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As filed with the Securities and Exchange Commission on April 5, 1999
File No . 70-09451
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM U-1 APPLICATION OR DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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Sierra Pacific Resources Nevada Power Company
6100 Neil Road 6226 West Sahara Avenue
Reno, Nevada, 89511 Las Vegas, Nevada 89146
(Name of company or companies filing this statement
and address of principal executive offices)
None
(Name of top registered holding company parent of each applicant or declarant)
Malyn K. Malquist Michael R. Niggli
Chairman of the Board, President President and Chief Operating Officer
and Chief Executive Officer Nevada Power Company
Sierra Pacific Resources 6226 West Sahara Avenue
6100 Neil Road Las Vegas, Nevada 89146
Reno, Nevada, 89511 (702) 367-5000
(702) 834-3600
(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 to:
Clifford (Mike) M. Naeve, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, D.C. 20005
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INTRODUCTION AND REQUEST FOR COMMISSION ACTION
Pursuant to Sections 9(a)(2) and 10 of the Public Utility Holding
Company Act of 1935 (the "Act"), this Application requests that the Securities
and Exchange Commission (the "SEC" or "Commission") approve a merger between
Sierra Pacific Resources ("Sierra Pacific"), which is an exempt intrastate
holding company under the Act, and Nevada Power Company ("Nevada Power"), with
Nevada Power to become a wholly-owned subsidiary of Sierra Pacific (the
"Transaction"). Herein, Sierra Pacific and Nevada Power collectively are
referred to as the "Applicants." The Applicants also request an order under
Section 3(a)(1) of the Act declaring Sierra Pacific exempt from all provisions
of the Act except Section 9(a)(2) following consummation of the Transaction.
Nevada Power is an electric utility company under the Act. Sierra
Pacific owns all of the common stock of Sierra Pacific Power Company ("SPPC"),
which also is an electric and gas utility company under the Act. The Transaction
will not impact SPPC's structure; SPPC will continue to be a wholly-owned
subsidiary of Sierra Pacific, and will become a sister company to Nevada Power.
The Transaction is designed to create a merged company that will be able to
participate more effectively in the increasingly competitive energy marketplace.
The Transaction will be governed by the terms of an Agreement and Plan
of Merger dated as of April 29, 1998 (the "Merger Agreement"), by and among
Nevada Power, Sierra Pacific, Desert Merger Sub, Inc. ("Desert Merger Sub"), and
Lake Merger Sub, Inc. ("Lake Merger Sub"). Sierra Pacific will create two
wholly-owned, special purpose subsidiary corporations named Desert Merger Sub
and Lake Merger Sub, both to be Nevada corporations. Under the terms of the
Merger Agreement, first, Lake Merger Sub will be merged into Sierra Pacific,
with Sierra Pacific as the surviving corporation. Immediately thereafter, Nevada
Power will be merged into Desert Merger Sub. Desert Merger Sub, which will be
the surviving corporation, will then immediately change its name to Nevada Power
Company. It is through this second step that Nevada Power will become a
subsidiary of Sierra Pacific.
The Nevada Power Board of Directors ("Nevada Power Board") and the
Sierra Pacific Board of Directors ("Sierra Pacific Board") approved the
Transaction on April 29, 1998. A majority of both the Nevada Power and Sierra
Pacific common shareholders voted in favor of the Transaction in separate
meetings held on October 9, 1998. A registration statement on Form S-4, which
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includes a Prospectus (the "Registration Statement") was filed with the
Commission on September 4, 1998.
The Transaction is conditioned, among other things, upon approval by
the SEC, the Public Utilities Commission of Nevada ("Nevada PUC") and the
Federal Energy Regulatory Commission ("FERC"), and on the expiration or
termination of the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (as amended) (the "HSR Act"). The Applicants
expect to make the HSR filing in the first quarter of 1999.
For the Commission to approve the Transaction, Section 10 of the Act
requires the Commission to find that the Transaction will tend towards the
economical and efficient development of an integrated public-utility system and
that state laws have been complied with. The Transaction clearly satisfies these
requirements. While Section 10 also permits the Commission to disapprove an
acquisition if certain adverse circumstances would result - such as undue
concentration of control or other harm to the public interest or to the
interests of investors or consumers - these adverse circumstances are not
present here. Accordingly, the Applicants submit that the Transaction meets all
requirements of Section 10.
With respect to the exemption requested under Section 3(a)(1), the
holding company system must meet the statutory requirements of the exemption
and, in addition, the Commission must not find that the exemption would be
detrimental to the public interest or the interests of investors or consumers.
The Applicants submit that these criteria are satisfied as well.
The Applicants request expedited treatment of this application, so
that upon receipt of other regulatory approvals, Sierra Pacific and Nevada Power
will be in a position to consummate the Transaction promptly. Unless otherwise
indicated, all financial information set forth herein is for the fiscal year
ended December 31, 1997.
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ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION.
A. DESCRIPTION OF THE PARTIES TO THE TRANSACTION.
1. SIERRA PACIFIC.
Sierra Pacific is a public utility holding company incorporated in the
State of Nevada, which is exempt from regulation by the Commission under the Act
(except for Section 9(a)(2) thereof) pursuant to Section 3(a)(1) of the Act and
by order of the Commission.1 Sierra Pacific is headquartered in Reno, Nevada,
with operating subsidiaries primarily engaged in the energy and utility
businesses.
SPPC, the principal subsidiary of Sierra Pacific, is a public utility
incorporated in the State of Nevada. SPPC provides electric service to
approximately 287,000 retail customers in northern Nevada and northeastern
California. SPPC also sells electric power at wholesale. In the Reno/Sparks area
of Nevada, SPPC distributes natural gas at retail to approximately 101,000
customers and provides water service to about 65,000 customers. During 1997, 92%
of SPPC's revenues were from retail sales of electricity, natural gas and water
in Nevada, 6% from retail sales of electricity in California and 2% from
wholesale sales of electricity in Nevada and California . SPPC's 1997 operating
revenues, which totaled $657.5 million, were comprised of its electric business
($540 million, or 82%), natural gas business ($70.7 million, or 11%) and water
business ($46.5 million, or 7%). As of December 31, 1997, SPPC's net utility
plant in service was $ 1.4 billion. A map of SPPC's electric/gas service area is
attached as Exhibit E-1.
During 1997, the peak electric demand experienced by SPPC was 1342
megawatts ("MW"). SPPC served this demand, plus a reserve margin, with a
combination of the following: (i) 1049 MW of power generated by plants owned by
SPPC, (ii) 334 MW of power purchased pursuant to long term contracts, and (iii)
additional firm and short-term power purchases. SPPC's fuel requirements for
electric generation were provided by natural gas (62%), coal (37%) and oil (1%).
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1 Sierra Pacific Resources, Holding Co. Act Release No. 24566 (Jan. 28,
1988), aff'd, Environmental Action, Inc. v. SEC, 895 F.2d 1255 (D.C. Cir.
1990).
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As of December 31, 1997, SPPC's electric transmission facilities
consisted of approximately 3,900 overhead pole line miles and 80 substations.
Its electric distribution facilities consisted of approximately 9,200 overhead
pole line miles, 4,500 underground cable miles and 176 substations.
SPPC's natural gas business consists of providing local distribution
service in the Reno/Sparks area that accounted for $70.7 million in 1997
operating revenues; 11% of total SPPC operating revenues. SPPC has contracted
for firm winter-only and annual natural gas supplies with Canadian and domestic
suppliers to meet the firm gas requirements of its local distribution and
electric operations. The contracts total 125,000 decatherms per day through
March 1998; 72,000 decatherms per day for April through October 1998 and 75,000
decatherms per day for the remainder of 1998. SPPC's firm natural gas supply is
supplemented with natural gas storage services and supplies from a Northwest
Pipeline Company facility located at Jackson Prairie in southern Washington and
a liquid natural gas storage facility. For 1997, SPPC's total local gas
distribution supply requirements were 12.4 million decatherms and its electric
generating fuel requirements were 32.0 million decatherms. As of December 31,
1997, SPPC owned and operated 1,219 miles of three-inch equivalent natural gas
distribution lines.
SPPC is subject to regulation by the Nevada PUC and the California
Public Utilities Commission ("California PUC") with respect to its rates for
retail sales of electricity as well as terms of service, issuance of certain
securities, siting of and necessity for generation and certain transmission
facilities, accounting and other matters. In addition, SPPC is subject to
regulation by FERC under the Federal Power Act with respect to rates for the
sale of electricity for resale, the terms and conditions for providing
interstate electric transmission service, and other matters. SPPC also is
subject to applicable federal and state environmental regulations.
Sierra Pacific is engaged in non-utility businesses, as well as
certain other utility businesses that are not jurisdictional under the Act,
through the following subsidiaries:
1. Tuscarora Gas Pipeline Company was formed as a wholly-owned
subsidiary in 1993 for the purpose of entering into a partnership (the Tuscarora
Gas Transmission Company or, "TGTC") with a subsidiary of TransCanada to
develop, construct and operate a natural gas pipeline to serve an expanding gas
market in Reno, northern Nevada and northeastern California. Sierra Pacific has
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an investment of approximately $15.5 million in this subsidiary. In 1995, TGTC
completed construction and began service of its 229-mile pipeline extending from
Malin, Oregon to Reno, Nevada. At Malin, Oregon, TGTC interconnects with Pacific
Gas Transmission Company ("PGT"), a major interstate natural gas pipeline
extending from Oregon to the U.S./Canadian border. The PGT system provides TGTC
customers access to natural gas reserves in the Western Canadian Sedimentary
basin, one of the largest natural gas reserve basins in North America. As an
interstate pipeline, TGTC provides only transportation service. During 1997,
SPPC and Sierra Pacific were the two largest customers of TGTC, contributing
92.2% and 6.3% of TGTC's revenues, respectively. Malin, Oregon began taking
service from TGTC during the later part of 1996. The Sierra Army Depot at
Herlong, California began taking service from TGTC during the later part of
1997.
