(As filed February 18, 1998)
File No. 70-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM U-1
APPLICATION OR DECLARATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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INTERSTATE ENERGY CORPORATION
ALLIANT ENERGY RESOURCES, INC.
222 West Washington Avenue
Madison, Wisconsin 53703
(Names of companies filing this statement and
addresses of principal executive offices)
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INTERSTATE ENERGY CORPORATION
(Name of top registered holding company parent)
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Erroll B. Davis, Jr.
President and
Chief Executive Officer
Interstate Energy Corporation
222 West Washington Avenue
Madison, Wisconsin 53703-0192
(Name and address of agent for service)
The Commission is requested to send copies of all notices, orders
and communications in connection with this Application or
Declaration to:
Barbara J. Swan, General Counsel William T. Baker, Jr., Esq.
Interstate Energy Corporation Thelen Reid & Priest LLP
222 West Washington Avenue 40 West 57th Street
Madison, Wisconsin 53703-0192 New York, New York 10019
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ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION.
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1.1. INTRODUCTION. Interstate Energy Corporation ("IEC")
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is a registered holding company under the Public Utility Holding
Company Act of 1935, as amended (the "Act").(1) Its public-
utility subsidiaries are Wisconsin Power & Light Company, South
Beloit Water, Gas and Electric Company, Interstate Power Company,
and IES Utilities, Inc. (collectively, the "Operating
Companies"). Together, the Operating Companies provide public-
utility service to approximately 895,000 electric and 378,000
retail gas customers in parts of Wisconsin, Iowa, Minnesota, and
Illinois.
IEC's direct non-utility subsidiaries include Alliant
Services Company ("Alliant Services"), a subsidiary service
company, and Alliant Energy Resources, Inc. ("AER"), which serves
as the holding company for substantially all of IEC's non-utility
investments and subsidiaries. AER owns seven principal direct
subsidiaries which engage, directly and indirectly through other
subsidiaries, in (i) providing environmental consulting and
engineering services, (ii) the development, ownership and
management of affordable multi-unit housing properties, (iii)
providing various financial services, including the origination
and sale of mortgages for tax-advantaged affordable housing, (iv)
energy-related businesses, including, among others, the brokering
and marketing of electricity and natural gas, gas supply and fuel
management services, oil and gas production, steam production and
sale, and energy-management services, (v) owning and/or operating
foreign utility systems, (vi) transportation, and (vii)
management of investments in telecommunications.(2)
As used in this Application or Declaration, the term "Non-
Utility Subsidiaries" means AER and each of its current and
future direct and indirect non-utility subsidiaries, and the term
"Subsidiaries" means the Operating Companies, Alliant Services,
and any Non-Utility Subsidiaries.
1.2 IEC'S CURRENT FINANCING AUTHORITY. Under the terms of
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the Merger Order, IEC is authorized to issue from time to time
through December 31, 2001, up to 11 million shares of common
stock, $.01 par value per share ("Common Stock") through its
dividend reinvestment and stock purchase plan, long-term equity
incentive plan and certain other employee benefit plans (the
"Stock Plans"). Through December 31, 1998, IEC has issued and
sold 589,008 shares of Common Stock pursuant to the Stock Plans
(including shares acquired by IEC in the open market) for an
aggregate offering price of $18.5 million. The Merger Order
specifies that IEC will not use the proceeds of sales of Common
Stock pursuant to the Stock Plans to acquire any interest in any
"exempt wholesale generator" ("EWG") or "foreign utility company"
("FUCO"), as defined in Sections 32 and 33, respectively.
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1 See WPL Holdings, Inc., et al., Holding Co. Act Release
No. 26856 (April 14, 1998), 66 SEC Docket 2256 (the "Merger
Order").
2 A more complete description of AER's Non-Utility
Subsidiaries as of the date of the Merger Order is contained in
Appendix A to the Merger Order.
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In addition, by order dated December 18, 1998 (the "Money
Pool Order"),(3) IEC and AER are authorized to issue notes and/or
commercial paper from time to time through December 31, 2000 and
to establish and utilize separate money pools for intrasystem
borrowings for IEC's utility and non-utility subsidiaries, among
other requests. Specifically, IEC is authorized to issue and
sell notes and/or commercial paper in an aggregate principal
amount at any time outstanding not to exceed $750 million
("Short-term Debt"). IEC may utilize up to $450 million of the
proceeds of such borrowings to make loans through a system money
pool to the Operating Companies and Alliant Services, and up to
$300 million of such proceeds to fund investments in one or more
EWGs and FUCOs. IEC is also authorized to provide guarantees or
other forms of credit support in an amount not to exceed $600
million at any time outstanding on behalf of AER and other Non-
Utility Subsidiaries to enable those companies to carry on in the
ordinary course of their respective businesses. Under the Money
Pool Order, the proceeds of borrowings by AER with respect to
which IEC provides credit support may not be used to acquire
interests in any EWG or FUCO.
1.3 SUMMARY OF REQUESTED APPROVALS. IEC and AER herein
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request approval for a program of external financing, credit
support arrangements, and other related proposals for the period
through December 31, 2001 ("Authorization Period"), as follows:
(i) IEC requests authority to issue and sell from time
to time (A) up to 15 million shares of its ("Common
Stock") (as such number may hereafter be adjusted
during the Authorization Period to reflect any
stock split), and (B) up to $400 million principal
amount of unsecured debentures having a maturity of
up to 40 years (the "Debentures"), provided that
the aggregate principal amount of Debentures at any
time outstanding when added to the aggregate
principal amount of Short-term Debt at any time
outstanding, shall not exceed $1.1 billion (the
"IEC Debt Limitation"). IEC requests that the
Commission reserve jurisdiction over the issuance
of long-term debt or equity securities by IEC,
other than the Common Stock and Debentures, and
represents that it will file a post-effective
amendment in this proceeding to supplement the
record with respect to any such other securities.
(ii) To the extent that such transactions are not exempt
under Rule 52(b), AER and other Non-Utility
Subsidiaries request authority to issue and sell
from time to time during the Authorization Period
debt and equity securities in order to finance
their operations and future non-utility
investments, provided that such future investments
are exempt under the Act or rules thereunder or
have been authorized in a separate proceeding. The
Non-Utility Subsidiaries request the Commission to
reserve jurisdiction over the issuance of any such
non-exempt securities.
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3 See Interstate Energy Corporation, et al., Holding
Co. Act Release No. 26956, 68 SEC Docket 2397.
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(iii) IEC requests authority to provide guarantees and
other forms of credit support ("IEC Guarantees")
with respect to the securities or other obligations
of any Subsidiary in an aggregate principal or
nominal amount not to exceed $600 million at any
one time outstanding. The amount of IEC Guarantees
for which authorization is sought herein shall be
in addition to the $600 million of credit support
IEC may provide to Non-Utility Subsidiaries in
accordance with the Money Pool Order.
(iv) AER and other Non-Utility Subsidiaries request
authority to provide guarantees and other forms of
credit support ("Non-Utility Subsidiary
Guarantees") with respect to obligations of other
Non-Utility Subsidiaries in an aggregate principal
or nominal amount not to exceed $300 million at any
one time outstanding, exclusive of any guarantees
that are exempt pursuant to Rule 45(b) and Rule 52.
(v) IEC and, to the extent not exempt under Rule 52,
the Non-Utility Subsidiaries request authority to
enter into hedging transactions ("Interest Rate
Hedges") with respect to existing indebtedness of
such companies in order to manage and minimize
interest rate costs. Such companies also request
authority to enter into hedging transactions
("Anticipatory Hedges") with respect to
anticipatory debt issuances in order to lock-in
current interest rates and/or manage interest rate
risk exposure.
(vi) IEC and the Non-Utility Subsidiaries request
authority to acquire the equity securities of one
or more Financing Subsidiaries and to guarantee the
securities issued by such Financing Subsidiaries,
to the extent not exempt pursuant to Rule 45(b) and
Rule 52, and Financing Subsidiaries request
authority to acquire the notes or other evidence of
indebtedness of IEC or any Non-Utility Subsidiary
in consideration for the proceeds of external
financing by Financing Subsidiaries.
(vii) IEC and AER request authority to acquire, directly
or indirectly, the equity securities of one or more
intermediate subsidiaries ("Intermediate
Subsidiaries") organized exclusively for the
purpose of acquiring, financing, and holding the
securities of one or more existing or future non-
utility subsidiaries, including but not limited to
EWGs, FUCOs, companies engaged in activities
permitted by Rule 58 ("Rule 58 Subsidiaries"), or
"exempt telecommunications companies" ("ETCs"), as
defined in Section 34 of the Act, provided that
Intermediate Subsidiaries may also provide
management, administrative, project development,
and operating services to such entities.
