As filed with the Securities and Exchange Commission on
June 16, 1999
File No. 70-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
APPLICATION-DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
SCANA Corporation
1426 Main Street
Columbia, South Carolina 29201
(Name of company filing this statement
and address of principal executive office)
SCANA Corporation
1426 Main Street
Columbia, South Carolina 29201
(Name of top registered holding company parent)
Kevin B. Marsh
H. Thomas Arthur
SCANA Corporation
1426 Main Street
Columbia, South Carolina 29201
Telephone: (803) 217-9000
Facsimile: (803) 217-9336
(Names and addresses of agents for service)
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The Commission is also requested to send
copies of any communication in connection with
this matter to:
William S. Lamb
Sheri E. Bloomberg
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 W. 55th Street
New York, New York 10019
Telephone: (212) 424-8000
Facsimile: (212) 424-8500
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TABLE OF CONTENTS
Page
Item 1. DESCRIPTION OF THE PROPOSED MERGER...................................1
A. Introduction....................................................1
1. General Request............................................1
2. Overview of the Mergers....................................1
B. Description of the Parties to the Mergers.......................4
1. SCANA......................................................4
a. SCANA Public Utility Companies........................4
i. SCE&G............................................4
I. SCE&G's Electric Utility Operations.........5
II. SCE&G's Gas Utility Operations..............6
ii. GENCO............................................6
b. SCANA Non-Utilities...................................7
i. South Carolina Fuel Company, Inc.................7
ii. South Carolina Pipeline Corporation..............7
iii. SCANA Energy Marketing, Inc......................8
iv. SCANA Propane Gas, Inc. .........................8
v. SCANA Propane Storage, Inc. .....................8
vi. SCANA Communications, Inc........................8
vii. ServiceCare, Inc.................................9
viii.Primesouth, Inc..................................9
ix. SCANA Resources, Inc.............................9
x. SCANA Development Corporation....................9
xi. SCANA Petroleum Resources, Inc...................9
2. PSNC.......................................................9
a. PSNC's Non-Utilities.................................11
i. Sonat Public Service Company L.L.C..............11
ii. Clean Energy Enterprises, Inc...................11
iii. Cardinal Pipeline Company, LLC..................12
iv. Pine Needle LNG Company, LLC....................12
v. PSNC Blue Ridge Corporation.....................13
vi. PSNC Cardinal Pipeline Company..................13
vii. PSNC Production Corporation.....................13
C. Description Of The Mergers.....................................13
1. Background................................................13
2. Merger Agreement..........................................17
3. Financing the Mergers.....................................18
D. Management and Operations of SCANA and PSNC Following
the Mergers...............................................18
Item 2. Fees, Commissions and Expenses......................................19
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Item 3. Applicable Statutory Provisions.....................................19
A. Legal Analysis.................................................20
1. Section 10(b).............................................21
a. Section 10(b)(1).....................................22
i. Interlocking Relations ........................22
ii. Concentration of Control........................23
b. Section 10(b)(2).....................................27
i. Fairness of Consideration.......................27
ii. Reasonableness of Fees ........................29
c. Section 10(b)(3).....................................30
i. Capital Structure...............................30
ii. Protected Interests.............................33
2. Section 10(c).............................................35
a. Section 10(c)(1) ...................................35
i. Section 8 Analysis..............................35
ii. Section 11 Analysis - Integration...............36
I. Integrated Electric Utility System.........36
II. Integrated Gas Utility System..............37
iii. Section 11 Analysis - Retention of Gas
Utility System..................................40
iv. Section 11 Analysis - Retention of
Non-Utility Businesses..........................44
b. Section 10(c)(2).....................................53
3. Section 10(f).............................................54
Item 4. Regulatory Approvals................................................55
Item 5. Procedure...........................................................55
Item 6. Exhibits and Financial Statements...................................56
A. Exhibits.......................................................56
B. Financial Statements...........................................58
Item 7. Information as to Environmental Effects............................59
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Item 1. DESCRIPTION OF THE PROPOSED MERGER
A. Introduction
This Application-Declaration seeks approvals relating to the proposed
acquisition of Public Service Company of North Carolina, Incorporated, a North
Carolina corporation ("PSNC"), by SCANA Corporation, a South Carolina
corporation ("SCANA"), pursuant to which PSNC will become a wholly owned
subsidiary company of SCANA. Following consummation of the proposed acquisition,
SCANA will register with the Securities and Exchange Commission (the "SEC" or
the "Commission") as a holding company under Section 5 of the Public Utility
Holding Company Act of 1935 (the "Act"). SCANA is currently a holding company
exempt from all provisions of the Act except Section 9(a)(2) and Section 10
under Section (3)(a)(1) pursuant to Rule 2 of the Act.
1. General Request
Pursuant to Sections 9(a)(2) and 10 of the Act, SCANA hereby requests
authorization and approval of the Commission to acquire the issued and
outstanding common stock of PSNC, and thereby acquire PSNC. SCANA also hereby
requests that the Commission approve the retention by SCANA of the businesses,
investments and non-utility activities of SCANA and PSNC.
2. Overview of the Mergers
Pursuant to an Amended and Restated Agreement and Plan of Merger (the
"Merger Agreement"), dated as of February 16, 1999 and amended and restated as
of May 10, 1999 by and among PSNC, SCANA, New Sub I, Inc., a South Carolina
corporation and a wholly owned subsidiary company of SCANA ("New Sub I"), and
New Sub II, Inc., a South Carolina corporation and a wholly owned subsidiary
company of SCANA ("New Sub II"), New Sub I will
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be merged with and into SCANA with SCANA as the surviving corporation (the
"First Merger"), and PSNC will be merged with and into New Sub II with New Sub
II as the surviving corporation (the "Preferred Second Merger", and together
with the First Merger, the "Mergers").1 As a result of the Preferred Second
Merger, PSNC, a public utility company for purposes of the Act, will become a
wholly owned subsidiary company of SCANA.
In the Preferred Second Merger, each share of PSNC common stock outstanding
immediately prior to the effective time of the Preferred Second Merger will be
converted into the right to elect either (i) $33.00 in cash or (ii) a number of
shares of SCANA common stock equal to the PSNC exchange ratio. This election is
subject to the limitation that no more than 50% of the aggregate consideration
paid to all PSNC shareholders may be in cash. The PSNC exchange ratio will vary
depending upon the average market price of SCANA common stock over a 20
trading-day period, but is subject to the limitation that PSNC shareholders who
elect to receive SCANA common stock will receive no more than 1.45 and no less
than 1.02 shares of SCANA common stock for each share of PSNC common stock.
In the First Merger, each share of SCANA common stock outstanding
immediately prior to the effective time of the First Merger will be converted
into the right to receive either (i) $30 in cash or (ii) one share of SCANA
common stock, subject to the requirement that SCANA pay $700 million in cash in
the aggregate as consideration if both Mergers are approved.
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1 The Merger Agreement also provides that in the event it is not possible
to consummate the Preferred Second Merger, the parties would, subject to certain
conditions, carry out an "alternative merger" transaction in which PSNC would be
merged directly into SCANA's existing public utility company, South Carolina
Electric & Gas Company ("SCE&G"). The request for approval made herein concerns
only the Preferred Second Merger, as the alternative merger is not subject to
the jurisdiction of this Commission. Therefore, this Application-Declaration
will refer only to the Preferred Second Merger.
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If the First Merger occurs, it will not involve the acquisition of any
securities of a public utility company; therefore it will not require any
approval from the Commission under the Act.
As discussed in more detail in Item 1.C. below, the boards of directors and
managements of SCANA and PSNC believe that the Mergers will help position their
combined companies to become one of the premier distribution companies for
energy and other services in the southeastern region by increasing financial
flexibility and providing strategic growth opportunities that will benefit both
companies and their shareholders, customers and employees in a manner that
neither company could achieve on its own. The SCANA and PSNC boards of directors
have approved the Merger Agreement and related transactions.
In addition to the approvals by the SCANA and PSNC boards of directors, the
First Merger must be approved by the holders of two-thirds of the shares of
SCANA common stock and the Preferred Second Merger must be approved by holders
of a majority of the shares of PSNC common stock. Also, the affirmative vote of
a majority of the shares of SCANA common stock present and voting at a special
meeting of SCANA shareholders is required to approve the issuance of SCANA
common stock in connection with the Preferred Second Merger, provided that a
majority of all outstanding shares of SCANA common stock is voted at the
meeting. If SCANA shareholders fail to approve the Merger Agreement with respect
to the First Merger but do approve the issuance of SCANA common stock in
connection with the Preferred Second Merger, and all other conditions to the
consummation of the Preferred Second Merger are capable of being completed, then
the parties will proceed with the Preferred Second Merger.
In addition to said shareholder approvals, certain federal and state
regulatory approvals must be obtained from the Federal Communications Commission
(the "FCC") and the North Carolina Utilities Commission (the "NCUC"). The
Preferred Second Merger must also
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receive clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
(the "HSR Act").
B. Description of the Parties to the Mergers
1. SCANA
SCANA was incorporated on October 10, 1984 and is a holding company within
the meaning of the Act. SCANA common stock has no par value and is listed and
traded on the New York Stock Exchange (the "NYSE") under the symbol "SCG". As of
May 12, 1999, 103,572,623 shares of SCANA common stock were outstanding.
As of and for the year ended December 31, 1998, SCANA had total assets of
$5.281 billion, net utility assets of $3.787 billion, total operating revenues
of $1.632 billion, and net income of $115 million. SCANA neither owns nor
operates any physical properties. As of December 31, 1998, SCANA employed, in
conjunction with its subsidiaries, a total of 4,697 full-time employees.
SCANA has thirteen direct, wholly owned subsidiary companies which are
engaged in functionally distinct operations as described below. It also has
investments in two limited liability company joint ventures. SCANA holds all of
the outstanding voting securities of two public utility companies within the
meaning of the Act, South Carolina Electric & Gas Company ("SCE&G") and South
Carolina Generating Company, Inc. ("GENCO").
a. SCANA Public Utility Companies
i. SCE&G
SCE&G is a regulated public utility company engaged in the generation,
transmission, distribution and sale of electricity and in the purchase and sale
of natural gas in South Carolina. SCE&G's electric service area extends into 24
counties covering more than
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15,000 square miles of the central, southern and southwestern portions of South
Carolina. SCE&G's service area for natural gas operations encompasses all or
part of 31 of the 46 counties in South Carolina and covers more than 21,000
square miles. SCE&G's service area for electric and gas operations has a
population of approximately 2.3 million people, and predominant industries in
the areas served by SCE&G include: synthetic fibers; chemicals; fiberglass;
paper and wood; metal fabrication; stone, clay and sand mining and processing;
and textiles. In addition to its electric and gas utility businesses, SCE&G also
operates a bus service providing transportation throughout Columbia, South
Carolina.
SCE&G owns eighteen electric generation facilities with a combined net
generating capacity of 3,772 kilowatts. SCE&G also owns several commercial
office buildings, service center buildings and storage facilities. SCE&G owns 61
motor coaches used in the operation of the Columbia, South Carolina transit
system.
SCE&G is subject to the jurisdiction of the South Carolina Public Service
Commission ("SCPSC"), the Nuclear Regulatory Commission (the "NRC") and the
Federal Energy Regulatory Commission ("FERC") pursuant to the Federal Power Act.
I. SCE&G's Electric Utility Operations
SCE&G's electric transmission system is part of an interconnected grid
extending over a large part of the southern and eastern portions of the United
States. SCE&G, Virginia Power Company, Duke Power Company, Carolina Power &
Light Company, Yadkin, Incorporated and Santee Cooper (formerly The South
Carolina Public Service Authority) are members of the Virginia-Carolinas
Reliability Group, one of several geographic divisions within the Southeastern
Electric Reliability Council. SCE&G is also interconnected with Georgia Power
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Company, Savannah Electric & Power Company, Oglethorpe Power Corporation and
Southeastern Power Administration's Clark Hill Project.
SCE&G purchases all of the electric generation of Williams Station, owned
by GENCO, under a Unit Power Sales Agreement that has been approved by the FERC.
Williams Station has a generating capacity of 580 megawatts.
In 1998, SCE&G's electric sales revenues totaled $1.219 billion.
Residential sales of electricity accounted for 42% of SCE&G's electric sales
revenues; commercial sales for 30%; industrial sales for 19%; sales for resale
for 3%; and all other sales for 6%. SCE&G recorded a net increase during 1998 of
13,542 electric customers, increasing its total number of electric customers to
517,447.
II. SCE&G's Gas Utility Operations
SCE&G's gas system consists of approximately 11,963 miles of distribution
mains and related service facilities. SCE&G has propane air peak shaving
facilities that can supplement its supply of natural gas by gasifying propane to
yield the equivalent of 102 million cubic feet per day. These facilities can
store the equivalent of 430 million cubic feet of natural gas.
In 1998, SCE&G's gas sales revenues totaled $230 million. Residential sales
accounted for 43% of gas sales revenues; commercial sales for 31%; and
industrial sales for 26%. SCE&G recorded a net increase during 1998 of 4,255 gas
customers, increasing its total number of gas customers to 256,842.
ii. GENCO
GENCO owns and operates the Williams Station generating facility in Goose
Creek, South Carolina, and sells electricity solely to SCE&G. GENCO is subject
to regulation under the Federal Power Act.
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b. SCANA Non-Utilities
i. South Carolina Fuel Company, Inc.
South Carolina Fuel Company, Inc. ("South Carolina Fuel") acquires, owns
and provides financing for SCE&G's nuclear fuel, fossil fuel and sulfur dioxide
emission allowance requirements.
ii. South Carolina Pipeline Corporation
South Carolina Pipeline Corporation ("Pipeline Corporation") is engaged in
the purchase, transmission and sale of natural gas on a wholesale basis to both
distribution companies and industrial customers in 40 counties throughout South
Carolina. Pipeline Corporation operates completely within South Carolina, and
its gas system consists of approximately 1,919 miles of transmission pipeline
that connect its resale customers' distribution systems with transmission
systems of Southern Natural Gas Company ("Southern Natural") and the
Transcontinental Gas Pipe Line Corporation ("Transco"). Pipeline Corporation,
through a wholly owned subsidiary, owns and operates a 62-mile, six-inch propane
pipeline that connects SCANA Propane Storage, Inc.'s propane storage facility
with Dixie Pipeline Company's system, which traverses central South Carolina.
