SEC File No. 70-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM U-1
APPLICATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ("Act")
GPU, INC. ("GPU")
GPX Acquisition Corp.
300 Madison Avenue
Morristown, New Jersey 07962
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(Name of companies filing this statement and
addresses of principal executive offices)
GPU, INC.
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(Name of top registered holding company parent of applicant)
S.L. Guibord, Secretary Douglas E. Davidson, Esq.
M.J. Connolly Berlack, Israels & Liberman LLP
Vice President - Law 120 West 45th Street
D.C. Brauer, Vice President New York, New York 10036
GPU Service, Inc.
300 Madison Avenue
Morristown, New Jersey 07962
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(Names and addresses of agents for service)
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Item 1. Description of Proposed Transaction.
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A. GPU, through its wholly-owned subsidiary, GPX Acquisition Corp.
("Acquisition Corp." and, together with GPU, "Applicants"), proposes to acquire
for cash all of the issued and outstanding shares of common stock, $0.01 par
value, of MYR Group Inc., a Delaware corporation ("MYR"), as more fully
described below. MYR is a publicly-held utility infrastructure services and
electrical contracting company headquartered in Rolling Meadows, Illinois. MYR's
common stock is registered (SEC File No. 1-8325) under Section 12(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is listed
for trading on the New York Stock Exchange.
B. Pursuant to a Plan and Agreement of Merger, dated as of December
21, 1999 ("Merger Agreement"), GPU has agreed to pay MYR shareholders $30.10 per
share in cash for their shares of MYR common stock. MYR currently has 6,429,135
shares of common stock outstanding (including 335,927 shares issued under MYR's
restricted stock plans). An additional 882,086 MYR shares are issuable under
outstanding MYR convertible debt, 600,183 of which shares are repurchasable by
MYR at a price of $5.67954 per share, and a total of 756,650 MYR shares are
issuable under outstanding stock options. Unless an option holder elects to
convert such holder's MYR options into options to purchase shares of GPU common
stock, as described in paragraph C below, a holder of an MYR stock option will
receive in cash, subject to compliance with vesting requirements, an amount per
share equal to the difference between $30.10 and the per share exercise price.
Consequently, the aggregate purchase price for all shares of MYR common stock
outstanding and issuable as aforesaid, at $30.10 per share, after taking into
account the offsetting payments attributable to the future exercise of stock
options and the repurchase rights with respect to shares issuable in respect of
convertible debt, is approximately $218 million.
C. GPU has also agreed, subject to Commission authorization, to
allow the holders of the 756,650 outstanding MYR stock options and the 335,927
outstanding shares of MYR restricted stock, if such holders so elect, and in
lieu of the cash payments referred to above, to substitute GPU common stock for
the MYR common stock issuable or outstanding, as the case may be, in respect
thereof, pursuant to a formula intended to provide such holders with equivalent
value in GPU common stock. The number of shares of GPU common stock issuable in
respect of any such assumed outstanding MYR stock option shall be equal to the
product of the number of shares of MYR common stock covered by such option
multiplied by the number (the "Exchange Ratio") determined by dividing $30.10 by
the average closing price of GPU common stock for the five trading days
immediately preceding the date of consummation of the merger discussed in
paragraph D below (the "Operative Price"), and the per share exercise price for
the GPU common stock so issuable shall be equal to the quotient determined by
dividing the exercise price per share specified for such MYR stock option by the
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Exchange Ratio. The number of shares of GPU common stock issuable in respect of
any such assumed outstanding shares of MYR restricted stock shall be equal to
the product of the number of shares of such restricted stock multiplied by the
number determined by dividing $30.10 by the Operative Price. If the December 28,
1999 closing sales price of $29.875 for GPU common stock on the New York Stock
Exchange were the Operative Price for these purposes, a maximum of 762,349
shares of GPU common stock would be issuable if all MYR stock options were
assumed and a maximum of 338,457 shares of GPU common stock would be issuable if
all shares of MYR restricted stock were assumed. Accordingly, GPU seeks
authority pursuant to Sections 6(a) and 7 of the Act to issue shares of its
common stock to holders of MYR stock options and restricted stock to the extent
such holders make the foregoing election.
D. The Merger Agreement provides that within five business days
following its execution, Acquisition Corp. will commence a cash tender offer in
accordance with Section 14 of the Exchange Act ("Tender Offer") to acquire MYR
common stock subject to the terms and conditions of the Tender Offer.
