AUGUST 13, 1997
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
APPLICATION FOR AN EXEMPTIVE ORDER UNDER SECTION 2(a)(7)
OF THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
_________________
CALENERGY COMPANY, INC.
302 S.36th Street, Suite 400
Omaha, Nebraska 68131
(Name of company filing this application
and address of principal executive offices)
________
Steven A. McArthur, Esq.
Senior Vice President, General Counsel
and Secretary
CALENERGY COMPANY, INC.
302 S.36th Street, Suite 400
Omaha, Nebraska 68131
(402) 231-1640
(Number, address and telephone number of agent for service)
________
Copies to:
Clifford M. Naeve, Esq. Peter J. Hanlon, Esq.
Skadden, Arps, Slate, Meagher & Willkie Farr & Gallagher
Flom LLP One Citicorp Center
1440 New York Avenue, N.W. 153 East 53rd Street
Washington, D.C. 20005 New York, New York 10022
APPLICATION FOR EXEMPTIVE ORDER UNDER
SECTION 2(a)(7) OF THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
CalEnergy Company, Inc. and all of its direct
and indirect subsidiaries ("CalEnergy") hereby submits
this application to the Securities and Exchange
Commission (the "Commission") for an order under Section
2(a)(7) of the Public Utility Holding Company Act of 1935
(the "Act") declaring that, under the circumstances
described herein, CalEnergy is not a holding company
under clause (A) of Section 2(a)(7) of the Act with
respect to New York State Electric & Gas Corporation, a
New York corporation ("NYSEG").
Information Concerning CalEnergy
CalEnergy, together with its subsidiaries, is a
United States-based global power company that generates,
distributes and supplies electricity to utilities,
government entities, retail customers and other
customers. CalEnergy, through its subsidiaries, is
engaged in the development, ownership and operation of
independent power production facilities in the U.S. and
worldwide, primarily utilizing geothermal resources,
natural gas and hydroelectric or other energy sources.
In addition, through its U.K. subsidiary, Northern
Electric plc ("Northern"), a regional U.K. electric
utility, CalEnergy is engaged in the distribution and
supply of electricity in northeast England, as well as
the generation and supply of electricity (together with
other related business activities) in other regions in
England and Wales. Northern and all of CalEnergy's
foreign generating projects are Foreign Utility Companies
("FUCOs") under Section 33 of the Act. For the year
ended December 31, 1996 and the three months ended March
31, 1997, CalEnergy had total revenues of $576.22 million
and $566.00 million, respectively, and net income of
$92.5 million and $27.4 million, respectively.
In addition to its ownership interests in
FUCOs, CalEnergy also has ownership interests in
Qualifying Facilities under the Public Utility Regulatory
Policies Act of 1978. CalEnergy does not own voting
securities of or otherwise control any "public utility
company" within the scope of Section 2(a)(5) of the Act.
Information Concerning NYSEG
The information contained in this application
with respect to NYSEG is based solely on publicly
available information filed by NYSEG with the Commission
and has not been independently verified.
NYSEG was organized under the laws of the State
of New York in 1852. NYSEG's principal business is
generating, purchasing, transmitting and distributing
electricity and purchasing, transporting and distributing
natural gas. NYSEG is a "public utility company" under
the Act. NYSEG's service territory, 99% of which is
located outside the corporate limits of cities, is in the
central, eastern and western parts of the State of New
York. The service territory has an area of approximately
19,600 square miles and a population of 2,400,000. NYSEG
serves approximately 808,000 electric customers and
238,000 natural gas customers. For the years 1996, 1995
and 1994, 84%, 85% and 84%, respectively, of operating
revenue was derived from electric service and the balance
was derived from natural gas service.
For the fiscal year ended December 31, 1996,
NYSEG had operating revenues of $2.06 billion and
earnings available for common stock of $168.71 million.
For the three months ended March 31, 1997, NYSEG had
operating revenues of $588.13 million and earnings
available for common stock of $79.66 million. As of
March 31, 1997, NYSEG had total assets of $5.08 billion.