Pipeline Corporation also owns two liquified natural gas ("LNG") liquification
and storage facilities, one located near Charleston, South Carolina and the
other in Salley, South Carolina. To meet the requirements of its high priority
natural gas customers during periods of maximum demand, Pipeline Corporation
supplements its supplies of natural gas using these two LNG facilities.
Pipeline Corporation supplies the natural gas for SCE&G's gas distribution
system. Other resale customers include municipality and county gas authorities
and gas utility companies.
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The industrial customers of Pipeline Corporation are primarily engaged in the
manufacturing or processing of ceramics, paper, metal, food and textiles.
iii. SCANA Energy Marketing, Inc.
SCANA Energy Marketing, Inc. ("Energy Marketing") markets electricity,
natural gas and other light hydrocarbons, primarily in the southeastern United
States. Energy Marketing also markets natural gas in Georgia's deregulated
natural gas market and provides energy-related risk management services to
producers and consumers. In 1996, the FERC approved Energy Marketing's
application to become a power marketer, allowing Energy Marketing to buy and
sell large blocks of electric capacity in wholesale markets.
iv. SCANA Propane Gas, Inc.
SCANA Propane Gas, Inc. ("SCANA Propane Gas") purchases, delivers and sells
propane within the southeastern United States.
v. SCANA Propane Storage, Inc.
SCANA Propane Storage, Inc. ("SCANA Propane Storage") owns and operates a
60 million gallon underground propane storage facility near York, South Carolina
and leases cavern storage space to industries, utilities and others.
vi. SCANA Communications, Inc.
SCANA Communications, Inc. ("SCI") owns and operates a 500-mile fiber optic
telecommunications network and an 800 MHZ radio service network within South
Carolina. In addition, SCI provides tower site construction, management and
rental services in South Carolina and Georgia. SCI also has investments in
Powertel, Inc., ITC Holding Company, Inc., ITC DeltaCom, Inc., and Knology
Holdings, Inc., which are companies providing telecommunications services in the
southeastern United States.
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vii. ServiceCare, Inc.
ServiceCare, Inc. ("ServiceCare") is engaged in providing
energy-related products and services beyond the energy meter. Its primary
businesses involve providing homeowners with service contracts on their home
appliances and home security monitoring.
viii. Primesouth, Inc.
Primesouth, Inc. ("Primesouth") is engaged in power plant management and
maintenance services.
ix. SCANA Resources, Inc.
SCANA Resources, Inc. ("SCANA Resources") is a vehicle by which SCANA makes
initial investments in new, energy-related business opportunities and start-up
ventures.
x. SCANA Development Corporation
SCANA Development Corporation is presently in liquidation. This entity was
previously engaged in the sale of real estate.
xi. SCANA Petroleum Resources, Inc.
SCANA Petroleum Resources, Inc. is in liquidation following the sale of its
oil and gas properties.
2. PSNC
PSNC, a North Carolina corporation incorporated in 1938, is a public
utility company certificated to serve a 31-county area in North Carolina. PSNC
transports, distributes and sells natural gas to approximately 340,000
residential, commercial and industrial customers in 95 cities and communities in
North Carolina. In connection with its natural gas distribution business, PSNC
promotes, sells and installs both new and replacement cooking, water heating,
laundry, space heating, cooling and humidity control natural gas appliances and
equipment.
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PSNC, through a subsidiary that is not a public utility company, also provides
conversion and maintenance services for natural gas-fueled vehicles in selected
cities in and beyond its franchised territory. It also participates in
non-public utility company businesses and joint ventures in areas such as
natural gas brokering and supply services.
PSNC common stock has a par value of $1 per share and is listed and traded
on the NYSE under the symbol "PGS." As of and for the fiscal year ended
September 30, 1998, 20,274,332 shares of PSNC common stock were outstanding, and
PSNC had total assets of $618,753,000, operating revenues of $330,672,000 and
net income of $24,837,000. As of May 11, 1999, PSNC had approximately 1,000
employees.
PSNC owns 750 miles of transmission pipelines, which range from 2 to 24
inches in diameter, and 6,727 miles of distribution mains that connect its
distribution systems with the Texas to New York pipeline transmission system of
Transco. Most of these transmission pipelines and distribution mains are located
on right-of-ways held under easement, license or permit. PSNC also owns 18
commercial office buildings, a measurement operations building, a building that
houses training and engineering, 11 service center buildings, 15 service
buildings, and an energy control building. One of the service buildings houses
training facilities, and another service building is jointly occupied by a
natural gas-fueled vehicle conversion facility. PSNC also leases six commercial
office buildings for company use.
PSNC is subject to regulation by the NCUC. PSNC's regulated transportation,
distribution and sale of natural gas take place in its 31-county certificated
service territory, which includes Raleigh, Durham and the Research Triangle area
of north central North Carolina, Gastonia, Concord and Statesville in the
central area of the state, and Asheville, Hendersonville and Brevard in the
western area. Over 2.5 million people reside in PSNC's certificated territory,
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and during the past three fiscal years, PSNC has added approximately 39,900
residential, 5,000 commercial, and 100 industrial customers to its natural gas
transmission and distribution systems. These 45,000 new customers have resulted
in a compound annual growth rate of 5.1% for PSNC over the three-year period.
PSNC's diversified industrial customer base includes manufacturers of textiles,
chemicals, ceramics and clay products, glass, automotive products, minerals,
pharmaceuticals, plastics, metals, electronic equipment, furniture and a variety
of food and tobacco products.
a. PSNC's Non-Utilities
i. Sonat Public Service Company L.L.C.
Sonat Public Service Company L.L.C. ("Sonat Public Service") is a joint
venture started in December 1996 by PSNC Production Corporation ("PSNC
Production"), a wholly owned subsidiary of PSNC, and Sonat Marketing Company
L.P. ("Sonat Marketing"), a subsidiary of Sonat Inc. As its capital contribution
to the venture, PSNC Production transferred its gas brokering activities to
Sonat Public Service, and Sonat Public Service now provides nonregulated energy
products and services to approximately 500 industrial and commercial accounts in
the mid-Atlantic region. PSNC Production and Sonat Marketing each own a 50%
share of Sonat Public Service.
ii. Clean Energy Enterprises, Inc.
Clean Energy Enterprises, Inc. ("Clean Energy"), a wholly owned subsidiary
of PSNC, converts vehicles to operate on natural gas or other alternative fuels.
Clean Energy also operates fueling stations in Raleigh and Gastonia, and advises
customers on the installation and operation of natural gas fueling stations.
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iii. Cardinal Pipeline Company, LLC
In March 1994, PSNC and a subsidiary of Piedmont Natural Gas Company, Inc.
("Piedmont") formed Cardinal Pipeline Company, LLC ("Cardinal") in order to
construct and operate a 24-inch, 37.5-mile natural gas pipeline (the "Cardinal
Pipeline").2 The Cardinal Pipeline extends from Wentworth to near Haw River,
North Carolina, where it interconnects with PSNC and Piedmont. It was placed
into service on December 31, 1994, and provides 130 million cubic feet per day
of additional firm capacity (70 million cubic feet per day for PSNC and 60
million cubic feet per day for Piedmont). When Cardinal Pipeline was placed into
service, PSNC owned 64.5% of Cardinal.
In 1995, PSNC, Piedmont, Transco and North Carolina Natural Gas Corporation
("NCNG") formed Cardinal Extension Company, LLC ("Cardinal Extension") to
purchase and extend the Cardinal Pipeline by 67.5 miles. Eventually, Cardinal
Extension will become part of Cardinal, and PSNC, which contributed its 64.5%
interest in Cardinal to the new project, will own approximately 33% of the
resulting company through a subsidiary.
iv. Pine Needle LNG Company, LLC
Pine Needle LNG Company, LLC ("Pine Needle") was formed by subsidiaries of
Transco, Piedmont, NCNG, Amerada Hess, PSNC and the Municipal Gas Authority of
Georgia to own and operate an LNG storage facility in North Carolina. The
facility will have a storage capacity of four billion cubic feet with
vaporization capability of 400 million cubic feet per day. PSNC's subsidiary
that invested in Pine Needle, PSNC Blue Ridge Corporation ("Blue Ridge"), made
its required capital contribution of $9,058,000 on May 3, 1999 and owns 17% of
Pine
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2 Although not a public utility company for purposes of the Act, Cardinal
is a utility for purposes of state regulation and is currently under the
jurisdiction of the NCUC.
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Needle. PSNC has contracted to use 25% of the facility's gas storage capacity
and withdrawal capabilities.
v. PSNC Blue Ridge Corporation
As noted above, Blue Ridge is a subsidiary used solely to make a capital
contribution to, and hold PSNC's equity interest in, Pine Needle.
vi. PSNC Cardinal Pipeline Company
PSNC Cardinal Pipeline Company is a subsidiary created solely to make a
construction loan to, and hold PSNC's equity interest in, Cardinal Extension and
eventually in Cardinal.
vii. PSNC Production Corporation
PSNC Production was formed in 1981 to engage in the exploration for, and
production of, natural gas. In response to new business opportunities being
created by the restructuring of the natural gas industry, PSNC Production began,
in 1990, to limit its business to non-regulated gas brokering and sales to large
commercial and industrial customers that could obtain transportation from PSNC
and other local distribution companies ("LDCs"). In 1994, PSNC Production sold
the last of its interests in production properties. In December 1996, PSNC
Production sold a 50 percent interest in its marketing business to Sonat
Marketing in order to create Sonat Public Service.
C. Description Of The Mergers
1. Background
Over the past several years SCANA has carefully monitored developments in
the electric and natural gas utility industries, with particular emphasis on the
growth of competition in the southeastern region of the United States. As a
result of these efforts, SCANA decided to
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pursue a regionally-based, customer service oriented growth strategy that
involves both expanding its service options for its customers to include such
services as appliance repair, home security and telecommunications, and
increasing its customer base through increased marketing efforts in areas with
open access and through possible acquisitions.
PSNC has also carefully followed recent developments in the electric and
natural gas utility industries that have substantially increased competition in
such industries, particularly the pressures on small and medium-sized utility
companies to compete as effectively as larger utility companies. As a result,
PSNC began to develop strategic plans to respond to such an evolving and
competitive environment as it affected PSNC, and engaged and authorized Morgan
Stanley & Co. Incorporated, its financial advisor, to explore strategic
alternatives and possible business combinations. PSNC's management concluded
that PSNC's competitive position and growth prospects in this new environment
would be significantly enhanced by, among other things, increasing the scale of
its operations and the size of its customer base.
After considering possible business combinations with several companies,
the PSNC board of directors, on February 16, 1999, by a unanimous vote, approved
the Merger Agreement with SCANA and the transactions contemplated thereby and
authorized the execution of the Merger Agreement. On February 16, 1999, the
SCANA board of directors, by the affirmative vote of twelve directors with one
dissent, approved the Merger Agreement with PSNC and the transactions
contemplated thereby and authorized the execution of the Merger Agreement.
Following the meetings of their boards of directors, PSNC and SCANA executed the
Merger Agreement on February 16, 1999 and publicly announced the proposed
Mergers on February 17, 1999.
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The board of directors and management of SCANA believe that the Mergers
will help position SCANA to become one of the premier distribution companies for
energy and other services in the southeastern region by increasing its financial
flexibility and providing strategic growth opportunities that will benefit
SCANA, its shareholders, customers and employees, including:
o Expansion Potential and Broader Customer Base. PSNC brings to the
combined companies approximately 340,000 additional natural gas
retail distribution customers. The acquisition of PSNC will
increase SCANA's domestic retail customer base to approximately
1.3 million customers in the southeastern region, including fast
growing areas of North Carolina. SCANA and its shareholders and
employees will be able to participate in these growing markets
through PSNC, a company with which customers in North Carolina
are familiar. In addition, following the Preferred Second Merger,
SCANA's natural gas customer base will be more diverse, expanding
from its traditional majority industrial gas customer base by
adding PSNC's residential and small commercial customer base,
which accounted for approximately 50% of PSNC's throughput in
fiscal 1998.
o Increased Customer Products and Services. The combination with
PSNC will enable the combined companies to offer their customers
access to more comprehensive products and services than either
company alone could offer. The retail natural gas experience and
expertise of PSNC will complement the electricity, natural gas
and telecommunications assets, experience and expertise of SCANA,
giving the combined companies improved capabilities in the
delivery of a more complete range of products and services for
all of their customers.
o Financial Strength and Benefits. The Mergers should enhance
SCANA's ability to compete in the utility market as a
growth-oriented company. Following the Mergers, SCANA will have
increased its revenues to approximately $2 billion annually and
its customer base to approximate 1.3 million. As a result, SCANA
should enjoy an increased cash flow for reinvestment or growth in
the competitive energy and services delivery businesses. SCANA
should also benefit from the long-term financial stability of a
larger company.
o Operating Efficiencies. As a result of the Preferred Second
Merger, SCANA should benefit from operating efficiencies obtained
from economies of scale and should be able to make more efficient
use of advanced information systems.
