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File No. 70-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM U-1 APPLICATION-DECLARATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Interstate Energy Corporation
222 West Washington Avenue
Madison, Wisconsin 53703
(Names of companies filing this statement and
addresses of principal executive offices)
None
(Name of top registered holding company,
parent of each applicant or declarant)
Erroll B. Davis, Jr.
President and
Chief Executive Officer
Interstate Energy Corporation
222 West Washington Avenue
Madison, Wisconsin 53703-0192
(Names and addresses of agents for service)
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The Commission is requested to send copies of all notices, orders and
communications in connection with this Application-Declaration to:
Barbara J. Swan M. Douglas Dunn
General Counsel Milbank, Tweed, Hadley & McCloy
Interstate Energy Corporation One Chase Manhattan Plaza
222 West Washington Avenue New York, New York 10005
Madison, Wisconsin 53703-0192
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ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION.
In this Application-Declaration, Interstate Energy Corporation ("IEC"),
a registered holding company under the Public Utility Holding Company Act of
1935, as amended (the "Act"), seeks authorization from time to time for a period
of five (5) years for (i) Alliant Industries, Inc. ("Alliant"), through its
wholly-owned subsidiary, Heartland Properties, Inc. ("HPI"), or its affiliate,
to invest in tax credit properties in the service area of IEC, and (ii) HPI to
implement a program to provide assistance for affordable single-family housing
in the IEC service area.
BACKGROUND: THE APPLICANT AND ITS SUBSIDIARY.
The Securities and Exchange Commission (the "Commission") issued an
order on April 14, 1998 (the "Order") approving the combination of WPL Holdings,
Inc. ("WPLH"), IES Industries Inc. ("IES") and Interstate Power Company ("IPC"),
pursuant to which the utility subsidiary of IES, IES Utilities Inc.
("Utilities"), and IPC would become subsidiaries of WPLH (the "Merger"). Upon
the consummation of the Merger, WPLH was renamed IEC. After the approval of the
Merger, IEC registered with the Commission as a holding company under the Act.
As part of the Order, the Commission authorized all of the current activities of
HPI and its subsidiaries.
Alliant is a wholly-owned subsidiary of IEC which serves as a holding
company for the non-utility subsidiaries of IEC. HPI was established in 1988 to
qualify for tax credits and assist in the development of low-income housing in
the service area of Wisconsin Power & Light Company, which was the public
utility subsidiary of WPLH prior to the Merger and is now a public utility
subsidiary of IEC. HPI and its wholly-owned subsidiary, Heartland Asset
Management, Inc. ("HAM"), provide asset management for the portfolios of IEC
(the assets in the IEC portfolio came from WPLH as a result of the Merger -
please refer to Exhibit A herein) and third-party corporate investors in
already-established equity investment funds (please refer to
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Exhibit B herein). Capital Square Financial Corporation ("Capital Square"), also
a wholly-owned subsidiary of Alliant, was incorporated in 1992 to provide
financing services, including the origination and sale of mortgages, for the tax
credit properties of HPI
As a result, HPI no longer sells credits to outside equity investors,
nor acts as a real estate developer nor directly manages properties. HPI's
emphasis is on asset management to protect the tax credits and the physical
properties. HPI defines asset management as reviewing and analyzing financial
statements generated by the third party property management firm against the
approved budget for the investments and conducting compliance file assessments
to determine that the properties remain in compliance with the provisions of Low
Income Housing Tax Credit (the "LIHTC") Program under Section 42 of the Internal
Revenue Code. Asset management in this context also includes on-site inspections
to determine that the physical structure and grounds are maintained as quality
affordable housing. Initially, HPI was active in syndication, development and
the property management of tax credit properties. In 1995, however, HPI changed
its direction to outsourcing these functions and providing oversight to protect
the investments.
LOW INCOME TAX CREDIT PROPERTY INVESTMENTS.
IEC seeks authorization from the Commission for HPI to invest in new
LIHTC properties in the same manner in which it had most recently invested in
such properties: through the acquisition of limited partnership units in limited
partnerships that are organized specifically to invest in low-income,
multi-family housing projects throughout the IEC service area. These limited
partnerships are designed to ensure that the properties qualify for LIHTCs and
remain in compliance under Section 42 of the Code. A separate limited
partnership would be established for each qualifying housing development.
