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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9/A
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 9)
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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)
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649840105
(CUSIP NUMBER OF CLASS OF SECURITIES)
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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)
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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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This Amendment No. 9 (this "Amendment No. 9") 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 Nos. 1, 2, 3, 4, 5, 6, 7 and 8 thereto filed with the
Commission on July 30, 1997, August 6, 1997, August 7, 1997, August 8, 1997,
August 11, 1997, August 12, 1997, August 13, 1997, and August 13, 1997,
respectively (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:
The section captioned "Proceedings before the Public Service Commission" is
hereby amended and supplemented as follows:
On August 13, 1997, the Public Service Commission issued a one-Commissioner
Order Asserting Jurisdiction and Consenting to Tender Offer Upon Conditions (the
"Order") in response to the Section 70 Petition. Pursuant to the Order, the
Public Service Commission stated, among other things, that the purchase of 9.9%
of the Company's Common Stock by CalEnergy, as contemplated by the Stake-Out
Tender Offer, is subject to the Public Service Commission's jurisdiction and
that such acquisition is approved upon several conditions, including
specifically that CalEnergy not use its 9.9% interest to impede the
restructuring of the Company. The Order also provides that CalEnergy shall file
for approval of the acquisition of additional shares of the Company's Common
Stock no later than August 29, 1997, unless good cause is shown for a delay in
such filing. The Public Service Commission stated explicitly that its decision
does not prejudge any decision on its proposal for a takeover of NYSEG, and such
review will address the "far more complex" issues of whether the public interest
will be served by CalEnergy's management of NYSEG.
The foregoing description of the Order is subject to and qualified in its
entirety by reference to the Order, a copy of which is included as an exhibit to
this Amendment No. 9 and is incorporated herein by reference.
The section captioned "Litigation" is hereby amended and supplemented as
follows:
On August 14, 1997, the District Court denied NYSEG's motion for a
preliminary judgement enjoining the Stake-Out Tender Offer.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 59 -- Order of the New York Public Service Commission Asserting
Jurisdiction and Consenting to Tender Offer Upon Conditions.
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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
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Wesley W. von Schack
(CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER)
Dated: August 14, 1997
2
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Exhibit 59
STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
At a session of the Public Service
Commission held in the City of
Albany on August 13, 1997
COMMISSIONER PRESENT:
John F. O'Mara, Chairman
CASE 97-E-1390 - Joint Petition of New York State Electric &
Gas Corporation, the Hon. Clifford Crouch,
and the Hon. Warren Anderson For A
Declaratory Ruling That CalEnergy Company,
Inc. And its Subsidiaries May Not Acquire any
of the Company's Stocks or Bonds Without the
Commissions's Prior Approval and for an Order
Enjoining CalEnergy and Its Subsidiaries From
Acquiring and Such Securities.
ORDER ASSERTING JURISDICTION
AND CONSENTING TO TENDER
OFFER UPON CONDITIONS
(Issued and Effective August 13, 1997)
BACKGROUND
CalEnergy Company Inc. (CalEnergy) has announced its intention to acquire
9.9% of the stock of New York State Electric & Gas Corporation (NYSEG),
through a tender offer to NYSEG's shareholders that expires on August 14,
1997. Following the tender offer CalEnergy plans to acquire 100% of NYSEG's
stock. The vehicle for the acquisition of the stock is a CalEnergy
subsidiary, CE Electric (NY), Inc. (CENY), incorporated in New York.
In a joint petition filed on August 6, 1997, NYSEG and the Hon. Clifford
Crouch (the Joint Petitioners), ask for a ruling that neither CalEnergy nor
its subsidiaries may acquire the utility's stock without first obtaining
permission under Public Service Law (PSL) Section 70, and for an order
enjoining CalEnergy from acquiring any such securities. By letters dated
August 7, 1997 and August 11, 1997, additional petitioners were added.
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CASE 97-E-1390
On August 11, 1997, CalEnergy and CPB responded. CalEnergy maintains
that its purchase of less than 10% of NYSEG's stock does not trigger
Commission jurisdiction and that it proposes to promptly file for Commission
approval of the acquisition of more than 10% of NYSEG's stock. If
jurisdiction is asserted, however, CalEnergy proposes conditions to protect
the public interest. The Consumer Protection Board (CPB) urges a vigorous
investigation of CalEnergy's plans, and argues issuance of timely decisions
is in the ratepayers' best interests.
