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As filed with the Securities and Exchange Commission on August 4, 2000
File No. 70-09337
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------------------------
AMENDMENT NO. 4
TO
FORM U-1 APPLICATION-DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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Northern States Power Company
414 Nicollet Mall
Minneapolis, Minnesota 55401
(Name of company filing this statement
and address of principal executive offices)
None
(Name of top registered holding company parent)
John P. Moore, Jr.
Corporate Secretary
414 Nicollet Mall
Minneapolis, Minnesota 55401
(Name and addresses of agents for service)
The Commission is requested to send copies of all notices, orders and
communications in connection with this Application-Declaration to:
Peter D. Clarke
Gardner, Carton & Douglas
321 North Clark Street, Suite 3400
Chicago, Illinois 60610
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Item 1. Description of Proposed Transaction...................................1
A. Introduction.....................................................1
1. General Request and Overview of Transaction..................1
B. Description of the Parties to the Transaction....................3
1. General Description..........................................3
(a) NSP......................................................3
(b) BMG......................................................5
2. Description of Energy Sales and Facilities...................6
(a) NSP and NSP-W............................................6
(i) Energy Sales........................................6
(ii) Electric Generating Facilities......................7
(iii) Electric Transmission and Other Facilities..........8
(iv) Fuel Sources........................................9
(v) Gas Facilities......................................9
(b) BMG.....................................................10
3. Gas Coordination............................................10
4. Non-Utility Interests of NSP, NSP-W and BMG.................11
(a) NSP and NSP-W...........................................11
(b) BMG.....................................................12
C. Description of Transaction and Statement as to Consideration....12
1. Background..................................................12
2. Merger Agreement............................................14
3. Management of NSP following the Transaction.................14
4. Related Agreements..........................................15
Item 2. Fees, Commissions and Expenses.......................................15
Item 3. Applicable Statutory Provisions......................................16
A. Section 10(b)...................................................17
1. Section 10(b)(1)............................................18
2. Section 10(b)(2)............................................18
3. Section 10(b)(3)............................................19
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B. Section 10(c)...................................................22
1. Section 10(c)(1)............................................22
(a) Compliance With Section 8...............................22
(b) No Detriment to the Carrying Out of Section 11..........22
2. Section 10 (c)(2)...........................................24
(a) Efficiencies and Economies..............................25
(b) Integrated Public Utility System........................29
(i) Electrical System..................................30
(ii) Gas Utility System.................................32
C. Section 10(f)...................................................39
D. Section 3(a)(2).................................................39
Item 4. Regulatory Approvals.................................................44
A. Antitrust.......................................................44
B. State Public Utility Regulation.................................44
Item 5. Procedure............................................................45
Item 6. Exhibits and Financial Statements....................................45
A. Exhibits........................................................45
B. Financial Statements............................................47
Item 7. Information as to Environmental Effects..............................47
Index of Exhibits.............................................................49
</TABLE>
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This Pre-effective Amendment No. 4 revises and replaces in its
entirety the Form U-1 Application/Declaration in this proceeding, originally
filed with the Securities and Exchange Commission on July 22, 1998 in File
No. 70-9337. The sole purpose of this Amendment is to update the information
on Northern States Power Company's direct subsidiaries and to supply the
information on fees, commissions and expenses required by Item 2.
Item 1. Description of Proposed Transaction
A. Introduction
This Application-Declaration relates to the separation (the "Spin-off")
of the former assets of Black Mountain Gas Company, formerly an Arizona
corporation ("BMG"), into a wholly-owned, first-tier subsidiary of Northern
States Power Company, a Minnesota corporation ("NSP"). NSP acquired BMG on July
24, 1998 pursuant to a Merger (the "Merger") in which BMG was merged into NSP
with NSP as the surviving corporation. The Merger and the Spin-off are
collectively referred to as the "Transaction." NSP is currently a public-utility
company and an exempt holding company pursuant to Section 3(a)(2) of the Public
Utility Holding Company Act of 1935 (the "Act") and owns all of the common stock
of Northern States Power Company, a Wisconsin corporation ("NSP-W"), which is
also a public-utility company under the Act. Prior to the Merger, BMG was an
Arizona public service corporation.
The Transaction is expected to produce significant benefits to the
public, investors and consumers and will meet all applicable standards of the
Act. Among other things, NSP and BMG believe that the Transaction offers
strategic and financial benefits to each company and their respective
shareholders.
As discussed more fully at Item 3.D. below, NSP believes that,
following the consummation of the Transaction, it will continue to be a holding
company entitled to an exemption pursuant to Section 3(a)(2) of the Act because
it will continue to be predominantly a public-utility company and its operations
as such will remain confined to Minnesota, its state of incorporation, and
states contiguous thereto.
The shareholders of the common stock of BMG approved the merger of BMG
with and into NSP at a special meeting of BMG's shareholders on May 21, 1998.
The Merger was approved by the Arizona Corporation Service Commission (the
"Arizona Commission"), the Minnesota Public Utilities Commission (the "Minnesota
Commission") and the North Dakota Public Service Commission (the "North Dakota
Commission"). In addition, NSP obtained approval of the Spin-off from the
Arizona Commission, the Minnesota Commission and the North Dakota Commission.
The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act") has expired. Apart from the approval of the
Securities and Exchange Commission (the "Commission") under the Act, the
foregoing approvals are the only governmental approvals required for the
Transaction. In order to permit timely consummation of the Transaction and the
realization of the substantial benefits it is expected to produce, NSP requests
that the Commission's review of this Application-Declaration commence and
proceed as expeditiously as practicable.
1. General Request and Overview of Transaction
Pursuant to Section 9(a)(2) and Section 10 of the Act, NSP requests
that the Commission: (i) authorize the Spin-off of BMG as a wholly-owned,
first-tier subsidiary of NSP as described herein, and (ii) grant such other
authorizations as may be necessary in connection therewith. NSP also requests an
order under Section 3(a)(2) of the Act declaring it exempt from all
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provisions of the Act except Section 9(a)(2) following consummation of the
Transaction which will establish BMG as a direct wholly-owned subsidiary of
NSP.(1)
Pursuant to an Agreement and Plan of Merger, dated as of December 29,
1997 (the "Merger Agreement"), on July 24, 1998, BMG merged into NSP with NSP as
the surviving corporation. A copy of the Merger Agreement is incorporated by
reference as Exhibit B-1. Pursuant to the Merger Agreement, each issued and
outstanding share of common stock, no par value, of BMG ("BMG Common Stock")
(except shares owned by BMG as treasury stock) was canceled and converted into
the right to receive a fraction of a share of common stock, $2.50 par value, of
NSP ("NSP Common Stock") equal to the quotient (hereinafter, the "Exchange
Ratio") derived by dividing (A) $17,750,000 by (B) the product of (i) the volume
weighted average of the closing prices for NSP Common Stock on the New York
Stock Exchange for the twenty full trading days ending on the third full trading
day prior to July 24, 1998, the date the Merger became effective (the "Average
NSP Share Price") and (ii) the number of shares of BMG Common Stock issued and
outstanding immediately prior to July 24, 1998. Pursuant to the Merger Agreement
an additional number of shares of NSP Common Stock equal to the quotient derived
by dividing $1,500,000 by the Average NSP Share Price was placed in escrow to
satisfy any indemnification claims of NSP under the Merger Agreement. Such
additional shares, net of any indemnification claims, were distributed pro rata
to the former holders of BMG Common Stock on or about July 24, 1999, the first
anniversary of the closing of the Merger. Following receipt of the Commission's
approval of the Spin-off pursuant to this Application-Declaration, NSP will
cause the assets of BMG to be transferred to a newly-formed, wholly-owned,
first-tier subsidiary of NSP. The effect of such transfer will be that BMG will
become a wholly-owned subsidiary of NSP.
Upon completion of the Transaction, NSP will directly own NSP-W, a
public utility company, and BMG, also a public utility company. In addition to
owning NSP-W and BMG, NSP will continue to own all of its existing non-utility
subsidiaries upon consummation of the Transaction. See Exhibit E-2 for the
corporate structure to be in effect upon consummation of the Transaction.
If the Commission does not authorize the Spin-off and the relief
requested above, then NSP requests, in the alternative, an order under Section
3(a)(2) of the Act declaring it exempt from all provisions of the Act except
Section 9(a)(2).
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(1) Since completion of the initial step of the Transaction (i.e., the
Merger) on July 24, 1998, NSP's utility operations have included the
operations of BMG. Also, since the Merger with BMG, NSP has entered
into an Agreement and Plan of Merger with New Century Energies, Inc.,
pursuant to which New Century Energies would merge with and into NSP,
with NSP being the surviving corporation. The surviving corporation
will be renamed Xcel Energy and will register as a holding company
under the Act. The proposed merger with NCE is the subject of a
separate application-declaration on Form U-1 (File No. 70-09539).
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B. Description of the Parties to the Transaction
1. General Description
(a) NSP
NSP was incorporated under the laws of the State of Minnesota in 1909.
It is a public-utility company and a holding company exempt from regulation by
the Commission under the Act (except for Section 9(a)(2) thereof) pursuant to
Section 3(a)(2) of the Act and by order of the Commission in NORTHERN STATES
POWER COMPANY, Holding Co. Act Release No. 22334, 24 SEC Docket 405 (Dec. 23,
1981). The Merger of NSP and BMG is a transitional combination and the intended
result of the contemporaneous steps of the Transaction is that NSP becomes the
holding company of a second public utility subsidiary. This view is consistent
with the Commission's policy to look at "the final result" rather than "separate
and succeeding transactions" where such are "integral parts of a single plan and
purpose." SEE, E.G., NATIONAL PROPANE CORP., Holding Co. Act Release No. 20684,
46 S.E.C. 1332, 1337-8 (Aug. 24, 1978); SEE ALSO ASS'N OF MASS CONSUMERS, INC.
V. S.E.C., 516 F.2d 711, 717 (D.C. Cir. 1975), CERT. DENIED 423 U.S. 1052
(1976).
NSP is engaged primarily in the generation, transmission and
distribution of electricity throughout a 30,000 square mile service area. NSP
also purchases, distributes and sells natural gas to retail customers, and
transports customer-owned gas, in approximately 115 communities within this
area. NSP provides electric utility service in South Dakota and electric and gas
utility service in Minnesota and North Dakota. Of the more than 2.5 million
people served by NSP, the majority are concentrated in the Minneapolis-St. Paul
metropolitan area. In 1999, more than 73% of the electric retail revenue of NSP
was derived from sales in the Minneapolis-St. Paul metropolitan area and more
than 67% of its retail gas revenue was derived from sales in the St. Paul
metropolitan area. As of December 31, 1999, NSP provided electric utility
service to approximately 1,240,000 customers and gas utility service to
approximately 400,000 customers.
NSP owns all of the outstanding common stock of NSP-W, a Wisconsin
corporation, which is a public-utility company under the Act. NSP-W is engaged
in the generation, transmission, and distribution of electricity to
approximately 210,400 retail customers in an area of approximately 18,900 square
miles in northwestern Wisconsin, to approximately 9,100 electric retail
customers in an area of approximately 300 square miles in the western portion of
the Upper Peninsula of Michigan, and to 10 wholesale customers in the same
general area. NSP-W purchases, distributes and sells natural gas to retail
customers or transports customer-owned natural gas in the same service territory
to approximately 78,000 customers in Wisconsin and 5,000 customers in Michigan.
In 1999, NSP-W provided approximately 15% of NSP's consolidated revenues.
Retail sales rates, services and other aspects of NSP's retail
operations are subject to the jurisdiction of the Minnesota Commission, the
North Dakota Commission and the South Dakota Commission within their respective
states. The Minnesota Commission also possesses regulatory authority over
aspects of NSP's financial activities including security issuances, property
transfers when the asset value is in excess of $100,000, mergers with other
utilities, and transactions between NSP and affiliates. In addition, the
Minnesota Commission reviews and
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approves NSP's electric resource and gas supply capacity plans for meeting
customers' future energy needs. NSP-W is subject to regulation of similar scope
by the Public Service Commission of Wisconsin (the "Wisconsin Commission") and
the Michigan Public Service Commission (the "Michigan Commission"), except that
the Michigan Commission does not regulate NSP-W's issuances of securities. In
addition, before facilities may be sited and built, a state commission generally
must certify the need for new generating plants and transmission lines of
designated capacities to be located within such state.
Wholesale rates for electric energy sold in interstate commerce,
wheeling rates for energy transmission in interstate commerce, and certain other
activities of NSP and NSP-W (including its hydroelectric facilities) are subject
to the jurisdiction of the Federal Energy Regulatory Commission (the "FERC").
The operation and construction of NSP's Prairie Island and Monticello nuclear
facilities are subject to regulation by the Nuclear Regulatory Commission.
Non-utility businesses conducted directly by NSP consist of: (i) an
appliance warranty program for its residential customers, (ii) construction of
natural gas distribution systems for third parties (primarily end-users and
municipal gas systems), (iii) sale of steam to industrial customers in NSP's
service territory, (iv) installation and maintenance of street lighting for
municipalities and other customers, (v) propane services, (vi) fuel oil services
and (vii) installation and maintenance of distributed generation on customer's
facilities.
While NSP-W is currently the only public-utility subsidiary of NSP
under the Act, NSP has thirteen other directly-owned subsidiaries that are
engaged in various non-utility businesses: NSP Financing I; Viking Gas
Transmission Company ("Viking"); Energy Masters International, Inc. ("EMI,"
formerly Cenerprise, Inc.); Eloigne Company ("Eloigne"); First Midwest Auto
Park, Inc. ("FMAP"); Reddy Kilowatt Corporation ("Reddy Kilowatt"); United
Power & Land Company ("UP&L"); Seren Innovations, Inc. ("Seren"); Natrogas,
Inc. ("Natrogas"); Ultra Power Technologies, Inc. ("Ultra Power"); NSP Nuclear
Corporation ("NSP Nuclear"); NRG Energy, Inc. ("NRG"); and Private Fuel
Storage L.L.C. ("PFS"). NSP-W has two wholly-owned subsidiaries, Clearwater
Investments, Inc. ("Clearwater") and NSP Lands, Inc. ("NSP Lands"); and a
75.86% owned subsidiary, Chippewa & Flambeau Improvement Company ("C&F"). The
activities of these subsidiaries are more fully described under Item 1.B.4(a)
below. For the year ended December 31, 1999, approximately 15% of NSP's
consolidated operating revenues (before intercompany eliminations) and 12% of
its consolidated net income were derived from the non-utility businesses. As
of December 31, 1999, approximately 39.8% of NSP's consolidated assets were
invested in non-utility businesses.
NSP Common Stock is listed on the New York Stock Exchange, Inc.
("NYSE") and the Chicago and Pacific Stock Exchanges. As of June 30, 2000, there
were 157,286,793 shares of NSP Common Stock and 1,050,000 shares of NSP
cumulative preferred stock outstanding. NSP's principal executive office is
located at 414 Nicollet Mall, Minneapolis, Minnesota 55401. NSP-W does not have
any preferred stock outstanding and all of its common stock is owned by NSP.
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On a consolidated basis, NSP's operating revenues for the twelve months
ended December 31, 1999, were $3.6 billion, consisting of the following (before
intercompany eliminations)(2):
<TABLE>
<CAPTION>
($ in millions)
Electric Utility Gas Utility Other
<S> <C> <C> <C>
NSP $2,267 $372 $ 0
NSP-W $337 $82 $ 0
Non-Utility $0 $ 0 $538
Subsidiaries
</TABLE>
Consolidated assets of NSP and its subsidiaries as of December 31, 1999 were
approximately $9.8 billion, consisting of $3.6 billion in net electric utility
property, plant and equipment ($2.9 billion for NSP and $637 million for NSP-W);
$476 million in net gas utility property, plant and equipment ($411 million for
NSP and $65 million for NSP-W); $3.9 billion in non-utility subsidiary assets;
and $1.7 billion in other corporate assets.
More detailed information concerning NSP and its subsidiaries is
contained in: (i) NSP's Annual Reports on Form 10-K for the years ended December
31, 1998 and December 31, 1999 and its Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000, (ii) NSP-W's Annual Reports on Form 10-K for the
years ended December 31, 1998 and December 31, 1999 and its Quarterly Report on
Form 10-Q for the quarter ended March 31, 2000, and (iii) NRG's Annual Reports
on Form 10-K for the years ended December 31, 1998 and December 31, 1999 and its
Quarterly Report on Form 10-Q for the quarter ended March 31, 2000. Each of the
aforementioned reports on Form 10-K and Form 10-Q are incorporated by reference
as Exhibits H-1 through H-9.
