISSIONER AT THE MICHIGAN PUBLIC SERVICE COMMISSION (MPSC),
ALL OF WHICH PROVIDED FAVORABLE COMMENTS REGARDING SEMCO. THEY
STATED THAT SEMCO'S RATES, MANAGEMENT, CUSTOMER RELATIONS, AND
RELATIONS WITH THE MPSC ARE, FOR THE MOST PART, FAVORABLE IN
COMPARISON WITH OTHER MICHIGAN GAS UTILITIES, AND THAT SEMCO HAS
BEEN INNOVATIVE IN A VARIETY OF AREAS.
SEMCO INDICATES THAT THE CLIMATE OF ITS MICHIGAN UPPER PENINSULA
SERVICE AREA IS SIMILAR TO THAT OF SOUTHCENTRAL ALASKA, AND THAT
ITS DISTRIBUTION FACILITIES WERE BUILT ABOUT THE SAME TIME AS
ENSTAR'S, IN THE EARLY 1960'S. STAFF THEREFORE BELIEVES THAT THE
OPERATION AND MAINTENANCE CHARACTERISTICS OF ENSTAR/APLC'S
FACILITIES SHOULD BE VERY SIMILAR TO THOSE OF SEMCO, AND THE TWO
SYSTEMS SHOULD COMPLEMENT EACH OTHER. SEMCO SHOULD BE WELL
QUALIFIED TO OPERATE ENSTAR/APLC'S FACILITIES.
WHILE SEMCO BELIEVES THAT THERE MAY BE LONG-TERM OPPORTUNITIES TO
ACHIEVE CERTAIN ECONOMIES OF SCALE AND TO EXPAND ENSTAR/APLC'S
BUSINESS, IT BELIEVES THEY ARE ALREADY WELL-MANAGED, EFFICIENT
OPERATIONS THAT WILL REQUIRE FEW, IF ANY SHORT-TERM CHANGES. THE
APPLICANTS ASSERT THAT NO CHANGE IN THE CURRENT MANAGEMENT OR
TECHNICAL RESOURCES OF ENSTAR/APLC IS ANTICIPATED. ENSTAR/APLC
WILL DRAW UPON SEMCO FOR CERTAIN MANAGEMENT SERVICES UNDER
CONTRACTUAL ARRANGEMENTS SIMILAR TO AN EXISTING AGREEMENT WITH
OCEAN. RATES WILL STAY THE SAME AND ENSTAR/APLC WILL CONTINUE TO
OPERATE UNDER ENSTAR'S EXISTING TARIFF.
FINANCIAL FITNESS
INCLUDED IN THE APPLICATION WAS SEMCO'S UNAUDITED SEC FORM 10-Q
FOR THE QUARTER ENDING MARCH 31, 1999. IT INDICATES THAT SEMCO
HAD TOTAL ASSETS OF $414,759,000, AND TOTAL LIABILITIES OF
$270,325,000. ITS CURRENT RATIO WAS 1.40(6) AND ITS DEBT TO EQUITY
RATIO WAS 65%/35%. THE FORM 10-Q INDICATE THAT SEMCO HAD
OPERATING REVENUES OF $594,895,000 AND OPERATING EXPENSES OF
$566,189,000, RESULTING IN AN OPERATING INCOME OF $28,706,000 FOR
THE PREVIOUS 12-MONTH PERIOD. SEMCO REALIZED A NET INCOME (WHICH
ALSO REFLECTS OTHER INCOME, INCOME TAXES, AND AN EXTRAORDINARY
CHARGE DUE TO EARLY RETIREMENT OF DEBT) OF $11,871,000. STAFF
REVIEWED SEMCO'S UNAUDITED SEC FORM 10-Q FOR THE QUARTER ENDING
JUNE 30, 1999, AND SEMCO'S AUDITED SEC FORM 10-K FOR THE YEAR
ENDING DECEMBER 31, 1998.(7) THE FORM 10-Q INDICATES THERE WERE NO
SIGNIFICANT CHANGES IN SEMCO'S FINANCIAL STATUS DURING THE SECOND
QUARTER OF 1999. THE FORM 10-K INDICATES THAT SEMCO REALIZED
POSITIVE OPERATING CASH FLOWS OF $11.0 MILLION, $9.0 MILLION, AND
$24.7 MILLION DURING THE CALENDAR YEARS 1996, 1997, AND 1998,
____________________
(6)THERE ARE $1.40 IN CURRENT ASSETS FOR EACH $1.00 IN CURRENT LIABILITIES.