2. Sierra Energy Company d/b/a e-three ("e-three") is an
unregulated, wholly-owned subsidiary that provides energy-related products and
services both inside and outside SPPC's service territory.
3. Lands of Sierra, Inc. ("LOS") was organized in 1964 to develop
and manage SPPC non-utility property in Nevada and California. In recent years,
Sierra Pacific has focused on selling the LOS properties and the properties
remaining include only vacant land in Nevada and land leases in the Lake Tahoe
region.
4. Sierra Pacific Energy Company ("SPEC"), which is developing a
customer information system for the energy industry. SPEC also is engaged in
providing certain products and services in Nevada through a partnership with
Enable, which is a partnership consisting of KN Energy and PacifiCorp
subsidiaries.
The common stock of Sierra Pacific, par value $1 per share ("Sierra
Pacific Common Stock"), is listed on the New York Stock Exchange (the "NYSE"),
under the symbol SRP. As of the close of business on December 31, 1998, there
were 31,009,364 shares of Sierra Pacific Common Stock issued and outstanding.
For the year ended December 31, 1997, Sierra Pacific's operating
revenues on a consolidated basis were approximately $663 million, of which $6
million are attributable to non-utility activities. Consolidated assets of
Sierra Pacific and its subsidiaries at December 31, 1997, were approximately
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$1.9 billion, of which approximately $1.4 billion consisted of net utility plant
and equipment.
Sierra Pacific's principal executive office is located at 6100 Neil
Road, Reno, Nevada, 89511. At December 31, 1997, Sierra Pacific and its
subsidiaries employed 1,478 employees, of which 1,473 were employed by SPPC.
More detailed information concerning Sierra Pacific and its
subsidiaries is contained in Sierra Pacific's and SPPC's Annual Reports on Form
10-K for the year ended December 31, 1997, which are incorporated herein by
reference as Exhibits G-1 and G-3, respectively.
2. NEVADA POWER.
Nevada Power is a public utility, incorporated in the State of Nevada,
that provides retail electric service predominantly to the more than 1.3 million
residents of Clark County, Nevada, with limited service provided to the Federal
Department of Energy (U.S. Government Test Site) in Nye County, Nevada. Nevada
Power also sells electric power at wholesale.
Nevada Power has total generating capacity of 2,714 MW, which includes
(i) 1,964 MW of power generated by plants owned by Nevada Power, (ii) 235 MW of
Hoover Dam power purchased pursuant to a contract with the State of Nevada ,
(iii) 210 MW of power purchased pursuant to a contract with Nevada Sun-Peak
Limited Partnership, an independent power producer, and (iv) 305 MW of power
purchased pursuant to contracts with four qualifying facilities. In addition,
Nevada Power has agreements with other suppliers to purchase 1,130 MW of firm
capacity and associated energy. During 1997, the peak demand experienced by
Nevada Power was 3,469 MW on August 7, 1997. Nevada Power served this demand,
plus a reserve margin, with a combination of its 2,714 MW of generating capacity
and additional firm and short-term power purchases. To obtain additional firm
capacity and associated energy to meet peak needs, Nevada Power utilizes a
competitive bidding process and spot market purchases. During 1997, 67% of the
energy generated by Nevada Power's plants came from coal-fired stations and 33%
from natural gas-fired stations.
As of December 31, 1997, Nevada Power owned approximately 1,575 miles
of electric transmission facilities (a portion of that under shared ownership),
108 transmission and distribution substations, and a distribution system
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consisting of approximately 3,162 overhead pole line miles and 8,957 underground
cable miles.
Nevada Power is subject to regulation by the Nevada PUC with respect
to its rates for retail sales of electricity as well as terms of service,
issuance of certain securities, siting of and necessity for generation and
certain transmission facilities, and accounting and other matters. In addition,
Nevada Power is subject to regulation by FERC under the Federal Power Act with
respect to rates for the sale of electricity for resale, the terms and
conditions for providing interstate electric transmission service, and other
matters. Nevada Power is also subject to applicable federal and state
environmental regulations.
The common stock of Nevada Power, par value $1 per share ("Nevada
Power Common Stock"), is listed on the NYSE and the Pacific Exchange, Inc.,
under the symbol NVP. As of the close of business on December 31, 1998, there
were 51,265,117 shares of Nevada Power Common Stock issued and outstanding.
For the year ended December 31, 1997, Nevada Power's utility operating
revenues on a consolidated basis were approximately $799 million. Consolidated
assets of Nevada Power and its subsidiaries at December 31, 1997, were
approximately $2.3 billion, of which approximately $1.7 billion consisted of net
electric plant and equipment. Nevada Power does not have any material revenue
generating subsidiaries.
Nevada Power's principal executive office is located at 6226 West
Sahara Avenue, Las Vegas, Nevada, 89146. At December 31, 1997, Nevada Power
employed approximately 1,909 employees.
More detailed information concerning Nevada Power is contained in
Nevada Power's Annual Report on Form 10-K for the year ended December 31, 1997,
which is incorporated herein by reference as Exhibit G-5.
3. DESERT MERGER SUB AND LAKE MERGER SUB.
Sierra Pacific created Desert Merger Sub and Lake Merger Sub, both
Nevada corporations, solely for the purpose of merging with Nevada Power and
Sierra Pacific, respectively. Neither Desert Merger Sub nor Lake Merger Sub is
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engaged in any business operations. The mailing address for Desert Merger Sub
and Lake Merger Sub is the same as that for Sierra Pacific.
B. DESCRIPTION OF THE TRANSACTION.
1. REASONS FOR THE TRANSACTION.
Nevada Power and Sierra Pacific view the Transaction as a natural
outgrowth of utility deregulation and restructuring that is reshaping the
electric industry in Nevada, California and throughout the nation. Pursuant to a
Nevada law (Assembly Bill 366, codified at Nev. Rev. Stat. sections 704.961-990
(1997)), electric competition for retail sales service must commence in the
state no later than December 31, 1999. However, the Nevada PUC has discretion to
extend the commencement date. The Transaction joins two companies of similar
market capitalization, with a common vision of the future of the utility and
energy industries and with complementary operations that almost exclusively are
in one state. The Transaction is expected to provide substantial strategic and
financial benefits to the stockholders of the two companies, as well as to their
employees and customers and the communities which they serve. The Nevada Power
Board and the Sierra Pacific Board believe that such benefits include:
o Support for Utility Deregulation. The Transaction coincides with Nevada
electric utility deregulation and ongoing California electric utility
deregulation and is intended to establish a combined company that, by
providing customers multiple energy products and services and lower costs
than the companies could achieve individually, will have the ability to
compete more effectively in unregulated markets and serve customers more
cost-effectively in regulated markets. Nevada Power and SPPC also propose
selling all of their generating plants. Under the divestiture proposal and
subject to ongoing state resource planning requirements, amounts raised by
the sale will be reinvested primarily in new transmission and distribution
facilities. Nevada Power and SPPC believe that divestiture of their
generating capacity will facilitate the move to a competitive market for
electricity in Nevada and elsewhere. The divestiture proposal is contingent
upon consummation of the Transaction and receipt of necessary
authorizations. Through Nevada Power and SPPC, the combined company will
offer regulated retail electric distribution service throughout most of
Nevada and a small portion of northern California and offer regulated gas
distribution and water service in the Reno and Sparks areas of northern
Nevada. Unregulated subsidiaries of Sierra Pacific will engage in natural
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gas and electricity marketing and offer energy related products and
services.
o Competitive and Strategic Position. The combination of the companies'
complementary expertise and vision, including Nevada Power's substantially
larger and more diverse electric customer base and its customer expertise
and Sierra Pacific's customer and marketing expertise in both electricity
and natural gas markets, provides the combined company with the size and
scope to be an effective competitor in the emerging and increasingly
competitive markets for transporting and distributing energy and energy
services. The Transaction will create a company with the ability to develop
and market competitive new products and services and provide integrated
energy solutions for wholesale and retail customers.
o Ability to Better Manage Growth. Both Nevada Power and SPPC have
experienced high rates of service territory growth. Five-year average
increases in retail electric kWh sales and customers for the companies,
separately and as combined, compared to industry averages are as follows:
<TABLE>
<CAPTION>
5-Year Average 5-Year Average
Retail Electric kWh Increase in
Company Sales Increases Customers
------- ------------------- --------------
<S> <C> <C>
Nevada Power..................... 8% 7%
SPPC............................. 5% 3%
Combined Company................. 7% 5%
Industry Average................. 2% 1%
</TABLE>
The Nevada Power Board and the Sierra Pacific Board believe that the
combined company will be in a better position to finance and manage the
construction and operational changes required to meet the increasing needs
of customers in Southern and Northern Nevada while also maintaining
stronger earnings than either company could standing alone. The Transaction
is expected to have a positive effect on cash flow of the combined
companies.
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o Expanded Management Resources and Employment Opportunities. The combined
company will be able to draw upon a larger and more diverse pool of
management for leadership in an increasingly competitive environment. As a
company more able to effectively respond to competitive pressures, the
combined company will offer better prospects for employees and be better
able to retain and attract the most qualified employees. Employees will
benefit from a larger and stronger company with job opportunities in
additional locations.
o Community Development. The combined company will continue to play a leading
role in the economic development of the communities served by Nevada Power
and SPPC and will continue the commitment to philanthropic and volunteer
programs currently maintained by the two companies and their subsidiaries.
These communities also will benefit from increased competition and lower
prices for regulated and deregulated natural gas and electricity and energy
related products and services.
o Potential Cost Savings and Cost Avoidances Resulting from the Transaction.
