Securities and Exchange Commission
Washington, D.C. 20549
FORM U-1
APPLICATION
UNDER SECTION 3(A)(1) OF THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Rochester Gas and Electric Corporation
89 East Avenue
Rochester, NY 14649
Agent for Service:
Marjorie L. Perlman
Rochester Gas and Electric Corporation
89 East Avenue
Rochester, NY 14649
Copies to:
Elizabeth W. Whittle, Esq.
Nixon, Hargrave, Devans & Doyle LLP
One Thomas Circle, N.W.
Suite 700
Washington, D.C. 20005
Telephone: (202) 457-5338
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION.
I. INTRODUCTION
Rochester Gas and Electric Corporation ("RG&E"), a New York
corporation and an electric and gas utility company, plans to implement a
holding company structure which will result in RG&E and its current subsidiaries
becoming the direct, wholly-owned subsidiaries of a newly formed holding
company, HoldCo.(1) RG&E hereby seeks an order from the Securities and Exchange
Commission ("Commission") granting an exemption from regulation under the Public
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1 The name HoldCo may be changed prior to the effective time of the Share
Exchange (as hereinafter defined) at the discretion of the Board of
Directors of HoldCo.
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Utility Holding Company Act of 1935 (the "Act" or "PUHCA"), 15 U.S.C. Sec.
79c(a)(1) (1994), for HoldCo under section 3(a)(1) of the Act. The
reorganization is being implemented as part of a comprehensive rate and
restructuring plan to satisfy electric industry restructuring goals established
by the Public Service Commission of the State of New York ("NYPSC"). As
demonstrated below, HoldCo, the holding company formed as a result of this
restructuring, will satisfy all of the criteria for exemption under section
3(a)(1) of the Act, and the requested exemption will not be detrimental to the
public interest or to the interest of investors or consumers.
II. BACKGROUND
A. DESCRIPTION OF PARTIES
RG&E is a gas and electric corporation, duly organized, existing,
and authorized to do business under the Transportation Corporations Law of the
State of New York. RG&E owns and operates electric generation, transmission, and
distribution facilities and natural gas distribution facilities that serve
retail customers in and around the City of Rochester, New York. The Company's
service area has a population of approximately one million and is well
diversified among residential, commercial, and industrial consumers. A map of
RG&E's service territory is attached hereto as Exhibit E-1. In addition to the
City of Rochester, which is the third largest city and a major industrial center
in New York State, RG&E's service territory includes a substantial suburban area
with commercial growth and a large and prosperous farming area.
RG&E's natural gas and retail electric business is subject to
regulation by the NYPSC, while RG&E's wholesale electric business is regulated
by the Federal Energy Regulatory Commission ("FERC"). RG&E is authorized by the
FERC to engage in sales of
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electric capacity and energy at cost-based rates(2) and at market-based
rates.(3) In addition, RG&E offers open access, non-discriminatory transmission
services pursuant to an Open Access Transmission Tariff accepted by the FERC.(4)
RG&E is authorized to engage in sales of electric energy to customers in Canada
pursuant to its authorization from the Department of Energy.(5)
RG&E has two wholly-owned subsidiaries, Energetix, Inc.
("Energetix") and RGS Development Corporation ("RGS").(6) Energetix is
authorized by FERC to sell capacity and energy at market-based rates.(7) RGS was
formed to pursue unregulated business opportunities in the energy marketplace.
RG&E's current corporate structure is shown in Appendix A attached to this
application.
RG&E is not currently subject to PUHCA because it is not a holding
company or a subsidiary company thereof as such terms are defined in the Act.
Neither of RG&E's two subsidiaries are public utility companies for purposes of
the Act.(8)
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2 RG&E's FERC Electric Rate Schedule, Original Volume No. 1 (Power Sales
Tariff), was accepted by the FERC in Docket No. ER94-1279.
3 Rochester Gas and Electric Corporation, 80 FERC Para. 61,284 (1997).
4 Allegheny Power System, Inc., et al., 77 FERC Para. 61,266 (1996), reh'g
denied sub nom., Central Maine Power Co., et al., 82 FERC Para. 61,251
(1998); Rochester Gas and Electric Corporation, 79 FERC Para. 61,378
(1997).
5 Rochester Gas and Electric Corporation, Order No. EA-160, Order
Authorizing Electricity Export to Canada (Jan. 23, 1998). To date, RG&E
has not made sales under this authorization.
6 RG&E has a third subsidiary, Energyline Corporation ("Energyline"), which
is currently inactive. RG&E is planning to dissolve Energyline before the
restructuring described in this Application takes place. If, however,
Energyline still exists when the restructuring occurs, Energyline will
become a wholly-owned subsidiary of HoldCo.
7 Rochester Gas and Electric Corporation, 80 FERC Para. 61,284 (1997).
Initially this rate schedule was filed in the name of ROXDEL. On February
12, 1998, the FERC accepted for filing a Notice of Succession filed in
Docket No. ER98-1120 by Energetix, Inc. reflecting the name change.
8 To be considered a public utility under PUHCA, a company must be an
electric utility company that "owns or operates facilities used for the
generation, transmission, or distribution of electric energy for sale" or
a gas utility company that "owns or operates facilities used for the
distribution at retail . . . of natural . . . gas for heat, light, or
power." 15 U.S.C. Sec. 79b (3), (4). Neither of RG&E's current
subsidiaries owns or operates such facilities.
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B. STATE REGULATORY BACKGROUND
The NYPSC regulates RG&E's gas and electric distribution business.
In August 1994, the NYPSC, instituted an investigation of issues related to a
restructuring of the electric industry in New York State ("Competitive
Opportunities Proceeding"). The overall objective of the Competitive
Opportunities Proceeding was to identify regulatory and ratemaking practices
that would assist in the transition to a more competitive electric industry.
On May 20, 1996, the NYPSC issued its Order in the Competitive
Opportunities Proceeding in Case No. 94-E-0952, et al.,(9) which set forth the
NYPSC's vision and goals for the future of the retail electric industry in New
York. In Opinion No. 96-12, the NYPSC required individual utilities, including
RG&E, to file a restructuring plan to address, among other things, the corporate
structure deemed necessary to meet the NYPSC's policy for increased competition.
On November 26, 1997, a settlement ("1997 Settlement") to implement RG&E's
restructuring plan to comply with the NYPSC's directive was approved.(10) The
proposed transactions described herein are an integral part of RG&E's overall
rate and restructuring plan, as approved by the NYPSC in the 1997 Settlement.
The 1997 Settlement permitted RG&E to establish a new corporate
structure through either a functionally separate or a legally distinct entity.
RG&E has determined that the holding company structure is the most effective
means to separate its regulated and unregulated
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9 In the Matter of Competitive Opportunities Regarding Electric Service,
Opinion No. 96-12, Opinion and Order Regarding Competitive Opportunities
for Electric Service (May 20, 1996) ("Opinion No. 96-12").
10 In the Matter of Rochester Gas and Electric Corporation's Plans for
Electric Rate/Restructuring Pursuant to Opinion No. 96-12, Case 96-E-0898,
Order Adopting Terms of Settlement Subject to Conditions and Changes
(Nov. 26, 1997).