(b) BMG
BMG was incorporated under the laws of Arizona in 1965. Prior to the
Merger, it was an Arizona public service corporation providing natural gas
distribution to an area of approximately 100 square miles in Maricopa County,
Arizona, and providing propane gas distribution to an area of approximately 20
square miles in Coconino County, Arizona, pursuant to certificates of
convenience and necessity issued by the Arizona Commission. As of the year ended
December 31, 1999, BMG provided utility services to 7,800 customers. Most of its
customers are residential. Non-residential customers include two school
districts, three resorts and multiple
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(2) In the following table, Electric Utility revenues are the revenues
derived by NSP and NSP-W from their operations as an "electric utility
company" as defined in Section 2(a)(3) under the Act; Gas Utility
revenues are the revenues derived by NSP and NSP-W from their
operations as a "gas utility company" under Section 2(a)(4) of the Act;
and Non-Utility Subsidiaries revenues include all other revenues of
consolidated subsidiaries of NSP. These amounts do not conform to NSP's
consolidated financial reports, as NSP reports in its consolidated
financial statements: (i) the revenues of its wholly-owned regulated
natural gas interstate pipeline (Viking Gas Transmission Company) as
part of Gas Utility revenues, (ii) the revenues of its other
consolidated subsidiaries as part of "Other Income (Deductions)" and
(iii) the results of the operations of its non-consolidated
subsidiaries under "Equity in Earnings of Unconsolidated Affiliates."
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light commercial customers. As such, BMG is a "gas utility company" as defined
in Section 2(a)(4) of the Act. BMG does not own, control or hold the voting
securities of any public-utility company or holding company under the Act and,
thus, it is not a "holding company" as defined under Section 2(a)(7) of the Act.
BMG has no subsidiaries. BMG is not subject to regulation under the jurisdiction
of the FERC. The Company's rates charged to customers are regulated by the
Arizona Commission.
BMG also provides non-utility services and bulk propane sales through
its Lake Powell Propane division. Such non-utility services also include
appliance repair. In 1999, revenues and net income from non-utility services
totaled $0.7 million and $27,000, respectively, representing 10.9% and 3.2% of
BMG's operating revenue and net income, respectively, for the year ended
December 31, 1999.
BMG's total operating revenues for the years ended December 31, 1997,
1998, and 1999 were approximately $6.2 million, $6.3 million, and $6.4 million,
respectively. For the same periods, BMG's net income was approximately $1.3
million, $365,000, and $855,000, respectively.(3) BMG's net utility assets as of
December 31, 1998, and 1999 were approximately $15.8 million and $16.6 million,
respectively.
More detailed information concerning BMG is contained in the Proxy
Statement of BMG dated April 23, 1998, attached as Exhibit C-2.
2. Description of Energy Sales and Facilities
(a) NSP and NSP-W
(i) Energy Sales
For the year ended December 31, 1999, NSP and NSP-W sold the following amounts
of electric energy (at retail or wholesale) and distributed the following
amounts of natural or manufactured gas at retail:
<TABLE>
<CAPTION>
Year ended
December 31, 1999
-----------------------
<S> <C>
NSP Kwh of electric energy sold (including amounts delivered in 31,645,688
interchange)
Mcf of gas distributed at retail (including natural and 76,125,048
manufactured gas)
NSP-W Kwh of electric energy sold (including amounts 5,433,619
----------
(3) 1998 net income reflects net income after Transaction related expenses,
which were recorded as current expense.
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delivered in interchange)
Mcf of gas distributed at retail (including natural and 17,685,179
manufactured gas)
</TABLE>
(ii) Electric Generating Facilities
As of December 31, 1999 NSP and NSP-W had a total net generating
capability of 7,176 Mw and NSP had a total summer net generating capacity of
6,311 Mw available primarily from the following units:
Sherburne County ("Sherco"): NSP owns two coal-fired generating units
at its Sherco station in Minnesota with a combined net capability of 1,433 Mw.
NSP owns a 59% undivided interest in the third unit at the station ("Sherco 3"),
of which NSP's share of the net capability of this unit is 514 Mw.
Prairie Island: NSP owns two nuclear generating units at its Prairie
Island station in Minnesota with a combined net capability of 1,052 Mw.
Monticello: NSP owns one nuclear generating unit at its Monticello
station in Minnesota with a net capability of 578 Mw.
King: NSP owns one coal-fired generating unit at its King station in
Minnesota with a net capability of 571 Mw.
Black Dog: NSP owns four coal-fired generating units at its Black Dog
station in Minnesota with a combined net capability of 462 Mw.
High Bridge: NSP owns two coal-fired generating units at its High
Bridge station in Minnesota with a combined net capability of 267 Mw.
Riverside: NSP owns two coal-fired generating units at its Riverside
station in Minnesota with a combined net capability of 380 Mw.
Anson: NSP owns two oil/gas-fired combustion turbine electric
generating units at its Angus Anson station in Sioux Falls, South Dakota, with
an aggregate net generating capability of 202 Mw.
Inver Hills: NSP owns five oil/gas-fired combustion turbine electric
generating units at its Inver Hills station located in Inver Grove Heights,
Minnesota, with an aggregate net generating capability of 332 Mw.
NSP also owns numerous smaller generating units fueled with coal,
natural gas, oil or waste, wind and one hydro-electric generating facility, with
an aggregate net capability of 520 Mw.
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As of December 31, 1999, NSP-W had a total net summer generating
capability of 866 Mw from the following units:
Bay Front: NSP-W owns three steam electric generating units at
its Bay Front station in Ashland, Wisconsin that are fueled with coal, wood and
gas, with a combined net capability of 73 Mw.
French Island: NSP-W owns two steam electric generating units,
fueled with wood and refuse derived fuel, and two oil-fired combustion turbine
generating units at its French Island generating station in LaCrosse, Wisconsin
with a combined net capability of 183 Mw.
Flambeau: NSP-W owns a gas/oil-fired combustion turbine
electric generating unit at its Flambeau station in Park Falls, Wisconsin with a
summer net generating capability of 12 Mw.
Wheaton: NSP-W owns six oil-fired combustion turbine electric
generating units at its Wheaton station in Eau Claire, Wisconsin with a combined
net capability of 346 Mw.
Hydro Plants: NSP-W also owns and operates 19 hydroelectric
generating stations throughout northwestern Wisconsin with an aggregate net
capability of 251 Mw.
NSP-W presently relies primarily on NSP for base load generation and
purchases of power to meet the needs of NSP-W's customers. The electric
operations of NSP and NSP-W are fully integrated and all generating units are
centrally dispatched by NSP. The electric production and transmission costs of
NSP and NSP-W are shared by the companies under an agreement which is called the
"Agreement to Coordinate Planning and Operation and Interchange Power and Energy
Between Northern States Power Company (Minnesota) and Northern States Power
Company (Wisconsin)" ("Interchange Agreement"). The Interchange Agreement was
approved by the FERC in Docket No. ER84-690-000, dated August 21, 1985. For the
year ended December 31, 1999, the combined energy (Kwh) sales of NSP and NSP-W
were produced 44% by coal-fired generation, 28% by nuclear generation, 26% by
purchase and interchange and 2% from NSP's hydroelectric and other generation.
The 1999 electric system peak load for NSP and NSP-W was 7,990 Mw and occurred
on July 29, 1999, exclusive of off-system transactions. For the year ended
December 31, 1999, the fuel resources for NSP's and NSP-W's generation-based Kwh
was 58% obtained from coal-fired generation, approximately 38% from nuclear
generation, and approximately 4% from other fuels.
(iii) Electric Transmission and Other Facilities
As of December 31, 1999, NSP's electric transmission system included
265 circuit miles of 500 Kv line, 751 circuit miles of 345 Kv line, 287 circuit
miles of 230 Kv line, 59 circuit miles of 161 Kv line, 1,304 circuit miles of
115 Kv line and 1,710 circuit miles of transmission line under 115 Kv. The bulk
of NSP's high voltage transmission system is located in the State of Minnesota.
As of December 31, 1999, NSP's transmission substations had a combined capacity
of approximately 30,684 thousand KVA and the distribution substations totaled
approximately 13,624 thousand KVA. Manitoba Hydro-Electric Board, Minnesota
Power Company and NSP
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completed the construction of a 500 Kv transmission interconnection between
Winnipeg, Manitoba, Canada, and the Minneapolis-St. Paul, Minnesota, area in May
1980. NSP has a contract with Manitoba Hydro-Electric Board for 500 Mw of firm
power utilizing this transmission line. In addition, the Company is
interconnected with Manitoba Hydro through a 230 Kv transmission line completed
in 1970.
As of December 31, 1999, NSP-W's electric transmission system included
165 circuit miles of 345 Kv line, 280 circuit miles of 161 Kv line, 448 circuit
miles of 115 Kv line and 1,491 circuit miles of transmission line under 115 Kv.
As of December 31, 1999 NSP-W's transmission substations had a combined capacity
of approximately 4,397 thousand KVA and the distribution substations totaled
approximately 2,094 thousand KVA.
Other assets owned by NSP and NSP-W include electric distribution
systems located throughout its service area, and property, plant and equipment
owned or leased supporting their electric and gas utility functions. NSP and
NSP-W also own or lease other physical properties, including real property, and
other facilities necessary to conduct their operations.
(iv) Fuel Sources
NSP's and NSP-W's electric power generation by fuel type during each of
the three calendar years ended December 31, 1999, as well as the average cost of
such fuels to NSP and NSP-W per million BTUs, are set forth in the NSP and NSP-W
Annual Reports on Form 10-K for the year ended December 31, 1999, which are
incorporated by reference as Exhibits H-1 and H-4.
(v) Gas Facilities
NSP provides natural gas service at retail in the St. Paul metropolitan
area and portions of southeast, northwest and central Minnesota, as well as
eastern North Dakota, and in Arizona through BMG. NSP-W provides natural gas
service in western and central Wisconsin as well as Ironwood in Michigan's Upper
Peninsula. Both NSP and NSP-W are directly connected to various interstate
pipelines and have separate contractual supply portfolios for transportation
through pipelines and with suppliers of natural gas. The gas delivery operations
of NSP and NSP-W are managed out of St. Paul, Minnesota, pursuant to a
Supervisory Control and Data Acquisition ("SCADA") agreement between NSP and
NSP-W. NSP also has a SCADA agreement with Viking Gas Transportation Company (a
wholly-owned interstate pipeline subsidiary of NSP). Under these SCADA
agreements, NSP manages the pressures of the various pipelines owned by these
companies and the inflow and outflow of natural gas from these pipelines. These
agreements were approved by the MPUC in Docket No. - G002/AI-94-831, and the
NSP/NSP-W agreement was approved by the PSCW in Docket No. 4220-AU-117.
The gas properties of NSP include 7,943 miles of natural gas
distribution and transmission mains, 52 miles of propane vapor distribution
mains, the Westcott LNG plant with a storage capacity of 2.1 Bcf equivalent, and
five propane-air plants with a storage capacity of 1.4 Bcf equivalent to help
meet the peak requirements of its firm residential, commercial and industrial
customers. NSP-W's gas properties include approximately 1,811 miles of natural
gas distribution mains; the Eau Claire and LaCrosse LNG plants with a storage
capacity of .4 Bcf equivalent; and one propane-air plant with storage capacity
of 0.02 Bcf equivalent.
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NSP and NSP-W are also authorized to make certain sales of natural gas
for resale under blanket authority granted by the FERC under 18 CFR 284.402.
For the year ended December 31, 1999, NSP and NSP-W distributed the following
amounts of natural or manufactured gas at retail:
<TABLE>
<CAPTION>
Year-ended
December 31, 1999
-----------------
<S> <C> <C>
NSP Mcf of gas distributed at retail (including natural and $76,125,048
manufactured gas)
NSP-W Mcf of gas distributed at retail (including natural and 17,685,179
manufactured gas)
</TABLE>
(b) BMG
BMG is directly connected to the El Paso Natural Gas Company interstate
pipeline and has a transportation contract with this pipeline. BMG also is
connected to Southwest Gas Corporation's utility distribution system and has a
transportation contract with this regulated LDC. BMG has a commodity purchase
contract with Burlington Resources Inc. The gas properties of BMG include 250
miles of natural gas distribution mains and approximately 50 miles of propane
vapor distribution mains.
For the year ended December 31, 1999, BMG distributed 515,244 Mcf of
gas at retail (including natural and manufactured gas).
3. Gas Coordination
The following table sets forth certain information with respect to the
gas operations of NSP, NSP-W and BMG as of December 31, 1999, adjusted to give
effect to the Transaction (before intercompany eliminations).
<TABLE>
<CAPTION>
Mcf of Gas Distributed at
Gas Operating Revenues Retail (including natural
($ in millions) and manufactured gas)
--------------- ---------------------
<S> <C> <C>
NSP (excluding BMG) $366 $75,609,804
NSP-W 82 17,685,179
BMG 6 515,244
TOTAL $454 $93,810,227
=== ===========
</TABLE>
10
<PAGE>
As is evident from the above table, for the year ended December 31,
1999, BMG would have provided approximately 1% of the total gas operating
revenues and less than 1% of the total Mcf of gas distributed by the NSP system.
When electric utility operations are considered, BMG's operating revenues would
have provided approximately 0.2% of the consolidated utility operating revenues
of NSP.
NSP presently provides natural gas service at retail in Minnesota and
North Dakota and, through the former BMG assets, in Maricopa County and Coconino
County, Arizona. NSP-W provides gas service in western Wisconsin (near Eau
Claire and the Minnesota border), northwestern Wisconsin and Michigan's Upper
Peninsula. Upon completion of the Transaction, the NSP, NSP-W and BMG gas
operations will continue to serve those areas.
While the NSP, NSP-W and BMG gas systems are not physically
interconnected, following the Transaction, they will functionally perform as
coordinated system through purchase of natural gas from common sources of
supply.
BMG has contracted to purchase commodity gas from Burlington Resources,
Inc. Burlington Resources Inc. buys gas from the Permian, Hugoton/Andarko or San
Juan supply fields or basins. NSP, NSP-W and BMG, through Burlington Resources,
Inc., purchase gas from the following major supply fields or basins:
<TABLE>
<CAPTION>
FIELD/BASIN NSP NSP-W BMG
----------- --- ----- ---
<S> <C> <C> <C>
Hugoton/Andarko X X X
Permian X X
Rocky Mountain X X
Williston X
San Juan X
Alberta, Canada X X
</TABLE>
As indicated by the above table, NSP and BMG procure a portion of their
gas supplies from common producers. Moreover, the Northern Natural Gas Company
pipeline and the El Paso Gas Company pipelines that NSP and BMG utilize to
transport the majority of this gas are directly connected in several locations
in Texas and Oklahoma in the Hugoton/Andarko and Permian supply basins.
4. Non-Utility Interests of NSP, NSP-W and BMG
(a) NSP and NSP-W
NSP's non-utility activities are conducted through its direct
subsidiaries: NSP Financing I, NRG, Viking, Eloigne, EMI, Seren, Natrogas,
Ultra Power, FMAP, Reddy Kilowatt, UP&L, NSP Nuclear and PFS. NSP-W has two
wholly-owned non-utility subsidiaries,
11
<PAGE>
Clearwater and NSP Lands, and a 75.86% owned subsidiary, C&F. NSP Financing I
is a special purpose business trust formed for the purpose of issuing
preferred securities. NRG, in which NSP has an 82% ownership interest,
operates and has ownership interests in independent, non-regulated power and
energy businesses in the United States and other countries. Each of its power
generation businesses is a qualifying cogeneration facility ("QF") under the
Public Utility Regulatory Policies Act of 1978, an exempt wholesale generator
("EWG") under Section 32 of the Act or a foreign utility company ("FUCO")
under Section 33 of the Act. Viking owns and operates a 500 mile interstate
natural gas pipeline providing gas transportation service to customers in the
Upper Midwest from connections with three major pipelines in the United
States and Canada. Eloigne has ownership interests in affordable housing
projects, principally within NSP's service territory. EMI offers energy
performance contracting to commercial and industrial customers nationwide.
Seren provides cable, telephone and high-speed internet access systems.