The positions of the parties are analyzed below. The Commission will assert
jurisdiction and consent to the tender offer upon conditions, pending review of
CalEnergy's proposed takeover, that will protect the public interest.
POSITIONS OF THE PARTIES
JOINT PETITIONERS
The Joint Petitioners begin by noting that, under PSL Section 70, no
electric or gas corporation may acquire stock in another electric or gas
corporation unless it first obtains our consent by showing that the
acquisition is in the public interest. According to the Joint Petitioners,
CalEnergy is an electric and gas corporation and it has not demonstrated that
its acquisitions of NYSEG's stock would be in the public interest.
The Joint Petitioners maintain that CalEnergy is a gas corporation
because it controls the North Country Gas Pipeline Corporation (North
Country), which supplies gas to several customers. CalEnergy, the Joint
Petitioners continue, is also an electric corporation because its
subsidiaries control Saranac Power Partners, L.P. (Saranac), which owns and
operates a 240 MW combined cycle generation plant located in Plattsburgh, New
York that is a qualifying facility under federal, but not state, law.
CalEnergy also achieves electric corporation status, the Joint Petitioners
assert, because its wholly-owned CENY subsidiary was formed for the purpose
of acquiring NYSEG stock, bringing both
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CASE 97-E-1390
entities under the ambit of PSL Section 5-b. That statute provides that
"corporations formed to acquire property or transact business which would be
subject to the provisions of [the Public Service Law]...shall be deemed to be
subject to the provisions of the [Public Service Law] although no property
may have been acquired [or] business transacted ...."
The Joint Petitioners also point out that CalEnergy has acquired, at a
cost of $1.3 billion, Northern Electric plc, a distribution company servicing
1.5 million customers in England and Wales. CalEnergy also has ownership
interests in generation projects totalling 1,135 MW located in the United
States, and an additional 2,066 MW located in foreign countries.
CalEnergy is a gas corporation under the Public Service Law, say the
Joint Petitioners, because of its ownership and operational interests in
North Country. According to the Joint Petitioners, it has already been
decided that North Country is a gas corporation.(1) While the operation of
North Country is exempt from some forms of regulation under the Public
Service Law, the Joint Petitioners continue, those exemptions do not remove
it from the ambit of the definition of a gas corporation. The Joint
Petitioners also assert that North Country's activities as a gas corporation
are limited to the provision of gas transportation service to three
specifically-identified customers, including NYSEG and Saranac, and that any
successor owner to Saranac must also own the stock of North Country.(2) The
joint supporters maintain that North Country is neither exempted from, nor
permitted to acquire stock under, PSL Section 70.
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(1) Case 92-M-0322, North Country Gas Pipeline Corporation, Declaratory Ruling
and Order Granting Exemption (issued August 27, 1992) (Exemption Order).
(2) Case 92-M-0322, North Country Gas Pipeline Corporation and Saranac Energy
Co., Inc., Order Approving Recommendation and Clarifying Previous Order
(issued February 3, 1993).
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CASE 97-E-1390
According to NYSEG and its supporters, CalEnergy also controls Saranac,
which is an electric corporation. As with North Country, CalEnergy manages
the business of owning and operating the generation facility. While Saranac
is also exempt from much regulation under the Exemption Order, the Joint
Petitioners report, it is still an electric corporation and the exemptions do
not extend to removing it entirely from the ambit of PSL Section 70. Analyzing
the effect of Saranac's status as a qualifying facility under federal law,
the Joint Petitioners maintain that the exemptions available to QFs under
PURPA do not preempt applications of Section 70.(1)
Although federal QFs are exempt from state laws respecting the financial
or organizational regulation of electric utilities under the PURPA
regulations,(2) NYSEG and its supporters argue that this exemption from
regulation does not extend to the stock acquisition provisions of Section 70.