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operations and to create a fully competitive environment for the supply of
electricity, at both wholesale and retail, to benefit RG&E's customers and
shareholders.
C. PROPOSED REORGANIZATION
The proposed restructuring will be initiated by the formation of a
new, wholly-owned subsidiary. RG&E will transfer all shares of stock of its
other subsidiaries, Energetix and RGS, in the form of a capital contribution to
the new subsidiary. The transition into a holding company structure will then be
accomplished through an exchange of each outstanding share of common stock of
RG&E for one share of common stock of the new subsidiary, HoldCo, pursuant to an
Agreement and Plan of Share Exchange (the "Share Exchange") to be entered into
between RG&E and HoldCo. As a result of the Share Exchange and subject to the
rights, if any, of the holders of RG&E's common stock to exercise their
appraisal rights, each outstanding share of common stock of RG&E will
automatically be exchanged and, without any further action, will thereafter
represent one share of common stock of HoldCo. Upon completion of the
restructuring, RG&E, Energetix, and RGS will be wholly-owned subsidiaries of
HoldCo.(11) The corporate structure immediately after the reorganization
is shown in Appendix A attached to this application.
The proposed Share Exchange is anticipated to be implemented as
soon as practicable after the Annual Meeting of the holders of RG&E Common Stock
("Stockholders") currently expected to be held on or about April 29, 1999. If
the Stockholders approve the proposed Share Exchange and the requisite
regulatory approvals are obtained, the share exchange will become effective upon
the filing of a Certificate of Exchange with the Department of State of the
State of New York ("Effective Time").
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11 As indicated in footnote 6, supra, if Energyline still exists at the time
this restructuring takes place, Energyline will become a wholly-owned
subsidiary of HoldCo.
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Prior to the Share Exchange, HoldCo will apply to have its common
stock listed on the New York Stock Exchange, Inc. ("NYSE"). It is anticipated
that HoldCo Common Stock will be listed and traded on such stock exchange upon
consummation of the Share Exchange, whereupon HoldCo will be required to file
reports with the Commission pursuant to section 13(a) of the Securities Exchange
Act of 1934, as amended ("1934 Act"). The RG&E common stock will cease to be
listed on the NYSE following the Share Exchange.
The consummation of the reorganization, including Share Exchange,
is subject to various conditions. These conditions include the granting by the
Commission of an exemption under section 3(a)(1) of the Act as requested in this
Application and the approval by the NYPSC, the FERC, and the Nuclear Regulatory
Commission ("NRC"). The Share Exchange is subject to approval by the affirmative
vote of two-thirds of the votes of the outstanding shares of RG&E common stock
at the Annual Meeting of Stockholders. The vote of the holders of RG&E Preferred
Stock is not required in connection with the Share Exchange.
HoldCo will file with the Commission a Registration Statement on
Form S-4 ("Registration Statement") under the Securities Act of 1933, as
amended. The Prospectus and Proxy Statement contained in the Registration
Statement, a copy of which will be filed by amendment as Exhibit C-1, will be
filed for the purpose of (i) registering the shares of HoldCo common stock to be
issued in exchange for the RG&E common stock and (ii) complying with the
requirements of the 1934 Act in connection with the solicitation of proxies of
the Stockholders.
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D. PURPOSE OF THE REORGANIZATION
As indicated above, the reorganization is an integral part of a
comprehensive settlement which was approved by the NYPSC. The reorganization is
intended to further the NYPSC's stated goals in restructuring the utility
industry in New York State into a competitive energy marketplace. The principal
purpose of the reorganization is to establish, in furtherance of the NYPSC's
directive, a more appropriate corporate structure to operate efficiently in the
evolving energy marketplace and to explore and take advantage of potential
business opportunities outside RG&E's present markets while protecting
ratepayers.
The holding company structure provides flexibility to respond in a
timely manner to new opportunities, while assuring appropriate protection for
regulated business stakeholders, including customers. The holding company
structure separates the operations of regulated and unregulated businesses. As a
result, it provides a better structure for regulators to assure that there is no
cross-subsidization of costs or transfer of business risk from unregulated to
regulated lines of business.
There are other benefits of a holding company structure. The
holding company structure will enable HoldCo to pursue unregulated business
opportunities in a timely manner. The new corporate structure also will permit
the use of financing techniques that are more directly suited to the particular
requirements, characteristics, and risks of unregulated operations without
affecting the capital structure or creditworthiness of RG&E. A holding company
structure also is desirable because it is easier for investors to analyze and
value individual lines of business. In short, the holding company structure is a
highly desirable form of conducting regulated and unregulated businesses within
the same corporate group.
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The reorganization represents the optimal structure for RG&E to
operate in a competitive environment while minimizing concerns of ratepayers.
ITEM 2. FEES, COMMISSIONS AND EXPENSES.
As explained further below, the Company is seeking an order
granting an exemption under section 3(a)(1) of the Act in connection with a
corporate reorganization. The reorganization itself does not require approval of
the Commission, because HoldCo will acquire only one subsidiary, RG&E, that is a
public utility company under the Act.(12) Therefore, Item 2 is inapplicable to
this filing.
ITEM 3. APPLICABLE STATUTORY PROVISION.
HoldCo will be a public utility holding company under the Act
since RG&E, an electric and gas utility, will become a wholly-owned subsidiary
of HoldCo. HoldCo respectfully submits that it should be granted an exemption
from regulation under PUHCA pursuant to section 3(a)(1) of the Act.(13) Section
3(a)(1) of the Act makes available an exemption from all of the provisions of
the Act (except for Section 9(a)(2) thereof) to a holding company if:
such holding company, and every subsidiary company thereof which is a
public-utility company from which such holding company derives,
directly or indirectly,
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12 See infra note 12.
13 An exemption under Sec. 3(a)(1) relieves a public utility holding company
from all regulations under PUHCA except for Sec. 9(a)(2). Section 9(a)(2)
does not apply to the instant transaction since HoldCo will acquire only
one utility subsidiary. See 15 U.S.C. Sec. 79i(a)(2).
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any material part of its income, are predominately intrastate in
character and carry on their business substantially in a single State
in which such holding company and every such subsidiary company thereof
are organized.(14)
HoldCo will satisfy such requirements. First, the operations of HoldCo and RG&E,
the only utility subsidiary from which HoldCo derives a material part of its
income, are predominantly intrastate in character and RG&E's utility operations
are confined to New York. Second, HoldCo will and RG&E does operate in the State
of New York, where HoldCo will be and RG&E, Energetix, and RGS are
incorporated.(15)
Section 3(a) of the Act provides that if an applicant satisfies
the objective requirements for an exemption, the applicant shall be granted the
exemption, "unless and except insofar as [the Commission] finds the exemption
detrimental to the public interest or the interest of investors or consumers."
