File No. 70-9567
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM U-1
APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
_________________________________
Name of company filing this statement and address of
principal executive offices
Monongahela Power Company
(d/b/a Allegheny Power)
1310 Fairmont Avenue
Fairmont, West Virginia 26554
__________________________________
Name of top registered holding company
Allegheny Energy, Inc.
10435 Downsville Pike
Hagerstown, Maryland 21740
Names and addresses of agents for service
The Commission is requested to send copies of all notices,
orders
and communications in connection with this Application /
Declaration to:
Thomas K. Henderson, Esq.
Vice President and General Counsel
Allegheny Energy, Inc.
10435 Downsville Pike
Hagerstown, MD 21740
<PAGE>
Applicants hereby amend Item No. 3, Applicable Statutory
Provisions by replacing Section 2 with the following:
2. Section 11(b)(1)
i. Integrated Public Utility System
Although Section 11(b)(1) generally requires a
registered holding company system to limit its operations
"to a single integrated public utility system<F1> and to such
other businesses as are reasonably incidental, or
economically necessary or appropriate to the operations of
such integrated public utility system," a combination
integrated gas and electric system within a registered
holding company is permissible under Section 8. Further,
Section 11(b)(1) provides that "one or more additional
integrated public utility systems" may be retained if, as
here, certain criteria are met. Finally, Section 11(b)(2)
directs the Commission "to ensure that the corporate
structure or continued existence of any company in the
holding company system does not unduly or unnecessarily
complicate the structure, or unfairly or inequitably
distribute voting power among security holders, of such
holding company system."
Applicants state that, following completion of the
Transaction, Monongahela satisfies the definition of a
"integrated public utility system" under Section 2a(29)(A)
of the Act. Additionally, the Transaction will not be
detrimental to the carrying out of the provisions of Section
11.
ii. Electric System - Section 2(a)(29)(A)
As applied to electric utility companies, the term
"integrated public utility system" is defined in Section
2(a)(29)(A) of the Act as:
". A system consisting of one or more units of
generating plants and/or transmission lines and/or
distributing facilities, whose utility assets,
whether owned by one or more electric utility
companies, are physically interconnected or
capable of physical interconnection and which
under normal conditions may be economically
operated as a single interconnected and
coordinated system confined in its operation to a
single area or region, in one or more states, not
so large as to impair (considering the state of
the art and the area or region affected) the
advantages of localized management, efficient
operation, and the effectiveness of regulation..."<F2>
<F1> As defined under Section 2(a)(29)(A) of the Act.
<F2> See Section 2(a)(29)(A), See Also Environmental Action, Inc. v.
Securities and Exch. Commission, 895 F.2d 1255, 1263 (9th Cir. 1990)
(citing In re Electric Energy, Inc., 38 SEC 658, 668 (1958)).
<PAGE>
The Transaction satisfies the requirements of Section
2(a)(29)(A) of the Act. First, while Monongahela Power is
not presently interconnected with West Virginia Power it is
both capable of physical interconnection, in that
Monongahela Power has a contract with American Electric
Power which provides access and interconnection between the
West Virginia Power and Monongahela Power systems, and
currently contemplating interconnection via construction of
a direct interconnect. Second, Monongahela Power intends to
operate the electric assets, together with its own, as a
single interconnected and coordinated system. Third, the
electric operations will be limited to contiguous areas of
the State of West Virginia. Fourth, Monongahela Power and
West Virginia Power are, and will continue to be,
effectively regulated by the West Virginia Public Service
Commission.
(1) Interconnection
Currently, Monongahela Power and West Virginia Power
are interconnected and have the ability to exchange power
utilizing the contract path created by the Monongahela Power
- - American Electric Power contract. Additionally,
Monongahela Power is currently studying the costs associated
with constructing a substation or interconnection between
its system and West Virginia Power's system. The Commission
has previously indicated that a single integrated system
exists even based solely on a planned, future
interconnection, provided that such physical interconnection
is "contemplated or ... possible within the reasonably near
future" and not just something that "might occur in the
remote future, and whose occurrence has not been
foreshadowed by any facts shown in the record."<F3> Then In
the Matter of Cities Service Power & Light Corporation,<F4> the
Commission held that the integration standard was met where
the applicant was contemplating the construction of
interconnection facilities. Similarly, in approving the
application of New Century Energies to combine the then
Public Service Company of Colorado and Southwestern Public
Service, the Commission approved the application
notwithstanding the fact that no actual interconnection
existed - only a proposed interconnection in five years.<F5>
<F3> In the Matter of the North American Company and Its Subsidiaries, HCAR
No. 4505 (Apr. 15, 1942). See Also, In the Matter of Hudson River Power
Corporation, HCAR No. 2415 (Dec. 9, 1940) (integration standard not met where
"the record discloses no definite plan for bringing about any such
interconnection"); In the Matter of Cities Service Power & Light Corporation,
HCAR No. 5256 (Aug. 30, 1944) (integration standard met where "Derby
contemplates the construction of such interconnection facilities").
<F4> HCAR No. 5256 (Aug. 30, 1944)
<F5> See New Century Energies, HCAR No. 26748 (August 1, 1997).
<PAGE>
In this matter, the contiguous nature of the
Monongahela Power and West Virginia Power service areas,
together with Monongahela Power's existing contract path to
West Virginia Power via The American Electric Power System
and the study of the feasibility of direct interconnection,
fully satisfies the Commission's requirements.
(2) Single Interconnected and
Coordinated System
Monongahela Power intends to operate the West Virginia
Power electric assets, together with its own assets, as a
single interconnected and coordinated system. The electric
system will operate in a contiguous region of southwestern
West Virginia. West Virginia Power currently provides
electric service to approximately 26,000 customers in
Greenbrier, Pocahontas, Summers, Monroe, and Raleigh
counties over 1,989 miles of electric distribution lines in
a 1,360 square-mile service area -- an area contiguous to
Monongahela Power's pre-Transaction service area.