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This structure would allow HPI to arrange financing for each project on a
stand-alone basis and to insulate each investment property from any liabilities
that may occur in the development of the other properties. HPI would not serve
as the developer of these properties, but merely as an investor and monitor
management of the properties. IEC's predominantly rural service territory would
benefit by virtue of these investments which also would increase the demand for
utility services. These investments would also be consistent with the utility's
stated policy of not abandoning the rural areas in its service territory in
Iowa, Minnesota and Illinois. In addition, by obtaining the tax credits, IEC
would be able to manage and lower its income tax expense.
IEC seeks authorization for Alliant, either through itself, HPI or
another affiliate, to invest in a limited number of LIHTC properties in the IEC
service territory from time to time during the next five (5) years. The
aggregate amount of such investment would be limited to $50 million in equity,
which amount would likely be invested pro rata over the next five years. The
investments would be made only in properties in the IEC service territory.
Prior to actual investment, each property would be approved by the
Heartland Investment Committee (the "Committee"). The Committee comprises five
members, three of whom are internal members of HPI and two of whom are members
of Alliant. The purpose of the Committee is to review proposed real estate
investments and either provide final approval for or reject such proposals. A
formal meeting is held to present an overview of the proposed developer
following the completion of due diligence on that developer and the proposed
development. The proposed development is described in detail from the
construction stage through the final property management arrangements in case
study format; a forecast is included in the minutes of such a meeting.
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HPI would make the investments only in properties in the IEC service territory.
The LIHTC has provided IEC's predecessors a major incentive to invest
in low-income housing projects for persons in the IEC service area. The LIHTC
has provided each of these investors with a direct reduction to its federal
income tax liability. In exchange for an LIHTC, the owner of a qualified
property must agree to rent the units to persons with sufficiently low incomes
as defined in Section 42 of the Code for at least fifteen years. In this way,
the LIHTC program has resulted in the creation of a substantial amount of
affordable housing stock in the IEC service territory in Wisconsin. IEC has
recognized a continuing affordable housing need, especially in Iowa, and thus
seeks authorization for HPI to invest in LIHTC properties over the next five (5)
years.
SINGLE-FAMILY HOUSING DEVELOPMENT.
IEC seeks authorization for HPI to implement a program that specializes
in the development of single-family entry-level housing throughout its service
territory, but primarily in Iowa. Communities served by IEC have identified the
lack of affordable, entry-level housing stock in rural communities as a major
inhibitor of economic development. The opportunity for young families to own a
home is a necessary element to attract and retain a quality workforce for the
development of business. In most rural service territory communities there has
not been planned residential development since the 1970's. The main reason for
the absence of single family housing stock is a lack of capital in rural
communities for the development of infrastructure and the funding of mortgages
to purchase homes. The development of affordable single family housing will be
necessary to attract and support the labor force necessary for new economic
development and will also result in an expanded tax base for rural communities
in the IEC service
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territory. The local communities in the service territory do not have the
resources to address these issues on their own.
IEC therefore seeks authorization for HPI to implement a program in
which it would work together with rural municipalities and counties in the IEC
service territory to eliminate barriers to home ownership and develop strategies
to encourage the development of single-family entry-level housing. HPI would act
as a consultant in partnership with the local entities to identify geographical
areas for development, identify the most efficient types of development and
consult in the development of specific programs to address issues such as down
payment assistance, education programs for new home owners and identifying and
developing sources of capital investment.
Based on housing needs and local community interest, IEC has identified
the communities of Clarke County, Mason City and Winnebago County as possible
initial participants in the program.
CURRENT ACTIVITIES.
IEC will continue, through its subsidiaries, its ownership and asset
management services in connection with its existing portfolios of multi-family
LIHTC properties. HAM, as a wholly-owned subsidiary of HPI, will continue its
oversight of the low-income properties consistent with the role of passive
investor. HAM will focus on three primary areas of asset management: property
management, property accounting and compliance. Capital Square, like HPI a
direct subsidiary of Alliant, will provide any needed financing services for the
investment properties. These services will include the origination and sale of
mortgages.
IEC anticipates that the 1998 LIHTC portfolio of IEC (formerly WPLH)
will comprise sixty-two (62) developments with budgeted revenue of $12.9 million
and operating expenses of $8.6 million. HAM will also perform the same
management role for twenty-nine (29) additional low-income properties in
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four equity investment funds and one (1) property with a direct outside
investor. The property management companies that provide the hands-on management
services for these properties will continue to be responsible for the
implementation of capital improvement plans, the maximization of revenues from
the properties and to ensure that actual operating expenses fall within budgeted
amounts.