Estimated potential savings and cost avoidances expected to be achieved by
the two companies after the Transaction has been limited to quantifiable
amounts, as determined by the managements of Nevada Power and Sierra
Pacific. Recognition has been given to those costs to be incurred in
achieving these potential savings and cost avoidances and to the time
required to implement plans designed to integrate operations. These
estimated savings and cost avoidances are attributable to the Transaction
and do not include other types of savings and cost avoidances that might be
achieved without a combination of the companies. In addition, Sierra
Pacific will continue efforts already underway by Nevada Power and SPPC to
increase productivity and reduce costs by redesigning and reengineering key
business processes. Operating synergies from the Transaction are estimated
to generate total cost savings and cost avoidances, net of $125 million
estimated costs to achieve such savings and avoidances, of $322 million
over a ten-year period. In addition, the goodwill recorded as a result of
the Transaction will be amortized over a forty-year period and also will
represent a cost to achieve such savings and avoidances. The final
accounting treatment of the cost savings and cost avoidances and costs of
attaining them will depend upon the regulatory treatment accorded by the
Nevada PUC.
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The major components of the anticipated cost savings and cost avoidances
identified by the managements of Nevada Power and Sierra Pacific are set
forth below.
o Integration of corporate functions. The combined company will have the
ability to eliminate redundant functions in a variety of areas,
including accounting and finance, human resources, information
services, external relations, legal and executive administration. The
staffing levels for these functions are relatively fixed and do not
vary directly with changes in the number of employees or customers.
o Integration of corporate programs. The combined company will be able
to integrate various corporate and administrative functions, thereby
reducing certain non-labor costs in the areas of insurance,
advertising, professional services, benefits plan administration,
credit facilities, association dues, postage, research and development
and shareholder services. In addition, future expenditures in the area
of information systems that would be made by each company on a
stand-alone basis will be reduced for the combined company. Additional
expenditures will be reduced through the more efficient management of
investment in other technology areas, including personal computers,
other hardware and related software, and data center requirements.
o Integration of competitive retail services. Following the commencement
of retail electric competition in Nevada, retail electric service and
metering service will be offered on a competitive basis. Currently,
Nevada Power and SPPC provide retail electric service and metering
service on a separate, regulated basis. However, as a result of the
electric restructuring, Nevada Power and SPPC will provide these
services on a competitive basis through a jointly-owned retail service
company and a metering company. The Applicants intend to consolidate
as many other business practices as make economic sense.
o Integration of customer support functions. The combined company will
be able to integrate related customer support functions in the areas
of customer service, marketing and sales, and other support services,
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such as purchasing and materials management. The staffing levels in
these functions also do not increase or decrease linearly with the
number of customers.
o Streamlining of inventories and purchasing economics. The combined
company will be able to centralize some purchasing and inventory
functions. Inventory may be shared across locations. Purchasing
leverage of the combined company is expected to lead to materials and
services volume discounts.
Most of the estimated cost savings and cost avoidances as described above
are expected to be achieved through personnel reductions involving the
elimination of approximately 250 duplicative positions. Nevada Power and
Sierra Pacific jointly will develop an integration management plan, which
will examine the manner in which to best organize and manage the businesses
of Nevada Power and Sierra Pacific following consummation of the
Transaction and to identify duplicative positions in corporate and
administrative functions. Both companies are committed to achieving cost
savings and avoidances resulting from personnel reductions through
attrition, strictly controlled hiring, reassignment, retraining and
voluntary separation programs.
2. MERGER AGREEMENT.
The Merger Agreement calls for a merger of equals between the two
companies - Nevada Power and Sierra Pacific. The Merger Agreement provides for a
holding company structure in which Sierra Pacific will be the surviving parent
company, and Nevada Power and SPPC will be the operating utility subsidiaries.
Sierra Pacific also will continue to own the non-utility subsidiaries that it
owns today.
The Merger Agreement provides for a two-step merger in which Nevada
Power will become a subsidiary of Sierra Pacific. The purpose of this two-step
process is to allow Nevada Power to become a first-tier subsidiary of Sierra
Pacific without generating any adverse tax consequences for any of the parties.
At the conclusion of the process, current Sierra Pacific and Nevada Power
shareholders will become Sierra Pacific shareholders.
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In the first step, Lake Merger Sub will merge with and into Sierra
Pacific, with Sierra Pacific continuing as the surviving corporation. This step
is necessary because, as discussed below, each share of pre-merger Sierra
Pacific common stock may be exchanged for $37.55 in cash or 1.44 shares of
Sierra Pacific common stock. The exchange of pre-merger stock for cash or stock
occurs as a result and at the time of this first merger.
The second step of the process commences immediately after this first
step. Nevada Power will merge with and into Desert Merger Sub. Desert Merger
Sub, which will be the surviving corporation, will then immediately change its
name to Nevada Power Company. It is through this second step that Nevada Power
will become a subsidiary of Sierra Pacific.
Under the Merger Agreement, each share of Sierra Pacific and Nevada
Power Common Stock will be converted into the right to receive cash and/or
Sierra Pacific Common Stock. Each owner of Sierra Pacific Common Stock prior to
the first merger will be entitled to receive either 1.44 shares of Sierra
Pacific Common Stock or $37.55 in cash in exchange for each share of Sierra
Pacific Common Stock that it owns. Each owner of Nevada Power Common Stock prior
to the second merger will be entitled to receive either 1 share of Sierra
Pacific Common Stock or $26.00 in cash in exchange for each share of Nevada
Power stock that it owns. The cash consideration for Sierra Pacific and Nevada
Power stock represents a 5% premium per share of Sierra Pacific Common Stock or
Nevada Power Common Stock, respectively based on the 10-day average share price
of each company's stock prior to the Boards' approval of the Merger Agreement on
April 29, 1998.
The total amount of cash to be paid to shareholders of pre-merger
Sierra Pacific Common Stock in the first merger is $151.6 million, and the total
amount to be paid to shareholders of Nevada Power Common Stock in the second
merger is $304.6 million. The Merger Agreement provides for contingencies should
shareholders elect to convert more or less than this amount of their shares to
cash. The Merger Agreement also provides for special treatment of shareholders
of less than 100 shares. Sierra Pacific will finance the approximately $460
million necessary to fund the cash consideration provided for under the Merger
Agreement. The exact sources and precise methods of financing this amount have
not yet been determined.
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The Merger Agreement provides that all outstanding shares of Nevada
Power preferred stock will be redeemed or otherwise retired prior to the
consummation of the Transaction. At any time upon 30 days notice to the holders
of the Nevada Power preferred stock, such stock is redeemable at a price of
$21.00 per share for the 5.20% and 5.40% series and at $20.25 per share for the
4.70% series. Nevada Power has not determined precisely when or how it will
retire the Nevada Power preferred stock.
The Transaction is subject to certain closing conditions, including
governmental authorizations, consents, orders or approvals. The requisite
shareholder approvals have been obtained.
The Merger Agreement may be terminated under certain circumstances,
including: by mutual written consent of Sierra Pacific and Nevada Power; by
either party if the Transaction is not consummated by October 29, 1999 (which
date will be extended to April 29, 2000 in certain circumstances); by either
party if any state or federal law or court order prohibits consummation of the
Transaction; by a non-breaching party if there occurs a material breach by the
other party of the Merger Agreement which is not cured within 20 days after
notice; or by either party, in certain circumstances, as a result of a more
favorable third-party tender offer or business combination proposal with respect
to such party. The Merger Agreement requires that termination fees be paid in
certain circumstances, including if there is a willful breach of the Merger
Agreement or if, in certain circumstances, a business combination with a third
party is consummated within two and one-half years of the termination of the
Merger Agreement. The aggregate termination fees under these provisions is $52.5
million.
In connection with the Merger Agreement, Sierra Pacific and Nevada
Power entered into several related agreements, including employment agreements,
severance arrangements and confidentiality agreements. These related agreements
are described further in the Registration Statement (Ex. C-1).
3. BACKGROUND AND NEGOTIATIONS LEADING TO THE TRANSACTION.
In recent years Nevada Power and Sierra Pacific have carefully
followed developments in energy regulatory policies at the federal level and in
Nevada and California that have substantially increased competition in the
markets for wholesale and retail electricity. Both companies recognized that
significant changes in the utility industry would result from these policy
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developments. The companies believe that industry restructuring and economic
forces are likely to exert tremendous pressure on small and medium-sized
electric utilities, making it difficult for them to compete effectively with
larger utilities. As such, the two companies had exploratory discussions from
time to time in recent years regarding a potential business combination between
Sierra Pacific and Nevada Power but no further steps were taken.
During February 1998, Mr. Michael Niggli, President and Chief
Operating Officer of Nevada Power, and Mr. Malyn Malquist, President, Chairman
of the Board and Chief Executive Officer of Sierra Pacific, talked about their
shared visions for Nevada Power and Sierra Pacific, and senior management of
each company began to discuss the potential benefits of a possible business
combination. The Nevada Power Board and the Sierra Pacific Board were advised of
these discussions in February and March 1998.
On March 5 and 6, 1998, a joint meeting was held in San Francisco
between Nevada Power and Sierra Pacific along with Nevada Power's financial
advisor PaineWebber Incorporated ("PaineWebber") and Sierra Pacific's financial
advisor SG Barr Devlin to discuss a possible business combination. As a result,
on March 10, 1998, Sierra Pacific and Nevada Power entered into a
confidentiality agreement pursuant to which they agreed to exchange non-public
information. Following these meetings, the companies commenced extensive due
diligence and exchanged information.
On March 12, 1998, at a meeting of the Nevada Power Board, Nevada
Power's senior management and representatives of PaineWebber, Nevada Power's
financial advisor, made a detailed presentation to the Nevada Power Board with
regard to a potential "merger of equals" business combination with Sierra
Pacific. At the conclusion of the meeting, the Nevada Power Board gave
management authorization to continue to explore a possible combination with
Sierra Pacific.
On March 13, 1998, at a meeting of the Sierra Pacific Board, Sierra
Pacific's senior management and representatives of SG Barr Devlin, Sierra
Pacific's financial advisor, briefed the Sierra Board with regard to a potential
"merger of equals" business combination with Nevada Power. The Sierra Pacific
Board authorized Mr. Malquist and Mr. Oldham, Vice President, Transmission
Services Group and Strategic Development of Sierra Pacific, to continue
discussions with Nevada Power regarding such a business combination.
