<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
SCHEDULE 14D-9/A
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 3)
---------------------
NEW YORK STATE ELECTRIC & GAS CORPORATION
(NAME OF SUBJECT COMPANY)
NEW YORK STATE ELECTRIC & GAS CORPORATION
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $6.66 2/3 PER SHARE
(TITLE OF CLASS OF SECURITIES)
------------------------------
649840105
(CUSIP NUMBER OF CLASS OF SECURITIES)
------------------------------
DANIEL W. FARLEY, ESQ.
VICE PRESIDENT AND SECRETARY
NEW YORK STATE ELECTRIC & GAS CORPORATION
ITHACA-DRYDEN ROAD
P.O. BOX 3200
ITHACA, NEW YORK 14852-3200
(607) 347-2506
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS
ON BEHALF OF THE PERSON(S) FILING STATEMENT)
------------------------------
COPY TO:
SETH A. KAPLAN, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019
(212) 403-1000
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<PAGE>
This Amendment No. 3 (this "Amendment No. 3") amends and supplements the
Solicitation/ Recommendation Statement on Schedule 14D-9 filed with the
Securities and Exchange Commission (the "Commission") on July 30, 1997 by New
York State Electric & Gas Corporation, a New York corporation (the "Company"),
as amended by Amendment No. 1 thereto filed with the Commission on July 30, 1997
and Amendment No. 2 thereto filed with the Commission on August 6, 1997 (as
amended, the "Schedule 14D-9"), relating to the offer by CE Electric (NY), Inc.,
a New York corporation ("CENY") and a wholly owned subsidiary of CalEnergy
Company, Inc., a Delaware corporation ("CalEnergy"), to purchase 6,540,670
shares of outstanding Common Stock, par value $6.66 2/3 per share, at $24.50 per
share. Capitalized terms used but not defined herein have their respective
meanings set forth in the Schedule 14D-9.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Item 8 is hereby amended as follows:
A new section captioned "PROCEEDINGS BEFORE THE PUBLIC SERVICE COMMISSION"
is hereby added as follows:
PROCEEDINGS BEFORE THE PUBLIC SERVICE COMMISSION. On August 6, 1997, the
Company filed a petition (the "Section 70 Petition") with the New York Public
Service Commission (the "Commission") for a declaratory ruling that CalEnergy
and CENY may not acquire shares of Common Stock without first obtaining the
approval of the Commission under Section 70 of the New York Public Service Law.
New York State Assemblyman Clifford Crouch is a co-petitioner in the Section 70
Petition. Copies of the press release announcing the filing of the Section 70
Petition and of the text of the Section 70 Petition are attached as Exhibits to
this Amendment No. 3 and are incorporated by reference herein.
The section captioned "SHAREHOLDER DEMAND LITIGATION" is hereby amended and
supplemented by inserting the following at the end thereof:
On August 5, 1997, the Company filed a Verified Answer to Verified Petition
(the "Answer") and Affidavit responding to the Petition. A copy of the Answer is
filed as an Exhibit to this Amendment No. 3 and is incorporated by reference
herein.
On August 6, 1997, a hearing was held in the New York Supreme Court,
Tompkins County (the "Supreme Court"), regarding the Petition and the Answer. At
the hearing, the judge deferred deciding whether the Company would be required
to produce the items requested by CENY in the Petition (the "Reguested
Materials") until after the hearing before the United States District Court (the
"District Court") on the issues raised by the Company in the Amended Complaint.
The District Court hearing has been scheduled for August 13, 1997. The Supreme
Court indicated that it would issue a formal order to the effect that, if the
District Court determines that there has not been a misuse of confidential
information by CalEnergy sufficient to warrant issuance of a preliminary
injunction barring the Stake-Out Tender Offer, the Company will produce the
Requested Materials, but if the District Court makes no findings of fact or
conclusions of law with respect to the Company's claims of misuse of
confidential information by CalEnergy, the parties may reapply to the Supreme
Court for relief.
The section captioned "SHAREHOLDER LITIGATION" is hereby amended and
supplemented by inserting the following at the end thereof:
On July 16, 1997, a purported class action was filed in the Supreme Court of
the State of New York, New York County, against the Company and its directors,
entitled JUDITH M. STUCHINER, ET AL., V. NEW YORK STATE ELECTRIC & GAS
CORPORATION, ET AL.(the "Stuchiner Action"). On July 16, 1997, a purported class
action was filed in the Supreme Court of the State of New York, Tompkins County,
against the Company and its directors, entitled PAUL B. ENGEL V. NEW YORK STATE
ELECTRIC & GAS CORPORATION, ET AL. (the "Engel Action"). The Stuchiner Action
and the Engel Action are included within the "Shareholder Actions" definition.
The allegations and claims made in the Stuchiner Action and the Engel Action are
substantially similar to those made in the other Shareholder Actions.
<PAGE>
The complaints filed in the Stuchiner Action and the Engel Action are
included as Exhibits to this Amendment No. 3 and are incorporated by reference
herein.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
Exhibit 48 -- Verified Answer to Verified Petition in IN THE MATTER OF THE APPLICATION OF
CE ELECTRIC (NY), INC. V. NEW YORK STATE ELECTRIC & GAS CORPORATION (Supreme
Court of the State of New York, Tompkins County).
Exhibit 49 -- Joint Petition of New York State Electric & Gas Corporation and The Hon.
Clifford Crouch for a Declaratory Ruling that CalEnergy Company, Inc. and Its
Subsidiaries May Not Acquire Any of the Company's Stocks or Bonds Without the
Commission's Prior Approval (The Public Service Commission of the State of
New York).
Exhibit 50 -- Press Release of the Company, dated August 6, 1997, relating to the filing
of the Joint Petition with the Public Service Commission of the State of New
York referred to in Exhibit 49.
Exhibit 51 -- Complaint in JUDITH M. STUCHINER, ET AL. V. NEW YORK STATE ELECTRIC & GAS
CORPORATION, ET AL. (Supreme Court of the State of New York, New York County).
Exhibit 52 -- Complaint in PAUL B. ENGEL, ET AL. V. NEW YORK STATE ELECTRIC & GAS
CORPORATION, ET AL. (Supreme Court of the State of New York, Tompkins County).
</TABLE>
2
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
NEW YORK STATE ELECTRIC & GAS CORPORATION
BY: /S/ WESLEY W. VON SCHACK
-----------------------------------------
Wesley W. von Schack
(CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER)
Dated: August 7, 1997
3
<PAGE>
Exhibit 48
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF TOMPKINS
- ----------------------------------------------------------X
In the Matter of the Application of
CE ELECTRIC (NY), INC.,
Petitioner,
-against-
VERIFIED ANSWER
NEW YORK STATE ELECTRIC TO VERIFIED PETITION
& GAS CORPORATION, Index No. 97-841
No. 97-0526M
Respondent,
for an order pursuant to CPLR Article 78.
- ----------------------------------------------------------X
Respondent New York State Electric & Gas Corporation ("NYSEG"), for its
answer to the Verified Petition dated July 30, 1997 (the "Petition") of
petitioner CE Electric (NY), Inc. ("CalEnergy"), avers as follows:
Preliminary Statement. Admits that CalEnergy is a record holder of the
common stock of NYSEG; that CalEnergy made a demand for a list of NYSEG
shareholders (as well as related shareholder information), and that NYSEG has
not provided the documents requested; that CalEnergy made a tender offer for
shares of NYSEG which expires on August 14, 1997 and a proposal to acquire NYSEG
by merger; and that NYSEG recommended to its shareholders that they not tender
their shares to CalEnergy. No responsive pleading is required as to the
remainder of the two unnumbered paragraphs of the "Preliminary Statement," as
the statements made therein are non-factual, argumentative, rhetorical and
embody conclusions of law. Alternately, NYSEG lacks knowledge or information
sufficient to form a belief as to the truth of the matters alleged.
1. No responsive pleading is required as the allegations embody only
conclusions of law.
<PAGE>
2. No responsive pleading is required as the allegations embody only
conclusions of law.
3. Admits, except lacks knowledge or information sufficient to form a
belief as to whether CalEnergy was a record holder of common stock of NYSEG "at
all relevant times."
4. Admits.
5. Admits.
6. Admits.
7. Admits.
8. Admits that CalEnergy's offer to purchase NYSEG shares is reproduced as
Exhibit B and lacks knowledge or information sufficient to form a belief as to
the truth of the other matters alleged, except that no responsive pleading is
required as to the allegation that CalEnergy is "entitled" to the demanded
information because it embodies only a conclusion of law.
9. Admits.
10. Admits CalEnergy is, and was on July 22, 1997, a record holder of
NYSEG common stock, and lacks knowledge or information sufficient to form a
belief as to the truth of the allegation that an "affiliate" of CalEnergy owns
241,000 shares of NYSEG common stock.
11. No responsive pleading is required as the allegations embody only
conclusions of law. Alternatively, denies.
12. No responsive pleading is required as the allegations embody only
conclusions of law.
13. Denies, except admits that NYSEG has not provided CalEnergy with the
demanded materials.
12. No responsive pleading is required as the allegations embody only
conclusions of law. Alternatively, denies.
2
<PAGE>
13. Admits.
AS AND FOR A FIRST DEFENSE
14. There is a prior action pending between the parties in the United
States District Court for the Southern District of New York, entitled New York
State Electric & Gas Corporation v. CalEnergy Company, Inc. & CE Electric (NY),
Inc., 97 Civ. 5644 (DC) (the "Federal Action"), with respect to the issues that
the Court must determine before it can consider granting the relief CalEnergy
seeks, in particular, whether CalEnergy's tender offer for NYSEG shares may
proceed and whether CalEnergy is proceeding in good faith for a proper purpose.
15. This proceeding should therefore be held in abeyance pending the
resolution of the Federal Action.
16. Alternately, this proceeding is barred by principles of res judicata
and/or collateral estoppel as a result of determinations in the Federal Action.
AS AND FOR A SECOND DEFENSE
17. CalEnergy has not sustained its burden of proving that it is
proceeding in good faith for a proper purpose.
18. To the extent that the parties have presented evidence on whether
CalEnergy is proceeding in good faith for a proper purpose, an evidentiary
hearing on that issue is required before the Petition can be granted.
AS AND FOR A THIRD DEFENSE
19. CalEnergy comes before the Court with "unclean hands" in that it seeks
shareholder information in furtherance of a tender offer that is made possible
only because of CalEnergy's breach of a confidentiality agreement, entered into
by the parties on or about May 6, 1997, with
3
<PAGE>
respect to information as to joint ventures then under discussion between the
parties, as a result of which breach CalEnergy's interests significantly
conflict with those of NYSEG shareholders. These issues are sub judice in the
Federal Action.
20. To the extent that the parties have presented evidence on whether
CalEnergy is proceeding with unclean hands, an evidentiary hearing on that issue
is required before the Petition can be granted.
AS AND FOR A FOURTH DEFENSE
21. The nature and breadth of the relief requested in the Petition is not
authorized or warranted by the common law under which this proceeding is
brought.
AS AND FOR A FIFTH DEFENSE
22. The Verified Petition fails to state a cause of action.
WHEREFORE, NYSEG respectfully requests that the Petition be dismissed, or
that this proceeding be held in abeyance pending a resolution of NYSEG's motion
for a preliminary injunction in the Federal Action. Alternatively, NYSEG
respectfully requests that the Court hold a fact-finding hearing on whether
NYSEG is proceeding here in good faith for a proper purpose and with clean
hands. NYSEG also respectfully requests such other relief as may be just and
proper.
4
<PAGE>
PLUNKETT & JAFFE, P.C.
