File No. 70-8809
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM U-1 APPLICATION-DECLARATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
CENTRAL AND SOUTH WEST CORPORATION
1616 Woodall Rodgers Freeway
P.O. Box 660164
Dallas, Texas 75202
CSW ENERGY, INC.
1616 Woodall Rodgers Freeway
P.O. Box 660789
Dallas, Texas 75202
CSW INTERNATIONAL, INC.
1616 Woodall Rodgers Freeway
P.O. Box 660789
Dallas, Texas 75202
(Names of companies filing this statement and
addresses of principal executive offices)
CENTRAL AND SOUTH WEST CORPORATION
(Name of top registered holding company parent)
Stephen J. McDonnell
Treasurer
Central and South West Corporation
1616 Woodall Rodgers Freeway
P.O. Box 660164
Dallas, Texas 75202
Terry D. Dennis
President
CSW Energy, Inc.
1616 Woodall Rodgers Freeway
P.O. Box 660789
Dallas, Texas 75202
Terry D. Dennis
President
CSW International, Inc.
1616 Woodall Rodgers Freeway
P.O. Box 660789
Dallas, Texas 75202
Joris M. Hogan
Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, NY 10005-1413
(Names and addresses of agents for service)
Respectfully request that copies be sent to:
Edwin F. Feo
Milbank, Tweed, Hadley & McCloy
601 South Figueroa Street
30th Floor
Los Angeles, CA 90017
<PAGE>
Central and South West Corporation, a Delaware
corporation ("CSW") and a registered holding company under the
Public Utility Holding Company Act of 1935, as amended (the
"Act"), CSW Energy, Inc., a Texas corporation and wholly-owned
nonutility subsidiary of CSW ("Energy"), and CSW International,
Inc., a Delaware corporation and wholly-owned nonutility
subsidiary of CSW ("CSWI"), hereby file this Amendment No. 1 to
the Form U-1 Application-Declaration (the "Application-
Declaration") in this File No. 70-8809 for the purposes of
amending Item 1 thereof and, as so amended, restating the
Application-Declaration in its entirety. In all other respects,
the Application-Declaration as previously filed will remain the
same.
1. In Item 1 ("Description of Proposed Transaction"):
The last sentence of the first paragraph of Subsection
(5) headed "Proposed Increase in Financing of Exempt Projects"
(beginning with the words "In addition, CSW, Energy and CSWI") is
hereby deleted in its entirety.
As so amended, the Application-Declaration is hereby
restated in its entirety as follows:
Item 1. Description of Proposed Transaction.
(1) History and Nature of Request. CSW is a
registered holding company under the Act. Since 1990, CSW,
directly or through its wholly-owned subsidiary, Energy, has
engaged in development activities to conduct preliminary studies
of, to investigate, to research, to develop, to consult with
respect to, and to agree to construct (such construction subject
to further Commission authorization), "qualifying facilities"
("QFs") as defined under the Public Utility Regulatory Policies
Act of 1978, as amended, and independent power facilities,
including exempt wholesale generators, as defined in
Section 32(a) of the Act ("EWGs"). Since 1994, CSW, directly or
through its wholly-owned subsidiary, CSWI, has engaged in
development and investment activities with respect to EWGs and
foreign utility companies, as defined in Section 33(a) of the Act
("FUCOs"), and is authorized to provide design, construction,
engineering, operation, maintenance, management, administration,
employment, tax, accounting, economic, financial, fuel,
environmental, communications, energy conservation, demand side
management, overhead efficiency, utility performance and
electronic data processing services and software development and
support services in connection therewith to EWGs and FUCOs
(collectively, "Exempt Projects") and (except for operation) to
foreign electric utility enterprises that are not Exempt
Projects.
CSW is presently authorized under the terms of orders
and supplemental orders issued under File Nos. 70-7758, 70-8205
and 70-8423 (collectively, the "Financing Orders") to finance the
operations of CSW, Energy, CSWI and their respective subsidiaries
by issuing and selling debt and equity securities and by issuing
guarantees of the securities of certain subsidiaries. CSW's
authorization under the Financing Orders may be summarized as
follows:
(a) File No. 70-7758. Pursuant to an order of the
Commission dated September 28, 1990 (HCAR No. 25162) and
supplemental orders dated November 22, 1991 (HCAR No. 25414),
December 31, 1992 (HCAR No. 25728) and November 28, 1995 (HCAR
No. 26417) with respect to File No. 70-7758, CSW and Energy
obtained authorization, among other things, to (i) spend up to
$250 million to conduct preliminary studies of, to investigate,
to research, to develop, to consult with respect to, and to agree
to construct (such construction subject to further Commission
authorization), QFs and independent power facilities, including
EWGs; and (ii) finance such activities through capital
contributions, open account advances and loans in an aggregate
amount not to exceed $250 million. Such authorization expires on
December 31, 2000.
(b) File No. 70-8205. Pursuant to an order of the
Commission dated August 6, 1993 (HCAR No. 25866) and a
supplemental order dated November 28, 1995 (HCAR No. 26416), CSW
and Energy obtained authorization, among other things, from time
to time to issue letters of credit, bid bonds or guarantees
(collectively, the "CSWE Guarantees") in connection with the
development of QFs and independent power facilities, including
EWGs, in an aggregate amount not to exceed $75 million. Such
authorization expires on December 31, 2000.
(c) File No. 70-8423. CSW and Energy received
authority of the Commission by order dated November 3, 1994 (HCAR
No. 26156) and a supplemental order dated September 27, 1995
(HCAR No. 26383), among other things, (i) to organize CSWI and
certain other subsidiaries meeting certain specifications set
forth in the application-declaration in File No. 70-8423 (the
"Project Parents") to invest in Exempt Projects in an amount up
to 50% of CSW's "consolidated retained earnings" as determined in
accordance with Rule 53(a)(1)(ii) under the Act for such
investments for which there is recourse to CSW and up to $3
billion for such investments for which there is not recourse to
CSW, (ii) to fund such investments from time to time through
issuances by CSW, CSWI and/or Project Parents of stock,
partnership interests, promissory notes, commercial paper or
other debt or equity securities and (iii) for CSW to provide
guarantees of, and to arrange for letters of credit, bid bonds or
similar credit support arrangements (collectively, the "CSWI
Guarantees"; and together with the CSWE Guarantees, collectively,
the "Guarantees") concerning CSWI's or Project Parents'
activities permitted under such order and supplemental order. In
addition, the order and supplemental order in such file authorize
CSW, directly or through CSWI or their respective subsidiaries,
to provide design, construction, engineering, operation,
maintenance, management, administration, employment, tax,
accounting, economic, financial, fuel, environmental,
communications, energy conservation, demand side management,
overhead efficiency, utility performance and electronic data
processing services and software development and support services
in connection therewith to Exempt Projects and (except for
operation) to foreign electric utility enterprises that are not
Exempt Projects. Such authorization expires on December 31,
1997.