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The board of directors and management of PSNC believe that the Mergers will
join two companies with complementary operations as well as a common vision of
the future of the retail and wholesale energy markets in the southeastern region
of the United States. As a result of utility deregulation and the increasing
competitive pressures faced by electric and natural gas utility companies, the
PSNC board believes that in order to succeed in such a market, PSNC must be an
efficient, low cost supplier of energy and allied services with a diverse
customer base. The Mergers are expected to allow PSNC to achieve these goals and
to provide substantial strategic and financial benefits to the shareholders of
PSNC, as well as to its employees and the customers that it serves. The PSNC
board believes that such benefits include:
o Strategic Position. The combination of the companies'
complementary expertise and infrastructure, including PSNC's
natural gas distribution business in North Carolina and SCANA's
diversified electric, natural gas and telecommunications
businesses throughout the southeastern United States will provide
the combined company with the size and scope to be an effective
participant in the emerging and increasingly competitive electric
and natural gas utility markets.
o Cost Competitive. Both PSNC and SCANA are amongst the most
efficient providers of their respective services within the
states in which they operate. The Mergers will enable the
combined company to create efficiencies through which the new
company will be able to provide even more cost-effective services
to customers.
o New Products and Services. The combined company will use its
distribution channels to market a portfolio of energy-related
services throughout the southeastern region. The Mergers will
create a company with the ability to develop and market
competitive new products and services and to provide integrated
energy solutions for its customers.
o Increased Financial Strength and Customer Base. The combined
company will be financially stronger and will have a broader
customer base than PSNC or SCANA as independent entities. Based
on the 1998 results for PSNC and SCANA, the total annual revenues
for the combined company will be approximately $2 billion. In
addition, the combined company will serve approximately 517,000
electric customers in South
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Carolina and more than 750,000 natural gas customers in South
Carolina, North Carolina and Georgia.
2. Merger Agreement
The Merger Agreement provides for a two-step merger transaction. In the
First Merger, New Sub I will be merged with and into SCANA and SCANA will
survive. In the Preferred Second Merger, PSNC will be merged with and into New
Sub II and New Sub II will survive. As a result of the Preferred Second Merger,
PSNC will become a wholly owned subsidiary company of SCANA. The Merger
Agreement provides that in the event that the SCANA shareholders fail to approve
the Merger Agreement with respect to the First Merger but do approve the
issuance of SCANA common stock in connection with the Preferred Second Merger,
and all other conditions to the consummation of the Preferred Second Merger are
capable of being completed, then the parties will proceed with the Preferred
Second Merger.
In exchange for each share of PSNC common stock outstanding immediately
prior to the effective time of the Preferred Second Merger, PSNC shareholders
will be given the option to receive either (i) $33.00 in cash, subject to the
limitation that a maximum of 50% of the aggregate consideration to be paid to
PSNC shareholders may be paid in cash, or (ii) a number of shares of SCANA
common stock as determined in accordance with the PSNC exchange ratio (which may
be as low as 1.02 or as high as 1.45, depending on the average market price of
SCANA common stock over a 20 trading-day period). In exchange for each share of
SCANA common stock outstanding immediately prior to the effective time of the
First Merger, SCANA shareholders will be given the option to receive either (i)
$30.00 in cash or (ii) one share of SCANA common stock, subject to the
requirement that SCANA pay $700 million in cash in the aggregate as
consideration if both Mergers are approved. The amount of cash available for
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payment to SCANA shareholders will be the portion of the $700 million remaining
after PSNC shareholders make their choice with respect to the form of
consideration they receive.
3. Financing the Mergers
Before completing the Mergers, the management of SCANA will evaluate
various sources and methods of financing to fund the consideration required to
finance the Mergers (the total amount of approximately $700 million). SCANA
currently anticipates that the full amount will be financed at the holding
company level through external sources. Sources of financing that SCANA is
considering include commercial and investment banks, institutional lenders and
public securities markets. Methods of financing that SCANA may consider include
commercial paper, bank lines of credit and debt and preferred securities of
various maturities and types. The management of SCANA believes that SCANA will
have access to many sources and types of short-term and long-term financing at
reasonable rates. As a result of this financing, the consolidated capitalization
of SCANA after the Mergers will consist of approximately 39.6% common equity and
60.4% long-term debt and preferred stock.
D. Management and Operations of SCANA and PSNC Following the Mergers
Following consummation of the Preferred Second Merger, the SCANA board of
directors will be expanded to include Charles E. Zeigler, Jr., the current
Chairman, President and Chief Executive Officer of PSNC, and two additional
persons presently serving as members of the PSNC board of directors. After PSNC
is merged into New Sub II, Mr. Zeigler will be President and Chief Operating
Officer of the surviving corporation and each other subsidiary of SCANA whose
primary operations are located in North Carolina. Mr. Zeigler will also be one
of the three members of SCANA's Office of the Chairman (the other two members
will be (i) the Chairman,
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President and Chief Executive Officer of SCANA and (ii) the President and Chief
Operating Officer of SCE&G).
Also following consummation of the Preferred Second Merger, the corporate
headquarters of the surviving corporation will be relocated to Columbia, South
Carolina.
Item 2. Fees, Commissions and Expenses
Registration Fees $ *
Accountant's Fees *
Legal Fees and Expenses *
Shareholder Communication and proxy solicitation expenses *
Investment bankers' fees and expenses *
Miscellaneous *
---------
Total $ *
The total fees, commissions and expenses expected to be incurred in
connection with the Mergers are estimated to be approximately $ * million.
Item 3. Applicable Statutory Provisions
The following sections of the Act and the Commission's rules thereunder are
or may be directly or indirectly applicable to the proposed transaction:
Sections of the Act Transactions to which section or rule
is or may be applicable:
4, 5 Registration of SCANA as a holding company following
the consummation of the Preferred Second Merger
9(a)(2), 10 Acquisition by SCANA of PSNC common stock
11(b) Retention by SCANA of the businesses, investments and
non-utility activities of SCANA and PSNC.
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* To be filed by amendment.
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To the extent that other sections of the Act or the Commission's rules
thereunder are deemed applicable to SCANA's acquisition of PSNC, such sections
and rules should be considered to be set forth in this Item 3.
A. Legal Analysis
Section 9(a)(2) of the Act makes it unlawful, without approval of the
Commission under Section 10, "for any person . . . to acquire, directly or
indirectly, any security of any public utility company, if such person is an
affiliate . . . of such company and of any other public utility or holding
company, or will by virtue of such acquisition become such an affiliate." Under
the definition set forth in Section 2(a)(11)(A) of the Act, an "affiliate" of a
specified company means "any person that directly or indirectly owns, controls,
or holds with power to vote, 5 per centum or more of the outstanding voting
securities of such specified company."
SCANA is currently the beneficial owner of 100% of the voting stock of two
public utility companies, SCE&G and GENCO. PSNC is also a public utility company
as defined in Section 2(a)(5) of the Act. Because SCANA will, as a result of the
Preferred Second Merger, acquire more than five percent of the outstanding
voting securities of a third public utility company, PSNC, SCANA must obtain the
approval of the Commission for the Preferred Second Merger under Sections
9(a)(2) and 10 of the Act. The statutory standards to be considered by the
Commission in determining whether to approve the proposed transaction are set
forth in Sections 10(b), 10(c) and 10(f) of the Act.
As set forth more fully below, the Preferred Second Merger complies with
all of the applicable provisions of Section 10 of the Act and should be approved
by the Commission because:
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o the Preferred Second Merger will not create detrimental
interlocking relations or a concentration of control;
o the consideration to be paid in the Preferred Second Merger is
fair and reasonable;
o the Preferred Second Merger will not result in an unduly
complicated capital structure for the SCANA system;
o the Preferred Second Merger is in the public interest and the
interests of investors and consumers;
o the Preferred Second Merger is consistent with Sections 8 and 11
of the Act;
o the Preferred Second Merger tends towards the economical and
efficient development of an integrated public utility system; and
o the Preferred Second Merger will comply with all applicable state
laws.
1. Section 10(b)
Section 10(b) provides that if the requirements of Section 10(f) are
satisfied, the Commission shall approve an acquisition under Section 9(a)(2)
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
interests 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 such acquisition is not reasonable
or does not bear a fair relation to the sums invested in or the
earning capacity of the utility assets to be acquired or the
utility assets underlying the securities to be acquired; or
(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 interests of investors
or consumers or the proper functioning of such holding company
system.
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a. Section 10(b)(1)
i. Interlocking Relations
Under Section 10(b)(1), the Commission shall approve an acquisition unless
the Commission finds that "such acquisition will tend towards interlocking
relations. . . ." By its nature, any merger of previously unrelated companies
results in new links and relations between the companies. Northeast Utilities,
Holding Co. Act Release No. 25221 (Dec. 21, 1990), as modified, Holding Co. Act
Release No. 25273 (March 15, 1991), aff'd sub nom. City of Holyoke v. SEC, 972
F.2d 358 (D.C. Cir. 1992) ("interlocking relationships are necessary to
integrate [the two merging entities]"). These links, however, are not the types
of interlocking relations targeted by Section 10(b)(1), which was primarily
aimed at preventing business combinations unrelated to operating efficiencies.3
SCANA's acquisition of PSNC in the Preferred Second Merger is related to
operating efficiencies and does not create the type of interlocking relations
targeted by Section 10(b)(1). The Merger Agreement provides for the board of
directors of SCANA, after completion of the Preferred Second Merger, to be
composed of members drawn from the boards of directors of both SCANA and PSNC.
Upon completion of the Preferred Second Merger, Charles Zeigler, the current
Chairman, President and Chief Executive Officer of PSNC, and two other persons
presently serving on the PSNC board of directors will become members of the
board of directors of SCANA. This is necessary to integrate PSNC fully into the
SCANA system and will therefore be in the public interest and in the interests
of investors and consumers by facilitating the management of SCANA as an
integrated and economically efficient energy services
- --------
3 See Section 1(b)(4) of the Act (finding that the public interests of
consumers are adversely affected "when the growth and extension of holding
companies bears no relation to economy of management and operation or the
integration and coordination of related operating properties. . . .").
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company. Forging such relations is beneficial to the protected interests under
the Act and is not prohibited by Section 10(b)(1).
ii. Concentration of Control
Section 10(b)(1) is intended to prevent utility acquisitions that would
result in "huge, complex and irrational systems", and to avoid "an excess of
concentration and bigness" while preserving opportunities for the "economies of
scale, the elimination of duplicate facilities and activities, the sharing of
production capacity and reserves and the generally more efficient operations"
afforded by the coordination of local utilities into an integrated system.
American Electric Power Co., 46 S.E.C. 1299, 1307 (1978). In applying Section
10(b)(1) to utility acquisitions, the Commission must determine whether the
acquisition will create "the type of structures and combinations which the Act
was specifically directed [to prohibit]." Vermont Yankee Nuclear Corp., 43
S.E.C. 693, 700 (1968).
SCANA's acquisition of PSNC pursuant to the Preferred Second Merger will
not result in a "huge system" and will avoid the "excess of concentration and
bigness" at which Section 10(b)(1) is aimed at preventing. The Commission has
recognized that there is, per se, no limit to the size of a transaction which
may be approved See Centerior Energy Corp., Holding Co. Act Release No. 24073
(April 29, 1986) ("determination of whether to prohibit enlargement of a system
by acquisition is to be made on the basis of all the circumstances, not on the
basis of size alone"). SCANA's acquisition of PSNC will create a system that is
comparable to or smaller than other systems which have been approved by the
Commission. On a pro forma basis, giving effect to the proposed acquisition as
of December 31, 1998, SCANA and PSNC would have combined assets of $6.409
billion, total operating revenue of $1.932 billion for the twelve months ended
December 31, 1998, approximately 517,000 electric utility customers and more
than 750,000 gas
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utility customers. The Commission has approved acquisitions involving registered
holding companies with much larger operating public utility systems (See Entergy
Corp., Holding Co. Act Release No. 25952 (Dec. 17, 1993) (approving the
acquisition of Gulf State Utilities, with combined assets at the time of
acquisition in excess of $21 billion); The Southern Company, Holding Co. Act
Release No. 24579 (Feb. 12, 1988) (approving the acquisition of Savannah
Electric and Power Company to create a system with assets of $20 billion and
3.25 million customers); Ameren Corporation, Holding Co. Act Release No. 26809
(Dec. 30, 1997) (approving the merger of Union Electric Company and CIPSCO to
create a registered system with assets of $8.9 billion and operating revenues of
approximately $3.1 billion)) and has not had a problem with mergers creating
holding companies that are similar to the size that SCANA will be upon
completion of the Preferred Second Merger (See Conectiv, Inc., Holding Co. Act
Release No 26832 (Feb. 25, 1998) (approving the merger of Delmarva Power & Light
Company and Atlantic Energy, Inc. to create holding company system with assets
of $5.75 billion and operating revenues of $2.24 billion); New Century Energies,
Inc., Holding Co. Act Release No. 26748 (Aug. 1, 1997) (approving the merger of
Public Service Company of Colorado and Southwestern Public Service Company to
create holding company system with assets of $7 billion and operating revenues
of $3 billion)).
SCANA's acquisition of PSNC pursuant to the Preferred Second Merger will
also not have a negative effect on competition. In analyzing the impact of the
Preferred Second Merger on competition, it is important to recognize that there
is no overlapping service territory for the public utility system operations of
SCANA and PSNC. In addition, there are numerous, large competitors who are
sophisticated players in the market and regulatory environment where SCANA and
PSNC operate. The following chart provides a comparison of certain major
regional
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utility companies in the southeastern region and demonstrates that, after the
Preferred Second Merger is completed, although SCANA will be more competitive
than it is today, it will not be comparatively large and would not have market
power in the region.
Utility Companies Comparison Chart (for the fiscal year ended 12/31/1998)
Operating
Revenues Net Income Total Assets
($ in millions) ($ in millions) ($ in millions)
Southern Company $11,403 $ 977 $36,192
Duke Energy $17,610 $1,252 $26,806
Dominion Resources4 $ 6,086 $ 535 $17,517
Carolina Power & Light5 $ 3,130 $ 399 $ 8,347
SCANA (pro forma) $ 1,932 $ 202 $ 6,409
In comparison to other regional gas utility companies, the combined SCANA and
PSNC gas operations, on a pro forma basis, will have approximately $710 million
in operating revenues and $735 million in assets. In comparison, Columbia Energy
Group (formerly Columbia Gas), for the fiscal year ended December 31, 1998, had
$1.929 billion in operating revenues and $6.968 billion in assets; AGL Resources
(formerly Atlanta Gas Light), for the fiscal year ended September 30, 1998, had
$1.339 billion in operating revenues and $1.982 billion in assets and Piedmont
Natural Gas, for the fiscal year ended October 31, 1998, had $765 million in
operating revenues and $1.163 billion in assets. Importantly, as noted above, a
number of large, regional electric utility
- --------
4 Dominion Resources has entered into an agreement to merge with
Consolidated Natural Gas Company, a gas utility holding company with, for the
fiscal year ended 12/31/1998, operating revenue of $2.706 billion, net income of
$238 million and assets of $6.362 billion.