Monongahela Power is of the view that the Transaction
will result in significant benefits, economies and
efficiencies for the utilities and, in turn, their customers
and shareholders. Specifically, Monongahela will use its
expertise and resources to provide increased and improved
energy generation, transmission, distribution, and, customer
services. Following the Transaction, West Virginia Power
customers will have access to Monongahela Power's 24-hour
toll free Customer Service Center. Over time, Monongahela
Power is of the view that West Virginia Power customers will
benefit as a result of the application of Monongahela Power
and the Allegheny system's expertise and resources in the
production and delivery of electricity.
Moreover, the Allegheny electric system will not be so
large as to impair the advantages of localized management,
efficient operations, and the effectiveness of regulation.
After the Transaction, West Virginia Power's current
headquarters will be maintained as a operations center for
the area presently served by West Virginia Power. This will
preserve all the benefits of localized management West
Virginia Power presently enjoys while simultaneously
allowing for the efficiencies and economies that will derive
from its combination with Monongahela Power.
(3) Limited to a Single Area or Region
As more fully described in Item No. 1, Section B, the
service to be provided by Monongahela Power using these
assets will be within the State of West Virginia. The
electric assets and West Virginia Power's electric service
territory that will be acquired are located in five (5)
counties in southeastern West Virginia which are contiguous
to the West Virginia service territory of Monongahela
Power.
This Transaction also provides an opportunity for the
Commission to follow certain of the interpretive
recommendations made by the Division of Investment
<PAGE>
Management (the "Division") in the report issued by the
Division in June 1995 entitled "The Regulation of Public
Utility Holding Companies" ("1995 Report").<F6> Monongahela
Power's operation of the West Virginia Power electric assets
is consistence with the 1995 Report. Specifically, In the
1995 Report, the Division has stated that primacy be given
to "demonstrated economies and efficiencies to satisfy the
integration requirements." Monongahela Power has
demonstrated the requisite economies and efficiencies.
(4) Effective State Regulation
Finally, the Allegheny Energy system will not impair
the effectiveness of state regulation. Monongahela Power
and West Virginia Power will continue their separate
existence as before and their utility operations will
remain subject to the same regulatory authorities by which
they are presently regulated, namely the West Virginia
Public Service Commission. The West Virginia Public Service
Commission concurs with and has approved the Transaction.
Pursuant to the recommendations contained in the 1995
Report, this last factor, state commission approval, is
significant as the Division stated therein "when the
affected state and local regulators concur, the
[Commission] should interpret the integration standard
flexibly to permit non-traditional systems if the standards
of the Act are otherwise met."<F7>
Applicants hereby amend Item No. 3, Applicable Statutory
Provisions by deleting Section 5 and Section 6 and replacing
Section 5 with the following:
5. Rule 54 Compliance
Rule 54 provides that the Commission, in determining
whether to approve certain
transactions by such registered holding company or its
subsidiary other than with respect to EWGs and FUCOs, will
not consider the effect of the capitalization or earnings of
any subsidiary which is an EWG or FUCO upon the registered
holding company system if the provisions of Rule 53(a), (b)
and (c) are satisfied. When the Transaction herein is
consummated, for purposes of compliance with Rule 54,
Allegheny Energy's aggregate investment in EWGs and FUCOs
will not exceed 50% of its consolidated retained earnings
and the provisions of Rule 53(a) will be satisfied.
Allegheny Energy further states that none of the conditions
set forth in rule 53(b) exist or will exist as a result of
the proposed transactions. Therefore, rule 53(c) is
inapplicable.
Applicants hereby amend Item No. 2, Fees, Commissions and
Expenses by placing the following amount at the end of the
sentence: $50,000.
_______________________________
<F6> Applicants note that the Transaction and the requests
contained in this Application/Declaration are well within
the precedent of transactions approved by the Commission as
consistent with the Act prior to the 1995 Report and could
be approved without any reference to the 1995 Report.
<F7> 1995 Report at 74.
<PAGE>
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AFFIDAVIT OF PETER J. DAILEY
I, Peter J. Dailey, being duly sworn, depose and state:
I. Overview
1. I am the Director, Business Development of Allegheny Energy
Services Corporation, on behalf of Monongahela Power Company, dba
Allegheny Power ("Monongahela" or "Applicant"). I submit this
affidavit in support of the Form U-1 being filed by Allegheny
Energy's subsidiary, Monongahela Power Company. Monongahela is
seeking authorization to acquire the assets of West Virginia
Power ("WVP"), a division of UtiliCorp United Inc. ("UtiliCorp").
In particular, I submit this affidavit in support of
Monongahela's request for permission to acquire and retain WVP's
gas distribution system.
2. This affidavit will (i) describe the transaction for which
approval is sought, i.e., the acquisition and retention of WVP's
gas system, and (ii) discuss why Securities and Exchange
Commission ("SEC") approval of the transaction is appropriate
under Section 11(b)(1)(A) of the Public Utility Holding Company
Act of 1935 ("the Act").
3. My education and employment background are: I am Director
of Business Development for Allegheny Power and am responsible
for identifying and analyzing acquisitions. Previous to this
position, I was Assistant Vice President for Allegheny Energy
Solutions, Pittsburgh, Pennsylvania, and was responsible for day
to day operations in this start-up unregulated marketing company.
Prior to that I was General Manager in charge of the commercial
market sector for Allegheny Power. I earned my BA from the
University of Pennsylvania in 1983 and my Juris Doctor from the
University of Pittsburgh School of Law in 1987. I have also
attended the Wharton School of Executive Education.