16
<PAGE>
Throughout the remainder of March and April 1998, representatives of
Sierra Pacific and Nevada Power held numerous discussions which focused
primarily on the issues of valuation, dividend policy, management and
headquarters locations. On March 30, 1998, Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") was retained to provide additional financial
advice and guidance to management and the Sierra Pacific Board. During April
1998, the Nevada Power Board and the Sierra Pacific Board were briefed
separately on the progress of negotiations, including reviews of the steps that
had been taken regarding due diligence and transaction structure, as well as
proposals regarding corporate names and headquarters locations, board
representation and senior management composition. The presentations described
potential strategic benefits of the transaction, the status of negotiations on,
and key terms and conditions of, the proposed Merger Agreement and the
regulatory plan for the transaction.
By the last week of April 1998, Nevada Power and Sierra Pacific had
agreed on a merger of equals transaction consisting of a cash election merger
where holders of Nevada Power Common Stock could elect to receive for each of
their shares either $26.00 in cash or one share of Sierra Pacific Common Stock
and holders of Sierra Pacific Common Stock could elect to receive for each of
their shares either $37.55 in cash or 1.44 shares of Sierra Pacific Common
Stock. The companies further agreed that following the Transaction, former
holders of Nevada Power Common Stock would own approximately 50.2% of the
outstanding Sierra Pacific Common Stock, and former holders of Sierra Pacific
Common Stock would own approximately 49.8% of the outstanding Sierra Pacific
Common Stock.
On April 29, 1998, the Sierra Pacific Board and the Nevada Power Board
each approved the Merger Agreement. Following the meetings of their respective
Boards, Sierra Pacific and Nevada Power executed the Merger Agreement on April
29, 1998 and publicly announced the proposed Transaction on April 30, 1998.
For a more detailed description of the background of the Transaction,
see pages 38-43 of the Registration Statement (Ex. C-1).
C. MANAGEMENT AND OPERATIONS OF THE APPLICANTS FOLLOWING THE
TRANSACTION.
The Merger Agreement provides that the post-merger Sierra Pacific
Board of Directors will consist of 14 members, 7 to be selected by Sierra
17
<PAGE>
Pacific and 7 to be selected by Nevada Power. Mr. Niggli (currently, President
and Chief Operating Officer of Nevada Power Company), and Mr. Malquist
(currently, Chairman, President and Chief Executive Officer of Sierra Pacific
and SPPC) will be members of the Sierra Pacific Board of Directors after the
Transaction is consummated. Subject to affiliate rules promulgated by regulatory
agencies having jurisdiction over the matter, Mr. Niggli will become Chairman
and Chief Executive Officer of Sierra Pacific and Chairman of each of its
subsidiaries and Mr. Malquist will become President and Chief Operating Officer
of Sierra Pacific and President and Chief Executive Officer of the surviving
Nevada Power and SPPC.
The Merger Agreement provides that post-merger, the corporate
headquarters of Sierra Pacific and the principal offices of the natural gas and
water business units will be located in Reno, Nevada. The headquarters of SPPC
and the surviving Nevada Power will be located in Las Vegas, Nevada. Nevada
Power and SPPC will continue to operate as the utility subsidiaries of Sierra
Pacific.
ITEM 2. FEES, COMMISSIONS AND EXPENSES.
The fees, commissions and expenses to be paid or incurred, directly or
indirectly, by Sierra Pacific and Nevada Power, in connection with the
Transaction, including registration of securities of Sierra Pacific under the
Securities Act of 1933, and other related matters, are estimated as follows:
Commission filing fee for the
Registration Statement on Form S-4......................................$712,040
HSR filing fee...........................................................$45,000
Legal fees and expenses ..............................................$6,000,000
Accountants' fees.......................................................$160,000
Investment bankers' fees and expenses................................$15,400,000
Consultants and other (public relations, regulatory support,
travel, integration, printing, exchange listing fees, etc.)...........$3,682,960
----------
TOTAL (estimated) ..............................................$26,000,000
18
<PAGE>
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
A. STATEMENT OF APPLICABLE PROVISIONS.
Sections 9(a)(2), 10, and 3(a)(1) of the Act are directly or
indirectly applicable to the proposed Transaction.
Under Section 9(a)(2), it is unlawful, without approval of the
Commission, under the standards of Section 10, for any person to acquire,
directly or indirectly, the securities of a public utility company, if that
person will, by virtue of the acquisition, become an affiliate of that public
utility and any other public utility or holding company. The term "affiliate"
for this purpose means any person that directly or indirectly owns, controls, or
holds with power to vote, five percent or more of the outstanding voting
securities of the specified company.
Pursuant to the Transaction, Sierra Pacific will acquire securities of
Nevada Power, a public utility. After the Transaction, Sierra Pacific will be
affiliated with two public utilities - SPPC and Nevada Power. Accordingly, the
Transaction requires Commission approval under the standards of Section 10.
Following the Transaction, Sierra Pacific believes, for reasons
explained below, that it will qualify for the intrastate exemption under Section
3(a)(1) of the Act, and requests an order granting such exemption. Under this
section, the Commission must exempt, by rule or order, any holding company if
that holding company, and each material public utility subsidiary company from
which the holding company derives any material part of its income, are
predominantly intrastate in character, and carry on their business in the state
in which they are organized, unless and except insofar as the Commission finds
the exemption detrimental to the public interest or the interest of investors or
consumers.
B. THE STANDARDS OF SECTION 10.
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.
19
<PAGE>
1. SECTION 10(B).
Under Section 10(b) of the Act, the Commission must approve the
Transaction unless the Commission finds that:
(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 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
the 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
(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.
a. DETRIMENTAL "INTERLOCKING RELATIONS" OR "CONCENTRATION OF
CONTROL."
The Transaction will not result in detrimental interlocking relations
or concentration of control. There currently are no common directors of Sierra
Pacific and Nevada Power, but following consummation of the Transaction there
may be common directors and officers of Sierra Pacific, SPPC and Nevada Power.
Such interlocking relationships, however, would serve to integrate the merging
companies, and are characteristic of virtually every merger transaction subject
to Section 9(a)(2). Thus, any interlocking relations which do occur will be of
the kind generally approved of by the Commission and will not be detrimental to
interests of consumers, investors or the public.
The Transaction also will not result in a detrimental concentration of
control. The expected increase in size resulting from the Transaction will not
make the merged company a large company. Instead, the Transaction will take two
20
<PAGE>
relatively small utility companies and combine them into one mid-sized company.
The merged company still will be much smaller than almost all of its neighboring
utilities and holding company systems such as Southern California Edison,
Pacific Gas & Electric, PacifiCorp and Bonneville Power Administration ("BPA"),
which are among the largest utilities in the country.2 As a consequence, the
merged company will not be able to dominate the region. Following the
Transaction, Sierra Pacific will have total utility assets of $3.1 billion,
total utility revenues of $1.4 billion, and will serve approximately 805,000
electric customers and 101,000 natural gas customers. However, as discussed
above, the Applicants intend to divest their electric generation assets. The
utility activities of Sierra Pacific following the Transaction will be confined
almost exclusively to Nevada. The Commission has approved a number of
transactions which resulted in holding companies of a much larger size.3
Section 10(b)(1) also requires the Commission to consider possible
anticompetitive effects of a proposed merger. In this case, the Commission has
concurrent jurisdiction with the Department of Justice (the "DOJ"), Federal
Trade Commission (the "FTC"), FERC and the Nevada PUC to consider the
competitive effects of the Transaction. The Applicants will file Notification
and Report Forms with the DOJ and the FTC, as required by the HSR Act, which the
Applicants expect to file in the first quarter of 1999, will contain a
description of the Transaction's effects on competition. Consummation of the
Transaction is conditioned on the expiration or termination of the applicable
waiting period under the HSR Act. In addition, the Applicants have made filings
with the Nevada PUC and FERC, the agencies having immediate jurisdiction over
Nevada Power's and SPPC's utility operations. These filings, which are attached
as Exhibits D-1 and D-3, contain detailed explanations of why the Transaction
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2 As of December 31, 1997, Pacific Gas & Electric Company had $25.1 billion
in utility assets and generated $9.5 billion in operating revenues for
1997. PacifiCorp had $9.1 billion in utility assets as of December 31, 1997
and $3.7 billion in operating revenues for 1997.
3 See, e.g., TUC Holding Co., File No. 70-8953, Rel. No. 35-26749 (issued
August 1, 1997). TUC Holding has utility assets of approximately $19.6
billion, operating utility revenues of approximately $6.9 billion and
approx imately 2.7 million utility customers. See also Entergy Corp., 51
S.E.C. 869 (combined utility assets after Gulf States acquisition of $21
billion).
21
<PAGE>
will not have any adverse competitive effect. FERC will evaluate the
Transaction's competitive effects and will approve the Transaction only upon
finding that it is in the public interest and will not adversely affect
competition. Following its evaluation of the competitive effects of the
Transaction, the Nevada PUC issued an order dated January 4, 1999, approving the
Transaction, subject to certain conditions. A copy of the Nevada PUC order is
attached as Exhibit D-2.