Natrogas provides various propane services. Ultra Power, currently in the
process of winding up its business, previously marketed a power-cable testing
technology. FMAP owns and operates a parking garage located next to NSP's
headquarters. Reddy Kilowatt acquired the trademark and associated rights to
the "Reddy Kilowatt(R)" name. UP&L owns and holds real property typically
surrounding or adjacent to property owned and used by NSP in its regulated
operations. NSP Nuclear was formed to hold NSP's 25% interest in Nuclear
Management Company, a limited liability company that will provide services to
the nuclear operations of its members. PFS, in which NSP has a 12.5%
membership interest, is a consortium of electric power companies that has
applied to the Nuclear Regulatory Commission for a license to build a
temporary storage facility for spent nuclear fuel in Utah. Clearwater was
established to identify and develop affordable housing investment
opportunities for NSP-W. NSP Lands was created to develop and sell land owned
by NSP-W adjacent to a hydroelectric generating facility previously owned by
NSP-W. C&F was created in 1911 for the purpose of building, maintaining and
operating dams and reservoirs in Wisconsin.
Together, NSP's and NSP-W's non-utility subsidiaries and investments
constituted approximately 39.8% of NSP's consolidated assets as of December 31,
1999. NSP's and NSP-W's non-utility subsidiaries and investments also provided
approximately 15% of NSP's total revenues and approximately 12% of NSP's
consolidated net income for the year ended December 31, 1999.
(b) BMG
BMG provides non-utility services such as appliance repair and bulk
propane sales through its Lake Powell Propane division. Revenues and net income
from non-utility services represented 10.9% and 3.2% of BMG's operating revenues
and net income, respectively, for the year ended December 31, 1999.
C. Description of Transaction and Statement as to Consideration
1. Background
The business of BMG has grown steadily over the past five years, and
beginning in 1996 BMG discontinued its regular dividend in favor of re-investing
excess operating income to sustain and increase such growth. In recognition of
BMG's need for access to additional capital, and to provide BMG shareholders
with liquidity in their investment, in mid-1997 BMG's Board of Directors (the
"BMG Board") engaged Principal Financial Securities, Inc. ("PFS") to assist in
identifying sources of capital and potential merger partners for BMG. Through
this process, PFS introduced BMG to a number of possible merger partners which
conducted their own due diligence investigations of BMG and provided preliminary
offers to acquire BMG, one of which
12
<PAGE>
was NSP. In September 1997, Bernard C. Ziegler, formerly Chief Executive Officer
of The Ziegler Company, Inc. and a Director of BMG, advised James J. Howard,
Chairman, President and Chief Executive Officer of NSP, that BMG was considering
a possible sale or merger.
In September 1997, NSP management requested and obtained a confidential
information memorandum on BMG prepared by PFS. The confidential information
memorandum contained information on BMG's history, operations, financial results
and corporate structure. The confidential information memorandum was also made
available to other parties interested in a possible acquisition of or merger
with BMG. In addition to reviewing the confidential information memorandum, NSP
management conducted internal analyses of the benefits of a merger with BMG and
tested the financial assumptions in the confidential information memorandum.
From October to December 1997, representatives of NSP visited BMG to
review its operations and performed preliminary due diligence. During these
visits, representatives of NSP reviewed documents concerning BMG that were made
available to parties interested in an acquisition or merger. Representatives of
NSP continued to test financial assumptions and constructed financial models
regarding BMG's potential growth. Representatives of NSP also obtained
additional information from BMG management, including Thomas LeNeau, President
and Chief Executive Officer of BMG.
In November 1997, NSP management briefed Mr. Howard regarding the
desirability of a merger with BMG. Based on the briefing, Mr. Howard directed
NSP management to perform additional due diligence and prepare an offer.
On November 17, 1997, NSP submitted a written offer to merge with BMG.
In December 1997, NSP management, including Cynthia L. Lesher,
President of NSP-Gas, visited BMG to conduct an additional review of its
operations and perform further due diligence. During this visit to BMG, NSP
management met with BMG management to discuss, among other things, a merger of
the two companies. On December 5, 1997, NSP submitted a revised written offer to
merge with BMG.
On December 17, 1997, NSP management presented the proposed Merger to
the NSP Board. The NSP Board discussed the potential benefits to shareholders of
NSP and customers of NSP that could result from the proposed Merger and voted to
approve the Merger.
On December 29, 1997, the Agreement and Plan of Merger between NSP and
BMG was executed. On April 17, 1998, Amendment No. 1 to the Agreement and Plan
of Merger between NSP and BMG (providing for certain minor technical changes)
was executed.
On May 21, 1998, BMG's shareholders approved the Merger. On July 24,
1998, following receipt of necessary state regulatory approvals, BMG was merged
into NSP.
BMG retained PFS to act as financial advisor in connection with the
Transaction. PFS was selected by BMG based on PFS's experience, expertise and
familiarity with BMG and its
13
<PAGE>
businesses. As a nationally recognized investment banking firm, PFS is regularly
engaged in the valuation of businesses and securities in connection with mergers
and acquisitions, leveraged buyouts, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes.
Additional information regarding the background of the Transaction is
set forth in the Registration Statement on Form S-4 of NSP, which is filed as
Exhibit C-1 hereto (the "Registration Statement").
2. Merger Agreement
The Merger Agreement provided for BMG to be merged with and into NSP,
with NSP as the surviving corporation. Pursuant to the Merger Agreement, each
issued and outstanding share of BMG (except shares owned by BMG as treasury
stock) was canceled and converted into the right to receive a fraction of a
share of NSP Common Stock, determined in accordance with the Exchange Ratio.
Each issued and outstanding share of NSP Common-Stock remained outstanding,
unchanged, as one share of NSP Common Stock. The Merger Agreement is
incorporated by reference as Exhibit B-1. Pursuant to the Merger Agreement, an
additional number of shares of NSP Common Stock equal to the quotient derived by
dividing $1,500,000 by the Average NSP Share Price was placed in escrow to
satisfy any indemnification claims of NSP under the Merger Agreement. Such
additional shares, net of any indemnification claims, were distributed pro rata
to the former holders of BMG Common, on or about July 24, 1999, the first
anniversary of the closing of the Merger.
If any holder of BMG Common Stock was entitled to receive a number of
shares of NSP Common Stock that includes a fraction, then in lieu of a
fractional share, such holder is entitled to receive a cash payment based on
formula agreed to in the Merger Agreement. The Transaction is expected to be
tax-free to NSP and BMG shareholders (except as to fractional shares).
Following receipt of Commission approval pursuant to this
Application-Declaration, NSP will cause the assets of BMG to be transferred to a
newly-formed, wholly-owned subsidiary of NSP.
The Transaction is designed to qualify as a tax-free reorganization
under Section 368(a) of the Internal Revenue Code of 1986, as amended. NSP and
BMG believe the Transaction will be treated as a "pooling of interests" for
accounting purposes.
3. Management of NSP following the Transaction
As a result of the Transaction, BMG will become a second public-utility
subsidiary of NSP. Present utility operations of NSP and NSP-W and the
non-utility operations of NSP's other subsidiaries will be unaffected. NSP will
continue to be predominantly an operating public-utility, engaged as such in the
generation, transmission, and distribution of electricity and the distribution
of natural gas in the state of Minnesota, NSP's state of incorporation, and the
contiguous states of North Dakota and South Dakota. Following the Transaction,
there will be no change in the composition of the NSP Board or in the executive
management of NSP. After the Transaction, BMG, as a wholly-owned subsidiary of
NSP, will continue to distribute natural
14
<PAGE>
gas in the state of Arizona. BMG will continue to maintain its headquarters at
Cave Creek Arizona, and no significant changes to the operations of BMG are
anticipated as a result of the Transaction.
4. Related Agreements
In connection with the Merger Agreement, NSP and BMG also entered into
a stock option agreement (the "Option Agreement") (Exhibit B-2 hereto) giving
NSP the right to acquire up to 181,386 shares of BMG Common Stock under
specified circumstances. The Option Agreement terminated by its terms upon
completion of the Merger.
Item 2. Fees, Commissions and Expenses
The fees, commissions and expenses to be paid or incurred, directly or
indirectly, in connection with the Transaction, including the solicitation of
proxies by BMG, registration of securities of NSP under the Securities Act of
1933, and other related matters, are estimated as follows:
<TABLE>
<S> <C>
Commission filing fee for the
Registration Statement on Form S-4............................................$ 2,596
Accountant's fees............................................................. 10,600
Legal fees and expenses....................................................... 163,605
Shareholder communication and proxy solicitation ............................. 33,258
NYSE listing fee.............................................................. 8,604
Investment bankers' fees and expenses......................................... 270,852
</TABLE>
----------
(4) To be filed by Amendment.
15
<PAGE>
<TABLE>
<S> <C>
Consulting fees related to human resource
issues, public relations, regulatory support,
and other matters relating to the Transaction................................. 34,080
Expenses related to integrating the operations of the acquired company and
miscellaneous................................................................. 126,554
TOTAL......................................................................... 650,149
</TABLE>
Item 3. Applicable Statutory Provisions
Sections 9(a)(2) and 10 of the Act are directly or indirectly
applicable to the proposed Transaction. To the extent that other sections of the
Act or the Commission's rules thereunder are deemed to be applicable to the
Transaction, such sections and rules should be considered to be set forth in
this Item 3.
Section 9(a)(2) of the Act makes it unlawful, without approval of the
Commission under Section 10, "for any person... to acquire, directly or
indirectly, any security of any public-utility company, if such person is an
affiliate ... of such company and of any other public-utility or holding
company, or will by virtue of such acquisition become such an affiliate." Under
the definition set forth in Section 2(a)(11) of the Act, an "affiliate" of a
specified company means "any person that directly or indirectly owns, controls,
or holds with power to vote, 5 per centum or more of the outstanding voting
securities of such specified company," and "any company 5 per centum or more of
whose outstanding voting securities are owned, controlled, or held with power to
vote, directly or indirectly, by such specified company.... "
NSP, NSP-W and BMG are "public-utility companies" as defined in Section
2(a)(5) of the Act. Since NSP currently owns more than five percent of the
voting securities of NSP-W and, as a result of the Spin-off and the consummation
of the Transaction, will acquire more than five percent of the voting securities
of BMG, NSP would appear to need the approval of the Commission for the Spin-off
under Section 9(a)(2) and 10 of the Act. The statutory standards to be
considered by the Commission in evaluating the Transaction are set forth in
Sections 10(b), 10(c) and 10(f) of the Act.
As set forth more fully below, the Transaction complies with all of the
applicable provisions of Section 10 of the Act and should be approved by the
Commission:
- The consideration to be paid in the Transaction is fair and
reasonable;
- The Transaction will not create detrimental interlocking
relations or concentration of control;
- The Transaction will not result in an unduly complicated
capital structure for the NSP system;
16
<PAGE>
- The Transaction is in the public interest and the interests of
investors and consumers;
- The Transaction is consistent with Sections 8 and 11 of the
Act;
- The Transaction tends toward the economical and efficient
development of an integrated public-utility system; and
- The Transaction will comply with all applicable state laws.
Furthermore, this Transaction also provides an opportunity for the
Commission to follow certain of the interpretive recommendations made by the
Division of Investment Management (the "Division") in the report issued by the
Division in June 1995 entitled "The Regulation of Public Utility Holding
Companies" (the "1995 Report"). While the Transaction and the requests contained
in this Application-Declaration are well within the precedent of transactions
approved by the Commission as consistent with the Act prior to the 1995 Report
and thus could be approved without any reference to the 1995 Report, a number of
the recommendations contained therein serve to strengthen the Applicant's
analysis and would facilitate the creation of a utility company better able to
compete in the rapidly evolving utility industry. The Division's overall
recommendation that the Commission "act administratively to modernize and
simplify holding company regulation ... and minimize regulatory overlap, while
protecting the interests of consumers and investors,"(5) should be followed in
reviewing this Application-Declaration because, as demonstrated below, the
Transaction will benefit both consumers and shareholders of BMG and NSP and
because the state regulatory authorities with jurisdiction over this Transaction
will have approved it as in the public interest.
A. Section 10(b)
Section 10(b) provides that, if the requirements of Section 10(f) are
satisfied, the Commission shall approve an acquisition under Section 9(a)
unless:
(1) such acquisition will tend towards interlocking relations
or the concentration of control of public-utility companies,
of a kind or to an extent detrimental to the public interest
or the interest of investors or consumers;
(2) in the case of the acquisition of securities or utility
assets, the consideration, including all fees, commissions,
and other remuneration, to whomsoever paid, to be given,
directly or indirectly, in connection with such acquisition is
not reasonable or does not bear a fair relation to the sums
invested in or the earning capacity of the utility assets to
be acquired or the utility assets underlying the securities to
be acquired; or
----------
(5) Letter of the Division of Investment Management to the Securities and
Exchange Commission, 1995 Report at 3.
17
<PAGE>
(3) such acquisition will unduly complicate the capital
structure of the holding-company system of the applicant or
will be detrimental to the public interest or the interest of
investors or consumers or the proper functioning of such
holding-company system.
1. Section 10(b)(1)
Section 10(b)(1) requires a finding that control is "of a kind or to an
extent detrimental to the public interest or the interest of investors or
consumers." The framers of the Act sought, through Section 10(b)(1) to avoid "an
excess of concentration and bigness" while preserving the "opportunities for
economies of scale, the elimination of duplicative facilities and activities,
the sharing of production capacity and reserves and generally more efficient
operations" afforded by certain combinations. AMERICAN ELECTRIC POWER CO., INC.,
Holding Co. Act Release No. 20633, 46 S.E.C. 1299, 1309 (1978). The acquisition
of the very small gas distribution system of BMG by NSP will not create an
"excess of concentration and bigness," but, as discussed in more detail below,
will afford BMG the opportunity to achieve the economies of scale and
efficiencies, particularly in the areas of management expertise, information
systems and gas supply, that the Act's framers intended to preserve for the
benefit of investors and consumers.
2. Section 10(b)(2)
As noted above, the Commission may not approve the Transaction under
Section 10(b)(2) if it finds that the consideration to be paid in connection
with the combination, including all fees, commissions and other remuneration, is
"not reasonable or does not bear a fair relation to the sums invested in or the
earning capacity of . . . the utility assets underlying the securities to be
acquired. . . ."
NSP and BMG believe that the standards of Section 10(b)(2) regarding
consideration are satisfied in the present case for the following reasons.
First, the Merger was a pure stock-for-stock exchange and qualifies for
treatment as a pooling of interests. As set forth more fully at above Item
1.C.2, each share of BMG Common Stock was converted into the right to receive a
fraction of a share of NSP Common Stock in accordance with the Exchange Ratio,
and each share of NSP Common Stock will continue as a share of NSP Common Stock.
The Transaction will therefore involve no "acquisition adjustment" or other
write-up of the assets of NSP or BMG.
Second, the Transaction was approved by the BMG Board and was submitted
to, and approved by, the common shareholders of BMG. As provided under the
Arizona Business Corporation Act, the affirmative vote of a majority of the
votes entitled to be cast by the holders of the outstanding shares of BMG's
Common Stock was required for approval of the Merger.
Third, the Exchange Ratio is the product of arms-length negotiations
between NSP and BMG and was approved by the BMG Board. Such negotiations were
preceded by extensive due diligence, analysis and evaluation of the assets,
liabilities and business prospects of BMG. See Item 1.C.1 of this
Application-Declaration and "Background of the Merger" at pages 18 and 19 of the
Registration Statement (Exhibit C-1 hereto). As recognized by the Commission in
OHIO
18
<PAGE>
POWER CO., Holding Co. Act Release No. 16753, 44 S.E.C. 340, 346 (June 8, 1970),
prices arrived at through arms-length negotiations are particularly persuasive
evidence that Section 10(b)(2) is satisfied.
Finally, PFS, a nationally-recognized investment banking firm engaged
by BMG, has reviewed extensive information concerning BMG, analyzed the Exchange
Ratio employing a variety of valuation methodologies and opined that the
Exchange Ratio is fair to the holders of BMG Common Stock as of the date of the
Merger Agreement and as of the date the proxy statement/prospectus included in
the Registration Statement was mailed to the stockholders of BMG. PFS's analysis
and opinion is described in detail on pages 20 to 22 of the Registration
Statement (Exhibit C-1 hereto). The assistance of independent consultants in
setting consideration has been recognized by the Commission as evidence that the
requirements of Section 10(b)(2) have been met. THE SOUTHERN COMPANY; SV
VENTURES, INC., Holding Co. Act Release No. 24579, 40 SEC Docket 350 (Feb. 12,
1988).