4. I have been responsible for developing Allegheny Power's
policy with respect to the acquisition of the WVP assets by
Monongahela and am responsible for implementing that policy. I
am familiar with WVP's gas and electric operations.
II. The Transaction
5. Allegheny Energy, a registered holding company, and
UtiliCorp, an exempt holding company, have entered into an
agreement whereby Allegheny Energy's subsidiary Monongahela will
purchase all the assets
<PAGE>
of UtiliCorp's division WVP and another
subsidiary of Allegheny Energy will purchase the Appalachian
Heating division of UtiliCorp.
6. The WVP utility assets to be purchased by Monongahela are
both electric and gas facilities. The electric assets to be
acquired are located in WVP's electric service territory, which
comprises five (5) counties in southeastern West Virginia which
are contiguous to the West Virginia service territory of
Applicant. WVP serves 26,000 electric customers, all within West
Virginia, using 1,989 miles of electric distribution lines in a
1,360 square mile area.
7. WVP's gas system currently serves 24,000 customers in small
portions of seventeen (17) West Virginia counties in areas within
or relatively close to Applicant's service territory. WVP owns
approximately 670 miles of gas pipeline in a 500 square mile
service area.
8. The electric assets of WVP will be integrated into
Monongahela's existing system.
III. Section 11(b)(1)(A) of the Act
9. Monongahela seeks Commission approval of its acquisition and
retention of the WVP gas system as an additional integrated
public utility system under Section 11(b)(1) of the Act.
10. Section 11(b)(1) permits the retention of an additional
public utility system where the A-B-C clauses of the section are
satisfied. Specifically, the Commission must find that:
(A) Each of such additional systems cannot be
operated as an independent system without the loss
of substantial economies which can be secured by
the retention of control by such holding company
of such system;
(B) All of such additional systems are located in
one State, adjoining States, or a contiguous
foreign country; and
(C) The combination of systems under the control
of a single holding company is not so large
(considering the state of the art and the area or
region affected) as to impair the advantages of
localized management, efficient operation, or the
effectiveness of regulation.
Clauses B and C
11. The findings required by clauses B and C are easily made in
the context of this transaction. Clause B is satisfied as the
WVP gas system is
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<PAGE>
located within West Virginia counties in areas
within or relatively close to Applicant's service territory in
West Virginia.
12. Clause C is satisfied because WVP's gas system is small,
management and operation will be enhanced by the acquisition,
local management will be promoted, and the acquisition will not
affect regulation by the West Virginia PSC.
Clause A: Loss of Economies
13. Applicant believes that divestiture or spin-off of the gas
system, and its operation on a stand-alone basis, would result in
the loss of substantial economies. Operating the gas system on a
stand-alone basis would result in immediate and substantial lost
economies from the need to replicate services, the loss of
economies of scale, the costs of reorganization, and other
factors.
14. Costs of Divestiture to the Stand-Alone Gas System. As a
result of divestiture, the stand-alone gas company would
experience increased annual costs, capitalization costs, and
transition costs, as well as lost acquisition savings.
15. Annual costs would include additional labor and overhead
expenses due to the loss of shared services with Monongahela's
and WVP's electric operations. The stand-alone gas system would
experience additional labor and overhead expenses in the
following departments: Information Resources; Human Resources;
Accounting; General Engineering and Facilities Management;
Materials Management; Transportation Service; Public Affairs;
Shareholder Relations; Marketing and Customer Relations; Meter
Reading; Executive Office, and Audit and Legal Function.
16. Annual costs would also include increases in nonlabor
operations and maintenance expenses in the following areas:
Hardware Leases and Software Maintenance; Disaster Recovery
(i.e., services to ensure that the system would be able to
continue to operate in the event of a disaster); Automated
Mapping/Facilities Management System ("AM/FM System"); Mailing
Expenses; Office Supply Purchases (i.e., as a stand-alone
company, the gas system would also experience a loss in advantage
when bargaining for supplies, which would result in increased
costs); and Audit Fees.
17. Increased capitalized expenditures would arise from the
capitalized portion of labor increases, as well as from the
capital costs associated with materials purchases. As separate
companies and competitors,
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<PAGE>
however, they would not engage in certain joint activities and
the loss of such shared expenses would substantially increase
costs.
18. Gas supply expenses would increase significantly as a result
of divestiture because of loss of utilizing existing fuel
management personnel and loss of cross-over strategy to use gas
during summer peaking times for electric generation.
19. The process of divesting WVP's gas system would result in
significant transition and divestiture costs for the stand-alone
gas system. Currently, the gas and electric operations of WVP
share operations services and most administrative and financial
services, as well as the information systems support for these
areas. Following divestiture, the stand-alone gas system would
be responsible for all operations and support functions. It would
need to develop capabilities in these areas. It would also need
to hire and train new staff, purchase and install equipment, and
implement information systems, to return it to its current level.
Further, creation of the stand-alone gas system is a complex
legal and financial transaction that would require significant
involvement of both investment bankers and outside legal counsel.
Transitional expenses would be high.
20. Monongahela has estimated that the combination of WVP's
assets with its own will result in savings of $6 million per year
of the combined operations. As a result of divestiture, much of
these savings would be lost to both the stand-alone gas system
and the resulting Monongahela system.
21. Impact On Gas Operations. As indicated, the spin-off or
divestiture of WVP's gas system into a stand-alone company is
estimated to result in a substantial increase in costs. A
substantial increase in costs would cause a substantial decrease
in earnings to Monongahela's shareholders absent rate relief to
recoup those increased costs. Such a decline in earnings,
causing injury to shareholders, would make ownership of shares in
the stand-alone gas company unattractive. Absent rate relief to
the gas system, the gas system would earn a return that is much
smaller in comparison to that earned by other utilities in the
region.