5 Carolina Power & Light has entered into an agreement to acquire North
Carolina Natural Gas, a gas utility company operating in North Carolina with,
for the fiscal year ended 9/30/1998, operating revenue of $232 million, net
income of $17 million and assets of $271 million.
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companies have also entered into agreements to acquire gas utility companies of
similar or larger size than PSNC. Overall, SCANA's acquisition of PSNC will not
create a "complex and irrational system", but will create a company focused on
competitive prices and high quality reliable customer service.
Finally, the Commission should note that although the Preferred Second
Merger is not a jurisdictional transaction under the Federal Power Act or
Natural Gas Act and therefore does not require the approval of the FERC,6 its
impact on competition and/or the public interest will be subject to review on
both the federal and state level. Shortly after filing this
Application-Declaration, SCANA and PSNC will file a Pre-merger Notification and
Report Form with the Antitrust Division of the Department of Justice ("DOJ") and
the Federal Trade Commission (the "FTC") pursuant to the HSR Act. It is a
condition to the consummation of the Preferred Second Merger that the applicable
waiting period under the HSR Act has been terminated or otherwise expired. On
the state regulatory level, SCANA's acquisition of PSNC must be approved by the
NCUC. Following consummation of the Mergers, SCE&G will continue to be subject
to regulation with respect to rates and other corporate matters by the SCPSC,
and PSNC will continue to be subject to regulation with respect to rates and
other corporate matters by the NCUC, in each case in order to protect the
interests of consumers and the public.
- --------
6 In TUC Holding Company, Holding Co. Act Release No. 26749 (Aug. 1, 1997),
the Commission approved a transaction that similarly did not require approval by
the Federal Energy Regulatory Commission. In the case of TUC, however, the
companies did have overlapping service territory.
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b. Section 10(b)(2)
i. Fairness of Consideration
Section 10(b)(2) requires the Commission to determine whether the
consideration to be given by SCANA to the holders of PSNC common stock in
connection with the Preferred Second Merger is reasonable, and whether it bears
a fair relation to the investment in, and earning capacity of, the utility
assets underlying the PSNC common stock being acquired. Market prices at which
securities are traded have always been strong indicators as to values. As shown
in the table below, the quarterly price data, high and low, for PSNC common
stock provides support that the consideration of approximately $33.00 (depending
on the operation of the exchange ratio) for each share of PSNC common stock is
fair.
PSNC
High Low Dividends
1997
First Quarter $19 $17 3/8 $0.22
Second Quarter 20 16 3/4 0.23
Third Quarter 21 7/8 18 3/4 0.23
Fourth Quarter 24 3/8 19 7/16 0.23
1998
First Quarter 22 7/8 19 1/8 0.23
Second Quarter 22 3/16 19 7/8 0.24
Third Quarter 24 1/2 19 1/8 0.24
Fourth Quarter 26 1/16 21 9/16 0.24
1999
First Quarter 29 15/16 22 5/16 0.24
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On February 12, 1999, the last business day before the date on which SCANA and
PSNC entered into the Merger Agreement, the closing price per share of PSNC
common stock as reported on the NYSE-Composite Transactions was $22 5/8.
In addition to such quantitative evidence that the consideration being
offered to holders of PSNC common stock is fair, the consideration being offered
to holders of PSNC common stock is also the product of extensive and vigorous
arms-length negotiations between SCANA and PSNC. These negotiations were
preceded by months of due diligence, analysis and evaluation of the assets,
liabilities and business prospects of the respective companies. See SCANA
Registration Statement on Form S-4 (Exhibit C-1 hereto).
Internationally-recognized investment bankers for SCANA and PSNC have reviewed
extensive information concerning the companies and analyzed that information
using a variety of valuation methodologies. Morgan Stanley & Co. Incorporated
provided an opinion to PSNC which states that the consideration to be received
by holders of PSNC common stock pursuant to the Merger Agreement was fair from a
financial point of view to the holders of PSNC common stock. Morgan Stanley's
analyses are attached hereto. See Opinion of Morgan Stanley & Co. Incorporated
(Exhibit G-1). In addition, although not directly addressing the issue under
consideration by the Commission, it is worth noting that PaineWebber
Incorporated provided an opinion to SCANA that the financial terms of the
Mergers, taken as a whole, were fair to the holders of SCANA common stock.
PaineWebber's analyses are also attached hereto. See Opinion of PaineWebber
Incorporated (Exhibit G-2).
In light of the analysis of all relevant factors, including the benefits
that may be realized as a result of the Preferred Second Merger, SCANA believes
that the consideration being
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offered to holders of PSNC common stock in connection with the Preferred Second
Merger bears a fair relation to the sums invested in, and the earning capacity
of, the utility assets of PSNC.
ii. Reasonableness of Fees
SCANA believes that the overall fees, commissions and expenses incurred and
to be incurred in connection with the Mergers are reasonable and fair in light
of the size and complexity of the Mergers relative to other transactions and the
anticipated benefits of the Mergers 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 set forth in Item 2 of this Application/Declaration, SCANA expects to
incur a combined total of approximately $ * in fees, commissions and expenses in
connection with the Mergers. By contrast, American Electric Power Company and
Central and South West Corporation have represented that they expect to incur
total transaction fees and regulatory processing fees of approximately $53
million, including financial advisory fees of approximately $31 million, in
connection with their proposed merger.
The Applicant believes that the estimated fees and expenses in this matter
bear a fair relation to the value of PSNC and the strategic benefits to be
achieved by the Mergers, and that the fees and expenses are fair and reasonable
in light of the complexity of the Mergers. See Northeast Utilities, Holding Co.
Act Release No. 25548 (June 3, 1992), modified on other grounds, Holding Co. Act
Release No. 25550 (June 4, 1992) (noting that fees and expenses must bear a fair
relation to the value of the company to be acquired and the benefits to be
achieved in connection with the acquisition). Based on the closing price of
SCANA stock on May 12, 1999,
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* To be filed by amendment.
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the Preferred Second Merger would be valued on an equity basis at approximately
$679 million. The total estimated fees and expenses of $ * represent
approximately * % of the value of the consideration to be paid by SCANA to the
shareholders of PSNC, and are consistent with (and are in fact generally lower
than) percentages previously approved by the Commission. See, e.g., Entergy
Corp., Holding Co. Act Release No. 25952 (Dec. 17, 1993) (fees and expenses
represented approximately 1.7% of the value of the consideration paid to the
shareholders of Gulf States Utilities); Northeast Utilities, Holding Co. Act
Release No. 25548 (June 3, 1992) (approximately 2% of the value of the assets to
be acquired).
c. Section 10(b)(3)
Section 10(b)(3) requires the Commission to determine whether SCANA's
proposed acquisition of PSNC pursuant to the Preferred Second Merger will unduly
complicate SCANA's capital structure or be detrimental to the public interest,
the interest of investors or consumers or the proper functioning of SCANA.
i. Capital Structure
The capital structure of SCANA after the Mergers will not be unduly
complicated. In connection with the Mergers, SCANA will issue additional shares
of SCANA common stock to be exchanged for existing shares of SCANA common stock
and PSNC common stock. Additionally, the $700 million cash consideration being
offered in the Mergers will be financed at the SCANA holding company level
through commercial and investment banks and institutional lenders. It is
expected that this financing and the issuance of new shares will not have a
material
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* To be filed by amendment.
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effect on the capital structure of SCANA. In this regard, SCANA's capital
structure will closely resemble that of most registered holding company systems.
Set forth below is a summary of the historical capital structures of SCANA
and PSNC as of December 31, 1998, and the pro forma consolidated capital
structure of SCANA, as of December 31, 1998 (assuming that the consideration
paid by SCANA for the shares of PSNC common stock consisted of $348 million in
cash consideration and $348 million in stock consideration and, therefore, $352
million in cash was paid to SCANA shareholders in the First Merger).
SCANA and PSNC Historical Capital Structures
(Dollar amounts in millions)
<TABLE>
<CAPTION>
% of Total % of Total
SCANA Capitalization PSNC Capitalization
<S> <C> <C> <C> <C>
Common stock equity $1,746 49.4% $224 57.6%
Preferred stock equity 117 3.3% n/a n/a
SCE&G Obligated Mandatorily 50 1.4% n/a n/a
Redeemable Preferred Securities of
SCE&G's Subsidiary Trust I, holding
solely $50 million principal amount
of 7.55% Junior Subordinated
Debentures of SCE&G, due 2027
Long-term debt 1,623 45.9% 165 42.4%
------ ------ ---- ------
Total $3,536 100.0% $389 100.0%
</TABLE>
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SCANA PRO FORMA Consolidated Capital Structure
(Dollar amounts in millions) (unaudited)
% of Total
Amount Capitalization
Common stock equity $1,742 39.6%
Preferred stock equity 117 2.7%
SCE&G Obligated Mandatorily 50 1.1%
Redeemable Preferred Securities of
SCE&G's Subsidiary Trust I, holding
solely $50 million principal amount
of 7.55% Junior Subordinated
Debentures of SCE&G, due 2027
Long-term debt 2,488 56.6%
------ -----
Total (excluding short-term debt) $4,397 100.0%
Significantly, SCANA's pro forma consolidated common equity to total
capitalization ratio of 39.6% as of December 31, 1998, is well above the
"traditionally acceptable 30% level." See Northeast Utilities, 47 SEC Docket
1270 at 1279, n. 47 (Dec. 21, 1990). It should be noted that in most mergers
involving cash consideration, the acquiring company will incur some debt or
other obligation as part of the acquisition. SCANA intends to finance its
acquisition through loans from sophisticated commercial lenders and potential
registered public offerings of securities subject to the provisions of, and
protection afforded to investors by, the Securities Act of 1933, as amended.
Furthermore, acquisition indebtedness incurred at the registered holding company
level has been approved by the Commission in connection with other transactions
such as cross border transactions (See General Public Utilities Corporation,
Holding Co. Act Release No. 26559 (Aug. 23, 1996) (authorizing issuance of
debentures with terms of up to 40 years with proceeds to be used to, among other
things, "fund the acquisition of interests, and to make investments in . . .
foreign utility companies," and "for other [General Public
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Utilities'] corporate purposes")) and, as demonstrated above, the level of
indebtedness of SCANA following the Preferred Second Merger is well within the
level that the Commission has been comfortable with in the past.
ii. Protected Interests
Section 10(b)(3) also requires that a proposed acquisition not be
detrimental to the public interest, the interest of the investors or consumers
or the proper functioning of the resulting holding company system. As set forth
more fully in the discussion of the standards of Section 10(c)(2), below, and
elsewhere in this Application-Declaration, SCANA's proposed acquisition of PSNC
will combine SCANA's existing natural gas operations with those of PSNC, and
allow SCANA to extend its service area into some of the fastest growing markets
in North Carolina. As an economically integrated and efficient energy company,
the combined company will be able to offer improved capabilities in the delivery
of a more complete range of services and products for all customers.
As noted by the Commission in Entergy Corporation, et al., 55 SEC Docket
2035 at 2045 (December 17, 1993), "concerns with respect to investors' interests
have been largely addressed by developments in the federal securities laws and
the securities markets themselves." In this regard, SCANA will continue to be a
reporting company subject to the disclosure requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") following completion of the Preferred
Second Merger, which will provide investors with readily available information
concerning SCANA and its subsidiary companies. Furthermore, the Preferred Second
Merger is subject to various other federal and state regulatory approvals (See
Item 4 - Regulatory Approvals, below). Finally, SCANA notes that the incurrence
of acquisition indebtedness is not detrimental to investor's interests. As the
Commission has previously recognized, under Section
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7(c)(2)(A) of the Act, a registered holding company can issue other than "plain
vanilla" securities "solely . . . for the purpose of effecting a merger,
consolidation, or other reorganization." Conectiv, Inc., Holding Company Act
Release No. 26832 (Feb. 25, 1998). Indeed, the issue for purposes of Section
10(b)(3) is not the existence of parent-level debt per se. Rather, the question
is whether it is permissible for a registered system to have debt at more than
one level. The Commission has answered this question in the affirmative. In the
1992 amendments to Rule 52, the Commission eliminated the requirement that a
public-utility subsidiary company could issue debt to nonassociates only if its
parent holding company had issued no securities other than common stock and
short-term debt. The rule release explains:
Condition (6) provides that a public-utility subsidiary company may
issue and sell securities to nonassociates only if its parent holding
company has issued no securities other than common stock and
short-term debt. All eight commenters that considered this condition
recommended that it be eliminated. They noted that it may be
appropriate for a holding company to issue and sell long-term debt and
that such a transaction is subject to prior Commission approval. They
further observed that other controls, that did not exist when the
statute was enacted, provide assurance that such financings will not
lead to abuse. These include the likely adverse reaction of rating
agencies to excessive amounts of debt at the parent holding company
level and the disclosure required of companies seeking public capital.
The Commission agrees with these observations and also noted the power
of many state utility commissions to limit the ability of utility
subsidiaries to service holding company debt by restricting the
payment of dividends to the parent company. The Commission concludes
that this provision should be eliminated.
Exemption of Issuance and Sale of Certain Securities by Public-Utility
Subsidiary Companies of Registered Public-Utility Holding Companies, Holding Co.
Act Release No. 25573 (July 7, 1992).
For these reasons, SCANA submits that investors' interests in SCANA will
continue to be protected and that the Commission has no basis for making a
negative finding
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under Section 10(b)(3). SCANA's acquisition of PSNC will be in the public
interest and in the interest of investors and consumers, and will not be
detrimental to the proper functioning of the resulting holding company system.