In rendering its fairness opinion, PFS performed a number of analyses
relevant to the reasonableness of the Exchange Ratio and their relation to the
investment in, and earning capacity of, the utility assets of BMG. PFS reviewed
the Merger Agreement, related documents and certain publicly available business
and financial information relating to BMG and NSP. PFS also reviewed certain
other information, including financial projections provided to it by BMG and met
with management of BMG to discuss the business and prospects of BMG.
PFS also considered certain financial data for businesses similar to
BMG and considered, to the extent publicly available, the financial terms of
certain other business combinations and other transactions which have recently
been effected. PFS also considered such other information, financial studies,
analyses and investigations and financial, economic and market criteria that PFS
deemed relevant.
In light of PFS's opinion and an analysis of all relevant factors,
including the benefits that may be realized as a result of the Transaction, the
Exchange Ratio falls within the range of reasonableness, and the consideration
for the Transaction bears a fair relation to the sums invested in, and the
earning capacity of, the utility assets of BMG.
Item 2 of this Application-Declaration sets forth the fees, commissions
and expenses in connection with the Transaction. NSP and BMG believe that the
overall fees, commissions and expenses incurred and to be incurred in connection
with the Transaction are reasonable and fair relative to other transactions and
the anticipated benefits of the Transaction to the public, investors and
consumers, consistent with recent precedent and the standards of Section
10(b)(2). Furthermore, the investment banking fees of BMG reflect the
competition in the marketplace, in which investment banking firms actively
compete with each other to act as financial advisors to merger partners.
3. Section 10(b)(3)
Section 10(b)(3) requires the Commission to determine whether the
Transaction will "unduly complicate the capital structure" of the NSP system or
will be "detrimental to the public interest or the interest of investors or
consumers or the proper functioning" of the NSP system.
19
<PAGE>
Capital structure: The corporate capital structure of NSP after the
Transaction will not be unduly complicated and will be substantially similar to
the capital structure of NSP prior to the Transaction, and, because neither
NSP-W nor BMG will have any preferred stock outstanding, less complex than
capital structures approved by the Commission in other orders. SEE, E.G.,
CENTERIOR ENERGY CORP., Holding Co. Act Release No. 24073, 35 SEC Docket 769
(April 26, 1986); MIDWEST RESOURCES, INC., ET AL., Holding Co. Act Release No.
25159, 47 SEC Docket 252 (Sept. 26, 1990); CINERGY CORP., Holding Co. Act
Release No. 26146, 57 SEC Docket 2353 (Oct. 21, 1994).
In the Transaction, the shareholders of BMG received NSP Common Stock.
NSP will own 100% of the common stock of NSP-W and BMG and there will be no
minority common stock interest remaining in either company. Furthermore, neither
NSP-W nor BMG will have any preferred stock outstanding. The existing debt
securities of NSP, NSP-W and BMG will remain outstanding without change. The
only voting securities of NSP which will be publicly held after the Transaction
will be NSP Common Stock and NSP preferred stock. The only class of voting
securities of NSP direct subsidiaries will be common stock and, in each case,
all issued and outstanding shares of such common stock will be held by NSP.
Set forth below are summaries of the historical capital structures of
NSP and BMG as of December 31, 1997 (prior to the Merger), the combined capital
structure of NSP as of December 31, 1999, and the pro forma capital structure of
NSP and BMG following the Spin-off:
20
<PAGE>
NSP and BMG Historical Capital Structures
as of December 31, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
NSP BMG
--- ---
<S> <C> <C>
Common stock equity $2,372,000 $8,319
Preferred securities6 400,000 - 0 -
Long-term debt 1,879,000 3,000
Short-term debt(6) 425,000 1,092
------- -----
Total $5,076,000 $12,411
========== =======
</TABLE>
NSP Pro Forma Combined Capital Structure
as of December 31, 1999
(dollars in thousands) (unaudited)
<TABLE>
<S> <C> <C>
Common stock equity $2,567,721 34.59%
Preferred securities 305,340 4.11%
Long-term debt 3,456,364 46.56%
Short-term debt(7) 1,094,240 14.74%
--------- ------
Total $7,423,665 100.00%
</TABLE>
NSP and BMG Historical Capital Structures
as of December 31, 1999
(dollars in thousands) (unaudited)
<TABLE>
<CAPTION>
NSP BMG
<S> <C> <C>
Common stock equity $2,557,530 $10,191
Preferred securities 305,340 0
Long-term debt 3,453,364 3,000
Short-term debt(7) 1,093,990 250
--------- -----
Total $7,410,224 $13,441
</TABLE>
As is evident from the above, the Transaction will have virtually no
effect on NSP's capital structure.
Protected interests: Section 10(b)(3) also requires the Commission to
determine whether the proposed combination will be detrimental to the public
interest, the interests of investors or consumers or the proper functioning of
the NSP system. The combination of NSP and BMG is entirely consistent with the
proper functioning of the NSP holding company system. Further, as discussed in
Item 3.B.2.(a), the combination will result in benefits to the public and to
consumers and investors of both companies and also will improve the efficiency
of the BMG system. The
----------
(6) Includes preferred securities subject to mandatory redemption.
(7) Includes current maturities of long-term debt.
21
<PAGE>
Transaction has been approved by the Minnesota Commission, the North Dakota
Commission and the Arizona Commission. Moreover, as noted by the Commission in
ENTERGY CORPORATION, Holding Co. Act Release No. 25952, 55 SEC Docket 2035, 2045
(Dec. 17, 1993), "concerns with respect to investors' interests have been
largely addressed by developments in the federal securities laws and the
securities market themselves." NSP is and will remain a reporting company
subject to the continuous disclosure requirements of the 1934 Act following the
completion of the Transaction. The various reports previously filed by NSP under
the 1934 Act contain readily available information concerning the Transaction.
For these reasons, the Applicant believes that the Transaction will be in the
public interest and the interest of investors and consumers, and will not be
detrimental to the proper functioning of the resulting holding company system.
B. Section 10(c)
Section 10(c) of the Act provides that, notwithstanding the provisions
of Section 10(b), the Commission shall not approve:
(1) an acquisition of securities or utility assets, or of
any other interest, which is unlawful under the
provisions of Section 8 or is detrimental to the
carrying out of the provisions of Section 11(8);or
(2) the acquisition of securities or utility assets of a
public-utility or holding company unless the
Commission finds that such acquisition will serve the
public interest by tending towards the economical and
the efficient development of an integrated public
utility system ....
1. Section 10(c)(1)
(a) Compliance With Section 8
Section 8 prohibits registered holding companies from acquiring
properties which would result in combined gas and electric operations in the
same area without the authorization of the appropriate state commission, where
state law prohibits or requires authorization for such combined operations.
Section 8 applies only to registered systems and thus, by its terms, is not
applicable to NSP, BMG or the Transaction. Moreover, the Merger occurred only
after authorizations of the Arizona Commission, the Minnesota Commission and the
North Dakota Commission were granted. Further, the Arizona Commission, the
Minnesota Commission and the North Dakota Commission have approved the Spin-off
as being in the public interest. Accordingly, the Transaction will not be
unlawful under Section 8, and thus that portion of Section 10(c)(1) relating to
Section 8 of the Act is satisfied.
(b) No Detriment to the Carrying Out of Section 11
----------
(8) By their terms, Sections 8 and 11 only apply to registered holding
companies and are therefore inapplicable at present to NSP or BMG,
since neither is now a registered holding company. Also, under the
present transaction structure, NSP will remain an exempt holding
company after consummation of the Transaction.
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Section 11 of the Act sets forth the integration and simplification
requirements of the Act applicable to registered holding company systems.
Section 11 requires the Commission to take action with respect to registered
holding company systems that will (1) limit the operations of each registered
holding company system to a single integrated public-utility system, certain
"functionally related" businesses, and one or more additional integrated public
utility systems meeting certain requirements (Section 11(b)(1)); and (2) ensure
that the registered system has a simplified corporate structure without undue or
unnecessary complications or inequitable distribution of voting power (Section
11(b)(2)).
Section 11 applies only to registered holding companies. In a
proceeding under Section 9(a)(2) where the resulting system would be exempt, as
well as in proceedings under Section 3 for the grant of an exemption, compliance
with the standards of Section 11 is not required.(9) As the Commission has
stated in approving an exempt company's application under both Section 9(a)(2)
and Section 3, "Section 10(c)(1)'s requirement that the acquisition not be
`detrimental' to carrying out the provisions of Section 11 does not mandate that
the latter section's integration requirements be met."(10)
Instead, in applying Section 10(c)(1) to an exempt system, the
Commission looks to whether the acquisition would be detrimental to the public
interest. With respect to combination gas and electric systems, which could
raise integration issues under Section 11 for registered holding companies, the
Commission approves applications for exempt systems where it finds generally
that the other requirements of Section 10 have been met and that the appropriate
state commission has acted favorably. For example, in DOMINION RESOURCES, INC.,
the Commission approved the acquisition by a combination company of a small gas
utility.(11) In so doing, the Commission explicitly recognized that the limits
in Section 11 were inapplicable given the applicant's exemption from
registration. With respect to the extension of the gas operations of the
combined system, the Commission took pains to state that "the only question" was
whether that extension would be "detrimental to the public interest or in the
interest of investors or consumers" within the language of Sections 10(b)(1) and
10(b)(3).(12) The Commission went on to state that Section 10(c)(1) of the Act
would bring Section 11(b)(1) into consideration only if Dominion Resources were
not entitled to an exemption under Rule 2 of the Act.(13) Furthermore, the
Commission cited favorably its decision in WPL HOLDINGS INC.,
----------
(9) See, e.g., TUC HOLDING COMPANY, Holding Co. Act Release No. 26749, 65
SEC Docket 301, 305 (Aug. 1, 1997). ("By its terms, however, Section
11(b)(1) applies only to registered holding companies."); GAZ
METROPOLITAIN, INC., Holding Co. Act Release No. 26170, 58 SEC Docket
189, 193 (Nov. 23, 1994) ("Exempt holding companies are not directly
subject to Section 11(b)(1)'s integration standards."). SEE ALSO the
1995 Report at 61. ("Section 11's integration provisions apply only to
registered holding companies"); DOMINION RESOURCES, INC., Holding Co.
Act Release No. 24618, 40 SEC Docket 847, 849 (Apr. 5, 1988) (where no
consideration of Section 11(b)(1) was necessary as DRI was entitled to
an exemption under Rule 2 of the Act.)
(10) GAZ METROPOLITAIN INC., SUPRA, note 9, at 193.
(11) DOMINION RESOURCES, INC., SUPRA, note 9, at 849.
(12) ID. at 849.
(13) ID., n.3. SEE ALSO MIDWEST RESOURCES, INC., SUPRA; I.E. INDUSTRIES
INC., Holding Co. Act
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Holding Co. Act Release No. 24590, 40 SEC Docket 634 (Feb. 26, 1988), for the
proposition that where there is evidence of effective state regulation over the
activities of a combination company otherwise entitled to an exemption under
Section 3(a), the Commission need not find that permitting retention of combined
operations would be detrimental to the public interest. In the present
circumstances, following the Spin-off and consummation of the Transaction, NSP
would be entitled to continue its Section 3(a)(2) exemption pursuant to Rule 2.
Based on the foregoing precedent, the Transaction satisfies the
requirements of Section 10(c)(1) and will promote the public interest of
creating stronger competitors in the evolving utility industry. First, as
discussed previously and as will be discussed below, NSP's acquisition of BMG
will meet the standards set forth in Section 10, including the requirement that
the Transaction tend toward the efficient and economical development of an
integrated public-utility system. In brief, the combination will produce an
integrated electric utility system that substantially overlaps an integrated gas
utility system and that will reap the many benefits available from combined
resources while preserving local control and state regulation, and while also
enhancing, rather than decreasing, competition in the states served by NSP,
NSP-W and BMG as well as nationwide. Particularly, as detailed in Item 3.B.2(a)
below, as a result of the Transaction, BMG will be financially stronger, more
technologically advanced and possess more purchasing power, and its investors
and customers in Arizona will benefit from BMG's improved competitive position.
Second, as previously discussed, the Arizona Commission and the state
commissions that regulate NSP have addressed and ruled favorably on the issues
raised by the Transaction. Finally, the Applicant believes that the Transaction
poses no other concerns to the public interest or the interest of investors or
consumers than those already addressed or that are likely to arise in the state
proceedings. Indeed, BMG's investors, its customers in Arizona and the public,
generally, will benefit from the economies and efficiencies that will make BMG a
more competitive gas utility company following the Transaction. For these
reasons, no adverse finding is required under Section 10(c)(1).
2. Section 10 (c)(2)
Because the Transaction is expected to result in economies and
efficiencies for the BMG system, it will tend toward the economical and
efficient development of an integrated public utility system, thereby serving
the public interest, as required by Section 10(c)(2) of the Act. "The Commission
has previously determined... that where a holding company will be exempt from
registration under section 3 of the Act following an acquisition of
non-integrating utility assets, it suffices for purposes of section 10(c)(2) to
find benefits to one integrated system."(14) The Transaction clearly satisfies
this requirement as it will produce benefits to the gas utility
----------
Release No. 25325, 48 SEC Docket 1735 (June 3, 1991); SOUTHERN INDIANA
GAS AND ELECTRIC COMPANY, Holding Co. Act Release No. 26075, 57 SEC
Docket 78 (June 30, 1994); NIPSCO INDUSTRIES, INC., Holding Co. Act
Release No. 25766, 53 SEC Docket 1997 (Mar. 25, 1993); NIPSCO
INDUSTRIES, INC., Holding Co. Act Release No. 25470, 50 SEC Docket 1231
(Feb. 5, 1992); LG&E ENERGY CORP., Holding Co. Act Release No. 26866,
67 SEC Docket 107 (April 30, 1998). In these cases, the Commission
approved acquisitions or reorganizations involving exempt combination
systems without specifically addressing Section 10(c)(1).
(14) TUC HOLDING COMPANY, SUPRA, note 9, at 306, citing GAZ METROPOLITAIN,
INC., SUPRA, note 9.
24
<PAGE>
businesses of NSP, NSP-W and BMG. These include joint procurement of gas and
other supplies; sharing of NSP's extensive technological, operational, gas
purchasing and other expertise; enhanced computer services; and access to NSP's
management, legal, financial, accounting and consulting services.
(a) Efficiencies and Economies
The Transaction will produce economies and efficiencies more than
sufficient to satisfy the standards of Section 10(c)(2) of the Act. Although
some of the anticipated economies and efficiencies will be fully realizable only
in the longer term, they are properly considered in determining whether the
standards of Section 10(c)(2) have been met. SEE IN THE MATTER OF AMERICAN
ELECTRIC POWER CO., SUPRA at 1320-1321. Some potential benefits cannot be
precisely estimated, nevertheless they too are entitled to be considered.
"[S]pecific dollar forecasts of future savings are not necessarily required; a
demonstrated potential for economies will suffice even when these are not
precisely quantifiable." CENTERIOR ENERGY CORP., SUPRA at 775, citing IN THE
MATTER OF AMERICAN ELECTRIC POWER CO., SUPRA.
The Transaction is expected to yield several types of economies and
efficiencies, which are identified by area below: (1) corporate and
administration benefits, (2) management and operational efficiencies, (3)
purchasing economies (gas supply and others), (4) enhanced technology and
computer services. These categories are described in greater detail below.
Corporate and Administrative Efficiencies: BMG will benefit from NSP's
breadth of management and operations expertise, which will enable BMG to develop
an efficient system in an efficient manner. Moreover, NSP and BMG can achieve
savings through the consolidation of overlapping or duplicative programs and
expenses. For example, coordinated marketing planning will occur to the benefit
of BMG as it can take advantage of NSP's expertise, efficiencies and economies
of advertising, promotions, direct mailings and other marketing programs.
NSP's marketing and advertising staff currently consists of 12 people.
Prior to the transaction, BMG did not have a marketing staff. NSP can provide
marketing and advertising services to BMG without NSP adding personnel. BMG will
benefit from the sophistication and experience available to it as part of a much
larger gas distribution marketing organization. BMG can use the gas marketing
and sales programs developed by NSP (advertising, marketing literature, specific
marketing programs, etc.) for use in NSP's primary markets serving approximately
385,000 customers to serve BMG's 6,400 customer market.
BMG can procure these services at cost from NSP, and can avoid hiring
personnel for this sophisticated level of expertise. NSP will benefit by
charging-back a portion of the centralized marketing and sales costs to BMG
through the Administrative Services Agreement ("ASA"), and spreading this cost
over a greater number of customers. In addition, the NSP marketing function
(which serves a northern climate) will benefit from experience with gas
utilization technologies -- such as pool heaters, patio heaters, and natural gas
air conditioners -- now used in the BMG gas service area (a southern climate)
but not yet widely used in the NSP gas service area.