22. If rate relief were granted in order to recoup the increased
costs, retail gas customers in West Virginia would bear those
substantial costs over what they would have to pay if the
properties were retained as contemplated by the proposed
Transaction. Rate recovery of these cost increases would result
in a significant increase in the level of costs borne by retail
gas customers in West Virginia with no corresponding increase in
the level or quality of service. The rate increases required to
provide the level of revenue needed to cover costs to operate
WVP's gas system would be
-4-
<PAGE>
significant. Such rate increases would
make the new stand-alone gas company less competitive at a time
when competition in the energy industry is rapidly increasing due
to Federal Energy Regulatory Commission ("FERC") Order No. 636
and other FERC and state regulatory restructuring initiatives.
23. By comparison, retention of the gas system would allow cost
savings due to the operating efficiencies that would be achieved.
24. The potential physical bypass of Local Distribution
Companies ("LDCs") is becoming a reality that LDCs must face
daily, along with the commensurate possibility of a decreasing
customer base, resultant rate increases, and potential stranded
costs. Recently, FERC has sanctioned the bypass of LDCs by
interstate pipelines in order to promote competition. In
addition, natural gas service continues to compete with
alternative fuels. Cost increases to the gas utility operations
from divestiture would increase the bypass risk.
25. The growing focus on competition has begun to require the
unbundling of LDC services. LDCs already face fierce price
competition, and must remain competitive to avoid shareholder
losses and a reduced customer base. As a result of the increased
costs from divestiture, bundled or unbundled services may become
uncompetitive as the rate increases needed to recover these cost
increases could potentially result in rates that few customers
would pay when compared to other available competitive options.
26. Costs of Divestiture to the Remaining Electric System. The
remaining electric utility operations comprised of Monongahela's
and WVP's electric businesses would be affected greatly by
divestiture of WVP's gas system. The impact would primarily
result from the expense of additional employees required to
perform the multitude of functions currently performed by those
that work on both WVP's gas and electric businesses. Costs also
stem from additional postage since electric billings would no
longer share postage with gas billings.
27. Impact On Electric Operations. FERC Order No. 888 and state
retail restructuring initiatives are expected to increase
competition in the electric industry. The lost economies
estimated for Monongahela's and WVP's remaining electric
companies, should divestiture be required, would also have an
adverse impact on their ability to compete successfully in the
restructured electric market. A forced divestiture of the gas
system would result in the remaining electric utility operating
companies being less competitive than they would be as part of a
merged company.
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<PAGE>
28. Costs of Divestiture to Customers. Both WVP's gas and
electric customers could incur decreased personal costs by
perhaps writing one check and making one mailing instead of two
to two separate utilities. Although this savings is not certain,
it is one of many non-quantifiable costs to customers involving
the additional expense of doing business with two utilities
instead of one. Others are additional telephone calls for
service and billing inquiries and costs of providing access to
meters and other facilities for two utilities. Moreover, there
can be increased customer confusion over doing business with two
utilities rather than one.
29. Costs of Divestiture to the West Virginia PSC. Divestiture
would also cause regulatory costs, stemming from additional
duties for the staff of the West Virginia PSC as a result of
dealing with an additional utility. These additional duties
would largely be the result of duplicating existing functions,
such as separate requests for approval of financing and rate case
requests.
30. Divestiture is not in the Public Interest. Divestiture
would result in substantial cost increases for the stand-alone
gas system, and cost increases as a result of lost utility
operating economies, and higher income taxes, which would affect
the remaining electric companies and their customers.
Accordingly, spinning off the gas system would harm WVP's and
Monongahela's shareholders and both electric and gas customers.
It is thus not in the public interest for Monongahela to divest
WVP's gas assets and business.
IV. Conclusion
31. For the foregoing reasons, Monongahela Power Company
believes Commission approval of the Transaction is appropriate.
____________________________
Peter J. Dailey
Sworn to before me this
_____ day of October, 1999
_________________________________
Notary
My Commission expires:______________________
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EXHIBIT D-1
HAND DELIVERY (304) 367-3423
September 24, 1999
Ms. Sandra Squire
Executive Secretary
Public Service Commission of West Virginia
201 Brooks Street
P. O. Box 812
Charleston, WV 25323
Re: UtiliCorp United Inc., by its division Case No.99-1407-E-PC
West Virginia Power, and
Monongahela Power Company
Joint Petition for consent for the
purchase and sale of certain assets
Dear Ms. Squire:
Please find enclosed herewith for filing an original and
twelve copies of the Joint Petition of Monongahela Power Company
and UtiliCorp United Inc. for the purchase by Monongahela Power
Company of the utility assets of West Virginia Power.
Sincerely yours,
/S/ Gary A. Jack
Gary A. Jack
Senior Attorney
GAJ:tmw
<PAGE>
VERIFICATION
STATE OF PENNSYLVANIA,
COUNTY OF WESTMORELAND, TO WIT
Jay S. Pifer, President, Monongahela Power Company, after
being duly sworn, says that the facts and allegations set forth
in the foregoing Petition are true, except insofar as they are
stated to be on information, he believes them to be true.
/s/ Jay S. Pifer
Jay S. Pifer
Taken, sworn to and subscribed before me this 24th day of
September, 1999.
/s/ Joyce Moore
Notary Public in and for said County
My commission expires June 19, 2001.
<PAGE>
VERIFICATION
STATE OF MISSOURI
COUNTY OF JACKSON
John McKinney, Vice President, Regulatory Services,
UtiliCorp United Inc., after being duly sworn, says that the facts
and allegations set forth in the foregoing Petition are true, except
insofar as they are stated to be on information, he believes them to
be true.