(7)THESE DOCUMENTS WERE NOT INCLUDED WITH THE APPLICATION.
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<PAGE>
RESPECTIVELY. BASED UPON THE ABOVE, SEMCO APPEARS TO BE IN
SATISFACTORY FINANCIAL HEALTH.
FINANCING FOR THE PURCHASE WILL BE ACCOMPLISHED IN TWO PHASES. THE
FIRST PHASE WILL CONSIST OF A BRIDGE LOAN USED TO PAY OCEAN AT
CLOSING. SEMCO HAS A COMMITMENT FOR THIS LOAN FROM BANK OF AMERICA
IN THE AMOUNT OF $260 MILLION. THE SECOND PHASE WILL BE TO REPLACE
THE BRIDGE LOAN WITH LONG-TERM FINANCING, WHICH WILL CONSIST OF 45
TO 55 PERCENT EQUITY CAPITAL WITH THE REMAINDER BEING LONG-TERM
DEBT. SEMCO EXPECTS TO COMPLETE THE LONG-TERM FINANCING WITHIN
APPROXIMATELY SIX MONTHS OF CLOSING AND ASSERTS THAT IT HAS
EXPERIENCE IN FINANCING SUCH TRANSACTIONS.
BASED UPON THE ABOVE, STAFF BELIEVES THAT THE COMMISSION SHOULD
ALSO FIND SEMCO FIT, WILLING, AND ABLE TO ACQUIRE CONTROLLING
INTEREST IN ENSTAR AND APLC.
PUBLIC INTEREST
IS APPROVAL OF THE APPLICATIONS IN THE PUBLIC INTEREST?
THE ACQUISITIONS ARE IN THE PUBLIC INTEREST FOR A VARIETY OF
REASONS. OCEAN WAS MOTIVATED TO SELL ENSTAR/APLC BY A DESIRE TO
CONCENTRATE ON ITS CORE BUSINESS OF OIL AND GAS EXPLORATION AND
PRODUCTION AND TO REDUCE ITS DEBT IN AN ENVIRONMENT OF DECLINING
ENERGY PRICES. SEMCO WAS MOTIVATED TO PURCHASE ENSTAR/APLC BY
ITS DESIRE TO EXPAND ITS CORE BUSINESS, WHICH IS THE OWNERSHIP
AND OPERATION OF NATURAL GAS DISTRIBUTION UTILITIES, AND BECAUSE
OF ITS DESIRE TO SEEK OTHER RELATED GROWTH OPPORTUNITIES IN
ALASKA. THEREFORE, ENSTAR/APLC WILL BECOME A PART OF A GROWTH-ORIENTED
COMPANY WITH ITS PRIMARY FOCUS ON NATURAL GAS DISTRIBUTION.
FOR CONSUMERS IN RURAL AREAS TO RECEIVE AND ENJOY THE BENEFITS OF
NATURAL GAS UTILITY SERVICE, EXPANSION OF ENSTAR/APLC'S
TRANSMISSION AND DISTRIBUTION SYSTEM IS REQUIRED. THE APPLICANTS
STATED THAT SINCE 1991 SEMCO HAS ACHIEVED AN AVERAGE CUSTOMER
GROWTH RATE OF THREE PERCENT WHICH IS THE HIGHEST IN MICHIGAN AND
MORE THAN TWICE THE NATIONAL AVERAGE. THEY STATE THAT SEMCO HAS
DEVELOPED A NUMBER OF INNOVATIVE MAIN EXTENSION POLICIES THAT
HAVE PERMITTED IT TO EXTEND ITS SERVICE TO AN INCREASING NUMBER
OF CUSTOMERS IN RURAL AREAS OF MICHIGAN.