In assessing whether a proposed exemption is "detrimental," the Commission has
focused upon the presence of state regulation, establishing that federal
intervention is unnecessary when state control is adequate.(16)
The Commission should find that sufficient safeguards exist under
state law to ensure that no potential adverse consequences would occur as a
result of the reorganization. As discussed above, the reorganization complies
with a settlement approved by the NYPSC. The Commission has relied in the past
upon the public policy decisions of state public utility commissions when
granting approval of restructuring transactions.(17) In addition, as discussed
--------------------------------------
14 15 U.S.C. Sec. 79c(a)(1).
15 Energyline is also incorporated in the State of New York.
16 See, e.g., KU Energy Corp., Holding Company Act Release No. 25409 (1991).
17 Id.
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above, RG&E will continue to be regulated under the utility laws of the State of
New York and its electric wholesale transactions will continue to be subject to
FERC jurisdiction.
ITEM 4. REGULATORY APPROVAL.
The Reorganization will require the approval of the NYPSC. A copy
of the NYPSC Petition is filed as Exhibit D-1 hereto, and a copy of the NYPSC's
Order pursuant thereto will be filed as Exhibit D-2 by amendment hereto as soon
as the Order is issued.
Additionally, this reorganization requires the approval of the
FERC, pursuant to Section 203(a) of the Federal Power Act and the NRC, pursuant
to Section 184 of the Atomic Power Act. A copy of the FERC application is
included as Exhibit D-3 and a copy of the FERC Order pursuant thereto will be
filed as Exhibit D-4, by amendment hereto. A copy of the NRC application is
included as Exhibit D-5, and a copy of the NRC Order pursuant thereto will be
filed as Exhibit D-6, by amendment hereto.
No other state or federal commission has jurisdiction over the
reorganization.
ITEM 5. PROCEDURE.
The reorganization is anticipated to be implemented as soon as
practicable after the Annual Meeting of Stockholders currently expected to be
held on or about April 29, 1999. A form of notice suitable for publication in
the Federal Register is attached hereto as Exhibit H-1.
RG&E does not believe that there should be a recommended decision
by a hearing officer or any other responsible officer of the Commission or that
there should be a 30-day waiting period between the issuance of the Commission's
order and the date on which it is to become effective. RG&E requests that the
Commission's order become effective immediately
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upon the entry thereof. RG&E consents to the Division of Investment Management
assisting in the preparation of the Commission's decision or order in this
matter, unless such Division opposes this application.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
(a) Exhibits
NO. DESCRIPTION METHOD OF FILING
A-1 Certificate of Incorporation of HoldCo to be in To be filed by amendment.
effect at the Effective Time.
A-2 By-Laws of HoldCo to be in effect at the To be filed by amendment.
Effective Time.
A-3 Restated Certificate of Incorporation of RG&E Incorporated herein by
filed in the Office of the Secretary of State reference from Exhibit
of State of New York on June 23, 1992. 4-5 filed in Registration
No. 33-49805.
A-4 Certificate of Amendment of the Certificate Incorporated herein by
of Incorporation of RG&E Under Section 805 reference from Exhibit 4
of the Business Corporation Law filed in the in the Form 10-Q for the
Office the Secretary of State of the State of quarter ended March 31,
New York on March 18, 1994. 1994, SEC File No. 1-672.
A-5 By-Laws of RG&E, as amended to date. Incorporated herein by
reference from Exhibit
3-1 in the Form 10-Q for
the quarter ended March
31, 1996, SEC File
No. 1-672.
B-1 Draft Plan of Exchange. To be filed by amendment.
C-1 Registration Statement on HoldCo on Form S-4 To be filed by amendment.
relating to the shares of HoldCo Common Stock to
be issued in connection with the Share Exchange.
D-1 NYPSC Petition dated July 30, 1998. Filed herewith. (Exhibits
omitted)
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NO. DESCRIPTION METHOD OF FILING
D-2 Order of the NYPSC. To be filed by amendment.
D-3 Application for FERC authorization Filed herewith. (Exhibits
under Section 203 of the Federal Power omitted)
Act dated August 12, 1998.
D-4 Order of the FERC. To be filed by amendment.
D-5 Request for NRC Consent under Section 184 Filed herewith. (Exhibits
of the Atomic Energy Act and 10 C.F.R. omitted)
Sec. 50.80 dated July 31, 1998.
D-6 Order of the NRC. To be filed by amendment.
E-1 Map showing service territory of RG&E. Filed herewith.
F-1 Preliminary Opinion of Counsel. Filed herewith.
F-2 "Past Tense" Opinion of Counsel. To be filed by amendment.
G-1 Financial Data Schedule. Filed herewith.
H-1 Form of Notice. Filed herewith.
(b) Financial Statements
This Application only requests that the Commission grant HoldCo
waiver from regulation under PUHCA. As stated above, Commission approval of the
underlying transaction is not required. As a result, financial statements are
not necessary to assist the Commission in the evaluation of this Application
and, therefore, are not included with this application.
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
This application is not being filed under section 6(b), 7, 9, or
10 of the Act. Accordingly, this item does not apply.
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SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company
Act of 1935, the undersigned company has duly caused this statement to be signed
on its behalf by the undersigned thereunto duly authorized.
Rochester Gas and Electric Corporation
Date: September 1, 1998 By: /s/Michael T. Tomaino
Michael T. Tomaino
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Appendix A
ROCHESTER GAS AND ELECTRIC CORPORATION
CURRENT CORPORATE STRUCTURE
-----------
RG&E
-----------
/
----------------------------------------------------
/ / /
----------------- ---------------- -------------
Energetix, Inc. RGS Development Energyline
Corporation Corporation(1)
---------------- --------------- --------------
-------------------------------
1 Energyline Corporation is currently inactive, and RG&E plans to dissolve it
prior to the corporate restructuring.
<PAGE>
ROCHESTER GAS AND ELECTRIC CORPORATION
PROPOSED CORPORATE STRUCTURE
-----------
HoldCo(1)
-----------
/
------------------------------------------------
/ / /
---------------- ---------------- ------
Energetix, Inc. RGS Development RG&E
Corporation
----------------- ---------------- -------
-------------------------------
1 If Energyline Corporation ("Energyline") still exists at the time of the
corporate restructuring, Energyline will become a wholly-owned subsidary of
HoldCo.