(viii) AER, directly or through one or more Non-Utility
Subsidiaries, requests authority to expend up to
$125 million to construct or acquire facilities,
equipment and other property ("Energy Assets") that
are incidental and related to the energy marketing
and oil and gas production operations of its
subsidiaries, or to acquire the securities of one
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or more existing or new companies substantially all
of whose physical properties consist or will
consist of Energy Assets, provided that the
acquisition and ownership of such Energy Assets
would not cause AER or any of its subsidiaries to
be or become an "electric utility company" or "gas
utility company," as defined in Sections 2(a)(3)
and 2(a)(4), respectively.
(ix) As permitted by Rule 87(b)(1), AER and other Non-
Utility Subsidiaries may from time to time provide
services and sell goods to each other. To the
extent not exempt pursuant to Rule 90(d), such
companies request authority to perform such
services and sell such goods to each other at fair
market prices, without regard to "cost," as
determined in accordance with Rules 90 and 91,
subject to certain limitations that are noted
below.
(x) AER requests authority on behalf of any current and
future Rule 58 Subsidiaries to engage in certain
categories of activities permitted thereunder both
within and outside the United States.
(xi) AER and other Non-Utility Subsidiaries request
authority to pay dividends out of capital and
unearned surplus to the extent allowed under
applicable law and the terms of any credit or
security instruments to which they may be parties.
1.4 USE OF PROCEEDS. The proceeds from the financings
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authorized by the Commission pursuant to this Application or
Declaration will be used for general corporate purposes,
including (i) financing, in part, investments by and capital
expenditures of IEC and its Non-Utility Subsidiaries, including,
without limitation, the funding of future investments in EWGs,
FUCOs, and Rule 58 Subsidiaries, (ii) the repayment, redemption,
refunding or purchase by IEC or any Non-Utility Subsidiary of any
of its own securities pursuant to Rule 42, and (iii) financing
working capital requirements of IEC and its Non-Utility
Subsidiaries.
The applicants represent that no financing proceeds will be
used to acquire the equity securities of any new subsidiary
unless such acquisition has been approved by the Commission in
this proceeding or in a separate proceeding or in accordance with
an available exemption under the Act or rules thereunder,
including Sections 32 and 33 and Rule 58. IEC states that the
aggregate amount of proceeds of financing and IEC Guarantees
approved by the Commission in this proceeding, together with
proceeds of financing authorized in the Money Pool Order, used to
fund investments in EWGs and FUCOs will not, when added to IEC's
"aggregate investment" (as defined in Rule 53) in all such
entities at any point in time, exceed 50% of IEC's "consolidated
retained earnings" (also as defined in Rule 53). Further, IEC
represents that proceeds of financing and IEC Guarantees and Non-
Utility Guarantees utilized to fund investments in Rule 58
Subsidiaries will be subject to the limitations of that rule.
Lastly, IEC represents that it will not seek to recover through
higher rates of any of the Operating Companies losses
attributable to any operations of its Non-Utility Subsidiaries.
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1.5 DESCRIPTION OF EXTERNAL FINANCING PROGRAM.
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1.5.1 IEC Financings.
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(i) Common Stock. IEC proposes to issue and sell
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from time to time during the Authorization Period up to 15 million
shares of its Common Stock (as such number may be adjusted for
any stock split during the Authorization Period). IEC may issue
and sell Common Stock or options exercisable for Common Stock and
issue Common Stock upon the exercise of options. IEC may also
buy back shares of Common Stock or such options during the
Authorization Period in accordance with Rule 42.
IEC may issue and sell Common Stock pursuant to underwriting
agreements of a type generally standard in the industry. Public
distributions may be pursuant to private negotiation with
underwriters, dealers or agents, as discussed below, or effected
through competitive bidding among underwriters. In addition,
sales may be made through private placements or other non-public
offerings to one or more persons. All such Common Stock sales
will be at rates or prices and under conditions negotiated or
based upon, or otherwise determined by, competitive capital
markets.
Specifically, IEC may issue and sell Common Stock through
underwriters or dealers, through agents, or directly to a
limited number of purchasers or a single purchaser. If
underwriters are used in the sale of Common Stock, such
securities will be acquired by the underwriters for their own
account and may be resold from time to time in one or more
transactions, including negotiated transactions, at a fixed
public offering price or at varying prices determined at the time
of sale. Common Stock may be offered to the public either
through underwriting syndicates (which may be represented by a
managing underwriter or underwriters designated by IEC) or
directly by one or more underwriters acting alone. Common Stock
may be sold directly by IEC or through agents designated by IEC
from time to time. If dealers are utilized in the sale of Common
Stock, IEC will sell such securities to the dealers, as
principals. Any dealer may then resell such Common Stock to the
public at varying prices to be determined by such dealer at the
time of resale. If Common Stock is being sold in an underwritten
offering, IEC may grant the underwriters thereof a "green shoe"
option permitting the purchase from IEC at the same price
additional shares then being offered solely for the purpose of
covering over-allotments.
IEC may also issue Common Stock in public or privately-
negotiated transactions in exchange for the equity securities or
assets of other companies, provided that the acquisition of any
such equity securities or assets has been authorized in a
separate proceeding or is exempt under the Act or the rules
thereunder.
(ii) Debentures. IEC proposes to issue and sell
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from time to time through the Authorization Period up to $400
million principal amount of Debentures in one or more series,
provided that the aggregate principal amount of Short-term Debt
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and Debentures at any time outstanding shall not exceed the IEC
Debt Limitation. The Debentures (a) may be convertible into any
other securities of IEC, (b) will have maturities ranging from
one to 40 years, (c) may be subject to optional and/or mandatory
redemption, in whole or in part, at par or at various premiums
above the principal amount thereof, (d) may be entitled to
mandatory or optional sinking fund provisions, (e) may provide
for reset of the coupon pursuant to a remarketing arrangement,
and (f) may be called from existing investors by a third party.
In addition, IEC may have the right from time to time to defer
the payment of interest on the Debentures of one or more series
(which may be fixed or floating or "multi-modal" debentures,
i.e., debentures where the interest is periodically reset,
alternating between fixed and floating interest rates for each
reset period). The Debentures will be issued under an indenture
(the "Indenture") to be entered into between IEC and a national
bank, as trustee (the "Trustee," including any successor trustee
appointed pursuant to the Indenture), with a supplemental
indenture to be executed in respect of each separate offering of
one or more series of Debentures (each a "Supplemental
Indenture"). Forms of the Debentures, Indenture and Supplemental
Indenture will be filed by amendment hereto.
IEC contemplates that the Debentures would be issued and
sold directly to one or more purchasers in privately-negotiated
transactions or to one or more investment banking or underwriting
firms or other entities who would resell the Debentures without
registration under the Securities Act of 1933 in reliance upon
one or more applicable exemptions from registration thereunder,
or to the public either (i) through underwriters selected by
negotiation or competitive bidding or (ii) through selling agents
acting either as agent or as principal for resale to the public
either directly or through dealers. A form of Purchase Agreement
with respect to any private offerings of Debentures through
investment banking or underwriting firms will be filed by
amendment hereto.
The maturity dates, interest rates, redemption and sinking
fund provisions and conversion features, if any, with respect to
the Debentures of a particular series, as well as any associated
placement, underwriting or selling agent fees, commissions and
discounts, if any, will be established by negotiation or
competitive bidding and reflected in the applicable Supplemental
Indenture and Purchase Agreement or underwriting agreement
setting forth such terms; provided, however, that IEC will not
issue and sell any Debentures at interest rates in excess of
those generally obtainable at the time of pricing or repricing of
such Debentures for securities having the same or reasonably
similar maturities and having reasonably similar terms,
conditions and features issued by utility companies or utility
holding companies of the same or reasonably comparable credit
quality, as determined by the competitive capital markets.
Finally, IEC undertakes that without further Commission
authorization it will not issue any Debentures that are not at
the time of original issuance rated at least investment grade by
a nationally recognized statistical rating organization.
(iii) Other Securities. In addition to the
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specific securities for which authorization is sought herein, IEC
may also find it necessary or desirable in order to minimize
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financing costs or to obtain new capital under then existing
market conditions to issue and sell other types of securities
from time to time during the Authorization Period. IEC requests
that the Commission reserve jurisdiction over the issuance of
additional types of securities and the amount thereof. IEC also
undertakes to file a post-effective amendment in this proceeding
which will describe the general terms of each such security and
the amount thereof to be issued and request a supplemental order
of the Commission authorizing the issuance thereof by IEC.
1.5.2 Non-Utility Subsidiary Financings. AER and
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its subsidiaries are engaged in and expect to continue to be
active in the development and expansion of their existing energy-
related, transportation, telecommunications or otherwise
functionally-related, non-utility businesses in the IEC holding
company system. In order to finance investments in such
competitive businesses, it will be necessary for AER and other
Non-Utility Subsidiaries to have the ability to engage in
financing transactions which are commonly accepted for such types
of investments. It is believed that, in almost all cases, such
financings will be exempt from prior Commission authorization
pursuant to Rule 52(b). AER requests that the Commission reserve
jurisdiction over the issuance by any Non-Utility Subsidiary of
any other securities with respect to which the exemption under
Rule 52(b) would not apply. AER undertakes to cause a post-
effective amendment to be filed in this proceeding which will
describe the general terms of each such non-exempt security and
the amounts thereof and request a supplemental order of the
Commission authorizing the issuance thereof.