That exemption, they continue, was intended to free QFs from extensive
regulation of their generation operations, not to permit QFs to acquire
electric utilities. The Joint Petitioners conclude that state regulatory
supervision over the acquisition of public utility securities is not in
conflict with PURPA's goals, and so the PURPA exemptions do not free CalEnergy
from Section 70 supervision.
NYSEG and its supporters also point out that QFs that qualify only under
federal law have been regulated under the New York law. Providing an
example, the Joint Petitioners note that federal QFs making retail sales of
electricity are subject to regulation in New York.(3) While the utility and
its supporters concede that parent companies of QFs have been exempted from
much
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(1) Public Utility Regulator Policies Act of 1978, 16 U.S.C.A. Section 824 a-3.
(2) 18 C.F.R. Section 292.602.
(3) Case 93-E-0272, Niagra Mohawk Power Corporation, Declaratory Ruling and
Regulation of Sithe/Independents Power Partners (issued February 9, 1994)
(First Sithe Order).
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CASE 97-E-1390
of Section 70, they assert the exemption results from a presumption that
applies "unless there is a potential for harm to the interests of captive
utility ratepayers sufficient to override the presumption.(1) That
presumption, say the Joint Petitioners, is overridden here because the
takeover of NYSEG's operations obviously implicates the interests of the
utility's captive ratepayers. As a result, NYSEG and its supporters conclude
that CalEnergy's control over Saranac subjects CalEnergy to jurisdiction
under PSL Section 70, where the acquisition of stock in a New York operating
utility is concerned.
Buttressing that conclusion, the Joint Petitioners claim that indirect
acquisition of stock in a New York operating utility is just as subject to
Section 70 regulation as direct acquisition. Since Saranac and North Country
are, respectively, an electric corporation and a gas corporation, the
indirect acquisition of NYSEG's stock through the CalEnergy parent is subject
to regulation. As NYSEG and its supporters interpret it, the entire
CalEnergy corporate family is subject to the Section 70 proscription because
the parent and affiliates are operating as a single entity in New York and so
are subject to jurisdiction.(2)
The Joint Petitioners also argue the Commission has found that two
foreign telephone corporations seeking to purchase the stock of a New York
telephone corporation must obtain the Commission's consent.(3) It
has also been decided, say NYSEG and its supporters, that there is Public
Service Law jurisdiction
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(1) Case 93-E-0272, Niagra Mohawk Power Corporation, Order Establishing
Regulatory Regime For Sithe/Independent Power Partners, (issued April 19,
1994) (First Sithe Order).
(2) Case 90-C-0393, MCI Communications Corporation and Teleconnect Long
Distance Services, Order Asserting Jurisdiction and Granting Petition For
Approval of Transaction (issued August 10, 1990).
(3) Case 95-C-0078, Sprint Corporation, Order Approving Transaction (issued
May 19, 1995) (Sprint Order).
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CASE 97-E-1390
over the merger of two multi-national telecommunications firms.(1) As a
result, the Joint Petitioners believe the Commission may intervene when a
global electric holding company, like CalEnergy, is attempting the hostile
takeover of a New York operating utility.
NYSEG also maintains CENY is subject to jurisdiction under PSL Section 5-b.
That statute specifies that corporations formed to acquire utility property or
transact utility business are subject to the Public Service Law, even before
they actually complete an acquisition or begin to transact business. According
to the Joint Petitioners, Section 5-b therefore subjects CENY to Section 70, and
so CENY must obtain Commission approval before ti purchases any stock in NYSEG.
Similar statutes in other states, claim NYSEG and its supporters, have
been so interpreted. They distinguish the 1926 decision in Super-Power
Connecting Corp.,(2) where the court rejected an effort to assert
jurisdiction over a corporation that was authorized in its certificate of
incorporation to provide electric services. That decision, says the utility
and its supporters, does not mention Section 5-b, and is premised on the
grounds that the affected business intended to participate in a broad range
of activities, and had no specific plans to operate electric plant. Here, the
Joint Petitioners emphasize, Section 5-b adheres and CENY is focused solely
on one electric corporation activity -- obtaining NYSEG stock. As a result,
the Joint Petitioners assert Section 5-b adheres.