Consequently, on December 29, 1999 Acquisition Corp. commenced the Tender Offer
subject to the terms and conditions of Rule 51 under the Act, to acquire all of
the issued and outstanding shares of MYR common stock. The Merger Agreement
further provides that following completion of the Tender Offer, Acquisition
Corp. will be merged with and into MYR pursuant to section 251 of the Delaware
General Corporation Law and that MYR will survive the merger. At the effective
time of the merger, each MYR shareholder (other than Acquisition Corp. and any
shareholders exercising their statutory dissenters' rights) will be entitled to
receive $30.10 per share upon surrender of their shares of MYR common stock.
Following completion of the merger, MYR will be a wholly-owned subsidiary of
GPU.
Description of MYR
E. MYR's principal business consists of providing utility
infrastructure and related commercial and industrial contracting services. MYR
is the fifth largest specialty contractor in the United States and has eight
operating subsidiaries across the country.(1)
F. MYR's infrastructure services ("Infrastructure Services"), which
represent approximately two thirds of its
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1 MYR operates through the following subsidiary companies: the L. E. Myers
Co. in the Southeast, Midwest and Northeast; the Harlan Electric Company in
Michigan, the Northeast and the Ohio Valley; the Sturgeon Electric Company, Inc.
in the West; Hawkeye Construction, Inc. in the Pacific Northwest; the D. W.
Close Company, Inc. in Seattle; the Power Piping Company in Pennsylvania,
Virginia and the Ohio River Valley; ComTel Technology, Inc. in Colorado and
Arizona; and MYRcom in the Southeast and Southwest.
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revenues, principally consist of electric and gas utility transmission,
distribution and substation construction, telecommunications infrastructure, and
traffic and street lighting. Commercial and industrial services ("C&I Services")
consist of electrical, mechanical and maintenance contracting. MYR also performs
emergency restoration and ongoing maintenance services for utility networks.
MYR's strategy includes efforts to increase business from utilities by forming
alliances which establish repeat business, in addition to capturing outsourcing
business from utilities. MYR has achieved an annual revenue growth of just under
20% since 1995, generated principally by internal growth.
G. MYR is one of the top fleet operators of specialty equipment in
the United States and manages a national fleet of approximately 5,000
construction vehicles including trucks, trailers, tractors, tension stringing
machines, bulldozers, bucket trucks, digger derricks and cranes. MYR is able to
draw quickly on its extensive equipment resources in order to bring the proper
equipment to the right location to meet its customers' needs. As an example,
when Hurricane George struck the southeast coast of the United States in 1998,
MYR was called upon to perform emergency utility infrastructure repair work.
Within 48 hours MYR had over 170 pieces of equipment drawn from eight different
locations working on-site to meet the critical needs of its electric utility
customers. Due to its large, national base of customers and the breadth of its
operations, MYR is able to achieve high equipment utilization rates while still
assuring that the appropriate equipment is available for critical applications.
H. MYR is one of only a few nationwide infrastructure construction
companies and is managed using a decentralized operation structure with strong
centralized corporate controls and support. This operating philosophy allows MYR
to benefit from the economies of scale and scope of a large national
organization while maintaining close contact with its local markets.
I. Every MYR utility customer has a single local contact person. As
a result, customers receive the focused attention they expect while benefiting
from the broad capability and expertise of a large national organization.
Business Positioning of MYR
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J. Through its unique combination of skills, size, people and
resources, MYR is well positioned to continue to benefit from deregulation of
the electric utility industry and growth of the telecom industry. Ongoing
deregulation in the electric utility industry has encouraged electric
distribution companies ("EDCs") to intensify their focus on competitive issues,
cost structure, return on capital and profitability. As a result, EDCs are
increasingly outsourcing a portion of their required distribution network
construction and maintenance work to reliable, cost-effective contractors. MYR's
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large fleet size and large, flexible workforce allow it to provide its EDC
customers with better construction services at a lower cost than they can
provide on their own. Furthermore, in emergency situations, such as storm
repair, MYR is able to quickly marshal substantial assets from around the
country to repair and restore transmission and distribution systems. This allows
the EDC to have fewer linemen and less equipment in reserve for emergency
situations.
K. In addition, merger activity among EDCs continues to increase the
size, scale and geographical coverage area of many electric utilities. This
consolidation favors outsourcing EDC construction and maintenance to entities
with better scale and capabilities than that available from most local
providers. Consequently, company-wide construction outsourcing decisions are
being made at higher levels of management where a contractor's reputation for
quality and reliability, overall resources and expertise, geographical presence
and cost advantages are paramount. MYR, with its national presence and expansive
capabilities, can offer EDC clients high quality, flexible service at lower cost
and is uniquely positioned to increase its revenue from EDC consolidations.