The testimony of Peter Fox-Penner, which is Exhibit SPNP-17 to the
FERC application attached as Exhibit D-3 hereto, explains why the Transaction
will not have anticompetitive effects. The Applicants are located in the Western
System Coordinating Council ("WSCC"). Due to the structure of the WSCC market,
the Transaction cannot cause a reduction in competition. First, the Applicants
are relatively small utilities in the WSCC. Together, the Applicants own a total
of approximately 3,800 MW of generation capacity, representing slightly more
than one-tenth of the WSCC surplus capacity. The amount of the Applicants'
generation capacity pales even further when compared to the approximately
155,000 MW of generation resources located in the WSCC. All of the Applicants'
generating capacity is needed to serve their native load customers. Because the
Applicants do not own enough generating capacity to meet their native load
obligations, they are net power purchasers by a wide margin in both short term
and long term power markets. Not only are the Applicants small when compared to
the WSCC as a region, but they are also small compared to the control areas with
which they are interconnected, such as BPA, Pacific Gas & Electric, Southern
California Edison and PacifiCorp. Second, Sierra Pacific does not make sales
into Nevada Power's control area, and visa versa. Because the Applicants do not
compete with each other in their respective control areas, the proposed merger
does not cause the loss of a competitor or any increase in market power in those
control areas. Third, with one insignificant exception, Nevada Power and SPPC
are interconnected only through different utility systems. SPPC's primary
interconnections are with systems to the north and northwest of Nevada, whereas
Nevada Power's primary interconnections are to the south and southwest of
Nevada. The only system that has significant interconnections with both Nevada
Power and SPPC is the PacifiCorp-East system to the east. As a consequence, the
merger would cause no concentration of market power in the bulk power markets of
the systems directly connected to the Applicants. Fourth, because the Applicants
are such small players in the regional bulk power market as a whole, their
combination cannot cause any meaningful or measurable increase in market share
in regional markets outside of their own service territories. Hence, the
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<PAGE>
Commission can conclude that the Transaction will have no adverse competitive
effects. Indeed, for the reasons stated below, the Commission may conclude that
the Transaction will facilitate even greater competition in electric wholesale
and retail markets.
Under a new Nevada law (Assembly Bill 366, codified at Nev. Rev. Stat.
sections 704.961-990 (1997)), Nevada Power's and SPPC's retail electric service
territories in Nevada will be opened to retail competition as early as December
31, 1999. FERC already has introduced competition into wholesale electric
markets through its many orders authorizing market-based rates for wholesale
power sales and a series of orders mandating non-discriminatory access to
electric transmission facilities. The Transaction will facilitate both state and
federal efforts to increase competition in electric markets because, as part of
the merger, the Applicants have committed to the Nevada PUC to divest their
generation assets and, subject to state resource planning approvals, invest the
proceeds in the expansion of their transmission and distribution capacity. This
expansion is important because there is limited import capability into the
Nevada Power and SPPC service territories. Increasing the import capability will
expand the number of suppliers that can compete to serve customers in the Nevada
electricity market. The goal of generation divestiture is to balance market
power mitigation while retaining the value of the underlying assets. The
divestiture proposal is contingent upon consummation of the Transaction and
receipt of necessary authorizations. To permit an orderly sale process, Nevada
Power and SPPC have committed to divest their generation by the later of
December 31, 1999 or the commencement of retail competition in Nevada. Another
pro-competitive benefit accompanying the merger is the Applicants' commitment to
either join a regional transmission organization ("RTO") or form an independent
"Transco" that would operate the Applicants' transmission facilities, within no
more than three years.
The additional benefits accompanying the Transaction are outlined
below in Items 1(B)(1) and 3(B)(2) of this Application, and are benefits which
the Commission has weighed against any concerns about concentration of control
it has had in other transactions. See American Electric Power Co., 46 S.E.C.
1299 (1978).
For all of these reasons, the Applicants believe that the Transaction
will not result in a concentration of control which will be detrimental to the
public interest, but will offer the potential to facilitate an actual increase
in competition in regional electricity markets.
23
<PAGE>
b. FAIRNESS OF CONSIDERATION.
Section 10(b)(2), as applied to the Transaction, provides that the
Commission shall approve the Transaction unless it finds that the consideration
paid by Sierra Pacific to the shareholders of Nevada Power is not reasonable or
does not bear a fair relation to the earning capacity of the utility assets
underlying the Nevada Power shares. In its determination as to whether or not
consideration for an acquisition meets the fair and reasonable test of Section
10(b)(2), the Commission has considered whether the price was decided as the
result of arm's-length negotiations4 and whether each party's Board of Directors
has approved the purchase price.5 The Commission also considers the opinions of
investment bankers6 and the earnings, dividends, and book and market value of
the shares of the company to be acquired.7
Pursuant to the Merger Agreement, each owner of pre-merger Sierra
Pacific Common Stock will be entitled to receive either 1.44 shares of
post-merger Sierra Pacific Common Stock or $37.55 in cash in exchange for each
share of pre-merger Sierra Pacific Common Stock that it owns ("Sierra Pacific
Merger Consideration"). Each owner of Nevada Power Common Stock will be entitled
to receive either 1 share of post-merger Sierra Pacific Common Stock or $26.00
in cash in exchange for each share of Nevada Power stock that it owns ("Nevada
Power Merger Consideration"). The cash consideration for Sierra Pacific and
Nevada Power stock represents a 5% premium per share of Sierra Pacific Common
Stock or Nevada Power Common Stock, respectively based on the 10-day average
share price of each company's stock prior to the Boards' approval of the Merger
Agreement on April 29, 1998. Pursuant to the Merger Agreement, approximately
$151.6 million in cash and approximately 38,740,334 shares of the Sierra Pacific
Common Stock will constitute the Sierra Pacific Merger Consideration, and
approximately $304.6 million in cash and approximately 39,051,502 shares of
Sierra Pacific Common Stock will constitute the Nevada Power Merger
Consideration.
- ---------------
4 American National Gas Co., 43 S.E.C. 203 (1966).
5 Consolidated National Cas Co., 45 S.E.C. 672 (1990).
6 Id.
7 Northeast Utilities, 42 S.E.C. 963 (1966).
24
<PAGE>
The consideration to be paid to shareholders of the pre-merger
companies was the result of arm's-length negotiations between the management and
financial and legal advisors of Sierra Pacific and Nevada Power over a period of
several months, as detailed in Item 1(B)(3) above. The Boards of Directors of
Sierra Pacific and Nevada Power approved the Transaction in separate meetings
held on April 29, 1998.
In addition, nationally-recognized investment banking firms retained
separately by Sierra Pacific and Nevada Power have reviewed extensive
information concerning the Applicants and analyzed the respective conversion
ratios employing several valuation methodologies. In connection with the
approval of the Merger Agreement, (i) Sierra Pacific's Board of Directors
considered the opinions of its financial advisors, SG Barr Devlin and Merrill
Lynch, to the effect that the aggregate consideration to be received upon
consummation of the Transaction is fair, from a financial point of view, to the
holders of Sierra Pacific Common Stock, and (ii) Nevada Power's Board of
Directors considered the opinion of its financial advisor, PaineWebber, to the
effect that the aggregate consideration to be received by Nevada Power common
shareholders in connection with the Transaction is fair to such holders from a
financial point of view. Each of the fairness opinions of SG Barr Devlin,
Merrill Lynch and PaineWebber are attached hereto as Exhibits H-1, H-2, and H-3,
respectively, and incorporated herein by reference.
In rendering their fairness opinions, SG Barr Devlin, Merrill Lynch
and PaineWebber each performed a number of analyses relevant to the fairness of
the Transaction consideration, including: a comparison of select historical and
projected operating performance data of the Applicants and comparable companies;
a comparison of Sierra Pacific's and Nevada Power's relative contributions to
the total consideration; discounted cash flow analyses; and analyses of the
potential pro forma results of the Transaction. In preparing their opinions, the
financial advisors reviewed, among other things, both public and non-public
historical and projected financial information and forecasts related to the
earnings, assets, business, dividends, cash flow, and prospects of Sierra
Pacific, Nevada Power, and comparable companies. A detailed summary of the
financial opinions is contained at pages 50-64 of the Registration Statement
(Ex. C-1).
Moreover, following the receipt of the Registration Statement
containing these fairness opinions, a majority of both the Nevada Power and
25
<PAGE>
Sierra Pacific common shareholders voted in favor of the Transaction in separate
meetings held on October 9, 1998.
In light of these fairness opinions and considering all relevant
factors, the Applicants believe that the aggregate consideration to be paid is
reasonable and bears a fair relation to the earnings capacity of the utility
assets underlying the Applicants' shares. Accordingly, the consideration to be
paid by Sierra Pacific and Nevada Power meets the standards of Section 10(b)(2).
c. REASONABLENESS OF FEES.
The Applicants believe that the overall fees, commissions, and
expenses incurred and to be incurred in connection with the Transaction are
reasonable and fair in light of the size and complexity of the Transaction
relative to other transactions and the anticipated benefits of the Transaction
to the public, investors, and consumers; that they are consistent with recent
precedent; and that they meet the standards of Section 10(b)(2).
As stated in Item 2 above, Sierra Pacific and Nevada Power together
expect to incur a combined total of approximately $26 million in fees,
commissions and expenses in connection with the Transaction. This amount is
substantially less than the fees associated with recent transactions approved by
the Commission,8 and is consistent with the standards of Section 10(b)(2).
d. CAPITAL STRUCTURE AND THE PUBLIC INTEREST.
Section 10 (b)(3) requires the Commission to determine whether the
Transaction will unduly complicate Sierra Pacific's capital structure or would
be detrimental to the public interest, the interests of investors or consumers,
or the proper functioning of Sierra Pacific's system.
- ---------------
8 See TUC Holding Co., supra. (estimated fees and expenses of $37 mil lion);
Kansas Power & Light Co., Rel. No. 35-25465 (issued February 5, 1992)
(estimated fees and expenses of approximately $30 million); New Century
Energies, Inc., Rel. No. 35-26748 (issued August 1, 1997) (esti mated fees
and expenses of $23.5 million).
26
<PAGE>
Following the Transaction, Sierra Pacific will have a capital
structure which is substantially similar to capital structures which the
Commission has approved in other orders.9 In the Transaction, the shareholders
of Nevada Power and pre-merger Sierra Pacific will receive post-merger Sierra
Pacific Common Stock. The Merger Agreement provides that all outstanding shares
of Nevada Power preferred stock will be redeemed or otherwise retired prior to
the consummation of the Transaction. After consummation of the Transaction,
Sierra Pacific will own 100 percent of the shares of Nevada Power Common Stock,
and will continue to own 100 percent of the shares of SPPC Common Stock. The
Transaction will not affect the outstanding securities of SPPC, including its
first mortgage bonds, junior subordinated debentures, SPPC preferred stock or
SPPC Class A preferred stock. The only issued and outstanding voting securities
of Sierra Pacific will be the Sierra Pacific Common Stock. For these reasons,
the Applicants believe that the Transaction will not unduly complicate Sierra
Pacific's capital structure.