Once jurisdiction is asserted, the Joint Petitioners question whether
CalEnergy's acquisition of NYSEG would be in the public interest. According to
the Joint Petitioners, CalEnergy
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(1) Case 97-C-001, MCI Communications Corporation and British
Telecommunications, Order Approving Petition (issued April 21, 1997).
(2) New York-New Jersey Super-Power Connecting Corp. V. Public Serv. Comm'n,
215 App. Div. 578 (3rd Dep't 1926).
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CASE 97-E-1390
lacks specific experience in managing an operational electric utility. Even
before acquiring more debt to obtain NYSEG, they continue, CalEnergy is
already a heavy leveraged entity with a below investment grade bond rating.
Moreover, CalEnergy's ownership of Saranac creates a potential conflict
of interest, the Joint Supporters assert, because NYSEG must purchase the
facility's output under a priced long-term contract at rates well above
market. The relief required, NYSEG and its supporters assert, is for the
Commission to immediately commence a proceeding requiring CalEnergy to show
cause why it should not be prohibited from acquiring any of NYSEG's
securities without prior approval. While that proceeding is pending, the
Joint Petitioners advocate that CalEnergy be prohibited from making any
further acquisitions of NYSEG securities.
Allowing acquisition of even 9.9% of NYSEG stock prior to obtaining
approval, contend the Joint Petitioners, could harm the utility. According
to them, CalEnergy could impede NYSEG from furthering the introduction of
competition into its service territory via the Competitive Opportunities
proceeding. Providing an example, the utility and its supporters note that
structural separation of NYSEG requires a two-thirds vote of its
shareholders. If CalEnergy owns 9.9% of the stock, NYSEG would be required
to obtain consent from 74% of its remaining shareholders in order to
effectuate the separation. Therefore NYSEG and its supporters requires that
relief be ordered before CalEnergy's tender offer expires on August 14, 1997.
CALENERGY'S REPLY
CalEnergy proclaims its intention to complete its offer to purchase 9.9%
of NYSEG's common stock, and then to acquire the remainder of the utility's
shares, subject to receiving all necessary approvals. As CalEnergy analyzes
it, so long as the purchases less than 10% of NYSEG's stock, it need not
obtain
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CASE 97-E-1390
Commission approval. CalEnergy, however, stresses it will conduct its
offer to purchase the remaining shares of NYSEG in compliance with
Section 70, and that it will file an application for approval of the purchase
of the remainder of NYSEG's stock no later than the end of August, and
perhaps as early as August 20, 1997. CalEnergy also announces its
willingness to commit itself to orderly divestiture of all NYSEG's stock in
the event its application to acquire 100% of NYSEG is denied in a final and
non-appealable Order. CalEnergy also says it welcomes the opportunity to
demonstrate that its acquisition of NYSEG will be in the public interest.
According to CalEnergy, both North Country and Saranac have been exempted
from compliance with Section 70, and so its indirect ownership of those
entities does not subject the CalEnergy parent to regulation. As CalEnergy
reads the Exemption Order, it provides that neither Saranac nor North Country
will be regulated except with respect to matters affecting public safety and
the environment. CalEnergy also argues that the Second Sithe Order exempts
parent companies of QFs from Section 70 regulation. As to the presumption
described in the Second Sithe Order, which could be overridden if there is
potential harm to captive ratepayer interests, CalEnergy claims its purchase
of less than 10% of NYSEG's stock could not create such a harm.
Although CalEnergy acknowledges that Section 70 requires prior approval
before a gas or electric corporation may purchase any stock in another gas or
electric corporation, the company denies it is either type of corporation.
Instead, it is merely a stock corporation, subject to Section 70 only if it
purchases more than 10% of a utility's stock. The 0% rule for gas and
electric corporations, says CalEnergy, is designed to protect the ratepayers
of the purchasing utility. Purchases of the target utility stock implicate
the public interest, CalEnergy continues, only when more than 10% of the
stock is acquired.
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CASE 97-E-1390
Analyzing telephone corporation precedents, CalEnergy argues the 0% rule
is not applied when a parent of jurisdictional telephone companies seeks to
acquire other jurisdictional facilities, as in the "AT&T Order."(1) CalEnergy
urges that Section 70 be interpreted similarly. CalEnergy also denies that,
as a holding company, it directly manages either Saranac or North Country.
