SECURITIES AND EXCHANGE COMMISSION
Washington D.C.
Form U-1/A
AMENDMENT NO. 3
TO
FORM U-1
APPLICATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Niagara Mohawk Holdings, Inc.
300 Erie Boulevard
Syracuse, New York 13202
Gary J. Lavine, Esq.
Terence A. Burke, Esq.
c/o Niagara Mohawk Holdings, Inc.
300 Erie Boulevard
Syracuse, New York 13202
Telephone: (315) 428-6717
Copies to:
Steven J. Agresta, Esq.
Swidler Berlin Shereff Friedman, LLP
3000 K Street, N.W.
Washington, D.C. 20007
Telephone: (202) 424-7757
Janet Geldzahler, Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Telephone: (212) 558-4000
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This Amendment No. 3 on Form U-1/A to Form U-1 of Niagara Mohawk
Holdings, Inc. is being filed for the purpose of amending Item 1 by amending
section C.2 thereof.
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION.
A. Introduction
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Niagara Mohawk Holdings, Inc., a New York corporation ("Holdings"),
seeks authorization from the Securities and Exchange Commission ("Commission")
under Sections 3(a)(1), 9(a)(2) and 10 of the Public Utility Holding Company Act
of 1935 (the "1935 Act" or "Act"), in connection with the proposed corporate
reorganization of Niagara Mohawk Power Corporation ("Niagara Mohawk" or the
"Company"), a New York electric and gas utility company. The reorganization is
being proposed in order to implement a comprehensive rate and restructuring plan
for Niagara Mohawk that was recently approved by the New York State Public
Service Commission ("PSC"), hereinafter referred to as the "Settlement
Agreement" or "PowerChoice", a copy of which is filed as Exhibit 1 hereto. A
copy of the PSC Order approving the Settlement Agreement in Opinion 98-8,
Opinion and Order Adopting Terms of Settlement Agreement Subject to
Modifications and Conditions (March 20, 1998) is filed as Exhibit 2 hereto.
Specifically, Holdings applies for the approval of the Commission
pursuant to Section 9(a)(2) of the 1935 Act (i) to acquire all of the
outstanding shares of common stock of Niagara Mohawk ("Niagara Mohawk Common
Stock") pursuant to an Agreement and Plan of Exchange ("Exchange Agreement"), a
copy of which is filed as Exhibit 3 hereto, which will result in Holdings owning
or controlling all of the outstanding Niagara Mohawk Common Stock, and,
indirectly, 86% of the outstanding common stock of Beebee Island Corporation
("Beebee Island"), a New York corporation, indirectly 67% of the outstanding
common stock of Moreau Manufacturing Corporation ("Moreau"), a New York
corporation, and indirectly 50% of Canadian Niagara Power Company Limited
("CNP"), a Canadian corporation, each of which is an "electric utility company"
for purposes of the 1935 Act. In addition, Holdings hereby applies pursuant to
Section 3(a)(1) of the 1935 Act for an order exempting Holdings and each of its
subsidiary companies from all provisions of the 1935 Act (except for Section
9(a)(2) thereof).
The holders of Niagara Mohawk Common Stock ("common shareholders")
approved the Exchange Agreement at their Annual Meeting held on June 29, 1998.
The Exchange Agreement is anticipated to be implemented as soon as practicable
after all regulatory approvals are obtained. Thus, the applicant requests that
the Commission issue an order in this matter at your earliest convenience. The
share exchange (the exchange of the outstanding Niagara Mohawk Common Stock
("Common Stock") on
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a share-for-share basis for shares of common stock of Holdings ("Holdings Common
Stock")) pursuant to the Exchange Agreement will become effective immediately
following the close of business on the date of the filing with the New York
Department of State of a certificate of exchange pursuant to Section 913(d) of
the New York Business Corporation Law or at such later time and date as may be
stated in such certificate ("Effective Time").
Niagara Mohawk believes that the share exchange described herein will
result in the most efficient and effective corporate structure.
B. Other Regulatory Filings
------------------------
The Federal Energy Regulatory Commission ("FERC") has held that the
transfer of common stock of a public utility company, such as Niagara Mohawk,
from its existing stockholders to a holding company in a transaction such as the
share exchange constitutes a transfer of the "ownership and control" of the
facilities of such utility, and is thus a "disposition of facilities" subject to
FERC review and approval under Section 203 of the Federal Power Act. Niagara
Mohawk has concurrently applied for such approval.