Under the terms of each of the Financing Orders, CSW
may use the proceeds of common stock sales and borrowings, among
other things, to finance the acquisition of the securities of or
other interest in one or more Exempt Projects, and may issue
Guarantees in respect of the securities of such Exempt Projects;
provided, that the sum of the Guarantees at any time outstanding
and the net proceeds of common stock sales and borrowings by CSW
that may at any time be used by CSW to fund investments in Exempt
Projects (or in Energy, CSWI or Project Parents to facilitate
investments in Exempt Projects) shall not, when added to CSW's
"aggregate investment," as defined in Rule 53(a) under the Act,
in all such entities, exceed 50% of CSW's "consolidated retained
earnings." The term "consolidated retained earnings," also
defined in Rule 53(a), is the average of consolidated retained
earnings for the previous four quarters, as reported in CSW's
Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.
For CSW, "consolidated retained earnings" as of December 31,
1995, were approximately $1.85 billion.
(2) Description of Exempt Projects Presently Owned by
CSW. CSW's "aggregate investment" (as defined under Rule 53(a)
of the Act) as of February 1, 1996 was approximately $825 million
in Exempt Projects, or about 45% of CSW's "consolidated retained
earnings" as of December 31, 1995, which were approximately $1.85
billion. Additional funds required to purchase the securities of
and/or finance construction costs of the facilities owned by
these entities have been obtained from lenders on a non-recourse
basis; that is, from loans that are secured solely by the assets
and revenues of a particular Exempt Project or the Project Parent
that holds the ownership interest in such Exempt Project and for
which the lender does not have recourse to CSW or any associate
company (other than another Exempt Project or a Project Parent),
except to the extent of any presently effective Guarantees, which
are included in CSW's "aggregate investment" for purposes of Rule
53(a). CSW's present holdings of Exempt Projects are as follows:
(a) SEEBOARD plc ("SEEBOARD"). On November 6,
1995, CSW, indirectly through CSW (UK) plc ("CSW UK"), announced
its intention to commence an offer in the United Kingdom to
acquire all of the outstanding share capital of SEEBOARD for an
aggregate purchase price of approximately $2.52 billion, which
was reduced by approximately $400 million to approximately $2.12
billion to reflect the distribution by SEEBOARD to its
shareholders, including CSW UK, of SEEBOARD's ownership interest
in The National Grid Group plc, which occurred effective
December 11, 1995. On January 10, 1996, CSW UK announced that
all conditions necessary to consummate the offer for SEEBOARD had
been satisfied or waived, and that such offer had been declared
wholly unconditional in all respects. Through February 20, 1996,
CSW UK had acquired shares representing, or had valid acceptances
in respect of, approximately 92% of the outstanding share capital
of SEEBOARD. CSW UK expects to acquire the remaining 8% of the
outstanding share capital of SEEBOARD by the end of the second
quarter of 1996.
SEEBOARD, which is a FUCO, serves approximately
2 million customers in England. SEEBOARD's distribution
territory covers approximately 3,000 square miles and extends
from the outlying areas of London to the English Channel. It was
one of the 12 regional electricity companies created in 1990 by
the British government as part of the privatization of the
electric utility industry in England and Wales. SEEBOARD is
primarily a distribution and supply company, purchasing most of
its electricity requirements from third-party generators. As of
December 31, 1995, CSW's "aggregate investment" (as defined under
Rule 53(a) of the Act) in SEEBOARD was approximately $742
million. After giving effect to the consummation of the purchase
of all of the outstanding share capital of SEEBOARD, and the
funding of the purchase therefor, CSW estimates that its
"aggregate investment" (as defined under Rule 53(a) of the Act)
in SEEBOARD will be approximately $820 million. The balance of
the purchase price for the outstanding shares of SEEBOARD,
approximately $1.30 billion, will be financed by capital
contributions or loans to be made by CSW UK's sole shareholder,
CSW Investments, a company organized under the laws of the United
Kingdom ("CSW Investments"), an indirect, wholly-owned subsidiary
of CSWI. CSW Investments arranged for a credit facility to
finance such amount, which credit facility is neither guaranteed
by, nor otherwise provides for recourse to, CSW, CSWI or any of
CSW's operating utility subsidiaries.
CSW anticipates that SEEBOARD will make an immediate
contribution to CSW's earnings per share. In addition to
providing CSW with a relatively stable source of income in the
future, the SEEBOARD acquisition is particularly attractive to
CSW for other reasons. First, CSW believes that it will add
value to its investment in SEEBOARD's shares, primarily through
implementation of cost savings measures. Under the British
regulatory system, the benefits of these cost savings will accrue
primarily to CSW, as SEEBOARD's shareholder. Second, CSW,
through SEEBOARD, will compete as a power marketer in a market in
which retail customers with a minimum annual peak demand of
100 kilowatts or more can choose their electricity supplier. The
experience that CSW will gain in operating a utility in such a
competitive environment is expected to be highly valuable to CSW
in the United States. Finally, CSW's purchase of SEEBOARD is the
first in a series of anticipated events that will lead to a
rationalization, possibly through further consolidations, of the
electricity sector in the United Kingdom, a process that in
itself could produce attractive returns for investors. By
acquiring SEEBOARD, CSW has achieved early entry into that market
and therefore believes that it is positioned to earn an
attractive return on its investment.
(b) CSW and Alpek, S.A. de C.V. are jointly
developing a project near Altamira, in the state of Tamaulipas,
Mexico (the "Altamira Project"), which will be an Exempt Project.
Alpek is a subsidiary of Grupo Alfa, a large Mexican company with
business interests in petrochemicals, food, steel,
telecommunications and other areas. The project is a nominal 100
megawatt gas-fired cogeneration facility that will serve an
expanding industrial park. The project will be expandable to 400
megawatts. Most of the customers for electricity and steam are
either Alpek affiliates or Alpek joint venture partners that are
located either in the industrial park or some distance away in
Monterrey. Letters of intent are presently in place for all the
steam and for some of the electricity purchases, which purchases
will be made, for the most part, in U.S. dollars or dollar-
indexed pesos. Contracts are being negotiated with the Mexican
gas entity, Pemex Gas y Petroquimica Basica, for the supply of
natural gas to the project and with the electric company,
Comision Federal de Electricidad, for the backup and
transportation of electricity. The Altamira Project is expected
to begin construction during the second quarter of 1996 and
completion is anticipated to be in late 1997. CSW's expenditures
in the Altamira Project as of December 31, 1995 were less than
$700,000. However, CSW's "aggregate investment" in the Altamira
Project is ultimately expected to be approximately $35 million.
(c) Energy, with its partners, KVA Resources,
Inc. and KLT Power Generation, Inc., are jointly developing
projects in the Pacific Northwest of the United States. In
connection with such development activities, an EWG application
has been filed with and approved by the Federal Energy Regulatory
Commission for the Northwest Regional Power Facility.
The Northwest Regional Power Facility is an 838
megawatt gas-fired EWG project located in Creston, Washington.
The project is in the last stage of approval from the Washington
State Energy Facility Site Evaluation Council to obtain a permit
to construct. Power sales activity is expected to escalate upon
approval.