L. Following Federal Energy Regulatory Commission initiatives to
modify or re-regulate the transmission segment of the utility industry, new
owners of transmission may emerge and MYR expects that they will not have major
transmission-level construction and maintenance capabilities. Transmission
construction requires unique construction skills and significant investment in
equipment. MYR's proven expertise in transmission construction and maintenance
will allow it to have a leading market share in outsourced transmission projects
in the future.
M. Deregulation of the electric utility industry has led to a flurry
of merchant power plant activity. Merchant power plants require construction
contractors with significant electrical, heavy mechanical and transmission
construction capabilities - all of which are proven, core strengths of MYR. MYR
believes it is one of the few contractors that has the capability to perform all
facets of power plant construction including turbine/piping hook up, electrical
wiring and transmission construction build-out and tie-ins. Currently,
developers and engineers source such capabilities from numerous separate
contractors. MYR believes it is well positioned to earn mechanical and
electrical construction contracts on new plants being bid. With the potential
for substantial maintenance revenue to follow, MYR expects merchant power plant
construction and maintenance to be a significant new revenue growth area over
the next several years.
N. Many utilities wish to become total energy solutions and service
providers to their customers "on both sides of the meter". However, servicing
"the other side of the meter" means that utilities will need to provide
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electrical and mechanical construction services that few have the capability to
provide internally. MYR, with its strong existing utility relationships and
proven expertise in commercial and industrial construction services, is a
natural outsourcing partner to help these utilities achieve their "both sides of
the meter" objectives. This allows the utility to offer such service without
having to acquire and/or build electrical and mechanical construction
capabilities. This industry trend and opportunity highlight the natural
synergies that exist between MYR's Infrastructure Services and C&I Services
businesses. MYR currently provides outsourced electrical and mechanical services
to several of its utility alliance partners, in each case under the utility's
brand name.
O. In response to new technology and the economy's increasing
dependence on ever-expanding information services, telecom companies and
non-regulated telecommunications subsidiaries of electric utilities have
committed significant capital to build infrastructure and increase bandwidth
capacity. MYR has historically derived significant revenues from telecom
infrastructure projects and has recently formed a new subsidiary, MYRcom, in
order to increase its focus on the telecom sector. The strategic push by many
electric utility companies into telecommunications provides strategic synergies
with MYR's growing EDC outsourced services business. MYR expects to continue to
benefit from significant high growth, high margin telecom infrastructure
business into the future, as it maintains and expands its telecom company
relationships and derives more telecom related business from electric utility
clients.
GPU
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P. For many years, GPU operated as a traditional, vertically
integrated electric utility holding company with operating subsidiaries that
provided generation, transmission and distribution of electricity to wholesale
and retail customers. In response to the changing utility industry and
electricity deregulation, GPU has now repositioned itself as an infrastructure
services company focussing almost exclusively on the delivery of energy and its
associated products and services, rather than on energy production or supply. To
this end, GPU has recently completed the sales of substantially all of its
fossil fuel and hydroelectric generating facilities and of the Three Mile Island
Unit 1 nuclear station and is in the process of completing the sale of its one
remaining nuclear power plant. GPU's main business objective has become the
provision of reliable energy delivery services to its customer base. As a
result, GPU is currently seeking business opportunities that would both enhance
its current position in the infrastructure services area, the area which GPU has
determined is most aptly its core business, and provide opportunities for growth
in areas related to these core business activities. GPU has determined that an
acquisition of MYR will better position GPU and its regulated domestic utility
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transmission and distribution operating subsidiaries -- Jersey Central Power &
Light Company ("JCP&L"), Pennsylvania Electric Company ("Penelec") and
Metropolitan Edison Company ("Met-Ed") -- to serve their customers more
effectively and to implement their future business strategy, which is to devote
their full resources to developing an infrastructure services business. An
infrastructure company, as GPU envisions it, is one focusing exclusively on
energy delivery and the services and products, such as telecommunications, for
example, which naturally complement such delivery, rather than the production or
supply of energy.
Q. In response to the requests of state regulators and the needs of
its customer base, GPU has recently announced its commitment to spend an
additional $40-50 million over the next two years to improve reliability and
enhance the distribution services of the GPU network. GPU believes that its
position as an infrastructure company, particularly with respect to the
maintenance of a reliable transmission and distribution system, is a necessary
growth area. The acquisition of MYR presents GPU with a unique opportunity both
to address the GPU System's existing reliability concerns and to position GPU
and its subsidiaries to compete in today's energy services market. The
acquisition will enable GPU to enhance its existing infrastructure support
capacity and to offer more reliable services to its customers immediately,
without the need slowly (and less efficiently) to expand internally. MYR is a
fully integrated infrastructure services operation which fits well within GPU's
overarching future business plans.