Any promissory note, bond or other evidence of indebtedness
issued by a Non-Utility Subsidiary that is guaranteed as to
principal or interest by IEC (a "Guaranteed Note") shall mature
no more than 40 years after the date of issuance thereof and bear
interest at a fixed or floating rate which, in the case of a
fixed rate, shall be not greater than 300 basis points over the
yield to maturity of a United States Treasury obligation having a
remaining term approximately equal to the average life of such
Guaranteed Note at the time issued, and, in the case of a
floating rate, shall be not greater than 300 basis points over
the rate of interest announced publicly by a major money center
bank as its base or prime rate. In addition, a Non-Utility
Subsidiary may agree to pay a commitment fee not to exceed 1.5%
of the average daily unused balance under any committed line of
credit and/or maintain compensating balances not to exceed 20% of
the amount of any committed line.
1.6 GUARANTEES.
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1.6.1 IEC Guarantees. IEC requests authorization
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to enter into guarantees, obtain letters of credit, enter into
expense agreements or otherwise provide credit support
(collectively, "IEC Guarantees") with respect to the obligations
of any Subsidiary as may be appropriate to enable such Subsidiary
to carry on in the ordinary course of its business, in an
aggregate principal amount not to exceed $600 million outstanding
at any one time. IEC Guarantees proposed to be provided herein
are in addition to guarantees by IEC authorized in the Money Pool
Order. IEC proposes to charge each Subsidiary a fee for each
guarantee provided on its behalf that is determined by
multiplying the amount of the IEC Guarantee provided by the cost
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of obtaining the liquidity necessary to perform the guarantee
(for example, bank line commitment fees or letter of credit fees,
plus other transactional expenses) for the period of time the
guarantee remains outstanding.
1.6.2 Non-Utility Subsidiary Guarantees. In
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addition, AER and other Non-Utility Subsidiaries request
authority to provide to other Non-Utility Subsidiaries guarantees
and other forms of credit support ("Non-Utility Subsidiary
Guarantees") in an aggregate principal amount not to exceed $300
million outstanding at any one time, exclusive of any guarantees
and other forms of credit support that are exempt pursuant to
Rule 45(b) and Rule 52. The Non-Utility Subsidiary providing any
such credit support may charge its associate company a fee for
each guarantee provided on its behalf determined in the same
manner as specified above.
1.7 HEDGING TRANSACTIONS.
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1.7.1 Interest Rate Hedges. IEC, and to the
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extent not exempt pursuant to Rule 52, the Non-Utility
Subsidiaries, request authorization to enter into interest rate
hedging transactions with respect to existing indebtedness
("Interest Rate Hedges"), subject to certain limitations and
restrictions, in order to reduce or manage interest rate cost.
Interest Rate Hedges would only be entered into with
counterparties ("Approved Counterparties") whose senior debt
ratings, or the senior debt ratings of the parent companies of
the counterparties, as published by Standard and Poor's Ratings
Group, are equal to or greater than BBB, or an equivalent rating
from Moody's Investors Service, Fitch Investor Service or Duff
and Phelps.
Interest Rate Hedges will involve the use of financial
instruments commonly used in today's capital markets, such as
interest rate swaps, caps, collars, floors, and structured notes
(i.e., a debt instrument in which the principal and/or interest
payments are indirectly linked to the value of an underlying
asset or index), or transactions involving the purchase or sale,
including short sales, of U.S. Treasury Securities. The
transactions would be for fixed periods and stated notional
amounts. Fees, commissions and other amounts payable to the
counterparty or exchange (excluding, however, the swap or option
payments) in connection with an Interest Rate Hedge will not
exceed those generally obtainable in competitive markets for
parties of comparable credit quality.
1.7.2 Anticipatory Hedges. In addition , IEC and
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the Non-Utility Subsidiaries request authorization to enter into
interest rate hedging transactions with respect to anticipated
debt offerings (the "Anticipatory Hedges"), subject to certain
limitations and restrictions. Such Anticipatory Hedges would
only be entered into with Approved Counterparties, and would be
utilized to fix and/or limit the interest rate risk associated
with any new issuance through (i) a forward sale of exchange-
traded U.S. Treasury futures contracts, U.S. Treasury Securities
and/or a forward swap (each a "Forward Sale"), (ii) the purchase
of put options on U.S. Treasury Securities (a "Put Options
Purchase"), (iii) a Put Options Purchase in combination with the
sale of call options on U.S. Treasury Securities (a "Zero Cost
Collar"), (iv) transactions involving the purchase or sale,
including short sales, of U.S. Treasury Securities, or (v) some
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combination of a Forward Sale, Put Options Purchase, Zero Cost
Collar and/or other derivative or cash transactions, including,
but not limited to structured notes, caps and collars,
appropriate for the Anticipatory Hedges.
Anticipatory Hedges may be executed on-exchange ("On-
Exchange Trades") with brokers through the opening of futures
and/or options positions traded on the Chicago Board of Trade
("CBOT"), the opening of over-the-counter positions with one or
more counterparties ("Off-Exchange Trades"), or a combination of
On-Exchange Trades and Off-Exchange Trades. IEC or a Non-Utility
Subsidiary will determine the optimal structure of each
Anticipatory Hedge transaction at the time of execution. IEC or
a Non-Utility Subsidiary may decide to lock in interest rates
and/or limit its exposure to interest rate increases. All open
positions under Anticipatory Hedges will be closed on or prior to
the date of the new issuance and neither IEC nor any Non-Utility
Subsidiary will, at any time, take possession or make delivery of
the underlying U.S. Treasury Securities. Further, no
Anticipatory Hedge position will be outstanding (open) for more
than 180 days.
The applicants will comply with the then existing financial
disclosure requirements of the Financial Accounting Standards
Board associated with hedging transactions.
1.8 FINANCING SUBSIDIARIES. IEC and AER request authority
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to acquire, directly or indirectly, the equity securities of one
or more corporations, trusts, partnerships or other entities
created specifically for the purpose of facilitating the
financing of the authorized and exempt activities (including
exempt and authorized acquisitions) of IEC and the Non-Utility
Subsidiaries through the issuance of long-term debt or equity
securities, including but not limited to monthly income preferred
securities, to third parties and the transfer of the proceeds of
such financings to IEC or such Non-Utility Subsidiaries. IEC
may, if required, guarantee or enter into expense agreements in
respect of the obligations of any such Financing Subsidiaries.
Non-Utility Subsidiaries may also provide guarantees and enter
into expense agreements, if required, on behalf of such entities
pursuant to Rules 45(b)(7) and 52, as applicable. If the direct
parent company of a Financing Subsidiary is authorized in this
proceeding or any subsequent proceeding to issue long-term debt
or similar types of equity securities, then the amount of such
securities issued by that Financing Subsidiary would count
against the limitation applicable to its parent for those
securities. In such cases, however, the guaranty by the parent
of that security issued by its Financing Subsidiary would not be
counted against the limitations on IEC Guarantees or Non-Utility
Subsidiary Guarantees, as the case may be, set forth in Item
1.6.1 or Item 1.6.2, above. In other cases, in which the parent
company is not authorized herein or in a subsequent proceeding to
issue similar types of securities, the amount of any guarantee
not exempt pursuant to Rules 45(b)(7) and 52 that is entered into
by the parent company with respect to securities issued by its
Financing Subsidiary would be counted against the limitation on
IEC Guarantees or Non-Utility Subsidiary Guarantees, as the case
may be.
1.9 INTERMEDIATE SUBSIDIARIES. IEC and AER propose to
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acquire, directly or indirectly, the securities of one or more
Intermediate Subsidiaries, which would be organized exclusively
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for the purpose of acquiring, holding and/or financing the
acquisition of the securities of or other interest in one or more
EWGs or FUCOs, Rule 58 Subsidiaries, ETCs or other non-exempt
Non-Utility Subsidiaries (as authorized in this proceeding or in
a separate proceeding), provided that Intermediate Subsidiaries
may also engage in development activities and administrative
activities relating to such subsidiaries.(4) To the extent such
transactions are not exempt from the Act or otherwise authorized
or permitted by rule, regulation or order of the Commission
issued thereunder, IEC requests authority for Intermediate
Subsidiaries to provide management, administrative, project
development and operating services to such entities.