Energy is also investigating two additional
projects, which may qualify as EWGs, for development in the
Pacific Northwest. The Everett Delta Project is a 238 megawatt
project located in Everett, Washington designed to provide
electric power to the Snohomish Public Utility District and
others while providing thermal energy to a paper recycling
facility. The Starbuck Project is a 244 megawatt peaking-type
combustion turbine project to be located near Starbuck,
Washington. CSW's "aggregate investment" (as defined under Rule
53(a) of the Act) as of February 1, 1996 with respect to the
Northwest Regional Power Facility was approximately $5 million.
CSW's anticipated "aggregate investment" in the projects
presently under consideration by Energy and its joint venture
partners in the Pacific Northwest is expected to be approximately
$175 million with the placement of equity expected to occur
between 1997 and 2000.
(d) CSWI, indirectly through a Project Parent, is
presently finalizing a letter of intent with a Brazilian company
to acquire, directly or indirectly, an ownership interest in
Exempt Projects located in Brazil. Assuming such letter of
intent is completed and the transactions therein are consummated,
CSWI's "aggregate investment" (as defined under Rule 53(a) of the
Act) in such projects is expected to be approximately $50 million
in 1996 and approximately $100 million by 2000. CSWI's
expenditures on these projects as of December 31, 1995 were less
than $50,000.
(e) CSWI and certain non-affiliated partners are
jointly developing a 1300 megawatt project in Southeast Asia,
which will be an Exempt Project. Such project is a coal fuel
facility that will serve a government owned electric utility.
CSWI anticipates an ownership interest in such project of
approximately 20%. Such project is expected to begin
construction in 1997 and is anticipated being completed in phases
during 2000 and 2001. CSWI's expenditures on this project as of
December 31, 1995 were less than $250,000. However, CSW's
"aggregate investment" (as defined under Rule 53(a) of the Act)
in this project is expected to be approximately $85 million.
(f) Anticipated Investments in Exempt Projects.
As of February 1, 1996, CSW had an "aggregate investment" (as
defined under Rule 53(a) of the Act) in Exempt Projects of
approximately $825 million. However, CSW is presently
considering investments in Exempt Projects as described above
that in aggregate would be approximately $1.215 billion.
(3) Risk Profile of CSW's Investments in Exempt
Projects. Investments in independent power production facilities
and foreign utility systems involve a variety of risks that are
not necessarily present in the traditional, regulated, electric
utility industry. The Applicants have established comprehensive
procedures to identify and address (i.e., limit and/or mitigate)
these risks.
(a) The Project Review Process. Every potential
project investment opportunity developed by Energy or CSWI is
subjected to a series of formal reviews to ensure the project's
soundness. The process begins with a consideration of Energy's
and CSWI's strategic plans which survey independent power
opportunities domestically and throughout the world and provides
a variety of tools to assist in the evaluation of risks. These
plans, which are updated periodically, lead to the identification
of projects and countries where Energy or CSWI intends to pursue
project development efforts. The plans also lead to the
development of budgeted levels of expenditure on foreign
development activities. Before CSW makes any investment in a
foreign country, an analysis of that opportunity, including the
specific country risk, is presented first to the executive
management group at Energy or CSWI, as the case may be, then to
the board of directors of Energy or CSWI, as the case may be, and
finally to CSW's board of directors. The analysis includes a
review of the political and economic stability of the particular
country, the government's commitment to private power, the legal
and regulatory framework for private investment in electricity
facilities and whether local business practices will support
long-term investment of private capital. The board of directors
of both CSW and either Energy or CSWI (as the case may be) must
approve investments in any foreign country. This careful
planning and budgeting process helps to mitigate an important
risk of the independent power business: the expenditure of
development funds without a realistic expectation of success in
terms of both making investments in projects and in obtaining
appropriate levels of non-recourse financing on commercially
reasonable terms.
Once development of a project is undertaken, milestones
are established to ensure that continuing expenditures on
development are producing acceptable results. In addition,
project teams are required to identify the major technical,
financial, commercial and legal risks associated with their
particular project and whether and how those risks have been
mitigated. The members of the project team are responsible for
the due diligence investigation of those risks that have been
identified and must present their findings to an officer of
Energy or CSWI, as the case may be, with functional oversight
over the relevant risk factor subject matter.
Finally, every project is subjected to increasing
levels of management review. Depending on the amount of CSW's
anticipated financial exposure to a particular project, the
proposed investment must be approved successively by the entire
executive management group of Energy or CSWI (as the case may
be), the board of directors of Energy or CSWI (as the case may
be), and finally, by the board of directors of CSW.
Significantly, the final project review process is to a
large extent replicated by the lenders who agree to provide
construction or permanent debt financing on a non-recourse basis,
since repayment of that debt will depend solely upon the success
of the project. Project debt maturities are often long-term
(e.g., 15 or more years), meaning that the lenders' exposure to
the risks of a project extends for many years after closing or
completion of construction. Typically, project debt documents
require the establishment of plant overhaul, debt service and
other funded reserves, all of which are designed to preserve the
asset and protect the financial performance of the project
against interruptions in revenues and other contingencies.
Energy's and CSWI's success in arranging appropriate levels of
non-recourse financing for its QF and Exempt Project investments
in effect serves as a validation of the project review process
described above.
(b) Risk Mitigation of Independent Power
Projects. Each of Energy and CSWI carefully evaluates the
potential risks of an independent power project or foreign
utility system before CSW's funds are committed.
(i) Operating risks. Each of Energy and
CSWI has focused its project development efforts on technologies
with which it has existing competencies in coal, gas or oil
generation. Due diligence of operating assumptions is carried
out by Energy's and CSWI's engineers with experience in the
technology being evaluated and by outside technical consultants.
The risk of changes in the price of fuel is often passed through
to the purchaser of electricity under the negotiated terms of a
long-term power sales agreement. Other operating risks can be
covered by equipment warranties and by casualty, business
interruption and other forms of insurance. Further, when Energy,
CSWI or an affiliate is responsible for managing the day-to-day
operations of Exempt Projects in which it holds an ownership
interest, its ability to address and correct operating problems
is far greater than would be the case if operating control were
in the hands of a third party.
(ii) Construction risks. Construction risks
are typically addressed under fixed-price contracts with
milestones and performance guarantees (e.g., guaranteed heat
rates, availability factors), backed by appropriate levels of
liquidated damages. The credit-worthiness and "track record" of
the construction contractor is a very important consideration in
this regard. In those cases where Energy or CSWI, as the case
may be, or its respective subsidiary serves as its own general
construction contractor, it looks to pre-negotiated cost and
damage provisions from sub-contractors, including, without
limitation, equipment vendors, to protect against performance
shortfalls, cost overruns and schedule delays.
(iii) Commercial risks. Many independent
power projects rely on the "off-take" commitment of a single
power purchaser, usually the local utility company, to eliminate
all or most of the risk of variation in revenues. In such cases,
Energy or CSWI, as the case may be, makes an assessment of the
credit-worthiness of the power purchaser over the life of the
project and/or seeks to have a contingency plan in the event of
off-take defaults.