R. Following its acquisition by GPU, MYR will provide Infrastructure
Services to JCP&L, Penelec and Met-Ed. While GPU would, of course, be able to
outsource these services, GPU has determined that the MYR acquisition will be a
far more effective way to meet the needs of GPU customers and GPU investors. For
example, ownership of MYR will assure that the GPU System will have first
priority access to the MYR Infrastructure Services during times of high demand,
such as after storms and during heatwaves, and will thus be able to address its
system reliability concerns in a timely fashion. The MYR acquisition will also
afford GPU investors an important new source of revenues and an opportunity for
growth and profits and will provide GPU with personnel having an understanding
of the pricing, marketing and management of competitive utility services and the
management of a variable work force. Development of non-rate regulated service
businesses is a keystone in GPU's strategy to compete successfully in the
changing energy industry. There are substantial synergies between the services
MYR offers and the services and the needs of the GPU System. MYR provides
services in areas where GPU has recognized the need to enhance its
infrastructure service capabilities.
S. JCP&L, Penelec and Met-Ed have in the past used, are presently
using, and fully expect in the future to continue to make use of, the MYR
services. If GPU is successful in ultimately acquiring MYR, MYR would continue
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to offer its Infrastructure Services and C&I Services both to the GPU System and
on a nationwide basis. While GPU cannot now estimate the full extent to which
MYR would provide Infrastructure Services to GPU's utility subsidiaries, GPU
anticipates that the level of such services would continue to increase over time
as MYR begins to augment GPU's emergency restoration efforts and provide other
seasonal services. Furthermore, as part of the GPU System, MYR could more
readily provide both Infrastructure Services and C&I Services within the GPU
service territory and the surrounding service territories. All services provided
to non-affiliates would be offered at market-based rates.
Statutory Analysis
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T. The MYR acquisition satisfies the standards of Section 10 of the
Act, including, in particular, Section 10(c)(1) which requires that the
acquisition of an interest in a business not be "detrimental to the carrying out
of the provisions of Section 11" of the Act. Section 11(b)(1), in turn, directs
the Commission to limit the retention by registered holding companies of
non-utility businesses to those that are "reasonably incidental, or economically
necessary or appropriate" to the utility operations, including non-utility
businesses which are "necessary or appropriate in the public interest or for the
protection of investors or consumers and not detrimental to the proper
functioning" of the holding company system. The Commission has interpreted these
statutory provisions to require that the non-utility business bear a "functional
relationship" to the utility operations. See Jersey Central Power & Light
Company, HCAR No. 24348 (March 18, 1987); Southern Company, HCAR No. 26211
(December 30, 1994). Previous Commission orders provide ample precedent for
GPU's proposed acquisition of MYR. There follows an analysis of the Commission's
prior orders authorizing: (1) activities similar to MYR's Infrastructure
Services and C&I Services; (2) services which use expertise developed over the
course of utility operations; and (3) activities where the Commission has
permitted the provision of services which represent "excess capacity".
Similar Activities
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U. The Commission has previously authorized registered holding
companies to engage in activities which are similar to those offered by MYR. For
example, in Interstate Energy Corp., HCAR No. 27069 (Aug. 26, 1999)
("Interstate"), the Commission authorized Alliant Energy Resources, Inc. to
offer internationally services which are similar to MYR's Infrastructure
Services and C&I Services and, in some cases, extending even beyond these
Services. These authorized services include the construction, maintenance and
installation of motors, pumps and heating, ventilating, air conditioning,
electrical, power, plumbing, alarm and water and water-purification systems in
connection with energy-related needs. In an earlier order, the Commission also
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permitted the construction and maintenance of similar systems by a registered
holding company subsidiary. See Cinergy Corp., HCAR No. 26662 (Feb. 7, 1997)
("Cinergy") (permitting subsidiary to offer, among other things, energy
management services related to the construction of heating, ventilating, air
conditioning, electrical, power, water and plumbing systems).
V. In Interstate and Cinergy, the Commission permitted the
applicants to engage in activities which, in accordance with Section 11, bear a
functional relationship to traditional utility activities. MYR's activities and
GPU's core utility business also share a similar relationship - both are
primarily devoted to construction and maintenance of electric utility
transmission and distribution systems and related energy delivery services.
While the precise services the Commission authorized in Interstate and Cinergy
may not be identical to MYR's Infrastructure Services and C&I Services, they are
certainly no more related to the core utility operations in those cases than are
the MYR services to GPU's infrastructure business. In short, the Infrastructure
Services and C&I Services represent no more of a departure from traditional
utility operations than do the activities the Commission has authorized in the
Interstate and Cinergy orders. Commission authorization of GPU's acquisition of
MYR would therefore be entirely consistent with the Interstate and Cinergy
decisions.