A provision in the Atomic Energy Act requires Nuclear Regulatory
Commission ("NRC") consent for the transfer of control of NRC licenses. The NRC
staff has in the past asserted that this provision applies to the creation of a
holding company over an NRC-licensed utility company in a transaction such as
the share exchange. Niagara Mohawk has concurrently applied for NRC approval
under the Atomic Energy Act for the transfer of control, resulting from the
share exchange, of its two licenses, for Nine Mile Point 1 and Nine Mile Point
2, respectively.
The New York Public Service Law ("NYPSL") requires approval from the
PSC in order to undertake the reorganization represented by the formation of the
holding company structure. The NYPSL also requires PSC approval for a holding
company to acquire the stock of a utility company pursuant to a share exchange.
The Company has obtained PSC approval of the holding company concept and will
make appropriate additional filings with respect to the formation of a holding
company.
C. Proposed Reorganization
-----------------------
1. Description of Niagara Mohawk
-----------------------------
Niagara Mohawk is a regulated public utility incorporated under the
laws of the State of New York. It is engaged principally in the business of
generating, purchasing, transmitting and distributing electricity, in areas of
eastern,
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central, northern and western New York State having a total population of
approximately 3.5 million, including the cities of Buffalo, Syracuse, Albany,
Utica, Schenectady, Niagara Falls, Watertown and Troy and purchasing,
transporting and distributing natural gas to the public in areas of eastern,
central, and northern New York State. A map of Niagara Mohawk's service
territory is attached hereto as Exhibit 4. Niagara Mohawk's service territory
will not change as a result of the proposed corporate reorganization. In
providing this service, Niagara Mohawk is subject to regulation by the PSC under
the NYPSL with respect to retail electric and gas rates and to regulation by
FERC with respect to wholesale electric and electric transmission rates. Niagara
Mohawk is currently exempt from registration as a holding company under Section
3(a)(2) of the 1935 Act because it is predominantly a public utility company
whose operations as such are confined to New York State. Niagara Mohawk Power
Corp. 51 S.E.C. Docket 1269 (1992).
In addition to its utility operations, Niagara Mohawk owns an
unregulated subsidiary, Opinac North America, Inc. ("Opinac NA"), which, in
turn, owns Opinac Energy Corporation1/, Plum Street Enterprises, Inc. and Plum
Street Energy Marketing, Inc. (a subsidiary of Plum Street Enterprises, Inc.)
(collectively, the "non-utility subsidiaries"), which participate principally in
energy-related services. CNP is owned 50% by Opinac Energy Corporation. CNP owns
a 99.99% interest in Canadian Niagara Wind Power Company, Inc. and Cowley Ridge
Partnership, respectively, which together operate a wind power joint venture in
the Province of Alberta, Canada. Niagara Mohawk also has several other
subsidiaries including NM Uranium Inc., NM Holdings, Inc., Moreau Manufacturing
Corp., Beebee Island Corp., and NM Receivables Corp. II.
Three of these subsidiaries are "public utilities" under the 1935 Act.
Brief descriptions of each public utility are provided below. None of the other
subsidiaries contribute alone or in the aggregate a material amount of revenue
to the consolidated enterprise.
BEEBEE ISLAND CORP.
Beebee Island operates a 7.7 megawatt hydroelectric generating station
located on the Black River in New York State. Beebee Island is a majority-owned
subsidiary of Niagara Mohawk which owns 5,799 shares of Beebee Island's common
stock and leases an additional 217 shares from another party. The remaining 984
shares of common stock outstanding are owned by Ahlstrom Filtration, Inc. Beebee
Island has contractual arrangements with both owners to sell to them 100% of its
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1/ Opinac Energy Corporation is an exempt holding company under Section
3(a)(5) of the Public Utility Holding Company Act of 1935. Opinac Energy
Corporation, 52 S.E.C. Docket 1475 (1992).
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power output in accordance with their ownership percentages. The contracts
provide that Beebee Island be allowed to charge a price for the power sold that
enables Beebee Island to earn a predetermined return on rate base.