HAM will continue to conduct on-site inspections to review management
operations and to ensure that each of the properties remains in compliance with
LIHTC requirements. These review operations include the close monitoring of
properties that HAM has placed on a "watch list" as properties that are not
meeting pre-established performance criteria for their investors. It is the role
of the management companies to improve the performances and have the properties
removed from the watch list. IEC is evaluating the sale of at least three (3)
properties from the existing portfolio during 1998. This is consistent with the
scheduled wind-down of the investment properties as the existing LIHTCs expire.
Also, Capital Square will arrange the permanent financing of at least seven (7)
such properties that remain in lease-up situations with ongoing construction
loans.
STATEMENT PURSUANT TO RULE 54
IEC does not intend at present to use the transactions proposed herein
to finance the acquisition of an exempt wholesale generator or a foreign utility
company. If the Applicant's intention changes, it will file an amended Form U-1
Application-Declaration requesting authorization for such use.
ITEM 2. FEES, COMMISSIONS AND EXPENSES.
An estimate of the fees and expenses to be paid or incurred by the
applicants in connection with the proposed transactions is set forth below:
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<TABLE>
<CAPTION>
Description Amount
----------- ------
<S> <C>
Counsel fees 7,000
Total 7,000
-----
</TABLE>
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
Sections 9(c)(3) and 11(b)(1) of the Act are or may be applicable to
one or more of the transactions described herein. To the extent any other
sections of the Act and the Commission's rules thereunder may be applicable to
the proposed transactions, the Applicant hereby requests appropriate orders
thereunder.
ITEM 4. REGULATORY APPROVAL.
No state or federal regulatory authority, other than the Commission
under the Act, has jurisdiction over any of the proposed transactions, and no
other state or federal authorizations are required for the transactions
described herein.
ITEM 5. PROCEDURE.
It is requested that the Commission issue and publish no later than
July 10, 1998, the requisite notice under Rule 23 with respect to the filing of
this Application-Declaration, such notice to specify a date not later than July
17, 1998 as the date after which an order granting and permitting this
Application-Declaration to become effective may be entered by the Commission and
that the Commission enter not later than July 18, 1998 an appropriate order
granting and permitting this Application-Declaration to become effective.
No recommended decision by a hearing officer or other responsible
officer of the Commission is necessary or required in this matter. The Division
of Investment Management of the Commission may assist in the preparation of the
Commission's decision in this matter. There should be no
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thirty-day waiting period between the issuance and the effective date of any
order issued by the Commission in this matter, and it is respectfully requested
that any such order be made effective immediately upon the entry thereof.
ITEM 6. EXHIBITS.
The following exhibits are filed as part of this statement:
EXHIBITS DESCRIPTION
Exhibit A LIHTC Properties - WPLH Portfolio
Exhibit B LIHTC Properties - Four Equity
Investment Funds
Exhibit C Preliminary opinion of counsel
(filed herewith)
Exhibit D Final or "past tense" opinion of counsel
(to be filed with Certificate of Notification)
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
The proposed transactions do not involve major federal action
having a significant effect on the human environment. To the best of the
Applicant's knowledge, no federal agency has prepared or is preparing an
environmental impact statement with respect to the proposed transactions.
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S I G N A T U R E
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, as amended, the undersigned company has duly caused this statement to
be signed on its behalf by the undersigned thereunto duly authorized.
Date: June 19, 1998
Interstate Energy Corporation
By: /s/ Erroll B. Davis
-------------------------
Erroll B. Davis, Jr.
President and Chief Executive
Officer
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EXHIBIT A
HEARTLAND PROPERTIES, INC.
WPLH PROPERTIES
========================================================================
PROPERTY NAME LOCATION
========================================================================
The Depot Antigo, Wisconsin
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Station House Antigo, Wisconsin
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Lincoln Mills Appleton, Wisconsin
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Ravine Mills Appleton, Wisconsin
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The Mills II Appleton, Wisconsin
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Brittan House Beloit, Wisconsin
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WaterTower Place Beloit, Wisconsin
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WPL Building Berlin, Wisconsin
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North River Block Berlin, Wisconsin
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Whiting Hotel Berlin, Wisconsin
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Romeis Millstream II Chippewa Falls, Wisconsin
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Kingston Court Coloma, Wisconsin
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Colonial Manor Columbus, Wisconsin
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Whitney Hotel Columbus, Wisconsin
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Lawton Foundry DePere, Inc.