2. Section 10(c)
a. Section 10(c)(1)
Section 10(c)(1) prohibits the Commission from approving an acquisition for
which Commission approval is required under Section 9(a) if such acquisition is
unlawful under the provisions of Section 8 or is detrimental to the carrying out
of the provisions of Section 11.
i. Section 8 Analysis
Section 8 prohibits a registered holding company from acquiring interests
in an electric utility company and a gas utility company serving substantially
the same territory in contravention of state law. Following the Preferred Second
Merger, SCANA's electric utility company, SCE&G, will continue to serve
customers exclusively in South Carolina, while the gas utility operations of
PSNC which SCANA acquires will be located in North Carolina. When a registered
holding company's holdings include an electric utility company and a gas utility
company, each of which serve customers in a different state from the other, the
utilities do not "[serve] substantially the same territory" for purposes of
Section 8. Moreover, no state law prohibits SCANA from acquiring PSNC. Thus,
SCANA's acquisition of PSNC under the Preferred Second Merger does not violate
Section 8 of the Act and is therefore not prohibited, in this regard, by Section
10(c)(1).
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ii. Section 11 Analysis - Integration
Section 10(c)(1) also requires that an acquisition not be detrimental to
carrying out the provisions of Section 11 of the Act. Section 11(b)(1), in
pertinent part, directs the Commission:
to require . . . that each registered holding company, and each
subsidiary company, thereof, take such action as the Commission shall
find necessary to limit the operations of the holding-company system
of which such company is a part 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. . . . The Commission may permit as
reasonably incidental, or economically necessary or appropriate to the
operations of one or more integrated public utility systems the
retention of an interest in any business (other than the business of a
public utility company as such) which the Commission shall find
necessary or appropriate in the public interest or for the protection
of investors or consumers and not detrimental to the proper
functioning of such system or systems.
I. Integrated Electric Utility System
The existing SCANA electric utility system is, and following the Preferred
Second Merger, will continue to be, an integrated electric utility system.
Section 2(a)(29)(A) of the Act defines an integrated public utility system with
respect to electric utility companies as:
a system consisting of one or more units of generating plants and/or
transmission lines and/or distribution facilities, whose utility
assets, whether owned by one or more electric utility companies, are
physically interconnected or capable of interconnection and which
under normal circumstances may be economically operated as a single
interconnected and coordinated system confined in its operations to a
single area or region, in one or more states, not so large as to
impair (considering the state of the art and area or region affected)
the advantages of localized management, efficient operation, and the
effectiveness of regulation.
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SCE&G and GENCO operate in a single contiguous service territory in the State of
South Carolina, and the Preferred Second Merger will not have any impact on the
operation of SCANA's electric utility system.
II. Integrated Gas Utility System
Section 2(a)(29)(B) defines an integrated public utility system with
respect to gas utility companies as:
a system comprised of one or more gas utility companies which are so
located and related that substantial economies may be effectuated by
being operated as a single coordinated system confined in its
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 area or
region affected) the advantages of localized management, efficient
operation, and the effectiveness of regulation; provided that gas
utility companies deriving natural gas from a common source of supply
may be deemed to be included in a single area or region.
SCE&G's gas utility operations are located in a single contiguous area in South
Carolina and are currently integrated.
PSNC's gas utility operations are also currently integrated. PSNC's gas
utility operations are located in three areas within the State of North
Carolina: the Raleigh, Durham and Research Triangle area in the north central
portion of the state; Gastonia, Concord and Statesville in the central portion
of the state; and Asheville, Hendersonville and Brevard in the Western area.
PSNC currently transports, distributes and sells natural gas to residential,
commercial and industrial customers in these three non-contiguous areas. PSNC
serves all three areas using, in the aggregate, all of its gas supplies under
its gas purchase contracts with various marketers and suppliers. These supplies
come from commonly used basins along the Gulf Coast, including basins in Texas,
Louisiana, Mississippi, Alabama and the adjacent offshore areas.
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While these gas supplies are transported from the basins by various
interstate pipelines, only one pipeline, Transco, has physical connections with
PSNC. The other interstate pipelines have direct or indirect connections with
Transco that enable PSNC's gas to flow to Transco and through Transco to PSNC.
Because PSNC obtains its gas supplies from common basins and uses Transco to
coordinate transportation of that gas to its three service areas, PSNC operates
an integrated gas utility company that satisfies the requirements of Section
2(a)(29)(B). See NIPSCO Industries, Holding Co. Act Release No. 26975 (Feb. 10,
1999); Sempra Energy, Holding Co. Act Release No. 26971 (Feb. 1, 1999); Pennzoil
Co., 43 S.E.C. 709 (1968); American Natural Gas Co., 43 S.E.C. 203 (1966).
On a combined basis SCANA's and PSNC's gas utility systems will also meet
the definition of Section (2)(a)(29)(B) of the Act. Although their service
territories do not overlap, there can be little question that the Carolinas,
specifically, and the southeastern United States, generally, constitute a single
area or region. Indeed, by definition, The Southern Company, a large electric
registered holding company operating in four southeastern states is an
integrated system and operates in the same single region.
The Commission has also looked to coordination of gas supply and common gas
supply sources such as common pipeline suppliers and supply coming from common
gas basins as an indication of an integrated gas utility system. See NIPSCO
Industries, Holding Co. Act Release No. 26975 (Feb. 10, 1999) (finding
integration between gas utility companies in Indiana and Massachusetts based on
coordinated gas supply departments, obtaining gas from common basins and using
trading hubs). The gas utility companies at issue here are also integrated using
these criteria. SCANA and PSNC's combined gas system will satisfy Section
2(a)(29)(B) of the Act because it will take gas from a common source of supply.
PSNC takes essentially all of its
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gas from Gulf Coast production areas and SCANA takes 98% of its gas supply from
the same Gulf Coast areas. In addition, both SCANA and PSNC are connected to
Transco's transportation systems, and the combined company could use Transco, to
the extent permitted by Transco's tariff and their respective service agreements
with Transco, to transfer this gas among service areas and provide flexibility
in its operations. SCANA also has connections with Southern Natural, which is
connected to Transco's transportation system and would allow the companies to
coordinate gas transportation services between Southern Natural and Transco and
access all gas supplies connected to either pipeline. Because SCANA and PSNC
purchase substantial quantities of gas from the same supply areas and have
sufficient transportation capacity to ensure delivery of said gas, the
companies' combined gas utility systems will be integrated for purposes of the
Act. (See NIPSCO Industries, Inc. Holding Co. Act Release No. 265975 (Feb. 10,
1999) ("relevant inquiry today is whether the system utilities purchase
substantial quantities of gas produced in the same supply basins and whether
there is sufficient transportation capacity available in the marketplace to
assure delivery on an economical and reliable basis")).
In addition to being integrated, the combined gas operations of SCANA and
PSNC after the Preferred Second Merger will be "economically efficient." Because
SCANA and PSNC purchase gas from the same Gulf Coast production areas, the
companies can consolidate their supply contracts after the Preferred Second
Merger and purchase greater quantities of gas at a potentially lower cost.
Similarly, the interconnection of SCANA's and PSNC's gas transportation services
through Transco and Southern Natural provides a flexible system in which SCANA
and PSNC can capture economics of scale and coordinate gas transportation at the
lowest possible cost.
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iii. Section 11 Analysis - Retention of Gas Utility System
As noted above, both the electric utility operations and gas utility
operations of SCANA will be separately integrated. Another potential issue is
whether the combination of SCANA's electric and gas utility businesses with
PSNC's gas utility business is retainable under the standards of Section 11 of
the Act.
Historically, the Commission had considered the question of whether a
registered electric system could retain a separate gas system under a strict
standard that required showing a loss of substantial economies before retention
would be permitted. New England Electric System, 41 S.E.C. 888 (1964). In its
affirmation of that decision, the United States Supreme Court declared that a
loss of substantial economies could be demonstrated by the inability of the
separate gas system to survive on a stand-alone basis. SEC v. New England
Electric System, 384 U.S. 176, 181 (1966). This rigid interpretation of the
requirements of Section 11(b)(1) has been explicitly rejected by the Commission
in its most recent decisions under Sections 9(a) and 10 of the Act both with
respect to exempt holding companies, (TUC Holding Company, Holding Co. Act
Release No. 26749 (Aug. 1, 1997) and Houston Industries Incorporated, Holding
Co. Act Release No. 26744 (July 24, 1977)) and newly formed registered companies
(New Century Energies, Inc., Holding Co. Act Release No. 26748 (Aug. 1, 1997)).
In these recent decisions, the Commission acknowledged that as a result of
the transformation of utilities' status as franchised monopolies with captive
ratepayers to competitors and also as a result of the convergence of the
electric and gas industries that was then underway (and which continues today
and of which SCANA is already a prime example), the historical standards of
review had become outdated and that separated electric and gas companies might
be weaker competitors than they would be together in the same market. New
Century Energies,
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Inc., Holding Co. Act Release No. 26748 (Aug. 1, 1997); Houston Industries
Incorporated, Holding Co. Act Release No. 26744 (July 24, 1997). Moreover, in
its registered holding company decisions, the Commission has explicitly allowed
transactions where, as is the case with SCANA and PSNC, the resulting system
will be predominantly electric although the merger will combine more than one
gas system owned by the constituent parties. See WPL Holdings, Inc., Holding Co.
Act Release No. 26856 (April 14, 1998), aff'd sub nom., Madison Gas and Electric
Company v. SEC, 168 F.3d 1337 (D.C. Cir. 1999); Ameren Corporation, Holding Co.
Act Release No. 26809 (Dec. 30, 1997). Thus, newer transactions, such as SCANA's
proposed acquisition of PSNC, should be evaluated on the basis of new Commission
precedent and policy in light of changing industry standards and should not be
evaluated against criteria that have been repudiated by recent Commission
decisions.
SCANA believes that the Commission should approve the Preferred Second
Merger as a matter of policy and as a matter of fairness, and can approve the
Preferred Second Merger as a matter of law. First, the Commission has already
acknowledged that the electric and gas industries are converging and that
combination companies may be more effective competitors in a given market. The
Commission has recognized and accepted the changing nature of the energy
industry and, in particular, the fact that the combination of multiple electric
and gas operations in a single company offers that company a means to compete
more effectively in the emerging energy services business in which a few cents
can make the difference between economic success and economic failure. WPL
Holdings, Inc., et al., Holding Co. Act Release No. 26856 (April 14, 1998),
aff'd sub nom., Madison Gas and Electric Company v. SEC, supra. Indeed, the
Commission has noted that "the utility industry is evolving towards a broadly
based
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energy-related business"7 marked by "the interchangeability of different forms
of energy, particularly gas and electricity."8 In the instant situation, the
lost economies that would follow from denial of approval for the Preferred
Second Merger are substantial, both quantitatively and qualitatively.
Section 10(c)(1) does not require that the Commission rigidly enforce
Section 11(b)(1) without consideration of the lost economies that would result
from divestiture of additional systems in considering acquisitions under Section
9(a). As the Court of Appeals stated in Madison Gas and Electric Company v. SEC:
By its terms . . ., Section 10(c)(1) does not require that new
acquisitions comply to the letter with Section 11. In contrast to its
strict incorporation of Section 8 . . ., with respect to Section 11
Section 10(c)(1) prohibits approval of an acquisition only if it "is
detrimental to the carrying out of [Section 11's] provisions." The
Commission has consistently read this provision to import into Section
10's regime not only the integration requirement of 11(b)(1)'s main
clause but also the exceptions to the requirement in the (A)(B)(C)
clauses.9
In the instant situation, substantial economies would be lost by requiring
SCANA to divest any of its retail gas operations, some of which have been held
since the utility's inception.
- --------
7 Consolidated Natural Gas Company, Holding Co. Act Release No. 26512
(April 30, 1996).
8 Id.
9 Section 11(b)(1) states that "the Commission shall permit a registered
holding company to continue to control one or more additional integrated public
utility systems, if, after notice and opportunity for hearing, it finds that --
(A) Each of such additional systems cannot be operated as an independent system
without the loss of substantial economies which can be secured by the retention
of control by such holding company of such system; (B) All of such additional
systems are located in one state, or in adjoining states, or in a contiguous
foreign country; and (C) The continued combination of such systems under the
control of such holding company is not so large (considering the state of the
art and the area or region affected) as to impair the advantages of localized
management, efficient operation, or the effectiveness of regulation."
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The companies are currently undertaking a traditional "A-B-C clause" analysis to
provide evidence quantifying the potential lost economies from divestiture.10
The study will be discussed and filed in an amendment to this
Application-Declaration.
More importantly, divestiture of SCANA's gas operations would cause a
significant, although difficult to quantify, amount of damages to SCANA's
ability to compete in the marketplace as well as costs to SCANA's customers and
regulators. As noted above, the gas and electric industries are converging
nationwide and in the southeastern region in particular, and in these
circumstances separation of electric and gas businesses would likely cause the
separated entities to be weaker competitors than they would be together. As
competition has developed in the utility industry, those companies in the retail
energy delivery business have found that they must be able to offer customers a
range of options to meet their energy needs. Potential non- quantifiable costs
to customers which would result from divestiture of SCANA's gas operations
involve the additional expenses of doing business with two public utility
companies instead of one and the costs associated with making multiple companies
supply information to shareholders and publish reports required by the Exchange
Act. Similarly, regulatory costs would involve additional duties for the staff
of the SCPSC as a result of dealing with an additional public utility company.
These additional duties would largely be the result of duplicating existing
functions such as separate requests for approvals of financing.
For all of the foregoing reasons, the Commission should hold that the
combination of electric and gas operations under SCANA's newly registered
holding company is lawful under
- --------
10 It should be noted that SCANA's retention of its gas utility operations
meets the requirements of subsections (B) and (C) of Section 11(b)(1) as the
operations will be confined to the adjoining states of South and North Carolina,
will be fully regulated by the relevant state utility commissions, will remain
locally managed and, as discussed above, will be more efficiently operated
together than they could be apart.
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the provisions of Section 8 and is not detrimental to the carrying out of the
provisions of Section 11.
iv. Section 11 Analysis - Retention of Non-Utility
Businesses
As a result of the Preferred Second Merger, the non-utility businesses and
interests of PSNC described above will become businesses and interests of SCANA.
SCANA seeks to retain both its current non-utility businesses and those which
SCANA will acquire from PSNC. All of these businesses satisfy the standards for
retention of non-utility businesses set forth under Section 11(b)(1) of the Act
and the cases interpreting the foregoing.