/s/ John McKinney
John McKinney
Taken, sworn to and sbuscribed before me this 23rd day
of September, 1999.
Patricia A. Austin
Notary Public in and for said County
Patricia A. Austin
Notary Public - State of Missouri
Commissioned in Jackson County
My commission expires: December 12, 1999.
<PAGE>
STATE OF WEST VIRGINIA
PUBLIC SERVICE C0MMISSION
Charleston
UtiliCorp United Inc., by its division Case No. 99-1407-E-PC
West Virginia Power and
Monongahela Power Company
Joint Petition for consent under West Virginia
Code Section 24-2-12 for the purchase and sale
of certain assets and related transactions.
Come now Monongahela Power Company (hereinafter referred to
as the Buyer or Allegheny Power) and UtiliCorp United Inc. by its
division West Virginia Power (hereinafter referred to as the
Seller), petitioners herein, who respectfully show the Commission
as follows:
The Petitioners
1. Monongahela Power Company, doing business as Allegheny
Power, is a public utility corporation organized and existing
under the laws of the State of Ohio, provides retail electric
service to customers in portions of West Virginia, and has its
principal place of business at 1310 Fairmont Avenue, Fairmont,
West Virginia 26555-1392. Monongahela Power Company is an
operating utility subsidiary of Allegheny Energy, Inc., a public
utility holding company organized and existing under the laws of
the State of Maryland.
2. UtiliCorp United Inc. is an energy and services company
organized and existing under the laws of the State of Delaware
providing retail electric and gas service to customers in eight
states, one Canadian province, the United Kingdom, New Zealand,
and Australia. West Virginia Power is a division of UtiliCorp
United Inc.
<PAGE>
providing electric service in five (5) southeastern
counties of West Virginia to approximately 26,000 customers and
gas service in seventeen (17) counties of West Virginia to
approximately 24,000 customers. Its principal place of business
in West Virginia is 280 Seneca Trail, Fairlea, West Virginia
24902. Its mailing address is P. O. Box 830, Lewisburg, West
Virginia 24901.
The Transaction
3. The Seller proposes to sell, and the Buyer proposes to
buy, all of the electric and gas facilities, including related
contractual rights, licenses, permits and assets used in the
operation of UtiliCorp's West Virginia business, as defined in
the Asset Purchase Agreement described in Paragraph 5, below
("West Virginia Assets"). No material transmission and
generation facilities are part of the transaction between Buyer
and Seller. The purchase price of the West Virginia Assets will
be the approximate net book value at the time of the closing and
is estimated to be approximately $75 million, payable in cash and
with no assumption of material liabilities.
4. There is filed herewith the Asset Purchase Agreement
between Allegheny Energy, Inc., corporate parent of Buyer, and
Seller, dated as of September 9, 1999 (Exhibit A), which sets
forth the terms of the sale and purchase of the UtiliCorp West
Virginia Assets. Reference is made to such agreement for details
regarding the proposed purchase and sale of the West Virginia
Assets. The Agreement provides, in Section 7.03e, that the
purchase of the UtiliCorp West Virginia Assets will be by a
subsidiary or affiliate of Allegheny Energy, Inc. It is proposed
that Monongahela Power Company, an established utility currently
providing electric service to 330,000 West Virginians, be the
purchaser of the UtiliCorp West Virginia Assets. The acquisition
is expected to be financed primarily by the issuance of medium
term securities.
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<PAGE>
5. The terms and conditions of the transaction are fair
and reasonable, neither party is given an undue advantage over
the other and the transaction does not adversely affect the
public in the State of West Virginia.
6. No public utility other than Buyer, Seller and
Appalachian Power (noted below) is affected or will be affected
by the proposed sale of the UtiliCorp West Virginia Assets or the
approval thereof by the Public Service Commission.
Buyer's Plans of Operation
7. It is anticipated that the Power Supply Agreement with
American Electric Power will be assigned by UtiliCorp West
Virginia to Allegheny Power and will continue in effect until
termination of December 31, 2001. Thereafter, generation will be
supplied from Buyer's own generation or the market; provided,
however, that if a Plan for retail choice is enacted in West
Virginia, customers will have the opportunity to choose their
suppliers in accordance with that Plan.
8. The gas system being acquired by Buyer will continue to
be operated by the employees who currently perform those
services. Gas will be supplied from the existing gas supply
agreements in place or as acquired by Buyer pursuant to new
contracts.
9. The Buyer will offer employment to all of the Seller's
employees in the West Virginia Service Territory at closing at
the same geographic location. The employees will be given credit
for all service with the Seller under all employee benefit plans
and arrangements maintained by the Buyer, or, for union
employees, to the extent permissible under the Collective
Bargaining Agreement and Law. Buyer will assume the Collective
Bargaining Agreement at closing.
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<PAGE>
10. The Buyer is well known to the Commission. The
corporate entity is financially strong and will be able to meet
all of the demands associated with ownership of the UtiliCorp
West Virginia Assets and Business and operation in the West
Virginia Service Territory. Annual Reports to the Commission and
other financial information regarding the Buyer and Seller's
financial conditions are filed periodically with the Commission
and copies of the Annual Report to Shareholders of Allegheny
Energy and UtiliCorp United are attached a Exhibits B and C
respectfully.