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Town's Edge Elroy, Wisconsin
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The Eldorado Fond du Lac, Wisconsin
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City Square Hillsboro, Wisconsin
- ------------------------------------------------------------------------
Cedar Meadows Holmen, Wisconsin
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Jeffris Flats Janesville, Wisconsin
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Windsong Village Kenosha, Wisconsin
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641 West Main Madison, Wisconsin
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Fairwood Arms Madison, Wisconsin
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The Avenue Madison, Wisconsin
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The Falconer Madison, Wisconsin
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Williamstown Bay East Madison, Wisconsin
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Williamstown Bay North Madison, Wisconsin
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YWCA Madison, Wisconsin
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=================================================================
PROPERTY NAME LOCATION
=================================================================
Northland Manawa, Wisconsin
- -----------------------------------------------------------------
Westwynde Manitowoc, Wisconsin
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Dunlap Square Marinette, Wisconsin
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Woodlands Marshfield, Wisconsin
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Tower Hall Marshfield, Wisconsin
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Mayville Heights Mayville, Wisconsin
- -----------------------------------------------------------------
Cottages McFarland, Wisconsin
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Northland Necedah, Wisconsin
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Genesis V Oregon, Wisconsin
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Village Plaza Paddock Lake, Wisconsin
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Parkview Pardeeville, Wisconsin
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Parkview II Pardeeville, Wisconsin
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Liberty Place Platteville, Wisconsin
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Colonial Columns Plymouth, Wisconsin
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Ripple Creek I Port Edwards, Wisconsin
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Ripple Creek II Port Edwards, Wisconsin
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Deer Run Portage, Wisconsin
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Village House Portage, Wisconsin
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Liberty Place Prairie du Chien, Wisconsin
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Terrace Gardens Prairie du Chien, Wisconsin
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DeKoven Foundation Racine, Wisconsin
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Winfield Reedsburg, Wisconsin
- -----------------------------------------------------------------
Maple Tree Ripon, Wisconsin
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Brickner Woolen Mills Sheboygan Falls, Wisconsin
- -----------------------------------------------------------------
Henry Jung Building Sheboygan, Wisconsin
- -----------------------------------------------------------------
Leverenz Sheboygan, Wisconsin
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Sunnyside Townhouses Sheboygan, Wisconsin
- -----------------------------------------------------------------
Balzer Wagon Works Sheboygan, Wisconsin
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Mountain Village Steamboat Springs, Colorado
- -----------------------------------------------------------------
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================================================================
PROPERTY NAME LOCATION
================================================================
Vandenburg Heights Sun Prairie, Wisconsin
----------------------------------------------------------------
Meadowview Village Twin Lakes, Wisconsin
----------------------------------------------------------------
Sugar Creek Verona, Wisconsin
----------------------------------------------------------------
Village Square Wausau, Wisconsin
----------------------------------------------------------------
Valley View Wisconsin Dells, Wisconsin
----------------------------------------------------------------
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EXHIBIT B
HEARTLAND PROPERTIES, INC.
HEARTLAND PROPERTIES EQUITY INVESTMENT FUND I, LP
================================================================
PROPERTY NAME LOCATION
================================================================
Williamstown Bay I Cudahy, Wisconsin
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Williamstown Bay II Cudahy, Wisconsin
- ------------------------------------------------------------------------
Williamstown Bay III Cudahy, Wisconsin
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Williamstown Bay DeForest, Wisconsin
- ------------------------------------------------------------------------
Parkside Village Delavan, Wisconsin
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London Square Eau Claire, Wisconsin
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Oakwood Homes Eau Claire, Wisconsin
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The Courtyard Apartments Grand Chute, Wisconsin
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Wesley Park Janesville, Wisconsin
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Kellogg Avenue Janesville, Wisconsin
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Riverplace Janesville, Wisconsin
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Wall Street Janesville, Wisconsin
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Millview Kiel, Wisconsin
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Sussex Mill Sussex, Wisconsin
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Country View Waunakee, Wisconsin
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Lincoln School Waupun, Wisconsin
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City Walk Wausau, Wisconsin
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HEARTLAND PROPERTIES, INC.
HEARTLAND PROPERTIES EQUITY INVESTMENT FUND IV, LLC
=============================================================================
PROPERTY NAME LOCATION
=============================================================================
Churchman Woods Beech Grove, Indiana
- -------------------------------------------------------------------------------
Hillcrest Beloit, WI
- -------------------------------------------------------------------------------
Orchard Place Grand Rapids, Michigan
- -------------------------------------------------------------------------------
Williamstown Bay McFarland, Wisconsin
- -------------------------------------------------------------------------------
Silver Lake Pointe Mounds View, Minnesota
- -------------------------------------------------------------------------------
Lakeview Commons Plymouth, Minnesota
- -------------------------------------------------------------------------------
Wilmanor Racine, Wisconsin
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Pheasant Glen State College, Pennsylvania
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Courtyard Home West Allis, Wisconsin
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HEARTLAND PROPERTIES, INC.