Attorneys for New York State
Electric & Gas Corporation
1 North Broadway
White Plains, New York 10601
Tel. (914) 948-7722
Of Counsel:
HUBER LAWRENCE & ABELL
605 Third Avenue
New York, NY 10158
(212) 682-6200
Dated: August 4, 1997
5
<PAGE>
Exhibit 49
BEFORE THE PUBLIC SERVICE COMMISSION
OF THE STATE OF NEW YORK
- - - - - - - - - - - - - - - - - - - - x
.
Joint Petition of New York State .
Electric & Gas Corporation and The .
Hon. Clifford Crouch for a Declaratory .
Ruling that CalEnergy Company, Inc. . Case ___________
and Its Subsidiaries May Not Acquire .
Any of the Company's Stocks or Bonds .
Without the Commission's Prior .
Approval and For An Order Enjoining .
CalEnergy and Its Subsidiaries From .
Acquiring Any Such Securities. x
- - - - - - - - - - - - - - - - - - - -
Robinson Silverman Pearce LeBoeuf, Lamb, Greene &
Aronsohn & Berman, L.L.P. MacRae, L.L.P.
1290 Avenue of the Americas 125 West 55th Street
New York, New York 10104 New York, New York 10019
212-541-2000 212-424-8000
Of Counsel: Of Counsel:
James F. Gill Steven H. Davis
Andrew Irving Bruce V. Miller
H. Liza Moses
Huber Lawrence & Abell
605 Third Avenue
New York, New York 10158
212-682-6200
Of Counsel:
Kenneth M. Jasinski
Nicholas A. Giannasca
Dated: New York, New York
August 6, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
INTRODUCTION.................................................................1
BACKGROUND...................................................................8
I. CALENERGY IS A GAS CORPORATION AND AN ELECTRIC
CORPORATION AND, AS SUCH, IS PROHIBITED BY SECTION 70
OF THE PSL FROM ACQUIRING, DIRECTLY OR INDIRECTLY, ANY
OF NYSEG'S SECURITIES WITHOUT PRIOR AUTHORIZATION BY
THE COMMISSION.....................................................12
A. CalEnergy is a gas corporation for purposes of
Section 70 of the PSL because it owns gas plant
through North Country, and also operates and
manages North Country's gas plant and transacts
business as a gas corporation................................12
B. CalEnergy is an electric corporation for purposes
of Section 70 of the PSL because it owns electric
plant through Saranac, and also operates and
manages Saranac's electric plant and transacts
business as an electric corporation..........................15
1. CalEnergy operates and manages electric plant
in New York............................................15
2. Saranac's QF status should not preempt the
application of Section 70 of the PSL to
CalEnergy as an electric corporation...................16
C. CalEnergy may not acquire NYSEG's shares
indirectly without Commission approval.......................22
II. CENY IS A GAS AND ELECTRIC CORPORATION UNDER SECTION 5-
B OF THE PSL BECAUSE IT WAS FORMED FOR THE EXPRESS
PURPOSE OF ACQUIRING A GAS AND ELECTRIC CORPORATION................24
III. IF THE COMMISSION DETERMINES THAT ADDITIONAL EVIDENCE
IS REQUIRED TO ADJUDICATE THIS MATTER, THE COMMISSION
SHOULD COMMENCE A SHOW CAUSE PROCEEDING TO STOP
CALENERGY'S UNLAWFUL ATTEMPT TO CIRCUMVENT THE PSL.................28
IV. THE COMMISSION SHOULD EXERCISE ITS AUTHORITY UNDER
SECTION 70 TO PROTECT THE PUBLIC INTEREST..........................29
CONCLUSION..................................................................31
<PAGE>
JOINT PETITION OF NEW YORK STATE ELECTRIC & GAS CORPORATION
AND HON. CLIFFORD CROUCH FOR A DECLARATORY RULING
THAT CALENERGY COMPANY, INC. AND ITS SUBSIDIARIES MAY NOT
ACQUIRE ANY OF THE COMPANY'S STOCKS OR BONDS WITHOUT THE
COMMISSION'S PRIOR APPROVAL AND FOR AN ORDER ENJOINING CALENERGY
AND ITS SUBSIDIARIES FROM ACQUIRING ANY SUCH SECURITIES
INTRODUCTION
Pursuant to Part 8 of the Rules of Procedure of the Public Service
Commission of the State of New York (the "Commission"), New York State Electric
& Gas Corporation ("NYSEG" or the "Company") and Hon. Clifford Crouch, Member of
the State Assembly(1) (hereinafter "Petitioners) jointly seek an order: (1)
declaring that Section 70 of the New York Public Service Law ("PSL") prohibits
CalEnergy Company, Inc. ("CalEnergy"), and its subsidiaries and affiliates
(CalEnergy and such companies collectively referred to as the "CalEnergy
Companies"), including without limitation CE Electric (NY), Inc. ("CENY"), from
acquiring any of NYSEG's securities without the Commission's prior written
permission; and (2) enjoining the CalEnergy Companies from acquiring any of
NYSEG's securities without the Commission's prior approval.
To the extent that the Commission believes that Petitioner's request
raises questions of fact, the Petitioners request that the Commission institute
a proceeding requiring CalEnergy and the CalEnergy Companies to show cause why
they
- ----------
(1) Assemblyman Crouch represents the 122nd Assembly District, which includes
all of Delaware and parts of Otsego and Chenango Counties. Assemblyman
Crouch serves on the following committees: economic development, job
creation, commerce/industry, local government and agriculture.
1
<PAGE>
should not be prohibited from acquiring any of NYSEG's securities without the
Commission's approval. Petitioners further request that the Commission issue an
order prohibiting CalEnergy and the CalEnergy Companies from acquiring any of
NYSEG's securities during the pendency of such proceeding. Petitioners also
request that the petition be granted expedited treatment and that CalEnergy be
given an abbreviated response time. Petitioners ask that CalEnergy be directed
to file any response by August 11, 1997 and that the Commission act by August
13, 1997. CalEnergy should not object to an abbreviated response time. After
all, in reaching its determination that no approval was required for the
acquisition of NYSEG's securities, CalEnergy must have fully investigated this
issue.(2)
The Commission should grant the relief requested for two reasons.
First, CalEnergy indirectly owns gas plant and electric plant in New York
through separate subsidiaries, and also manages and operates these
jurisdictional facilities. CalEnergy is, therefore, both an electric corporation
and a gas corporation, and not a stock corporation, for purposes of Section
- ----------
(2) The provisions of the State Administrative Procedure Act ("SAPA") do not
apply to requests for declaratory rulings. SAPA ss.102(2)(b)(iii). While
SAPA might arguably apply to requests to institute show cause proceedings
and relief in the nature of temporary and preliminary injunctions, the
Commission may waive the notice and publication provisions of SAPA in an
emergency affecting the public health, safety or welfare. SAPA ss.202(6).
Here, stopping an on-going violation of the PSL is a matter affecting the
public welfare and justifying the invocation of SAPA's emergency waiver
provisions.
2
<PAGE>
70 of the PSL.(3) As such, CalEnergy may not directly or indirectly acquire any
of NYSEG's securities without the Commission's approval. CalEnergy,
nevertheless, has disclosed in publicly filed documents that it (or other
CalEnergy Companies) already has acquired some of NYSEG's common stock without
the Commission's approval. Certain regulatory exemptions previously granted to
CalEnergy's subsidiaries do not exempt CalEnergy's acquisitions of a utility's
securities from the need for prior approval.
Second, CalEnergy recently formed a transitory merger subsidiary,
CENY as the vehicle for acquiring, through a tender offer to NYSEG's
shareholders, 9.9 percent, and ultimately all, of NYSEG's voting securities.
Because CENY was formed for the purpose of acquiring a public utility, it, too,
is an electric and gas corporation under PSL ss. 5-b. Despite the corporate form
adopted by CalEnergy to accomplish its purpose, the substance of the transaction
is to effect a merger of CalEnergy's gas and electric plant with NYSEG's gas and
electric plant, in
- ----------
(3) CalEnergy obviously seeks to take advantage of the provision of Section 70
which permits "stock corporations" (as opposed to gas and electric
corporations) to acquire up to ten percent of the stock of a gas or
electric corporation without the Commission's approval. While the statute
appears to permit such acquisitions, it is difficult to believe that the
Legislature intended to tie the Commission's hands where a stock
corporation announces its intent to acquire all of the shares of a gas and
electric corporation; with the acquisition of 9.9 percent of the shares as
but a first step which is incidental to the entire transaction. In such a
circumstance, the Commission must be given the latitude to exercise its
jurisdiction over the acquisition of any shares.
3
<PAGE>
furtherance of CalEnergy's announced ambition to become a player in the global
energy markets.
Whether CalEnergy is fit to assume this role, however, is a question
that, to date, CalEnergy seems anxious to avoid. CalEnergy has already launched
what appears to be an unauthorized tender offer for 9.9 percent of NYSEG's
shares as part of its plan to acquire the entire Company. Section 70, however,
states quite clearly that no stock shall be acquired by a gas and electric
company without the Commission's consent and that no consent shall be given to
the acquisition of stock "unless it shall have been shown that such acquisition
is in the public interest." While, it is doubtful at best, that CalEnergy's
scheme to takeover NYSEG is in the public interest, the Commission has been
deprived of the ability to pass upon CalEnergy's acquisition of NYSEG's stock
because CalEnergy has not seen fit to follow the requirements of Section 70.(4)
CalEnergy, for example, has yet to present to the Commission and the
consuming public with any specific, concrete plan as to how it proposes to
operate the Company's electric generating and transmission assets and the
electric and gas distribution systems. Given CalEnergy's lack of any experience
- ----------
(4) Petitioners wish to make clear that they are not yet asking the Commission
to address the question of whether CalEnergy's acquisitions of NYSEG's
stock are in the public interest. The only question before the Commission
at this time is whether CalEnergy and the other CalEnergy Companies have
violated the law by acquiring NYSEG's shares without prior approval.
Petitioners believe that CalEnergy and CENY have violated Section 70 and
the Commission has an obligation to stop that violation.
4
<PAGE>
in this business this is highly relevant issue.(5) CalEnergy has even stated
that there is no guarantee that it can successfully integrate NYSEG into its
corporate structure:
The integration of acquired businesses entails numerous risks,
including, among others, the risk of diverting management's
attention from the day-to-day operations of the Company, the risk
that the acquired businesses will require substantial capital and
financial investments and the risk that the investments will fail to
perform in accordance with expectations. There can be no assurance
that future acquisition opportunities, if any, can be consummated on
favorable terms or that the Company's integration efforts will be
successful.
CalEnergy Prospectus dated July 25, 1997, filed pursuant to Rule
424(b)(3), EDGAR filing, p. 6.
Furthermore, CalEnergy is already a highly leveraged entity with a
below investment grade bond rating, and its acquisition of NYSEG, using still
more debt, will only serve to add additional risk to that holding company.(6)
CalEnergy's prospectus does not minimize this risk, or assuage those worries,
either:
The Company's substantial level of debt presents the risk that the
Company might not generate sufficient cash to service the Company's
indebtedness...or that its
- ----------
(5) CalEnergy's recent hostile takeover of an electric distribution company in
the United Kingdom hardly qualifies it as an experienced operator of an
integrated gas and electric utility.
(6) Indeed, it was the growth of far-flung, highly leveraged holding companies
in the 1920s that led to the enactment of the Public Utility Holding
Company Act of 1935 in the first place.
5
<PAGE>
leveraged capital structure could limit its ability to finance
future acquisitions, develop additional projects, compete
effectively and operate successfully under adverse economic
conditions.