25
<PAGE>
NSP and BMG will also use a single centralized department to perform
most gas rate and tariff development and regulatory administration functions.
NSP can provide this service for BMG's operations in its Arizona gas
jurisdiction without additional personnel, and BMG will benefit from the
sophistication and experience available through a larger, multi-jurisdiction
regulatory services function.
NSP and BMG will also achieve efficiencies through consolidated human
resources services and employee benefit programs. The consolidation allows BMG
employees to benefit from the more comprehensive NSP employee benefit plans, and
NSP benefits from sharing some of the administrative costs over a larger number
of employees through the ASA. Similarly, NSP plans to provide payroll services
to BMG using the existing NSP system, avoiding the need for BMG to contract with
an outside vendor for payroll services.
NSP's internal auditing function can provide audit services to BMG
without additional personnel. The cost of the NSP personnel is shared, and BMG
gains the advantage of a more sophisticated internal auditing function than it
could employ on a stand-alone basis.
NSP's finance and cash management functions can provide financing
assistance to BMG using existing NSP corporate personnel. The cost of the NSP
personnel is shared with BMG through the ASA, and BMG gains the advantage of a
substantially more sophisticated in-house financing function.
Finally, NSP is an active intervenor and participant in natural gas
pipeline rate, certificate and other proceedings before the FERC. As a small LDC
with limited resources, BMG cannot dedicate the personnel needed to actively
monitor and participate in regulatory proceedings affecting interstate natural
gas costs and access policies. However, NSP can provide the incremental services
needed by BMG without additional personnel. NSP will benefit by sharing the cost
of supply and regulatory personnel through the ASA.
NSP and BMG have not performed a comprehensive assessment of the
corporate administrative efficiencies, but NSP expects to allocate approximately
$42,000 in corporate expenses to BMG in 1999 for services like those described
above. In the absence of this Transaction, BMG likely would have contracted with
third party vendors for much of these services at a cost of approximately
$180,000. NSP benefits because this cost is shared with BMG, thus spreading the
costs over a greater number of customers.
Other specific areas in which economies, efficiencies and savings are
expected to occur include information systems, professional services, insurance,
and shareholder services.
Management and Operational Efficiencies: NSP's management is highly
trained and experienced in the gas industry and will bring its technological,
operations, gas purchasing, customer service and regulatory expertise to BMG.
NSP will provide engineering and operations support and management of
BMG's operations. For example, the U.S. Department of Transportation recently
adopted an Operator
26
<PAGE>
Qualification Rule, which will require all gas distribution operators to
establish comprehensive systems to train and certify employees engaged in
"covered functions" by April 2002. (64 FED REG. 46,853, August 27, 1999). NSP
will be able to include the BMG compliance plan in the total standardized NSP
compliance plan for all regulated gas distribution operations. This should
reduce the per employee cost for NSP and also provide BMG access to resources
which provide a much more comprehensive compliance plan without the need to
incur substantial direct costs or contract with a third party vendor for
compliance consulting services.
NSP's engineering, operating and pipeline safety standards and
practices are based on federal DOT or other standards or rules. These rules
require LDCs like NSP or BMG to develop numerous internal written standards,
day-to-day operating procedures, documentation procedures, and emergency
response procedures. As new technologies such as directional boring are
developed, a small gas utility would face substantial cost increases to ensure
that its standards continue to meet applicable codes. As part of NSP, the BMG
operation can more efficiently and cost-effectively keep its standards and
procedures up to date. NSP will also gain efficiencies since the standards
developed for its historic gas service area in Minnesota and North Dakota can be
migrated to the Arizona gas operations at minimal incremental cost, yet BMG
would share in the cost through the ASA.
Finally, NSP will provide natural gas safety, employee safety,
emergency response and technical training for BMG employees. NSP can provide
this service without additional employees, and BMG employees will receive more
comprehensive training than BMG could provide on a stand-alone basis.
In addition to significant management enhancements, NSP will provide
BMG with regular legal, financial, accounting and consulting services.
Purchasing Economies (Gas Supply and Others): NSP and BMG will realize
economies through the combined procurement of material and supplies, as well as
from economies of scale from increased purchasing power over service providers.
For example, BMG serves several communities in the Phoenix, Arizona, area which
are experiencing substantial economic growth. As a result, under its obligation
to serve, BMG must make substantial investments in new gas mains and other
facilities, including meters to extend natural gas service to new residential
and business customers locating in the BMG service area. Indeed, BMG expects to
invest roughly $2 million annually in new facilities for each of the next five
years. BMG's total net investment as of December 31, 1999 was approximately
$12.4 million. So the total gas plant investment of BMG is expected to almost
double over the next five years.
One of the most substantial costs incurred to extend or expand gas
distribution service to a previously unserved area is the wholesale cost of
natural gas piping (used for gas mains and service lines) and gas meters. As a
small LDC, BMG could not purchase sufficient pipe and meters to obtain
significant volume discounts from suppliers, despite its rapid growth relative
to its current size. By contrast, NSP's much larger LDC operation is able to use
its size and centralized competitive bidding processes to obtain gas piping,
meters and other related equipment in large quantities at competitive prices.
27
<PAGE>
As a result of the Transaction, BMG will be able to use the centralized
gas piping and meter procurement functions of NSP to achieve purchasing
economies. NSP will provide the piping, meters and appurtenant equipment to BMG
at cost. BMG estimates the savings to BMG at $100,000 annually. In addition, NSP
will benefit by sharing the costs of its centralized Procurement function with
BMG through the ASA.
Gas piping and meter procurement present the most obvious potential for
purchasing economies for NSP and BMG. However, NSP and BMG will continue to
evaluate other opportunities for potential savings as BMG is integrated into the
NSP gas distribution operation.
Because NSP and BMG will continue to purchase from common sources of
gas supply, it is anticipated that areas of savings also will result from
optimizing transportation capacity on various pipelines, shortening storage
withdrawal periods to provide greater peak day delivery and shifting purchases
among various producers.
Enhanced Technology and Computer Services: BMG will benefit from NSP's
utilization of state of the art technology and methods for providing gas
distribution services. NSP will provide BMG with access to enhanced computer
services to handle all customer-related information needs.
Some specific examples of the benefits of integration are as follows.
First, NSP replaced BMG's financial and billing systems to address Y2K issues
and to modernize the BMG information systems. The centralized NSP procurement
area was able to negotiate third party vendor contracts for these enhancements
at a substantial discount from the cost to BMG as a stand-alone company. In
addition, BMG was assured of installation of a highly tested and working system.
BMG estimates the savings at $35,000.
Second, BMG also will benefit through its access to NSP's large volume
discounts for licensed software for the BMG operating systems, server software,
anti-virus protection software and other office products. NSP was also able to
leverage an existing contract with an information systems vendor to provide
hardware and warranty support for the BMG systems. BMG will also benefit from
NSP's in-house information systems consultants and other IT support areas, which
can help BMG resolve day-to-day IT operating issues and help assure BMG
compliance with software license agreements. These critically important
information services can be provided to BMG at a lower cost than BMG could
procure in the market as a stand-alone entity.
Third, the Transaction will allow NSP to provide payroll services to
BMG using the existing NSP internal payroll information systems. This system
would replace external payroll services provided by a third party vendor, at
lower cost. BMG will obtain a more superior quality payroll service from NSP
than BMG could procure at reasonable cost as a stand-alone entity, and NSP will
be able to share the costs of its payroll systems with a larger customer
population by allocating a share of the cost to BMG through the ASA.
Fourth, NSP is presently upgrading the BMG meter reading process from a
manual meter reading book process to an automated Palm PC solution. NSP has
extensive experience with
28
<PAGE>
evolving meter reading automation technologies. The Transaction and integration
of BMG will allow BMG to benefit from NSP's expertise, and NSP can share the
costs of this expertise with a larger customer population through the ASA.
Other future information systems integration practices will be
implemented when economic.(15) For example, NSP presently operates on a
"network" information system platform for all of its central and regional
business offices, including geographically distant offices (such as Fargo, Grand
Forks and Minot, North Dakota; and Sioux Falls, South Dakota). Certain BMG
systems are currently integrated with the NSP information systems through a
dial-up modem connection. The NSP network system could be connected by a
permanent connection (similar to the NSP offices in North Dakota and South
Dakota) when BMG requires access to the complete NSP information systems.
In 1995, NSP installed a new Customer Service System ("CSS") for
customer information and billing services. At this time, it is not economic to
migrate the CSS system to the 6,400 customer BMG operation in Arizona, so NSP
and BMG recently replaced the previous BMG system with an interim, Y2K compliant
system. At a future date, the NSP CSS system (or the final, centralized Xcel
customer information and billing system) could be migrated to the Arizona BMG
operation. This would provide BMG access to more comprehensive customer data and
share the cost of the central system over a larger number of retail utility
service customers.
NSP is also presently installing (over a period of several years) an
automated meter reading ("AMR") system for its regulated retail gas and electric
service operations in Minnesota, North Dakota, South Dakota, Wisconsin and
Michigan. At this time, this AMR technology is not economic for BMG. As a
result, BMG is installing the Palm PC system (similar to the existing NSP meter
reading system) instead. However, at a future date, BMG could implement the NSP
(or Xcel) standardized AMR technology at a cost much lower than BMG could obtain
as a stand-alone company.
The Commission recently determined that benefits in the area of gas
supply, increased purchasing power and the ability to utilize the expertise and
resources available from public utility affiliates and other affiliates was
sufficient to satisfy Section 10(c)(2).(16) These are precisely the types of
benefits that are expected to be realized by BMG.
(b) Integrated Public Utility System
Because Section 2(a)(29) specifies separate definitions for gas and
electric systems, the
----------
(15) The timing of such integration and final technologies used would depend
on the separately pending proposed merger of NSP and New Century
Energies Inc. ("NCE"). BMG operates in Arizona, and NCE's utility
operating company subsidiaries operate in Colorado and New Mexico,
which are directly contiguous states. The post-merger operational
control of BMG after the NSP/NCE merger has not been determined. It
would not be economic to BMG or its retail gas customers for NSP to
install new integration technologies, only to replace or upgrade them
again soon after the NSP/NCE merger.
(16) SEMPRA ENERGY, Holding Co. Act Release No. 26971 (Feb. 1, 1999).
29
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Commission has historically taken the position that gas and electric
properties together cannot constitute a single integrated public-utility
system.(17) However, Commission authority is equally clear that Section
10(c)(2) does not limit Commission approval to acquisitions resulting in only
one integrated system. "[W]e have indicated in the past that acquisitions may
be approved even if the combined system will not be a single integrated
system. Section 10(c)(2) requires only that the acquisition tend `towards the
economical and the efficient development of AN (emphasis in the original)
integrated public-utility system'."(18)
In this case, the Transaction will tend toward the economical and
efficient development of the integrated electric utility system of NSP and NSP-W
and an integrated gas utility system of NSP, NSP-W and BMG.
(i) Electrical System
As applied to electric utility companies, the term "integrated public
utility system" is defined in Section 2(a)(29)(A) of the Act as:
a system consisting of one or more units of generating plants and/or
transmission lines and/or distributing facilities, whose utility
assets, whether owned by one or more electric utility companies, are
physically interconnected or capable of physical interconnection and
which under normal conditions may be economically operated as a single
interconnected and coordinated system confined in its operations to a
single area or region, in one or more states, not so large as to impair
(considering the state of the art and the area or region affected) the
advantage of localized management, efficient operation, and the
effectiveness of regulation.
On the basis of this statutory definition, the Commission has
established four standards that must be met before the Commission will find that
an integrated electric system will result from a proposed acquisition of
securities:
(1) the utility assets of the system are physically
interconnected or capable of physical
interconnection;
(2) the utility assets, under normal conditions, may be
economically operated as a single interconnected and
coordinated system;
----------
(17) See, NEW CENTURY ENERGIES, INC., Holding Co. Act Release No. 26748, 65
SEC Docket 277, 286 (Aug. 1, 1997), citing SEC V. NEW ENGLAND ELECTRIC,
384 U.S. 176, 178 n.7; IN THE MATTER OF COLUMBIA GAS & ELECTRIC
CORPORATION, Holding Co. Act Release No. 2477, 8 S.E.C. 443, 462-463
(Jan. 10, 1941) (rejecting an earlier interpretation to the contrary in
AMERICAN WATER WORKS AND ELECTRIC COMPANY, INC., 2 S.E.C. 972, 983
(Dec. 30, 1937)).
(18) GAZ METROPOLITAIN, INC., SUPRA, note 9, at 192, quoting IN THE MATTER
OF UNION ELECTRIC COMPANY, Holding Co. Act Release No. 18368, 45 S.E.C.
489, 505 (April 10, 1974), aff'd without op. sub nom. CITY OF CAPE
GIRARDEAU, MISSOURI V. S.E.C., 521 F.2d 324 (D.C. Cir. 1975). SEE ALSO,
NEW CENTURY ENERGIES, SUPRA.
30
<PAGE>
(3) the system must be confined in its operations to a
single area or region; and
(4) the system must not be so large as to impair
(considering the state of the art and the area or
region affected) the advantages of localized
management, efficient operation, and the
effectiveness of regulation.
ENVIRONMENTAL ACTION, INC. V. SEC, 895 F.2d 1255, 1263 (9th Cir. 1990)
(CITING IN RE ELECTRIC ENERGY, INC., et al., 38 SEC 658, 668 (1958)). In the
1995 Report, the Division recommended that the Commission "respond realistically
to the changes in the utility industry and interpret more flexibly each piece of
the integration requirement."(19) The Transaction satisfies all four of these
requirements.
First, the Transaction will not change the electric utility system of
NSP, and the Commission has previously determined that the NSP system was an
integrated system.(20) Moreover, NSP and NSP-W are already physically
interconnected through numerous transmission lines that they own, including one
345 Kv transmission line, two 115 Kv transmission lines and two 69 Kv
transmission lines.
Second, NSP and NSP-W will be economically operated as a single
interconnected and coordinated system. The electric operations of NSP and NSP-W
are fully integrated and all generating units are centrally dispatched by NSP.
Third, this single integrated system will operate in a single area or
region, covering portions of Minnesota, Wisconsin, Michigan, North Dakota and
South Dakota. In the 1995 Report, the division stated that the evaluation of the
"single area or region" portion of the integration requirement "should be
made... in light of the effect of technological advances on the ability to
transmit electric energy economically over longer distances, and other
developments in the industry, such as brokers and marketers, that affect the
concept of geographic integration."(21)
Fourth, the system is not so large as to impair the advantages of
localized management, efficient operations, and the effectiveness of regulation.
The Commission's past decisions on "localized management" show that the
Transaction fully preserves the advantage of localized management. In these
cases, the Commission has evaluated localized management in terms of: (i)
responsiveness to local needs, see AMERICAN ELECTRIC POWER CO., Holding Co. Act
Release No. 20633, 15 S.E.C. Docket 375 (July 21, 1978) (advantages of localized
management evaluated in terms of whether an enlarged system could be "responsive
to local needs"), GENERAL PUBLIC UTILITIES CORP., Holding Co. Act Release No.
13116, 37 SEC 28, 36
----------
(19) 1995 report at 71.
(20) NORTHERN STATES POWER COMPANY, Holding Co. Act Release No. 22334 (In
discussing the integration of the electric system of Lake Superior
District Power Company into the NSP system, the Commission stated, "The
principal electric system of Northern States in southern Minnesota and
northwestern Wisconsin, centering in Minneapolis, and the electric
system of Lake Superior are integrated."
(21) 1995 report at 72-74.
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(Mar. 2, 1956) (localized management evaluated in terms of "local problems and
matters involving relations with consumers"); (ii) whether management and
directors were drawn from local utilities, see CENTERIOR ENERGY CORP., SUPRA
(advantages of localized management would not be compromised by the affiliation
of two electric utilities under a new holding company because the new holding
company's management [would be] drawn from the present management" of the two
utilities); NORTHEAST UTILITIES, Holding Co. Act Release No. 25221, 47 SEC
Docket 1270 (Dec. 21, 1990) (advantages of localized management would be
preserved in part because the board of New Hampshire Utility, which was to be
acquired by an out-of-state holding company, included "four New Hampshire
residents"); (iii) the preservation of corporate identities, see NORTHEAST
UTILITIES, SUPRA (utilities "will be maintained as separate New Hampshire
corporations . . . [t]herefore the advantages of localized management will be
preserved"); COLUMBIA GAS SYSTEM, INC., Holding Co. Act Release No. 24599, 40
SEC Docket 654 (March 15, 1988) (benefits of local management maintained where
the utility to be added would be a separate subsidiary); and (iv) the ease of
communications, see AMERICAN ELECTRIC POWER CO., SUPRA. (distance of
corporate-headquarters from local management was a "less important factor in
determining what is in the public interest" given the "present-day" ease of
communications and transportation").