Beebee Island is more than 50% directly owned by Niagara Mohawk and is
currently contractually committed to sell power generated by Beebee Island to,
among others, Niagara Mohawk on a wholesale basis. Beebee Island is not an
"exempt wholesale generator," nor is it a "qualifying small producer" as those
terms are defined by FERC regulation. As a result, Beebee Island has been viewed
by FERC as an electric utility under the Federal Power Act ("FPA"), the premise
being that Beebee Island sells electric energy at wholesale.
CANADIAN NIAGARA POWER COMPANY
CNP generates electricity at the William B. Rankine Generating Station
located in the city of Niagara Falls, Ontario and distributes electricity to
residential, commercial and industrial customers in the city of Niagara Falls
and the Town of Fort Erie, Ontario. CNP is 50% owned by Opinac Energy
Corporation, a Canadian wholly-owned subsidiary of Opinac North America, a
wholly-owned U.S. subsidiary of Niagara Mohawk. The other 50% equity is owned by
Fortis, Inc. CNP has an international electric interconnection with Niagara
Mohawk and both sells and purchases power to Niagara Mohawk at wholesale at this
interconnection, but otherwise conducts its business wholly within Canada.
MOREAU MANUFACTURING CORP.
Moreau operates a 5.0 megawatt hydroelectric generating station located
on the Hudson River in New York State. Moreau is a majority-owned subsidiary of
Niagara Mohawk, which owns 1,684 shares of Moreau's common stock. The remaining
842 shares of common stock outstanding are owned by Finch, Pruyn and the
Company. Moreau has contractual arrangements with both owners to sell to them
100% of its power output in accordance with their ownership percentages. The
contracts provide that Moreau be allowed to charge a price for the power sold
that enables Moreau to earn a predetermined return on rate base.
Moreau is more than 50% directly owned by Niagara Mohawk and is
currently contractually committed to sell power generated by Moreau to, among
others, Niagara Mohawk on a wholesale basis. Moreau is not an "exempt wholesale
generator," nor is it a "qualifying small producer" as those terms are defined
by FERC regulation. As a result, Moreau has been viewed by FERC as an electric
utility under the FPA the premise being that Moreau sells electric energy at
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wholesale.
2. The Exchange Agreement
----------------------
Niagara Mohawk has caused Holdings to be incorporated under the laws of
the State of New York for the purpose of carrying out the proposed transactions
described in this application. Holdings is currently a direct, wholly-owned
subsidiary of Niagara Mohawk. Holdings owns no utility assets and is not
currently a "public utility company" or a "holding company" for purposes of the
1935 Act.
The Exchange Agreement has been unanimously adopted by the Board of
Directors of Niagara Mohawk and was adopted by the Niagara Mohawk common
shareholders on June 29, 1998. In the share exchange:
(1) each share of Niagara Mohawk Common Stock outstanding immediately
prior to the Effective Time of the share exchange will be
exchanged for one new share of Holdings common stock;
(2) Holdings will become the owner of all outstanding Niagara Mohawk
Common Stock; and
(3) the shares of Holdings common stock held by Niagara Mohawk
immediately prior to the Effective Time will be canceled.
As a result, upon completion of the share exchange, Holdings will
become a holding company, Niagara Mohawk will become a subsidiary of Holdings,
and all of Holdings' common stock outstanding immediately after the share
exchange will be owned by the former holders of Niagara Mohawk Common Stock
outstanding immediately prior to the share exchange.
Following the share exchange certain of Niagara Mohawk's existing non-
utility subsidiaries will be transferred to Holdings and become subsidiaries of
Holdings. Niagara Mohawk's principal non-utility subsidiaries participate in
real estate development of property formerly owned by Niagara Mohawk (NM
Holdings), and in energy-related services (Opinac NA and its subsidiaries).
Within two years of effecting the share exchange, Niagara Mohawk will dividend
all of its interest in Opinac NA to its parent, Holdings. In addition, Niagara
Mohawk holds a single-purpose subsidiary, NM Receivables Corp. II, established
to facilitate the sale of an undivided interest in a designated pool of customer
receivables. The corporate structure immediately prior to and after the
reorganization is shown in Exhibit 5 attached to this application.