Id. at p. 5.
The Commission should also be wary of a company that has publicly
stated that reliability and customer service are of secondary importance,
averring that "the principal factor determining success is likely to be price,
and to a lesser extent, reliability, availability of capacity and customer
service." Id. at p. 17. Moreover, keeping in mind that a CalEnergy Company holds
one of NYSEG's most onerous NUG contracts (the Saranac contract), the Commission
might consider CalEnergy's statement that:
[R]ecent deregulation and industry restructuring activity may cause
certain utilities or other contract parties to attempt to
renegotiate contracts or otherwise fail to perform their contractual
obligations, which in turn could adversely affect the Company's
results of operations.
Id. at p. 10. In other words, CalEnergy cannot renegotiate the Saranac contract
without adversely affecting its own operating results -- a classic conflict with
its obligation to NYSEG's customers.
The Commission should also examine NYSEG's complaint filed in the
U.S. District Court for the Southern District of New York which has alleged
several examples of illegal and unethical behavior by CalEnergy that the
Commission might well consider when it is deciding whether it is in the public
interest to
6
<PAGE>
permit CalEnergy to acquire any of NYSEG's shares. This behavior includes
breaches of confidentiality agreements, breaches of fiduciary duties and
violations of federal securities laws.
CalEnergy's apparently deliberate refusal to obtain the Commission's
approval under Section 70's "public interest" standard is no mere technical
error. Rather, it is a direct attack upon the Commission's statutory duty to
assure that the State's public utilities are guided by responsible ownership
committed to the delivery of safe, reliable service at just and reasonable
rates. Unless the Commission acts now to compel CalEnergy to cease its efforts
to take over NYSEG until the Commission is satisfied on a full and complete
record that such efforts are in the "public interest," CalEnergy can avoid
Commission scrutiny while becoming NYSEG's single largest shareholder, not as a
mere investor, but as a determined prospective purchaser publicly committed to
acquiring the entire company.
As this petition will show, CalEnergy and the other CalEnergy
Companies clearly own, operate and manage electric and gas plant in this
State.(7) Moreover, one of the CalEnergy
- ----------
(7) Under the circumstances, CalEnergy should have approached the Commission
with a petition asking for a formal declaration that no permission was
required for its acquisition of up to ten percent of NYSEG's shares.
Certainly, when other entities owning New York utility operations were
planning mergers, they sought a declaration by the Commission that such
mergers were not subject to the Commission's jurisdiction. E.g., United
Water/General Waterworks, AT&T/MCCaw.
(Continued...)
7
<PAGE>
Companies was formed for the express purpose of acquiring all of NYSEG's voting
securities. The law and, more vitally, the protection of the public interest,
require the Commission's review and consent before the CalEnergy Companies may
acquire any of the Company's voting stock.
BACKGROUND
CalEnergy holds a controlling interest in numerous electric
corporations, one of which, Saranac Power Partners, L.P. ("Saranac"), owns
electric plant located within NYSEG's service territory in New York. CalEnergy
also holds a controlling interest in a gas corporation. North Country Gas
Pipeline Corporation ("North Country"), which is a wholly-owned subsidiary of
Saranac, owns gas plant in NYSEG's service territory and other parts of New
York. CalEnergy also indirectly owns electric plant in other states and foreign
countries.
CalEnergy formed a wholly-owned subsidiary, CENY, for the express
purpose of purchasing shares of NYSEG's common stock pursuant to an Offer to
Purchase dated July 18, 1997. CENY was incorporated on July 11, 1997 as a
transitory merger corporation that CalEnergy intends to merge with NYSEG upon
the acquisition of a controlling interest in the Company. Hart-Scott-Rodino
Notice to NYSEG (July 16, 1997), at p. 1 ("HSR Notice"), attached
- ----------
(7)(...Continued)
CalEnergy, however, in its zeal to devour NYSEG, has foregone the
simple step of seeking such a jurisdictional ruling.
8
<PAGE>
hereto as Exh. 1. Between July 1, 1997 and July 11, 1997, prior to the date of
incorporation of CENY and prior to the filing of the CENY Registration Statement
(as defined below), CalEnergy or other CalEnergy Companies purchased 241,100
shares of NYSEG's common stock. CENY, Registration Statement Pursuant to Article
16 of the New York Business Corporation Law, Schedule II, at p. S-6 (July 18,
1997) ("CENY Registration Statement").
In the past two years, CalEnergy has followed a strategy of
acquiring the securities of other companies in the energy industry. NYSEG is
simply its most recent target. In December 1996, CalEnergy acquired, through a
similarly hostile process, a controlling interest in Northern Electric plc
("Northern Electric"), which includes a distribution company serving 1.5 million
customers in England and Wales and various non-regulated subsidiaries. CalEnergy
estimated that the total cost of acquiring Northern Electric would be $1.3
billion. CENY Registration Statement, Exh. (b), CalEnergy Form 10-K for Fiscal
Year ended December 31, 1996 ("Form 10K"), at pp. 2-3. Significantly, CalEnergy
has neither guaranteed, nor is it otherwise subject to recourse, for amounts
borrowed under its U.K. Credit Facility to consummate its unsolicited
acquisition of this British electric utility. Id. at p. 2.
The acquisition of Northern Electric followed closely upon two other
acquisitions. In January 1995, CalEnergy acquired Magma Power Company, an
independent power producer with an aggregate net ownership capacity of 154 MW,
for approximately
9
<PAGE>
$958 million. CENY Registration Statement, Exh. (b), Form 10K, at p. 1. In
August 1996, CalEnergy acquired Falcon Seaboard Resources, Inc. ("Falcon
Seaboard") for a cash purchase price of approximately $226 million, which
provided CalEnergy with ownership interests in 520 MW of natural gas-fired
cogeneration facilities (id.), including Saranac's generating plant and a 200 MW
cogeneration facility in Big Spring, Texas, as well as North Country's natural
gas pipeline. Id. at pp. 2, 9. CalEnergy's total worldwide generating capacity
in operation includes 2,066 MW in foreign countries, and 1,135 MW in projects
located in the United States. CalEnergy has generation projects under
construction and other projects with signed power sales contracts. CalEnergy's
total project capacity is 5,025 MW. Id. at pp. 8-9. Stated simply, CalEnergy is
a holding company with interests around the world.
CalEnergy now is apparently trying to take advantage of the
provision of Section 70 of the PSL which permits a stock corporation to acquire
up to 10 percent of the voting capital stock of a gas corporation or electric
corporation without the Commission's approval.(8) From this platform, CalEnergy
has
- ----------
(8) Section 70 of the PSL distinguishes between electric and gas corporations
and stock corporations. No electric or gas corporation "shall directly or
indirectly acquire the stock or bonds of any other corporation
incorporated for, or engaged in, the same or a similar business . . . ."
without the Commission's approval. Stock corporations, which are defined
as companies other than electric, gas or street railroad corporations, are
treated differently. Except with the
(Continued...)
10
<PAGE>
launched a hostile battle to control NYSEG. In implicitly characterizing the
transaction as an acquisition by a stock corporation, CalEnergy ignores the New
York gas and electric corporations that already are part of its corporate family
and CalEnergy's own role in managing and operating these subsidiaries' gas and
electric plant.(9) Petitioners urge the Commission to foil CalEnergy's plan to
evade immediate review of its acquisitions of NYSEG's securities.
CalEnergy's tender offer is subject to the provision of Section 70
of the PSL that requires the Commission's approval before a gas or electric
corporation may acquire, directly or indirectly, any of the stock or bonds of
any other corporation engaged in the same or similar business. CalEnergy should
have sought the Commission's approval before purchasing the NYSEG shares already
in its possession and before commencing, through CENY, a tender offer for any
more of NYSEG's stock. Under the circumstances, the Commission should find that
CalEnergy may not directly or indirectly acquire NYSEG's shares without approval
- ----------
(8)(...Continued)
consent of the Commission, "no stock corporation of any description,
domestic or foreign, other than a gas corporation or electric corporation
or street railroad corporation, shall purchase or acquire, take or hold,
more than ten per centum of the voting capital stock issued by any gas
corporation or electric corporation organized or existing under or by
virtue of the laws of this state, ...."
(9) Section 70 of the PSL is silent as to whether its proscriptions apply to
gas and electric corporations outside New York as well as to domestic gas
and electric corporations.
11
<PAGE>
and direct CalEnergy to discontinue its direct or indirect acquisition of
additional shares of NYSEG.
I. CALENERGY IS A GAS CORPORATION AND AN ELECTRIC CORPORATION AND, AS SUCH,
IS PROHIBITED BY SECTION 70 OF THE PSL FROM ACQUIRING, DIRECTLY OR
INDIRECTLY, ANY OF NYSEG'S SECURITIES WITHOUT PRIOR AUTHORIZATION BY THE
COMMISSION.
A. CalEnergy is a gas corporation for purposes of Section 70 of the PSL
because it owns gas plant through North Country, and also operates
and manages North Country's gas plant and transacts business as a
gas corporation.
The term "gas corporation" is defined in Section 2(11) of the PSL,
as an entity that owns, operates or manages gas plant. "Gas plant" is defined as
"all real estate, fixtures and personal property operated, owned, used or to be
used for or in connection with . . . the manufacture, conveying, transportation,
distribution, sale or furnishing of gas . . . for light, heat or power. . . ."
PSL ss. 2(10). CalEnergy, through Saranac's subsidiary, North Country, owns a
controlling interest in an intrastate pipeline that transports gas to Saranac,
Georgia Pacific Company, Inc., which purchases steam from Saranac and NYSEG. The
Commission found that the pipeline owned by North Country is gas plant and that
North Country is a gas corporation. Case 92-M-0322, Petition of North Country
Gas Pipeline Corp. and Saranac Energy Co., Declaratory Ruling and Order Granting
Exemption (Aug. 27, 1992)("Exemption Order").
While North Country nominally "owns" the gas pipeline, the affidavit
of George E. Bonner, NYSEG's Vice President, Gas Operations & Marketing
(attached hereto as Exh. 2), shows that
12
<PAGE>
CalEnergy personnel regularly operate and manage North Country's gas plant.(10)
Because CalEnergy directly operates and manages North Country's gas plant,
CalEnergy is a gas corporation within the definition of Section 2(11) of the
PSL. As a gas corporation, CalEnergy may not directly or indirectly acquire any
of NYSEG's stocks or bonds without the Commission's approval.
PSL ss. 70.
CalEnergy never sought or received an exemption from regulation as a
gas corporation. The Commission granted North Country a limited exemption from
regulation as a gas corporation under Section 66(13) of the PSL "...from
compliance with all of the provisions of Article 4 of the Public Service Law,
other than those affecting matters of public safety and the provisions of
Sections 65 and 68." Exemption Order, at p. 11. North Country's exemption is
effective "so long as petitioner (or any successor) only provides gas
transportation service to Saranac Energy Company, Inc., Georgia Pacific Company,
Inc. and/or New York State Electric & Gas Corporation...." Exemption Order, at
p.11.(11)
- ----------
(10) The Federal Energy Regulatory Commission ("FERC") has interpreted the term
"operate" to refer "to the person who has control and decision making
authority concerning the operation of the [f]acility -- not the person,...
who merely performs specific services that are ordered and directed by
another party." Re Bechtel Power Corp., 136 PUR4th 534, 537 (1992).
(11) The order was modified to permit service to successors and assigns of
North Country's existing customers and to require that any successor of
Saranac must own the stock of North Country. Case 92-M-0322, North Country
Gas Pipeline Corp. and Saranac Energy Co., Inc., Order
(Continued...)