Set forth below are summaries of the historical capital structures
(excluding short-term debt) of Sierra Pacific and Nevada Power as of June 30,
1998, and the pro forma consolidated capital structure of Sierra Pacific and
Nevada Power as of the same date:
- ---------------
9 See, e.g., TUC Holding Co., supra; CINergy Corp., File No. 70-8427, Rel.
No. 35-26146 (issued October 21, 1994); Entergy Corp., File No. 70- 8059,
Rel. No. 35-25952 (issued December 17, 1993). In each of these orders, the
Commission approved mergers which resulted in a holding company acquiring
100 percent of a utility operating company's common stock.
27
<PAGE>
<TABLE>
<CAPTION>
Sierra Pacific and Nevada Power Historical Capital Structures
(dollars in thousands)
Sierra Pacific Nevada Power
<S> <C> <C> <C> <C>
Common Stock Equity.............. $651,665 47.0% $826,505 44.9%
Preferred Stock.................. $73,115 5.3% $3,385 0.2%
Preferred Securities............. $48,500 3.5% $118,872 6.4%
Long-term Debt................... $611,936 44.2% $892,858 48.5%
Total Capitalization ............ $1,385,216 100.0% $1,841,620 100.0%
</TABLE>
<TABLE>
<CAPTION>
Sierra Pacific's Post-Transaction Consolidated Capital Structure
(dollars in thousands)
(unaudited)
Sierra Pacific
<S> <C> <C>
Common Stock Equity.............. $1,459,145 39.8%
Preferred Stock.................. $73,115 2.0%
Preferred Securities............. $167,372 4.6%
Long-term Debt................... $1,965,594 53.6%
Total Capitalization ............ $3,665,226 100.0%
</TABLE>
The ratio of consolidated common equity to total capitalization of the
combined companies will be, on an unaudited pro forma basis, 39.8 percent. This
figure exceeds the traditionally acceptable ratio of approximately 30 percent.
As discussed earlier in Item 1(B)(1), the Applicants believe that the
Transaction, by achieving efficiencies and economies, will benefit the interests
of the public, consumers and investors and will not impair the proper
functioning of the holding company system.
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<PAGE>
2. SECTION 10(C).
a. SECTION 10(C)(1).
Under Section 10(c)(1), the Commission must not approve an acquisition
which is "unlawful under the provisions of Section 8" or "detrimental to the
carrying out of the provisions of Section 11." Section 8 prohibits an
acquisition by a registered holding company of an interest in an electric
utility and a gas utility serving substantially the same territory without the
express approval of the state commission when state law prohibits or requires
approval of the acquisition. Section 8 applies only to registered holding
companies and is thus inapplicable to the Transaction. The Nevada PUC issued an
order dated January 4, 1999, approving the Transaction, subject to certain
conditions. A copy of that order is attached as Exhibit D-2.
Section 11(b)(1) requires a registered holding company, with limited
exceptions, to limit its operations to a "single integrated public-utility
system, and to such other businesses as are reasonably incidental, or
economically necessary or appropriate to the operations of such integrated
public-utility system."
Section 2(a)(29) provides separate definitions for "integrated
public-utility system" for gas and electric companies. For electric utility
companies, the term means:
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 . . . .
For gas utilities, the term means:
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.
With respect to either type of company, the system must be:
29
<PAGE>
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 advantages of localized
management, efficient operation, and the effectiveness of
regulation[.]10
Section 11(b)(1) permits the acquisition and retention of more than
one integrated utility system only if the requirements of Section 11(b)(1)(A)(C)
are satisfied.
The Commission consistently has recognized that compliance with the
standards of Section 11 is not required where the resulting holding company is
exempt under Section 3. See, e.g., Gaz Metropolitain, Inc., Holding Co. Act
Release No. 26170 (Nov. 23, 1994). Nonetheless, in applying Section 10(c)(1) to
an exempt holding company, the Commission focuses on whether the acquisition
would be detrimental to the core concerns of Section 11, namely the protection
of the public interest and the interests of investors and consumers. WPL
Holdings, 49 S.E.C. 761 (1988), aff'd in part and rev'd in part sub nom.
Wisconsin Environmental Decade, Inc. v. S.E.C., 882 F.2d 523 (D.C. Cir. 1989).
In addition:
The Commission has previously determined that a holding company may acquire
utility assets that will not, when combined with its existing utility
assets, make up an integrated system or comply fully with the ABC clauses,
provided that there is a de facto integration of contiguous utility
properties and the holding company will be exempt from registration under
section 3 of the Act following the acquisition.
WPS Resources Corp., Holding Co. Act Release No. 26922 (Sept. 28, 1998) (citing
BL Holding Corp., Holding Co. Act Release No. 26875 (May 15, 1998); TUC Holding
Co.; Gaz Metropolitain).
The Transaction is fully consistent with the standards of Section
10(c)(1) as applied to exempt holding companies. The merger will combine SPPC's
electric and gas system with Nevada Power's electric system, producing a
combined enterprise that will better serve the needs of its customers and the
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10 For gas companies, utilities deriving natural gas from a common source of
supply may be deemed to be included in a single area or region.
30
<PAGE>
interests of its investors by offering more efficient energy supply and delivery
service in competitive markets. The Transaction will not impede the ability of
the Nevada PUC or the California PUC to carry out their statutory
responsibilities with respect to the utility activities of Nevada Power or SPPC.
As noted above, by order dated January 4, 1999, the Nevada PUC approved the
Transaction, subject to certain conditions. The utility operations of the
combined enterprise will continue to be regulated by the Nevada PUC and the
California PUC after the merger.
SPPC's existing gas and electric integrated systems meet the de facto
integration standard. The service territories of SPPC's existing gas and
electric systems overlap. Moreover, the gas and electric systems have been
combined for many years (Sierra Pacific Resources, Holding Co. Act Release No.
24556 (Jan. 28, 1988)) and share corporate services.
The Nevada Power and SPPC electric system will be coordinated to a
significant degree, although for several reasons, the Nevada Power and SPPC
electric systems will not be jointly dispatched. Foremost, as discussed herein,
because Nevada Power and SPPC have agreed to sell all of their generating
plants, they will have no generating plants to dispatch. As discussed below, the
dispatching of generating units located in the Nevada Power and SPPC control
areas initially will be coordinated through an independent scheduling
administrator ("ISA") and eventually through an RTO or Transco. In addition, as
a result of electric restructuring in Nevada, retail electric markets will be
fully competitive. Although Nevada Power and SPPC electric system will not be a
single integrated system under the Commission's current interpretation as it is
applied to registered holding companies, an exempt company need not satisfy the
standards of Section 11, nor the requirements of the ABC clauses. WPS Resources
(approving merger of two electric systems which are not jointly dispatched and
which do not constitute a single integrated system). For the reasons discussed
below, the Transaction satisfies the standard the Commission has applied to
exempt companies, namely the de facto integration standard set forth in TUC
Holding Co., and recently applied in WPS Resources.
First, as discussed in Item 1(B) and in the following section,
although the utility systems of Nevada Power and SPPC will "lack[] economic
joint dispatch, the two systems will be coordinated . . .." WPS Resources, at
11. Nevada Power and SPPC will be able to integrate many services, including
accounting and finance, human resources, information services, external
31
<PAGE>
relations, legal and executive administration, customer service, marketing and
sales, and purchasing and materials management. Nevada Power's and SPPC's
transmission systems will be operated pursuant to a joint open access
transmission tariff filed with FERC. Following the proposed divestiture of
generation assets, Nevada Power and SPPC will purchase their power requirements
from a common market the Western System Power Pool. Following the commencement
of retail electric competition in Nevada, retail electric service and metering
service will be offered on a competitive basis. Currently, Nevada Power and SPPC
each provide retail electric service and metering service on a regulated basis.
As a result of the electric restructuring, Nevada Power and SPPC will provide
these services on a competitive basis through a jointly-owned retail service
company and a metering company.
The transmission systems of Nevada Power and SPPC will be coordinated
on a joint basis. As stated above, the Applicants have agreed to join an RTO or
Transco within three years. In addition, however, the Nevada PUC's order
approving the Transaction requires the Applicants to submit a proposal for an
interim ISA to the FERC before the merger can take effect. Exhibit D-2 hereto,
p. 82. Initially, the transmission systems of Nevada Power and SPPC will be the
only transmission systems operated by the ISA. The ISA will be responsible for
accepting and processing all requests for reservation, scheduling and use of the
transmission system, including use of interconnections to control areas outside
Nevada. The ISA will coordinate the dispatching of generating units located in
the Nevada Power and SPPC control areas, and also coordinate all scheduled
outages associated with such generation. Both the interim ISA and, later, the
RTO or Transco will be responsible for directing the dispatch of generating
facilities in the Nevada Power and SPPC service territories for purposes of
addressing system emergencies, managing transmission constraints, meeting
reliability criteria and providing ancillary services. Here, like in WPS
Resources, "[t]here are significant synergies and financial efficiencies between
the two systems, and operations are coordinated to a significant degree." Id. at
12 n.25.11 The Commission should find that these joint electric system
operations satisfy the de facto integration standard.
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11 The Nevada Power and SPPC systems are not interconnected by a contrac tual
path; due to the utilities' generation divestiture, such means of direct
interconnection is unnecessary for the joint dispatch of the systems.
However, as discussed, the systems will be coordinated via an ISA and
eventually an RTO or Transco, providing de facto interconnection of the
systems.