After the share exchange occurs, Holdings will have no material assets
other than its ownership of stock of its subsidiaries, which initially will
consist of all of the outstanding Niagara Mohawk Common Stock and thereafter the
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common stock of Opinac NA and possibly certain of Niagara Mohawk's existing non-
utility subsidiaries. Given its financial condition and contractual
restrictions, Niagara Mohawk does not foresee Holdings making substantial
investments in unregulated businesses in the near future. However, under the
terms of the Settlement Agreement, Niagara Mohawk has a one-year window in which
it can adopt the holding company structure.
The current indebtedness of Niagara Mohawk will continue to be
obligations of Niagara Mohawk and will be neither assumed nor guaranteed by
Holdings in connection with the share exchange. Niagara Mohawk's first mortgage
bonds will continue to be secured by first mortgage liens on all of the
properties of Niagara Mohawk that are currently subject to such liens. Such
indebtedness will be neither assumed nor guaranteed by Holdings in connection
with the share exchange. The decision to have the indebtedness of Niagara Mohawk
continue as obligations of Niagara Mohawk is based upon a desire not to alter,
or potentially alter, the nature of the investment represented by such fixed
income obligations, namely a direct investment in a regulated utility.
Shares of Niagara Mohawk preferred stock will not be exchanged in the
share exchange but will continue as shares of preferred stock of Niagara Mohawk.
Therefore, holders of Niagara Mohawk preferred stock will not become holders of
Holdings preferred or common stock as a result of the share exchange. Except as
discussed under this caption, the share exchange and the holding company
structure will not change the rights of holders of the outstanding shares of
Niagara Mohawk preferred stock. Niagara Mohawk preferred stock will continue to
rank senior to Niagara Mohawk Common Stock as to dividends and as to the
distribution of Niagara Mohawk's assets upon a liquidation.
The restructuring is not expected to affect adversely the holders of
Niagara Mohawk preferred stock. Dividends on Niagara Mohawk preferred stock will
continue to be paid as before, depending upon the earnings, financial condition,
and other relevant factors affecting Niagara Mohawk. However, the assets or
earnings of Holdings' subsidiaries other than Niagara Mohawk will not be
available to pay dividends on Niagara Mohawk preferred stock or to make
distributions with respect to such preferred stock in the event of a liquidation
if the share exchange is consummated. Appraisal rights under the New York
Business Corporation Law are not available to holders of Niagara Mohawk
preferred stock inasmuch as that preferred stock is not being exchanged for
Holdings stock and will continue as Niagara Mohawk preferred stock after the
holding company restructuring.
The Board of Directors' decision to exchange Niagara Mohawk Common
Stock for Holdings common stock was primarily based on the Board's desire to
confer the expected benefits of the share exchange on those investors who are
best placed to enjoy such benefits, namely the holders of Niagara Mohawk Common
Stock. The Board's decision not to exchange Niagara Mohawk preferred stock in
the share exchange was primarily based on the Board's desire not to alter, or
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potentially alter, the nature of the investment decision represented by the
Niagara Mohawk preferred stock (namely, a direct investment in a regulated
utility) and the priority position of the Niagara Mohawk preferred stockholders
with respect to dividends and assets on liquidation.
The consolidated assets and liabilities of Niagara Mohawk and its
subsidiaries before the Effective Time will be the same as the consolidated
assets and liabilities of Holdings and its subsidiaries after the Effective
Time. All the business and operations conducted before the Effective Time by
Niagara Mohawk and its subsidiaries will continue to be conducted after the
Effective Time by Niagara Mohawk and such subsidiaries, as subsidiaries of
Holdings.
Though Niagara Mohawk expects to sell or liquidate its majority
interests in two of its generation subsidiaries, Beebee Island and Moreau,
before or shortly after the share exchange, Holdings will retain an indirect 50%
interest in CNP, which does not contribute a material part of its income.2/
Niagara Mohawk will continue to be subject to regulation by the PSC
after the share exchange. Niagara Mohawk's utility retail sales, which include
sales of gas transportation and balancing services, will continue to be made
primarily under rate schedules and tariffs filed with and subject to the
jurisdiction of the PSC. In addition, Niagara Mohawk will continue to be subject
to regulation by the PSC, as it has been in the past, regarding issuances of
securities, capital ratio maintenance, and the maintenance of its books and
records.