There are several legal and business reasons for the use of
special-purpose subsidiaries such as the Intermediate
Subsidiaries in connection with making investments in EWGs and
FUCOs, Rule 58 Subsidiaries, ETCs and other non-exempt Non-
Utility Subsidiaries. For example, the formation and acquisition
of special-purpose subsidiaries is often necessary or desirable
to facilitate financing the acquisition and ownership of a FUCO,
an EWG or another non-utility enterprise. Furthermore, the laws
of some foreign countries may require that the bidder in a
privatization program be organized in that country. In such
cases, it would be necessary for IEC or AER to form a foreign
subsidiary as the entity (or participant in the entity) that
submits the bid or other proposal. In addition, the
interposition of one or more Intermediate Subsidiaries may allow
IEC to defer the repatriation of foreign source income, or to
take full advantage of favorable tax treaties among foreign
countries, or otherwise to secure favorable U.S. income tax
treatment that would not otherwise be available. Intermediate
Subsidiaries would also serve to isolate business risks,
facilitate subsequent adjustments to, or sales of, ownership
interests by or among the members of the ownership group, or to
raise debt or equity capital in domestic or foreign markets.
An Intermediate Subsidiary may be organized, among other
things, (1) in order to facilitate the making of bids or
proposals to develop or acquire an interest in any EWG or FUCO,
Rule 58 Subsidiary, ETC or other non-exempt Non-Utility
Subsidiary; (2) after the award of such a bid proposal, in order
to facilitate closing on the purchase or financing of such
acquired company; (3) at any time subsequent to the consummation
of an acquisition of an interest in any such company in order,
among other things, to effect an adjustment in the respective
ownership interests in such business held by IEC or AER and non-
affiliated investors; (4) to facilitate the sale of ownership
interests in one or more acquired non-utility companies; (5) to
comply with applicable laws of foreign jurisdictions limiting or
otherwise relating to the ownership of domestic companies by
foreign nationals; (6) as a part of tax planning in order to
limit IEC's exposure to U.S. and foreign taxes; (7) to further
insulate IEC and the Operating Companies from operational or
other business risks that may be associated with investments in
non-utility companies; or (8) for other lawful business purposes.
-----------------------------
4 Through AER and its subsidiaries, IEC currently
holds interests in FUCOs operating in New Zealand, China and
Brazil, and in two subsidiaries acquired pursuant to Rule 58 that
are engaged in providing energy management services and propane-
air systems, supplies and related services to interruptible
natural gas customers and other large industrial and commercial
customers. IEC does not currently hold an interest in any EWG or
ETC.
11
<PAGE>
Investments in Intermediate Subsidiaries may take the form
of any combination of the following: (1) purchases of capital
shares, partnership interests, member interests in limited
liability companies, trust certificates or other forms of equity
interests; (2) capital contributions; (3) open account advances
with or without interest; (4) loans; and (5) guarantees issued,
provided or arranged in respect of the securities or other
obligations of any Intermediate Subsidiaries. Funds for any
direct or indirect investment in any Intermediate Subsidiary will
be derived from (1) financings authorized in this proceeding; (2)
any appropriate future debt or equity securities issuance
authorization obtained by IEC from the Commission; and (3) other
available cash resources, including proceeds of securities sales
by AER or other Non-Utility Subsidiary pursuant to Rule 52. To
the extent that IEC provides funds or guarantees directly or
indirectly to an Intermediate Subsidiary which are used for the
purpose of making an investment in any EWG or FUCO or a Rule 58
Subsidiary, the amount of such funds or guarantees will be
included in IEC's "aggregate investment" in such entities, as
calculated in accordance with Rule 53 or Rule 58, as applicable.
1.10 INVESTMENTS IN INCIDENTAL FACILITIES AND OTHER ASSETS.
AER and other Non-Utility Subsidiaries request authority to
acquire or construct in one or more transactions from time to
time through the Authorization Period, non-utility energy assets
in the United States, including, without limitation, natural gas
production, gathering, processing, storage and transportation
facilities and equipment, liquid oil reserves and storage
facilities, and associated facilities (collectively, "Energy
Assets"), that would be incidental to the oil and gas exploration
and production and energy marketing, brokering and trading
operations of AER' subsidiaries.(5) AER requests authorization
to invest up to $125 million (the "Investment Limitation") during
the Authorization Period in such Energy Assets or in the equity
securities of existing or new companies substantially all of
whose physical properties consist or will consist of such Energy
Assets.(6) Such Energy Assets (or equity securities of companies
owning Energy Assets) may be acquired for cash or in exchange for
Common Stock or other securities of IEC, AER, or other Non-
Utility Subsidiary of AER, or any combination of the foregoing.
If Common Stock of IEC is used as consideration in connection
with any such acquisition, the market value thereof on the date
of issuance will be counted against the proposed Investment
Limitation. The stated amount or principal amount of any other
securities issued as consideration in any such transaction will
also be counted against the Investment Limitation. Under no
circumstances will AER or any oil or gas production or marketing
subsidiary acquire, directly or indirectly, any assets or
properties the ownership or operation of which would cause such
companies to be considered an "electric utility company" or "gas
utility company" as defined under the Act.
-------------------
5 Currently, AER's oil and gas exploration and
production operations are conducted through Whiting Petroleum
Corporation and its subsidiaries and its power and gas marketing
operations are conducted through Cargill-Alliant LLC and IEA-HES
LLC.
6 Companies whose physical properties consist of
Energy Assets may also be currently engaged in energy (gas or
electric or both) marketing activities. To the extent necessary,
applicants request authorization to continue such activities in
the event they acquire such companies.
12
<PAGE>
As this Commission has recognized in American Electric Power
Company, Inc., et al., 68 SEC Docket 1251 (November 2, 1998) and
SEI Holdings, Inc., 62 SEC Docket 2493 (September 26, 1996) and
other decisions, a successful marketer of energy commodities must
be able to control some level of physical assets that are
incidental and reasonably necessary in its day-to-day operations.
For example, gas marketers today must be able to offer their
customers a variety of value-added, or "bundled," services, such
as gas storage and processing, that the interstate pipelines
offered prior to FERC Order 636.(7) In order to provide such
value-added services, many of the leading gas marketers have
invested in production, gathering, processing, and storage
capacity at or near the principal gas producing areas and hubs
and market centers in the U.S. Similarly, in order to compete
with both interstate pipelines and local distribution companies
for industrial and electric utility sales, marketers must have
the flexibility to acquire or construct such supply facilities.
In fact, most of the larger energy marketers today own, directly
or through affiliates, substantial physical assets of the type
described herein.
The acquisition of production, gathering, processing, and
storage capacity provide energy marketers the opportunity to
hedge the price of future supplies of natural gas against changes
in demand brought about due to weather, increased usage
requirements by end use customers, or other volatilities imposed
by the market. Storage and pipeline assets allow energy
marketers to "bank" low cost supplies for use during periods of
high volatility or take advantage of differential price spreads
between different markets. Energy marketers with strong and
balanced physical asset portfolios are able to originate tolling
or reverse tolling of gas and electric commodities, whereby the
payment is made in one or the other commodity. The integration
of production, gathering, and storage assets offer energy
marketers the opportunity to provide either gas or electric
products and services to energy users, at their discretion,
depending on user requirements and needs. Finally, the physical
assets underlying an energy marketer's balance sheet may provide
substantial credit support for the financial transactions
undertaken by the marketer.
It is the intention of AER to add to the existing base of
non-utility, marketing-related, assets held by its subsidiaries
as and when market conditions warrant, whether through
acquisitions of specific assets or groups of assets that are
offered for sale, or by acquiring existing companies (for
example, other gas marketing companies which own significant
physical assets in the areas of gas production, processing,
storage, and transportation). Ultimately, it is AER's objective
to control a substantial portfolio of Energy Assets that would
provide the IEC system with the flexibility and capacity to
compete for sales in all major markets in the United States and,
in the future, possibly Canada.
1.11 SALES OF SERVICES AND GOODS AMONG AER AND OTHER
NON-UTILITY SUBSIDIARIES OF IEC. AER and other Non-Utility
Subsidiaries propose to provide services and sell goods to each
other at fair market prices determined without regard to cost,
-------------------------
7 See FERC Order 636, FERC Stats. & Regs. (Paragraph)
30,939, "Pipeline Service Obligations and Revisions to
Regulations Governing Self-Implementing Transportation; and
Regulation of Natural Gas Pipelines After Partial Wellhead
Decontrol," 57 Fed. Reg. 13,270 (April 16, 1992).
13
<PAGE>
and therefore request an exemption (to the extent that Rule 92(d)
does not apply) pursuant to Section 13(b) from the cost standards
of Rules 90 and 91 as applicable to such transactions, in any
case in which any of the following circumstances may apply:
(i) The client company is a FUCO or foreign EWG which
derives no part of its income, directly or indirectly, from the
generation, transmission, or distribution of electric energy for
sale within the United States;
(ii) The client company is an EWG which sells
electricity at market-based rates which have been approved by the
Federal Energy Regulatory Commission ("FERC");
(iii) The client company is a "qualifying facility"
("QF") within the meaning of the Public Utility Regulatory
Policies Act of 1978, as amended ("PURPA") that sells electricity
exclusively (a) at rates negotiated at arms'-length to one or
more industrial or commercial customers purchasing such
electricity for their own use and not for resale, and/or (ii) to
an electric utility company at the purchaser's "avoided cost" as
determined in accordance with the regulations under PURPA;
(iv) The client company is a domestic EWG or QF that
sells electricity at rates based upon its cost of service, as
approved by FERC or any state public utility commission having
jurisdiction, provided that the purchaser thereof is not an
Operating Company within the IEC system; or
(v) The client company is an ETC, a Rule 58 Subsidiary,
or any other Non-Utility Subsidiary that does not derive any part
of its income from sales of goods, services or other property to
an Operating Company within the IEC system.