11. The Buyer intends to create two new divisions of
Monongahela Power Company: one division for the UtiliCorp West
Virginia electric assets and another separate division for the
UtiliCorp West Virginia gas assets. The Buyer, through its
divisions, intends to assume the obligation, responsibilities,
rates and rights of Seller in and to the UtiliCorp West Virginia
Assets and Business. In order to provide rate stability to the
Seller's customers, Buyer requests that the electric rates, base
and fuel, be frozen for a period of 7 years from the date hereof
and that the gas base rates be frozen for a similar period but
that the fuel portion of the gas rates be allowed to fluctuate
with the market and Rule 30 filings. The only exception to the
seven year freeze would be that the Buyer's affected division
could file for rate relief in case of financial distress for
either the electric or gas business. Buyer acknowledges that
electric and gas restructuring customer choice plans could alter
the rate structure accordingly but should not alter the Buyer's
full recovery of these rates. Buyer represents that this rate
stability treatment is in the best long term interests of the
customers in the former W. Va. Power territory because (1)
Seller's residential rates are only approximately 7% higher than
Buyer's rates; (2) expenditures will be necessary by Buyer for
service reliability purposes; and (3) while Buyer's own rates may
escalate
-4-
<PAGE>
over this seven year period, Buyer is proposing not to
increase the rates (with noted exceptions) for the UtiliCorp West
Virginia territory.
Benefits of the Transaction to the
Public Interest of West Virginia
12. The sale by the Seller to the Buyer of the West
Virginia Assets and Business, and the transactions related
thereto, should be approved by the Public Service Commission of
West Virginia for the following reasons:
(a) the Buyer's retail electric and gas distribution
rates will be no higher than Seller's rates would then otherwise
be and could, over a longer period of time, be lower than they
would otherwise be;
(b) upon consummation of the sale, the West Virginia
Power operations will become part of a locally integrated
electric utility engaged in generation, transmission and
distribution of electricity in a five-state area, which should
bring about:
(i) more efficient and resourceful operations,
thus benefiting customers and taxpayers;
(ii) a stronger identity and recognition among
customers, communities, management, and employees of the Buyer;
and
(iii) dedication on the part of the management
and employees of the Buyer to providing a high level of service
within the West Virginia Service Territory at a reasonable cost.
(c) Allegheny Power already has a major presence and
operation in the State as a key business and corporate citizen.
Its West Virginia operations include six coal-burning power
stations, 21 operating service centers, and almost 2,000
-5-
<PAGE>
employees working in the state. Allegheny Power currently
provides reliable electric service to more than 420,000 customers
across 29 counties in the State. The transaction will further
strengthen Allegheny Power's commitment to West Virginia,
promoting economic growth and community and educational efforts
that enrich quality of life.
(d) the current quality of service provided to
customers in the West Virginia Power Service Territory will be
maintained or improved. At the time of this filing, the exact
parameters of the current quality of service are unknown to
Buyer. Buyer has established a transition team to study quality
of service and many other issues;
(e) While UtiliCorp has served the state of West
Virginia and its customers well, a rather autonomous and isolated
utility division poses certain operating and management
challenges that will be eliminated with this acquisition. As a
consequence of the proposed transaction, the West Virginia Power
division of the Seller will become a part of a contiguous and
integrated utility operation with extensive utility assets
nearby.
Request for Expedited Treatment
Buyer and Seller intend to close on this transaction prior
to year end. The current proposed closing date is December 15,
1999. Accordingly, Allegheny Power and UtiliCorp United request
expedited review of this Petition by the Commission. Buyer and
Seller know that the Commission is occupied with many issues, but
believe that this Agreement is relatively simple, straight-
forward and in the best interests of West Virginia and,
therefore, should not require extensive time and resources to
review.
-6-
<PAGE>
Relief Requested
WHEREFORE, the petitioners respectfully request the
Commission enter an order expeditiously granting consent under
Chapter 24, Article 2, Section 12 of the Code of West Virginia,
and Rule 10(5) and 10(6) of the Commission's Rules of Practice
and Procedure for the sale of the UtiliCorp West Virginia Assets
as described in the accompanying Asset Purchase Agreement and
this Petition, that the Buyer, through its divisions, be granted
the right, privilege and franchise to serve, and assume the
responsibilities, obligations, rates for seven years, with an
exception for gas fuel rates and financial distress as described
herein, and all other rights associated with such current
electric and gas service in the present UtiliCorp West Virginia
Service Territory, with Seller released from such obligations,
all in accordance with the Asset Purchase Agreement, and grant
such other authority as may be necessary or appropriate to the
consummation of such sale and related transactions.
Dated: September 24, 1999
Respectfully submitted,
MONONGAHELA POWER COMPANY
By: /s/ Jay S. Pifer
Its: President
UTILICORP UNITED INC.
By: /s/ John McKinney
Its: Vice President-Regulatory Services
-7-
Counsel for Buyer
/s/ Gary A. Jack
Gary A. Jack, Esquire
Allegheny Power
1310 Fairmont Avenue
Fairmont, WV 26554
/s/ Michael A. Albert, Esquire (GAJ)
Michael A. Albert, Esquire
Jackson & Kelly
1600 Laidley Tower
Charleston, WV 25322
Counsel for Seller
_______________________________
E. Dandridge McDonald, Esq.
McDonald Law Offices
1001 United Center
P. O. Box 2189
Charleston, WV 25328-2189
W. Va. State Bar No. 2439
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EXHIBIT D-8
STATE OF IOWA
DEPARTMENT OF COMMERCE
UTILITIES DIVISION
BEFORE THE UTILITIES BOARD
_________________________________________________________________
IN RE: ) DOCKET NO. _____________
)
UTILICORP UNITED INC. ) APPLICATION FOR WAIVER
)
_________________________________________________________________
UtiliCorp United Inc. ("UtiliCorp") applies to the Iowa
Utilities Board, pursuant to Iowa Code Section 476.77(4) and 199
Ia. Admin. Code Section 32.8, for an order waiving the
application of Iowa Code Sections 476.76-476.77 and 199 Ia.
Admin. Code ch. 32 to the transaction described herein, and
states in support:
PARTIES
1. UtiliCorp is a Delaware corporation, in good standing
in all respects, with its principal office and place of business
at 911 Main Street, Suite 3000, Kansas City, Missouri 64105.