THE AVAILABILITY OF SEMCO'S POOL OF TECHNICAL, MANAGERIAL,
FINANCIAL, REGULATORY, AND ADMINISTRATIVE GAS UTILITY RESOURCES
SHOULD MAKE IT BETTER QUALIFIED TO OWN AND OPERATE ENSTAR/APLC
THAN THE CURRENT OWNER. RATEPAYERS MAY BE ABLE TO REALIZE
POTENTIAL BENEFITS UNDER SEMCO OWNERSHIP AND MANAGEMENT OF
ENSTAR/APLC DUE TO ECONOMIES OF SCALE, CONSOLIDATED MANAGEMENT,
ADMINISTRATIVE EFFICIENCIES, TAX SAVINGS, POTENTIAL REDUCTIONS IN
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SEPTEMBER 22, 1999 APPENDIX
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RATES OF RETURN ON PLANT IN SERVICE, AND OTHER FACTORS BECAUSE
SEMCO IS IN THE GAS UTILITY BUSINESS.
INHERENT WITH THE TRANSFERS ARE CERTAIN RISK FACTORS SUCH AS THE
COST OF IMPLEMENTING THE TRANSFERS; UNCERTAINTIES IN INTEGRATING
BUSINESS OPERATIONS AND OF REALIZING EXPECTED SYNERGIES AND COST
SAVINGS; RISKS GENERALLY ASSOCIATED WITH ACQUISITIONS AND THE
EXPANSION OF SEMCO'S EXISTING OPERATIONS; AND OTHER RISKS
INHERENT TO THE ENERGY INDUSTRY.(8) STAFF BELIEVES THESE RISKS ARE
ACCEPTABLE IF MITIGATED. WITH RESPECT TO THESE RISKS, THE
COMMISSION NOTED IN ORDER U-84-67(4) DATED APRIL 2, 1985,(9)
THAT SEAGULL'S CORE BUSINESS OF OIL EXPLORATION AND PRODUCTION ARE, BY
DEFINITION, RISKIER THAN THE UTILITY BUSINESS WHICH COULD
INTRODUCE PRESSURE ON THE LATTER FOR RESOURCES NECESSARY TO
SUSTAIN OR EXPAND AFFILIATED OPERATIONS. STAFF BELIEVES THAT THE
TRANSFERS ARE IN THE PUBLIC INTEREST AND THAT THEY SHOULD BE
APPROVED.
PURCHASE AGREEMENT
THE PURCHASE AGREEMENT FOR THE TRANSFERS WAS EXECUTED ON JULY 15,
1999, AND CLOSING IS SCHEDULED TO OCCUR FIVE DAYS AFTER ALL
CONDITIONS TO CLOSING ARE SATISFIED. CLOSING REQUIRES HART-SCOTT-
RODINO ANTITRUST IMPROVEMENTS ACT OF 1976 APPROVAL BY
FEDERAL ANTITRUST AUTHORITIES (WHICH WAS OBTAINED ON SEPTEMBER 2,
1999) AND APPROVAL OF THE COMMISSION. SEMCO WILL PAY OCEAN A
CASH PURCHASE PRICE OF APPROXIMATELY $290.2 MILLION. THE
PURCHASE PRICE CONSISTS OF $70 MILLION FOR APLC'S STOCK, $161.5
MILLION FOR ENSTAR, AND THE PRINCIPAL AMOUNT OF APLC'S DEBT TO
OCEAN AS OF THE CLOSING DATE WHICH IS NOT TO EXCEED $58.7 MILLION
(THE AMOUNT OF THE DEBT AS OF MARCH 31, 1999). THE PURCHASE
PRICE WILL ALSO INCLUDE THE INTEREST ACCRUED ON APLC'S DEBT. THE
PURCHASE PRICE WILL BE ADJUSTED TO ACCOUNT FOR THE AMOUNT OF
WORKING CAPITAL HELD BY ENSTAR/APLC AT CLOSING, IF NEEDED.