HEARTLAND PROPERTIES EQUITY INVESTMENT FUND VII, LP
===========================================================================
PROPERTY NAME LOCATION
===========================================================================
Riverview Pointe Battle Creek, Michigan
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The Landings Waupun, Wisconsin
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HEARTLAND PROPERTIES, INC.
HEARTLAND-NML INVESTMENT FUND, LLC
====================================================================
PROPERTY NAME LOCATION
====================================================================
Northlake Farms Gurnee, Illinois
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HEARTLAND PROPERTIES, INC.
DIRECT INVESTOR
======================================================================
PROPERTY NAME LOCATION
======================================================================
Timber Trails Wisconsin Rapids, Wisconsin
- ----------------------------------------------------------------------
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EXHIBIT C
FILE 70-
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, NY 10005
June 18, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Form U-1 Application-Declaration
Ladies and Gentlemen:
We refer to the Form U-1 Application-Declaration (the
"Application-Declaration") filed by Interstate Energy Corporation ("IEC"), a
Wisconsin corporation and a registered holding company under the Public Utility
Holding Company Act of 1935, as amended. Capitalized terms and parties not
defined herein shall have the meanings ascribed to such terms and parties in the
Application-Declaration.
The Application-Declaration requests authorization from time
to time for a period of five (5) years for (i) Alliant Industries, Inc.
("Alliant"), through its wholly-owned subsidiary, Heartland Properties, Inc.
("HPI"), or its affiliate, to invest in tax credit properties in the IEC service
area and (ii) HPI to implement a program to provide assistance for affordable
single-family housing in the IEC service area. We have acted as counsel for IEC
in connection with this Application-Declaration and, as such counsel, we are
familiar with the corporate proceedings taken and to be taken by IEC and its
subsidiaries as described in the Application-Declaration.
We have examined originals, or copies certified to our
satisfaction, of such corporate records of IEC, certificates of public
officials, certificates of officers and representatives of IEC and other
documents as we have deemed it necessary to require as a basis for the opinions
hereinafter expressed. In our examination, we have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us as originals
and the conformity with authentic original documents of all documents submitted
to us as copies. When relevant facts were not independently established, we have
relied upon statements of governmental officials and upon representations made
by officers of IEC and other appropriate persons, and statements contained in
the Application-Declaration.
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2
The opinions expressed below in respect of the Transaction
described in the Application-Declaration are subject to the following
assumptions or conditions:
a. The Transaction shall have been duly authorized and
approved to the extent required by federal and state law and by the Board of
Directors of IEC;
b. The Securities and Exchange Commission shall have duly
entered an appropriate order or orders granting the Application-Declaration and
permitting the Application-Declaration to become effective with respect to the
Transaction;
c. The Transaction shall have been accomplished in accordance
with all approvals, authorizations, consents, certificates and orders of any
applicable state commission or regulatory authority required for the
consummation of the Transaction, and all such required approvals,
authorizations, consents, certificates and orders shall have been obtained and
remain in effect;
d. No act or event other than as described herein shall have
occurred subsequent to the date hereof which would change the opinions expressed
above; and
e. The consummation of the Transaction shall be conducted
under our supervision, and all legal matters incident thereto shall be
satisfactory to us, including the receipt in satisfactory form of such opinions
of other counsel, qualified to practice in jurisdictions pertaining to such
transaction in which we are not admitted to practice, as we may deem
appropriate.
Based upon the foregoing, and having regard to legal
considerations which we deem relevant, we are of the opinion that, in the event
that the Transaction is consummated in accordance with the
Application-Declaration, and subject to the assumptions and conditions set forth
above:
1. IEC will be validly organized and duly existing under the
laws of the State of Wisconsin. Alliant and HPI will be validly organized and
duly existing under the laws of the State of Wisconsin; and
2. All state and federal laws applicable to the Transaction
will have been complied with.
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3
We hereby consent to the use of this opinion as an exhibit to
the Application-Declaration. The opinions set forth herein are issued and
expressed as of the date hereof. We do not assume or undertake any
responsibility to advise you of changes in either fact or law which may come to
our attention after the date hereof.
Very truly yours,
Milbank, Tweed, Hadley & McCloy
MDD/____