Exhibit D-1
STATE OF NEW YORK
BEFORE THE
PUBLIC SERVICE COMMISSION
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CASE 98-M-__________ - In the Matter of the Application of Rochester Gas
and Electric Corporation under the Public Service
Law, Including Sections 70, 107, 108 and 110
Thereof, to Form a Holding Company and for
Certain Related Transactions
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PETITION OF
ROCHESTER GAS AND ELECTRIC CORPORATION
TO FORM A HOLDING COMPANY
AND FOR CERTAIN RELATED TRANSACTIONS
NIXON, HARGRAVE, DEVANS & DOYLE LLP
Clinton Square
Suite 1300
Rochester, New York 14603
Telephone: (716) 263-1000
July 30, 1998
<PAGE>
STATE OF NEW YORK
BEFORE THE
PUBLIC SERVICE COMMISSION
- ------------------------------------------------------------------------------
CASE 98-M-__________ - In the Matter of the Application of Rochester Gas
and Electric Corporation under the Public Service
Law, Including Sections 70, 107, 108 and 110
Thereof, to Form a Holding Company and for
Certain Related Transactions
- ------------------------------------------------------------------------------
PETITION OF
ROCHESTER GAS AND ELECTRIC CORPORATION
TO FORM A HOLDING COMPANY
AND FOR CERTAIN RELATED TRANSACTIONS
Petitioner, ROCHESTER GAS AND ELECTRIC CORPORATION (the
"Company"), hereby applies to the Commission for authority under Sections 70,
107, 108 and 110 of the Public Service Law to form a holding company and for
certain related transactions. The Public Service Commission (the "Commission")
may rely on information included in the Company's submissions, including the
documents relating to the October 23, 1997 settlement agreement (the "Settlement
Agreement") approved by the Commission in Case 96-E-0898(1) as support for the
action requested in this filing. The Settlement Agreement, as approved, endorses
the form and substance of this Petition.(2)
In support of this application the Company states:
1. The Company supplies electric and gas service in nine
counties centering on the City of Rochester, New York. The Company is a
corporation organized pursuant to the laws of the State of New York in 1904. A
certified copy of the Company's Restated Certificate of Incorporation was filed
with the Commission on August 25, 1992 in Case 88-M-0147 and a copy of the most
recent Amendment thereto was filed on March 18, 1994 in Case 93-M-0354.
--------------------
1 In the Matter of Rochester Gas and Electric Corporation's Plans for
Electric Rate/Restructuring Pursuant to Opinion No. 96-12, Opinion No.
98-1, Opinion and Order Adopting Terms of Settlement Subject to Conditions
and Changes, issued January 14, 1998.
2 See Settlement Agreement Par. 67.
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2. There is appended hereto, as Exhibit A, a statement of
financial condition of the Company at December 31, 1997, pursuant to the
Commission's Rules of Procedure, 16 NYCRR Sec. 18.1.
3. The Settlement Agreement permits the establishment of a
holding company structure under which one or more regulated companies and one or
more unregulated companies may operate. These operating companies would be
direct or indirect subsidiaries of a holding company ("HoldCo").(3) This
structure will benefit the Company's customers, shareholders and employees by
providing the flexibility needed to compete effectively in the changing utility
industry, while at the same time protecting the Company's customers from the
risks inherent in the competitive businesses conducted by unregulated affiliates
of the Company.
4. To compete effectively, the Company must have no less
flexibility in doing business than that available to its competitors. A holding
company structure would allow the Company to implement a decision to enter, or
to deploy capital in, a competitive business without the delay of a regulatory
approval process. The delays necessarily associated with obtaining regulatory
approvals for such investments on a specific, case-by-case basis, while
reasonable, necessary and largely unavoidable in a regulated context, are simply
inconsistent with competitive success. The new corporate structure also would
permit the issuance of securities by the HoldCo to finance competitive
businesses (including Energetix and RGS Development). Under the Company's
current corporate structure, Section 69 of the Public Service Law would not
permit the issuance of securities for this purpose.
5. The customers of the regulated utility subsidiary
("RegCo") would be protected from the risks inherent in the competitive
businesses of unregulated subsidiaries. The RegCo, as a separate legal entity,
would not bear any losses or be responsible for any obligations that may arise
from the HoldCo or its unregulated subsidiaries. In addition, the RegCo, which
--------------------
3 The Company currently has three subsidiaries, Energetix, Inc., Energyline
Corporation and RGS Development Corporation. Energetix is a business
corporation that provides energy and energy service in western and central
New York State. RGS Development is a business corporation established as a
vehicle for miscellaneous energy related projects. Energyline is a
transportation corporation that formerly owned the Company's interest in
the Empire State Pipeline.
<PAGE>
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would not count as an asset any investment in such unregulated subsidiaries,
should not have its access to capital markets or credit ratings adversely
affected by the HoldCo or such subsidiaries.
6. Upon Commission approval and receipt of the necessary
shareholder and other regulatory approvals (described in paragraph 13 below),
the Company intends to establish the HoldCo pursuant to a tax-free
reorganization (the "Reorganization"). The Reorganization would be effected as a
"binding share exchange" as follows:
First, the Company would create the HoldCo
as a first-tier, wholly-owned subsidiary.
Then, in accordance with a plan of share exchange
adopted pursuant to Section 913 of the Business
Corporation Law, each share of the Company's common
stock outstanding immediately prior to the effective
time of the Reorganization will be exchanged for one
share of HoldCo common stock.
7. Upon consummation of the Reorganization, each person
who owned the Company's common stock immediately prior to the Reorganization
will own a corresponding number of shares of HoldCo common stock, and HoldCo
will own all of the outstanding shares of the Company's common stock. The
Company does not expect that the Reorganization would effect any change in the
preferred stock or debt of the Company (i.e., the preferred stock and debt of
the Company will remain outstanding securities of the Company). In connection
with the HoldCo's commencement of operations, the RegCo may lease office space
to the HoldCo and transfer to the HoldCo office furniture, equipment and other
assets having an aggregate net book cost of not to exceed $5 million.(4)
8. The Company would be the RegCo, and HoldCo would have
subsidiaries in addition to the RegCo.(5) The Company's strategic plans as to
the competitive businesses in which its unregulated affiliates will compete will
necessarily evolve as the utility industry
-------------------
4 See Settlement Agreement Sch. I, at 7-8.
5 See footnote 3, supra. It is expected that the Company, simultaneously
with the Reorganization or shortly before, will drop its stock in
Energetix, RGS Development and Energyline into HoldCo and that Energetix,
RGS Development and Energyline will become wholly-owned subsidiaries of
HoldCo.
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continues to evolve. Regardless of the businesses involved, it is essential that
HoldCo's unregulated subsidiaries not be disadvantaged by regulatory or
operating constraints imposed by the Commission. The unregulated subsidiaries
should be able to transact business with each other and with the RegCo on the
same basis as their competitors.
9. The Company believes that the Commission can, without
imposing operating constraints on HoldCo or its unregulated subsidiaries,
protect the RegCo's customers and prevent any unfair competitive advantage. The
relevant provisions set forth in the Settlement Agreement, and the corporate
structure, will protect the RegCo's customers from the risks of competitive
businesses carried on by unregulated subsidiaries.
10. Because the Settlement Agreement provides for a
fundamental change in the Company and the opening of its electric business to
competition, the Company believes that only limited operating constraints,
tailored closely to the activity to be monitored, are appropriate. These
constraints, along with the existing statutory tools of the Commission and the
Federal Energy Regulatory Commission and the federal and state antitrust laws,
will be adequate to protect customers and ensure that robust competition
develops while at the same time allowing the HoldCo and its subsidiaries to
compete in the market. As competition develops, the Company believes that the
specific restrictions should be reviewed to determine whether they are still
appropriate or necessary.
11. The Settlement Agreement sets forth the conditions to
the making of capital contributions to HoldCo and its unregulated affiliates.(6)
Those provisions are incorporated in this Petition by reference.
12. The Company also agrees to abide by certain operating
principles relating to intercompany relationships, its code of conduct, cost
allocations and other relevant provisions, all as set forth in Schedule I to the
Settlement Agreement.