THE PURCHASE AGREEMENT CONTAINS CUSTOMARY PROVISIONS FOR
TRANSACTIONS OF THIS TYPE. STAFF REVIEWED THE SELLER'S AND
PURCHASER'S DISCLOSURE SCHEDULES REFERENCED THEREIN AND DID NOT
FIND THESE DOCUMENTS TO CONTAIN ANYTHING OF CONCERN. STAFF
BELIEVES THAT THE TERMS AND CONDITIONS OF THE PURCHASE AGREEMENT
___________________
(8)IN DOCKET U-84-67 THE NATIONAL FUEL GAS COMPANY IDENTIFIED ADDITIONAL RISKS
IN THAT PROCEEDING INCLUDING CONCERNS THAT THE FINANCIAL RESOURCES OF
ENSTAR/APLC COULD BE USED TO FUND OTHER PARENT COMPANY VENTURES; ENSTAR/APLC'S
ONGOING MAINTENANCE COULD BE DEFERRED TO PROVIDE CASH FOR THE PARENT COMPANY;
THE PARENT COMPANY COULD HINDER MANAGEMENT OF ENSTAR/APLC; RATEPAYERS COULD BE
MANIPULATED INTO PAYING FOR THE PARENT COMPANY'S ACQUISITION DEBT; AND COMBINING
ENSTAR/APLC WITH THE PARENT COULD ENDANGER ENSTAR/APLC'S FINANCIAL HEALTH. THESE
RISKS ALSO APPLY TO THE SUBJECT TRANSACTIONS.
(9)6 APUC 619
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SEPTEMBER 22, 1999 APPENDIX
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<PAGE>
AND ITS ATTACHMENTS ARE REASONABLE AND RECOMMENDS IT BE FOUND
CONSISTENT WITH THE PUBLIC INTEREST.
CONDITIONS
IF THE TRANSACTIONS ARE APPROVED, SHOULD CONDITIONS OR
REQUIREMENTS BE IMPOSED UPON SEMCO AND/OR OCEAN?
CLOSING OF PURCHASE AGREEMENT
IN ORDER TO ENSURE THE COMMISSION IS KEPT APPRISED OF THE STATUS OF
THE TRANSACTIONS, STAFF RECOMMENDS THAT OCEAN/SEMCO BE REQUIRED TO
NOTIFY THE COMMISSION OF THE FINAL CLOSING DATE OF THE PURCHASE
AGREEMENT WITHIN TEN (10) DAYS THEREAFTER. APPROVAL OF THE
APPLICATION SHOULD ALSO BE CONTINGENT UPON CLOSING THE
TRANSACTIONS.
ACQUISITION ADJUSTMENTS(10)
STAFF HAS ESTIMATED THE EXCESS OF PURCHASE PRICE OVER NET ASSETS AS
APPROXIMATELY $100 MILLION. STAFF BELIEVES AS 42.05.441(B)
REQUIRES THAT THE ORIGINAL COST OF THE ASSETS SHOULD BE USED IN
FUTURE RATE CASE ANALYSES RATHER THAN THE COST TO SEMCO BECAUSE THE
ORIGINAL COST IS LESS. STAFF RECOMMENDS THAT THE COMMISSION MAKE
IT A CONDITION OF APPROVAL OF THE TRANSFERS THAT NO ACQUISITION
ADJUSTMENT WILL BE ALLOWED IN FUTURE RATE PROCEEDINGS INVOLVING
ENSTAR/APLC UNLESS THE COMMISSION WERE TO APPROVE A SHOWING THAT IT
WOULD BE IN THE PUBLIC INTEREST. STAFF RECOMMENDS THE COMMISSION
NOTE THAT IT MAY CONSIDER SEMCO'S METHOD OF FINANCING ANY PURCHASE
PRICE IN EXCESS OF NET ASSETS (EQUITY) ACQUIRED, SHOULD A DOUBLE
LEVERAGE ADJUSTMENT TO ENSTAR/APLC'S RATE OF RETURN ON EQUITY BE
DEEMED APPROPRIATE IN FUTURE RATE CASES.