Section 11(b)(1) limits the non-utility interests of a registered holding
company to those that are "reasonably incidental, or economically necessary or
appropriate to the operations of such integrated public-utility system", on a
finding by the Commission that such interests are "necessary or appropriate in
the public interest or for the protection of investors or consumers and not
detrimental to the proper functioning" of the integrated system. The Commission
has interpreted these provisions to require (i) the existence of an operating or
functional relationship between the utility operations of the registered holding
company and the non-utility activities sought to be retained11 and (ii) that the
retention is in the public interest.12 The non-utility business may also be
retained if the business evolved out of the system's utility business, the
investment is not significant in relation to the system's total financial
resources and the investment
- --------
11 See generally, Michigan Consolidated Gas Co., 44 S.E.C. 361 (1970),
aff'd, 444 F.2d 913 (D.C. Cir. 1971).
12 See, e.g., Id., (quoting General Public Utilities Corp. 32 S.E.C. 807,
839 (1951)); United Light and Railways Co., 35 S.E.C. 516, 519 (1954).
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has the potential to produce benefits for investors and/or consumers.13 In
addition, the Commission has stated that "retainable non-utility interests
should occupy a clearly subordinate position to the integrated system
constituting the primary business of the registered holding company."14 With
respect to new acquisitions, the Commission has interpreted Section 10(c)(1) of
the Act to mean that "any property whose disposition would be required under
Section 11(b)(1) may not be acquired." 15
Rule 58 of the Act provides additional evidence of the types of permissible
non- utility activities retainable by registered systems as it exempts from
Section 9(a) of the Act acquisitions by registered holding companies of the
securities of an energy related company provided that after such an acquisition,
the holding company's aggregate investment in such energy related company does
not exceed $50 million or 15% of the consolidated capitalization of the
registered holding company.16 Rule 58 defines 'energy related company' as a
company that, directly or indirectly, derives substantially all of its revenues
from certain enumerated activities. Clearly, if Rule 58 permits acquisition
without SEC approval, then the types of businesses being acquired are retainable
under the Act. Several of the non-utility businesses which SCANA seeks to retain
after the Mergers are specifically enumerated activities under Rule 58, and will
be discussed individually. Similarly, the Act also allows registered holding
companies to acquire and maintain interests in the following exempt entities:
exempt telecommunications companies
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13 CSW Credit, Inc., Holding Co. Act Release No. 25995 (1994); Jersey
Central Power and Light Co., Holding Co. Act Release No. 24348 (March 18, 1987).
14 United Light and Railways Co., 35 S.E.C. at 519.
15 Texas Utilities Co., 21 S.E.C. 827, 829 (1946) (denying approval to
acquisition of transportation company by registered holding company).
16 Rule 58(a)(1)(i)-(ii).
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(Section 34), foreign utility companies (Section 33) and exempt wholesale
generators (Section 32).
As set forth below, all of SCANA's and PSNC's non-utility businesses meet
the retention standards set out by the Commission, fall within the exemption for
energy-related activities in Rule 58, are otherwise exempt entities or
constitute a de minimis activity in the utility's local service territory.17 The
material non-utility businesses currently relate to, evolved out of or support
the operation of SCANA's or PSNC's utility businesses by being activities which
have operating or functional relationships with the utility businesses of each.
The retention of these non-utility businesses will also produce benefits for
SCANA's present and future customers and shareholders, and therefore the
retention of all the non-utility businesses should be permitted.
1. Pipeline Corporation, Cardinal and Cardinal Pipeline Company: Pipeline
Corporation is engaged in the purchase, transmission and sale of natural gas on
a wholesale basis, through the ownership of transmission pipelines and LNG
plants. Pipeline Corporation also supplies the natural gas for SCE&G's gas
distribution system. This supply of natural gas for the utility operations of
SCANA is clearly functionally related to such utility operations. See SEI
Holdings, Inc., Holding Co. Act Release No. 26581 (Sept. 26, 1996) ("The
Commission has approved the acquisition or construction of physical assets that
are reasonably necessary in the day-to-day conduct of marketing operations.")
See also New Century Energies, Inc. Release No. 26748 (Aug. 1, 1997)
(authorizing retention of interest in Texas Ohio Pipeline, Inc.). Cardinal and
Cardinal Pipeline Company are also engaged in the construction and operation of
natural gas pipelines that provide essential transportation services to PSNC and
are therefore
- --------
17 This discussion does not cover the two existing SCANA subsidiaries that
are currently in liquidation and not of issue under the Act.
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similarly retainable by SCANA following the Mergers. Moreover, registered gas
holding companies have been authorized to retain pipelines as functionally
related. See, e.g., CNG Transmission Corporation, Holding Co. Act Release No.
25239 (Jan. 9, 1991) (and since SCANA is both an electric and gas holding
company system, these operations are also functionally related for SCANA).
Consequently, the Commission's decisions support the retainability of these
pipelines and transmission interests.
2. South Carolina Fuel: South Carolina Fuel acquires, owns and provides
financing for SCE&G's fuel, fossil and sulfur dioxide emission allowances. Rule
58 provides that a company that engages in the "ownership, operation and
servicing of fuel procurement . . ." is an energy related company, and may be
retained by a registered holding company.18 In addition, the Commission has
found that fuel management services are acceptable interests to be held by a
registered holding company. See WPL Holdings, Release No. 26856 (April 14,
1998). 3. Energy Marketing and Sonat Public Service: Energy Marketing markets
electricity, natural gas and other light hydrocarbons, and also provides
energy-related risk management services to producers and consumers. Sonat Public
Service is engaged in gas brokering activities and also provides non-regulated
energy products and services to industrial and commercial accounts. Rule 58
explicitly authorizes the retention of companies engaged in the "brokering and
marketing of energy commodities, including . . . electricity [and] natural
gas."19 In addition, the Commission has previously authorized the acquisition or
retention of entities engaged in marketing and brokering as well as related risk
management operations. See New
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18 Rule 58(b)(1)(ix).
19 Rule 58(2)(b)(v)
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Century Energies, Inc., Holding Co. Act Release No. 26748 (Aug. 1, 1997)
(retention of e prime which engages in "purchasing and selling gas and
electricity at negotiated rates reflecting market conditions" and "employ[s]
risk management strategies such as swaps, futures and option contracts"). See
also SEI Holdings, Holding Co. Act Release No. 26581 (Sept. 26, 1996); Until
Corp., Holding Co. Act Release No. 26527 (May 31, 1996); New England Electric
System, Holding Co. Act Release No. 26520 (May 23, 1996).
4. SCANA Propane Gas and SCANA Propane Storage: These subsidiary companies
are engaged in purchasing, delivering and selling propane within the
southeastern United States, and owning and operating an underground propane
storage facility and leasing storage space to industries, utilities and others.
SCANA Propane Gas is involved in a functionally related business to SCANA's
utility business, providing customers with a different source of fuel for
special needs and facilitating SCANA's development as a full service energy
supplier, which the Commission has recognized as a legitimate business goal for
a competitive utility company in today's environment. See Consolidated Natural
Gas Company, Holding Co. Act Release No. 26512 (Apr. 30, 1996) (the "utility
business is evolving towards a broadly based energy-related business . . .
marked by the interchangeability of different forms of energy"). Moreover,
propane operations are functionally related to gas utility operations as is
evidenced by Columbia Energy Group's retention and recent expansion of its
subsidiary, Columbia Propane Company.20
- --------
20 See Columbia Will Pay $80.4 million In Cash to Acquire National Propane
Partners, Petroleum Finance Week, Vol. 7, No. 15 (April 12, 1999).
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5. SCI: SCI owns and operates a fiber optics telecommunications network and
a radio service network within South Carolina, and also provides tower site
construction, management and rental services in South Carolina and Georgia. SCI
will apply to the FCC for a determination that it is an "exempt
telecommunications company" within the meaning of Section 33 of the Act.
6. ServiceCare: ServiceCare is engaged in providing energy-related products
and services beyond the energy meter, providing customers with service contracts
on their home appliances, and is also engaged in home security monitoring. A
number of registered holding companies have been authorized to service home
appliances and provide related warranties either directly or through subsidiary
companies. (See Ameren Corporation, Holding Co. Act Release No. 26809 (Dec. 30,
1997); New Century Energies, Inc., Holding Co. Act Release No. 26748 (Aug. 1,
1997); and Cinergy Corporation, Holding Co. Act Release No. 26662 (Feb. 7,
1997)) as well as to engage in energy consulting and the provision of a range of
energy related products to customers (See Central and South West Corp., Holding
Co. Act Release No. 26367 (Sept. 1995); Entergy Corp., Holding Co. Act Release
No. 26342 (July 27, 1995)). Finally, the retention of a home security service
has been allowed by the Commission pursuant to Section 11(b)(1) of the 1935 Act.
See Conectiv, Inc., Release No. 26832 (Feb. 25, 1998).
7. Primesouth: Primesouth is engaged in power plant management and
maintenance services. Companies engaged in such activities are specifically
enumerated as retainable under Rule 58(b)(vii), which exempts from Section
(9)(a)(2) of the Act those companies which engage in "[the] sale
of...management, and other similar kinds of expertise, developed in the course
of utility operations in such areas as . . . maintenance and
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operation . . . ."21 The Commission's decisions have consistently held that a
holding company may engage in such activities. See, e.g., New Century Energies,
Inc., Holding Co. Act Release No. 26748 (Aug. 1, 1997) (authorizing retention of
subsidiary engaged in plant engineering, design, operation and maintenance);
Central and South West Corporation, Holding Co. Act Release No. 26280 (Apr. 26,
1995) (authorizing the engineering and construction department to provide
services to third parties); Entergy Corporation, Holding Co. Act Release No.
26322 (June 30, 1995) (approval for engaging in maintenance and management
services); General Public Utilities Corporation, Holding Co. Act Release No.
25108 (June 26, 1990) (authorizing management services). Primesouth is therefore
retainable by SCANA.
8. SCANA Resources: SCANA Resources is a vehicle by which SCANA makes
initial investments in new, energy-related business opportunities. Past
Commission decisions have held that a holding company may be engaged in such
energy-related investment activities. See Ameren Corporation, Holding Co. Act
Release No. 26809 (December 30, 1997 )(approval of retention of CIPSCO Energy
Company, a vehicle seeking energy-related investment opportunities).
9. Clean Energy: Clean Energy is engaged in the conversion of vehicles to
allow their operation on natural gas or other alternative fuels. Clean Energy
also advises customers on the installation and operation of natural gas fueling
stations, and also operates such stations. Rule 58 also specifically allows a
registered holding company to own an interest in such a company. Under Section
(b)(iii), a company engaged in the "ownership, operation, sale, installation and
servicing of refueling, recharging and conversion equipment and
- --------
21 Rule 58(b)(1)(vii).
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facilities relating to electric and compressed natural gas vehicles"22 is
exempted from the provisions of Section 9(a)(2) of the Act. Consequently, Rule
58 explicitly allows for the retention of Clean Energy by SCANA, and, in
addition, such activities have also been held to be retainable by the
Commission. See New Century Energies, Inc., Release No. 26748 (August 1, 1997)
(retention of company selling products and services related to electric and
natural gas-powered vehicles, and in developing fueling sites for such
vehicles). See also Consolidated Natural Gas Co., Holding Co. Act Release No.
25615 (Aug. 27, 1992); Central Power and Light Co., Holding Co. Act Release No.
26160 (Nov. 18, 1994).
10. Pine Needle and Blue Ridge: Pine Needle is a joint venture with other
third parties formed to own and operate a liquefied natural gas storage
facility. Blue Ridge is a PSNC subsidiary used to make a construction loan to,
and hold PSNC's equity interest in, Pine Needle.
The Commission has held that the storage of natural gas for use in a
distribution business is functionally related to the operations of a gas utility
under Section 11(b)(1) of the 1935 Act. See Conectiv, Inc. Release No. 26832
(February 25, 1998). Therefore, Blue Ridge, and consequently Pine Needle, are
interests which are retainable by SCANA.
11. SCE&G's Bus Transit Services: SCE&G operates a bus service which
provides transportation throughout Columbia, South Carolina. This operation has
a de minimis effect on the operations of SCANA (contributing approximately .1%
of SCANA's consolidated operating revenues). Furthermore, the bus service is
confined to SCE&G's local service territory and is completely local in nature.
Although the bus service does not fall within the bounds of the Rule 40
exemption from Section 9 because it is operated by a public utility
- --------
22 Rule 58(b)(iii).
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<PAGE>
subsidiary company, SCANA believes that this service has a similar community
development purpose and requests authorization to retain SCE&G's existing bus
service for the reasons stated above.
12. Utility Ownership of Buildings and Property: Both SCE&G and PSNC own
buildings and property used in connection with their utility operations. The
Commission has allowed retention of such buildings and property for use in
utility operations. See New Century Energies, Inc., Holding Co. Act Release No.
26748 (August 1, 1997); UNTIL Corp., Holding Co. Act Release No. 25524 (April
24, 1992); American Electric Power Co., Holding Co. Act Release No. 21898
(January 27, 1981).
As has been shown, all of the current material non-utility businesses of
SCANA and PSNC will bear a strong functional relationship to the utility
business of SCANA following the Mergers. The Commission has consistently stated
in previous releases that interests similar to those enumerated above are
retainable by registered holding companies, and furthermore, Rule 58 now
specifically allows retention of some of the above interests. Due to these
factors, the Commission should permit the retention of all of SCANA's and PSNC's
current non-utility businesses. Moreover, it should be noted that in its recent
orders approving mergers that create registered holding companies, the
Commission has held that investments made by a merging holding company while
that company was exempt from the Act do not count toward the safe- harbor limit
under Rule 58 that no more than 15% of consolidated capitalization be invested
in energy-related companies. See New Century Energies, Inc., Release No. 26748
(August 1, 1997).
-52-
<PAGE>
b. Section 10(c)(2)
Section 10(c)(2) requires the Commission to examine whether a proposed
acquisition will serve the public interest by tending towards the economical and
efficient development of an integrated public utility system. For all of the
foregoing reasons, the acquisition of PSNC by SCANA in the Preferred Second
Merger meets the criteria of Section 10(c)(2). SCANA's acquisition of PSNC will
produce long-term benefits, both quantitative and qualitative economies and
efficiencies, and will result in the creation of an economically integrated and
efficient energy company consistent with modern notions of "integration".
