File No. 70-9625
(Mountaineer Gas Acquisition)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 4 to FORM U-1
APPLICATION/DECLARATION UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
_________________________________
Allegheny Energy, Inc.
10435 Downsville Pike
Hagerstown, Maryland 21740
Monongahela Power Company
(d/b/a Allegheny Power)
1310 Fairmont Avenue
Fairmont, West Virginia 26554
Mountaineer Gas Company
414 Summers Street
Charleston, West Virginia 25301
__________________________________
Allegheny Energy, Inc.
10435 Downsville Pike
Hagerstown, Maryland 21740
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
Robert R. Winter, Esq.
Deputy General Counsel
Allegheny Power
1310 Fairmont Avenue
Fairmont, West Virginia 26554
Anthony Wilson, Esq.
Senior Attorney
Allegheny Energy Service Company
10435 Downsville Pike
Hagerstown, MD 21740
<PAGE>
1. Applicants hereby amend the application by deleting Item No.
2. Fees, Commissions and Expenses which reads:
The fees, commissions and expenses to be paid or incurred,
directly or indirectly, in connection with this Transaction are
______________ (to be filed by amendment).
And replacing it with the following:
Fees and expenses in the estimated amount of $100,000 plus
ordinary expenses of approximately $500 are expected to be
incurred in connection with the preparation of this application.
None of the fees, commissions, or expenses is to be paid to any
associate or affiliate company of Allegheny or any affiliate of
any such associate company except for legal, financial, and other
services to be performed at cost.
2. Applicants hereby amend Item No. 3, subsection A, by deleting
subsection A and replacing it with the following:
A. Section 3(a)(2)
Section 3(a)(2) of the Act is applicable to the proposed
transaction. Under section 3(a)(2), the Commission can exempt a
holding company and its subsidiaries from any provision or
provisions of the Act that would apply to such companies if it
finds that "such holding company is predominantly a public-utility
company whose operations as such do not extend beyond the state in
which it is organized and states contiguous thereto . . ." unless
it finds the exemption "detrimental to the public interest or the
interest of investors or consumers." For the reasons set forth
below, the standards of section 3(a)(2) are satisfied with respect
to this Transaction and the requested exemption should be granted.
1. "Predominantly"
In the Commission's Houston Industries order,<F1> which built
on the Commission's reasoning and findings in the Northern States
Power Company order,<F2> the Commission noted that:
Section 3(a)(2) has no specific numerical test to
determine when a company is "predominantly" a utility
rather than a holding company. In making this
determination, the Commission has often used numerical
indicators to compare the utility operations of the
holding company, as a separate entity, and the utility
operations of its subsidiaries, with the greatest
emphasis placed on the relative gross revenues of the
companies in question.<F3> Other indicia, such as
<F1> Holding Co. Act Release No. 26744 (July 24, 1997).
<F2> Holding Co. Act Release No. 22334 (Dec. 23, 1981).
<F3> Citing Union Electric Co., 40 SEC 1072 (1964). When
applying these criteria, the Commission has generally granted exemptions
where the ratio of the subsidiaries' gross utility revenues to
those of its parent was not more than approximately 25%. See,
e.g., Ohio Edison Co., Holding Co. Act Release No. 21019 (Apr. 26,
1979) (16.9%); Delmarva Power & Light Co., Holding Co. Act Release
No. 19717 (Oct. 19, 1976) (25.8%); and Washington Gas Light Co.,
Holding Co. Act Release No. 1964 (Mar. 5, 1940) (23.7%).
Exemptions have generally been denied in cases where this ratio
was 35% or more. See, e.g., Union Electric Co., 5 SEC 252 (1939)
(35.7%); and Wisconsin Electric Power Co., Holding Co. Act Release
No. 8741 (Dec. 20, 1948) (54.7%).
<PAGE>
operating income and utility assets, have also been
considered in determining whether to grant an
exemption.<F4> . in considering whether the exemption
under section 3(a)(2) is available, [the Commission]
must "construe the statute according to a fair
interpretation of its terms."<F5>
When applying these criteria, the Commission has generally granted
exemptions where the ratio of the subsidiaries' utility operating
income to that of the parent was not more than approximately
35%.<F6> Exemptions have generally been denied in cases where this ratio
was 35% or more.<F7> As set forth below, this Transaction
satisfies the Commission's criteria.