NYSEG's common stock, par value $6.66-2/3 per
share (the "Common Stock") and other securities of NYSEG
are registered pursuant to Section 12(b) or Section 12(g)
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and are listed for trading on the New
York Stock Exchange. Accordingly, NYSEG is subject to
the informational requirements of the Exchange Act and in
accordance therewith files reports, proxy statements and
other information with the Commission relating to its
business, financial position, results of operations and
other matters.
NYSEG is authorized to issue 90,000,000 shares
of Common Stock, which is the only class of outstanding
securities of the Company generally entitled to vote. As
of April 30, 1997, 68,502,727 shares of Common Stock were
issued and outstanding. Holders of Common Stock have
cumulative voting rights for the election of directors
(who are divided among three classes) and one vote per
share for all other purposes. The holders of a majority
of the outstanding shares of stock of NYSEG entitled to
vote at a meeting constitute a quorum for purposes
thereof.
Background
On July 15, 1997, CE Electric (NY) Inc., a New
York corporation and a wholly owned subsidiary of
CalEnergy (the "Purchaser"), announced its intention to
commence an offer (the "Offer") to purchase 6,540,670
shares of Common Stock at $24.50 per share, net to the
seller in cash, without interest thereon, on the terms
and conditions set forth in the Purchaser's Offer to
Purchase and related Letter of Transmittal. The
Purchaser has not conducted any business except in
connection with the Offer, which formally commenced on
July 18, 1997. The purpose of the Offer is to enable the
Purchaser to acquire that number of shares of Common
Stock that, together with the 241,100 shares of Common
Stock beneficially owned by an affiliate of the
Purchaser, will represent 9.9% of the total number of
shares of NYSEG Common Stock outstanding.
Following completion of the Offer (which is
currently anticipated to occur on August 14), the
Purchaser intends to seek regulatory approvals permitting
the acquisition and ownership of 100% of the outstanding
Common Stock and thereafter to acquire all of the
outstanding Common Stock it does not then own. In order
to make such acquisition, which may be by means of a
subsequent offer and a related merger (the "Subsequent
Offer") or a subsequent merger (the "Subsequent Merger"),
such Subsequent Offer or Subsequent Merger would be
subject to a number of conditions to which the Offer is
not subject, including the receipt of regulatory
approvals from such agencies as the Public Service
Commission of the State of New York, the Pennsylvania
Public Utility Commission, the Nuclear Regulatory
Commission and the Federal Energy Regulatory Commission.
As a result of these regulatory approval requirements,
the Purchaser believes that the Subsequent Offer or
Subsequent Merger will not be capable of being
consummated for a significant period of time, currently
expected to be 6-12 months.
Although the Offer's intent is to increase
CalEnergy's holdings of Common Stock to 9.9% of the
outstanding shares, it is unlikely that the Purchaser
will be able to ascertain the precise number of shares
that constitute 9.9% of the outstanding Common Stock at
the time of the Offer's consummation. This is because
the Offer is being made on an unsolicited basis, and
NYSEG has to date either refused outright to inform the
Purchaser or delayed informing the Purchaser of its exact
number of outstanding shares; indeed, the Purchaser has
had to bring suit against NYSEG to compel NYSEG to
produce shareholder lists and security position
listings.(1) Therefore, the Purchaser intends to
consummate the Offer by purchasing 6,540,670 shares of
Common Stock, which together with the Common Stock owned
by an affiliate of the Purchaser represent 9.9% of the
outstanding Common Stock based on NYSEG's last disclosure
of its total number of outstanding shares of Common Stock
in its Form 10-Q for the fiscal quarter ended March 31,
1997.
----------------
1 Verified Petition, filed July 31, 1997, 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).
However, because the Purchaser can not be
certain how many shares of Common Stock will be
outstanding as of the consummation of the Offer due to
NYSEG's refusal or delay in providing accurate
information, it is possible that CalEnergy will
inadvertently hold more than 9.9% of the outstanding
Common Stock. This risk is heightened by the fact that
NYSEG has in existence a stock repurchase program, and
CalEnergy does not know how many shares may have been
purchased under such program before its Offer commenced.