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The Applicants believe that participation in an RTO or Transco, which
they have committed to join within 3 years following the merger, will tie their
electric systems together into a coordinated and interconnected transmission
system that fully satisfies the integration requirements of sections 10 and 11
of the Act. Upon joining such an RTO or Transco, the Applicants commit to
present to the Commission a detailed explanation of the operating
characteristics of the RTO/Transco and an explanation of how the Nevada Power
and SPPC systems will operate on an integrated basis within the framework of
such RTO/Transco. If the Commission should determine that the RTO/Transco does
not adequately facilitate interconnected operations, or if the Applicants have
not joined an RTO/Transco by the end of the third year following the closing
date of the merger, the Applicants commit to purchase a firm contract
transmission path interconnecting the two systems until such time as the
Applicants can satisfy the Commission's integration requirements by other
means.12
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12 In the event that the Commission determines a firm contract path intercon
necting the two systems is necessary, the Applicants will conduct load flow
studies to determine the appropriate amount of transmission capacity to
reserve, subject to SEC approval. Due to the obligation to provide trans
mission service under FERC's open access transmission policies, it is not
necessary for the Applicants to reserve a firm contract path until such
time as the path may be needed. In particular, under the FERC-imposed pro
forma open access transmission tariff, transmission owners are obligated to
provide service on their transmission system. Moreover, there are alternate
transmission paths that could serve to connect the Applicants systems,
including the PacifiCorp and Southern California Edison transmission
systems. In the event that there is not sufficient capacity available on
any of these paths, Order No. 888 obligates transmission owners to create
the requested capacity by redispatching the transmission system or adding
facilities.
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The Applicants' commitment to join an RTO/Transco is in keeping with
the commitment to build a transmission line accepted by the SEC in New Century
Energies, Inc., Holding Co. Act Release No. 26748 (Aug. 1, 1998). The merging
utilities in New Century Energies, like here, were not directly interconnected,
but both were capable of interconnected operations utilizing the transmission
system of a common interconnected system (Public Service Company of New Mexico).
The Commission found that the interconnection standards under the Act were met
where the applicants were capable of exchanging power through their common
interconnection and where the applicants agreed to build a transmission line
(expected to be within 5 years) to directly connect their systems.13 Thus, both
here and in New Century Energies, the applicants made long-term commitments that
satisfy the integration requirement of the Act. Both means of meeting the
integration requirement - building a line or using firm transmission service
over third party systems - are acceptable means of integration.14 In Madison
Gas, the court held that "Section 2(a)(29)(A)'s definition does not require that
assets be actually interconnected only that they be 'capable of physical
interconnection,' that is, that it is possible to interconnect them."15 The SEC
must approve a transaction in cases where, as here, the capability for
interconnection, both at present and with respect to commitments to be
implemented in the future, are equal or superior to those previously accepted by
the Commission, and where the Commission retains the right to determine whether
the applicants preferred long-term means of interconnection (here, joining an
RTO/Transco) satisfies the Commission's interconnection requirements.
Second, while the electric service territories of the Nevada Power and
SPPC public utility systems do not overlap, they "are adjacent and in close
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13 In the interim, the New Century Energies applicants did not have a firm
contract path, but stated that transmission was available on a third party
system owned by Public Service Company of New Mexico. Here, Nevada Power
and SPPC can utilize either the PacifiCorp or Southern California Edison
transmission systems to exchange power.
14 See Madison Gas and Elec. Co. v. SEC, No. 98-1216, 1999 U.S. App. LEXIS
4164, at *6-*7, slip op. at n.2, n.3 and accompanying text (D.C. Circuit,
Mar. 16, 1999) ("Madison Gas").
15 Id. (emphasis in original).
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proximity." Id. at 12. In WPS Resources, the service territories of both
utilities were located in Wisconsin's Upper Peninsula region. Likewise, Nevada
Power and SPPC utilities operating in the same region - both are Nevada
utilities with service territories located predominantly in Nevada. Moreover,
both Nevada Power and SPPC serve customers in Nye County, Nevada. The service
territories of Nevada Power and SPPC are separated geographically by 38 miles.
Located between their service territories is federal land, including a Nevada
test site and the Nellis Air Force Base bombing range. These federal facilities
constitute an impediment to direct physical interconnection. A map showing the
transmission systems of Nevada Power, SPPC and the surrounding region is
attached at Exhibit E-4.
Finally, as noted above, the Transaction will produce a combined
entity that will be able to compete more efficiently and effectively in
providing energy services to customers. Thus, the Commission should find that
the Transaction would not be detrimental to the interest of Section 11, and
thereby satisfies the requirements of Section 10(c)(1).
b. SECTION 10(C)(2).
Section 10(c)(2) requires that the Commission not approve an
acquisition unless "the Commission finds that such acquisition will serve the
public interest by tending towards the economical and efficient development of
an integrated public-utility system."
The Commission has interpreted Section 10(c)(2) to permit the approval
of acquisitions resulting in more than 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 integrated public-utility system.'"16 The Commission has held that "where
a holding company will be exempt from registration under Section 3 of the Act
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16 Gaz Metropolitain, Inc., 58 S.E.C. Docket 189, 192, Rel. No. 35-26170 (Nov.
23, 1994) (quoting Union Electric Company, 45 S.E.C. 489, 504-06 (1974),
aff'd without op. sub nom. City of Cape Girardeau v. SEC, 521 F.2d 324
(D.C. Cir. 1975)).
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following an acquisition of non-integrating utility assets, it suffices for
purposes of Section 10(c)(2) to find benefits to one integrated system."17
In this case, both the Nevada Power and SPPC utility systems will
realize a number of benefits from the Transaction. The Transaction will combine
two companies with complementary operations and expertise, and provide important
strategic, financial and other benefits to the merging companies, shareholders
and customers.
The Transaction will have a number of operational benefits that will
result in economic efficiencies for Sierra Pacific as a whole and for both
utility systems. As discussed above in Item 1(B)(1), Sierra Pacific will
experience economies by combining and coordinating operations with Nevada Power
with respect to corporate functions, including accounting and finance, human
resources, information services, external relations, legal and executive
administration. In addition, the Applicants expect that the Transaction will
result in various cost savings through the integration of corporate programs
(e.g., insurance, advertising), customer support functions (e.g., customer
service, marketing and sales) and competitive utility operations (e.g., retail
electric service and metering service). The operational benefits and
efficiencies associated with the Transaction are estimated at $322 million over
a ten year period, and are discussed in the Registration Statement at pages
45-46. The Transaction also will allow the Applicants to offer a greater range
of services to customers, making the Applicants more competitive, and will
provide significantly increased financial resources to Nevada Power and SPPC,
making them better able to meet customer needs. The Commission previously has
found that similar benefits satisfied the affirmative finding required under
Section 10(c)(2). See, e.g., WPL Holdings, Inc., 50 S.E.C. 233, 237 (1990)
(benefits supporting Section 10(c)(2) finding include "[a] structure that could
more effectively address the growing national competition in the energy
industry, refocus various utility activities, facilitate selective
diversification into non-utility business . . . and provide additional
flexibility for financing . . ."). Accordingly, the Commission should find that
the requirements of Section 10(c)(2) are satisfied with regard to the
Transaction.
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17 TUC Holding Co., supra.
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3. SECTION 10(F) -- COMPLIANCE WITH STATE REQUIREMENTS.
To approve an acquisition, the Commission is required, under Section
10(f), to find that the acquisition has complied with all applicable state laws.
The Transaction is conditioned expressly on receipt of all required regulatory
approvals, including that of the Nevada PUC. The Applicants have filed an
Application with the Nevada PUC, a copy of which is filed as Exhibit D-1 hereto.
A copy of the Nevada PUC order dated January 4, 1999, approving the Transaction,
subject to certain conditions, is filed as Exhibit D-2 hereto.
C. SECTION 3(A)(1).
The Applicants believe that, following consummation of the
Transaction, Sierra Pacific and each of its subsidiary companies will be
entitled to exemption under Section 3(a)(1) from all provisions of the Act
(except for Section 9(a)(2) thereof). Section 3(a)(1) authorizes the Commission
to exempt any holding company:
if such holding company, and every subsidiary company thereof which is a
public-utility company from which such holding company derives, directly or
indirectly, any material part of its income are predominantly intrastate in
character and will carry on their businesses substantially within a single
State in which such holding company and every such subsidiary company
thereof are organized.
Following the Transaction, Sierra Pacific and each of its public
utility subsidiaries - Nevada Power and SPPC - will be organized in Nevada.
Further, Nevada Power will earn all of its utility revenues in Nevada and, based
on financial information for the year ended December 31, 1997, SPPC earns more
than 93% of its utility revenues in Nevada. Following the Transaction, Sierra
Pacific will earn approximately 97% of its utility revenues in Nevada. These
amounts are within the existing range of orders issued by the Commission under
3(a)(1) (see Sierra Pacific Resources, Holding Co. Act Release No. 24566 (Jan.
28, 1988)) and well below the percentages of out-of-state utility revenues
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presented by holding companies claiming exemption under Rule 2, which claims for
exemption have not been challenged.18
Under such circumstances, Sierra Pacific will qualify as an exempt
holding company, "unless and except insofar as [the Commission] finds the
exemption detrimental to the public interest or the interest of investors or
consumers . . . ." As discussed in Item 1(B)(1), the Applicants believe that the
Transaction will result in efficiencies and economies which will benefit the
interest of the public, investors and consumers. As noted above, the utility
business resulting from the Transaction raises no public interest concerns.
Therefore, the Applicants believe that Sierra Pacific will continue to qualify
for the Section 3(a)(1) exemption upon consummation of the Transaction, and
requests an order from the Commission granting such exemption.
ITEM 4. REGULATORY APPROVAL.
As stated above, the Transaction is conditioned on approval by the
Nevada PUC. Nevada Power and SPPC made a joint application to the Nevada PUC on
July 7, 1998, seeking the necessary approvals of the Merger Agreement and
certain related matters, including the proposed generation divestiture. By order
dated January 4, 1999, the Nevada PUC approved the Transaction, subject to
certain conditions. In an opinion letter, attached as Exhibit F-3, the Sierra
Pacific and SPPC general counsel explains that SPPC was not required to file an
application with the California PUC for approval of the Transaction, but SPPC
has agreed to file an application with the California PUC for approval of the
proposed sale of SPPC's generating assets.