1.12 ACTIVITIES OF RULE 58 SUBSIDIARIES OUTSIDE THE UNITED
STATES. AER, on behalf of any current or future Rule 58
Subsidiaries, requests authority to engage in business activities
permitted by Rule 58 both within and outside the United States.
Such activities include:
(i) the brokering and marketing of electricity, natural gas
and other energy commodities ("Energy Marketing");
(ii) energy management services ("Energy Management
Services"), including the marketing, sale, installation,
operation and maintenance of various products and services
related to energy management and demand-side management,
including energy and efficiency audits; facility design and
process control and enhancements; construction,
installation, testing, sales and maintenance of (and
training client personnel to operate) energy conservation
equipment; design, implementation, monitoring and evaluation
of energy conservation programs; development and review of
architectural, structural and engineering drawings for
energy efficiencies, design and specification of energy
consuming equipment; and general advice on programs; the
design, construction, installation, testing, sales and
14
<PAGE>
maintenance of new and retrofit heating, ventilating, and
air conditioning ("HVAC"), electrical and power systems,
alarm and warning systems, motors, pumps, lighting, water,
water-purification and plumbing systems, and related
structures, in connection with energy-related needs; and the
provision of services and products designed to prevent,
control, or mitigate adverse effects of power disturbances
on a customer's electrical systems; and
(iii) engineering, consulting and other technical support
services ("Consulting Services") with respect to energy-
related businesses, as well as for individuals. Such
Consulting Services would include technology assessments,
power factor correction and harmonics mitigation analysis,
meter reading and repair, rate schedule design and analysis,
environmental services, engineering services, billing
services (including consolidation billing and bill
disaggregation tools), risk management services,
communications systems, information systems/data processing,
system planning, strategic planning, finance, feasibility
studies, and other similar services.
AER requests that the Commission authorize Rule 58
Subsidiaries to (i) engage in Energy Marketing activities in
Canada, and reserve jurisdiction over such activities in Mexico,
(ii) provide Energy Management Services and Consulting Services
anywhere outside the United States, and (iii) reserve
jurisdiction over other activities of Rule 58 Subsidiaries
outside the United States, pending completion of the record.
1.13 PAYMENT OF DIVIDENDS OUT OF CAPITAL AND UNEARNED
------------------------------------------------
SURPLUS. AER also proposes, on behalf of itself and each of its
-------
current and future non-exempt Non-Utility Subsidiaries that such
companies be permitted to pay dividends with respect to the
securities of such companies, from time to time through the
Authorization Period, out of capital and unearned surplus
(including revaluation reserve), to the extent permitted under
applicable corporate law.
AER anticipates that there will be situations in which it or
one or more Non-Utility Subsidiaries will have unrestricted cash
available for distribution in excess of any such company's
current and retained earnings. In such situations, the
declaration and payment of a dividend would have to be charged,
in whole or in part, to capital or unearned surplus. As an
example, if AER (directly or indirectly through an Intermediate
Subsidiary) purchases all of the stock of an EWG or FUCO, and
following such acquisition, the EWG or FUCO incurs non-recourse
borrowings some or all of the proceeds of which are distributed
to the Intermediate Subsidiary as a reduction in the amount
invested in the EWG or FUCO (i.e., return of capital), the
Intermediate Subsidiary (assuming it has no earnings) could not,
without the Commission's approval, in turn distribute such cash
to AER for possible distribution to IEC.(8)
------------------------
(8) The same problem would arise where an Intermediate
Subsidiary is over-capitalized in anticipation of a bid which is
ultimately unsuccessful. In such a case, IEC or AER would
normally desire a return of some or all of the funds invested.
15
<PAGE>
Similarly, using the same example, if an Intermediate
Subsidiary, following its acquisition of all of the stock of an
EWG or FUCO, were to sell part of that stock to a third party for
cash, the Intermediate Subsidiary would again have substantial
unrestricted cash available for distribution, but (assuming no
profit on the sale of the stock) would not have current earnings
and therefore could not, without the Commission's approval,
declare and pay a dividend to its parent out of such cash
proceeds.
Further, there may be periods during which unrestricted cash
available for distribution by AER or another Non-Utility
Subsidiary exceeds current and retained earnings due to the
difference between accelerated depreciation allowed for tax
purposes, which may generate significant amounts of distributable
cash, and depreciation methods required to be used in determining
book income.
Finally, even under circumstances in which a Non-Utility
Subsidiary has sufficient earnings, and therefore may declare and
pay a dividend to its immediate parent, such immediate parent may
have negative retained earnings, even after receipt of the
dividend, due to losses from other operations. In this instance,
cash would be trapped at a subsidiary level where there is no
current need for it.
AER, on behalf of itself and each current and future non-
exempt Non-Utility Subsidiary represents that it will not declare
or pay any dividend out of capital or unearned surplus in
contravention of any law restricting the payment of dividends.
In this regard, it should be noted that all U.S. jurisdictions
---
limit to one extent or another the authority of corporations to
make dividend distributions to shareholders. Most State
corporation statutes contain either or both an equity insolvency
test or some type of balance sheet test. AER also states that
its subsidiaries will comply with the terms of any credit
agreements and indentures that restrict the amount and timing of
distributions to shareholders.
1.15 CERTIFICATES OF NOTIFICATION. It is proposed that,
----------------------------
with respect to IEC, the reporting system of the 1933 Act and the
1934 Act be integrated with the reporting system under the 1935
Act. This would eliminate duplication of filings with the
Commission that cover essentially the same subject matters,
resulting in a reduction of expense for both the Commission and
IEC. To effect such integration, the portion of the 1933 Act and
1934 Act reports containing or reflecting disclosures of
transactions occurring pursuant to the authorization granted in
this proceeding would be incorporated by reference into this
proceeding through Rule 24 certificates of notification. The
certificates would also contain all other information required by
Rule 24, including the certification that each transaction being
reported on had been carried out in accordance with the terms and
conditions of and for the purposes represented in this
Application/Declaration. Such certificates of notification would
be filed within 60 days after the end of each of the first three
calendar quarters, and 90 days after the end of the last calendar
quarter, in which transactions occur. It is also proposed that
such certificates, which will include information with respect to
all securities issuances of Non-Utility Subsidiaries (including
16
<PAGE>
any Non-Utility Subsidiary Guarantee) that are exempt under Rule
52, be in lieu of any separate certificates required on Form U-
6B-2 pursuant to Rule 52.
The Rule 24 certificates will contain the following
information:
(a) If sales of Common Stock by IEC are reported,
the purchase price per share and the market price per share
at the date of the agreement of sale;
(b) If a guarantee or other form of credit
support is issued during the quarter, the name of the parent
or issuing company, the name of the subsidiary and the
amount, terms and purpose of the guarantee;
(c) The amount and terms of any financings
consummated by any Non-Utility Subsidiary during the
quarter, which financings are not exempt under Rule 52;
(d) The amount and terms of any financings
consummated by any Non-Subsidiary during the quarter
pursuant to the exemption provided under Rule 52;
(e) The notional amount and principal terms of
any Interest Rate Hedge or Anticipatory Hedge entered into
during the quarter and the identity of the parties to such
instruments;
(f) The name, parent company, and amount invested
in any new Intermediate Subsidiary or Financing Subsidiary
during the quarter;
(g) Consolidated balance sheets as of the end of
the quarter, and separate balance sheets as of the end of
the quarter for each company, including IEC, that has
engaged in financing transactions during the quarter; and
(h) Future registration statements filed under
the 1933 Act with respect to securities that are the subject
of the Application/Declaration will be filed (or
incorporated by reference) as exhibits to the next
certificate filed pursuant to Rule 24.
ITEM 2. FEES, COMMISSIONS AND EXPENSES.
------------------------------
The fees, commissions and expenses incurred or to be
incurred in connection with the transactions proposed herein are
estimated at $15,000. The above fees do not include underwriting
fees and all other expenses incurred in consummating financings
covered hereby. It is estimated that such fees and expenses will
not exceed 5% of the proceeds.