UtiliCorp is an electric and natural gas utility that serves more
than three million customers in eight states, including Iowa, and
in Canada, Australia, New Zealand, and the United Kingdom.
UtiliCorp is authorized to conduct business in the state of Iowa.
Through its Peoples Natural Gas operating division ("Peoples"),
UtiliCorp is engaged generally in distributing and selling
natural gas in its Iowa service areas subject to the regulatory
jurisdiction of the Iowa Utilities Board ("Board").
2. West Virginia Power is a division of UtiliCorp
providing electric and natural gas service in West Virginia. It
is a small combined utility employing about 120 people that
provides electric service to approximately 26,000 customers and
natural gas service to approximately 24,000 customers. The
principal place of business of UtiliCorp's West Virginia Power
division is 280
<PAGE>
Seneca Trail, Fairlea, West Virginia 24902, and
its mailing address is P. O. Box 830, Lewisburg, West Virginia
24901.
3. Monongahela Power Company, doing business as Allegheny
Power, is a public utility corporation organized and existing
under the laws of the State of Ohio, provides retail electric
service to customers in portions of West Virginia, and has its
principal place of business at 1310 Fairmont Avenue, Fairmont,
West Virginia 28555-1392. Monongahela Power Company is an
operating utility subsidiary of Allegheny Energy, Inc., a public
utility holding company organized and existing under the laws of
the State of Maryland.
THE TRANSACTION
4. UtiliCorp proposes to sell, and Monongahela Power
Company doing business as Allegheny Power ("Buyer") proposes to
buy, all of the electric and gas facilities, including related
contractual rights, licenses, permits and assets used in the
operation of the UtiliCorp West Virginia Business, as defined in
the Asset Purchase Agreement described in Paragraph 5 below. No
material transmission and generation facilities are part of the
transaction between the Buyer and the Seller. The purchase price
of the UtiliCorp West Virginia Assets (as defined in the Asset
Purchase Agreement described in Paragraph 5 below) will be
approximately $75 million, payable in cash and with no assumption
of material liabilities.
5. Attached as Exhibit A is the Asset Purchase Agreement
between Allegheny Energy, Inc., corporate parent of the Buyer,
and UtiliCorp, dated October 9, 1999, which sets forth the terms
of the sale and purchase of the UtiliCorp West Virginia Assets.
Reference is made to such agreement for details regarding the
proposed purchase and sale of the UtiliCorp West Virginia Assets.
2
<PAGE>
6. The Transaction is subject to customary closing
conditions, including, without limitation, the receipt of all
necessary governmental approvals and the making of all necessary
governmental filings. It is anticipated that the closing of the
Transaction could occur by the end of 1999 but no later than the
first quarter of the year 2000.
PLAN OF OPERATIONS
7. After the Transaction, the Iowa customers of the
Peoples division of UtiliCorp will continue to experience the
same high-quality, day-to-day natural gas utility service they
currently enjoy. The books and records of UtiliCorp will remain
at their present locations following the Transaction, and thus
the Board will continue to have access to such books and records.
Following the closing, the Buyer will operate the UtiliCorp West
Virginia Business and UtiliCorp will cease to operate the
UtiliCorp West Virginia Business. UtiliCorp will receive the
purchase price of approximately $75 million. UtiliCorp considers
the terms of the Transaction to be fair and reasonable.
APPLICABLE LAW
8. Iowa Code Sections 476.76-476.77 and 199 Ia. Admin.
Code ch. 32 require public utility "reorganizations" to be
submitted to the Board for prior Board review and approval. Iowa
Code Section 476.77(4) expressly authorizes the Board to waive
this requirement if it finds that Board review "is not necessary
in the public interest." The Board's rules also allow public
utilities to apply for a waiver of the requirement, with the
application to include a detailed statement of "why review of a
proposed reorganization is not necessary or in the public
interest." 199 Ia. Admin. Code Section 32.8. The Board adopted
amendments to 199 Ia. Admin. Code ch. 32 that became effective on
July 1, 1992.
3
<PAGE>
"Order Adopting Rules," In re Disposal of a Public
Utility's Assets, Docket No. RMU-91-2 (IUB Apr. 24, 1992). In
the preamble to the adopted amendments, the Board stated:
Under the rules currently in effect, however, the Board
in declaratory rulings has not required proposals for
reorganizations to be filed for transactions which have
minimal or no impact on Iowa ratepayers. (Citation
omitted.) The Board, under the adopted rules, intends
to continue this policy by liberally granting waivers
for such transactions. (Emphasis added.)
9. By this application, UtiliCorp seeks a waiver with
respect to the Transaction pursuant to the legal authority and
standards summarized in the preceding paragraph.
APPROPRIATENESS OF WAIVER
10. Formal review and approval of the Transaction by the
Board in a full proceeding pursuant to 199 Ia. Admin. Code ch. 32
is neither necessary nor in the public interest for the reasons
set forth in the following paragraphs.
11. For the reasons set forth in Paragraph 7 relating to
the plan of operations, the Transaction can reasonably be
expected to have no detrimental effect on UtiliCorp's financial
viability, capital structure, or cost of capital. The
Transaction is a sale of property and will result in an increase
in cash available to UtiliCorp. The assets to be sold are all
located outside Iowa and are not related to the operations
conducted by Peoples division of UtiliCorp.
12. For the same reasons, the transaction can be expected
to have no adverse effect on the Iowa customers of the Peoples
division of UtiliCorp. Current natural gas customers of Peoples,
including those in Iowa, can reasonably be expected to see no
adverse change in their utility service or rates because of the
Transaction, and will continue to be served effectively and
efficiently.