In the Houston Industries case, Houston Industries
Incorporated, an exempt public utility holding company, and
Houston Power & Light, its electric public utility subsidiary
company, sought Commission approval to first merge (forming
Houston Industries Incorporated) and then to have the surviving
entity acquire NorAm Energy Corporation ("NorAm"), a gas utility
company, as a new subsidiary. The Commission, after an
examination of all of the factors it identified as indicative of
the relative size of the utility operations of Houston Industries
and NorAm, held that on the basis of all of the facts and
circumstances Houston Industries was predominantly a utility
rather than a holding company within the meaning of section
3(a)(2). As of December 31, 1996 and for the year then ended,
NorAm's utility operating revenues equaled approximately 53% of
Houston Industries' operating revenues, NorAm's utility operating
income was 24.3% of Houston Industries' utility operating income,
and NorAm's utility assets were 18.1% of Houston Industries'
utility assets. The Commission held that the ratios of operating
income and utility assets were consistent with ratios in prior
orders granting an exemption.
In this Transaction, as of December 31, 1999, Mountaineer
Gas' utility operating revenues were approximately 26% of
Monongahela Power's operating revenues, its utility operating
income was 15% of Monongahela Power's utility operating income,
and its utility assets were 13% of Monongahela Power's utility
assets.<F8> In this case the ratios are lower than the ratios
in past cases where exemptions were granted. Additionally,
Monongahela Power, with approximately 393,000 customers is
approximately twice as large as Mountaineer Gas, which has
approximately 200,000 customers.<F9>
<F4> Citing Union Electric Co., 40 SEC 1072, 1077 (1962); and
Northern States Power Co., Holding Co. Act Release No. 22334 (Dec.
23, 1981).
<F5> Citing Union Electric Co., 5 SEC 252, 261 (1939).
<F6> See, e.g., Houston Industries Inc., Holding Co. Act Release
No. 26744 (July 24, 1997) (24.3%); Union Electric Co., 40 SEC 1072
(1964).; Ohio Edison Co., Holding Co. Act Release No. 21019 (Apr.
26, 1979) (16.9%); Delmarva Power & Light Co., Holding Co. Act
Release No. 19717 (Oct. 19, 1976) (25.8%); and Washington Gas
Light Co., Holding Co. Act Release No. 1964 (Mar. 5, 1940)
(23.7%).
<F7> See, e.g., Union Electric Co., 5 SEC 252 (1939) (35.7%);
and Wisconsin Electric Power Co., Holding Co. Act Release No. 8741
(Dec. 20, 1948) (54.7%).
<F8> It should be noted that by orders of the West Virginia PSC
and the Public Utility Commission of Ohio, Monongahela Power will be
seeking Commission authority to transfer its electric generating
assets to its generating affiliate Allegheny Energy Supply
Company, LLC on or before February 1, 2001. The transfer is part
of the continuing restructuring of the electric industry.
<F9> In Houston Industries the Commission noted that
Houston Industries' utility operations were entirely electric and NorAm's
were entirely gas, a comparison of units of energy sold is not
relevant and because Houston Industries' customer mix is
significantly different from that of NorAm, the relative number of
customers is not indicative of the size of the two utility
businesses. Similarly, Monongahela Power's utility operations
are almost entirely electric but for 24,000 newly acquired gas
customer resulting from the acquisition of West Virginia Power,
and Mountaineer Gas' are entirely gas, a comparison of units of
energy sold is not relevant and because the customer mix is
significantly different from that of Mountaineer Gas, the relative
number of customers is also not indicative of the size of the two
utility businesses.
<PAGE>
The Commission, in Houston Industries, held that following
the transaction: "Houston Industries would control NorAm and enjoy
the incidents of predominance" as established in prior
cases.<F10> In those prior cases the Commission relied upon the comparison of
the utility subsidiaries' gross operating revenues as a percentage
of the gross operating revenues of the parent (the "gross-to-
gross test"). In Houston Industries, on a gross-to-gross test
basis, NorAm's gross operating utility revenues in 1996 were
approximately 53% of those of Houston Lighting & Power. Stated
differently, NorAm's gross operating utility revenues in 1996 were
34% of the combined gross utility operating revenues of Houston
Lighting & Power and NorAm in 1996. In the present matter, as
stated, on a gross-to-gross test basis, Mountaineer Gas' gross
operating utility revenues in 1999 were approximately 24% of
Monongahela Power's gross operating utility revenues and
represents 19% of the combined gross utility operating revenues of
Mountaineer Gas and Monongahela Power.