In competitive power markets outside the United States,
long-term off-take contracts are not always available and
electricity prices may be determined by supply and demand.
Energy and CSWI conduct extensive investigations of the
electricity markets in these environments to ensure the viability
of long-term demand. Further, Energy and CSWI seek projects that
will be capable of producing electricity at or below long-run
marginal costs in the region, thus providing that the project
will be a competitive supplier.
(iv) Financial risks. Energy and CSWI
address the financial risks of their respective projects in a
variety of ways. First and foremost, the permanent debt
financing for such projects is, by its express terms, non-
recourse to CSW or any associate company (other than other Exempt
Projects or Project Parents) to the greatest extent practicable.
This means that the non-recourse debt of each project or foreign
utility system is secured solely by its assets and revenues, and
creditors have no ability to seek repayment upon default from
CSW. This method of financing ensures that CSW's exposure to any
independent power project is limited to the amount of its equity
commitment and that CSW's domestic public utility subsidiaries
(the "Operating Companies") and their customers bear no risk of a
project's failure or financial distress. From time to time, CSW
may agree to provide Guarantees in connection with non-recourse
financings or bridge financings, but these financial supports are
carefully monitored and treated as a part of CSW's equity
commitment for regulatory reporting and internal control
purposes. To date, CSW has never been called upon to fund its
obligation under any such Guarantee issued with respect to an
investment in an Exempt Project.
In addition to the essentially non-recourse nature of
project debt financing, project debt is carefully structured to
meet, or match, the characteristics of the particular project.
For example, when the value of a project depends on a long-term,
fixed-price, off-take contract (i.e., a power purchase contract),
the project debt is typically designed to be of a similar term,
with scheduled debt payments usually covered by fixed charges
(usually the capacity payment component in the contract). On the
other hand, where there is no long-term, fixed source of revenue,
the percentage of non-recourse debt financing is typically
smaller, so that financial risk is not induced by excessive debt
levels. Thus, while Energy's and CSWI's projects with long-term
off-take contracts have debt capitalization levels in the 70% to
80% range, Energy's and CSWI's other projects will be leveraged
at levels similar to those of United States regulated utilities.
Another financing risk is the potential variability of
interest rates. This risk is addressed, in part, by borrowing,
to the extent possible, on a long-term, fixed-rate basis. After
contractual terms for a project have been agreed but before
financial closing, Energy and CSWI are also exposed to interest
rate variability. This risk can be mitigated by purchasing
financial instruments which provide hedges against interest rate
volatility. The finance department of Energy or CSWI, as the
case may be, is responsible for monitoring the use of these
instruments to ensure they are used properly.
(v) Foreign currency exchange risk. There
are several ways in which Energy and CSWI have addressed the
foreign currency exchange risk element, depending on the status
of the host country. In countries which do not have a history of
stability in the management of their exchange policy, part or all
of the revenue from a project is payable in or indexed to hard
currency (almost invariably United States dollars), as is
presently contemplated to be the case with the Altamira Project.
In addition, back-up guarantees or other undertakings by the
central government may be available to ensure that the United
States dollar payments due under an off-take contract are
actually made available by the central bank or ministry of
finance.
In some countries, the source of revenues can be tied
in other ways to the United States dollar. For example, the
capacity charge element of revenues derived by an Exempt Project
may be tied to the cost of new capacity measured in United States
dollars. In addition, an Exempt Project's revenue may be
expressed in a unit of account (i.e., a national monetary unit)
which adjusts for any inflation of the local currency, thereby
protecting the project against depreciation of the currency.
In other cases (SEEBOARD, for example), the non-
recourse project debt is borrowed in the same currency as the
project's revenues, thereby ensuring a match between debt service
obligations and operating income. In addition, in more developed
countries, long-term currency swaps are available to provide
further hedging for the equity component of the investment.
(vi) Legal risks. Legal risks are addressed
by careful review of any investment by legal counsel, including
local and international counsel where foreign projects are
concerned. Such legal reviews address regulatory and permitting
risks, environmental risks, the adequacy and enforceability of
guarantees or other contractual undertakings of third parties,
the status of title to utility property and the obligations
inherent in the financing arrangements.
In addition to the specific risks mentioned above,
investment outside the United States can entail country-specific
risks related to political or economic performance. As indicated
above, Energy and CSWI evaluate country risk at the outset of any
project development effort and attempt to mitigate this risk
through a number of measures. Most important, the country review
process described above ensures that the political and economic
stability of any country has been reviewed at several decisional
levels up to and including CSW's board of directors before any
investment occurs. In addition to a general review, the country
analysis focuses specifically on the country's electric sector
and on the government's support for private ownership in that
sector.
Also at the outset of development work in a foreign
country, Energy and CSWI seek local partners who are experienced
in doing business in the host country. Local partners are a very
important element in mitigating the risk of future expropriation
or unfair regulatory treatment. An additional mitigating factor
is the participation of official or multilateral agencies in a
project. When funds for the project are supplied by government-
sponsored export credit agencies or other governments or
institutions, such as the World Bank through its International
Finance Corporation affiliate, the host country has strong
incentives not to take actions which would harm a project's
viability. In addition, political risk can often be addressed
through political risk insurance obtained from the Overseas
Private Investment Corporation, a United States agency, or the
Multilateral Investment Guaranty Agency, a World Bank affiliate,
or in the commercial insurance market. Political risk insurance
is available to insure the project debt or the return of an
investor's equity. One can also insure against outright
expropriation, acts of civil violence or even "creeping"
nationalization brought about by punitive regulation.
(vii) Portfolio Diversification. Apart from
the detailed and comprehensive approach to the specific risks
described above, CSW's fundamental view is that the best long-
term approach to managing the risk of investing in the
independent power business is through diversifying both the type
and the location of projects. In this regard, CSW recognizes
that the risk inherent in any investment cannot be eliminated
entirely, even by the most careful approach to project
development. Consequently, CSW is committed to diversifying its
investments across countries and regions of the world. CSW's
strategy has been focused on investment opportunities in North
America (outside the core regulated business of CSW), Europe,
Latin America, Australia and Asia. Substantial investments have
been made in the first two regions, and extensive development
efforts are underway in Latin America and, to a lesser degree, in
Asia.
Regional diversification is important since economic
and political instability, when they have occurred historically,
have tended to involve multiple countries in a region.
Accordingly, CSW's board of directors may set limits on
investment in specific countries which vary according to an
assessment of the country's stability.
Another element of CSW's diversification policy is to
achieve a balance between so-called "greenfield" projects and
acquisitions of existing facilities and power systems.
Greenfield projects are those that involve completely new
development and construction of electric facilities, principally
generating stations. Greenfield projects involve a higher degree
of risk since they entail a lengthy process of development and
construction. Funds are expended during the early years of such
projects; return on investment is not earned until the project is
in operation. Nevertheless, while these projects have higher
levels of risk and deferred returns, they are important to CSW
because they generally produce higher rates of return on
investment than investments in existing assets and because they
lay the foundation for continued earnings growth for CSW after
the turn of the century.