Instead, it characterizes its operations as that of a holding company remote
from day-to-day management of those subsidiaries, and maintains that NYSEG
has not demonstrated otherwise. CalEnergy then cites In the matter of New
York State Electric & Gas Corporation for the proposition that a parent does
not manage or operate a utility's subsidiary even if it owns 99% of the
subsidiary's stock.(2)
There is no public purpose, CalEnergy maintains, to regulating its
operations. Since neither it nor its Saranac and North Country affiliates
serve captive ratepayers, the company continues, regulation is inappropriate,
and could chill investment in New York utilities by discouraging stock
corporations fearful of regulation from making those investments. With
divestiture of many electric utility assets on the horizon, CalEnergy says,
that chilling effect could harm the true interests of New York's ratepayers.
Moving to Section 5-b, CalEnergy opposes application of that statute as
well. While Section 5-b regulates the acquisition of property, says CalEnergy,
purchases of stock are not an acquisition of property. CalEnergy also
maintains that stock acquisition is not a business subject to Public Service
Law jurisdiction, and that its prior public policy arguments also
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(1) Case 93-C-0777, Joint Petition of American Telephone and Telegraph
Company, et al., Order Asserting Jurisdiction and Approving Transaction
(issued December 31, 1993).
(2) In the Matter of New York State Electric & Gas Corporation v. Public
Service Commission, 277 A.D. 18 (3rd Dep't 1929), appeal dismissed,
260 N.Y. 32 (1932).
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CASE 97-E-1390
mitigate against an assertion of jurisdiction under Section 5-b. Moreover,
the company insists it employed the same corporate structure device for CENY
as was approved for AT&T in the AT&T Order, where jurisdiction over the
acquisition of less than 10% of stock was allegedly eschewed. As a result,
it urges the Commission to withhold an assertion of jurisdiction until
CalEnergy moves to obtain more than 10% of NYSEG's stock.
CalEnergy stresses, however, that it does not desire to avoid Commission
jurisdiction. It repeats its promises to file promptly for approval of the
purchase of all of NYSEG's stock, and to commit to orderly divestiture if its
application is denied. Further, by a letter dated August 12, 1997, CalEnergy
declares that it is not CalEnergy's interest to impede NYSEG's pending
reorganization. It commits that if it does not vote to support the
reorganization, it will vote on that reorganization in the same proportion as
other stockholders. Characterizing NYSEG's petition as merely a tactic designed
to protect its current management, CalEnergy concludes that intervention into
its purchase of less than 10% of the stock could result in unwarranted
assistance to NYSEG management's takeover defense. As a result, it asks that
the petition be denied.
CPS'S REPLY
Although CPB says it has not had time to fully analyze the petition, it
expresses some concerns. CPB advocates that the Commission become involved
in the process between NYSEG and CalEnergy as rapidly as possible, in order
to protect ratepayer interests. CPB also questions whether the takeover will
consume inordinate amounts of NYSEG management time, just as that utility
transitions to a more competitive environment. While CPB believes that
CalEnergy should be accorded the opportunity to demonstrate that its
acquisition will be in the public interest, and that its efforts should not
be discouraged if that were the
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CASE 97-E-1390
case, CPB concludes that there is ample statutory authority to vigorously
investigate the proposed takeover of NYSEG.
THE JOINT PETITIONERS' SURREPLY(1)
On August 12, 1997, the Joint Petitioners filed a surreply arguing that
CalEnergy is refusing to seek Commission approval for the acquisition of less
than 10% of NYSEG's shares. They complain CalEnergy will use its 9.9% stake to
deflect NYSEG's management from the task of electric restructuring.
With respect to the claims that Saranac and North Country are exempt, the
Joint Petitioners argue that the Commission's decision to grant Saranac and
North Country exemptions from Section 70 for the activities in which they
were then engaging, does not mean they were exempt with respect to other
activities that were not the subject of the petition. The Joint Petitioners
note CalEnergy's asserted concession that the Commission may assert
jurisdiction under Section 70 when needed to protect the interests of captive
utility customers.