17
<PAGE>
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
-------------------------------
3.1 GENERAL. Sections 6(a) and 7 of the Act are applicable
to the issuance and sale of Common Stock and Debentures by IEC
and to the issuance and sale of securities by Non-Utility
Subsidiaries that are not exempt under Rule 52. In addition,
Sections 6(a) and 7 of the Act are applicable to Interest Rate
Hedges, except to the extent that they may be exempt under Rule
52, and to Anticipatory Hedges. Section 12(b) of the Act and
Rule 45(a) are applicable to the issuance of IEC Guarantees and
to Non-Utility Subsidiary Guarantees, to the extent not exempt
under Rules 45(b) and 52. Sections 9(a)(1) and 10 of the Act are
also applicable to IEC's or any Non-Utility Subsidiary's
acquisition of the equity securities of any Financing Subsidiary
or Intermediate Subsidiary. Section 12(c) of the Act and Rule 46
are applicable to the payment of dividends from capital and
unearned surplus by any Non-Utility Subsidiary. Section 13(b) of
the Act and Rules 80 - 92 are applicable to the performance of
services and sale of goods among Non-Utility Subsidiaries, but
may be exempt from the requirements thereof in some cases
pursuant to Rules 87(b)(1), 90(d) and 92, as applicable.
3.2 COMPLIANCE WITH RULES 53 AND 54. The transactions
proposed herein are also subject to Rules 53 and 54. Under Rule
53(a), the Commission shall not make certain specified findings
under Sections 7 and 12 in connection with a proposal by a
holding company to issue securities for the purpose of acquiring
the securities of or other interest in an EWG, or to guarantee
the securities of an EWG, if each of the conditions in paragraphs
(a)(1) through (a)(4) thereof are met, provided that none of the
conditions specified in paragraphs (b)(1) through (b)(3) of Rule
53 exists. Rule 54 provides that the Commission shall not
consider the effect of the capitalization or earnings of
subsidiaries of a registered holding company that are EWGs or
FUCOs in determining whether to approve other transactions if
Rule 53(a), (b) and (c) are satisfied. These standards are met.
Rule 53(a)(1): Currently, IEC's "aggregate investment" in
EWGs and FUCOs is $73 million, or approximately 14% of IEC's
"consolidated retained earnings" for the four quarters ended
December 31, 1998 ($537 million).
Rule 53(a)(2): IEC will maintain books and records enabling
it to identify investments in and earnings from each EWG and FUCO
in which it directly or indirectly acquires and holds an
interest. IEC will cause each domestic EWG in which it acquires
and holds an interest, and each foreign EWG and FUCO that is a
majority-owned subsidiary, to maintain its books and records and
prepare its financial statements in conformity with U.S.
generally accepted accounting principles ("GAAP"). All of such
books and records and financial statements will be made available
to the Commission, in English, upon request.
Rule 53(a)(3): No more than 2% of the employees of the
Operating Companies will, at any one time, directly or
indirectly, render services to EWGs and FUCOs.
18
<PAGE>
Rule 53(a)(4): IEC will submit a copy of the Application or
Declaration in this proceeding and each amendment thereto, and
will submit copies of any Rule 24 certificates required
hereunder, as well as a copy of IEC's Form U5S, to each of the
public service commissions having jurisdiction over the retail
rates of the Operating Companies.
In addition, IEC states that the provisions of Rule 53(a)
are not made inapplicable to the authorization herein requested
by reason of the occurrence or continuance of any of the
circumstances specified in Rule 53(b). Rule 53(c) is
inapplicable by its terms.
ITEM 4. REGULATORY APPROVALS.
--------------------
No state commission, and no federal commission, other than
the Commission, has jurisdiction over the proposed transactions.
ITEM 5. PROCEDURE.
---------
The Commission is requested to publish a notice under Rule
23 with respect to the filing of this Application or Declaration
as soon as practicable. The applicants request that the
Commission's Order be issued as soon as the rules allow, and in
any event not later than May 1, 1999, and that there should not
be a 30-day waiting period between issuance of the Commission's
order and the date on which the order is to become effective.
The applicants hereby waive a recommended decision by a hearing
officer or any other responsible officer of the Commission and
consents that the Division of Investment Management may assist in
the preparation of the Commission's decision and/or order, unless
the Division opposes the matters proposed herein.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
---------------------------------
A. EXHIBITS. (To be filed by amendment unless
---------
otherwise indicated)
A None.
B-1 Form of Standard Purchase Agreement - Common
Stock.
B-2 Form of Debentures.
B-3 Form of Debenture Indenture.
B-4 Form of Supplemental Indenture.
B-5 Form of Debenture Purchase Agreement.
19
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F Opinion of Counsel.
G Financial Data Schedule. (incorporated by
reference to Exhibit 27 to the Quarterly
Report on Form 10-Q of IEC for the period
ended September 30, 1998) (File No. 1-9894).
H Proposed Form of Federal Register Notice.
(Filed herewith).
B. FINANCIAL STATEMENTS.
--------------------
1.1 Balance Sheet of IEC and consolidated
subsidiaries, as of September 30, 1998
(incorporated by reference to the Quarterly
Report on Form 10-Q of IEC for the period
ended September 30, 1998) (File No. 1-9894).
1.2 Statements of Income of IEC and consolidated
subsidiaries for the three and six-month
periods ended September 30, 1998
(incorporated by reference to the Quarterly
Report on Form 10-Q of IEC for the period
ended September 30, 1998) (File No. 1-9894).
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
----------------------------------------
None of the matters that are the subject of this Application
or Declaration involve a "major federal action" nor do they
"significantly affect the quality of the human environment" as
those terms are used in section 102(2)(C) of the National
Environmental Policy Act. The transaction that is the subject of
this Application or Declaration will not result in changes in the
operation of the Applicants that will have an impact on the
environment. The applicants are not aware of any federal agency
that has prepared or is preparing an environmental impact
statement with respect to the transactions that are the subject
of this Application or Declaration.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, as amended, the undersigned companies have
duly caused this Application or Declaration filed herein to be
signed on their behalf by the undersigned thereunto duly
authorized.
INTERSTATE ENERGY CORPORATION
By: /s/ Erroll B. Davis
-----------------------------------
Name: Erroll B. Davis
Title: President and Chief
Executive Officer
ALLIANT ENERGY RESOURCES, INC.
By: /s/ James E. Hoffman
-----------------------------------
Name: James E. Hoffman
Title: President
Date: February 18, 1998
21
EXHIBIT H
FORM OF FEDERAL REGISTER NOTICE
Interstate Energy Corporation ("IEC"), a registered holding
company under the Public Utility Holding Company Act of 1935, as
amended (the "Act"), and its principal non-utility subsidiary,
Alliant Energy Resources, Inc. ("AER"), have filed an application
or declaration pursuant to Sections 6, 7, 9, 10, 12, 13, 32 and
33 of the Act and the rules thereunder in which they seek
approval for a program of external and intrasystem financing and
for certain other related matters. The principal business
address of IEC and AER is 222 West Washington Avenue Madison,
Wisconsin 53703. IEC's public-utility subsidiaries are Wisconsin
Power & Light Company, South Beloit Water, Gas and Electric
Company, Interstate Power Company, and IES Utilities, Inc.
(collectively, the "Operating Companies"). Together, the
Operating Companies provide public-utility service to
approximately 895,000 electric and 378,000 retail gas customers
in parts of Wisconsin, Iowa, Minnesota, and Illinois.
AER serves as the holding company for substantially all of
IEC's non-utility investments and subsidiaries, which include
interests in companies engaged in environmental consulting and
engineering services; the development, ownership and management
of affordable multi-unit housing properties; providing various
financial services, including the origination and sale of
mortgages for tax-advantaged affordable housing; energy-related
businesses, including, among others, the brokering and marketing
of electricity and natural gas, gas supply and fuel management
services, oil and gas production, steam production and sale, and
energy-management services; owning and/or operating foreign
utility systems; transportation; and management of investments in
telecommunications.
<PAGE>
IEC and AER, on behalf of itself and its current and future
direct and indirect non-utility subsidiaries ("Non-Utility
Subsidiaries"), seek approval for a program of external
financing, credit support arrangements, and other related
proposals for the period through December 31, 2001
("Authorization Period"), as follows:
Common Stock. IEC proposes to issue and sell from time to
------------
time during the Authorization Period up to 15 million shares of
its stock, $.01 par value per share ("Common Stock"). IEC may
issue and sell Common Stock or options exercisable for Common
Stock and issue Common Stock upon the exercise of options. IEC
may also buy back shares of Common Stock or such options during
the Authorization Period in accordance with Rule 42. IEC proposes
to issue and sell Common Stock pursuant to underwriting
agreements of a type generally standard in the industry or
through private placements or other non-public offerings to one
or more persons. All such Common Stock sales will be at rates or
prices and under conditions negotiated or based upon, or
otherwise determined by, competitive capital markets.
Debentures. IEC proposes to issue and sell from time to
----------
time through the Authorization Period up to $400 million
principal amount of Debentures in one or more series, provided
that the aggregate principal amount of short-term indebtedness
issued by IEC in accordance with the authorization of the
Commission obtained in other proceedings and the Debentures at
any time outstanding shall not exceed $1.1 billion (the "IEC Debt
Limitation"). The Debentures (a) may be convertible into any
other securities of IEC, (b) will have maturities ranging from
one to 40 years, (c) may be subject to optional and/or mandatory
redemption, in whole or in part, at par or at various premiums
above the principal amount thereof, (d) may be entitled to
mandatory or optional sinking fund provisions, (e) may provide
for reset of the coupon pursuant to a remarketing arrangement,
2
<PAGE>
and (f) may be called from existing investors by a third party.