The Commission has also made other comparisons of utility /
combined utility operations. In Houston Industries the Commission
found that NorAm accounted for approximately 15% of total combined
utility assets (i.e., net property, plant and equipment) and
approximately 20% of utility net operating income for 1996. In
this case, as previously noted in Item No. 1, subsection C, for
the period ended December 31, 1999, Mountaineer Gas' net utility
plant represents 13% of the combined net utility plant of
Mountaineer Gas and Monongahela Power after the proposed
Transaction.
Finally, as Monongahela Power will conduct far more utility
business directly as an operating company as it existed
immediately prior to the Transaction than it will conduct
indirectly as a holding company (through ownership of Mountaineer
Gas as a subsidiary), as held in Houston Industries, the fair
interpretation of "predominantly" dictates that Monongahela Power
be viewed as predominantly a public-utility company and not a
holding company. As demonstrated, the Commission's prior holding
that Houston Industries would "enjoy the incidents of
predominance" as NorAm's gross utility operating revenues would
constitute a clear minority of the combined gross utility
operating revenues is equally applicable to Monongahela Power in
this proposed Transaction. Applicants conclude that this
Transaction and application satisfies the Commission's
requirements for a Section 3(a)(2) exemption, as Monongahela
Power's operations are, as demonstrated, predominant whether
considered prior to or following the Transaction. Accordingly,
the Section 3(a)(2) exemption should be granted.
2. Contiguity
Eligibility for a Section 3(a)(2) exemption also includes the
requirement that the holding company be "a public-utility company
whose operations as such do not extend beyond the State in which
it is organized and States contiguous thereto." Mountaineer Gas'
will continue to operate in West Virginia. Ohio is contiguous to
<F10> Houston Industries Inc., Holding Co. Act Release No. 26744
at pg. 14.
<PAGE>
West Virginia. However, it is not required that Mountaineer Gas
operate in Ohio. In Union Electric Co.,<F11> the Commission
noted that in Section 3(a)(2) "there is not a single word referring to
subsidiaries but that various other sections of the Act (including
Section 3(a)(1)) specifically refer to the operations, activities
or place of incorporation of the subsidiaries of the holding
company seeking exemption."
In prior orders, the Commission concluded that "it is plain
that under that subsection [3(a)(2)] Congress intended us to
ignore as irrelevant the place of operation of the operating
subsidiaries of the holding company, and that we should in the
instant case consider solely whether the operations of Union
Electric itself, as an operating company, are confined to the
state of Missouri and contiguous states."<F12> In a later
proceeding, the Commission again affirmed that "[c]ontiguity of the utility
subsidiaries is not required by paragraph (2) of section
3(a)."<F13> Applying the plain words of the Act, particularly the term "as
such," Monongahela Power will satisfy the contiguity requirement
because its operations will be conducted exclusively in West
Virginia and Ohio.
3. The Unless And Except Clause
Under the "unless and except" clause of Section 3(a), the
Commission would have the authority to revoke or deny Monongahela
Power's Section 3(a)(2) exemption if the Commission were to
determine that the exemption is "detrimental to the public
interest or the interest of investors or consumers." The
Commission has rarely invoked this authority, and recent
Commission orders granting Section 3 exemptions for combination
gas and electric companies indicate that the Commission should not
find the proposed transaction to be detrimental so as to justify
invocation of the "unless and except" clause.
In the past, the Commission disfavored combination gas and
electric systems, even among exempt holding companies.<F14>
Moreover, Section 11 of the Act restricts combining gas and electric systems
in registered holding companies. The Commission has explicitly
stated, however, that "this Section 11] standard is not in terms
applicable to an application for exemption under 3(a)(2), since
that provision does not require that the system be a single
integrated system, but rather that it be predominantly a public-
utility company."<F15> The Commission has further noted that "in
a number of prior cases, the Commission has held that combination
companies may receive an exemption even though they did not meet
the single integrated system standard of Section
11(b)(1).<F16>
<F11> 5 S.E.C. 252 (1939).
<F12> This approach coincides with the Commission's intention
to flexibly interpret the geographic requirements for an integrated
public-utility system under Section 2(a)(29) of the Act. See 1995
Staff Report at 72-74 ("noting that the relevance of physical and
geographic integration to a sound public-utility industry has
diminished").
<F13> In re Northern States Power Co., Holding Co. Act Release
No. 22334 (December 23, 1981) (approving the acquisition by a holding
company of a subsidiary and allowing the holding company to
maintain exempt status pursuant to Section 3(a)(2),
notwithstanding that the new subsidiary had operations in states
non-contiguous to the state of organization of the holding
company). See also, however, In re Eastern Pub. Serv. Co.,
Securities Act Release No. 1973 (1940).
<F14> In re Illinois Power Co., 44 S.E.C. 140 (1970).