Statutory Authority
If the Offer results in CalEnergy owning 10% or
more of the outstanding Common Stock, the Commission is
authorized by Section 2(a)(7) of the Act ("Section
2(a)(7)") to declare that CalEnergy is not a holding
company if the Commission finds that CalEnergy:
(i) Does not, either alone or pursuant to an
arrangement or understanding with one or more other
persons, directly or indirectly control NYSEG either
through one or more intermediary persons or by any
means or device whatsoever,
(ii) is not an intermediary company through which
such control is exercised, and
(iii) does not, directly or indirectly, exercise
(either alone or pursuant to an arrangement or
understanding with one or more other persons) such a
controlling influence over the management or
policies of NYSEG as to make it necessary or
appropriate in the public interest or for the
protection of investors or consumers that CalEnergy
be subject to the obligations, duties, and
liabilities imposed by the Act upon holding
companies.
CalEnergy will exceed the 9.9% threshold only
(i) if NYSEG does not timely and publicly update its
disclosure regarding its total number of outstanding
shares of Common Stock, and as a result CalEnergy
inadvertently purchases a greater percentage of the
outstanding Common Stock than intended or (ii) if,
following consummation of the Offer, NYSEG were to
repurchase outstanding shares so that CalEnergy would
inadvertently exceed the 9.9% limit. CalEnergy does not
intend to acquire more than 9.9% of the outstanding
Common Stock without complying with the regulatory
requirements that may be associated with the acquisition
of 10% or more of the outstanding Common Stock,
including, inter alia, securing necessary regulatory
approvals. As described below, CalEnergy will promptly
reduce its holdings of Common Stock if it discovers,
through subsequent disclosure or as a result of
subsequent actions by NYSEG, that it inadvertently owns
more than 9.9% of the outstanding Common Stock.
Therefore, CalEnergy and NYSEG should not be considered
to constitute a holding company system.
CalEnergy Should Not Be Deemed a Holding Company under
Section 2(a)(7)
So long as CalEnergy owns less than 10% of the
outstanding Common Stock, CalEnergy would not come within
the definition of "holding company" set forth in Section
2(a)(7). If NYSEG makes available timely and accurate
information regarding the number of outstanding shares of
Common Stock or does not take other actions (such as
repurchasing shares following consummation of CalEnergy's
Offer), CalEnergy will be able to ensure that CalEnergy
does not inadvertently acquire more than 9.9% of such
shares pursuant to the Offer. However, if NYSEG does not
make such information available on a timely basis, or
subsequently takes such actions, it would be inequitable
and would serve no statutory purpose to impose holding
company status upon CalEnergy. The Purchaser is seeking
to consummate a partial tender offer in accordance with
the rules and regulations promulgated by the Commission
without triggering application of the Act. Whether the
Purchaser succeeds in this lawful goal should not be
contingent upon NYSEG providing up-to-date information
regarding its number of outstanding shares of Common
Stock or NYSEG subsequently not repurchasing shares to
cause CalEnergy to exceed the 9.9% threshold. This would
be a particularly inequitable result under the current
circumstances where, as discussed above, NYSEG has in
place a stock repurchase program with unknown impact.
Under such circumstances, no purchaser can be certain,
despite its best efforts, how many shares of Common Stock
it may acquire before becoming subject to the Act's
jurisdiction.
In order to proceed with the Offer without the
benefit of NYSEG's cooperation, the Purchaser intends to
determine how many shares of Common Stock it may purchase
based upon NYSEG's most current disclosure. If NYSEG
subsequently discloses a lower number of outstanding
shares of Common Stock or takes actions to reduce that
number of outstanding shares and CalEnergy learns that
CalEnergy thereby inadvertently has acquired more than
9.9% of the outstanding Common Stock, CalEnergy will
cause the Purchaser or another affiliate to sell shares
of Common Stock so as to reduce CalEnergy's total
holdings to no more than 9.9% of the outstanding Common
Stock. Such sale or sales will be consummated as
expeditiously as possible, but in any event would be
completed within ten business days after CalEnergy learns
of NYSEG's number of outstanding shares of Common Stock.