W. Other Commission decisions are also relevant on this score. For
instance, in New England Electric System, HCAR No. 26681 (Mar. 7, 1997)
("NEES"), the Commission permitted the New England Electric System to offer,
among other things, transmission line services, maintenance and construction
services and mechanical and repair services. All of these services are quite
similar to certain of the Infrastructure Services and C&I Services.(2)
Similarly, in the New Century Energies merger order (HCAR No. 26748 (Aug. 1,
1997)), the Commission permitted New Century to retain a business which, among
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2 Applicants note that the revenues derived from the activities authorized in
the NEES order were subject to a 50% limitation on revenues earned from services
performed outside of the system service territories and surrounding areas.
Applicants submit that such a limitation is no longer appropriate in light of
the Commission's current policy to move away from such limitations. Indeed, the
Commission has in recent years removed the 50% limitation initially imposed on
non-utility subsidiaries or simply not imposed it at all. In Eastern Util.
Assocs., HCAR No. 26232 (Feb. 15, 1995) the Commission removed a 50% revenue
limitation applicable to a non-utility subsidiary for a number of reasons which
also apply to the MYR acquisition: the subsidiary was financially healthy, the
services offered by the subsidiary provided significant benefits to system
consumers and the expansion would not have an adverse effect on system
consumers, nor would it divert management time and attention away from core
utility operations. In more recent orders, such as the Cinergy and Interstate
orders, the Commission has authorized nonutility subsidiaries to engage in
activities without imposing a revenue limitation.
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other things, provides services related to power plant and cooling tower
construction, and collects, processes and sells scrap metal by-products of
utility operations. Again, while these services are not identical to the
services which MYR offers, the New Century and NEES orders nonetheless
demonstrate that the Commission will authorize registered holding company
systems to engage in business activities, such as MYR's Infrastructure Services
and C&I Services, which are at least reasonably related to the utility's core
business.
X. The fact is, however, that MYR's Infrastructure Services are much
more than tangentially related to the GPU System's core utility business.
Indeed, they represent the core of the GPU System's current business activities.
The business of offering such core services to non-affiliates is a natural and
necessary outgrowth of GPU's current operations and fits squarely within its
business strategy. Just as important, development of enhanced infrastructure and
energy-related service resources is essential to maintaining and enhancing GPU's
ability to serve its utility customers and address their reliability needs.
Utility Expertise
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Y. There have also been a number of instances where the Commission
has authorized registered holding companies to provide to third parties
"consulting" services, which offer management, technical and training services
that draw on the expertise developed by the holding company's operating
subsidiaries for use within their own systems. This line of Commission precedent
evidences the Commission's response to industry change reflecting the utility
industry's movement from the traditional production and distribution functions
to more broadly based competitive energy services business. See American
Electric Power Co., HCAR No. 22468 (Apr. 21, 1982) (management, technical and
training services); Southern Co., HCAR No. 22132 (Jul. 17, 1981) (same). In
these orders, the Commission has recognized that full utilization of the
utility's development of various management, technical and training services
would not be detrimental to the interests protected by the Act.
Z. The GPU System has over 50 years of experience performing
infrastructure services on an intrasystem level, just as these other utilities
had experience offering intrasystem consulting services before receiving
Commission authorization to offer such services to non-affiliates. Thus, based
on these consulting orders, GPU's acquisition of MYR is within the parameters
the Commission has already established since the Infrastructure Services and C&I
Services will involve the offering by the GPU System of products and services
developed in the course of its utility operations. It should not matter for
purposes of the Act that the entity offering these services has been recently
acquired.
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Excess Capacity
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AA. In another category of orders, the Commission has authorized
registered holding companies to provide a variety of energy management,
consulting or other goods and services to non-affiliates where the relevant
expertise had originally been developed by the utility system and "excess
capacity" was available. These orders are relevant to GPU's acquisition of MYR
inasmuch as many of the services MYR will market to third parties are those
which have been developed by the GPU System which will be in excess of the
system's needs. For example, in Southern Co., HCAR No. 26211 (Dec. 30, 1994),
the Commission authorized Southern to develop a communications system to service
both system companies and non-affiliates. In another "excess capacity" case,
Consolidated Natural Gas ("CNG") obtained permission to expand the scope of
authorized services that its non-utility subsidiary could provide. Consolidated
Natural Gas Co., HCAR No. 26757 (Aug. 27, 1997). There, the applicants stated in
support of their request that the additional services "will lead to increased
and more efficient utilization of existing [utility company] personnel and
facilities and additional revenues to offset the cost of maintaining such
personnel and facilities."