<F15> In re Delmarva Power & Light Co., Holding Co. Act
Release No.19717 (October 19, 1976).
<F16> Id.
<PAGE>
Indeed, the Commission has recognized that while its past effort
to further public and consumer interest by keeping electric and
gas systems separate may have been "[v]alid and constructive . .
.in its day, that approach may now be outmoded."<F17>
The Commission has noted that the "broad and flexible
language" of the "unless and except" clause should be read "in a
way that makes economic and social sense in the light of
contemporary realities."<F18> In recent proceedings the
Commission has determined that one of the "contemporary realities" to
consider in deciding whether an exemption would be contrary to the
public interest is "the protection afforded to investors,
consumers, and the public by the existence of vigorous state
regulation."<F19> The Commission has granted exemptions
to combination electric and gas companies where it has found that the
existence of local and state regulation of the utility industry
was sufficient to ensure that the interests of consumers,
investors and the public would be protected.<F20> These
decisions were based on an earlier statement by the Commission that
competition in the energy industry is a "question of state policy"
and that the conclusions of local officials "should be given great
weight in determining whether the public interest would in fact
be adversely affected."<F21>
The proposed transaction, and thus the resulting holding
company structure, are subject to approval of the West Virginia
PSC under whose regulatory both Monongahela Power and Mountaineer
Gas operate, and, indeed, have received approval for this
Transaction. The West Virginia PSC will retain jurisdiction over
Monongahela Power and Mountaineer Gas. In this matter the grant
of an exemption from the Act would not result in a regulatory gap
and therefore, would not be detrimental to the public interest.
Rather, the resulting holding company will serve the public
interest and the interest of investors and consumers by producing
a number of economies and efficiencies, similar to economies and
efficiencies upon which the Commission has in the past looked
favorably.<F22>
Finally, and most significantly, the resulting holding
company will permit both Monongahela Power and Mountaineer Gas to
respond more rapidly and effectively to the changing nature of the
electric and gas industries in the face of the convergence of the
electricity and natural gas markets. Moreover, a holding company
<F17> Union Elec. Co., 45 S.E.C. 489 (1974), aff'd without
opinion sub nom. City of Cape Girardeau v. S.E.C., 521 F.2d 324 (D.C. Cir.
1975).
<F18> Id.
<F19> WPL Holdings, Inc., Holding Co. Act Release No. 24590
(February
26, 1988).
<F20> This deference to local officials and increased acceptance
of combined gas and electric systems were reflected in the 1995 Staff
Report. See, e.g., 1995 Staff Report at 74-76. In light of the
recommendations and the approach of the 1995 Staff Report, and
considering the numerous instances where the Commission has
exempted combination companies in the past, the proposed
transaction should not raise any concerns that it is detrimental
to interests of consumers, investors or the public. See also
Dominion Resources Inc., Holding Co. Act Release No. 24618 (April
5, 1988).
<F21> In re Northern States Power Co., 36 S.E.C. 1 (1954).
<F22> See, e.g., In re Illinova Corp., Holding Co. Act Release
No. 26054 (May 18, 1994) (granting exemption requested in connection
with a proposed merger based on an application that claimed that
the new structure would create efficiencies and economies such as
allowing the resulting companies to respond to competitive
opportunities in the electric power industry and increasing the
financial flexibility of the resulting companies).
<PAGE>
structure would give both Monongahela Power and Mountaineer Gas
greater flexibility to take advantage of the lowest-cost financing
opportunities that are specifically designed for their manifestly
different utility businesses. In addition, the combination of
Monongahela Power's electric market knowledge with Mountaineer
Gas's wholesale gas operations and skills will help propel the
combined company forward in the converging wholesale energy
markets, benefiting investors.
3. Applicants hereby amend Item No. 6, Exhibits and Financial
Statements, by filing the following:
(a) Exhibits
B-1 Stock Purchase Agreement
B-2 Affidavit of Peter J. Dailey
D-1 Application to the West Virginia Public
Service Commission
D-2 Order of the West Virginia Public Service
Commission
D-3 Hart-Scott Rodino Notification Filing (Via Form SE)
D-4 Application to the Federal Communications
Commission
D-5 Order of the Federal Communications Commission
(via Form SE)
D-6 Cost Study (filed confidentially)
E Map showing combined service territory of
Monongahela Power and Mountaineer Gas (Via Form SE)
F Opinion of Counsel
G Financial Data Schedules (filed confidentially)
H Form of Notice - Filed Feb. 4, 2000
(b) Financial Statements as of March 31, 2000
FS-1 Monongahela Power balance sheet, per books and pro
forma (filed confidentially)
FS-2 Monongahela Power statement of income and retained
earnings, per books and pro forma (filed confidentially)
<PAGE>
SIGNATURE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the undersigned company has duly caused this
statement to be signed on its behalf by the undersigned thereunto
duly authorized.