Finally, CalEnergy's ownership interest upon
consummation of the Offer will not be sufficient to allow
CalEnergy to directly or indirectly control or exercise a
controlling influence over NYSEG. In fact, NYSEG's Board
has vehemently opposed CalEnergy's Offer. All the shares
of Common Stock enjoy the same rights and privileges.
The holders of Common Stock are entitled to one vote for
each share held and are not permitted to cumulate their
votes except in electing NYSEG's directors, who are
divided among three classes. The quorum for shareholder
meetings of NYSEG is a majority of the outstanding shares
entitled to vote, which generally implicates only the
Common Stock. NYSEG is a New York corporation, and two-
thirds of all outstanding shares of Common Stock are
required for approval of mergers pursuant to the New York
Business Corporation Law. As a result, upon consummation
of the Offer CalEnergy will lack sufficient shares to
prevent the formation of a quorum, or to block a merger
or similar transaction. CalEnergy thus will not have the
ability, by reason of any inadvertent and temporary
ownership of 10% or more of NYSEG's Common Stock, to
control or influence NYSEG's management or policies
unless the Subsequent Offer or Subsequent Merger is
consummated.
WHEREFORE, CalEnergy prays that the Commission
issue its order pursuant to Section 2(a)(7) of the Act
declaring that CalEnergy is not a holding company with
respect to NYSEG.
CALENERGY COMPANY, INC.
By: /s/ Steven A. McArthur
-----------------------------
Name: Steven A. McArthur
Title: Senior Vice President,
General Counsel and
Secretary
- - - - - - - - - - - -
COUNTY OF NEW YORK
STATE OF NEW YORK
- - - - - - - - - - - -
VERIFICATION
Before me, a notary public, on this day
personally appeared Steven A. McArthur, known to me to be
the person whose name is subscribed to in the foregoing
application and, being by me first duly sworn, declared,
under oath, that he is familiar with such application and
the transactions described therein, and that, to the best
of his knowledge, information and belief, the information
contained therein is true.
Given under my hand and seal of office this
12th day of August, 1997.
/s/ Stephen Seidman
--------------------------------
Notary Public, State of New York
My Commission Expires: 12/20/97
[Seal]
EXHIBIT 1
Proposed Notice of Application for an
Exemptive Order Under Section 2(a)(7) of
the Public Utility Holding Company Act of 1935
Notice is hereby given that the following
filing has been made with the Commission pursuant to the
provisions of the Act and the rules promulgated
thereunder. All interested persons are referred to the
application for complete statements of the proposed
transaction summarized below. The application and any
amendments thereto are available for public inspection
through the Commission's Office Of Public Reference.
Interested persons wishing to comment or
request a hearing on the application should submit their
views in writing by , 1997 to the
Secretary, Securities and Exchange Commission,
Washington, D.C. 20549, and serve a copy on CalEnergy at
302 S.36th Street, Suite 400, Omaha, Nebraska 68131.
Proof of service (by affidavit or, in case of an attorney
at law, by certificate) should be filed with the request.
Any request for hearing shall identify specifically the
issues of fact or law that are disputed. A person who so
requests will be notified of any hearing, if ordered, and
will receive a copy of any notice or order issued in the
matter. After said date, the application, as filed or as
amended, may be granted and/or permitted to become
effective.
CalEnergy Company, Inc. and all of its direct
and indirect subsidiaries ("CalEnergy") has filed an
application for a declaration that CalEnergy is not a
holding company under clause (A) of Section 2(a)(7) of
the Act with respect to New York State Electric & Gas
Corporation, a New York corporation ("NYSEG").
CalEnergy, together with its subsidiaries, is a
United States-based global power company that generates,
distributes and supplies electricity to utilities,
government entities, retail customers and other
customers. CalEnergy, through its subsidiaries, is
engaged in the development, ownership and operation of
independent power production facilities in the U.S. and
worldwide, primarily utilizing geothermal resources,
natural gas and hydroelectric or other energy sources.