13
<PAGE>
This limited exemption for North Country does not immunize CalEnergy
from regulation as a gas corporation when it attempts an acquisition subject to
Section 70 of the PSL. The Exemption Order does not explicitly or implicitly
extend to North Country's corporate parent or other affiliates. Even if the
Exemption Order were construed to apply to CalEnergy as well as to North
Country, neither company would be entitled to a regulatory exemption for
activities other than those upon which the Exemption Order was based. Exemptions
from Commission regulation are to be strictly construed because, when an entity
is excluded from the definition of a "gas corporation," it becomes totally
outside the Commission's jurisdiction. Case 29004, Wy-Catt Pipeline Company, 26
NYPSC 1425, 1986 N.Y. PUC LEXIS 147, *8 (1986).
The Exemption Order was predicated solely upon the assumption that
North Country's business would be limited to the transportation of natural gas
to three specific customers. North Country did not disclose in its application
for exemption that its corporate parent intended to acquire NYSEG and thereby
effect a merger of NYSEG's gas plant with North Country's. If CalEnergy is
assumed to be exempt from regulation as a gas corporation for engaging in the
same activities permitted to North Country, by the same reasoning, it cannot be
exempt from regulation for business activities in New York that were not
contemplated by the Exemption Order.
- ----------
(11)(...Continued)
Approving Recommendation and Clarifying Previous Order, (Feb. 3,
1993), at p. 4.
14
<PAGE>
Under these circumstances, CalEnergy has neither a basis to argue
that the limited exemption obtained by North Country extends to it, nor grounds
to assert that the exemption somehow can be expanded to include all manner of
conduct never envisioned by the Commission when it agreed to a "lightened
regulation" for North Country. CalEnergy cannot escape the fact that it is a gas
corporation and cannot acquire any of NYSEG's shares without the Commission's
approval.
B. CalEnergy is an electric corporation for purposes of Section 70 of
the PSL because it owns electric plant through Saranac, and also
operates and manages Saranac's electric plant and transacts business
as an electric corporation.
1. CalEnergy operates and manages electric plant in New York.
CalEnergy owns, through Saranac, a controlling interest in a 240 MW
cogeneration facility in New York. That facility is "electric plant" as defined
in Section 2(12) of the PSL and Saranac is an "electric corporation" as defined
in Section 2(13) of the PSL. As in the case of the North Country gas plant,
CalEnergy manages the business affairs associated with owning and operating the
Saranac facility. The affidavits of Jeffrey M. Converse, NYSEG's Lead
Engineer-Electric Supply Planning & Procurement, Gary F. Freeland, NYSEG's
Project Manager for IPP Interconnections and Denis E. Wickham, NYSEG's Vice
President Electric Resource Planning (collectively attached hereto as Exh. 3)
all establish conclusively that CalEnergy officials have been actively engaged
in the operation and management of the Saranac facility. Inasmuch as Section
2(13) of the PSL defines an entity
15
<PAGE>
that owns, operates or manages an electric plant as an electric corporation,
CalEnergy is an electric corporation. As such, CalEnergy may not directly or
indirectly acquire any of NYSEG's stocks or bonds without the Commission's
approval.
2. Saranac's QF status should not preempt the application of
Section 70 of the PSL to CalEnergy as an electric corporation.
Before it was acquired by CalEnergy, Saranac, like North Country,
sought and obtained in the Exemption Order an exemption from most of the
Commission's regulation. Saranac's exemption was based, consistent with
Commission precedent, solely on Saranac's status as a qualifying facility ("QF")
under the Public Utility Regulatory Policies Act of 1978 ("PURPA"). Pursuant to
Section 210(e)(1) of PURPA, 16 U.S.C. ss. 824a-3(e)(1) (West Supp. 1997) the
FERC adopted regulations exempting QFs from "State laws and regulations
respecting the rates, or respecting the financial or organizational regulation,
of electric utilities, or from any combination of the foregoing." See also 18
C.F.R. ss. 292.602(c).(12)
Neither the preemptive effect of this federal exemption from state
regulation, nor the Commission's exemption granted to Saranac on the basis of
its QF status, insulate CalEnergy from regulation as an electric corporation
under
- ----------
(12) Section 292.602(c)(3), 18 C.F.R.ss.292.602(c)(3), authorizes the FERC,
upon request by a state commission, to consider a limitation on the
exemptions applicable to state statutes. Section 292.602(c)(4), 18
C.F.R.ss.292.602(c)(4), provides that any person may request a
determination of the FERC as to whether a QF is exempt from a particular
state law or regulation.
16
<PAGE>
Section 70 of the PSL. CalEnergy is not a QF. Even if CalEnergy was assumed to
have the benefits of QF status, however, the acquisition of NYSEG's shares is
not the type of activity preempted from state regulation by federal law. Nothing
in the legislative history of PURPA, the FERC's preamble to its regulations, or
the case law interpreting those regulations suggests that PURPA preempts state
laws governing activities completely unrelated to the business of developing,
owning and operating a QF.
Congress enacted Section 210 of PURPA, 16 U.S.C. ss. 824a-3 (West 1985 and
Supp. 1997), in order to encourage the development of energy-efficient forms of
electric generation. It perceived that utility-type regulation would conflict
with this purpose by imposing financial burdens on QFs.(13) Consistent with
- ----------
(13) FERC v. Mississippi, 456 U.S. 742, 750-751 nn. 12-13 (1982) (citing H.R.
Conf. Rep. No. 95-1750, p. 98 (1978), reprinted in 1978 U.S.C.C.A.N. at p.
7838 ("The establishment of utility type regulation over [QFs] would act
as a significant disincentive to firms interested in cogeneration and
small power production."); H.R. Rep. No. 95-496, pt. 4, p. 157 (1977),
reprinted in 1978 U.S.C.C.A.N. at p. 8600 ("The Committee feels that
qualifying cogeneration facilities need to be exempted from some Federal
and State laws and regulations in order that such facilities can be
expected to add substantially to the supply of electricity in the United
States. In determining the extent of such exemptions, the [FERC] should
carefully balance the disincentive effect of such laws and regulations
against whatever protections they may afford the public."); 123 Cong. Rec.
32399 (1977) (remarks of Sen. Cranston); id. at 32660 (remarks of Sen.
Percy). See also Cong. Rec. S16481 (1977) (remarks of Sen. Percy)
("[T]here is a threat that small power producers would have to file
mountains of paper with State and Federal regulators because of public
utility laws.").
17
<PAGE>
Congress's intent, the FERC's exemptions preempt state laws and regulations that
would interfere with a QF's core business of producing electricity and steam for
sale. See Gulf States Utilities Co. v. FERC, 922 F.2d 873 (D.C. Cir.), cert.
denied, 502 U.S. 819 (1991); Puerto Rico Electric Power Auth. v. FERC, 848 F.2d
243 (D.C. Cir. 1988).
The Supreme Court held that PURPA does nothing more than preempt
conflicting state enactments in the traditional way. FERC v. Mississippi, 456
U.S. 742, 759 (1982). The Court of Appeals for the Third Circuit, addressing
federal preemption of an order of the New Jersey Board of Public Utilities,
stated that:
[T]he application of the preemption doctrine requires a
determination of congressional intent in enacting a federal law.
That intent is not necessarily dependent on express congressional
authorization to nullify or render partially or wholly unenforceable
an inconsistent state law or regulation. It also occurs "where
Congress has legislated comprehensively, thus occupying the entire
field of regulation and leaving no room for the States to supplement
federal law, or where the state law stands as an obstacle to the
accomplishment and execution of the full objectives of Congress."
Freehold Cogeneration Assocs., L.P. v. Board of Regulatory Comm'rs, 44 F.3d
1178, 1190 (3d Cir.), cert. denied, 116 S. Ct. 68 (1995) ("Freehold") (citing
Louisiana Pub. Serv. Comm'n v. FCC, 476 U.S. 355, 368-69 (1986)) (citations
omitted, emphasis supplied). In Freehold, for example, the court found that
state regulators were preempted from revisiting the power purchase
18
<PAGE>
rates in a previously approved long-term contract, a matter crucial to a QF's
business. Id. at 1193.
State regulation of the acquisition of a public utility's securities by a
QF's corporate parent, which is irrelevant to the development or operation of a
QF's projects, would not conflict with PURPA's goals.(14) PURPA and judicial
interpretations of the federal law do not show that Congress intended so broad a
usurpation of the states' police power to regulate the change of control of
jurisdictional utilities.(15)
- ----------
(14) Neither Congress nor the FERC appears to have expected QFs to acquire
utility securities, and so did not expressly provide for such an
eventuality. On the contrary, the principal concern was that traditional
utilities would acquire and direct the management of QFs. See Sections
3(17)(C) and 3(18)(B) of the FPA (16 U.S.C. ss.ss. 796(17)(C) and (18)(B))
and 18 C.F.R. ss. 292.206; Order No. 70, Final Rule Establishing
Requirements and Procedures for a Determination of Qualifying Status for
Small Power Production and Cogeneration Facilities, 45 Fed. Reg. 17959
(Mar. 20, 1980).
(15) The Court of Appeals of New York, addressing the preemption issue, said
that:
Analysis under the supremacy clause, however, begins with the
assumption that Congress did not intend to prohibit State
action (see Maryland v. Louisiana, 451 U.S. 725, 746; Chicago
& North Western Transp. Co. v. Kalo Brick & Tile Co., 450 U.S.
311, 317)). This is especially so when the Federal enactment
would displace a State statute governing an area historically
regulated under the State's police power (see Rice v. Santa Fe
Elevator Corp., 331 U.S. 218, 230). The regulation of local
electric utilities has been recognized as ordinarily arising
under a State's police power (see Arkansas Elec. Coop.
(Continued...)
19
<PAGE>
New York QFs are not entirely immune from state regulation. An
electric corporation operating a QF was found to be subject to regulation under
the PSL when it proposed to sell electricity at retail. Case 93-E-0272, Re
Niagara Mohawk Power Corp., Declaratory Ruling on Regulation of
Sithe/Independence Power Partners, (Feb. 9, 1994) ("Sithe I"). Like regulation
of retail sales of electricity, the acquisition of a public utility's securities
will not affect Saranac's business as a QF or CalEnergy's management or
operation of that business.(16) Such an acquisition is vitally related, however,
to the State's interest in regulating the ownership of a jurisdictional utility.
- ----------
(15)(...Continued)
v. Arkansas Public Serv. Comm., 461 U.S.
375, 387-388).
Consolidated Edison Co. of New York, Inc. v. Pub. Serv.
Comm'n, 63 N.Y.2d 424, 434, 472 N.E.2d 981, 984, 483
N.Y.S.2d 153, 156 (1984), appeal dismissed, 470 U.S. 1075
(1985) ("Con Edison") (New York was not preempted from using
its police powers to require utilities to pay a rate higher
than the federal maximum rate, thus favoring the development
of QFs in accord with the court's view of Congress' intent).
(16) PURPA does not preempt a state from treating QFs and non-QFs alike for
certain purposes. See Bristol Energy Corp. v. New Hampshire Pub. Utils.
Comm'n, 13 F.3d 471, 475 (1st Cir. 1994) (State commission not preempted
from requiring QFs to provide information concerning their business form
and ownership, financing agreements, allocations of income, fuel use, and
other aspects of the operation of their projects on a one-time basis).
See also Independent Energy Producers Ass'n, Inc. v. Cal. Pub. Util.
Comm'n, 36 F.3d 848, 859 (9th Cir. 1994) (State commission not preempted
from requiring QFs to submit operating data when the submission of data
did not impose an undue burden on the QF and was within the state
commission's broad ratemaking power).