13. Implementation of the HoldCo structure will require
certain approvals in addition to that of the Commission and other actions by
federal and state authorities. Consummation of the Reorganization will require
the adoption of a plan of share exchange at a
--------------------
6 See Settlement Agreement, Par. 67 and Sch. I.
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meeting of the Company's shareholders. In connection with its solicitation of
proxies to vote at the meeting, HoldCo must file a Registration Statement on
Form S-4 with the Securities and Exchange Commission to register the HoldCo
common shares to be exchanged for the outstanding Company common shares, and
such Registration Statement must become effective. The Registration Statement
will also contain a proxy statement of the Company describing the Reorganization
in detail, which proxy statement will be mailed to Company shareholders prior to
the meeting referred to above. The Company must deliver to the New York State
Secretary of State a certificate of exchange under Section 913 of the New York
Business Corporation Law, the certificate of exchange must be endorsed on behalf
of the Commission (pursuant to Section 108 of the Public Service Law), and the
Secretary of State must file the certificate of exchange. In addition, prior to
the reorganization it is expected that HoldCo would file with the Securities and
Exchange Commission an application for the intrastate exemption from the
registration requirements of the Public Utilities Holding Company Act provided
by Section 3(a)(1) thereof or Rule 2 thereunder. The Company will need to file
for the approval of the Federal Energy Regulatory Commission and the Nuclear
Regulatory Commission. The Company intends to file the aforementioned
applications for approval as soon as practicable.
14. The Company respectfully reserves the right to amend
and/or withdraw this Petition at any time prior to its acceptance of an order of
the Commission with respect to the Petition. The Company further requests that
any such order by its terms permit the Company (even after unconditionally
accepting the order) to decide not to consummate the transactions described
herein.
<PAGE>
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WHEREFORE, the Company requests that the Commission issue an
order authorizing (i) the formation of a holding company for the Company, as
described and subject to the conditions contained herein, (ii) the related
transactions described herein and in the Settlement Agreement, (iii) the
Secretary of the Commission to endorse the Commission's consent and approval
upon the certificate of exchange executed by the Company, and (iv) such other
and further relief to which Petitioner may be entitled by reason of the
premises.
Respectfully submitted,
ROCHESTER GAS AND ELECTRIC
CORPORATION
By: /s/ Michael T. Tomino
Title: Senior Vice President and General Counsel
Dated: July 30, 1998
Rochester, New York
<PAGE>
Exhibit to Exhibit D-1
EXHIBIT TO ROCHESTER GAS AND ELECTRIC CORPORATION'S
JULY 30, 1998 FILING AT THE NEW YORK STATE PUBLIC SERVICE COMMISSION
CONCERNING THE FORMATION OF A HOLDING COMPANY
Exhibit A Financial Condition
Pursuant to the instructions for the filing of an application using
Form U-1, this exhibit has been omitted as it is neither relevant nor material
to this Application.
Exhibit D-3
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
Rochester Gas and Electric Corporation ) Docket No. EC98-
APPLICATION OF ROCHESTER GAS AND ELECTRIC CORPORATION
FOR AUTHORITY TO IMPLEMENT PROPOSED
HOLDING COMPANY STRUCTURE
Pursuant to section 203 of the Federal Power Act ("FPA"), 16 U.S.C.
Sec. 824b, and Part 33 of the Commission's regulations, 18 C.F.R. Sec. 33
(1997), Rochester Gas and Electric Corporation ("RG&E") hereby files an
Application for authority to implement a holding company structure. The proposed
reorganization involves the formation of a new holding company, HoldCo, which
will become the parent corporation of RG&E through a share-for-share exchange of
RG&E's common stock for common stock of HoldCo. RG&E believes that a holding
company structure will enable it to better respond to the changing business
environment of the electric utility industry. The proposed holding company
structure would have no effect on RG&E's jurisdictional facilities, rates, or
services and is compatible with the public interest. In support of this
Application, RG&E submits the following:
I. BACKGROUND
RG&E is a public utility under section 201 of the Federal Power Act and
a gas and electric corporation, duly organized, existing, and authorized to do
business under the Transportation Corporations Law of the State of New York.
RG&E owns and operates electric generation, transmission, and distribution
facilities and natural gas distribution facilities that
<PAGE>
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serve retail customers in and around the City of Rochester, New York. The
Company's service area has a population of approximately one million and is well
diversified among residential, commercial, and industrial consumers. In addition
to the City of Rochester, which is the third largest city and a major industrial
center in New York State, it includes a substantial suburban area with
commercial growth and a large and prosperous farming area. RG&E's retail
electric business is subject to regulation by the New York Public Service
Commission ("NYPSC").
RG&E is authorized by the Commission to engage in sales of capacity and
energy at cost-based rates(1) and at market-based rates.(2) In addition, RG&E
offers open access, nondiscriminatory transmission services pursuant to an Open
Access Transmission Tariff accepted by the Commission.(3) RG&E has two
wholly-owned subsidiaries, Energetix, Inc. ("Energetix") and RGS Development
Corp. ("RGS").(4) Energetix is authorized by the Commission to sell capacity and
energy at market-based rates.(5) RGS was formed to pursue unregulated business
opportunities in the energy marketplace.
The proposed reorganization into a holding company is in response to
the Competitive Opportunities proceeding instituted by the NYPSC in Case No.
94-E-0952, et al.,(6) which
-------------------
1 RG&E's FERC Electric Rate Schedule, Original Volume No. 1 (Power Sales
Tariff), was accepted by the Commission in Docket No. ER94-1279.
2 Rochester Gas and Electric Corporation, 80 FERC Para. 61,284 (1997).
3 Rochester Gas and Electric Corporation, 79 FERC Para. 61,378 (1997).
4 RG&E has a third subsidiary, Energyline Corporation ("Energyline"), which
is currently inactive. RG&E is planning to dissolve Energyline before the
restructuring described in this Application takes place. If, however,
Energyline still exists when the restructuring occurs, Energyline will
also become a wholly-owned subsidiary of HoldCo.
5 Rochester Gas and Electric Corporation, 80 FERC Para. 61,284 (1997).
Initially this rate schedule was filed in the name of ROXDEL. On February
12, 1998, the Commission accepted for filing a Notice of Succession filed
in Docket No. ER98-1120 by Energetix, Inc. reflecting the name change.
6 In the Matter of Competitive Opportunities Regarding Electric Service,
Opinions No. 96-12, Opinion and Order Regarding Competitive Opportunities
for Electric Service (May 20, 1996) ("Opinion No. 96-12").
<PAGE>
-3-
addresses the future structure of the electric utility industry in New York
State. In Opinion No. 96-12, the NYPSC required individual utilities, including
RG&E, to file a restructuring plan to address, among other things, the corporate
structure deemed necessary to meet the NYPSC's policy and vision for increased
competition. On November 26, 1997, RG&E's settlement ("1997 Settlement")
concerning the Company's restructuring plan was approved by the NYPSC.(7)
The 1997 Settlement permitted RG&E to establish a new corporate
structure through either a functionally separate or a legally distinct entity.