In addition, through its U.K. subsidiary, Northern
Electric plc ("Northern"), a regional U.K. electric
utility, CalEnergy is engaged in the distribution and
supply of electricity in northeast England, as well as
the generation and supply of electricity (together with
other related business activities) in other regions in
England and Wales. Northern and all of CalEnergy's
foreign generating projects are Foreign Utility Companies
("FUCOs") under Section 33 of the Act. In addition to
its ownership interests in FUCOs, CalEnergy also has
ownership interests in Qualifying Facilities under the
Public Utility Regulatory Policies Act of 1978.
CalEnergy does not own voting securities of or otherwise
control any "public utility company" within the scope of
Section 2(a)(5) of the Act.
According to publicly available information
filed by NYSEG with the Commission that has not been
independently verified by CalEnergy, NYSEG was organized
under the laws of the State of New York in 1852. NYSEG's
principal business is generating, purchasing,
transmitting and distributing electricity and purchasing,
transporting and distributing natural gas. NYSEG's
service territory, 99% of which is located outside the
corporate limits of cities, is in the central, eastern
and western parts of the State of New York. The service
territory has an area of approximately 19,600 square
miles and a population of 2,400,000. NYSEG serves
approximately 808,000 electric customers and 238,000
natural gas customers. For the years 1996, 1995 and
1994, 84%, 85% and 84%, respectively, of operating
revenue was derived from electric service and the balance
was derived from natural gas service.
NYSEG's common stock, par value $6.66-2/3 per
share (the "Common Stock") and other securities of NYSEG
are registered pursuant to Section 12(b) or Section 12(g)
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and are listed for trading on the New
York Stock Exchange. Accordingly, NYSEG is subject to
the informational requirements of the Exchange Act and in
accordance therewith files reports, proxy statements and
other information with the Commission relating to its
business, financial position, results of operations and
other matters.
CalEnergy states that on July 15, 1997, CE
Electric (NY) Inc., a New York corporation and a wholly
owned subsidiary of CalEnergy (the "Purchaser"),
announced its intention to commence an offer (the
"Offer") to purchase 6,540,670 shares of Common Stock at
$24.50 per share, net to the seller in cash, without
interest thereon, on the terms and conditions set forth
in the Purchaser's Offer to Purchase and related Letter
of Transmittal. The Purchaser has not conducted any
business except in connection with the Offer, which
formally commenced on July 18, 1997. The purpose of the
Offer is to enable the Purchaser to acquire that number
of shares of Common Stock that, together with the 241,100
shares of Common Stock beneficially owned by an affiliate
of the Purchaser, will represent 9.9% of the total number
of shares of NYSEG Common Stock outstanding.
CalEnergy states that following completion of
the Offer, the Purchaser intends to seek regulatory
approvals permitting the acquisition and ownership of
100% of the outstanding Common Stock and thereafter to
acquire all of the outstanding Common Stock it does not
then own. In order to make such acquisition, which may
be by means of a subsequent offer and a related merger
(the "Subsequent Offer") or a subsequent merger (the
"Subsequent Merger"), such Subsequent Offer or Subsequent
Merger would be subject to a number of conditions to
which the Offer is not subject, including the receipt of
regulatory approvals from such agencies as the Public
Service Commission of the State of New York, the
Pennsylvania Public Utility Commission, the Nuclear
Regulatory Commission and the Federal Energy Regulatory
Commission. As a result of these regulatory approval
requirements, the Purchaser believes that the Subsequent
Offer or Subsequent Merger will not be capable of being
consummated for a significant period of time, currently
expected to be 6-12 months.
CalEnergy states that although the Offer's
intent is to increase CalEnergy's holdings of Common
Stock to 9.9% of the outstanding shares, it is unlikely
that the Purchaser will be able to ascertain the precise
number of shares that constitute 9.9% of the outstanding
Common Stock at the time of the Offer's consummation.