BB. These "excess capacity" cases involved the sale to
non-affiliates of excess capacity that had initially been developed by the
registered holding company. While GPU's proposed acquisition of MYR involves the
acquisition of "excess capacity" at times, GPU will require MYR's resources for
its own utility purposes. This acquisition will eliminate the need to develop
such capacity internally, which would then ultimately be marketed to third
parties. Moreover, internal development would, as noted, be slow and inefficient
and would likely leave GPU with "excess capacity" (required to meet its own peak
needs) that could not be effectively marketed to non-affiliates due to a lack of
the necessary "critical mass" of personnel and resources. In addition, these
excess capacity cases clearly indicate that the Commission has recognized that
the sale of excess utility goods and services by registered holding companies is
permissible within the parameters of the Act.
Evolving Commission Perspective
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CC. The Commission orders discussed above indicate that, over time,
the Commission has recognized the progression of the utility industry to one
with increasing emphasis on energy management, competition and diversification.
Indeed, as observed in the Division of Investment Management's ("Division") 1995
Report on the Regulation of Public Utility Holding Companies ("1995 Report"),
the Commission's administration and interpretation of Section 11(b)(1) has
likewise evolved.
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The SEC's administration and interpretation of section 11 has also
progressed through the years to attempt to meet the needs of the
changing utility industry, from strict construction of the statutory
requirements in light of the original goals of the Act, to more
flexible interpretation to reflect the increasing effectiveness of
state regulation and the growing obsolescence of the utility as
purely a local monopoly.(3)
DD. Additionally, in its discussion of Rule 58 in the 1995 Report,
the Division recommended a more flexible interpretation of the provisions of the
Act concerning diversification [for diversified activities that fall outside the
scope of Rule 58]. Specifically, the Division contemplates an interpretation of
the language of Section 11(b)(1) that would allow registered holding companies
to engage in non-utility businesses that are economically appropriate and in the
public interest, regardless of whether such activities are ancillary to the
utility business. (citations omitted).(4)
EE. Thus, given the general trend toward a more flexible, broader
interpretation of the functional relationship test and based on the precedent
discussed in this Application, the Commission should authorize GPU's acquisition
of MYR.
FF. Rule 54 Analysis.
(a) As described below, GPU meets all of the conditions of Rule 53
under the Act, except for Rule 53(a)(1). By Order dated November 5, 1997 (HCAR
No. 35-26773) (the "November 5 Order"), the Commission authorized GPU to
increase to 100% of its average "consolidated retained earnings," as defined in
Rule 53, the aggregate amount which it may invest in EWGs and FUCOs. At
September 30, 1999, GPU's average consolidated retained earnings was
approximately $2.367 billion, and GPU's aggregate investment in EWGs and FUCOs
was approximately $2.180 billion. Accordingly, under the November 5 Order, GPU
may invest up to an additional $187 million in EWGs and FUCOs as of September
30, 1999.
(i) GPU maintains books and records to identify investments in, and
earnings from, each EWG and FUCO in which it directly or indirectly holds
an interest.
(A) For each United States EWG in which GPU directly or
indirectly holds an interest:
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3 1995 Report at pp. 81-82.
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4 1995 Report at p. 91.
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(1) the books and records for such EWG will be kept in
conformity with United States generally accepted
accounting principles ("GAAP");
(2) the financial statements will be prepared in
accordance with GAAP; and
(3) GPU directly or through its subsidiaries undertakes to
provide the Commission access to such books and
records and financial statements as the Commission may
request.
(B) For each FUCO or foreign EWG which is a majority-owned
subsidiary of GPU:
(1) the books and records for such subsidiary will be kept
in accordance with GAAP;
(2) the financial statements for such subsidiary will be
prepared in accordance with GAAP; and
(3) GPU directly or through its subsidiaries undertakes to
provide the Commission access to such books and
records and financial statements, or copies thereof in
English, as the Commission may request.
(C) For each FUCO or foreign EWG in which GPU owns 50% or less
of the voting securities, GPU directly or through its
subsidiaries will proceed in good faith, to the extent
reasonable under the circumstances, to cause:
(1) such entity to maintain books and records in
accordance with GAAP;
(2) the financial statements of such entity to be
prepared in accordance with GAAP; and
(3) access by the Commission to such books and records
and financial statements (or copies thereof) in
English as the Commission may request and, in any
event, will provide the Commission on request copies
of such materials as are made available to GPU and its
subsidiaries. If and to the extent that such entity's
books, records or financial statements are not
maintained in accordance with GAAP, GPU will, upon
request of the Commission, describe and quantify each
material variation therefrom as and to the
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extent required by subparagraphs (a) (2) (iii)
(A) and (a) (2) (iii) (B) of Rule 53.