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18 See e.g., 1983 Form U-3A-2 filed by Diversified Energies (File No. 69- 271)
(disclosing 22.4% of utility revenues from out-of-state operations); 1998
Form U-3A-2 filed by TNP Enterprises (File No. 69-291) (disclosing 16% of
operating revenues from and 22.7% of retail electricity sales (in MWH) to
out-of-state customers, who comprise 19.5% of all electric customers); and
1998 Form U-3A-2 filed by MidAmerican Energy Hold ings Co. (File No.
69-300) (disclosing 21% of retail gas operating revenues and 12.4% of
electric operating revenues from out-of-state operations and 20.2% of net
gas plant and 11.7% of net electric plant located out-of-state).
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On October 2, 1998, SPPC and Nevada Power filed an application with
FERC requesting authorization for the Transaction under Section 203 of the
Federal Power Act. Under Section 203, the FERC will approve a merger if it finds
the mergers "consistent with the public interest." FERC has stated in a Policy
Statement that, in analyzing a merger under Section 203, it will evaluate the
following criteria: (i) the effect of the merger on competition in electric
power markets, utilizing an initial screening approach derived from the DOJ/FTC
Horizontal Mergers Guidelines to determine if a merger will result in an
increase in an applicant's market power; (ii) the effect of the merger on the
applicants' wholesale sales and transmission customers; and (iii) the effect of
the merger on state and federal regulation of the applicants.
The HSR Act, and the rules and regulations thereunder, provide that
certain merger transactions (including the Transaction) may not be consummated
until required information and materials have been furnished to the DOJ and the
FTC and certain waiting periods have expired or been terminated. The Applicants
expect to make the HSR filing in the first quarter of 1999.
ITEM 5. PROCEDURE.
The Applicants respectfully request that the Commission issue and
publish not later than February 19, 1999 the requisite notice under Rule 23 with
respect to the filing of this Application, such notice to specify a date not
later than March 19, 1999, by which comments may be entered and a date not later
than March 22, 1999, as a date after which an order of the Commission granting
and permitting this Application to become effective may be entered by the
Commission.
The Applicants submit 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.
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ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
a. EXHIBITS.
A-1 Articles of Incorporation of Sierra Pacific (Exhibit B to Exhibit D-1
hereto)
A-2 By-Laws of Sierra Pacific (Exhibit C to Exhibit D-1 hereto)
A-3 Articles of Incorporation of Nevada Power (Exhibit B to Exhibit D-1 hereto)
A-4 By-Laws of Nevada Power (Exhibit C to Exhibit D-1 hereto)
B-1 Agreement and Plan of Merger (Exhibit A to Exhibit D-1 hereto; Exhibit H to
Exhibit D-3 hereto; and filed as Annex A to the Registration Statement on
Form S-4 on September 4, 1998 (Registration No. 333-62895) and incorporated
herein by reference)
C-1 Registration Statement of Sierra Pacific and Nevada Power on Form S-4
(filed September 4, 1998 (Registration No. 333-62895) and incorporated
herein by reference)
D-1 Application to the Nevada PUC, filed August 7, 1998, together with
testimony and exhibits (filed herewith on Form SE)
D-2 Order of Nevada PUC approving merger, dated January 4, 1999, and
Clarification Order, dated January 29, 1999.
D-3 Application to FERC, filed October 2, 1998, together with testimony and
exhibits (filed herewith on Form SE)
D-4 Determination of FERC (to be filed by amendment)
E-1 Map of SPPC's service territory (Exhibit I to Exhibit D-1 hereto and
Exhibit SPNP-11 to Exhibit D-3 hereto)
E-2 Map of Nevada Power's service territory (Exhibit I to Exhibit D-1 hereto
and Exhibit SPNP-3 to Exhibit D-3 hereto)
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E-3 Map showing the service territories of SPPC and Nevada Power (Exhibit I to
Exhibit D-3 hereto)
E-4 Map showing the transmission systems of SPPC and Nevada Power (filed
herewith on Form SE)
E-5 Sierra Pacific organization chart (Appendix 1 to Exhibit D-3 hereto)
E-6 Nevada Power organization chart (Appendix 1 to Exhibit D-3 hereto)
E-7 Combined company organization chart after the Transaction (Appendix 1 to
Exhibit D-3 hereto)
F-1 Opinion of Counsel (to be filed by amendment)
F-2 Past Tense Opinion of Counsel (to be filed by amendment)
F-3 Opinion of Counsel of William E. Peterson, Senior Vice President, General
Counsel and Corporate Secretary, Sierra Pacific Resources
G-1 Sierra Pacific's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 (File No. 1-8788, filed March 30, 1998, amended September
3, 1998, and incorporated herein by reference)
G-2 Sierra Pacific's Quarterly Report on Form 10-Q for the quarters ended March
31, 1998, June 30, 1998 and September 30, 1998 (File No. 1-8788 and
incorporated herein by reference)
G-3 SPPC's Annual Report on Form 10-K for the fiscal year ended December 31,
1997 (File No. 0-508, filed March 30, 1998 and incorporated herein by
reference)
G-4 SPPC's Quarterly Report on Form 10-Q for the quarters ended March 31, 1998,
June 30, 1998 and September 30, 1998 (File No. 0-508 and incorporated
herein by reference)
G-5 Nevada Power's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 (File No. 1-4698, filed March 23, 1998 and incorporated
herein by reference)
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G-6 Nevada Power's Quarterly Report on Form 10-Q for the quarters ended March
31, 1998, June 30, 1998 and September 30, 1998 (File No. 1-4698, filed
November 6, 1998 and incorporated herein by reference)
H-1 Opinion of SG Barr Devlin (filed as Annex C to the Registration Statement
on Form S-4 on September 4, 1998 (Registration No. 333-62895) and
incorporated herein by reference)
H-2 Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated (filed as
Annex D to the Registration Statement on Form S-4 on September 4, 1998
(Registration No. 333-62895) and incorporated herein by reference)
H-3 Opinion of PaineWebber Incorporated (filed as Annex B to the Registration
Statement on Form S-4 on September 4, 1998 (Registration No. 333-62895) and
incorporated herein by reference)
I-1 Proposed Form of Notice
b. FINANCIAL STATEMENTS.
FS-1 Sierra Pacific Consolidated Balance Sheet as of December 31, 1997
(previously filed with the Commission in Sierra Pacific Annual Report on
Form 10-K for the year ended December 31, 1997 (Exhibit G-1 hereto), filed
March 30, 1998, File No. 1-8788, and incorporated herein by reference)
FS-2 Sierra Pacific Consolidated Balance Sheet as of September 30, 1998
(previously filed with the Commission in Sierra Pacific Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998 (Exhibit G-2 hereto),
filed November 13, 1998, File No. 1-8788, and incorporated herein by
reference)
FS-3 Sierra Pacific Consolidated Statement of Income for the 12 months ended
December 31, 1997 (previously filed with the Commission in Sierra Pacific
Annual Report on Form 10-K for the year ended December 31, 1997 (Exhibit
G-1 hereto), filed March 30, 1998, File No. 1-8788, and incorporated herein
by reference)
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FS-4 Sierra Pacific Consolidated Statement of Income for the 9 months ended
September 30, 1998 (previously filed with the Commission in Sierra Pacific
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998
(Exhibit G-2 hereto), filed November 13, 1998 File No. 1-8788, and
incorporated herein by reference)
FS-5 Nevada Power Consolidated Balance Sheet as of December 31, 1997 (previously
filed with the Commission in Nevada Power Annual Report on Form 10-K for
the year ended December 31, 1997 (Exhibit G-5 hereto), filed March 23,
1998, File No. 1-4698, and incorporated herein by reference)
FS-6 Nevada Power Consolidated Balance Sheet as of September 30, 1998
(previously filed with the Commission in Nevada Power Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998 (Exhibit G-6 hereto),
filed November 6, 1998, File No. 1-4698, and incorporated herein by
reference)
FS-7 Nevada Power Consolidated Statement of Income for the 12 months ended
December 31, 1997 (previously filed with the Commission in Nevada Power
Annual Report on Form 10-K for the year ended December 31, 1997 (Exhibit
G-5 hereto), filed March 23, 1998, File No. 1-4698, and incorporated herein
by reference)
FS-8 Nevada Power Consolidated Statement of Income for the 9 months ended
September 30, 1998 (previously filed with the Commission in Nevada Power
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998
(Exhibit G-6 hereto), filed November 6, 1998 File No. 1-4698, and
incorporated herein by reference)
FS-9 Pro Forma Combined Financial data for Sierra Pacific and Nevada Power
(previously filed with the Commission in the Registration Statement of
Sierra Pacific on Form S-4, filed on September 4, 1998 (Registration No.
333-62895) and incorporated herein by reference)
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ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
The Transaction will not involve major federal action significantly
affecting the quality of the human environment as those terms are used in
Section 102(2)(C) of the National Environmental Policy Act, 42 U.S.C. Section
4321 et seq. ("NEPA"). First, no major federal action within the meaning of NEPA
is involved. Second, consummation of the Transaction will not result in changes
in the operations of Nevada Power or the subsidiaries of Sierra Pacific that
would have any significant impact on the environment. To the Applicants'
knowledge, no federal agency is preparing an environmental impact statement with
respect to this matter.
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SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned Applicants have duly caused this Application to be
signed on their behalf by the undersigned thereunto duly authorized.
SIERRA PACIFIC RESOURCES / SIERRA PACIFIC POWER COMPANY:
By: /s/ William E. Peterson Date: 4/5/99
----------------------- ------
Name: William E. Peterson
-------------------
Title: Senior Vice President, General Counsel and Corporate Secretary
--------------------------------------------------------------
NEVADA POWER COMPANY:
By: /s/ Richard L. Hinckley Date: 4/5/99
----------------------- ------
Name: Richard L. Hinckley
-------------------
Title: Vice President, Secretary and General Counsel
---------------------------------------------
45