Relatedly, the Joint Petitioners contend that CalEnergy's argument that
Section 70 exists to protect the ratepayers of the purchasing utility is
without merit, arguing the claim is unsupported by legislative history and
the Sprint Order. The Joint Petitioners argue that the AT&T Order on which
CalEnergy relied to argue for limited Commission jurisdiction over holding
companies, stands for "the common sense notion that the intent expressed in
the Public Service Law that the Commission's jurisdiction over changes in the
control of public utilities cannot be defeated by corporate manipulation."
The Joint Petitioners continue that CalEnergy has not shown whether it is
actually engaged in the management or operation of Saranac or North Country
and accuse CalEnergy of offering vague statements on this point. Joint
Petitioners point to the evidence that
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(1) Although unauthorized, the filing may be considered because it advances
the record in this proceeding.
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CASE 97-E-1390
CalEnergy does offer as support for a blurring of distinctions between the
corporate existence of CalEnergy, Saranac and North Country.
With respect to the claim that an assertion of jurisdiction over
CalEnergy would sweep broadly, the Joint Petitioners argue that any holding
company managing electric plant must, under the Public Service Law, become
subject to regulation. Finally, the Joint Petitioners argue that CalEnergy
has not refuted the existence of jurisdiction over CENY pursuant to 5-b
because the express purpose of CENY is to acquire, own and merge with NYSEG
- -- acts definitely subject to the Public Service Law.
CALENERGY'S SURRESPONSE(1)
By letters dated August 13, 1997, CalEnergy protests the Joint Petitioners'
surreply as unauthorized. It contents that the Joint Petitioners have shown no
need for Commission intervention, given CalEnergy's coming filing and argues
CalEnergy is not an electric corporation and there has been no showing
ratepayers will be harmed.
DISCUSSION AND CONCLUSION
JURISDICTIONAL QUESTIONS
CalEnergy's acquisition of 9.9% of NYSEG's stock is subject to the
Commission's jurisdiction under Sections 5-b and 70 of the Public Service
Law. CENY is subject to our jurisdiction under Section 5-b. Moreover,
CalEnergy's ownership and control over North Country and Saranac trigger
Section 70 review. Its acquisition of any of NYSEG's shares therefore
requires our assent.
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(1) Although unauthorized, this filing may be considered because it advances
the record in this proceeding.
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CASE 97-E-1390
SECTION 5-b
The acquisition falls within Section 5-b because the business that CENY
was formed to transact -- the acquisition of NYSEG -- is, by CalEnergy's own
admission, "subject to the provisions of this chapter" (Section 70). CENY is
subject to the provisions of the Public Service Law under Section 5-b
"although no property may have been acquired, business transacted or
franchises exercised."
Inasmuch as CENY is subject to the provisions of the Public Service Law,
it cannot acquire 9.9% of NYSEG's stocks without complying with Section 70.
SUPER-POWER CONNECTING CORP. does not suggest to the contrary. The facts of
that case, as NYSEG points out, are distinguishable, and the decision does
not so much as mention Section 5-b. Further, as CalEnergy concedes, CENY has
already acquired some NYSEG stock, its activities are, again, subject to the
proscriptions of the Public Service Law.
SECTION 70
CalEnergy is also subject to Section 70 of the Public Service Law because
(a) it is managing Saranac and North Country (an electric corporation and gas
corporation, respectively); (b) it owns an electric corporation and gas
corporation; and (c) it is purchasing, through CENY, the stock of a gas and
electric corporation. The Commission will pierce the corporate veil of
CalEnergy with regard to the first 9.9% of NYSEG stock not only because
CalEnergy operates, as well as owns, electric and gas corporations in New
York State, but because it is acquiring a traditional gas and electric
corporation. While the Public Utility Regulatory Policies Act exempts Saranac
from traditional rate regulation of its pipeline operations and financings,
neither exemption encompasses the acquisition of utility stock. That is, if
either Saranac or North Country were acquiring the stock of NYSEG, they would
not be exempt from complying with Section 70.