(ii) No more than 2% of GPU's domestic public utility subsidiary
employees will render any services, directly or indirectly, to any EWG or
FUCO in which GPU directly or indirectly holds an interest.
(iii) Copies of this Application are being provided to the New
Jersey Board of Public Utilities and the Pennsylvania Public Utility
Commission, the only federal, state or local regulatory agencies having
jurisdiction over the retail rates of GPU's electric utility
subsidiaries.(5) In addition, GPU will submit to each such commission
copies of any amendments to this Application and any Rule 24 certificates
required hereunder, as well as a copy of Item 9 of GPU's Form U5S and
Exhibits H and I thereof (commencing with the Form U5S to be filed for the
calendar year in which the authorization herein requested is granted).
(iv) None of the provisions of paragraph (b) of Rule 53 render
paragraph (a) of that Rule unavailable for the proposed transaction.
(A) Neither GPU nor any subsidiary of GPU having a book value
exceeding 10% of GPU's consolidated retained earnings is
the subject of any pending bankruptcy or similar
proceeding.
(B) GPU's average consolidated retained earnings for the four
most recent quarterly periods (approximately $2.367
billion) represented an increase of approximately $51
million (or approximately 2%) in the average consolidated
retained earnings for the previous four quarterly periods
(approximately $2.316 billion).
(C) GPU did not incur operating losses from direct or indirect
investments in EWGs and FUCOs in 1998 in excess of 5% of
GPU's September 30, 1999 consolidated retained earnings.
As described above, GPU meets all the conditions of Rule 53(a),
except for clause (1). With respect to clause (1), the Commission determined in
the November 5 Order that GPU's financing of investments in EWGs and FUCOs in an
amount greater
- ---------------
5 Penelec is also subject to retail rate regulation by the New York Public
Service Commission with respect to retail service to approximately 3,700
customers in Waverly, New York served by Waverly Electric Power & Light Company,
a Penelec subsidiary. Waverly Electric's revenues are immaterial, accounting for
less than 1% of Penelec's total operating revenues.
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<PAGE>
than 50% of GPU's average consolidated retained earnings as otherwise permitted
by Rule 53(a)(1) would not have either of the adverse effects set forth in Rule
53(c).
Moreover, even if the effect of the capitalization and earnings of
subsidiary EWGs and FUCOs were considered, there is no basis for the Commission
to withhold or deny approval for the transactions proposed in this Application.
The transactions would not, by themselves, or even when considered in
conjunction with the effect of the capitalization and earnings of GPU's
subsidiary EWGs and FUCOs, have a material adverse effect on the financial
integrity of the GPU System, or an adverse impact on GPU's public utility
subsidiaries, their customers, or the ability of State commissions to protect
such public utility customers.
The November 5 Order was predicated, in part, upon the assessment of
GPU's overall financial condition which took into account, among other factors,
GPU's consolidated capitalization ratio and the recent growth trend in GPU's
retained earnings. As of June 30, 1997, the most recent quarterly period for
which financial statement information was evaluated in the November 5 Order,
GPU's consolidated capitalization consisted of 49.2% equity and 50.8% debt. As
stated in the November 5 Order, GPU's June 30, 1997 pro forma capitalization,
reflecting the November 6, 1997 acquisition of PowerNet Victoria, was 39.3%
equity and 60.7% debt.
GPU's September 30, 1999 consolidated capitalization consists of
33.9% equity and 66.1% debt. Thus, since the date of the November 5 Order, there
has been no adverse change in GPU's consolidated capitalization ratio, which
remains within acceptable ranges and limits as evidenced by the credit ratings
of GPU's electric utility subsidiaries.(6)
GPU's consolidated retained earnings grew on average approximately
4.5% per year from 1992 through 1998. Earnings attributable to GPU's investments
in EWGs and FUCOs have contributed positively to consolidated earnings,
excluding the impact of the windfall profits tax on the Midlands Electricity plc
investment.(7)
Accordingly, since the date of the November 5 Order, the
capitalization and earnings attributable to GPU's investments in EWGs and FUCOs
have not had any adverse impact on GPU's financial integrity.
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6 The first mortgage bonds of GPU's public utility subsidiaries -- Penelec,
JCP&L and Met-Ed -- are rated A+ by Standard & Poors Corporation, and A2, Baa1
and A3, respectively, by Moody's Investor Services, Inc. 7 As discussed in the
November 5 Order, GPU incurred a loss for 1997 from its investments in EWGs and
FUCOs as a result of the windfall profits tax imposed on Midlands Electricity,
plc.
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<PAGE>
Reference is made to Exhibit H filed herewith which sets forth GPU's
consolidated capitalization at September 30, 1999 and after giving effect to the
transactions proposed herein. As set forth in such exhibit, the proposed
transactions will not have a material impact on GPU's capitalization or
earnings.