To balance these greenfield project development
efforts, CSW's development efforts target assets to be purchased
that are already in operation, either from existing private
owners or through privatizations. These acquisitions reduce the
risk of CSW's overall business by producing near-term earnings
without significant development or construction risk.
The result of this balanced portfolio strategy is that
CSW is not dependent on any single country, regulatory
environment or type of asset for its earnings from independent
power projects and foreign utility investments. In addition,
while CSW has successfully developed significant investments in
projects which are expected to produce long-term results, it has
also ensured that its portfolio of projects will add cash flow
and earnings for its shareholders in the immediate future,
thereby supporting share value and dividend growth.
(4) Potential Investments in Additional Exempt
Projects. Energy and CSWI are presently investigating, alone and
in conjunction with others, investment opportunities in several
additional domestic and foreign power projects and existing
foreign utility systems. Most of these ventures are expected to
qualify as either EWGs or FUCOs. In particular, several foreign
countries, such as Australia and Brazil, are now privatizing
state-owned utility systems. Other countries, such as Korea,
Taiwan and Thailand, are promoting private investment to
construct, own and operate generating plants.
CSW intends to make substantial additional investments
in Exempt Projects, primarily for the following reasons:
There has not been any significant new equity
investment in any of the Operating Companies in over ten (10)
years and none is projected for at least the next three (3)
years. Thus, acquisitions of Exempt Projects present CSW with
the opportunity to continue to grow through reinvestment of
retained earnings in an industry sector that CSW has decades of
experience in, while at the same time diversifying overall asset
risk.
Second, CSW, directly or through Energy or CSWI, has
purposely pursued investments in utility systems in geographical
regions, such as England, Australia and South America, which have
moved much further than the United States towards deregulation
and full competition in both wholesale and retail electricity
markets. CSW believes that the creation and maintenance of value
for its shareholders will depend critically on its ability to
operate its core business in the United States successfully as
that business becomes subject to increasing competition. CSW's
experience in markets that are already largely deregulated will
be critical to the long-term success of its core business.
Moreover, the lessons learned from these markets provide CSW with
insights about the market structures that produce efficient and
equitable results for consumers and shareholders. These insights
will allow CSW to play a role in shaping the evolution of the
electric sector of the United States.
(5) Proposed Increase in Financing of Exempt Projects.
For the reasons stated above, CSW, Energy and CSWI hereby request
that the Commission exempt CSW, Energy and CSWI from the
requirements of Rule 53(a)(1) under the Act such that CSW, Energy
and CSWI may use the net proceeds from the issuance of recourse
debt and equity securities and issue Guarantees, each in
accordance with and upon the terms of the Financing Orders, in an
aggregate amount at any time outstanding which, when added to
CSW's direct and indirect "aggregate investment" in all Exempt
Projects, would not at any time exceed CSW's "consolidated
retained earnings." Based on CSW's "aggregate investment" in all
Exempt Projects (approximately $825 million as of February 1,
1996) and "consolidated retained earnings" as of December 31,
1995 (approximately $1.847 billion), such limitation would allow
financing of additional investments in Exempt Projects of
approximately $1.022 billion.
As described above, additional investments in Exempt
Projects of approximately $1.215 billion are contemplated, and,
upon the procurement of the authority of the Commission sought by
this Application-Declaration, additional investments of
approximately $1.022 billion as of December 31, 1995 will be
authorized. The additional authority requested will not, as of
December 31, 1995, be sufficient to enable CSW to make
investments in all Exempt Projects it is presently developing or
investigating. However, such limitations will be abated to the
extent that the development of all projects presently under
consideration are not consummated and that CSW's "consolidated
retained earnings" increase prior to the consummation of the
investments described above.
Item 2. Fees, Commissions and Expenses.
The estimate of the approximate amount of fees and
expenses payable in connection with this Application-Declaration
is as follows:
Holding Company Act filing fee..........$ 2,000.00*
Counsel fees
Milbank, Tweed, Hadley & McCloy.... 15,000.00
Miscellaneous and incidental expenses
including travel, telephone,
postage and copying................ 5,000.00
Total.........................$22,000.00
____________________
* Actual Amount.
Item 3. Applicable Statutory Provisions.
The proposal herein is subject to Sections 6(a), 7,
12(b), 32 and 33 of the Act and Rules 45, 53 and 54 thereunder.
Rule 53 provides that, if each of the conditions of paragraph (a)
thereof is met, and none of the conditions of paragraph (b)
thereof is applicable, then the Commission may not make certain
adverse findings under Sections 7 and 12 of the Act in
determining whether to approve a proposal by a registered holding
company to issue securities in order to finance an investment in
any EWG or to guaranty the securities of any EWG. Giving effect
to the proposals contained herein, CSW will satisfy all of the
conditions of Rule 53(a) except for clause (1) thereof, since CSW
is proposing herein that CSW's "aggregate investment" may exceed
50% of CSW's "consolidated retained earnings." None of the
conditions specified in Rule 53(b) is or will be applicable.
Rule 53(c) states that, in connection with a proposal
to issue and sell securities to finance an investment in any EWG,
or to guarantee the securities of any EWG, a registered holding
company that is unable to satisfy the requirements of paragraph
(a) or (b) of Rule 53 must "affirmatively demonstrate" that such
proposal:
(a) will not have a substantial adverse impact upon
the financial integrity of the registered holding
company system; and
(b) will not have an adverse impact on any utility
subsidiary of the registered holding company, or its
customers, or on the ability of State commissions to
protect such subsidiary or customers.
CSW addresses each of these requirements as follows:
(1) The use of proceeds from the issuance of debt and
equity securities of CSW to make investments in EWGs (as well as
in FUCOs), and the issuance of, or provision for, Guarantees in
connection therewith by CSW, in amounts of up to CSW's
"consolidated retained earnings" will not have a "substantial
adverse impact" on the financial integrity of the CSW System.
The lack of any "substantial adverse impact" on CSW's
financial integrity as a result of increased levels of
investments in Exempt Projects can be demonstrated in several
ways, including by analyses of historic trends in CSW's
consolidated capitalization ratios and retained earnings, the
market view of CSW's securities and CSW's proven success in
obtaining appropriate levels of non-recourse debt financing and
third-party equity for its investments in QFs and Exempt
Projects. Consideration of these and other relevant factors
supports the conclusion that the issuance of securities and
Guarantees by CSW to finance investments in Exempt Projects
exceeding the 50% consolidated retained earnings limitation in
Rule 53(a)(1) will not have any "substantial adverse impact" on
the financial integrity of the CSW System.