The Transaction satisfies all of these factors. NSP and NSP-W will
continue to operate through numerous regional offices with local service
personnel and line crews available to respond to customers' needs. After the
Transaction, NSP and NSP-W will maintain their current headquarters for the
areas they presently serve.
Finally, the NSP system will not impair the effectiveness of state
regulation. NSP and NSP-W will continue their separate existence as before, and
their utility operations will remain subject to the same regulatory authorities
by which they are presently regulated, namely the MPUC, PSCW, MPSC, NDPUC, SDPUC
and the FERC. This Transaction will not be consummated unless all required
regulatory approvals are obtained.
(ii) Gas Utility System
Section 2(a)(29)(B) defines an "integrated public utility system" as
applied to gas utility companies as:
a system consisting of one or more gas utility companies which are so
located and related that substantial economies may be effectuated by
being operated as a single coordinated system confined in its operation
to a single area or region, in one or more States, not so large as to
impair (considering the state of the art and the area or region
affected) the advantages of localized management, efficient operation,
and the effectiveness of regulation: Provided, that gas utility
companies deriving natural gas from a common source of supply may be
deemed to be included in a single area or region.
As indicated above, in the 1995 Report, the Division recommended
flexibility in the interpretation of the integration requirement. In particular,
the Division stated that it believed that the Commission "must adopt a more
flexible interpretation of the geographic and physical integration standards,
with more emphasis on whether an acquisition will be economical and
32
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subject to effective regulation."(22) The Division also believed it appropriate
to interpret the `single area or region' requirement flexibly recognizing
technological advances, consistent with the purposes and provisions of the
Act."(23) Subsequently, in SEMPRA ENERGY, the Commission stated, "we have taken
notice of developments that have occurred in the gas industry, and have
interpreted the Act and analyzed proposal transactions in light of these changed
and changing circumstances."(24)
NSP's acquisition of BMG, and the subsequent establishment of BMG as a
first tier subsidiary of NSP, will satisfy the integration standard set forth in
Section 2(a)(29)(B) of the Act as NSP, NSP-W and BMG will constitute a system so
located and related that substantial economies may be effectuated by their
operation as a single coordinated system confined in its operation to a single
area or region not so large as to impair the advantages of localized management,
efficient operation, and the effectiveness of regulation. The Transaction will
also result in economies and efficiencies accruing to the benefit of NSP, NSP-W,
BMG, their shareholders and customers and their integrated system and thus
should be approved by the Commission.
First, both the Commission's limited precedent and current
technological realities indicate that the combined NSP, NSP-W and BMG gas
utility system will operate as a coordinated system confined in its operation to
a single area or region because it will derive natural gas from common sources
of supply. The Commission has not traditionally required that the pipeline
facilities of an integrated system be physically interconnected,(25) and instead
has looked to such issues as from whom the distribution companies within the
system receive much, although not all, of their gas supply.(26) The Commission
also has considered obtaining gas from a common pipeline(27) as well as from
different pipelines when the gas originates from the same gas field in
determining a common source of supply.(28) Since the time of most of these
decisions, the
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(22) 1995 Report at p. 70.
(23) 1995 Report at p. 73.
(24) SEMPRA ENERGY, SUPRA, note 16.
(25) See, IN THE MATTER OF PENZOIL COMPANY, Holding Co. Act Release No.
15963, 43 S.E.C. 709 (Feb. 6, 1968) (finding an integrated system where
facilities both connected with an unaffiliated transmission company but
not each other). See, ALSO AMERICAN NATURAL GAS COMPANY, Holding Co.
Act Release No. 15620, 43 S.E.C. 203, 207, n.5 (Dec. 12, 1966) ("It is
clear the integrated or coordinated operations of a gas system under
the Act may exist in the absence of such interconnection").
(26) See, e.g., IN THE MATTER OF PHILADELPHIA COMPANY AND STANDARD POWER AND
LIGHT COMPANY, Holding Co. Act Release No. 8242, 28 S.E.C. 35, 44
(1948) ("most of the gas used by these companies in their operations is
obtained from common sources of supply"); CONSOLIDATED NATURAL GAS
COMPANY, Holding Co. Act Release No. 25040, 45 SEC Docket 672 (Feb. 14,
1990) (finding integrated system where each company derived natural gas
from two transmission companies, although one such company also
received gas from other sources).
(27) IN THE MATTER OF THE NORTH AMERICAN COMPANY, Holding Co. Act Release
No. 10320, 32 S.E.C. 169 (Dec. 28, 1950).
(28) See, IN THE MATTER OF CENTRAL POWER COMPANY AND NORTHWESTERN PUBLIC
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state of the art in the industry has developed to allow efficient operation of
systems whose gas supplies derive from many sources.(29) Furthermore, the fact
that Minnesota and Arizona are not contiguous does not mean that the NSP system
will not "be confined in its operation to a single area or region." The
Commission has previously found utility properties to lie in a single area
within the meaning of the Act despite intervening territory."(30) In SEMPRA
ENERGY, the Commission reiterated that "it is appropriate to treat gas systems
as being in a `single area or region' when doing so does not undercut the
policies of the Act," and held that the distances between Sempra and its North
Carolina subsidiary would not undercut the policies of the Act though such
distances were significantly greater than the distances considered in MCN.(31)
While the NSP and BMG gas systems are not physically interconnected,
they will functionally perform as a coordinated system through the purchase of
natural gas from common sources of supply (i.e., the Hugoton/Andarko and Permian
basins), and delivery through integrated interstate pipelines (all of which are
open access transportation only pipelines under FERC order 636). The Northern
Natural Gas Company ("NNG") interstate gas pipeline system (the primary
interstate natural gas pipeline serving NSP) and the El Paso Natural Gas ("El
Paso") interstate gas pipeline system (the primary interstate pipeline serving
BMG) are interconnected in several locations in Texas and Oklahoma in the
Hugoton/Andarko and Permian basins. These two basins also serve as a common
source of supply for the NNG and El Paso pipeline systems. NSP and BMG will thus
immediately achieve a level of integration in gas supply activities through the
purchases from these common supply basins.
The gas supply departments of NSP and BMG have, among others, four
primary functions: portfolio design and strategy, procurement, storage
optimization and contract administration. NSP has identified specific components
of the gas portfolio, which through joint management and coordination, will
enable NSP and BMG to explore opportunities for savings in the marketplace.
Specifically, NSP will provide certain centralized natural gas supply and
pipeline transportation procurement and administrative services. As a small LDC,
BMG cannot economically employ a dedicated in-house staff to perform ongoing gas
supply and transportation procurement functions, such as RFP development and
issuance, bidder notification, bid selection, and contract development and
administration. However, NSP already
----------
SERVICE COMPANY, Holding Co. Act Release No. 2471, 8 S.E.C. 425 (1941),
in which the Commission declared an integrated system to exist where
two entities purchase from different pipeline companies since the
pipelines were interconnected at points along the line.
(29) See, SEMPRA ENERGY, SUPRA, note 16 (authorizing the acquisition of
Frontier, a North Carolina gas utility, by Sempra, a California public
utility holding company, through its North Carolina subsidiary and
finding that the resulting system will be operated as a single
coordinated system because, among other things, the trading affiliate
"will be able to obtain gas for Frontier from [common] basins by other
more flexible means, due to the development of market centers, hubs and
pooling points"). See also, MCN CORPORATION, Holding Co. Act Release
No. 26576, 62 S.E.C. 2379 (Sep. 17, 1996) (Commission determined that
non-contiguous local distribution companies are a part of an
"integrated public utility system" where, among other things, the local
distribution companies are interconnected through common pipelines and
obtained gas from a common source).
(30) SEMPRA ENERGY, SUPRA, note 16 (citing MCN CORPORATION at 2384).
(31) ID.
34
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employs a professional gas supply and transportation procurement and management
department with a staff of 13. NSP can provide supply and transportation
procurement services to BMG without additional personnel, providing increased
efficiencies. For example, because of the size and market presence of NSP, BMG
was able to select between many more bidders for delivered gas supplies for the
1999-2000 contracting period than in prior years. BMG will receive the
professional services of a sophisticated and dedicated staff at cost, and NSP
will benefit by sharing the cost of these personnel and functions with BMG
through the ASA.
The current size of the BMG operation limits some integration
opportunities in the near term. At this time, NSP contracts for "unbundled" open
access tariff services on the pipeline and storage systems serving the NSP
market under FERC Order No. 636 (18 CFR Part 284), and separately contracts for
wholesale natural gas supplies, storage and other ancillary services. By
contrast, BMG contracts for "bundled full requirements" wholesale gas supply
service on the El Paso and Southwest Gas systems.
NSP and BMG use different gas transportation contracting practices
(even though they use the same personnel) because of the substantial economic
and reliability benefits to BMG and its retail gas customers in Arizona from the
full requirements status. Under El Paso's FERC Gas Tariff, BMG and other full
requirements customers obtain first priority access to gas transportation
service out of the San Juan supply basin. As gas demand on the BMG system grows
with the substantial growth in its service area (noted above), and BMG needs
additional pipeline transportation and supply capacity to serve this demand, BMG
could eventually benefit from using "unbundled" Order 636 services rather than
the current bundled full requirements services.
At that time, the BMG transportation, storage and supply portfolio
would be procured and managed on a fully integrated basis with the NSP
portfolio, in the same manner which NSP and NSP-W manage their respective supply
portfolios on an integrated basis today. By using the existing and established
NSP gas supply and transportation procurement and management capabilities, BMG
will be able to manage and implement this transition to unbundled services much
more cost effectively than if BMG were suddenly required to develop and staff a
comprehensive in-house gas supply function.
As indicated above, it is anticipated that gas purchasing economic
efficiencies can be achieved by having NSP's gas supply department, which
procures gas for NSP and NSP-W, provide centralized natural gas supply and
pipeline transportation procurement and administrative services.(32) Thus, some
of each company's gas supply will be handled by the same entity and on a
coordinated basis. Although these gas purchases for BMG will be made on an
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(32) In SEMPRA ENERGY, SUPRA note 16, the Commission found that a single
coordinated system would exist where Sempra's North Carolina subsidiary
could coordinate its purchase of gas in the San Juan and Permian Basins
with affiliate companies through Sempra Trading, which would also
coordinate gas transportation and storage arrangements. Similarly, in
MCN CORPORATION, SUPRA note 28, the Commission determined that a single
coordinated system existed where MCN stated that its energy trading
subsidiary intended to purchase gas supply for the new gas utility, to
the extent it could do so reliably and economically; however, the gas
utility would continue to have the option to purchase a part of its gas
supply from other marketers if it could do so more efficiently.
35
<PAGE>
economic basis and not with the main goal of ensuring a common source of supply,
given economies of scale and the past practice by the same purchasers, it can be
expected that each of the three companies will continue to purchase significant
amounts of their respective gas supply from the same fields and that much of the
rest of their respective gas supply will travel through the same pipelines even
if it is not from the same field. As noted above, NSP and BMG will functionally
perform as a coordinated system through the purchase of natural gas from common
sources of supply and the delivery of such gas, through integrated interstate
gas pipelines, to satisfy the "common source of supply" requirement of Section
2(a)(29)(B) of the Act.
Moreover, the combination of the NSP, NSP-W and BMG systems will tend
toward the economic and efficient development of a coordinated gas system in
that there will be centralized computer and customer service systems, marketing
and operations planning and consulting between the three companies after the
Transaction. Improved technology and centralized computer services for customer
services and centralized planning will occur to the benefit of BMG and its
customers.
Significant day-to-day centralization between BMG and NSP will occur
(or has occurred) as described in detail above.(33) Specifically, NSP and BMG
will utilize certain centralized:
- natural gas supply and pipeline transportation procurement and
contract administration services;
- information systems procurement, plus testing and support
services;
- procurement of natural gas piping, meter and ancillary
equipment (and delivery of this equipment) to support BMG gas
system extension projects;
- retail gas marketing and sales program development services;
- rate, tariff and regulatory relations services (both for
Arizona retail matters and FERC wholesale pipeline matters);
- human resources, payroll and employee benefit programs and
program administration;
- internal auditing;
- finance and cash management;
- compliance with DOT and state pipeline safety regulations,
including the new DOT operator qualification rule; and
- emergency response training services.
The NSP System personnel will provide frequent consulting services to
BMG's personnel regarding all aspects of operations and management. BMG will
benefit by receiving these
----------
(33) As described on pp. 31 to 32 above, the implementation of more
substantial integration and centralization could occur once the
proposed NSP/NCE merger is approved and effectuated, such as expanded
customer service information systems integration (e.g., customer
billing and automated meter reading).
36
<PAGE>
services at cost from NSP, and NSP will benefit by sharing its centralized costs
with a larger total gas customer base through the allocations to BMG pursuant to
the ASA.
Finally, the gas utility system resulting after consummation of the
Transaction will also meet the requirement that it be "not so large as to impair
(considering the state of the art and the area or region affected) the
advantages of localized management, efficient operation and the effectiveness of
regulation." IN THE MATTER OF AMERICAN NATURAL GAS COMPANY, Holding Co. Act
Release No. 15620 (Dec. 12, 1966), the Commission found that the American
Natural System would meet the above requirement after its acquisition of an
Indiana gas utility as:
Although American Natural will provide certain central
facilities, equipment and personnel... Central Indiana will
retain its own local management and board of directors, a
majority of whom will be residents of Indiana. Central Indiana
will continue to be subject to regulation by the Public
Service Commission of Indiana.(34)
It is currently contemplated that localized management of BMG will be
preserved. Following the Transaction, there will be no change in the senior
management or board of directors of NSP and NSP-W. While, as discussed above,
BMG will receive a number of centralized services and benefits from NSP, BMG's
headquarters will remain in Arizona, BMG will be operated on a day-to-day basis
by its local management, and BMG will remain locally regulated by the Arizona
Commission. No significant change in management or operations of NSP, NSP-W or
BMG will occur as a result of the Transaction. NSP will remain subject to the
regulation of the Minnesota Commission in the State of Minnesota, the North
Dakota Commission in the State of North Dakota and the South Dakota Commission
in South Dakota. NSP-W will remain subject to the regulation of the Wisconsin
Commission and the Michigan Commission. Thus, each of NSP, NSP-W and BMG will be
locally operated and locally regulated, and each will-have the economic
advantage of certain centralized services after the Transaction. From a
regulatory standpoint, there will be no impairment of regulatory
effectiveness.(35) The Arizona, Minnesota, North Dakota and Wisconsin
commissions are already regulating multi-jurisdictional gas utilities as several
other gas utilities currently operate in several states, and, indeed, NSP and
NSP-W currently operate gas utilities in multiple states.
For all of the reasons discussed above, NSP's ownership of BMG will
satisfy the integration requirements of Section 2(A)(29)(B).
NSP notes that it currently has pending before the Commission its
Application/Declaration on Form U-1, File No. 70-9539 (the "NSP/NCE
Application")
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(34) See also CONSOLIDATED NATURAL GAS COMPANY, SUPRA ("As noted above,
VNG's Board of Directors will consist of, among others, senior members
of Consolidated management. However, VNG will continue to be locally
managed and operated as a business unit with autonomy.")
(35) In SEMPRA ENERGY, SUPRA, note 16, the Commission similarly determined
that the effectiveness of local regulation would not be impaired when a
California gas utility holding company acquired a North Carolina gas
utility
37
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associated with its pending merger with New Century Energies, Inc. ("NCE").
Pursuant to that merger, NCE will be merged into NSP and NSP will be the
survivor. Upon effectiveness of the merger, NSP will change its name to Xcel
Energy, Inc. ("Xcel") and will become a registered holding company under the
Act. For the reasons stated in the NSP/NCE Application, NSP believes that the
gas utility businesses of NSP (including BMG), NSP-W, and NCE's two gas
utilities constitute an integrated gas utility system under Section 2(a)(29)(B)
that is retainable under Section 11 of the Act. However, in addressing that
issue, the Commission does not need to decide that the gas utility operations of
BMG and NSP satisfy the integration requirements of Section 2(a)(29)(B) because,
as described in the NSP/NCE Application and as set forth below, BMG's gas
utility operations (the "BMG System") satisfy the standards for retention as a
separate system under the "A-B-C" clauses of Section 11(b)(1).