Niagara Mohawk also will continue to be subject to regulation by the
FERC and the NRC. FERC will continue to regulate the terms and conditions of
Niagara Mohawk's transmission of electricity, along with transmission
interconnections and ancillary services, as well as the terms and conditions of
its sales of electric energy for resale. The NRC will continue to review and
regulate Niagara Mohawk's operation of the two Nine Mile Point nuclear units.
Under the PowerChoice Agreement, Niagara Mohawk is prohibited from
making loans to, or providing guarantees or other credit support for the
obligations of, Holdings or any other subsidiary of Holdings. Likewise, Niagara
Mohawk may not pledge its assets for the obligations of any other entity,
including Holdings or any other subsidiary of Holdings. (See Section 9.2.6, p.
98 of Ex. 1.)
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2/ See Exhibit 13.
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PowerChoice generally prohibits any transaction between Niagara Mohawk
and Holdings or any other subsidiary of Holdings, except for the provision of
certain corporate administrative services, certain "grandfathered" transactions
as listed therein, transactions permitted as a matter of generic policy by the
PSC, and tariffed transactions. In addition, Holdings and its subsidiaries are
required by PowerChoice to operate as separate entities. (See Section 9.2.1.1,
p. 93 of Ex. 1) Finally, PowerChoice sets out guidelines for the allocation of
costs among Holdings, Niagara Mohawk and the other subsidiaries of Holdings.
(See Section 9.2.1.3, p. 94 of Ex. 1.)
In order to address concerns regarding the possible diversion of the
attention of Niagara Mohawk's management away from the utility business, as well
as to avoid potential conflicts of interest with the management of Holdings,
PowerChoice contains restrictions regarding the composition of the Boards and
managements of Niagara Mohawk and Holdings and other subsidiaries of Holdings.
Niagara Mohawk's Board of Directors must include at least a majority of outside
directors (i.e., individuals who are neither an officer or director of Holdings
or any of its unregulated affiliates). (See Section 9.2.1.2, p. 93 of Ex. 1.)
Niagara Mohawk and the unregulated subsidiaries of holdings will have separate
operating employees and operating officers. (See Section 9.2.5.1, p. 96 of Ex.
1.) Officers of Holdings may be officers of either Niagara Mohawk or an
unregulated affiliate.
Niagara Mohawk will remain a reporting company under the Securities
Exchange Act of 1934, as amended ("1934 Act"). Prior to the share exchange,
Holdings will apply to have its common stock listed on the New York Stock
Exchange, Inc. ("NYSE"). It is anticipated that Holdings common stock will be
listed and traded on such stock exchange upon consummation of the share
exchange, whereupon Holdings will be required to file reports with the
Commission pursuant to Section 13(a) of the 1934 Act. The Niagara Mohawk Common
Stock will cease to be listed on the NYSE following the share exchange.
The share exchange is subject to the satisfaction of the following
conditions (in addition to approval of the Exchange Agreement by the holders of
Niagara Mohawk Common Stock which occurred on June 29, 1998): (i) all necessary
orders, authorizations, approvals, or waivers from the PSC and all other
regulatory bodies, boards, or agencies have been received, remain in full force
and effect, and do not include, in the sole judgement of the Board of Directors
of Niagara Mohawk, unacceptable conditions; and (ii) shares of Holdings common
stock to be issued in connection with the exchange have been listed, subject to
official notice of issuance, by the NYSE.
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Holdings has filed with the Commission a Registration Statement on Form
S-4 ("Registration Statement") under the Securities Act of 1933, as amended. The
Prospectus/Proxy Statement contained in the Registration Statement, a copy of
which is included with this application as Exhibit 6, was filed for the purpose
of (i) registering the shares of Holdings common stock to be issued in exchange
for the Niagara Mohawk Common Stock pursuant to the share exchange and (ii)
complying with the requirements of the 1934 Act in connection with the
solicitation of proxies of the common shareholders.