ALLEGHENY ENERGY, INC
/s/ THOMAS K. HENDERSON
By _____________________________
Thomas K. Henderson
MONONGAHELA POWER COMPANY
/s/ THOMAS K. HENDERSON
By _____________________________
Thomas K. Henderson
Dated: July 13, 2000
<PAGE>
July 13, 2000
United States Securities and Exchange Commission
Attn: Jonathan G. Katz, Secretary
450 5th Street, NW
Judiciary Plaza
Washington, D.C. 20549
Re: Form SE - File No. 70-9625 [Mountaineer Gas Acquisition]
Gentlemen:
Enclosed is a copy of Form SE that should accompany Amendment
No. 4, filed via Edgar, in the above referenced file. The
attached letter requests confidential treatment of Exhibits FS-1,
Monongahela Power consolidated balance sheet, per books and pro
forma; FS-2, Monongahela Power, consolidated balance sheet,
statement of income and retained earnings per books and pro forma.
Sincerely,
/s/ THOMAS K. HENDERSON
Thomas K. Henderson
Enclosures: Form SE
Request for Confidential Treatment
Confidential Exhibits and Financial Statements
cc: Catherine A. Fisher, IM/OPUR
Robert P. Wason, IM/OPUR
<PAGE>
FORM SE
FORM FOR SUBMISSION OF PAPER FORMAT EXHIBITS
BY ELECTRONIC FILERS
MONONGAHELA POWER COMPANY 0000067646
______________________________ ________________________
Exact name of registrant as Registrant CIK Number
specified in charter
Amendment No.4 File No. 70-9625
______________________________ ________________________
Electronic Report, schedule or SEC file number, if
available
registration statement
of which the documents are a part
__________________________________________________________________
_
Name of Person Filing the Document
(if other than the Registrant)
Signatures
Filings Made by the Registrant:
MONONGAHELA POWER COMPANY
(Registrant)
_________________________________________
Thomas K. Henderson
Filings Made by Person Other Than the Registrant:
After reasonable inquiry and to the best of my knowledge and
belief, I certify on _____________, 2000, that the information
set forth in this statement is true and complete.
_____________________________________ By: (Name)
_____________________________________ (Title)
<PAGE>
Documents Filed Herewith:
a. Exhibits and Financial Statements
D-3 Hart-Scott Rodino Notification Filing
D-5 Order of the Federal Communications Commission
D-6 Cost Study
E Map showing combined service territory of Monongahela Power
and Mountaineer Gas
FS-1 Monongahela Power consolidated balance sheet, per books
and pro forma;
FS-2 Monongahela Power statement of income and retained
earnings per books and pro forma.
b. Confidential Treatment Requested for the following:
D-6 Cost Study
FS-1 Monongahela Power consolidated balance sheet,
per books and pro forma;
FS-2 Monongahela Power statement of income and
retained earnings per books and pro forma.
<PAGE>
July 13, 2000
United States Securities and Exchange Commission
Attn: Jonathan G. Katz, Secretary
450 5th Street, NW
Judiciary Plaza
Washington, D.C. 20549
Re: Monongahela Power Company - Request for Confidential
Treatment
Gentlemen:
Pursuant to Rule 104(b) of the Public Utility Holding Company
Act of 1935, as amended ("Act"), we hereby request confidential
treatment for the attached filing of Exhibits D-6, Cost Study, FS-
1, Monongahela Power consolidated balance sheet, per books and pro
forma, and FS-2, Monongahela Power statement of income and
retained earnings per books and pro forma, made under the Act in
File No. 70-9625, as part of Amendment No. 4.
The reason for the request is that the information contained
in the attached filing includes financial forecasts and strategic
planning information which is proprietary and confidential in
nature and which is otherwise not publicly available.
Sincerely,
Thomas K. Henderson
Enclosure: Confidential Exhibits and Financial Statements
cc: Catherine A. Fisher, IM/OPUR
Robert P. Wason, IM/OPUR
Chris Chow, IM/OPUR
<PAGE>
Exhibits and Financial Statements
D-6 Cost Study
FS-1 Monongahela Power consolidated balance sheet, per books and
pro forma;
FS-2 Monongahela Power statement of income and retained earnings
per books and pro forma.