RATES
AS POINTED OUT IN MARATHON'S COMMENTS, ENSTAR/APLC RATES HAVE NOT
BEEN REVIEWED FOR 15 YEARS. MARATHON INDICATED THAT A RATE CASE
IS LONG OVER DUE. STAFF AGREES A RATE CASE IS WARRANTED
IRRESPECTIVE OF THE IMPACT OF THESE TRANSACTIONS AND BELIEVES
THAT SEMCO SHOULD BE REQUIRED TO ADOPT ENSTAR/APLC'S EXISTING
RATES ON AN INTERIM BASIS, AND THAT ENSTAR/APLC BE REQUIRED TO
MAKE A FILING IN COMPLIANCE WITH 3 AAC 48.275(A) AND 3 AAC
48.275(H) BY JULY 1, 2000, USING FINANCIAL DATA FOR THE YEAR
1999. THE 3 AAC 48.275(H) COST OF SERVICE STUDY IS NEEDED TO
REFLECT CHANGES IN THE COMPOSITION OF CUSTOMER CLASSES THAT MAY
HAVE OCCURRED OVER THE YEARS. SINCE THE APPLICANTS ASSERT THAT
MINIMAL CHANGES ARE ANTICIPATED TO ENSTAR/APLC'S OPERATIONS UNDER
____________________
(10)IN ITS RESPONSE TO MARATHON'S COMMENTS FILED ON SEPTEMBER 14, 1999,
ENSTAR/APLC STATED THAT SEMCO IS NOT REQUESTING AN ACQUISITION ADJUSTMENT.
STAFF RECOMMENDATION - U-99-93/U-99-94 ORDER U-99-93(1)/U-99-94(1)
SEPTEMBER 22, 1999 APPENDIX
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<PAGE>
SEMCO MANAGEMENT, USING 1999 DATA SHOULD RESULT IN A TEST PERIOD
REASONABLY REPRESENTATIVE OF EXPECTED ONGOING OPERATIONS AND WILL
PROVIDE A GOOD BENCHMARK FOR MEASURING ACTUAL ADJUSTMENTS UNDER
SEMCO OWNERSHIP AS THEY OCCUR IN THE FUTURE.
CONDITIONS REQUIRED IN ORDER U-84-67(4) (11)
WHEN THE COMMISSION APPROVED THE TRANSFER OF ENSTAR/APLC FROM ITS
PREVIOUS OWNER, ENSTAR CORPORATION, TO SEAGULL IN THE ABOVE
REFERENCED ORDER, APPROVAL WAS SUBJECT TO SEVERAL CONDITIONS.
BASED UPON ITS REVIEW OF THOSE CONDITIONS STAFF BELIEVES THAT THE
FOLLOWING CONDITIONS SHOULD BE CARRIED THROUGH TO THESE
TRANSACTIONS:
- -- SEMCO SHOULD BE REQUIRED TO CONTINUE THE ESTABLISHED PRACTICE
OF MAINTAINING THE ACCOUNT AND OPERATING BOOKS AND RECORDS OF
ENSTAR AND APLC SEPARATE FROM EACH OTHER AND FROM THE BOOKS OF
SEMCO AND ITS AFFILIATES. THIS WILL PROVIDE THE ONGOING DATA
BASE NECESSARY FOR MONITORING ALL FACETS OF ENSTAR/APLC AND
FOR INVESTIGATING ANY MATTERS WHICH COME TO THE COMMISSION'S
ATTENTION.
- -- SEMCO SHOULD BE PROHIBITED FROM ENCUMBERING ENSTAR/APLC'S
ASSETS BY USING THEM AS COLLATERAL FOR FINANCING NON-UTILITY
OR NON-REGULATED UTILITY BUSINESS ACTIVITIES. THIS WILL
ASSURE THAT NO INDIRECT WEAKENING OF ENSTAR/APLC'S FINANCIAL
CONDITION OCCURS AND WILL MINIMIZE THE POTENTIAL FOR
FORECLOSURE ON ITS ASSETS.