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CASE 97-E-1390
The purpose of Section 70 is, contrary to CalEnergy's claim, not only to
protect the interests of ratepayers of purchasing companies, but to avoid
undue concentration of ownership from gas and electric corporations.
Therefore, when a subsidiary of a holding company that owns a gas and
electric corporation is purchasing another gas and electric corporation, the
case for piercing the corporate veil is quite strong.
EXEMPTION ORDER
As to North Country, the Exemption Order provides that "no further
clarification of the precise character of the exemption sought is
necessary."(1) Since the Exemption Order does not address the Section 70
provision at issue here, the Order does not provide for exemption from it.
As to Saranac, the Exemption Order provides for exemption from it. As to
Saranac, the Exemption Order provides only an exemption "consistent with
prior precedent." As stated in the Cogen Tech Ruling, such precedent extends
only to the issues addressed.(2) Since, again the Section 70 provision at
issue here was not addressed in the Exemption Order, CalEnergy cannot rely
upon that Order as excusing it from jurisdiction.
CalEnergy's status as the parent of subsidiaries that own North Country
and Saranac does not extricate it from regulatory requirements. While
parents were exempted from much Section 70 regulation in the Second Sithe
Order, those exemptions were designed to free a parent corporation from New
York regulation of multi-state activities outside New York. The rationale
for such an exemption does not extend to the activity at issue here, where
the parent is engaged in the New York jurisdictional activity of acquiring
another subsidiary inside New York.
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(1) Exemption Order, p. 11.
(2) Case 90-E-0599, Cogen Technologies L.P., Declaratory Ruling (issued
November 15, 1990).
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CASE 97-E-1390
Moreover, as the Joint Petitioners point out, the Second Sithe Order
established a presumption for exempting parent corporations from Section 70
review, but the presumption was limited to those activities that left New
York ratepayers unaffected. If an activity instead raises the "potential for
harm to the interest of captive utility ratepayers sufficient to override the
presumption," that activity was not exempted from jurisdiction. As a result,
the exemption adheres only if the activities of the parent are remote from
New York's legitimate jurisdictional interests.
Since the captive ratepayers of NYSEG are clearly subject to the
potential for harm if CalEnergy succeeds in acquiring NYSEG, the presumption
here is overridden. Therefore, CalEnergy's control over its North Country
gas corporation and Saranac electric corporation subsidiaries subjects its
activities in the acquisition of NYSEG to Commission regulation.
QF STATUS
Saranac's status as a QF under federal law also does not result in an
exemption. Saranac is sized at 240 MW, and so it is not a cogeneration
facility under PSL Section 2(2-a); that state statute limits QFs in size to
80 MW or less. As a result, Saranac is not entitled to the exemptions from
regulation accorded to New York QFs under PSL Section 2(4) and Section 2(13).
While PURPA and its attendant regulations free QFs from much state financial
regulation, that exemption does not extend to the Section 70 proscription
against stock acquisition without obtaining consent. The PURPA exemptions are
intended to remove QFs from state constraints in the construction and operation
of independent generation facilities. The acquisitions of a regulated utility
is not akin to QF ownership and operation, and so the PURPA exemption does not
apply.
CalEnergy's analysis of the Public Service Law and president does not
countermand these conclusions. The company
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relies primarily on the AT&T Order, but as the Joint Petitioners observe, its
reliance is misplaced insofar as the Commission pierced the corporate veil in
that proceeding, with regard to stock above 9.9%, by recognizing that McCaw
- -- the holding company -- owned cellular telephone companies. The AT&T Order
was also concerned with the acquisition of more than 10% of stock, and does
not squarely address the issue of circumstances where less than 10% is
sought. In both the MCI Order,(1) issued on the same day as the AT&T Order,
however, and the Sprint Order, jurisdiction was asserted over the acquisition
of any stock in a jurisdictional utility by an otherwise non-jurisdictional
utility. In this case, the Commission will pierce the corporate veil of
CalEnergy with regard to the first 9.9% of NYSEG stock not only because
CalEnergy operates, as well as owns, electric and gas corporations in New
York State, but because it is acquiring a traditional gas and electric
corporations.