This is because the Offer is being made on an unsolicited
basis, and NYSEG has to date either refused outright to
inform the Purchaser or delayed informing the Purchaser
of its exact number of outstanding shares; indeed, the
Purchaser has had to bring suit against NYSEG to compel
NYSEG to produce shareholder lists and security position
listings. Therefore, the Purchaser intends to consummate
the Offer by purchasing 6,540,670 shares of Common Stock,
which together with the Common Stock owned by an
affiliate of the Purchaser represent 9.9% of the
outstanding Common Stock based on NYSEG's last disclosure
of its total number of outstanding shares of Common Stock
in its Form 10-Q for the fiscal quarter ended March 31,
1997. However, because the Purchaser can not be certain
how many shares of Common Stock will be outstanding as of
the consummation of the Offer due to NYSEG's refusal or
delay in providing accurate information, it is possible
that CalEnergy will inadvertently hold more than 9.9% of
the outstanding Common Stock. This risk is heightened by
the fact that NYSEG has in existence a stock repurchase
program, and CalEnergy does not know how many shares may
have been purchased under such program before its Offer
commenced.
CalEnergy states that so long as CalEnergy owns
less than 10% of the outstanding Common Stock, CalEnergy
would not come within the definition of "holding company"
set forth in Section 2(a)(7). If NYSEG makes available
timely and accurate information regarding the number of
outstanding shares of Common Stock or does not take other
actions (such as repurchasing shares following
consummation of CalEnergy's Offer), CalEnergy will be
able to ensure that CalEnergy does not inadvertently
acquire more than 9.9% of such shares pursuant to the
Offer. However, if NYSEG does not make such information
available on a timely basis, or subsequently takes such
actions, it would be inequitable and would serve no
statutory purpose to impose holding company status upon
CalEnergy. The Purchaser is seeking to consummate a
partial tender offer in accordance with the rules and
regulations promulgated by the Commission without
triggering application of the Act. Whether the Purchaser
succeeds in this lawful goal should not be contingent
upon NYSEG providing up-to-date information regarding its
number of outstanding shares of Common Stock or NYSEG
subsequently not repurchasing shares to cause CalEnergy
to exceed the 9.9% threshold. This would be a
particularly inequitable result under the current
circumstances where, as discussed above, NYSEG has in
place a stock repurchase program with unknown impact.
Under such circumstances, no purchaser can be certain,
despite its best efforts, how many shares of Common Stock
it may acquire before becoming subject to the Act's
jurisdiction.
CalEnergy further states that in order to
proceed with the Offer without the benefit of NYSEG's
cooperation, the Purchaser intends to determine how many
shares of Common Stock it may purchase based upon NYSEG's
most current disclosure. If NYSEG subsequently discloses
a lower number of outstanding shares of Common Stock or
takes actions to reduce that number of outstanding shares
and CalEnergy learns that CalEnergy thereby inadvertently
has acquired more than 9.9% of the outstanding Common
Stock, CalEnergy will cause the Purchaser or another
affiliate to sell shares of Common Stock so as to reduce
CalEnergy's total holdings to no more than 9.9% of the
outstanding Common Stock. Such sale or sales will be
consummated as expeditiously as possible, but in any
event would be completed within ten business days after
CalEnergy learns of NYSEG's number of outstanding shares
of Common Stock.
Finally, CalEnergy states that CalEnergy's
ownership interest upon consummation of the Offer will
not be sufficient to allow CalEnergy to directly or
indirectly control or exercise a controlling influence
over NYSEG. In fact, NYSEG's Board has vehemently
opposed CalEnergy's Offer. All the shares of Common
Stock enjoy the same rights and privileges. The holders
of Common Stock are entitled to one vote for each share
held and are not permitted to cumulate their votes except
in electing NYSEG's directors, who are divided among
three classes. The quorum for shareholder meetings of
NYSEG is a majority of the outstanding shares entitled to
vote, which generally implicates only the Common Stock.
NYSEG is a New York corporation, and two-thirds of all
outstanding shares of Common Stock are required for
approval of mergers pursuant to the New York Business
Corporation Law. As a result, upon consummation of the
Offer CalEnergy will lack sufficient shares to prevent
the formation of a quorum, or to block a merger or
similar transaction. CalEnergy thus will not have the
ability, by reason of any inadvertent and temporary
ownership of 10% or more of NYSEG's Common Stock, to
control or influence NYSEG's management or policies
unless the Subsequent Offer or Subsequent Merger is
consummated.