SCANA's acquisition of PSNC will produce long-term benefits. Although some
of the anticipated economies and efficiencies will be fully realizable only in
the longer term, they are properly considered in determining whether the
standards of Section 10(c)(2) have been met. See American Electric Power Co., 46
S.E.C. 1299, 1320-1321 (1978). Further, the Commission has recognized that while
some potential benefits cannot be precisely estimated, nevertheless they too are
entitled to be considered: "[S]pecific dollar forecasts of future savings are
not necessarily required; a demonstrated potential for economies will suffice
even when these are not precisely quantifiable." Centerior Energy Corp., Holding
Co. Act Release No. 24073 (April 29, 1986) (citation omitted). See Energy East
Corporation, Holding Co. Act Release No. 26976 (Feb. 12, 1999) (authorizing
acquisition based on strategic benefits and potential but presently
unquantifiable savings.)
SCANA's acquisition of PSNC will also produce a number of quantitative and
qualitative benefits. The acquisition of PSNC will provide SCANA with the
opportunity to extend its service area into some of the fastest growing markets
in North Carolina while increasing SCANA's domestic retail customer base to
approximately 1.3 million customers in the
-53-
<PAGE>
southeastern region. SCANA and its shareholders and employees will be able to
participate in these growing markets through PSNC, a company with which
customers in North Carolina are familiar. In turn, SCANA expects to increase its
revenues to $2 billion annually, which should result in increased cash flow for
reinvestment and growth in the energy and services delivery businesses. The
integration of PSNC into the SCANA system is also expected to provide
opportunities for margin improvement and cost savings though consolidation of
duplicate functions and greater efficiencies in operations, business processes
and purchasing. SCANA's acquisition of PSNC will also allow SCANA to offer
customers access to more comprehensive products and services than either company
alone could offer. The retail natural gas experience and expertise of PSNC will
complement the electricity, natural gas and telecommunications experience and
expertise of SCANA, thus offering improved capabilities in the delivery of a
more complete range of products and services for all customers.
For these reasons, the acquisition of PSNC by SCANA will serve the public
interest by tending towards the economical and efficient development of an
integrated public utility system.
3. Section 10(f)
Section 10(f) prohibits the Commission from approving an acquisition unless
the Commission is satisfied that the acquisition will be undertaken in
compliance with applicable state laws. As described in Item 4 of this
Application-Declaration, SCANA's acquisition of PSNC pursuant to the Preferred
Second Merger will be consummated in compliance with all applicable state laws.
-54-
<PAGE>
Item 4. Regulatory Approvals
The Preferred Second Merger is subject to the jurisdiction of the NCUC.
Such regulation is governed by North Carolina General Statute, Section
62-111(a), which states that "any merger or combination affecting any public
utility" shall require application to and written approval by the NCUC". The
standard for evaluating a public utility merger under this North Carolina
statute is whether the transaction is "justified by the public convenience and
necessity." On May 3, 1999, SCANA and PSNC filed an application for approval
with the NCUC, and SCANA and PSNC believe that the Preferred Second Merger
satisfies this standard. The Preferred Second Merger is also subject to the
notification and reporting requirements of the HSR Act, and the transfer of
certain licenses held by PSNC must be approved by the FCC. No other state or
federal commission has jurisdiction over the Preferred Second Merger.
Item 5. Procedure
The Commission is respectfully requested to issue and publish not later
than July 2, 1999 the requisite notice under Rule 23 with respect to the filing
of this Application, such notice to specify a date not later than July 27, 1999
by which comments may be entered and a date not later than July 28, 1999 as the
date after which an order of the Commission granting and permitting this
Application to become effective may be entered by the Commission.
It is submitted that a recommended decision by a hearing or other
responsible officer of the Commission is not needed for approval of the proposed
acquisition. 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.
-55-
<PAGE>
Item 6. Exhibits and Financial Statements
A. Exhibits
A-1.1 Restated Articles of Incorporation of SCANA as adopted on April
26, 1989 (Filed as Exhibit 3-A to Registration Statement No.
33-49145 and incorporated by reference herein).
A-1.2 Articles of Amendment of SCANA, dated April 27, 1995 (Filed as
Exhibit 4-B to Registration Statement No. 33-62421 and
incorporated by reference herein).
A-2 Copy of By-Laws of SCANA as revised and amended on December 17,
1997 (Filed as Exhibit 3-C to Form 10-K for the year ended
December 31, 1997 and incorporated by reference herein).
A-3 Amended and Restated Charter of PSNC, dated February 1, 1991.
(Filed as Exhibit 3-A-4 to PSNC's 1992 Form 10-K and
incorporated by reference herein).
A-4 By-laws of PSNC, as amended to date. (Filed as Exhibit 3-I to
PSNC's Form 10-Q for the quarter ended March 31, 1994 and
incorporated by reference herein).
B-1 Amended and Restated Agreement and Plan of Merger, dated as of
February 16, 1999 and amended and restated as of May 10, 1999,
by and among PSNC, SCANA, New Sub I, Inc. and New Sub II, Inc.
(included in Exhibit C-1 hereto).
C-1 Registration Statement on Form S-4 of SCANA for the shareholders
meeting to be held in connection with the Mergers (filed with
the Commission on May 11, 1999 (File No. 333-78227) and
incorporated by reference herein).
-56-
<PAGE>
C-2 Joint Proxy Statement/Prospectus of SCANA and PSNC for the
special meeting of shareholders to be held in connection with
the Mergers (included in Exhibit C-1).
D-1.1 Application of PSNC before the NCUC.
D-1.2 Order of the NCUC (to be filed by amendment).
E-1 Map of service territory of SCANA (to be filed by amendment).
E-2 Map of service territory of PSNC (to be filed by amendment).
E-3 SCANA Corporate Chart (included in Exhibit C-1).
E-4 PSNC Corporate Chart (included in Exhibit C-1).
F-1 Opinion of Counsel (to be filed by amendment).
F-2 Past tense opinion of counsel (to be filed by amendment).
G-1 Opinion of Morgan Stanley and Co. Incorporated (included in
Exhibit C-1).
G-2 Opinion of PaineWebber Incorporated (included in Exhibit C-1).
H-1 Annual Report of SCANA on Form 10-K for the year ended December
31, 1998 (filed with the Commission on March 18, 1999 and
amended on April 27, 1999, and incorporated by reference
herein).
H-2 Annual Report of PSNC on Form 10-K for the year ended September
30, 1998 (filed with the Commission on December 21, 1998 and
incorporated by reference herein).
H-3 Quarterly Report on Form 10-Q of SCANA for the quarter ended
March 31, 1999 (filed with the Commission on May 17, 1999 and
incorporated by reference herein).
-57-
<PAGE>
H-4 Quarterly Report on Form 10-Q of PSNC for the quarter ended
March 31, 1999 (filed with the Commission on May 14, 1999 and
incorporated by reference herein).
H-5 Quarterly Report on Form 10-Q of PSNC for the quarter ended
December 31, 1998 (filed with the Commission on February 12,
1999 and incorporated by reference herein).
H-6 Form U-3A-2 of SCANA for the year ended December 31, 1998 (filed
with the Commission on February 26, 1999 and incorporated by
reference herein).
I-1 Proposed Form of Notice.
J-1 Gas Retention Study (to be filed by amendment)
B. Financial Statements
FS-1 SCANA Unaudited Pro Forma Condensed Consolidated Balance Sheet
(included in Exhibit C-1).
FS-2 SCANA Unaudited Pro Forma Condensed Consolidated Statement of
Income (included in Exhibit C-1).
FS-3 Notes to SCANA Unaudited Pro Forma Condensed Consolidated
Financial Statements (included in Exhibit C-1).
FS-4 SCANA Consolidated Balance Sheet as of March 31, 1999 (as
included in Exhibit H-3).
FS-5 SCANA Consolidated Statement of Income for the three months
ended March 31, 1999 (as included in Exhibit H-3).
FS-6 PSNC Consolidated Balance Sheet as of March 31, 1999 (included
in Exhibit H-4).
-58-
<PAGE>
FS-7 PSNC Consolidated Statement of Income for the three months ended
March 31, 1999 (included in Exhibit H-4).
Item 7. Information as to Environmental Effects
The proposed transaction involves neither a "major federal action" nor
"significantly affects 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.
Sec. 4321 et seq. No federal agency is preparing an environmental impact
statement with respect to this matter.
-59-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the Applicant has duly caused this Application/Declaration Inc. to be
signed on its behalf by the undersigned thereunto duly authorized.
Date: June 16, 1999 SCANA CORPORATION
/s/ H. Thomas Arthur
Name: H. Thomas Arthur
Title: Senior Vice President
and General Counsel
-60-
BEFORE THE
NORTH CAROLINA UTILITIES COMMISSION
DOCKET NO. G-5, SUB 400
Application of SCANA Corporation and Public )
Service Company of North Carolina, Inc. for )
Authorization under General Statute Sections )
62-111 and 62-161 to Exchange and Redeem ) APPLICATION OF SCANA
Securities in Connection with a Business ) CORPORATION AND
Combination Transaction ) PUBLIC SERVICE COMPANY
) OF NORTH CAROLINA, INC.
)
SCANA Corporation, a South Carolina corporation ("SCANA", or "Applicant"),
and Public Service Company of North Carolina, Incorporated ("PSNC" or
"Applicant"), a North Carolina Corporation, hereby request approval under North
Carolina General Statutes (N.C.G.S.) ss.ss. 62-111 and 62-161, and North
Carolina Utilities Commission ("the Commission") Rule R1-16 to enter into a
business combination transaction and the exchange or redemption of securities in
connection therewith pursuant to the Agreement and Plan of Merger ("Merger
Agreement") attached hereto as Exhibit A. In support of this application, SCANA
and PSNC respectfully show the Commission the following:
1. The names and post office addresses of the Applicants are as follows:
SCANA, Inc.
1426 Main Street
Columbia, South Carolina 29201
Public Service Company of North Carolina, Incorporated
400 Cox Road
Gastonia, North Carolina 28054
2. The names and addresses of the individuals who are authorized to receive
notices and communications with respect to this application are as follows:
<PAGE>
Sarena D. Burch
Associate General Counsel
SCANA Corporation
1426 Main Street
Columbia, South Carolina 29201
Boyce Morrow
Vice-President - External Affairs
Public Service of North Carolina, Inc.
400 Cox Road
Gastonia, NC 28054
Allyson K. Duncan
Kilpatrick Stockton
4101 Lake Boone Trail
Raleigh, North Carolina 27607
3. SCANA is a corporation duly organized and existing under the laws of the
State of South Carolina. Its public utility operations in that State are subject
to the jurisdiction of the South Carolina Public Service Commission. SCANA is an
energy-based holding company whose businesses include regulated electric and
natural gas utility operations, telecommunications and other non-regulated
energy-related businesses. SCANA's subsidiaries serve approximately 517,000
electric customers in South Carolina, and more than 420,000 natural gas
customers in South Carolina and Georgia. SCANA also has significant investments
in telecommunications companies that have more than 350,000 customers throughout
the Southeast. For the twelve months ended December 31, 1998, SCANA had
operating revenues of approximately $1.6 billion. Consolidated earnings for 1998
were $223 million. SCANA has approximately 4,700 employees.
4. As of December 31, 1998, SCANA's authorized common stock was 150,000,000
shares, and 103,572,623 shares were issued and outstanding.
<PAGE>
5. SCANA's long-term debt as of December 31, 1998 was $173 billion
(including current maturities). To fund the cash portion of the consideration to
be paid to SCANA and PSNC shareholders, SCANA intends to borrow approximately
$700 million.
6. PSNC is a public utility under the laws of the State of North Carolina
engaged primarily in the business of transporting, distributing and selling
natural gas to approximately 340,000 customers in the state. In connection with
its natural gas distribution business, PSNC promotes, sells and installs both
new and replacement cooking, water heating, laundry, space heating, cooling and
humidity control natural gas appliances and equipment. Through a non-regulated
subsidiary, PSNC provides conversion and maintenance services for natural
gas-fueled vehicles in selected cities in and beyond its franchised territory.
Through a subsidiary and a multi-state joint venture, PSNC also participates in
non-regulated businesses such as natural gas brokering and supply services. The
company has approximately 1,000 employees.
7. PSNC's authorized capital stock consists entirely of common stock. The
number of shares of common stock authorized is 30,000,000. The number of shares
issued and outstanding as of March 31, 1999 was 20,567,823.
8. PSNC's existing long-term debt as of March 31, 1999 amounted to
$164,000,000 (including current maturities). PSNC's capital structure is 60%
equity, 40% debt. Total revenues for the twelve months ended March 31, 1999 were
$294,000,000. Total assets as of March 31, 1999 were $638,000,000.
9. SCANA and PSNC have agreed to a two-step merger transaction. In the
first step, a wholly owned subsidiary of SCANA formed for the purpose of this
merger will be merged with and into SCANA, and SCANA will survive. In the second
step, PSNC will be merged with and into another wholly owned subsidiary of
SCANA, and the SCANA subsidiary will survive.
<PAGE>
Depending on the outcome of certain regulatory proceedings, PSNC may be merged
into a special purpose subsidiary of SCANA formed for the purposes of the
merger, or into South Carolina Electric and Gas Company, SCANA's existing gas
and electric utility subsidiary. Following the receipt of all required state and
federal regulatory and other approvals, as a result of these mergers, PSNC will
become either a direct subsidiary of SCANA or a division of South Carolina
Electric and Gas. The combination of SCANA and PSNC will create a company with a
total market capitalization, including debt and preferred stock, of
approximately $6 billion, and annual revenues, based on 1998 results for the two
companies, of approximately $2 billion.