20
<PAGE>
The Commission has not granted the corporate parents of a QF blanket
exemption from regulation. In Case 93-E-0272, Re Niagara Mohawk Power Corp.,
Order Establishing Regulatory Regime for Sithe/Independence Power Partners, slip
op. at p. 6 (April 19, 1994) ("Sithe II"), the Commission held that the QF
partnership would still be subject to regulation under Section 70 of the PSL for
its property transfers, but that Section 70 regulation would not apply to the
parent companies of the partners "unless there is a potential for harm to the
interests of captive utility ratepayers sufficient to override the presumption"
that the owners are remote from the QF's jurisdictional activities. Sithe II,
slip op. at p. 6 (emphasis added).
Here, a finding by the Commission that CalEnergy is an electric
corporation by virtue of its operation and management of electric plant, and
thereby subject to the Commission's regulation of the acquisition of a
jurisdictional utility's stock, would neither impose any undue regulatory or
financial burden on Saranac nor frustrate Congress's intent that the core
business of QFs should be as free as possible from state utility-type
regulation. Rather, the regulation by the Commission of any change in the
control of a jurisdictional utility goes to the heart of the State's police
power. The Commission should not fall victim to arguments that PURPA was somehow
intended to "preempt" such regulation.
Preemption of state law is based in the first instance on the
"facilities" that "qualify" for privileged regulatory
21
<PAGE>
treatment by meeting prescribed criteria. 18 C.F.R. ss.ss. 292.203- 292.207.
Consistent with the federal exemption for persons owning and operating such
facilities, Section 70 of the PSL should not apply when an electric or gas
corporation disposes of QF property, or when an electric or gas corporation
acquires the securities of a company owning or operating a QF, assuming that
there is no independent basis for regulating such transactions. On the other
hand, when the transaction involves the disposal of non-QF electric plant, or
the acquisition of the securities of a non-QF public utility company, the
Commission's determination as to whether the transaction is in the public
interest would not adversely affect the development, ownership or operation of a
QF, and thus would not be preempted by PURPA.
CalEnergy is pursuing a non-QF transaction that could have a direct
impact on captive utility ratepayers. Thus, it is not inconsistent with either
PURPA or the Commission's precedents to treat CalEnergy as a non-exempt electric
corporation with respect to its acquisition, directly or indirectly, of the
securities of a regulated public utility.
C. CalEnergy may not acquire NYSEG's shares indirectly without
Commission approval.
Section 70 of the PSL not only prohibits an electric or gas
corporation from directly acquiring the stocks and bonds of another corporation
engaged in a similar business, it also prohibits the indirect acquisition of
such securities. Just as CalEnergy is prohibited from directly acquiring NYSEG's
shares without Commission approval because it is a gas corporation and an
electric corporation, it may not indirectly acquire NYSEG's
22
<PAGE>
shares through CENY or any other subsidiary. The same restriction against
indirect acquisition would apply to Saranac and North Country should either be
deemed the entity seeking to acquire NYSEG's securities. Saranac and North
Country are, respectively, an electric corporation and a gas corporation. Having
one's corporate parent pursue the acquisition of another electric and gas
corporation also falls within the category of an indirect acquisition.(17)
The Commission has not been reluctant to "pierce the corporate veil"
in circumstances such as those involved here. The Commission has found, for
example, that "[i]f the operations of the corporations are closely intertwined,
we have concluded that the affiliate and the New York telephone corporation are
operating as a single entity in New York and are subject to our jurisdiction."
Case 90-C-0393, Petition of MCI Communications
- ----------
(17) A company "indirectly" acquires securities when the securities are
acquired by a subsidiary of that company. See Weis v. Coe, 180 Misc. 321,
323, 44 N.Y.S.2d 791, 792 (N.Y. Co. 1943). While Section 70 prohibits gas
and electric corporations from acquiring stock of other gas and electric
corporations, either directly or indirectly, the prohibition of such
acquisitions by stock corporations does not mention indirect acquisitions.
Consequently, the court in Weis held that Koppers Company, a stock
corporation, did not violate Section 70 of the PSL when it, together with
its subsidiaries, acquired more than ten percent of Brooklyn Union's
voting shares, but neither Koppers nor any subsidiary individually
directly acquired more than ten percent of the shares. In distinct
contrast to the facts in the Weis case, CalEnergy and two of its
subsidiaries are New York electric and gas corporations under the PSL.
Accordingly, the entire CalEnergy corporate family is subject to the
proscription against direct or indirect acquisitions of the stock of
another gas or electric corporation.
23
<PAGE>
Corp. (Aug. 10, 1990). The Commission also has found that two foreign telephone
corporations seeking to purchase shares in a New York telephone corporation
require its prior approval, though neither foreign corporation proposed to
acquire more than ten percent of the domestic corporation's shares. Petition of
Sprint Corp., 1995 N.Y. PUC LEXIS 192, *5 (May 19, 1995). The Commission even
has found that it has jurisdiction over the merger of MCI and British
Telecommunications plc. Case 97-C- 0001, Joint Petition of MCI and British
Telecommunications plc, 1997 N.Y. PUC LEXIS 246, *1 (Apr. 21, 1997). The notion
that the Commission would be powerless to intervene under similar circumstances
when a global electric holding company is attempting a hostile takeover of a
major New York electric and gas utility is not supportable.(18) In this
situation, CalEnergy's announced intention to acquire all of NYSEG's shares
requires the Commission's immediate attention.
II. CENY IS A GAS AND ELECTRIC CORPORATION UNDER SECTION 5-B OF THE PSL
BECAUSE IT WAS FORMED FOR THE EXPRESS PURPOSE OF ACQUIRING A GAS AND
ELECTRIC CORPORATION.
CENY was formed explicitly for the purpose of acquiring initially
9.9 percent of NYSEG's voting securities and, ultimately, overall control over
the Company. CENY Registration
- ----------
(18) Where Bell Atlantic proposed to absorb NYNEX, the Commission found its
authority to review the merger was "clear," even though Bell Atlantic and
NYNEX had argued that the stock of the jurisdictional utility, New York
Telephone, was not being transferred and, therefore, the statute did not
apply. Cases 96-C-0603, 96-C-0599, 96-C-0821, New York Telephone, et
al.,(Opinion No. 97-8 issued May 30, 1997.)
24
<PAGE>
Statement, Exh.(a)(1), at p. 1; HSR Notice, at p. 1. Section 5-b of the PSL,
enacted in 1921, directly addresses such a situation.
Section 5-b of the PSL states:
Corporations formed to acquire property or to transact business
which would be subject to the provisions of this chapter, and
corporations possessing franchises for any of the purposes
contemplated by this chapter, shall be deemed to be subject to the
provisions of this chapter although no property may have been
acquired, business transacted or franchises exercised.
In other words, when a corporation is formed to acquire electric or
gas plant or to transact business as an electric corporation or a gas
corporation, it will be treated as an electric corporation or a gas corporation
when its activities bring it within the purview of the PSL. Reading Sections 5-b
and 70 of the PSL together, therefore, requires CENY to obtain the Commission's
approval before it acquires any of NYSEG's securities because CENY is both an
electric corporation and a gas corporation by virtue of Section 5-b of the
PSL.(19)
At least three other jurisdictions enacted statutes identical to
Section 5-b of the PSL: the District of Columbia (D.C. Code ss. 43-223 (1997)),
Ohio (ORC Ann. 4905.63 (Anderson
- ----------
(19) Obviously, such a corporation formed to acquire the stock of a New York
utility could not be subject to rate regulation because it would not yet
be doing business. Similarly, such a corporation could not yet be subject
to service quality regulation. Other activities, such as the issuance of
securities, however, would naturally come under the Commission's purview
by virtue of Section 5-b of the PSL. If Section 5-b of the PSL did not
allow for treating a corporation formed to acquire an electric corporation
as an electric corporation, then Section 5-b of the PSL would be
meaningless.
25
<PAGE>
1997)), and South Carolina (S.C. Code Ann. ss. 58-27-30 (1996)), but there are
few cases construing them. The Supreme Court of Ohio, however, without
discussion, held that a company seeking to acquire retail gas distribution
assets was within the Ohio commission's jurisdiction even though the acquiring
company had not yet engaged in or conducted the business of a public utility.
City of Columbus v. Pub. Utils. Comm'n of Ohio, 191 N.E.2d 547, 549 (Ohio 1963).
In Digital Paging Systems, Inc. v. Pub. Serv. Comm'n, 46 A.D.2d 92,
95, 360 N.Y.S.2d 931, 934 (3d Dep't 1974), the Appellate Division affirmed the
Commission's jurisdiction to approve the acquisition of convertible debentures
(which were not then presently voting securities), when the purchase was part of
a conversion intended to result in full control of the target utility. Thus,
when the avowed purpose of the acquisition of any proportion of a utility's
securities is to acquire control of a utility, the need for early review is
particularly acute -- the precise situation for which Section 5-b of the PSL
appears to be designed.(20) The court also upheld the Commission's finding that
- ----------
(20) A 1926 case, New York-New Jersey Super-Power Connecting Corp. v. Pub.
Serv. Comm'n, 215 A.D. 578, 580, 214 N.Y.S. 294 (3d Dep't 1926) suggests
that a company whose articles of incorporation enabled it to carry on
almost "...any manufacturing or commercial business" and which does not
yet own, operate or manage any electric plant or engage in any activities
associated with the provision of electric power is not an electric
corporation for the purposes of Section 70 of the PSL. The Super-Power
case, however, never even mentions Section 5-b of the PSL. That should not
be surprising because Section 5-b of the PSL is directed solely to
"[c]orporations formed to acquire property or to
(Continued...)
26
<PAGE>
the stock purchase in question was not in the public interest. It did so because
there existed an inherent conflict between the purchaser and the remaining
stockholders which was likely to impede the company's ability to obtain
financing and drain the time and resources of the target utility's management.
Here, of course, there would also be an inherent conflict between CalEnergy and
NYSEG, even if CalEnergy's holdings were less than ten percent of NYSEG's voting
stock.(21)
In today's environment, when utility companies are involved in stock
transactions, mergers and other types of reorganization, it makes sense to
interpret the statute in a way that permits the Commission to review a proposed,
hostile acquisition at the earliest possible time.
- ----------
(20)(...Continued)
transact business which would be subject to [the PSL]." Although CENY's
articles of incorporation are not specifically focussed on the acquisition
or operation of NYSEG, the self-proclaimed sole purpose of that company is
to acquire control over NYSEG. If that activity does not directly
implicate the Commission's public interest standard, it is difficult to
imagine what would.
(21) In other sections of the PSL, such as Section 110, a one percent or more
interest in a utility's voting stock is considered a "substantial
interest." PSL ss. 110(1) (1997).
27
<PAGE>
III. IF THE COMMISSION DETERMINES THAT ADDITIONAL EVIDENCE IS REQUIRED TO
ADJUDICATE THIS MATTER, THE COMMISSION SHOULD COMMENCE A SHOW CAUSE
PROCEEDING TO STOP CALENERGY'S UNLAWFUL ATTEMPT TO CIRCUMVENT THE PSL.
Petitioners submit that this petition presents a compelling legal
and factual basis on which the Commission may find that CalEnergy and CENY are
both gas corporations and electric corporations for purposes of the PSL and,
hence, that (a) the CalEnergy Companies' acquisition of NYSEG securities to date
violates the PSL, and (b) the CalEnergy Companies are prohibited from acquiring
NYSEG's securities without Commission approval.