(a) Aggregate investments in Exempt Projects in
amounts up to 100% of CSW's "consolidated retained earnings"
would still represent a relatively small commitment of capital
for a company the size of CSW, based on various key financial
ratios at December 31, 1995. For example, investments in this
amount would be equal to only 25% of CSW's total capitalization
($7.4 billion), 21% of consolidated net utility plant
($9.0 billion), 13% of total consolidated assets ($13.9 billion),
and 34% of the market value of CSW's outstanding common stock
($5.4 billion).
(b) CSW's consolidated retained earnings have
grown on average approximately 3.8% per year over each of the
previous 5 years. Consolidated retained earnings increased
$71 million from 1993 to 1994, a 4.1% increase; and by
$69 million for the year ended December 31, 1995, a 3.8%
increase.
(c) Taken together with the credit strength of
the Operating Companies (which range from Single-A to Double-A),
CSW's actual consolidated capitalization and interest coverage
ratios for 1994 are within industry ranges set by the independent
debt rating agencies for Single-A rated companies.
Actual 1994 Capitalization and Interest Coverage Ratios
(Excluding Non-Recourse Project Debt):
Total Debt/Capital 57%
EBIT/Cash Interest (times) 2.8
Funds from Operations/Interest (times) 3.7
Actual 1995 Capitalization and Interest Coverage Ratios
(Excluding Non-Recourse Project Debt):
Total Debt/Capital (1) 60%
EBIT/Cash Interest (times) (1) 2.4
Funds from Operations/Interest (times) (1) 3.2
(1) Reflects the short-term impact of $713 million of
bridge debt incurred to fund CSW's equity investment in
SEEBOARD. CSW intends to repay the bridge debt through
a combination of internally generated funds, additional
sales of CSW common stock and strategic sales of
assets.
Industry Ratios for Single-A*
Average High Low
Total Debt/Capital 49% 56% 43%
EBIT/Cash Interest (times) 3.4 6.7 0.9
Funds from Operations/Interest (times) 4.4 8.3 2.9
*(Source: Moody's Investors Service Electric Utility
Sourcebook, October 1995)
(d) There is no indication that CSW's ability to
raise common equity has been adversely affected by investments in
Exempt Projects. In fact, just the opposite appears to be true,
relative to the rest of the industry. CSW has ongoing public
offerings of common stock through its PowerShare program which
commenced in February 1994, and is in registration presently to
offer up to 15,525,000 shares of common stock of CSW, the
proceeds of which will be used to reduce the bridge debt incurred
by CSW to fund its equity investment in SEEBOARD. Net proceeds
from the sale of CSW common stock through its PowerShare program
for 1994 and 1995 sales (average $23.23 and $25.27, respectively,
per share) compare favorably to the then per share net book
values for CSW's common stock ($16.01 and $16.48, respectively),
resulting in market-to-book ratios of 145% and 154%,
respectively. The market's assessment of CSW's future growth and
earnings also compared favorably to other electric utility
issuers in the 1994 to 1995 time frame. This can be shown by
comparison of price-earnings and market-to-book ratios, both of
which were generally above the electric utility industry average
in that period. These measures indicate investor confidence in
CSW's ability to deliver shareholder value.
1992 1993 1994 1995
P/E Ratio:
CSW 14.3 18.6 10.9 13.3
Electric Industry* 14.8 15.1 11.8 12
Market-to-Book
Ratio:
CSW 187% 195% 141% 169%
Electric Industry* 160% 161% 133% 137%
*(Source: Historical - Compustat Electric Utilities Database;
Current - Utility Focus, Regulatory Research Associates, Inc.,
August 1995)
(e) In recent years, CSW has been aligned with
the industry as a whole in its dividend payout policy.<F1> This
can be shown by CSW's dividend payout ratio (percentage of
earnings paid out in dividends), which has consistently
approximated the electric utility industry average. The
implication of a relatively conservative payout policy is that
CSW's earnings are more than adequate to cover current dividend
levels and to support the growth in dividend levels needed to
attract common stock investors, while continuing to strengthen
the equity base through retained earnings growth.
1992 1993 1994 1995
CSW Payout Ratio (%): 75.9 99.4 81.7 81.9
Electric Industry* 84.3 78.6 81.4 81
*(Source: Historical - Compustat Electric Utilities Database;
1995 - Merrill Lynch & Co., Utility Data Sheet, June 19, 1995
(for 12 months ended May 31, 1995))
(f) The market's assessment of the overall
quality of Energy's and CSWI's portfolio of projects (Exempt
Projects and QFs) is demonstrated by the success that Energy and
CSWI have had in obtaining appropriate levels of non-recourse
debt to finance and refinance the operations of these projects.
For example, Energy recently arranged a $104 million and a
$69 million non-recourse refinancing of Energy's pro rata
investment in the Ft. Lupton and Mulberry Projects, respectively,
and CSW Investment has arranged a $1.27 billion non-recourse
financing of a portion of CSW's investment in the SEEBOARD
project.
<F1> The exception was 1993, during which CSW underwent a corporate-wide
restructuring and early retirement program and recorded a one-time pretax
charge of approximately $100 million.
(g) None of the conditions described in paragraph
(b) of Rule 53 is applicable. Specifically, (1) there has been
no bankruptcy of any CSW associate company, (2) CSW's
consolidated retained earnings, as previously indicated, have
increased in recent years, and (3) CSW has never reported an
"operating loss" attributable to its Exempt Projects. Further,
with the completion of the purchase of the capital shares of
SEEBOARD, and with the Altamira Project scheduled to go into
commercial operation in 1997, it is reasonable to expect a
positive impact on the "operating income" of CSW's Exempt
Projects as a group. Finally, no associate Exempt Project has
ever defaulted under the terms of any financing document.
(2) The proposed increased use of financing proceeds
to invest in Exempt Projects will not have an "adverse impact" on
any of CSW's Operating Companies, their respective customers, or
on the ability of the four State commissions having jurisdiction
over one or more such Operating Companies to protect such
Operating Companies or such customers.
The conclusion that the Operating Companies and their
customers will not be adversely impacted by increased levels of
investment by CSW in Exempt Projects is well supported by
analyses of the Operating Companies' financial integrity
(including ability of the Operating Companies to issue senior
securities), lack of present and anticipated need for any
significant amount of equity capital from CSW, continuing
compliance with other applicable requirements of Rule 53(a), and
the proven effectiveness of State commission oversight together
with the affirmation by the State commissions that they will
protect ratepayers from any adverse impact contained in the
letters from the State commissions filed as Exhibit 2 to this
Application-Declaration. The State commissions can set the cost
of capital for electric utilities by comparison with selected
groups of domestic utilities, which exclude any utilities with
adverse impacts due to foreign investments or EWGs. Therefore,
the States have the authority and the mechanism to prohibit any
adverse effects on the cost of capital due to investments in
Exempt Projects from being passed on to ratepayers.
(a) All of CSW's investments in Exempt Projects
are segregated from the Operating Companies. No Operating
Company has extended credit or sold or pledged its assets
directly or indirectly to any Exempt Project,<F2> and the
indebtedness of the Exempt Projects is not otherwise recourse to
any Operating Company. CSW represents that it will not seek
recovery through higher rates to the Operating Companies' utility
customers in order to compensate CSW for any possible losses that
it may sustain on investments in Exempt Projects or for any
inadequate returns on such investments.