Finally, CalEnergy has argued that an assertion of Commission
jurisdiction under Section 70 will chill acquisitions of New York State
utility interests by other corporations. While such acquisitions will be
reviewed on a case-by-case basis, an assumption should not be made that
because the Commission has asserted jurisdiction over the purchase of 9.9% of
the stock of a traditional gas and electric utility by an entity that has
professed an intent and formed a subsidiary to purchase the entire utility,
the Commission will necessarily assert jurisdiction over acquisitions of
limited interests.
PUBLIC INTEREST ANALYSIS
NYSEG contends that the appropriate relief under these circumstances is to
adjoin CalEnergy from making any further
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(1) Case 93-C-0862, Joint Petition of MCI Communications Corporation and
British Telecommunications plc, Order Asserting Jurisdiction and Granting
Petition (issued December 31, 1993).
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CASE 97-E-1390
purchases of NYSEG's stock until such time as it is decided those purchases
are in the public interest. The utility and its supporters then raise
concerns which they say demonstrate that further proceedings are needed
before that determination can be made. CalEnergy, however, argues that its
acquisition of up to 9.9% of the stock is in the public interest, and
proposes conditions to insure that the public is protected.
In examining whether an acquisition by CalEnergy of 9.9% of NYSEG's stock
would be in the public interest, we note that CalEnergy, by letter of August
12, has publicly committed that it would not use its 9.9% stock ownership to
impede a restructuring of NYSEG. Further, as CalEnergy concedes, the
acquisition will not impede the Commission's ability to review -- and perhaps
reject -- an acquisition of NYSEG stock above 9.9%. Finally, any risk
associated with the 9.9% acquisition will be borne not by NYSEG's ratepayers
or shareholders, but solely by CalEnergy. That is, if additional purchases
are rejected, CalEnergy has committed to divest itself of its shares of
NYSEG's stock presumably at whatever the market value of those stocks is at
the time of its sale. Thus, because the acquisition poses no threat to
ratepayers, while benefiting the holders of 9.9% of NYSEG's stock, it is in
the public interest.
The Commission thus approves the acquisition CalEnergy seeks, of up to
9.9% of NYSEG's stock, subject to compliance with the conditions described
herein. Further, CalEnergy will be allowed to proceed only on the
understanding that approval of this preliminary acquisition of a limited
amount of stock does not presage any decision on its proposal for a takeover
of NYSEG via stock purchases. Commission analysis for additional purchases
will address among other things, the far more complex issue of whether the
public interest will be served by CalEnergy's management of NYSEG. CalEnergy
has promised a prompt filing of its takeover application, and it will be held
to its deadline. Further, if CalEnergy were to violate the conditions it
proposes,
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it is advised that it could be compelled to divest itself of the stock it has
purchased.(1)
The Commission finds that it should act immediately under section 202(6)
of the State Administrative Procedure Act to consent to the tender offer.
Such action is appropriate in light of the possible harm to holders of 9.9%
of NYSEG's stock and the lack of any benefit to ratepayers from a delay in
the tender offer, under the conditions in this Order. After review, it may
in fact provide that the CalEnergy takeover will benefit ratepayers.
Precluding a tender offer now may prevent the takeover and could deny
ratepayers that benefit.
IT IS ORDERED:
1. The Commission takes this action on an emergency basis pursuant to
State Administrative Procedure Act section 202(6) because compliance with the
normal public notice requirements would be contrary to the general welfare.
2. The purchase of 9.9% of New York State Electric & Gas's stock by
CalEnergy Company, Inc. is subject to the Commission's jurisdiction.
3. Said purchase is approved upon the condition that CalEnergy Company,
Inc. limit its use of its 9.9% interest in the fashion to which it has
committed in its filings before this Commission.
4. CalEnergy Company, Inc. shall file for approvals of the acquisition
of additional New York State Electric & Gas Stock no later than August 29,
1997, unless good cause is shown for a delay in such filing to the Secretary.
5. CalEnergy shall accept the conditions of this Order by noon on
Thursday, August 14, 1997, through a letter to the Secretary signed by a
corporate officer or attorney.
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(1) Most important is that CalEnergy has promised it will not interfere with
the pending restructuring of NYSEG's operations.
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6. This proceeding is continued.
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Commissioner
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