IEC proposes that the maturity dates, interest rates, redemption
and sinking fund provisions and conversion features, if any, with
respect to the Debentures of a particular series, as well as any
associated placement, underwriting or selling agent fees,
commissions and discounts, if any, be established by negotiation
or competitive bidding and reflected in the applicable
transaction documents. IEC undertakes that without further
Commission authorization it will not issue any Debentures that
are not at the time of original issuance rated at least
investment grade by a nationally recognized statistical rating
organization.
Other Securities. In addition to the specific securities
----------------
for which authorization is sought in the application-declaration,
IEC states that it may also find it necessary or desirable in
order to minimize financing costs or to obtain new capital under
then existing market conditions to issue and sell other types of
securities from time to time during the Authorization Period.
IEC requests that the Commission reserve jurisdiction over the
issuance of additional types of securities and the amount
thereof.
Financing by AER and Subsidiaries. AER and its subsidiaries
---------------------------------
are engaged in and expect to continue to be active in the
development and expansion of their existing energy-related,
transportation, telecommunications or otherwise functionally-
related, non-utility businesses in the IEC holding company
system. AER states that, in almost all cases, securities issued
by the Non-Utility Subsidiaries to finance their authorized and
exempt activities will be exempt from prior Commission
authorization pursuant to Rule 52(b). AER requests that the
Commission reserve jurisdiction over the issuance by any Non-
Utility Subsidiary of any other securities with respect to which
the exemption under Rule 52(b) would not apply.
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It is stated that any promissory note, bond or other
evidence of indebtedness issued by a Non-Utility Subsidiary that
is guaranteed as to principal or interest by IEC (a "Guaranteed
Note") shall mature no more than 40 years after the date of
issuance thereof and bear interest at a fixed or floating rate
which, in the case of a fixed rate, shall be not greater than 300
basis points over the yield to maturity of a United States
Treasury obligation having a remaining term approximately equal
to the average life of such Guaranteed Note at the time issued,
and, in the case of a floating rate, shall be not greater than
300 basis points over the rate of interest announced publicly by
a major money center bank as its base or prime rate. In
addition, a Non-Utility Subsidiary may agree to pay a commitment
fee not to exceed 1.5% of the average daily unused balance under
any committed line of credit and/or maintain compensating
balances not to exceed 20% of the amount of any committed line.
IEC Guarantees. IEC requests authorization to enter into
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guarantees, obtain letters of credit, enter into expense
agreements or otherwise provide credit support (collectively,
"IEC Guarantees") with respect to the obligations of any
Subsidiary as may be appropriate to enable such Subsidiary to
carry on in the ordinary course of its business, in an aggregate
principal amount not to exceed $600 million outstanding at any
one time. IEC proposes to charge each Subsidiary a fee for each
guarantee provided on its behalf that is determined by
multiplying the amount of the IEC Guarantee provided by the cost
of obtaining the liquidity necessary to perform the guarantee
(for example, bank line commitment fees or letter of credit fees,
plus other transactional expenses) for the period of time the
guarantee remains outstanding.
Non-Utility Subsidiary Guarantees. In addition, AER and
---------------------------------
other Non-Utility Subsidiaries request authority to provide to
other Non-Utility Subsidiaries guarantees and other forms of
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credit support ("Non-Utility Subsidiary Guarantees") in an
aggregate principal amount not to exceed $300 million outstanding
at any one time, exclusive of any guarantees and other forms of
credit support that are exempt pursuant to Rule 45(b) and Rule
52. The Non-Utility Subsidiary providing any such credit support
may charge its associate company a fee for each guarantee
provided on its behalf determined in the same manner as specified
above.
Hedging Transactions. IEC, and to the extent not exempt
--------------------
pursuant to Rule 52, the Non-Utility Subsidiaries, request
authorization to enter into interest rate hedging transactions
with respect to existing indebtedness ("Interest Rate Hedges"),
subject to certain limitations and restrictions, in order to
reduce or manage interest rate cost. Interest Rate Hedges would
only be entered into with counterparties ("Approved
Counterparties") whose senior debt ratings, or the senior debt
ratings of the parent companies of the counterparties, as
published by Standard and Poor's Ratings Group, are equal to or
greater than BBB, or an equivalent rating from Moody's Investors
Service, Fitch Investor Service or Duff and Phelps. It is stated
that Interest Rate Hedges will involve the use of financial
instruments commonly used in today's capital markets, such as
interest rate swaps, caps, collars, floors, and structured notes
(i.e., a debt instrument in which the principal and/or interest
payments are indirectly linked to the value of an underlying
asset or index), or transactions involving the purchase or sale,
including short sales, of U.S. Treasury Securities. The
transactions would be for fixed periods and stated notional
amounts. Fees, commissions and other amounts payable to the
counterparty or exchange (excluding, however, the swap or option
payments) in connection with an Interest Rate Hedge will not
exceed those generally obtainable in competitive markets for
parties of comparable credit quality.
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Anticipatory Hedges. In addition , IEC and the Non-Utility
-------------------
Subsidiaries request authorization to enter into interest rate
hedging transactions with respect to anticipated debt offerings
(the "Anticipatory Hedges"), subject to certain limitations and
restrictions. Such Anticipatory Hedges would only be entered
into with Approved Counterparties, and would be utilized to fix
and/or limit the interest rate risk associated with any new
issuance through (i) a forward sale of exchange-traded U.S.
Treasury futures contracts, U.S. Treasury Securities and/or a
forward swap (each a "Forward Sale"), (ii) the purchase of put
options on U.S. Treasury Securities (a "Put Options Purchase"),
(iii) a Put Options Purchase in combination with the sale of call
options on U.S. Treasury Securities (a "Zero Cost Collar"), (iv)
transactions involving the purchase or sale, including short
sales, of U.S. Treasury Securities, or (v) some combination of a
Forward Sale, Put Options Purchase, Zero Cost Collar and/or other
derivative or cash transactions, including, but not limited to
structured notes, caps and collars, appropriate for the
Anticipatory Hedges. It is stated that anticipatory Hedges may
be executed on-exchange ("On-Exchange Trades") with brokers
through the opening of futures and/or options positions traded on
the Chicago Board of Trade ("CBOT"), the opening of over-the-
counter positions with one or more counterparties ("Off-Exchange
Trades"), or a combination of On-Exchange Trades and Off-Exchange
Trades. IEC or a Non-Utility Subsidiary will determine the
optimal structure of each Anticipatory Hedge transaction at the
time of execution. IEC or a Non-Utility Subsidiary may decide to
lock in interest rates and/or limit its exposure to interest rate
increases. All open positions under Anticipatory Hedges will be
closed on or prior to the date of the new issuance and neither
IEC nor any Non-Utility Subsidiary will, at any time, take
possession or make delivery of the underlying U.S. Treasury
Securities.
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Financing Subsidiaries. IEC and AER request authority to
----------------------
acquire, directly or indirectly, the equity securities of one or
more corporations, trusts, partnerships or other entities created
specifically for the purpose of facilitating the financing of the
authorized and exempt activities (including exempt and authorized
acquisitions) of IEC and the Non-Utility Subsidiaries through the
issuance of long-term debt or equity securities, including but
not limited to monthly income preferred securities, to third
parties and the transfer of the proceeds of such financings to
IEC or such Non-Utility Subsidiaries. IEC may, if required,
guarantee or enter into expense agreements in respect of the
obligations of any such Financing Subsidiaries. Non-Utility
Subsidiaries may also provide guarantees and enter into expense
agreements, if required, on behalf of such entities pursuant to
Rules 45(b)(7) and 52, as applicable. If the direct parent
company of a Financing Subsidiary is authorized in this
proceeding or any subsequent proceeding to issue long-term debt
or similar types of equity securities, then the amount of such
securities issued by that Financing Subsidiary would count
against the limitation applicable to its parent for those
securities. In such cases, however, the guaranty by the parent
of that security issued by its Financing Subsidiary would not be
counted against the limitations on IEC Guarantees or Non-Utility
Subsidiary Guarantees, as the case may be. In other cases, in
which the parent company is not authorized herein or in a
subsequent proceeding to issue similar types of securities, the
amount of any guarantee not exempt pursuant to Rules 45(b)(7) and
52 that is entered into by the parent company with respect to
securities issued by its Financing Subsidiary would be counted
against the limitation on IEC Guarantees or Non-Utility
Subsidiary Guarantees, as the case may be.