Should the Commission determine, however, that Petitioner's
requested relief raises questions of fact, Petitioners request that the
Commission immediately commence a proceeding requiring the CalEnergy Companies
to show cause why they should not be prohibited from acquiring any of NYSEG's
securities without the Commission's prior approval. If the Commission initiates
such a proceeding, Petitioners request in addition that the Commission enjoin
the CalEnergy Companies from any further acquisitions of NYSEG's securities
during the pendency of that proceeding.
CalEnergy commenced its bid to acquire one of New York's largest
combination gas and electric utilities through an acquisition of NYSEG's stock
without prior authorization.
As explained previously, under Section 70 of the PSL, neither
CalEnergy nor its subsidiaries may directly or indirectly acquire any of NYSEG's
stocks or bonds without the Commission's prior approval. This is so because
CalEnergy owns, operates and
28
<PAGE>
manages electric and gas plant in New York (and because it has formed a
subsidiary for the explicit purpose of acquiring NYSEG). Nevertheless, CENY has
announced an initial offer to purchase 9.9 percent of NYSEG's voting shares. In
fact, CalEnergy has conceded that an affiliate of CalEnergy commenced purchasing
NYSEG's stock on June 30, 1997 and that CalEnergy already owns approximately
0.35% of NYSEG's stock as of July 18, 1997. CENY Registration Statement,
Exh.(a)(1), at p. 1. Therefore, CalEnergy likely has already violated the PSL,
providing reason enough for the Commission to commence a show cause proceeding.
When the full implications of the course upon which CalEnergy has embarked are
considered, the need for the Commission to exert its jurisdiction becomes clear
and imperative.
IV. THE COMMISSION SHOULD EXERCISE ITS AUTHORITY UNDER SECTION 70 TO PROTECT
THE PUBLIC INTEREST
That CalEnergy concedes that it will need the Commission's approval
to complete its intended acquisition of 100% of NYSEG's stock does not obviate
the need for the Commission to carry out its statutory duties now. Unless the
Commission orders CalEnergy to seek approval under Section 70 before it
completes the first stage of its plan, the tender offer for 9.9% of NYSEG's
stock, an unscrutinized global holding company may well become NYSEG's largest
shareholder. It will be in a position to promote its private takeover agenda at
the possible expense of NYSEG's efforts to serve its customers and carry out the
restructuring of its business in the context of the
29
<PAGE>
Competitive Opportunities proceeding. For example, the Statement of Principles
agreed to between the Company and the Staff of the Department of Public Service
contemplates that NYSEG will form a holding company as part of the structural
separation of its transmission and distribution business from its generation and
other businesses. Should CalEnergy decide that its prospects for successfully
completing its hostile takeover would be better served by impeding the formation
of the holding company, NYSEG"s bylaws would require obtaining consent from 74%
of its shareholders other than CalEnergy to carry out the plan, since two-thirds
of all shareholders must consent to the restructuring.
CalEnergy has not offered a single specific plan or observation as
to how NYSEG would be run if its takeover were to succeed. It has not even
commented on the aforesaid Statement of Principles, other than arrogantly to
claim credit for it on the baseless theory that NYSEG and Staff timed the
completion of months of negotiations in response to the tender ooffer. The
Commission has had no opportunity to explore how CalEnergy's limited experience
in the electricity distribution business and lack of experience in distributing
gas have prepared CalEnergy to serve the families, businesses, schools and
hospitals that NYSEG serves. Nor has the Commission had the opportunity to
evaluate what it would mean for NYSEG's largest shareholder to be the
substantial owner of a cogeneration plant whose contract with NYSEG costs
NYSEG's ratepayers millions in above-market costs.
30
<PAGE>
That requiring CalEnergy to comply with Section 70 would compel it
to delay its tender offer is irrelevant. First, as indicated above, CalEnergy
already knows that, sooner or later, it must take the time to prove that its
acquisition of NYSEG meets the "public interest" standard under the statute.
Second, any urgency is of CalEnergy's own making. It is the product of
CalEnergy's use of a two-stage approach intended, as explained above, to evade
Section 70 scrutiny while it completes the first stage. It is typical of the
corporate raider to manufacture a sense of crisis by unilaterally setting
deadlines for accepting its terms, and then rely on that crisis to bully others.
If CalEnergy were to insist that the Commission subordinate its regulatory
responsibilities to avoid interfering with CalEnergy's takeover tactics, that
argument itself would suggest CalEnergy's unfitness to run a utility subject to
the Commission's scrutiny.
CONCLUSION
Petitioners have demonstrated sufficient basis for the Commission to
find that CalEnergy (and/or the CalEnergy Companies) is violating provisions of
the PSL relating to the acquisition of shares of a gas and electric corporation
without prior Commission authorization.
WHEREFORE, the Commission should issue a declaratory ruling finding
that neither CalEnergy nor the CalEnergy Companies may acquire any of NYSEG's
stocks or bonds without the Commission's approval and enjoin CalEnergy and the
other
31
<PAGE>
CalEnergy Companies from acquiring any such securities until such approval is
obtained. If the Commission determines that this Petition raises questions of
fact, the Petitioners request that the Commission immediately commence a
proceeding requiring CalEnergy and the other CalEnergy Companies to show cause
why they should not be prohibited from acquiring any of NYSEG's stocks and bonds
without the Commission's prior approval, and enjoin further acquisitions during
the pendency of the proceeding. Further, given the fact that the CalEnergy
Companies continue to acquire NYSEG's stock in violation of the law, the
32
<PAGE>
Commission should require the CalEnergy Companies to respond to this petition
(or any show cause order) on an expedited basis.
Respectfully submitted,
New York State Electric &
Gas Corporation and The
Hon. Clifford Crouch
By Their Attorneys
/s/ LeBoeuf, Lamb, Greene & MacRae, L.L.P.
------------------------------------------
Robinson Silverman Pearce LeBoeuf, Lamb, Greene & MacRae,
Aronsohn & Berman, L.L.P. L.L.P.
1290 Avenue of the Americas 125 West 55th Street
New York, New York 10104 New York, New York 10019
212-541-2000 212-424-8000
Of Counsel: Of Counsel:
James F. Gill Steven H. Davis
Andrew Irving Bruce V. Miller
H. Liza Moses
Huber Lawrence & Abell
605 Third Avenue
New York, New York 10158
212-682-6200
Of Counsel:
Kenneth M. Jasinski
Nicholas A. Giannasca
Dated: New York, New York
August 6, 1997
33
<PAGE>
EXHIBIT 99.50
NYSEG FILES PETITION WITH PUBLIC SERVICE COMMISSION FOR FULL
REVIEW OF CALENERGY TAKEOVER ATTEMPT
--NYSEG SAYS CALENERGY ATTEMPT VIOLATES STATE LAW--
FOR IMMEDIATE RELEASE
BINGHAMTON, NEW YORK, AUGUST 6, 1997 -- New York State Electric & Gas
Corporation (NYSEG) (NYSE:NGE) announced today that it has petitioned the New
York State Public Service Commission (PSC) to issue a ruling that Nebraska-based
CalEnergy cannot acquire any shares of NYSEG stock without first going through a
PSC approval process pursuant to Section 70 of the New York Public Service Law.
That process will determine the qualifications and fitness of CalEnergy to run
NYSEG. New York State Assemblyman, Clifford Crouch, who represents the 122nd
Assembly District in the heart of NYSEG's service territory, is a co-petitioner
in this request.
Section 70 specifically states that no gas or electric company may acquire any
securities of another gas or electric company without first obtaining the PSC's
approval. Its purpose is to protect the public interest by having the PSC look
into the fitness of entities who control public utilities. Determining whether a
company is fit to exercise control over a public utility is such an important
element of regulation that this provision was included in the original public
service law in 1907, and remains a key protective statute today.
In its petition, NYSEG said that in light of CalEnergy's ownership and
management of the Saranac Power Partners electric plant and the North Country
gas pipeline, it clearly falls under the statute. Moreover, CalEnergy admits
that its stakeout tender offer for 9.9% of NYSEG is merely the first step in its
plan to acquire NYSEG. If CalEnergy's offer is allowed to proceed unimpeded, it
will have bought itself the ability to have a say in NYSEG's future without
having first answered any fundamental questions about its background and
qualifications, its plans for NYSEG, and what the impact will be on the over one
million customers served by NYSEG.
To date, there has been no demonstration of CalEnergy's fitness to run NYSEG.
Its only exposure to an electric transmission and distribution company is its
purchase a few months ago of an electric company in England in a hostile
takeover. It has no experience in the difficult distribution of natural gas.
NYSEG further alleges that CalEnergy's market accumulation program, under which
it acquired 241,000 shares of NYSEG stock prior to disclosure of its hostile
takeover attempt, also violated Section 70.
In addition to not having demonstrated its fitness to run NYSEG, CalEnergy also
has not filed a financing plan. CalEnergy is a very highly leveraged company
with a junk bond investment rating. CalEnergy has given no assurances that NYSEG
rate payers won't end up paying the cost of a shaky capital structure. Already,
NYSEG customers are forced to pay to a CalEnergy subsidiary, Saranac Power
Partners, well in excess of $100 million annually in payments for electricity
above market cost.
NYSEG noted that CalEnergy has still not provided a regulatory plan or a
financing plan and that if the PSC does not act now, CalEnergy could complete
its tender offer without ever having provided a regulatory or financing plan.
In contrast, NYSEG and the PSC staff announced last week an agreement on a plan
that freezes prices under a hard five-year price cap and encourages economic
development. The aggregate value of the revenue concessions is nearly $600
million. Further potential cost savings from renegotiation of NUG contracts and
securitization legislation could result in a 35% reduction in the real
(inflation adjusted) price of electricity over the next five years, and a 15%
reduction in the real price of natural gas over the same time period.
Wes von Schack NYSEG Chairman, President and Chief Executive Officer, said it is
time for the PSC to thoroughly examine the impact of a CalEnergy takeover of
NYSEG on the customers and communities
<PAGE>
served by NYSEG. The public interest demands that a review happen now -- before
CalEnergy's stakeout tender offer for 9.9% of NYSEG's stock gives CalEnergy a
significant ownership position in NYSEG.
"The PSC has a clear mandate under Section 70 to conduct a full inquiry into
CalEnergy's fitness and intentions with respect to running NYSEG. At the end of
the day, all of the questions about CalEnergy may be answered satisfactorily,
but the PSC should not allow CalEnergy to complete the first step in a takeover
without having to first address them. The interest of the public in this matter
is far too compelling," Mr. von Schack concluded.
Contact: Katherine Karlson, Corporate Communications: (607) 762-7976.
August 6, 1997
# # #
<PAGE>
Exhibit 51
95686
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- -------------------------------------------------------------x
Judith M. Stuchiner, on behalf of herself and all others :
similarly situated, :
:
Plaintiff, :
:
-against- : Index No.
:
NEW YORK STATE ELECTRIC & GAS CORP., :
WESLEY W. VON SCHACK, JAMES A. CARRIGG, : CLASS ACTION
EVERETT A. GILMOUR, WALTER G. RICH, JOSEPH : COMPLAINT
J. CASTIGLIA, PAUL L. GIOIA, BEN E. LYNCH, :
ALISON P. CASARETT, JOHN M. KEELER, ALLEN E. :
KINTIGH, ALTON G. MARSHALL, LOIS B. DEFLEUR :
and RICHARD AURELIO, :
:
Defendants. :
- -------------------------------------------------------------x
Plaintiff, by his attorneys, alleges upon information and belief
(said information and belief being based, in part, upon the investigation
conducted by and through his undersigned counsel), except with respect to his
ownership of New York State Electric & Gas Corp. common stock and his
suitability to serve as a class representative, which are alleged upon personal
knowledge, as follows:
PARTIES
1. Plaintiff Judith M. Stuchiner owns, and at all relevant time has
owned, common stock of defendant New York State Electric & Gas Corp. ("NYSEG" or
the "Company").