- -- SEMCO SHOULD BE PROHIBITED FROM SELLING GAS CURRENTLY UNDER
CONTRACT TO ENSTAR/APLC TO ANOTHER ENTITY AND CONTINUE TO BE
REQUIRED TO SUBMIT FUTURE GAS SUPPLY CONTRACTS TO THE
COMMISSION FOR APPROVAL.
TARIFF
SHOULD ANY ACTION BE TAKEN WITH RESPECT TO THE ENSTAR/APLC TARIFF
IF THE PROPOSED TRANSFERS ARE APPROVED?
SEMCO HAS INDICATED THAT ENSTAR'S CURRENT TARIFF, INCLUDING
RATES, WILL NOT CHANGE AS A RESULT OF THE TRANSFERS.(12) STAFF
RECOMMENDS THAT ENSTAR/APLC BE REQUIRED TO FILE TARIFF ADOPTION
__________________
(11)6 APUC 612
(12)APLC DOES NOT MAINTAIN A TARIFF AT THE COMMISSION BECAUSE BOTH APLC AND
ENSTAR ARE REGULATED AS A SINGLE ENTITY. APLC'S RATES HAVE BEEN INCORPORATED
INTO ENSTAR'S TARIFF.
STAFF RECOMMENDATION - U-99-93/U-99-94 ORDER U-99-93(1)/U-99-94(1)
SEPTEMBER 22, 1999 APPENDIX
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<PAGE>
NOTICE REFLECTING THE CHANGE IN OWNERSHIP OF ENSTAR/APLC FROM
OCEAN TO SEMCO IN ACCORDANCE WITH 3 AAC 48.400. THE ADOPTION
NOTICE SHOULD BE FILED NO LATER THAN 15 DAYS AFTER THE PURCHASE
AGREEMENT IS CLOSED. STAFF ALSO RECOMMENDS THAT ENSTAR/APLC BE
REQUIRED TO FILE A COMPLETE TARIFF REFLECTING THE CHANGE IN
OWNERSHIP OF ENSTAR AND APLC FROM OCEAN TO SEMCO. ENSTAR/APLC
HAS INFORMED STAFF THAT THE NEW TARIFF IS NOW FULLY COMPUTERIZED,
AND STAFF THEREFORE RECOMMENDS THAT IT BE FILED NO LATER THAN 30
DAYS AFTER THE DATE THE PURCHASE AGREEMENT IS CLOSED.
CONCLUSION
STAFF BELIEVES THAT SEMCO IS FIT, WILLING, AND ABLE TO ASSUME
CONTROLLING INTEREST IN ENSTAR AND APLC, THAT THE PROPOSED
TRANSFERS ARE IN THE PUBLIC INTEREST, AND THAT THE APPLICATIONS
SHOULD BE APPROVED SUBJECT TO THE CONDITIONS DISCUSSED ABOVE.
SEMCO SHOULD BE ALLOWED TO ADOPT ENSTAR/APLC'S EXISTING TARIFF IN
ITS ENTIRETY AND BE REQUIRED TO FILE AN ADOPTION NOTICE FOR THE
TARIFF AS REQUIRED IN 3 AAC 48.400, AND FOLLOW THE REQUIREMENTS
OF THAT REGULATION. THE ADOPTION NOTICE SHOULD BE FILED WITHIN
15 DAYS AFTER THE DATE OF CLOSING OF THE PURCHASE AGREEMENT.
STAFF ALSO RECOMMENDS THAT ENSTAR BE REQUIRED TO FILE A COMPLETE
TARIFF REFLECTING THE CHANGE IN OWNERSHIP OF ENSTAR AND APLC FROM
OCEAN TO SEMCO NO LATER THAN 30 DAYS AFTER THE DATE THE PURCHASE
AGREEMENT IS CLOSED.
STAFF RECOMMENDATION - U-99-93/U-99-94 ORDER U-99-93(1)/U-99-94(1)
SEPTEMBER 22, 1999 APPENDIX
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