13. For the foregoing reasons, the Transaction can
reasonably be expected to have no adverse effect on any Iowa
public utility operations, on the viability of any Iowa public
utility, on
4
<PAGE>
Iowa ratepayers, on the provision of utility service
in Iowa, or on the jurisdictional authority of Iowa over any
regulated operations in Iowa. For the same reasons, the
Transaction can reasonably be expected to have no adverse effect
on the public interest or the citizens of the state of Iowa.
14. Moreover, should any adverse effects result from the
transaction that may have an impact on UtiliCorp's rates in Iowa,
they can be addressed by the Board by other means -- e.g., by
disallowances or adjustments in rate or complaint proceedings --
that are better suited for that purpose than is prior review
under the Iowa "reorganization" statutes, which are clearly not
designed for that purpose.
15. In addition, the Transaction will be subject to the
appropriate federal and state regulatory approvals, including the
FERC and the West Virginia Public Service Commission. Under these
circumstances and in light of the specific facts and
considerations presented in Paragraphs 11-14 above, additional
formal review by this Board is neither necessary nor in the
public interest.
CONCLUDING MATTERS
16. For the foregoing reasons, the Board should
exercise its authority over the transaction, pursuant to Iowa
Code Sections 476.76-476.77, by: (a) finding that the
Transaction will have minimal or no impact on Iowa ratepayers;
(b) determining that formal review of the Transaction is neither
necessary in order to protect ratepayers subject to the Board's
jurisdiction nor in the public interest; and (c) granting the
waiver requested by this application.
17. Attached to this application are the following
supporting exhibits: Exhibit A -- the Asset Purchase Agreement;
and Exhibit B -- a press release relating to the Transaction.
UtiliCorp is willing to provide the Board and its staff with any
additional information about the Transaction that may be
requested.
5
<PAGE>
RELIEF REQUESTED
WHEREFORE, UtiliCorp prays for the issuance of an order
finding that formal review and approval by the Board of the
Transaction described in this waiver application is neither
necessary in order to protect ratepayers subject to the Board's
jurisdiction nor in the public interest, and waiving the
application of Iowa Code Sections 476.76-476.77 and 199 Ia.
Admin. Code ch. 32 to such Transaction.
Dated October 7, 1999.
Respectfully submitted,
___________________________________
_
PHILIP E. STOFFREGEN
ARTHUR F. OWENS
OF
DICKINSON, MACKAMAN, TYLER & HAGEN,
A PROFESSIONAL CORPORATION
1600 Hub Tower
699 Walnut Street
Des Moines, Iowa 50309-3986
(515) 244-2600
(515) 246-4550 FAX
ATTORNEYS FOR UTILICORP UNITED INC.
6
P:\WP\UCU-WVA-WAIV-3.PLD
<PAGE>
CERTIFICATE OF SERVICE
I hereby certify that I have this day served the foregoing
document on the following persons and parties as required by the
rules of the Iowa Utilities Board:
General Counsel
Iowa State Department of Commerce
Utilities Division
350 Maple Street
Des Moines, Iowa 50319
Office of Consumer Advocate (3 copies)
Consumer Advocate Division
310 Maple Street
Des Moines, Iowa 50319
Dated in Des Moines, Iowa, on October 7, 1999.
___________________________________
Philip E. Stoffregen
<PAGE>
Date: October 7, 1999
Company Name: UtiliCorp United Inc.
Subject Matter: Application for Waiver
Person to Contact: Philip E. Stoffregen
Dickinson, Mackaman, Tyler & Hagen,
A Professional Corporation
1600 Hub Tower
699 Walnut Street
Des Moines, Iowa 50309-3986
Telephone: (515) 246-4539
FAX: (515) 246-4550
E-Mail: [email protected]
Initial Filing: X
Yes No
Assigned Docket No. (if any):
Copies filed: Original + 12
<PAGE>
MAP
The Map ("Map"), which has been omitted, provides a broad
illustration of the combined service territory of
Monongahela Power Company and The Potomac Edison Company in
West Virginia, and West Virginia Power's service territory
(gas and electric) in West Virginia.
EXHIBIT F
(304) 367-3423
October 13, 1999
Securities and Exchange Commission
450 5th Street, NW
Washington, DC 20549
Gentlemen:
Referring to the Application or Declaration on Form U-1
contemporaneously filed by Allegheny Energy, Inc. with respect to
the proposed acquisition of assets by Monongahela Power Company
("Monongahela"), a subsidiary of Allegheny Energy, Inc., from
UtiliCorp United Inc.'s West Virginia Power division, all as
described in the Application or Declaration of which this Opinion
is a part, I have examined or caused to be examined such
documents and questions of law as I deemed necessary to enable me
to render this opinion.
I understand that the actions taken in connection with the
proposed transactions will be in accordance with the Application
or Declaration; that all amendments necessary to complete the
above-mentioned Application or Declaration will be filed with the
Commission; and that all other necessary corporate action by the
Board of Directors and officers of Monongahela in connection with
the described transactions has been or will be taken prior
thereto.
Based upon the foregoing, I am of the opinion that if the
said Application or Declaration is permitted to become effective
and the proposed transactions are consummated in accordance
therewith: (i) all state laws applicable to the proposed
transaction will have been complied with; (ii) Monongahela will
legally acquire the assets of UtiliCorp as described in the
Application or Declaration, and (iii) the consummation of the
proposed transactions will not violate the legal rights of the
holders of any of the securities issued by Monongahela or by any
associate or affiliate company.
This opinion does not relate to State Blue Sky or securities
laws.
I consent to the use of this Opinion as part of the
Application or Declaration to which it is appended, which is
filed by Monongahela.
Sincerely yours,
/s/ Gary A. Jack
Gary A. Jack
Counsel for
Monongahela Power Company