10. Shareholders of both SCANA and PSNC will have the option of electing
either cash or SCANA common stock or a combination of both in return for their
shares, subject to certain limitations. In exchange for each share of PSNC
common stock, PSNC shareholders will be given the option of receiving either (i)
$33 in cash, subject to the limitation that a maximum of 50% of the aggregate
consideration to be paid to PSNC shareholders may be paid in cash or (ii) shares
of SCANA common stock based on an exchange ratio designed to give PSNC
shareholders SCANA common stock with a market value of approximately $33 for
each share of PSNC common stock, subject to certain restrictions.
11. SCANA shareholders will have the option of electing either $30 in cash
or 1.0 share of SCANA common stock for each share of SCANA common stock held,
subject to the requirement that SCANA will pay a maximum of $700 million in cash
in the aggregate as consideration if both mergers are approved. PSNC
shareholders will have the right of first refusal to receive cash from this
pool, subject to the above-mentioned 50% limitation of total PSNC consideration.
<PAGE>
12. The transaction is expected to be tax-free to SCANA and PSNC
shareholders to the extent they receive SCANA common stock and any cash received
is expected to be taxed as capital gains.
13. PSNC's debt will remain the obligation of PSNC.
14. The merger will not adversely affect PSNC's provision of adequate
service to the public at just and reasonable rates. In fact, it will enhance
PSNC's ability to better serve its existing customers, and expand service to new
ones, by maximizing available shared resources, capitalizing on the best
practices of both companies, and providing new products and services to PSNC's
service area and beyond in North Carolina.
15. The purpose of the merger is to produce a stronger and more diverse
company that is better able to respond to, and capitalize on, increasing
competitive pressures brought on by the dramatic structural changes taking place
in the electric and natural gas industries for the benefit of current and future
customers. The merger will unite two companies which share a common mission,
vision and values that are focused on competitive prices, the highest quality of
customer satisfaction and the expansion of natural gas service. The combination
will provide PSNC with the critical mass it needs to facilitate significant
growth opportunities, in both the faster growing markets of North Carolina, and
in unserved and under-served areas as well.
16. The merger is not expected to have any immediate effect on the way
customers do business with either company, although improvements in customer
service are anticipated. Further, although some consolidation of functions and
operations may occur, the parties anticipate minimal workforce reductions as a
result of the merger. PSNC has already undertaken streamlining efforts as a part
of its recent Plan 2001 initiative. And in the long term, it is anticipated that
the merger will generate more job opportunities in North Carolina and elsewhere
<PAGE>
due to growth in operations, customer base, and new business opportunities that
will result from the competition for energy services. Further, the express
commitment on the part of both applicants to expand natural gas service in North
Carolina that is part of the motivation for the merger should have the same
effect. All union contracts will be honored.
17. The business combination transaction described herein will not
adversely affect PSNC's retail gas operations or customers. To the contrary, the
transaction will combine the financial strengths of, the two companies and will
ultimately benefit PSNC's customers by providing PSNC with greater business risk
diversification, a broader asset base, and enhanced customer service
opportunities through additional related products and services. Further, the
North Carolina public utility laws provide the Commission with more than
adequate authority to assure that the merger will have no adverse impact on
PSNC's North Carolina retail customers, the service PSNC supplies or the rates
it charges.
18. For the reasons set forth above, the merger described above is
justified by the public convenience and necessity.
19. The purposes of the treatment of securities as described herein are
lawful objects within the corporate purposes of PSNC and within the limits of
authority set forth in its Articles of Incorporation, as amended, which are on
file with the Commission. For the reasons set forth above, the treatment of such
securities will be compatible with the public interest, will be necessary and
appropriate for, and consistent with, the proper performance by PSNC of its
service to the public as a utility, will not impair its ability to perform that
service, and will be reasonably necessary and appropriate for such purpose.
20. The Applicants will file the final proxy statement describing the
transaction when it is filed with the Securities and Exchange Commission.
<PAGE>
21. Exhibits in support of this application include:
Exhibit A: The Agreement and Plan of Merger
Exhibit B: SCANA Corporation Pro Forma Combined Condensed Balance Sheet
as of December 31, 1998
Exhibit C PSNC Balance Sheet for the period ended March 31, 1999
Exhibit D SCANA Corporation Pro Forma Combined Condensed Statement of
Income as of December 31, 1998
Exhibit E PSNC Statement of Income for the period ended March 31, 1999
Exhibit F PSNC Statement of Cash Flows for the Period ended March 31,
Exhibit G SCANA Corporation 1998 Annual Report
Exhibit H PSNC Corporation 1998 Annual Report
Exhibit I Flow Chart of Merger Transactions
Wherefore, SCANA and PSNC respectfully pray that the business combination
transaction described above and the issuance and assumption of securities as
described be authorized and approved as expeditiously as possible.
Respectfully submitted, this 3rd day of May, 1999.
/s/ Allyson K. Duncan
----------------------------------
Allyson K. Duncan
Counsel
Kilpatrick Stockton
4101 Lake Boone Trail
Raleigh, North Carolina
919/420-1809
<PAGE>
STATE OF SOUTH CAROLINA )
)
COUNTY OF RICHLAND )
WILLIAM B. TIMMERMAN, being first duly sworn, deposes and says:
That he is Chairman, President and Chief Executive Officer of SCANA
Corporation; that he has read the foregoing application and knows the contents
thereof; that the same is true except as to the matters stated therein on
information and belief, and as to those matters, he believes them to be true.
/s/ William B. Timmerman
-----------------------------
William B. Timmerman
Sworn to and subscribed before me
this 3rd day of May, 1999.
- ---------------------------------
Notary Public for South Carolina
My commission expires: -----------------
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF GASTON
CHARLES E. ZEIGLER, JR., being first duly sworn, deposes and says,
That he is Chairman, President and Chief Executive Officer of Public
Service Company of North Carolina, Inc.; that he has read the foregoing
Application and knows the contents thereof, that the same is true except as to
the matters stated therein on information and belief, and as to those matters,
he believes them to be true.
/s/ Charles E. Zeigler
-----------------------------
Charles E. Zeigler
Sworn to and subscribed before me this
3rd day of May, 1999.
- -----------------------------
Notary Public
My Commission expires:--------
(SEAL)
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35- )
Filing under the Public Utility Holding Company Act of 1935
- ----------, 1999
SCANA Corporation (70- )
SCANA Corporation ("SCANA"), 1426 Main Street, Columbia, South Carolina
29201, a South Carolina corporation not currently subject to the Public Utility
Holding Company Act of 1935 (the "Act"), has filed an application-declaration
with the Securities and Exchange Commission (the "Commission") under sections 5,
8, 9(a)(2), 10, and 11 of the Act.
The application-declaration seeks approvals relating to the proposed
acquisition of Public Service Company of North Carolina, Incorporated ("PSNC"),
a North Carolina corporation and gas public-utility company, by SCANA. SCANA is
a combination electric and gas public-utility holding company exempt from
registration under section 3(a)(1) pursuant to rule 2 of the Act. Following the
acquisition, PSNC would become a wholly owned subsidiary company of, and the
third public utility company owned by, SCANA and SCANA will register with the
Commission under section 5 of the Act.
SCANA was incorporated in 1984 under the laws of South Carolina and is
primarily engaged in providing electric and gas service to customers in South
Carolina. SCANA currently has two subsidiary companies that are public utility
companies within the meaning of the Act, South Carolina Electric and Gas Company
("SCE&G") and South Carolina Generating Company, Inc. ("GENCO"). SCE&G generates
and sells electricity to wholesale and retail customers, purchases, sells and
transports natural gas at retail and provides public transit service in
Columbia, South Carolina. GENCO owns and operates the Williams Station
generating facility and sells electricity solely to SCE&G. As of December 31,
1998, SCANA provided electric utility service to 517,447 customers and gas
utility service to 256,842 customers. As of February 26, 1999, there were
103,572,623 shares of SCANA common stock, no par value, issued and outstanding.
SCANA's principal executive office is located in Columbia, South Carolina.
SCANA has thirteen direct, wholly owned, non-utility subsidiary companies,
all of which are organized and incorporated in South Carolina. These non-utility
subsidiary companies are: South Carolina Fuel Company, Inc., which acquires,
owns and provides financing for SCE&G's nuclear fuel, fossil fuel and sulfur
dioxide emission allowances; South Carolina Pipeline Corporation, which
purchases, sells and transports natural gas to wholesale and direct industrial
customers and owns and operates a propane pipeline and two liquefied natural gas
plants for the liquefaction, regasification and storage of natural gas; SCANA
Propane Gas, Inc., which purchases, delivers and sells propane; SCANA Propane
Storage, Inc., which owns and operates an underground propane storage facility
and leases cavern storage to industries, utilities and other types of customers;
SCANA Energy Marketing, Inc., which markets electricity, natural gas and other
light hydrocarbons, markets natural gas in Georgia's deregulated natural gas
market and provides energy-related risk management services to producers and
consumers; ServiceCare, Inc.,
<PAGE>
which provides energy-related products and services, principally service
contracts on home appliances and home security services; SCANA Communications,
Inc.,which provides fiber optic telecommunications in South Carolina, a public
safety radio communications network and tower construction management and retail
services for wireless providers, and invests in telecommunications companies;
Primesouth, Inc., which engages in power plant management and maintenance
services; SCANA Resources, Inc., which conducts energy-related businesses and
services; SCANA Development Corporation, which is presently in liquidation, but
was previously engaged in the sale of real estate; and SCANA Petroleum
Resources, Inc., which is also presently in liquidation following the sale of
its oil and gas properties. New Sub I and New Sub II, described herein, are also
direct, wholly owned subsidiaries of SCANA.
PSNC, a North Carolina corporation incorporated in 1938, is a public
utility company franchised to serve a 31-county area in North Carolina. PSNC
transports, distributes and sells natural gas to approximately 340,000
residential, commercial and industrial customers in 95 cities in North Carolina.
In connection with its natural gas distribution business, PSNC promotes, sells
and installs both new and replacement cooking, water heating, laundry, space
heating, cooling and humidity control natural gas appliances and equipment.
PSNC, through a nonregulated subsidiary company, provides conversion and
maintenance services for natural gas-fueled vehicles in selected cities in and
beyond its franchised territory. Through a subsidiary and a multi-state joint
venture, PSNC also participates in nonregulated businesses such as natural gas
brokering and supply services.
PSNC operating revenues totaled approximately $300 million for the 12
months ended December 31, 1998. PSNC has approximately 1,000 employees.
Pursuant to an Amended and Restated Agreement and Plan of Merger (the
"Merger Agreement"), dated as of February 16, 1999 and amended and restated as
of May 10, 1999 by and among PSNC, SCANA, New Sub I, Inc. ("New Sub I")/1/ and
New Sub II, Inc. ("New Sub II")/2/, New Sub I will be merged with and into SCANA
with SCANA as the surviving corporation (the "First Merger") and PSNC will be
merged with and into New Sub II with New Sub II as the surviving corporation
(the "Preferred Second Merger" and, together with the First Merger, the
- --------------------
/1/ New Sub I, Inc. ("New Sub I") will be incorporated under the laws of the
State of South Carolina prior to the consummation of the First Merger. The
only authorized capital stock of New Sub I will be 1,000 shares of SCANA
common stock, no par value and all outstanding shares will be held by
SCANA. New Sub I has not had, and prior to the closing of the First Merger
will not have, any operations other than the activities contemplated by the
Merger Agreement necessary to accomplish the merger of New Sub I with and
into SCANA.
/2/ New Sub II, Inc. ("New Sub II") will be incorporated under the laws of the
State of South Carolina prior to the consummation of the Preferred Second
Merger. The only authorized capital stock of New Sub II will be 1,000
shares of SCANA common stock, no par value and all outstanding shares will
be held by SCANA. New Sub II has not had, and prior to the closing of the
Preferred Second Merger will not have, any operations other than the
activities contemplated by the Merger Agreement necessary to accomplish the
merger of PSNC with and into New Sub II.
<PAGE>
"Mergers")./3/ As a result of the Preferred Second Merger, PSNC will become a
wholly owned subsidiary company of SCANA.
In the First Merger, each share of SCANA common stock outstanding
immediately prior to the effective time of the First Merger will be converted
into the right to receive either (i) $30 in cash or (ii) one share of SCANA
common stock, subject to the requirement that SCANA pay $700 million in total
cash as consideration in the Mergers. If the First Merger occurs, it will be
consummated prior to the consummation of the Preferred Second Merger and will
not involve the acquisition of any securities of a public utility company;
therefore it will not require any approval from the Commission under the Act.
In the Preferred Second Merger, each share of PSNC common stock outstanding
immediately prior to the effective time of the Preferred Second Merger will be
converted into the right to receive (i) $33.00 in cash, subject to the
limitation that no more than 50% of the aggregate consideration to be paid to
PSNC shareholders will be in cash, (ii) such number of shares of SCANA common
stock as determined in accordance with the PSNC exchange ratio or (iii) a
combination of cash and shares of SCANA common stock. The PSNC exchange ratio
will vary depending upon the average market price of SCANA common stock over a
20 trading day period, but is subject to the limitation that PSNC shareholders
will receive no more than 1.45 and no less than 1.02 shares of SCANA common
stock for each share of PSNC common stock.
Following the Preferred Second Merger, PSNC will become a wholly owned
public utility company of SCANA. The Merger Agreement provides that SCANA's
principal corporate office will remain in Columbia, South Carolina and PSNC's
principal corporate office will remain in Gastonia, North Carolina. SCANA's
board of directors will have three new directors appointed to its board of
directors, one of whom will be Mr. Zeigler, the current Chairman, President and
Chief Executive Officer of PSNC, the other two of whom will be appointed from
the current board of directors of PSNC with one appointment being nominated by
PSNC and one by SCANA.
For the Commission, by the Division of Investment Management, pursuant to
delegated authority.
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/3/ The Merger Agreement also provides that, in the event it is not possible to
consummate the Preferred Second Merger, the parties would, subject to
certain conditions, carry out an "alternative merger" transaction in which
PSNC would be merged directly into SCANA's existing public utility
subsidiary, SCE&G. The request for approval made herein concerns only the
Preferred Second Merger, as the "alternative merger" is not subject to the
jurisdiction of this Commission. Therefore, this Application-Declaration
will refer only to the Preferred Second Merger.