RG&E has determined that the holding company structure is the most effective
means to separate its regulated and unregulated operations and to create a fully
competitive environment for the supply of electricity, at both wholesale and
retail, to benefit RG&E's customers and shareholders.
II. PROPOSED REORGANIZATION
A. PROPOSED HOLDING COMPANY STRUCTURE
The proposed restructuring will be initiated by the formation of a new,
wholly-owned subsidiary. RG&E will transfer all shares of stock of its other
subsidiaries, Energetix and RGS, in the form of a capital contribution to the
new subsidiary. The transition into a holding company structure will then be
accomplished through an exchange of each outstanding share of common stock of
RG&E for one share of common stock of the new subsidiary, HoldCo, pursuant to an
Agreement and Plan of Share Exchange (the "Share Exchange") to be entered into
between RG&E and HoldCo. As a result of the Share Exchange and subject to the
rights, if any, of the holders of RG&E's common stock to exercise their
appraisal rights, each outstanding
-------------------
7 Order Adopting Terms of Settlement Subject to Conditions and Changes,
issued November 26, 1997 in Case 96-E-0898, In the Matter of Rochester Gas
and Electric Corporation's Plans for Electric
(Footnote continued on next page)
<PAGE>
-4-
share of common stock of RG&E will automatically be exchanged and, without any
further action, will thereafter represent one share of common stock of HoldCo.
Upon completion of the restructuring, RG&E, Energetix, and RGS will be
wholly-owned subsidiaries of HoldCo.
Attached to this Application as Appendix A are diagrams showing RG&E's
corporate structure prior to and after the creation of the holding company.
B. APPLICABLE STANDARD FOR APPROVAL
The Commission has held that the transfer of ownership and control of
jurisdictional facilities through a transfer of a public utility's common stock
from existing shareholders to a newly-created holding company, such as the
reorganization proposed by RG&E, constitutes a disposition of jurisdictional
facilities requiring prior Commission approval under section 203 of the FPA.(8)
The Commission will approve a proposed disposition of facilities under section
203 if the disposition is consistent with the public interest. In evaluating
consistency with the public interest, the Commission focuses on three factors:
the effect on competition, the effect on rates, and the effect on regulation.(9)
RG&E's proposed reorganization is clearly in the public interest. The formation
of a holding company will be beneficial to competition, will have no effect on
RG&E's rates and no effect on regulation. Furthermore, it is similar to other
public utilities' corporate restructuring proposals that the Commission has
determined to be consistent with the public interest. Therefore, the Commission
should approve RG&E's proposed restructuring.
-------------------
(Footnote continued from previous page)
Rate/Restructuring Pursuant to Opinion No. 96-12.
8 Central Vermont Public Service Corporation, 39 FERC Para. 61,295 (1987).
9 Inquiry Concerning the Commission's Merger Policy Under the Federal Power
Act, Policy Statement, Order No. 592, FERC Stats. and Regs. Para. 31,044
at 30,111, 30,113-114 (1996), order on reconsideration, Order No. 592-A,
79 FERC Para. 61,321 (1997) ("Merger Policy Statement"); see also Boston
Edison Company BEC Energy, 80 FERC Para. 61,274 (1997).
<PAGE>
-5-
III. FILING REQUIREMENTS UNDER SECTION 33.2 OF THE COMMISSION
REGULATIONS
The following information is submitted in accordance with Section 33.2
of the Commission's regulations.(10)
A. THE EXACT NAME AND ADDRESS OF THE PRINCIPAL BUSINESS OFFICE OF
THE APPLICANT
Rochester Gas and Electric Corporation
89 East Avenue
Rochester, New York 14649
B. NAMES AND ADDRESSES OF PERSONS AUTHORIZED TO RECEIVE NOTICES
AND COMMUNICATION CONCERNING THIS APPLICATION
Elizabeth W. Whittle, Esq.
Nixon, Hargrave, Devans & Doyle LLP
One Thomas Circle
Suite 700
Washington, D.C. 20005
(202) 457-5300
(202) 457-5355 (facsimile)
and
Marjorie L. Perlman
Senior Regulatory Analyst
Rochester Gas and Electric Corporation
89 East Avenue
Rochester, New York 14649
(716) 771-4690
(716) 724-8818 (facsimile)
-------------------
10 18 C.F.R. Sec.33.2 (1997).
<PAGE>
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C. DESIGNATION OF THE TERRITORIES SERVED, BY COUNTIES AND STATES
RG&E's service territory includes portions of the following counties,
all within the State of New York: Genesee, Livingston, Monroe, Ontario, Orleans,
Wayne and Wyoming. Attached as Appendix B is a map indicating RG&E's gas and
electric franchise areas.
D. A GENERAL STATEMENT BRIEFLY DESCRIBING THE FACILITIES OWNED OR
OPERATED FOR TRANSMISSION OF ELECTRIC ENERGY IN INTERSTATE
COMMERCE OR FOR THE SALE OF ELECTRIC ENERGY IN INTERSTATE
COMMERCE OR FOR THE SALE OF ELECTRIC ENERGY AT WHOLESALE IN
INTERSTATE COMMERCE
RG&E owns and/or operates approximately 1117 miles of transmission
circuits, including over 158 miles of 110 kV lines, over 243 miles of 150 kV
lines, and over 715 miles of 345 kV lines. RG&E also has ownership interests in
several generation facilities which it uses to serve its electric retail
customers and to make wholesale sales of electric energy pursuant to rate
schedules that are on file with the Commission. The total net generating
capacity of the Company's electric system is 1,239,000 Kw. The Company's five
major generating facilities are two nuclear units, the Ginna Nuclear Plant and
the Company's fourteen percent share of Nine Mile Point Nuclear Plant Unit No.
2, and three fossil fuel generating stations, the Russell and the Beebee
Stations and the Company's twenty-four percent share of Oswego Unit Six ("Oswego
6").(11) In addition, the Company has four licensed hydroelectric generating
stations with an aggregate capacity of 47 megawatts.(12)
-------------------
11 On December 1, 1997, Niagara Mohawk Power Corporation ("Niagara")
announced a plan to sell its fossil-fueled and hydroelectric generating
stations by auction in 1998. This plan was agreed to as part of Niagara's
Power Choice Settlement currently under review by the NYPSC. The Company
intends to include its 24% share of Niagara's Oswego 6 for sale as part of
Niagara's auction.
12 Although not directly relevant to this application, the Company also owns
and operates natural gas distribution facilities unlicensed hydroelectric
projects.
<PAGE>
-7-
E. WHETHER THE APPLICATION IS FOR DISPOSITION OF FACILITIES BY
SALE, LEASE OR OTHERWISE, AND A DESCRIPTION OF THE
CONSIDERATION, IF ANY
As described above, this Application is for authorization to implement
a holding company structure, which will be completed through a share-for-share
exchange of RG&E's common stock for HoldCo's stock. No consideration or sales
price is entailed.