Intermediate Subsidiaries. IEC and AER propose to acquire,
-------------------------
directly or indirectly, the securities of one or more
Intermediate Subsidiaries, which would be organized exclusively
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for the purpose of acquiring, holding and/or financing the
acquisition of the securities of or other interest in one or more
"exempt wholesale generators" ("EWGs") or "foreign utility
companies" ("FUCOs," as defined in Section 32 and 33,
respectively, companies whose securities are acquired pursuant to
the exemption under Rule 58 ("Rule 58 Subsidiaries"), "exempt
telecommunications companies" ("ETCs"), as defined in Section 34,
or other non-exempt Non-Utility Subsidiaries (as authorized in
this proceeding or in a separate proceeding), provided that
Intermediate Subsidiaries may also engage in development
activities and administrative activities relating to such
subsidiaries. Intermediate Subsidiaries may also provide
management, administrative, project development and operating
services to such entities. It is stated that an Intermediate
Subsidiary may be organized, among other things, (1) in order to
facilitate the making of bids or proposals to develop or acquire
an interest in any EWG or FUCO, Rule 58 Subsidiary, ETC or other
non-exempt Non-Utility Subsidiary; (2) after the award of such a
bid proposal, in order to facilitate closing on the purchase or
financing of such acquired company; (3) at any time subsequent to
the consummation of an acquisition of an interest in any such
company in order, among other things, to effect an adjustment in
the respective ownership interests in such business held by IEC
or AER and non-affiliated investors; (4) to facilitate the sale
of ownership interests in one or more acquired non-utility
companies; (5) to comply with applicable laws of foreign
jurisdictions limiting or otherwise relating to the ownership of
domestic companies by foreign nationals; (6) as a part of tax
planning in order to limit IEC's exposure to U.S. and foreign
taxes; (7) to further insulate IEC and the Operating Companies
from operational or other business risks that may be associated
with investments in non-utility companies; or (8) for other
lawful business purposes.
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Investments in Incidental Facilities and Other Assets. AER
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and other Non-Utility Subsidiaries request authority to acquire
or construct in one or more transactions from time to time
through the Authorization Period, non-utility energy assets in
the United States, including, without limitation, natural gas
production, gathering, processing, storage and transportation
facilities and equipment, liquid oil reserves and storage
facilities, and associated facilities (collectively, "Energy
Assets"), that would be incidental to the oil and gas exploration
and production and energy marketing, brokering and trading
operations of AER's subsidiaries. AER requests authorization to
invest up to $125 million (the "Investment Limitation") during
the Authorization Period in such Energy Assets or in the equity
securities of existing or new companies substantially all of
whose physical properties consist or will consist of such Energy
Assets.(1) Such Energy Assets (or equity securities of companies
owning Energy Assets) may be acquired for cash or in exchange for
Common Stock or other securities of IEC, AER, or other Non-
Utility Subsidiary of AER, or any combination of the foregoing.
If Common Stock of IEC is used as consideration in connection
with any such acquisition, the market value thereof on the date
of issuance will be counted against the proposed Investment
Limitation. The stated amount or principal amount of any other
securities issued as consideration in any such transaction will
also be counted against the Investment Limitation. Under no
circumstances will AER or any oil or gas production or marketing
subsidiary acquire, directly or indirectly, any assets or
properties the ownership or operation of which would cause such
companies to be considered an "electric utility company" or "gas
utility company" as defined under the Act.
--------------------------
(1) Companies whose physical properties consist of Energy
Assets may also be currently engaged in energy (gas or electric
or both) marketing activities. To the extent necessary,
applicants request authorization to continue such activities in
the event they acquire such companies.
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Sales of Services and Goods Among AER and Other Non-Utility
-----------------------------------------------------------
Subsidiaries of IEC. AER and other Non-Utility Subsidiaries
-------------------
propose to provide services and sell goods to each other at fair
market prices determined without regard to cost, and therefore
request an exemption (to the extent that Rule 92(d) does not
apply) pursuant to Section 13(b) from the cost standards of
Rules 90 and 91 as applicable to such transactions, in any case
in which any of the following circumstances may apply:
(i) The client company is a FUCO or foreign EWG which
derives no part of its income, directly or indirectly, from the
generation, transmission, or distribution of electric energy for
sale within the United States;
(ii) The client company is an EWG which sells electricity at
market-based rates which have been approved by the Federal Energy
Regulatory Commission ("FERC");
(iii) The client company is a "qualifying facility"
("QF") within the meaning of the Public Utility Regulatory
Policies Act of 1978, as amended ("PURPA") that sells electricity
exclusively (a) at rates negotiated at arms'-length to one or
more industrial or commercial customers purchasing such
electricity for their own use and not for resale, and/or (ii) to
an electric utility company at the purchaser's "avoided cost" as
determined in accordance with the regulations under PURPA;
(iv) The client company is a domestic EWG or QF that sells
electricity at rates based upon its cost of service, as approved
by FERC or any state public utility commission having
jurisdiction, provided that the purchaser thereof is not an
Operating Company within the IEC system; or
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(v) The client company is an ETC, a Rule 58 Subsidiary, or
any other Non-Utility Subsidiary that does not derive any part of
its income from sales of goods, services or other property to an
Operating Company within the IEC system.
Activities of Rule 58 Subsidiaries Outside the United
-----------------------------------------------------
States. AER, on behalf of any current or future Rule 58
------
Subsidiaries, requests authority to engage in certain business
activities permitted by Rule 58 both within and outside the
United States. Such activities include: (i) the brokering and
marketing of electricity, natural gas and other energy
commodities ("Energy Marketing"); (ii) energy management services
("Energy Management Services"), including the marketing, sale,
installation, operation and maintenance of various products and
services related to energy management and demand-side management,
including energy and efficiency audits; facility design and
process control and enhancements; construction, installation,
testing, sales and maintenance of (and training client personnel
to operate) energy conservation equipment; design,
implementation, monitoring and evaluation of energy conservation
programs; development and review of architectural, structural and
engineering drawings for energy efficiencies, design and
specification of energy consuming equipment; and general advice
on programs; the design, construction, installation, testing,
sales and maintenance of new and retrofit heating, ventilating,
and air conditioning ("HVAC"), electrical and power systems,
alarm and warning systems, motors, pumps, lighting, water, water-
purification and plumbing systems, and related structures, in
connection with energy-related needs; and the provision of
services and products designed to prevent, control, or mitigate
adverse effects of power disturbances on a customer's electrical
systems; and (iii) engineering, consulting and other technical
support services ("Consulting Services") with respect to energy-
related businesses, as well as for individuals. AER requests
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that the Commission authorize Rule 58 Subsidiaries to (i) engage
in Energy Marketing activities in Canada, and reserve
jurisdiction over such activities in Mexico, (ii) provide Energy
Management Services and Consulting Services anywhere outside the
United States, and (iii) reserve jurisdiction over other
activities of Rule 58 Subsidiaries outside the United States,
pending completion of the record.
Payment of Dividends Out of Capital and Unearned Surplus.
--------------------------------------------------------
AER also proposes, on behalf of itself and each of its current
and future non-exempt Non-Utility Subsidiaries that such
companies be permitted to pay dividends with respect to the
securities of such companies, from time to time through the
Authorization Period, out of capital and unearned surplus
(including revaluation reserve), to the extent permitted under
applicable corporate law and the terms of any credit agreements
and indentures that restrict the amount and timing of
distributions to shareholders.
Use of Proceeds. The applicants state that the proceeds
---------------
from the financings authorized by the Commission in this
proceeding will be used for general corporate purposes, including
(i) financing, in part, investments by and capital expenditures
of IEC and its Non-Utility Subsidiaries, including, without
limitation, the funding of future investments in EWGs, FUCOs, and
Rule 58 Subsidiaries, (ii) the repayment, redemption, refunding
or purchase by IEC or any Non-Utility Subsidiary of any of its
own securities pursuant to Rule 42, and (iii) financing working
capital requirements of IEC and its Non-Utility Subsidiaries.
The applicants represent that no financing proceeds will be
used to acquire the equity securities of any new subsidiary
unless such acquisition has been approved by the Commission in
this proceeding or in a separate proceeding or in accordance with
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an available exemption under the Act or rules thereunder,
including Sections 32 and 33 and Rule 58. IEC states that the
aggregate amount of proceeds of financing and IEC Guarantees
approved by the Commission in this proceeding used to fund
investments in EWGs and FUCOs will not, when added to IEC's
"aggregate investment" (as defined in Rule 53) in all such
entities at any point in time, exceed 50% of IEC's "consolidated
retained earnings" (also as defined in Rule 53). Currently,
IEC's "aggregate investment" in EWGs and FUCOs is $73 million, or
approximately 14% of IEC's "consolidated retained earnings" for
the four quarters ended December 31, 1998 ($537 million).
Further, IEC represents that proceeds of financing and IEC
Guarantees and Non-Utility Guarantees utilized to fund
investments in Rule 58 Subsidiaries will be subject to the
limitations of that rule. Lastly, IEC represents that it will
not seek to recover through higher rates of any of the Operating
Companies losses attributable to any operations of its Non-
Utility Subsidiaries.
The applicants state that no state commission, and no
federal commission, other than the Commission, has jurisdiction
over the proposed transactions.
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