<F2> It should be noted that Section 33(f), with a minor exception,
prohibits State regulated public utilities from financing investments in
FUCOs, and Section 33(g) prohibits outright any pledge or encumbrance of
utility assets by a State regulated public utility for the benefit of any
associated FUCO.
(b) Debt (including short-term debt) ratios of
the Operating Companies are consistent with industry averages for
'A'-rated electric utilities. The current industry average for
'A'-rated electric utilities is 49%*
Debt as % of 1991 1992 1993 1994 1995
Capitalization
SWEPCO 45% 48% 48% 48% 49%
WTU 45% 44% 43% 48% 52%
PSO 47% 49% 49% 49% 48%
CPL 45% 48% 48% 49% 50%
*(Source: 'A' industry average-Calculated using Merrill Lynch &
Co., Utility Data Sheet - Electric and Combination Utility
Companies, April 1995)
Debt levels of the Operating Companies are projected to steadily
decline, moving to the 44-45% range by the year 2000. The
reduction in debt levels is attributable largely to projected
growth in retained earnings.
(c) Additional investments in Exempt Projects
will not have any negative impact on the Operating Companies'
ability to fund operations and growth. Over the past 10 years,
the Operating Companies have funded substantially all of their
construction expenditures from internal sources of cash and from
sales of senior securities and other borrowings. The last
significant equity infusion by CSW in the Operating Companies was
made in 1985 (approximately $70 million). Present projections
indicate that CSW will not have to make any significant equity
investment in any Operating Company for at least the next three
(3) years.
Operating Companies - Construction Expenditures:
Actual (1992-1995) and projected (1996-1997) expenditures, net of
Allowance for Funds Used During Construction ($million):
1991 1992 1993 1994 1995 1996 1997
276 326 480 493 397 332 356
Percent internally generated:
1991 1992 1993 1994 1995
114% 87% 82% 66% 76%
CSW presently estimates that for 1996 and 1997 the cash flow from
operations will be sufficient to fund expected construction
expenditures.
(d) The Operating Companies' ability to issue
debt and equity securities in the future depends upon earnings
coverages at the time such securities are issued; that is, the
Operating Companies must comply with certain coverage
requirements designated in their mortgage bond indentures.
Presently, the Operating Companies anticipate having more than
adequate earnings coverages for financing requirements in the
foreseeable future.<F3>
(e) The senior securities of each of the
Operating Companies are presently rated AA-, A+, A and A+ for
SWEPCO, WTU, CPL and PSO, respectively, by Standard & Poor's.
The Operating Companies' coverages have generally been within the
'A' and 'AA' ranges set by the major rating agencies in recent
years. The Operating Companies continue to show strong financial
statistics as measured by the rating agencies (pre-tax interest
coverage, debt ratio, funds from operations to debt, funds from
operations interest coverage, and net cash flow to capital
expenditures). CSW believes there has been no adverse effect on
the financial ratings of the Operating Companies as a result of
CSW's investments in Exempt Projects.
Bond Rating: 1991 1992 1993 1994 1995
SWEPCO AA- AA- AA- AA- AA-
WTU AA- AA- AA- A+ A+
CPL A- A A A A
PSO AA- AA- AA- A+ A+
(f) CSW has complied and will continue to comply
with the requirements of Rule 53(a)(2) regarding preparation of
and making available books and records and financial reports
regarding Exempt Projects.
<F3> 1995 indenture earnings coverages for the Operating Companies range
from about 5.2x to 8.1x, in each case well above the required coverages
of 2x.
(g) CSW has complied and will continue to comply
with the requirements of Rule 53(a)(3) regarding the limitation
on the use of Operating Company employees in connection with
providing services to Exempt Projects. Increased levels of
investment in Exempt Projects are not expected to have any impact
on utilization of Operating Company employees. The Operating
Companies have not and will not increase staffing levels or
acquire other resources to support the operations of Exempt
Projects. In this regard, the vast majority of the operational
employees of the Exempt Projects are hired or contracted locally.
This is true even where Energy, CSWI or their respective
subsidiary is the operator. Project development, management and
home office support functions for the Exempt Projects are largely
performed by Energy or CSWI, which together have approximately 89
full time employees, and by outside consultants (e.g., engineers,
investment advisors, accountants and attorneys) engaged by Energy
or CSWI. Accordingly, Energy's and CSWI's need for the support
of personnel provided by the Operating Companies has been and is
projected to remain relatively modest.
(h) There is no evidence that the four State
commissions having jurisdiction over the Operating Companies have
been or will be unable to protect utility customers. The State
commissions have not raised objections to CSW's investments in
Exempt Projects.<F4> To provide the Commission with additional
assurances, CSW met with each of the State commissions having
jurisdiction over the Operating Companies and requested each to
provide the Commission with a letter certifying that such State
commission has jurisdiction over certain Operating Companies and
that such State commission will protect ratepayers from any
adverse effect or costs that might result from CSW's investments
in Exempt Projects. Additionally, with respect to certain State
commissions, CSW will have to comply with certain reporting
requirements and covenant, among other things, that such
investments in Exempt Projects will not result in any obligation
by the Operating Companies. CSW and its affiliates have been
subjected to numerous audits by the Federal Energy Regulatory
Commission and the Commission, and it is assumed both staffs will
participate in future audits. Audits by the SEC have not raised
"significant" questions.
Item 4. Regulatory Approval.
The issuance and sale of securities by CSW and the use
of the proceeds thereof to acquire or guaranty the securities of
any Exempt Project are not subject to the jurisdiction of any
State commission or of any federal commission other than this
Commission. CSW has complied with the requirements of Rule
53(a)(4) by submitting a copy of this Application-Declaration to
[FN]
<F4> Section 33(c) (2) provides that the State commissions may make
recommendations to the Commission regarding a registered holding company's
relationship to FUCOs, and that the Commission shall "reasonably and fully
consider" such recommendations.
[FN]
the public utility commissions in Texas, Arkansas, Louisiana and
Oklahoma. In addition, CSW and the Operating Companies have
discussed the request for additional investment authority set
forth in this Application-Declaration with each of the four State
commissions having jurisdiction over one or more such Operating
Companies.
Item 5. Procedure.
It is requested that the Commission issue and publish
no later than March 1, 1996, the requisite notice under Rule 23
with respect to the filing of this Application-Declaration, such
notice to specify a date not later than March 26, 1996, as the
date after which an order granting and permitting this
Application-Declaration to become effective may be entered by the
Commission and the Commission enter not later than March 27,
1996, an appropriate order granting and permitting this
Application-Declaration to become effective.
CSW, Energy and CSWI respectfully request that
appropriate and timely action be taken by the Commission in this
matter in order that the development activities of CSW, Energy
and CSWI may continue to expand to the levels sought hereby.