F. A STATEMENT OF FACILITIES TO BE DISPOSED OF, CONSOLIDATED OR
MERGED, GIVING A DESCRIPTION OF THEIR PRESENT USE AND PROPOSED
USE AFTER DISPOSITION, CONSOLIDATION OR MERGER, AND WHETHER
THE PROPOSED DISPOSITION INCLUDES ALL OF THE OPERATING
FACILITIES OF THE PARTIES TO THE TRANSACTION
The Commission deems the creation of a holding company over RG&E to be
a disposition of all of RG&E's facilities for purposes of the FPA. However,
after the holding company structure is implemented, title, possession, and use
of all of RG&E's operating facilities will continue to be held by RG&E, which
will be a wholly-owned subsidiary of HoldCo.
G. A STATEMENT (IN THE FORM PRESCRIBED BY THE COMMISSION'S
UNIFORM SYSTEM OF ACCOUNTS FOR PUBLIC UTILITIES AND LICENSEES)
OF THE COST OF THE FACILITIES INVOLVED IN THE DISPOSITION
The cost of RG&E's utility plant in the form prescribed by the Uniform
System of Accounts is shown in RG&E's FERC Form No. 1 for the year ended
December 31, 1997, at pages 110, 200, 204 through 207.
<PAGE>
-8-
H. A STATEMENT AS TO THE PROPOSED TRANSACTION UPON ANY CONTRACT
FOR THE PURCHASE, SALE, OR INTERCHANGE OF ELECTRIC ENERGY
The proposed reorganization will not affect any contract for the
purchase, sale, or interchange of electricity. Each such contract that is in
existence on the date of the reorganization will continue in effect in
accordance with its terms after the reorganization.
I. A STATEMENT AS TO WHETHER ANY APPLICATION WITH RESPECT TO THE
TRANSACTION OR ANY PART THEREOF IS REQUIRED TO BE FILED WITH
ANY OTHER FEDERAL OR STATE REGULATORY BODY
RG&E filed an application with the NYPSC requesting authorization for
the proposed restructuring on July 30, 1998. Such a filing is specifically
contemplated by the RG&E's Settlement in the Competitive Opportunities
proceeding.(13) In approving the Settlement, the NYPSC endorsed in principle the
proposed restructuring, subject to the Company's filing of a petition
substantially in the form attached as Schedule J to the Settlement. However, the
fact that the NYPSC has not yet approved the proposed restructuring should not
delay review of the instant Application. The Commission has stated that it will
not delay processing applications such as RG&E's to allow states to complete
their own reviews.(14) RG&E also filed an application with the Nuclear
Regulatory Commission ("NRC") on July 31, 1998 and will shortly file an
application with the Securities and Exchange Commission(15) ("SEC"). Other than
review by the Commission, NYPSC, and NRC, no other state or federal agency is
required to approve the proposed reorganization.
-------------------
13 1997 Settlement at 52.
14 Merger Policy Statement, FERC Stats. and Regs. at 30,127-28.
15 RG&E will file an application at the SEC for an order granting an
exemption to HoldCo from regulation under the Public Utilities Holding
Company Act ("PUHCA" or the "Act") pursuant to
(Footnote continued on next page)
<PAGE>
-9-
J. THE FACTS RELIED UPON TO SHOW THAT THE PROPOSED DISPOSITION
WILL BE CONSISTENT WITH THE PUBLIC INTEREST
RG&E submits that the proposed reorganization is consistent with the
public interest. The Commission has on numerous occasions found that
reorganizations involving the creation of holding companies are consistent with
the public interest.(16) The proposed reorganization will strengthen RG&E by
establishing a more appropriate corporate structure for the pursuit of
unregulated non-utility business activities. RG&E expects that the resulting
increased flexibility will enhance its long-term financial strength.
As the Commission is well aware, deregulation and competition are
reshaping the utility industry and changing the nature of the electric business.
After extensive investigation and analysis, RG&E has determined that the holding
company structure described in this Application is the best means for RG&E to
position itself for future changes and opportunities. Furthermore, this
structure will enable it to take advantage of emerging business opportunities to
the benefit of both shareholders and customers.
The proposed reorganization is in the public interest as evaluated
based upon the three factors set forth in the Commission's Merger Policy
Statement: (1) effect on competition, (2) effect on rates, and (3) effect on
regulation.(17) When evaluating the effect on competition, the
-------------------
(Footnote continued from previous page)
section 3(a)(1) of the Act.15 U.S.C. Sec. 79c(a)(1). SEC approval of the
reorganization is not required.
16 See, e.g., New York State Electric and Gas Corporation, 81 FERC Para. 62,
201 (1997); Pennsylvania Power & Light Company, 69 FERC Para. 62,267
(1994); Commonwealth Edison Company, 63 FERC Para. 62,049 (1994); Central
Vermont Public Service Corporation, 39 FERC Para. 61,295 (1987).
17 See Merger Policy Statement, FERC Stats. and Regs. Para. 31,044. The
Merger Policy Statement addresses public utility mergers subject to the
Commission's jurisdiction under Section 203(a) of the FPA. While the
instant Application does not involve a "merger" between electric public
utilities, but
(Footnote continued on next page)
<PAGE>
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Commission considers whether the proposed merger will result in dominant firms
that will manipulate electricity markets and harm competition.(18) Additionally,
when evaluating the effect on rates, the Commission considers whether the
proposed merger is likely to lead to unnecessary rate increases or inhibit rate
decreases.(19) Finally, when evaluating the effect on regulation, the Commission
considers whether the merger would impair effective regulation by creating a
regulatory gap.(20) As more fully demonstrated below, the proposed
reorganization: (1) does not raise competitive issues; (2) does not adversely
affect wholesale power sales or transmission rates; and (3) does not adversely
impact on the ability of the Commission or state regulators to regulate the
jurisdictional entities.
1. EFFECT ON COMPETITION
The proposed restructuring will not have an adverse effect on
competition in wholesale electric markets. In fact, the proposed reorganization
is being effected substantially as a response to the NYPSC's Competitive
Opportunities proceeding designed to increase competitive choices for New York
ratepayers. The proposed reorganization results in a change in ownership or
control of jurisdictional facilities solely by reason of the creation of a new
holding company and the exchange of shares of RG&E for shares of HoldCo. For
this reason, the proposed transaction will create neither vertical nor
horizontal market power issues.
In order to have an effect on competition, a transaction must change in
some manner the relative ownership or control of generation assets, transmission
assets or other inputs that could
-------------------
(Footnote continued from previous page)
rather the reorganization of an electric public utility,
RG&E has addressed each of the criteria set forth in the Merger Policy
Statement to demonstrate that the reorganization is in the public
interest.
18 Merger Policy Statement, FERC Stats. and Regs. at 30,117.
19 Id. at 30,121-122.
20 Id. at 30,124.
<PAGE>
-11-
be used as barriers to entry or to affect price. Here, however, RG&E will own or
control the same generation, transmission and other utility assets after the
holding company formation as before. Furthermore, RG&E's facilities will not be
combined with the facilities of any other public utility as a result of the
reorganization and, therefore, the proposed reorganization does not enhance the
ability of RG&E to exercise market power in any geographic or product
market.(21) After the reorganization, RG&E will continue to provide the same
non-discriminatory rates and terms and conditions of service that it currently
does. RG&E's proposed reorganization, therefore, is fully consistent with the
Commission's pro-competitive policies.