Item 2. Fees, Commissions and Expenses.
-------------------------------
The estimated fees, commissions and expenses to be incurred in
connection with GPU's acquisition of MYR will be filed by amendment.
Item 3. Applicable Statutory Provisions.
--------------------------------
Sections 6(a), 7, 9(a), 10, 11(b)(1), 12 and 13(b) of the
Act and Rule 54 thereunder are applicable to the transactions proposed herein.
Item 4. Regulatory Approval.
-------------------
No state or Federal commission (other than your Commission) has
jurisdiction with respect to GPU's acquisition of MYR.
Item 5. Procedure.
----------
It is requested that the Commission issue an order with respect to
the transactions proposed herein at the earliest practicable date but, in any
event, not later than February 29, 2000. It is further requested that (i) there
not be a recommended decision by an Administrative Law Judge or other
responsible officer of the Commission, (ii) the Office of Public Utility
Regulation be permitted to assist in the preparation of the Commission's
decision, and (iii) there be no waiting period between the issuance of the
Commission's order and the date on which it is to become effective.
Item 6. Exhibits and Financial Statements.
----------------------------------
(a) Exhibits:
A-1 Schedule 14A filed by MYR Group Inc., for its 1999
annual meeting of shareholders -- incorporated by
reference to Schedule 14A filing made by MYR Group
Inc., SEC File No. 001-08325, filed on April 9,
1999.
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<PAGE>
A-2 Annual Report on Form 10-K and exhibits thereto
filed by MYR Group Inc. for the year 1998 --
incorporated by reference to Form 10-K filing made
by MYR Group Inc., SEC File No. 001-08325, filed
on March 29, 1999.
A-3 Quarterly Reports on Form 10-Q and exhibits
thereto filed by MYR Group Inc. for the quarterly
periods ending September 30, 1999, June 30, 1999
and March 30, 1999 -- incorporated by reference to
Form 10-Q filings made by MYR Group Inc., SEC File
No. 001-08325, filed on October 21, 1999, July 23,
1999 and May 12, 1999, respectively.
A-4 Schedule 14D-1 and exhibits thereto filed by
Applicants -- incorporated by reference to
Schedule 14D-1 filing made by GPU (SEC File No.
001-6047) and Acquisition Corp., filed on December
29, 1999.
A-5 Schedule 14D-9 and exhibits thereto filed by MYR
Group Inc. -- incorporated by reference to
Schedule 14D-9 filing made by MYR Group Inc., SEC
File No. 001-08325, filed on December 29, 1999.
B Not applicable.
C Not applicable.
D Not applicable.
E Not applicable.
F Opinion of Berlack, Israels & Liberman LLP --
to be filed by amendment.
G Financial Data Schedule -- to be filed by
amendment.
H Actual and Pro Forma Capitalization Tables --
to be filed by amendment.
I Proposed form of Public Notice.
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<PAGE>
(b) Financial Statements:
1-A GPU and Subsidiary Companies Consolidated Balance
Sheets, actual and pro forma, as at September 30,
1999, and consolidated Statement of Income and
Retained Earnings, actual and pro forma, for the
twelve months ended September 30, 1999; pro forma
journal entries -- to be filed by amendment.
1-B GPU (Corporate) Balance Sheets, actual and pro
forma, as at September 30, 1999 and Statements of
Income and Retained Earnings, actual and pro
forma, for the twelve months ended September 30,
1999; pro forma journal entries -- to be filed
by amendment.
2 Reference is made to the financial statements
included in 1 above.
3 None.
4 None, except as set forth in the notes to the
Financial Statements.
Item 7. Information as to Environmental Effects.
----------------------------------------
The proposed transactions are for the purpose of carrying out GPU's
business activities. Consequently, the issuance of an order by your Commission
with respect to the subject transactions is not a major Federal action
significantly affecting the quality of the human environment.
No Federal agency has prepared or is preparing an environmental
impact statement with respect to the subject transactions. Reference is made to
Item 4 hereof regarding regulatory approvals with respect to the proposed
transactions.
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<PAGE>
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE PUBLIC UTILITY HOLDING COMPANY
ACT OF 1935, THE UNDERSIGNED COMPANIES HAVE DULY CAUSED THIS STATEMENT TO BE
SIGNED ON THEIR BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
GPU, INC.
By: /s/ T. G. Howson
----------------------------
T.G. Howson, Vice President
and Treasurer
GPX ACQUISITION CORP.
By: /s/ T. G. Howson
----------------------------
T.G. Howson, Treasurer
Date: December 30, 1999
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