Under Section 11(b)(1), a registered holding company can own "one or
more" additional integrated systems if certain conditions are met. Specifically,
the Commission must find that the additional system "cannot be operated as an
independent system without the loss of substantial economies which can be
secured by the retention of control by such holding company of such system," (B)
the additional system is located in one state or adjoining states, and (C) the
combination of systems under the control of a single holding company is not so
large . . . as to impair the advantages of localized management, efficient
operation, or the effectiveness of regulation." Each of those conditions is
satisfied with respect to the BMG System.
The Commission has recently addressed the retention by a registered
electric system of "very small" gas operations. At issue in ALLEGHENY ENERGY,
INC., Holding Co. Act Release No. 27121 (Dec. 23, 1999) was the retention of gas
assets with $23.7 million in gas revenues, significantly larger than those of
the BMG System in this matter. Concerning the requirements of Clause A, the
Commission stated:
the Act does not prohibit ownership of combination gas and electric
systems, but rather specifies the showings that must be made by an
applicant to justify ownership of such properties. The Commission has
addressed, in many cases, the question of retainability by electric
registered holding company systems of additional integrated gas systems
and has reached its findings under clause A on a case-by-case basis, in
light of the particular facts.
The principal issue under clause A is whether there would be a
loss of substantial economies if the additional system were divested.
Although Monongahela Power did not provide the Commission a formal
analysis of the gas system as a separate system, the record permits a
finding that there would be a loss of substantial economies if
Monongahela Power were required to divest the gas properties. By any
measure, the gas system is very small. As noted above, the WVP system
serves 24,000 customers. The Commission finds the requirements of
clause A are satisfied with respect to Monongahela Power's ownership of
the gas properties of West Virginia Power as an additional integrated
system.
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The gas operations of BMG are smaller in every respect than those at issue in
ALLEGHENY. In addition, association with a larger system is necessary to ensure
the realization of the benefits and economies that lead to the acquisition by
NSP of BMG and that have been described previously in the discussion of Section
10(c)(2) in Item 3.B.2(a) above. These include corporate and administrative
efficiencies, management and operational efficiencies, purchasing economies and
enhanced technology and computer services.
The BMG System also satisfies the requirements of Clauses (B) and (C).
Specifically, Arizona is adjacent to New Mexico and contiguous to Colorado where
the primary electric utility system of Xcel will operate. For the reasons
explained in detail in the NSP/NCE Application under the caption "Size" in Item
3.C.1.b.(iii).(c), the combination of all of the gas utility operations of NSP,
NSP-W, BMG and NCE's two gas utilities under the ownership of Xcel will not be
"so large as to impair the advantages of localized management, efficient
operation, or the effectiveness of regulation."
C. Section 10(f)
Section 10(f) provides that:
The Commission shall not approve any acquisition as to which an
application is made under this section unless it appears to the
satisfaction of the Commission that such State laws as may apply in
respect of such acquisition have been complied with, except where the
Commission finds that compliance with such State laws would be
detrimental to the carrying out of the provisions of section 11.
As described below under Item 4, and as evidenced by the filings before
the Arizona Commission, Minnesota Commission, and North Dakota Commission, NSP
and BMG intend to comply with all applicable state laws related to the
Transaction,
D. Section 3(a)(2)
In connection with the request under Section 10 of the Act, NSP
requests that the Commission issue an order under Section 3(a)(2) declaring that
NSP will be exempt from all provisions of the Act except Section 9(a)(2)
following completion of the Transaction. Section 3(a)(2) of the Act provides
that the Commission may issue the above-requested order to a holding company,
if:
such holding company is predominantly a public-utility company
whose operations as such do not extend beyond the State in
which it is organized and States contiguous thereto.
Upon consummation of the Transaction, BMG and NSP-W will be direct
wholly-owned subsidiaries of NSP, and NSP will be predominantly a public-utility
company operating as such in Minnesota, its state of incorporation, and states
contiguous to Minnesota (North Dakota and South Dakota).
With regard to whether a company operates "predominantly" as a
public-utility, the
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Commission has often considered factors indicative of the relative size of the
utility operations of the holding company compared to the utility operations of
its subsidiaries with most significance given to gross revenues.(36) Generally,
the Commission has granted exemptions where the ratio of the subsidiary's gross
utility revenues to those of its parent was not more than approximately 25%.(37)
Recently in HOUSTON INDUSTRIES INCORPORATED,(38) the Commission granted an
exemption to Houston Industries Incorporated, even though its subsidiary, NorAm
Energy Corp., had utility operating revenues which were 52.5% of those of
Houston Industries Incorporated. For the year ended December 31, 1998, the
combined utility operating revenues of NSP-W and BMG were 15% of the utility
operating revenues of NSP, substantially lower than the ratios in prior cases
where exemptions were granted. Based on the foregoing, there is no question that
- NSP is predominantly a public-utility company.
Furthermore, as previously discussed, NSP's operations as a
public-utility will be confined to Minnesota, its state of incorporation, and
states contiguous thereto, North Dakota and South Dakota. As to BMG's operations
in the noncontiguous state of Arizona, Section 3(a)(2) does not require
geographic contiguity as to the operations of subsidiaries. Thus, the location
of BMG's operations after the Transaction is not an issue.(39) In addition to
being consistent with Commission precedent, this view is also consistent with
the Commission's suggestion in the 1995 Report that geographic requirements for
an integrated public-utility should be flexibly interpreted, as "the relevance
of physical and geographic integration to a sound public-utility industry has
diminished."(40)
In the event that the Commission does not issue an order approving the
Transaction under Section 10 of the Act, then NSP requests that the Commission
issue an order under Section 3(a)(2) declaring that NSP (which will include the
operations of BMG if the Spin-off does not occur) is exempt from all provisions
of the Act except Section 9(a)(2).
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(36) See, IN RE NORTHERN STATES POWER CO., Holding Co. Act Release No.
12655, 36 S.E.C. 1 (Sep. 16, 1954).
(37) See, e.g., OHIO EDISON CO., Holding Co. Act Release No. 21019, 17 SEC
Docket 436 (April 26, 1979); DELMARVA POWER & LIGHT CO., Holding Co.
Act Release No. 19717, 10 S.E.C. Docket 739 (Oct. 19, 1976); and
WASHINGTON GAS AND LIGHT CO., Holding Co. Act Release No. 1964, 6
S.E.C. 954 (March 5, 1940).
(38) Holding Co. Act Release No. 26744, 65 SEC Docket 83 (July 24, 1997).
(39) See, UNION ELECTRIC CO. OF MISSOURI, 5 S.E.C. 252 (1939) (where the
Commission concluded that "it is plain that under that subsection
[3(a)(2)], Congress intended us to ignore as irrelevant the place of
operation of the operating subsidiaries of the holding company, and
that we should in the instant case consider solely whether the place of
operations of Union Electric Company of Missouri, itself, as an
operating company, are confined to the state of Missouri and contiguous
states."); and IN RE NORTHERN STATES POWER CO., Holding Co. Act Release
No. 22334, 24 SEC Docket 405 (December 23, 1981) (approving the
acquisition by a holding company of a subsidiary and allowing the
holding company to maintain exempt status pursuant to section 3(a)(2),
notwithstanding that the new subsidiary had operations in states
non-contiguous to the holding company's state of organization).
(40) 1995 Report at 72-74.
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With one exception, the prior analysis of NSP's entitlement to an
exemption under Section 3(a)(2) following the Spin-off is equally applicable to
NSP in the event that the Spin-off does not occur. NSP will continue to be
predominantly a public-utility company, with NSP-W (its only other subsidiary
that is a public-utility company) representing less than 15% of its utility
operating revenues for the year ended December 31, 1998. Other than the BMG
operations, all of NSP's operations as a public utility will be confined to its
state of incorporation and states contiguous thereto. Thus, the issue presented
is whether, under Section 3(a)(2), all of NSP's operations as a public utility
must be confined to NSP's state of incorporation and states contiguous thereto
or whether a de minimis amount(41) may be conducted in a non-contiguous state.
In light of the legislative history of Section 3(a)(2), the significant changes
in the utility industry since the enactment of Section 3(a)(2), the views
expressed in the 1995 Report, the approval of the corporate structure in
question by the applicable state regulatory authorities and the de minimis
nature of the BMG operations, Applicant believes that it should be exempt under
Section 3(a)(2).
The legislative history of Section 3(a)(2) does not provide a
dispositive answer to the question of whether a holding company can conduct a de
minimis amount of utility operations in a non-contiguous state. An indication of
the proper interpretation of Section 3(a)(2) is given by the Senate Report to
Senate Bill 2796(42) in which it is stated that Section 3(a)(2) of the Act is to
govern a case where:
the company is itself a utility, being a holding company only in form
by reason of the fact that it has one or more minor subsidiary
utilities.(43)
This statement clearly implies that the focus of Section 3(a)(2) is on
the size of the utility subsidiaries and not on requiring that every aspect of
the utility operations of the parent holding company must be located solely in
its state of incorporation and states contiguous thereto. Applicant does not
know of any statements in the legislative history of Section 3(a)(2) that would
preclude an exempt holding company under Section 3(a)(2) from having a de
minimis amount of utility operations in a non-contiguous state.
Applicant is aware that, in EASTERN SHORE PUBLIC SERVICE COMPANY,
5.S.E.C.1022 (1940), the Commission addressed the meaning of the phrase "whose
operations as such do not extend beyond the State in which it is organized and
States contiguous thereto" in Section 3(a)(2). While the Commission's
interpretation of this phrase was not determinative to the case as Eastern Shore
did not meet the requirement of being predominantly a public utility company
(the revenues of Eastern Shore's utility subsidiaries represented in excess of
75% of the
----------
(41) The de minimis nature of BMG's utility operations to the existing
utility operations of NSP is shown on the prior pages of this
Application, with BMG's net utility assets, utility revenues and net
income representing significantly less than 1% of the net utility
assets, utility revenues and net income of NSP on a stand-alone basis
without the inclusion of NSP-W.
(42) There were no changes to Section 3(a)(2) as set forth in Senate Bill
2796 prior to enactment.
(43) 7482 Cong., 1st sess., Report No. 621, p. 24. The House Report
contained similar language (74th Cong. 1st sess., Report No. 1318,
p.10).
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combined utility revenues of the system), the Commission interpreted the phrase
as requiring that the holding company's public utility operations be confined to
its state of incorporation and states contiguous (i.e., touching) thereto. This
case, however, is distinguishable as the Commission was not faced with the
situation, like the present case, where the non-contiguous operations reflected
less than 1% of the holding company's utility revenues.
Moreover, in order to respond flexibly to the legislative, regulatory
and technological changes that are transforming the structure and shape of the
utility industry,(44) the Commission has indicated a willingness to reconsider
precedent in interpreting Section 3(a) of the Act.(45) In this regard, the
Commission has announced its intention to reject bright-line tests and rather to
consider the specific facts and circumstances surrounding each specific request
for exemption, giving significant attention to the availability of state
regulation for the proposed transaction.(46) In the present case, the proposed
structure with the BMG operations being conducted directly by NSP has been
approved by the Minnesota Commission, the Arizona Commission and the North
Dakota Commission. None of these commissions expressed any reservation about
their ability to effectively regulate the utility operations of NSP. In fact,
the Minnesota Commission, the North Dakota Commission and the South Dakota
Commission have effectively regulated NSP as an exempt holding company under
Section 3(a)(2) for many years. The addition of the BMG operations to NSP will
not affect this regulation. Thus, the present case is not one involving an
unregulated entity through which potential abuse could occur. Instead, NSP will
be subject to extensive regulation by four state regulatory commissions. Under
these circumstances, it seems evident that the holding company structure will
not be used to evade state or local regulation or that regulation under the Act
is needed to supplement state regulation in order to prevent detriment to the
interests protected by the Act.
As acknowledged by the Staff in the 1995 Report, "the [Commission's]
decisions under [Section 3(a)(1) and 3(a)(2)] have generally focused on size as
a proxy for effective state regulation. The result has been a somewhat confusing
array of decisions."(47) The present case amply demonstrates this confusing
array. As shown previously, NSP meets the criteria for an exemption under
Section 3(a)(2) if BMG is a wholly-owned subsidiary of NSP. The same result
follows if BMG is made part of the operations of NSP-W, as the location of
utility operations of subsidiaries is not relevant under Section 3(a)(2). UNION
ELECTRIC CO. OF MISSOURI, 5 S.E.C.252 (1939). Finally, if BMG were combined with
Viking Gas Transmission Company (NSP's wholly-owned interstate pipeline), Viking
would appear to qualify for an exemption under Rule 7 under the Act. BMG's
revenues from its gas utility operations have averaged less than $5 million
annually for the last three calendar years ($4.6 million for 1998, $5.3 million
for 1997, and $4.4 million for 1996). Viking, with annual revenues in excess of
$19 million from its interstate pipeline business, would appear to be engaged
primarily in a business other than the gas utility business for purposes of Rule
7. It is only when BMG's operations are part of NSP
--------
(44) 1995 Report at 70.
(45) ID. at 119
(46) 1995 Report at 119.
(47) 1995 Report at 111.
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that an issue arises under Section 3(a)(2). Yet, there does not appear to be any
policy or purpose of the Act that is served by permitting the above corporate
structures to be exempt under Section 3(a)(2), but not permitting a corporate
structure where BMG is part of the parent company operations of NSP.
As stated previously, the precise issue presented is whether, under
Section 3(a)(2), a holding company can have a de minimis amount of utility
operations outside of its state of incorporation and states contiguous thereto.
In EASTERN GAS, SUPRA, the Commission arguably answered this question in the
negative. However, through numerous no-action letters and orders, the Commission
has effectively permitted non-contiguous operations that historically would have
appeared to be utility operations. This is shown by the various no-action
letters and orders issued in the context of energy marketing.
The initial series of no-action letters permitted utility affiliates or
independent companies to engage in the wholesale sale of electricity. ENRON
POWER MARKETING, INC., SEC No-Action Letter, January 5, 1994; CRSS POWER
MARKETING, INC., SEC No-Action Letter, March 31, 1994; ELECTRIC CLEARINGHOUSE,
INC., SEC No-Action Letter, April 13, 1994; INTER-COAST POWER MARKETING CO., SEC
No-Action Letter, December 6, 1994; and LG&E POWER MARKETING, INC., SEC
No-Action Letter, April 21, 1995. The basis for these decisions was that such
activities did not constitute "utility" operations under the Act and the
decisions were in response, at least in part, to the rapidly changing
electricity and gas utility industry. The next series of no-action letters and
orders permitted the retail sale of electricity and natural gas where the
marketing company did not own any physical utility assets. LG&E POWER MARKETING,
INC., SEC No-Action Letter, April 26, 1996; UNITIL CORPORATION, Holding Company
Act Release No. 26527 (May 31, 1996). Again, the basis for these decisions was
that this activity did not constitute "utility" operations. The final step was
the sale by marketing companies of electricity and natural gas coupled with the
installation and/or ownership of certain ancillary equipment such as meters,
electric wire droplines, breaker panels and short segments of gas pipe or
electric wiring to connect the customer to the local distribution system. ENRON
CAPITAL & TRADE RESOURCES CORP., SEC No-Action Letter, February 13, 1997; SUNOCO
POWER MARKETING, L.L.C., SEC No-Action letter, July 24, 1997; SEI HOLDINGS,
INC., Holding Company Act Release No. 26581 (September 26, 1996).
The overall effect of the foregoing decisions is that exempt holding
companies today are permitted under the Act to sell electricity and natural gas
at wholesale throughout the United States and at retail in numerous states
which, through retail pilot programs or legislative enactment, have permitted
such action to occur. Often, the regulation of such energy marketing activities
is far less than the typical, extensive regulation imposed by states on
traditional electric and gas utilities, including the regulation imposed on the
BMG operations in Arizona by the Arizona Commission.