<PAGE>
2. Defendant NYSEG is a corporation organized and existing under and
by virtue of the laws of the State of New York. Defendant NYSEG maintains its
principal offices at Ithaca-Dryden Road, P.O. Box 3287, Ithaca, New York, which
is in the State of New York.
3. Defendant Wesley W. von Schack ("von Schack") is the Chairman of
the Board, President and Chief Executive Officer of defendant NYSEG.
4. Defendant James A. Carrigg ("Carrigg") is a director of defendant
NYSEG.
5. Defendant Everett A. Gilmour ("Gilmour" is a director of
defendant NYSEG.
6. Defendant Walter G. Rich ("Rich") is a director of defendant
NYSEG.
7. Defendant Joseph J. Castiglia ("Castiglia") is a director of
defendant NYSEG.
8. Defendant Paul L. Gioia ("Gioia") is a director of defendant
NYSEG.
9. Defendant Ben E. Lynch ("Lynch") is a director of defendant
NYSEG.
10. Defendant Alison P. Casarett ("Casarett") is a director of
defendant NYSEG.
11. Defendant John M. Keeler ("Keeler") is a director of defendant
NYSEG.
12. Defendant Allen E. Kintigh ("Kintigh") is a director of
defendant NYSEG.
13. Defendant Alton G. Marshall ("Marshall") is a director of
defendant NYSEG.
14. Defendant Lois B. Defleur ("Defleur") is a director of defendant
NYSEG.
15. Defendant Richard Aurelio ("Aurelio") is a director of defendant
NYSEG.
16. The foregoing individuals, collectively referred to as the
"Defendant Directors," as directors and/or officers of NYSEG, owe fiduciary
duties to NYSEG and its shareholders.
-2-
<PAGE>
CLASS ACTION ALLEGATIONS
17. Plaintiff brings this action on his own behalf and as a class
action, pursuant to Section 901 of the CPLR, on behalf of all shareholders of
NYSEG (except defendants herein and any person, firm, trust, corporation or
other entity related to or affiliated with any of the defendants) or their
successors in interest, who have been or will be adversely affected by the
conduct of defendants alleged herein.
18. This action is properly maintainable as a class action for the
following reasons:
(a) The class of shareholders for whose benefit this action is
brought is so numerous that joinder of all class members is impracticable. As of
July 11, 1997, there were over 68.5 million shares of defendant NYSEG's common
stock outstanding, believed to be owned by thousands of shareholders of record
scattered throughout the United States and foreign countries.
(b) There are questions of law and fact which are common to
members of the class and which predominate over any questions affecting any
individual members. The common questions include, inter alia, the following:
(i) Whether the defendants have engaged in a plan and
scheme to enrich and/or entrench themselves at the expense of NYSEG's public
shareholders;
(ii) Whether the Defendant Directors have breached
fiduciary duties owed by them to plaintiff and members of the class, and/or have
aided and abetted in such breach, by virtue of their participation and/or
acquiescence and by their other conduct complained of herein;
-3-
<PAGE>
(iii) Whether the Defendant Directors have wrongfully
failed and refused to seek a purchaser of NYSEG at the highest possible price
and instead, have failed to give serious consideration to the cash merger
proposal and/or securities made by CalEnergy Company, Inc. ("CalEnergy") for the
common stock of NYSEG;
(iv) Whether plaintiff and the other members of the
class will be irreparably damaged by the conduct and transactions complained of
herein; and
(v) Whether defendants have breached or aided and
abetted the breach of the fiduciary and other common law duties owed by them to
plaintiff and the other members of the Class.
19. Plaintiff is committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature. The claims
of plaintiff are typical of the claims of the other members of the class and
plaintiff has the same interest as the other members of the class. Accordingly,
plaintiff is an adequate representative of the class and will fairly and
adequately protect the interests of the class.
20. Plaintiff anticipates that there will not be any difficulty in
the management of this litigation.
21. For the reasons stated herein, a class action is superior to
other available methods for the fair and efficient adjudication of this action.
SUBSTANTIVE ALLEGATIONS
22. Defendant NYSEG generates, purchases, transmits and distributes
electricity and natural gas in central, eastern and western New York.
-4-
<PAGE>
23. On July 1, 1997, it was reported that CalEnergy began acquiring
NYSEG common stock on the open market. NYSEG stock rose $0.125 from $20.875 to
$21 per share.
24. Soon thereafter, on Thursday, July 10, 1997, the Chairman and
Chief Executive Officer of CalEnergy, David L. Sokol, met with defendant Wesley
von Schack to discuss the possibility of a "business combination" between NYSEG
and CalEnergy. Stock closed up $0.0625 from $21.50 to $21.5625.
25. On July 12, 1997, von Schack telephoned Mr. Sokol to inform him
that the Board of Directors met the previous day and determined that discussions
of a possible merger opportunity with CalEnergy were not a priority and could
not be conducted within the time frame outlined by Mr. Sokol at their July 10
meeting. Stock remained unchanged the next trading day, closing at $21.375.
26. On July 15, 1997, CalEnergy announced its intention to commence
a cash tender offer for at least 6,540,670 shares, or approximately 9.9%, of
NYSEG common stock at a price of $24.50 per share, a 14.6% premium from the
$21.375 previous closing price.
27. In a letter dated July 15, 1997, from Mr. Sokol to defendant
von Schack, CalEnergy expressed interest in commencing negotiations to enter
into a consensual merger agreement and indicated that CalEnergy would be willing
to pay $27.50 in cash for each outstanding share of NYSEG common stock, and a
premium of 31.74% above the $20.875 NYSEG unaffected closing price of June 30,
1997, the day immediately preceding the date on which CalEnergy commenced open
market purchases of NYSEG common stock. Mr. Sokol also offered to negotiate on
the basis of stock-for-stock or any other form of consideration that NYSEG's
shareholders would find preferable, Mr. Sokol further stated:
-5-
<PAGE>
We believe that our cash merger proposal, which reflects a substantial
premium over NYSEG's current market value, represents a full and fair
price for your shareholders. Moreover, our proposal would permit your
shareholders to realize this substantial cash value notwithstanding the
significant uncertainties facing NYSEG and its business day.
28. It is likely that CalEnergy's opening offer of $27.50 in cash is
merely a starting point for purposes of commencing merger negotiations and that
there is room for this figure to go even higher, providing an even higher
premium for NYSEG's shareholders.
29. On July 15, 1997, NYSEG stock closed at $24.5625, after having
earlier reached a fifty-two week high of $25.
30. Defendants' failure to give full, prompt and serous
consideration to CalEnergy's offer of $27.50 per share in cash, after previously
indicating an interest in discussing a business combination of the two
companies, represents an attempt to aggrandize their personal and financial
positions and interests and to enrich themselves at the expense of and to the
detriment of the public shareholders of the Company.
31. Defendants, acting in concert, have violated their fiduciary
duties owed to the public shareholders of NYSEG and put their personal interests
ahead of the interests of the NYSEG public shareholders and have used their
control positions as officers and directors of NYSEG all as alleged herein, and
all for the purpose of reaping high personal profits at the expense of NYSEG's
public shareholders.
32. The Defendant Directors failed to (1) undertake an adequate
evaluation of NYSEG's worth as a potential merger/acquisition candidate; (2)
take adequate steps to enhance NYSEG's value and/or attractiveness as a
merger/acquisition candidate; (3) effectively expose NYSEG to the marketplace in
an effort to create an active and open auction for NYSEG; (4) give
-6-
<PAGE>
full and serious consideration to offers made to merge or acquire NYSEG for a
substantial premium; or (5) act independently so that the interests of public
shareholders would be protected. Instead, defendants have rejected a cash value
representing a significant premium over the current trading price of NYSEG
common stock in an effort to entrench themselves and maintain their current
positions, in violation of their fiduciary duties to NYSEG's public
shareholders.
33. These tactics pursued by the defendants are, and will continue
to be, wrongful, unfair and harmful to NYSEG's public shareholders, serve no
legitimate business purpose of NYSEG, and are an attempt by the defendants to
aggrandize their personal positions, interests and finances at the expense of
and to the detriment of the public stockholders of NYSEG. These maneuvers by the
defendants will deny members of the class their right to receive the highest
value for their shares of NYSEG common stock.
34. In contemplating, planning and/or doing the foregoing specified
acts, the defendants are not acting in good faith toward plaintiff and have
breached, and are breaching, their fiduciary duties to plaintiff.
35. Because the Defendant Directors (and those acting in concert
with them) dominate and control the business and corporate affairs of NYSEG and
because they are in possession of private corporate information concerning
NYSEG's businesses and future prospects, there exists an imbalance and disparity
of knowledge and economic power between the defendants and the public
shareholders of NYSEG which makes it inherently unfair to NYSEG's public
shareholders.
-7-
<PAGE>
36. By reason of the foregoing acts, practices and course of
conduct, the Defendant Directors have failed to use due care and diligence in
the exercise of their fiduciary obligations toward NYSEG and its public
shareholders.
37. The acts complained of here above were willful, malicious and
oppressive, in that the defendants, and each of them, know that their actions as
complained of herein, involve improper and illegal practices, violations of law
and other acts completely alien to the duties of officers and directors to carry
out corporate affairs in a just, honest and equitable manner. By reason of the
foregoing, the class is entitled to exemplary damages determined through a
proper process to maximize shareholder value.
38. As a result of the actions of the defendants, plaintiff and the
class have been and will be damaged in that they have been and will be prevented
from obtaining a price for their shares of NYSEG common stock determined through
a proper process to maximize shareholder value.
39. Unless enjoined by this Court, the Defendant Directors will
continue to breach their fiduciary duties owed to plaintiff and the class, and
will exclude the class from receiving fair value for the proportionate share of
NYSEG's valuable assets and businesses, all to the irreparable harm of the
class, as aforesaid.
40. Plaintiff has no adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
A. Declaring that this action may be maintained as a class action pursuant
to CPLR 901 et. seq.;
-8-
<PAGE>
B. Declaring that defendants' conduct is unfair, unjust and inequitable to
plaintiff and other members of the class;
C. Directing defendants to take appropriate steps to investigate all bona
fide offers and alternatives for maximizing shareholder value;
D. Requiring defendants to compensate plaintiff and the members of the
class for all losses and damages suffered and to be suffered by them as a result
of the acts and transactions complained of herein, together with prejudgment
interest from the date of the wrongs to the date of the judgment herein;
E. Awarding plaintiff the costs and disbursements of this action,
including reasonable attorneys', accountants' and experts' fees; and
F. Granting such other and further relief as may be just and proper.
Dated: New York, New York
July 16, 1997
WOLF HALDENSTEIN ADLER
FREEMAN & HERZ LLP
270 Madison Avenue
New York, New York 10016
(212) 545-4600
Attorneys for Plaintiff
-9-
<PAGE>
Exhibit 52
95606
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF TOMPKINS
- -------------------------------------------------------------x
Paul B. Engel, on behalf of himself and all others similarly :
situated, :
:
Plaintiff, :
:
-against- : Index No.