D. Purpose and Anticipated Effects of the Reorganization
-----------------------------------------------------
1. Purpose
-------
As indicated above, the reorganization is an integral part of
implementation of the Settlement Agreement (Ex. 1). PowerChoice is intended to
further the PSC's stated goals in restructuring the utility industry in New York
State into a competitive energy marketplace. See PSC Opinion No. 96-12 in Case
94-E-0952 issued May 20, 1996 (168 P.U.R. 4th 515). The proposed holding company
structure is intended to provide Niagara Mohawk and its subsidiaries with the
financial and regulatory flexibility to compete more effectively in an
increasingly competitive energy industry by providing a structure that can
accommodate both regulated and unregulated lines of business.
The holding company structure separates the operations of regulated and
unregulated businesses. As a result, it provides a better structure for
regulators to assure that there is no cross-subsidization of costs or transfer
of business risk from unregulated to regulated lines of business. A holding
company structure also is preferred by the investment community because it makes
it easier to analyze and value individual lines of business. Moreover, the use
of a holding company structure provides legal protection against the imposition
of liability on regulated utilities for the results of unregulated business
activities. In short, the holding company structure is a highly desirable form
for conducting regulated and unregulated businesses within the same corporate
group.
More generally, the holding company structure will enable Holdings to
engage in unregulated businesses without obtaining the prior approval of the
PSC, thereby enabling Holdings to pursue unregulated business opportunities in a
timely manner. Under the new corporate structure, financing of unregulated
activities of Holdings and its non-utility subsidiaries will not require PSC
approval. In addition, the capital structure of each non-utility subsidiary may
be appropriately tailored to suit its individual business. Also, under the
holding company structure, Holdings would not need PSC approval to issue debt or
equity securities to finance the acquisition of the stock or assets of other
companies. The ability to raise capital for acquisitions without prior PSC
approval should allow
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competition on a level basis with other potential acquirors, some of which are
already holding companies. Under a holding company structure, the issuance of
debt or equity securities by Holdings to finance the acquisition of the stock or
assets of another company should not adversely affect Niagara Mohawk's capital
devoted to and available for regulated utility operations.
2. Anticipated Effects
-------------------
The consummation of the reorganization will have no significant effect
on the common shareholders since their interest and investment in the business
of Niagara Mohawk will be changed only in form and not in substance. The
consolidated assets and liabilities of Niagara Mohawk and its subsidiaries
before the Effective Time will be the same as the consolidated assets and
liabilities of Holdings and its subsidiaries after the Effective Time. All the
business and operations conducted before the Effective Time by Niagara Mohawk
and its subsidiaries will continue to be conducted after the Effective Time by
Niagara Mohawk and such subsidiaries as subsidiaries of Holdings.
The reorganization will have no adverse effect upon the electric and
natural gas utility operations of Niagara Mohawk.
PowerChoice also provides that Niagara Mohawk will conduct an auction
sale of its non-nuclear generation assets in accordance with the terms of
PowerChoice. Neither Holdings nor any of its subsidiaries, including Niagara
Mohawk, may participate in the auction as a bidder. The auction is estimated to
be completed and resulting transactions closed in the first half of 1999.
The holding company structure is a well-established form of
organization for companies conducting multiple lines of business. It is a common
form of organization for unregulated companies and for those regulated
companies, such as telephone utilities and water utilities, which are not
subject to the 1935 Act. In addition, it is utilized by many electric companies
which are involved in unregulated activities. Niagara Mohawk wishes to take
advantage of this opportunity, and desires to do so by utilizing the most
efficient and effective corporate structure.
For the reasons stated above, Niagara Mohawk believes that the
reorganization will have no adverse effect on Niagara Mohawk, Niagara Mohawk
customers, the common shareholders, or the holders of Niagara Mohawk Preferred
Stock or Niagara Mohawk's debt securities.
E. Additional Information
----------------------
No associate company or affiliate of Holdings or Niagara Mohawk, nor
any affiliate of any associate company of Holdings or Niagara Mohawk, has
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any direct or indirect material interest in the proposed transactions except as
stated herein.
For further information, reference is made to the financial statements
and other information in Exhibits 6 through 15 hereto.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned company has duly caused this statement to be signed on
its behalf by the undersigned thereunto duly authorized.
Niagara Mohawk Holdings, Inc.
Date: February 25, 1999 By: /s/ William F. Edwards
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William F. Edwards
Senior Vice President
Chief Financial Officer
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