Applicant's point in discussing the above energy marketing decisions is
to show that historical perceptions of permitted utility operations under
Section 3(a)(2) have changed significantly. Applicant does not question the
wisdom or correctness of the various energy marketing no-action letters and
orders. In fact, Applicant supports such decisions. Yet, there is
43
<PAGE>
nothing in the Act or its legislative history expressly stating that an entity
which provides electric or natural gas service is not an electric utility
company or a gas utility company merely because it does not own or operate
certain physical assets. Similarly, there is nothing in the Act or, to the
knowledge of the Applicant, its legislative history requiring that exempt
holding companies under Section 3(a)(2) cannot have a de minimis amount of
utility operations in a noncontiguous state. It is for this reason, along with
the approval of the applicable state utility commissions that will regulate NSP,
the ability of NSP to otherwise qualify for an exemption and the lack of
potential harms to the interests sought to be protected by the Act, that the
Applicant believes it should be exempt under Section 3(a)(2) from all provisions
of the Act other than Section 9(a)(2). The granting of such exemption would be
consistent with the Commission's broad power to interpret the terms, phrases and
provisions of the Act. See, e.g., GAZ METROPOLITAIN, INC., Holding Company Act
Release No. 26170 (November 23, 1994). In addition, the uniqueness of the facts
in the present case makes it highly unlikely that the grant of an exemption
under Section 3(a)(2) will be relied upon for precedential effect in future
cases.
Item 4. Regulatory Approvals
Set forth below is a summary of the regulatory approvals that NSP and
BMG expect to obtain in connection with the Transaction. It is a condition to
the consummation of the Transaction that final orders approving the Transaction
be obtained from the Commission under the Act and from the various federal and
state commissions described below on terms and conditions which would not have,
or would not be reasonably likely to have, a material adverse effect on the
business, assets, financial condition or results of operations of BMG or NSP and
its prospective subsidiaries taken as a whole or which would be materially
inconsistent with the agreements of the parties contained in the Merger
Agreement.
A. Antitrust
The HSR Act and the rules and regulations thereunder provide that
certain transactions (including the Transaction) may not be consummated until
certain information has been submitted to the Department of Justice ("DOJ") and
Federal Trade Commission ("FTC") and the specified HSR Act waiting period
requirements have been satisfied. DOJ terminated the HSR Act waiting period on
April 3, 1998.
The expiration of the HSR Act waiting period does not preclude the
Antitrust Division or the FTC from challenging the Transaction on antitrust
grounds; however the Applicant believes that the Transaction will not violate
Federal antitrust laws.
B. State Public Utility Regulation
Applications for approval of the Merger and related transactions were
filed on January 12, 1998 with the Arizona Commission, on January 20, 1998 with
the Minnesota Commission, and on March 5, 1998 with the North Dakota Commission.
Each Commission found, in general, that the Merger was in the public interest.
The Minnesota Commission approved the Merger on
44
<PAGE>
May 7, 1998, the North Dakota commission approved the Merger on June 3, 1998 and
the Arizona Commission approved the Merger on July 21, 1998.
On August 27, 1999, the Arizona Commission approved the Spin-off noting
that BMG is a fit and proper entity to receive NSP's gas utility assets and
Certificate of Convenience and Necessity. The Commission further stated that the
Spin-off and the resultant formation of NSP as a public utility holding company
in Arizona "is in the public interest." The North Dakota Commission and the
Minnesota Commission separately approved the Spin-off, each finding that the
Spin-off is compatible with the public interest.
Following consummation of the Transaction, NSP and BMG expect to engage
in various intercompany transactions. These affiliated interest transactions
require prior approval of the Arizona Commission and the Minnesota Commission.
Accordingly, as part of the application for approval of the Spin-off, NSP sought
and received authorization for these affiliated interest transactions from the
Arizona and Minnesota Commissions.
Except as set forth above, no other state or local regulatory body or
agency and no other Federal commission or agency has jurisdiction over the
transactions proposed herein.
Item 5. Procedure
The Commission is respectfully requested to issue and publish not later
than September 15, 1998, the requisite notice under Rule 23 with respect to the
filing of this Application-Declaration, such notice to specify a date not later
than October 6, 1998, by which comments must be entered and a date not later
than October 7, 1998, as the date after which an order of the Commission
granting and permitting this Application-Declaration to become effective may be
entered by the Commission.
It is submitted that a recommended decision by a hearing or other
responsible officer of the Commission is not needed for approval of the proposed
Transaction. The Division of Investment Management may assist in the preparation
of the Commission's decision. There should be no waiting period between the
issuance of the Commission's order and the date on which it is to become
effective.
Item 6. Exhibits and Financial Statements
<TABLE>
<CAPTION>
A. Exhibits
<S> <C>
A-1 Restated Articles of Incorporation of NSP (filed as Exhibit
3.01 to Form 10-Q of NSP for the quarter ended March 31, 1992,
File No. 1-3034, and incorporated herein by reference)
A-2 Restated Articles of Incorporation of NSP-W (filed as Exhibit
3.01 to Form 10-K of NSP-W for the year ended December 31,
1987, File No. 10-3140, and incorporated herein by reference)
A-3* Articles of Incorporation of BMG
B-1 Agreement and Plan of Merger (Merger Agreement) (filed as
Annex A to
</TABLE>
------------
*Previously filed
45
<PAGE>
<TABLE>
<S> <C>
Registration Statement No. 333-49529 on Form S-4 and
incorporated herein by reference)
B-2 Stock Option Agreement (filed as Annex B to Registration
Statement No. 333-49529 on Form S-4 and incorporated herein by
reference)
C-1 Registration Statement of NSP on Form S-4 (as amended) (filed
as Registration Statement No. 333-49529 and incorporated
herein by reference)
C-2 Proxy Statement and Prospectus (included in Exhibit C-1)
D-1.1* Application of NSP and BMG before the Arizona Commission and
Order dated July 21, 1998 approving the Merger
D-1.2* Application of NSP and BMG before the Minnesota Commission and
Order dated May 7, 1998 approving the Merger
D-1.3* Application of NSP and BMG before the North Dakota Commission
and Order dated June 3, 1998 approving the Merger
D-1.4* Application of NSP before the Minnesota Commission and Order
dated April 9, 1999, approving the Spin-off
D-1.5* Application of NSP before the North Dakota Commission and
Order dated April 14, 1999, approving the Spin-off
D-1.6* Application of NSP before the Arizona Commission and Order
dated August 27, 1999, approving the Spin-off
E-1* NSP Corporate Chart
E-2* Pro Forma NSP Corporate Chart
E-3* Comparison of gas operating statistics
F-1* Preliminary Opinion of Counsel to NSP
G-1 Opinion of PFS (filed as Annex C to Registration Statement No.
333-49529 on Form S-4 and incorporated herein by reference)
H-1 Annual Report of NSP on Form 10-K for the year ended December
31, 1999 (File No. 1-3034 and incorporated herein by reference)
H-2 Annual Report of NSP on Form 10-K for the year ended December
31, 1998 (File No. 1-3034 and incorporated herein by reference)
H-3 NSP Quarterly Report on Form 10-Q for the quarter ended March
31, 2000 (File No. 1-3034 and incorporated herein by reference)
H-4 Annual Report of NSP-W on Form 10-K for the year ended
December 31, 1999 (File No. 10-3140 and incorporated herein by
reference)
H-5 Annual Report of NSP-W on Form 10-K for the year ended
December 31, 1998 (File No. 10-3140 and incorporated herein by
reference)
H-6 NSP-W Quarterly Report on Form 10-Q for the quarter ended
March 31, 2000 (File No. 10-3140 and incorporated herein by
reference)
H-7 Annual Report of NRG on Form 10-K for the year ended December
31, 1999 (File No. 333-33397 and incorporated herein by reference)
H-8 Annual Report of NRG on Form 10-K for the year ended December
31, 1998 (File No. 333-33397 and incorporated herein by reference)
H-9 NRG Quarterly Report on Form 10-Q for the quarter ended March
31, 2000 (File No. 333-33397 and incorporated herein by reference)
I-1* Form of Notice
</TABLE>
------------
*Previously filed
46
<PAGE>
<TABLE>
<CAPTION>
B. Financial Statements
<S> <C>
FS-1 NSP Consolidated Balance Sheet as of December 31, 1999 (see
Annual Report of NSP on Form 10-K for the year ended December
31, 1999 (Exhibit H-1 hereto) at p. 53)
FS-2 NSP Consolidated Statements of Income for its last three
fiscal years (see Annual Report on Form 10-K for the year
ended December 31, 1999 (Exhibit H-1 hereto) at p. 51)
FS-3 NSP Consolidated Balance Sheet as of December 31, 1998 (see
Annual Report on Form 10-K for the year ended December 31,
1998 (Exhibit H-2 hereto) at p. 42)
FS-4 NSP Consolidated Statements of Income for its last three
fiscal years ended December 31, 1998 (see Annual Report on
Form 10-K for the year ended December 31, 1998 (Exhibit H-2
hereto) at p. 40)
FS-5 NSP-W Consolidated Balance Sheet as of December 31, 1999 (see
Annual Report of NSP-W on Form 10-K for the year ended
December 31, 1999 (Exhibit H-4 hereto) at p. 23)
FS-6 NSP-W Consolidated Statements of Income for its last three
fiscal years (see Annual Report on Form 10-K for the year
ended December 31, 1999 (Exhibit H-4 hereto) at p. 21)
FS-7 NSP-W Consolidated Balance Sheet as of December 31, 1998 (see
Annual Report on Form 10-K for the year ended December 31,
1998 (Exhibit H-5 hereto) at p. 20)
FS-8 NSP-W Consolidated Statements of Income for its last three
fiscal years ended December 31, 1998 (see Annual Report on
Form 10-K for the year ended December 31, 1998 (Exhibit H-5
hereto) at p. 18)
FS-9 BMG Balance Sheet Data as of December 31, 1997 (see Proxy
Statement and Prospectus (Exhibit C-2) at p. 46)
FS-10 BMG Income Statement Data for its last five fiscal years (See
Proxy Statement and Prospectus (Exhibit C-2) at p. 46)
FS-11* BMG Balance Sheet Data as of December 31, 1998
FS-12* BMG Income Statement for its last five fiscal years ended
December 31, 1998
</TABLE>
------------
*Previously filed
Item 7. Information as to Environmental Effects
The Transaction neither involves "major federal actions" nor
"significantly [affects] the quality of the human environment" as those terms
are used in Section (2)(C) of the National Environmental Policy Act, 42 U.S.C.
S.E.C. 4332. The only federal actions related to the Transaction pertain to the
Commission's declaration of the effectiveness of the Registration Statement, the
approvals and actions described under Item 4 and Commission approval of this
Application-Declaration. Consummation of the Transaction will not result in
changes in the operations of NSP, NSP-W or BMG that would have any impact on the
environment. No federal agency is preparing an environmental impact statement
with respect to this matter.
47
<PAGE>
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned company has duly caused this Amendment No. 4 to its
Application-Declaration to be signed on its behalf by the undersigned thereunto
duly authorized.
NORTHERN STATES POWER COMPANY
BY: /signed/
--------------------------------------
E.J. McIntyre
Vice President and Chief Financial
Officer
Date: August 4, 2000
48
<PAGE>
INDEX OF EXHIBITS
EXHIBIT - DESCRIPTION - TRANSMISSION METHOD
<TABLE>
<CAPTION>
Method Exhibit
of Filing Number Description
--------- ------ -----------
<S> <C> <C>
A-1 Restated Articles of Incorporation of NSP
(filed as Exhibit 3.01 to Form 10-Q of NSP
for the quarter ended March 31, 1992, File
No. 1-3034, and incorporated herein by
reference)
A-2 Restated Articles of Incorporation of NSP-W
(filed as Exhibit 3.01 to Form 10-K of NSP-W
for the year ended December 31, 1987, File
No. 10-3140, and incorporated herein by
reference)
P A-3* Articles of Incorporation of BMG
B-1 Agreement and Plan of Merger (Merger
Agreement) (filed as Annex A to Registration
Statement No. 333-49529 on Form S-4 and
incorporated herein by reference)
B-2 Stock Option Agreement (filed as Annex B to
Registration Statement No. 333-49529 on Form
S-4 and incorporated herein by reference)
C-1 Registration Statement of NSP on Form S-4
(as amended) (filed as Registration
Statement No. 333-49529 and incorporated
herein by reference)
C-2 Proxy Statement and Prospectus (included in
Exhibit C-1)
P D-1.1* Application of NSP and BMG before the
Arizona Commission and Order dated July 21,
1998 approving the Merger
P D-1.2* Application of NSP and BMG before the
Minnesota Commission and Order dated May 7,
1998 approving the Merger
P D-1.3* Application of NSP and BMG before the
North Dakota Commission and Order dated June
3, 1998 approving the Merger
D-1.4* Application of NSP before the Minnesota
Commission and Order dated April 9, 1999,
approving the Spin-off
D-1.5* Application of NSP before the North Dakota
Commission and Order dated April 14, 1999,
approving the Spin-off
D-1.6* Application of NSP before the Arizona
Commission and Order dated August 27, 1999,
approving the Spin-off
P E-1* NSP Corporate Chart
P E-2* Pro Forma NSP Corporate Chart
E-3* Comparison of gas operating statistics
F-1* Preliminary Opinion of Counsel to NSP
G-1 Opinion of PFS (filed as Annex C to
Registration Statement No. 333-49529 on Form
S-4 and incorporated herein by reference)
</TABLE>
------------
*Previously filed
49
<PAGE>
<TABLE>
<S> <C> <C>
H-1 Annual Report of NSP on Form 10-K for the
year ended December 31, 1999 (File No.
1-3034 and incorporated herein by reference)
H-2 Annual Report of NSP on Form 10-K for the
year ended December 31, 1998 (File No.
1-3034 and incorporated herein by reference)
H-3 NSP Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000 (File No.
1-3034 and incorporated herein by reference)
H-4 Annual Report of NSP-W on Form 10-K for the
year ended December 31, 1999 (File No.
10-3140 and incorporated herein by
reference)
H-5 Annual Report of NSP-W on Form 10-K for the
year ended December 31, 1998 (File No.
10-3140 and incorporated herein by
reference)
H-6 NSP-W Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000 (File No.
10-3140 and incorporated herein by
reference)
H-7 Annual Report of NRG on Form 10-K for the
year ended December 31, 1999 (File No.
333-33397 and incorporated herein by
reference)
H-8 Annual Report of NRG on Form 10-K for the
year ended December 31, 1998 (File No.
333-33397 and incorporated herein by
reference)
H-9 NRG Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000 (File No.
333-33397 and incorporated herein by
reference)
I-1* Form of Notice
FS-1 NSP Consolidated Balance Sheet as of
December 31, 1999 (see Annual Report of NSP
on Form 10-K for the year ended December 31,
1997 (Exhibit H-1 hereto) at p. 53)
FS-2 NSP Consolidated Statements of Income for
its last three fiscal years (see Annual
Report on Form 10-K for the year ended
December 31, 1997 (Exhibit H-1 hereto) at p.
51)
FS-3 NSP Consolidated Balance Sheet as of
December 31, 1998 (see Annual Report on Form
10-K for the year ended December 31, 1998
(Exhibit H-2 hereto) at p. 42)
FS-4 NSP Consolidated Statements of Income for
its last three fiscal years ended December
31, 1998 (see Annual Report on Form 10-K for
the year ended December 31, 1998 (Exhibit
H-2 hereto) at p. 40)
FS-5 NSP-W Consolidated Balance Sheet as of
December 31, 1999 (see Annual Report of
NSP-W on Form 10-K for the year ended
December 31, 1997 (Exhibit H-4 hereto) at p.
23)
</TABLE>
------------
*Previously filed
50
<PAGE>
<TABLE>
<S> <C> <C>
FS-6 NSP-W Consolidated Statements of Income for
its last three fiscal years (see Annual
Report of NSP-W on Form 10-K for the year
ended December 31, 1997 (Exhibit H-4 hereto)
at p. 21)
FS-7 NSP-W Consolidated Balance Sheet as of
December 31, 1998 (see Annual Report on Form
10-K for the year ended December 31, 1998
(Exhibit H-5 hereto) at p. 20)
FS-8 NSP-W Consolidated Statements of Income for
its last three fiscal years ended December
31, 1998 (see Annual Report on Form 10-K for
the year ended December 31, 1998 (Exhibit
H-5 hereto) at p. 18)
FS-9 BMG Balance Sheet Data as of December 31,
1997 (see Proxy Statement and Prospectus
(Exhibit C-2) at p. 46)
FS-10 BMG Income Statement Data for its last five
fiscal years (See Proxy Statement and
Prospectus (Exhibit C-2) at p. 46)
FS-11* BMG Balance Sheet Data as of December 31,
1998
FS-12* BMG Income Statement for its last five
fiscal years ended December 31, 1998
</TABLE>
------------
*Previously filed
51