:
NEW YORK STATE ELECTRIC & GAS CORP., :
WESLEY W. VON SCHACK, JAMES A. CARRIGG, : CLASS ACTION
EVERETT A. GILMOUR, WALTER G. RICH, JOSEPH : COMPLAINT
J. CASTIGLIA, PAUL L. GIOJA, BEN E. LYNCH, :
ALISON P. CASARETT, JOHN M. KEELER, ALLEN E. :
KINTIGH, ALTON G. MARSHALL, LOIS B. DEFLEUR :
and RICHARD AURELIO, :
:
Defendants. :
- -------------------------------------------------------------x
Plaintiff, by his attorneys, alleges upon information and belief
(said information and belief being based, in part, upon the investigation
conducted by and through his undersigned counsel), except with respect to his
ownership of New York State Electric & Gas Corp. common stock and his
suitability to serve as a class representative, which are alleged upon personal
knowledge, as follows:
PARTIES
1. Plaintiff Paul B. Engel owns, and at all relevant time has owned,
common stock of defendant New York State Electric & Gas Corp. ("NYSEG" or the
"Company").
<PAGE>
2. Defendant NYSEG is a corporation organized and existing under and
by virtue of the laws of the State of New York. Defendant NYSEG maintains its
principal offices at Ithaca-Dryden Road, P.O. Box 3287, Ithaca, New York, which
is in Tompkins County in the State of New York.
3. Defendant Wesley W. von Schack ("von Schack") is the Chairman of
the Board, President and Chief Executive Officer of defendant NYSEG.
4. Defendant James A. Carrigg ("Carrigg") is a director of defendant
NYSEG.
5. Defendant Everett A. Gilmour ("Gilmour" is a director of
defendant NYSEG.
6. Defendant Walter G. Rich ("Rich") is a director of defendant
NYSEG.
7. Defendant Joseph J. Castiglia ("Castiglia") is a director of
defendant NYSEG.
8. Defendant Paul L. Gioia ("Gioia") is a director of defendant
NYSEG.
9. Defendant Ben E. Lynch ("Lynch") is a director of defendant
NYSEG.
10. Defendant Alison P. Casarett ("Casarett") is a director of
defendant NYSEG.
11. Defendant John M. Keeler ("Keeler") is a director of defendant
NYSEG.
12. Defendant Allen E. Kintigh ("Kintigh") is a director of
defendant NYSEG.
13. Defendant Alton G. Marshall ("Marshall") is a director of
defendant NYSEG.
14. Defendant Lois B. Defleur ("Defleur") is a director of defendant
NYSEG.
15. Defendant Richard Aurelio ("Aurelio") is a director of defendant
NYSEG.
16. The foregoing individuals, collectively referred to as the
"Defendant Directors," as directors and/or officers of NYSEG, owe fiduciary
duties to NYSEG and its shareholders.
-2-
<PAGE>
CLASS ACTION ALLEGATIONS
17. Plaintiff brings this action on his own behalf and as a class
action, pursuant to Section 901 of the CPLR, on behalf of all shareholders of
NYSEG (except defendants herein and any person, firm, trust, corporation or
other entity related to or affiliated with any of the defendants) or their
successors in interest, who have been or will be adversely affected by the
conduct of defendants alleged herein.
18. This action is properly maintainable as a class action for the
following reasons:
(a) The class of shareholders for whose benefit this action is
brought is so numerous that joinder of all class members is impracticable. As of
July 11, 1997, there were over 68.5 million shares of defendant NYSEG's common
stock outstanding, believed to be owned by thousands of shareholders of record
scattered throughout the United States and foreign countries.
(b) There are questions of law and fact which are common to
members of the class and which predominate over any questions affecting any
individual members. The common questions include, inter alia, the following:
(i) Whether the defendants have engaged in a plan and
scheme to enrich and/or entrench themselves at the expense of NYSEG's public
shareholders;
(ii) Whether the Defendant Directors have breached
fiduciary duties owed by them to plaintiff and members of the class, and/or have
aided and abetted in such breach, by virtue of their participation and/or
acquiescence and by their other conduct complained of herein;
-3-
<PAGE>
(iii) Whether the Defendant Directors have wrongfully
failed and refused to seek a purchaser of NYSEG at the highest possible price
and instead, have failed to give serious consideration to the cash merger
proposal and/or securities made by CalEnergy Company, Inc. ("CalEnergy") for the
common stock of NYSEG;
(iv) Whether plaintiff and the other members of the
class will be irreparably damaged by the conduct and transactions complained of
herein; and
(v) Whether defendants have breached or aided and
abetted the breach of the fiduciary and other common law duties owed by them to
plaintiff and the other members of the Class.
19. Plaintiff is committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature. The claims
of plaintiff are typical of the claims of the other members of the class and
plaintiff has the same interest as the other members of the class. Accordingly,
plaintiff is an adequate representative of the class and will fairly and
adequately protect the interests of the class.
20. Plaintiff anticipates that there will not be any difficulty in
the management of this litigation.
21. For the reasons stated herein, a class action is superior to
other available methods for the fair and efficient adjudication of this action.
SUBSTANTIVE ALLEGATIONS
22. Defendant NYSEG generates, purchases, transmits and distributes
electricity and natural gas in central, eastern and western New York.
-4-
<PAGE>
23. On July 1, 1997, it was reported that CalEnergy began acquiring
NYSEG common stock on the open market. NYSEG stock rose $0.125 from $20.875 to
$21 per share.
24. Soon thereafter, on Thursday, July 10, 1997, the Chairman and
Chief Executive Officer of CalEnergy, David L. Sokol, met with defendant Wesley
von Schack to discuss the possibility of a "business combination" between NYSEG
and CalEnergy. Stock closed up $0.0625 from $21.50 to $21.5625.
25. On July 12, 1997, von Schack telephoned Mr. Sokol to inform him
that the Board of Directors met the previous day and determined that discussions
of a possible merger opportunity with CalEnergy were not a priority and could
not be conducted within the time frame outlined by Mr. Sokol at their July 10
meeting. Stock remained unchanged the next trading day, closing at $21.375.
26. On July 15, 1997, CalEnergy announced its intention to commence
a cash tender offer for at least 6,540,670 shares, or approximately 9.9%, of
NYSEG common stock at a price of $24.50 per share, a 14.6% premium from the
$21.375 previous closing price.
27. In a letter dated July 15, 1997, from Mr. Sokol to defendant
von Schack, CalEnergy expressed interest in commencing negotiations to enter
into a consensual merger agreement and indicated that CalEnergy would be willing
to pay $27.50 in cash for each outstanding share of NYSEG common stock, and a
premium of 31.74% above the $20.875 NYSEG unaffected closing price of June 30,
1997, the day immediately preceding the date on which CalEnergy commenced open
market purchases of NYSEG common stock. Mr. Sokol also offered to negotiate on
the basis of stock-for-stock or any other form of consideration that NYSEG's
shareholders would find preferable, Mr. Sokol further stated:
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We believe that our cash merger proposal, which reflects a substantial
premium over NYSEG's current market value, represents a full and fair
price for your shareholders. Moreover, our proposal would permit your
shareholders to realize this substantial cash value notwithstanding the
significant uncertainties facing NYSEG and its business day.
28. It is likely that CalEnergy's opening offer of $27.50 in cash is
merely a starting point for purposes of commencing merger negotiations and that
there is room for this figure to go even higher, providing an even higher
premium for NYSEG's shareholders.
29. On July 15, 1997, NYSEG stock closed at $24.5625, after having
earlier reached a fifty-two week high of $25.
30. Defendants' failure to give full, prompt and serous
consideration to CalEnergy's offer of $27.50 per share in cash, after previously
indicating an interest in discussing a business combination of the two
companies, represents an attempt to aggrandize their personal and financial
positions and interests and to enrich themselves at the expense of and to the
detriment of the public shareholders of the Company.
31. Defendants, acting in concert, have violated their fiduciary
duties owed to the public shareholders of NYSEG and put their personal interests
ahead of the interests of the NYSEG public shareholders and have used their
control positions as officers and directors of NYSEG all as alleged herein, and
all for the purpose of reaping high personal profits at the expense of NYSEG's
public shareholders.
32. The Defendant Directors failed to (1) undertake an adequate
evaluation of NYSEG's worth as a potential merger/acquisition candidate; (2)
take adequate steps to enhance NYSEG's value and/or attractiveness as a
merger/acquisition candidate; (3) effectively expose NYSEG to the marketplace in
an effort to create an active and open auction for NYSEG; (4) give
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full and serious consideration to offers made to merge or acquire NYSEG for a
substantial premium; or (5) act independently so that the interests of public
shareholders would be protected. Instead, defendants have rejected a cash value
representing a significant premium over the current trading price of NYSEG
common stock in an effort to entrench themselves and maintain their current
positions, in violation of their fiduciary duties to NYSEG's public
shareholders.
33. These tactics pursued by the defendants are, and will continue
to be, wrongful, unfair and harmful to NYSEG's public shareholders, serve no
legitimate business purpose of NYSEG, and are an attempt by the defendants to
aggrandize their personal positions, interests and finances at the expense of
and to the detriment of the public stockholders of NYSEG. These maneuvers by the
defendants will deny members of the class their right to receive the highest
value for their shares of NYSEG common stock.
34. In contemplating, planning and/or doing the foregoing specified
acts, the defendants are not acting in good faith toward plaintiff and have
breached, and are breaching, their fiduciary duties to plaintiff.
35. Because the Defendant Directors (and those acting in concert
with them) dominate and control the business and corporate affairs of NYSEG and
because they are in possession of private corporate information concerning
NYSEG's businesses and future prospects, there exists an imbalance and disparity
of knowledge and economic power between the defendants and the public
shareholders of NYSEG which makes it inherently unfair to NYSEG's public
shareholders.
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36. By reason of the foregoing acts, practices and course of
conduct, the Defendant Directors have failed to use due care and diligence in
the exercise of their fiduciary obligations toward NYSEG and its public
shareholders.
37. The acts complained of here above were willful, malicious and
oppressive, in that the defendants, and each of them, know that their actions as
complained of herein, involve improper and illegal practices, violations of law
and other acts completely alien to the duties of officers and directors to carry
out corporate affairs in a just, honest and equitable manner. By reason of the
foregoing, the class is entitled to exemplary damages determined through a
proper process to maximize shareholder value.
38. As a result of the actions of the defendants, plaintiff and the
class have been and will be damaged in that they have been and will be prevented
from obtaining a price for their shares of NYSEG common stock determined through
a proper process to maximize shareholder value.
39. Unless enjoined by this Court, the Defendant Directors will
continue to breach their fiduciary duties owed to plaintiff and the class, and
will exclude the class from receiving fair value for the proportionate share of
NYSEG's valuable assets and businesses, all to the irreparable harm of the
class, as aforesaid.
40. Plaintiff has no adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
A. Declaring that this action may be maintained as a class action pursuant
to CPLR 901 et. seq.;
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B. Declaring that defendants' conduct is unfair, unjust and inequitable to
plaintiff and other members of the class;
C. Directing defendants to take appropriate steps to investigate all bona
fide offers and alternatives for maximizing shareholder value;
D. Requiring defendants to compensate plaintiff and the members of the
class for all losses and damages suffered and to be suffered by them as a result
of the acts and transactions complained of herein, together with prejudgment
interest from the date of the wrongs to the date of the judgment herein;
E. Awarding plaintiff the costs and disbursements of this action,
including reasonable attorneys', accountants' and experts' fees; and
F. Granting such other and further relief as may be just and proper.
Dated: New York, New York
July 16, 1997
WOLF HALDENSTEIN ADLER
FREEMAN & HERZ LLP
270 Madison Avenue
New York, New York 10016
(212) 545-4600
Attorneys for Plaintiff
Of Counsel:
PETER N. LITTMAN, ESQ.
308 N. Tioga Street
Ithaca, New York 14850
(607) 277-7527
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