No recommended decision by a hearing officer or other
responsible officer of the Commission is necessary or required in
this matter. The Division of Investment Management of the
Commission may assist in the preparation of the Commission's
decision in this matter, unless such Division opposes the matters
covered hereby. There should be no thirty-day waiting period
between the issuance and the effective date of any order issued
by the Commission in this matter, and it is respectfully
requested that such order be made effective immediately upon the
entry thereof.
Item 6. Exhibits and Financial Statements.
Exhibit 1 - Proposed Notice of Proceeding (amended).
Exhibit 2 - Correspondence from State Commissions.
(to be filed by amendment)
Item 7. Information as to Environmental Effects.
The proposed transactions do not involve major federal
action having a significant effect on the human environment. See
Item 1. No federal agency has prepared or is preparing an
environmental impact statement with respect to the proposed
transaction.
S I G N A T U R E
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, as amended, the undersigned company has duly
caused this document to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: April 4, 1996
CENTRAL AND SOUTH WEST CORPORATION
By:/s/ STEPHEN J. MCDONNELL
Stephen J. McDonnell
Treasurer
<PAGE>
S I G N A T U R E
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, as amended, the undersigned company has duly
caused this document to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: April 4, 1996
CSW ENERGY, INC.
By:/s/ TERRY D. DENNIS
Terry D. Dennis
President and Chief Executive
Officer
<PAGE>
S I G N A T U R E
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, as amended, the undersigned company has duly
caused this document to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: April 4, 1996
CSW INTERNATIONAL, INC.
By:/s/ TERRY D. DENNIS
Terry D. Dennis
President and Chief Executive
Officer
<PAGE>
EXHIBIT INDEX
Exhibit
Transmission
Number Exhibit Method
1 Proposed Notice of Proceeding (amended). Electronic
2 Correspondence from State Commissions ---
(to be filed by amendment)
<PAGE>
<PAGE> 1
Exhibit 1
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35-________)
Filings Under the Public Utility Holding Company Act of 1935
("Act") __________, 1996
Notice is hereby given that the following filing(s) has/have
been made with the Commission pursuant to provisions of the Act
and rules promulgated thereunder. All interested persons are
referred to the application(s) and/or declaration(s) for complete
statements of the proposed transaction(s) summarized below. The
application(s) and/or declaration(s) and any amendment(s) thereto
is/are available for public inspection through the Commission's
Office of Public Reference.
Interested persons wishing to comment or request a hearing
on the application(s) and/or declaration(s) should submit their
views in writing by __________, 1996 to the Secretary, Securities
and Exchange Commission, Washington, D.C. 20549, and serve a copy
on the relevant applicant(s) and/or declarant(s) at the
address(es) specified below. Proof of service (by affidavit or,
in the case of an attorney at law, by certificate) should be
filed with the request. Any request for hearing shall identify
specifically the issues of fact or law that are disputed. A
person who so requests will be notified of any hearing, if
ordered, and will receive a copy of any notice or order issued in
the matter. After said date, the application(s) and/or
declaration(s), as filed or as amended, may be granted and/or
permitted to become effective.
Central and South West Corporation, CSW Energy, Inc. and CSW
International, Inc. (70-____)
Central and South West Corporation, a registered holding
company under the Act ("CSW"), CSW Energy, Inc., a wholly-owned
nonutility subsidiary of CSW ("Energy"), and CSW International,
Inc., a wholly-owned nonutility subsidiary of CSW ("CSWI"), are
presently authorized under the terms of orders and supplemental
orders in File Nos. 70-7758, 70-8205 and 70-8423 (collectively,
the "Financing Orders") to finance the operations of CSW, Energy,
CSWI and their respective subsidiaries by issuing and selling
debt and equity securities and by issuing guarantees of the
securities of certain subsidiaries to invest, directly or
indirectly, in one or more "exempt wholesale generators" ("EWGs")
or "foreign utility companies ("FUCOs"), as defined in
Sections 32 and 33 of the Act, respectively; and to guaranty,
from time to time through December 31, 2000, the securities of
one or more qualifying facilities, as defined under the Public
Utility Regulatory Policies Act of 1978, as amended, and
independent power facilities, including EWGs, in an aggregate
amount not to exceed $75 million at any time outstanding.
The Financing Orders referred to above specify that the sum
of the principal amount of securities of EWGs and FUCOs that CSW
may guaranty and the proceeds of common stock sales and
borrowings used by CSW to invest in the securities of EWGs and
FUCOs shall not, when added to CSW's "aggregate investment," as
defined in Rule 53(a), in all such entities, exceed 50% of CSW's
"consolidated retained earnings," as determined in accordance
with Rule 53(a) under the Act. This is the requirement of Rule
53(a)(1), which is one of the conditions of the financing "safe-
harbor" under Rule 53(a).
As of February 1, 1996, CSW's "aggregate investment" in all
EWGs and FUCOs was approximately $825 million, or approximately
45% of CSW's "consolidated retained earnings" as of December 31,
1995 (approximately $1.85 billion).
CSW, Energy and CSWI are now requesting an order that would
exempt CSW, Energy and CSWI from the requirement of Rule 53(a)(1)
so as to allow CSW, Energy and/or CSWI to guaranty securities of
EWGs and FUCOs and to use the proceeds of debt and equity
securities to invest in the securities of EWGs and FUCOs in
amounts which, when added to CSW's "aggregate investment" at any
time in such entities, would not exceed CSW's "consolidated
retained earnings."
The application or declaration describes CSW's present
ownership of EWGs and FUCOs and the process of project risk
review and mitigation that CSW states is undertaken by its
subsidiaries, Energy and CSWI, prior to any commitment of funds
by CSW in any EWG or FUCO. CSW states that, through Energy and
CSWI, it is actively considering making investments in additional
foreign and domestic independent power projects and foreign
electric and gas utility systems which would qualify for
exemption under Section 32 or 33. If such additional investments
were consummated, it would result in CSW's "aggregate investment"
in all such entities exceeding the limitation on financing of
such investments contained in Rule 53(a)(1).
Rule 53(c) provides that, if any of the conditions of the
financing "safe-harbor" in Rule 53(a) is not satisfied, then an
applicant must "affirmatively demonstrate" that the proposal (i)
will not have a "material adverse impact upon the financial
integrity" of the holding company system, and (ii) will not have
an "adverse impact" on any utility subsidiary of the holding
company, or its customers, or on the ability of the relevant
State commissions to protect such subsidiary or customers.
In its application or declaration, CSW has provided
financial and other information which, CSW asserts, demonstrates
that the financing of investments by CSW in EWGs and FUCOs in
amounts which, when added to CSW's "aggregate investment" at any
point in time in such entities, may be equal to as much as CSW's
"consolidated retained earnings," would not have either of the
adverse impacts referred to in Rule 53(c). CSW represents that
it has provided a copy of the application or declaration to the
public service commissions in Texas, Arkansas, Louisiana and
Oklahoma and has made itself available for consultation with each
of those bodies.
For the Commission, by the Division of Investment
Management, pursuant to delegated authority.
Jonathan G. Katz
Secretary
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