The proposed reorganization represents a fundamental pro-competitive
shift in business structure that will serve the goals of the NYPSC, as well
those of this Commission. The benefits of a holding company structure are well
established. The proposed structure will facilitate the separation of RG&E's
traditional utility operation from those of its unregulated businesses.
Furthermore, a holding company structure protects ratepayers from
cross-subsidization of costs and from the transfer of business risk from
unregulated to regulated businesses. It allows the Commission and the NYPSC to
more easily track costs and revenues. In short, the holding company structure is
a highly desirable form of conducting regulated and unregulated business within
the same corporate group.
2. EFFECT ON RATES
The proposed reorganization will have no effect on RG&E's rates or
operating costs. RG&E does not, in this Application, propose to change any rates
for services. After the reorganization is complete, RG&E will continue to be
subject to regulation by the NYPSC with respect to its retail rates, service,
accounting and other general matters of utility operation, and
-------------------
21 See Enova Corporation, 79 FERC Para. 61,107 (1997).
<PAGE>
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subject to regulation by the Commission with respect to any and all wholesale
power sales-related and transmission-related issues. RG&E will continue to own
and operate all of its jurisdictional facilities and will continue to perform
under all of its contracts.
The reorganization will help RG&E to maintain a balanced capital
structure and insulate RG&E's utility customers from the effects of its
unregulated businesses. By separating RG&E's regulated and unregulated
activities, the holding company structure will ensure that the credit quality of
RG&E is unaffected by any higher risk undertakings by its unregulated
businesses.
3. EFFECT ON REGULATION
The proposed reorganization will have no effect on the ability of this
Commission or the NYPSC to regulate RG&E. No regulatory gap will be created by
creation of this proposed holding company. Following the reorganization, RG&E
will continue to be subject to the jurisdiction of the Commission for wholesale
sales of electricity and wholesale transmission matters. RG&E's market-based
rate authority will remain the same after the restructuring. In addition, RG&E's
Code of Conduct, which governs interactions between RG&E and Energetix, will
remain in effect and unaltered after the restructuring. RG&E also will continue
to be subject to the jurisdiction of the NYPSC, whose authorization to form this
holding company is required. HoldCo will not be a registered holding company
under PUHCA and will qualify for an exemption from registration as a
"predominately intrastate" public utility holding company pursuant to section
3(a)(1) of PUHCA. Thus, there will be no potential conflict between regulation
under PUHCA and the Federal Power Act.(22)
-------------------
22 See Long Island Lighting Company, 80 FERC Para. 61,035 (1997); Enron
Corporation, 78 FERC Para. 61,179 (1997)
<PAGE>
-13-
K. BRIEF STATEMENT OF FRANCHISE HELD, SHOWING DATE OF EXPIRATION,
IF NOT PERPETUAL
RG&E holds an individual franchise for electric and gas service for
each municipality it serves. All franchises that RG&E holds for electric service
are perpetual.
L. FORM OF NOTICE SUITABLE FOR PUBLICATION IN THE FEDERAL
REGISTER, BRIEFLY SUMMARIZING THE APPLICATION IN SUCH A WAY AS
TO ACQUAINT THE PUBLIC WITH ITS SCOPE AND PURPOSE
A Form of Notice suitable for publication in the Federal Register,
pursuant to 18 C.F.R. Sec. 35.8, is attached hereto as Appendix C. An electronic
version of the draft notice is also submitted herewith on a 3 1/2" diskette in
WordPerfect 5.2 format.
IV. LIST OF MATERIALS ENCLOSED WITH FILING
This Application is comprised of the foregoing statements and the
following appendices and required exhibits:
Appendix A - Diagram of RG&E's current and proposed corporate
structure.
Appendix B - Map indicating RG&E's gas and electric franchise
area.
Appendix C - Form of Notice for publication in the Federal
Register.
Appendix D - Verification
The following exhibits required by Section 33.3 of the Commission's
Regulations are attached to this Application:
Exhibit A - Resolution adopted by RG&E's Board of Directors
authorizing the Reorganization proposal and the
filing of this Application. (To be filed when
available)
Exhibit B - Statement of measure of control or ownership
exercised by or over RG&E and the nature and extent
of any intercorporate relationships.
Exhibit C - RG&E's balance sheet with supporting plant schedules
for the 12-month period ended December 31, 1997 in
the form prescribed for Statements A
<PAGE>
-14-
and B of Form No. 1, "Annual Report for Electric
Utilities, Licensees and Others (Class A and Class
B)," prescribed by Section 14.1 of the Commission's
Rules and Regulations.
Exhibit D - Statement of known contingent liabilities of RG&E,
except minor items.
Exhibit E - RG&E's income statement for the 12-month period ended
December 31, 1997 in the form prescribed for
Statement C of Form No. 1, "Annual Report for
Electric Utilities, Licensees and Others (Class A and
Class B)," prescribed by Section 14.1 of the
Commission's Rules and Regulations.
Exhibit F- An analysis of RG&E's retained earnings for the
period covered by the income statement referred to in
Exhibit E.
Exhibit G - A copy of the application and each exhibit filed with
the NYPSC and NRC in connection with the proposed
transaction. (The SEC application will be filed when
available)
Exhibit H - Agreement and Plan of Exchange. (To be filed when
available)
Exhibit I - System Map of Generating Stations and Transmission
Lines.
WHEREFORE, RG&E respectfully requests that the Commission approve this
Application and authorize the proposed corporate reorganization under the terms
and conditions set forth herein because the proposed reorganization is
consistent with the public interest and would have no effect on RG&E's
jurisdictional facilities, rates or services.
Respectfully submitted,
/s/Karen E. Georgenson
Elizabeth W. Whittle
Karen E. Georgenson
Nixon, Hargrave, Devans & Doyle, LLP
One Thomas Circle, N.W.
Seventh Floor
Washington, D.C. 20005-5802
Telephone: (202) 457-5300
Facsimile: (202) 457-5355
Dated: August 12, 1998
<PAGE>
Exhibit to Exhibit D-3
APPENDICES AND EXHIBITS TO ROCHESTER GAS AND ELECTRIC CORPORATION'S
AUGUST 12, 1998 FILING AT FEDERAL ENERGY REGULATORY COMMISSION
UNDER SECTION 203 OF THE FEDERAL POWER ACT
*Appendix A - Diagram of RG&E's current and proposed corporate
***Appendix B - Map indicating RG&E's gas and electric franchise area.
*Appendix C - Form of Notice for publication in the Federal Register
*Appendix D - Verification
**Exhibit A - Resolution adopted by RG&E's Board of Directors
authorizing the Reorganization proposal and the filing
of this Application.
*Exhibit B - Statement of measure of control or ownership exercised
by or over RG&E and the nature and extent of any
intercorporate relationships.
*Exhibit C - RG&E's balance sheet with supporting plant schedules
for the 12-month period ended December 31, 1997 in the
form prescribed for Statements A and B of Form No. 1,
"Annual Report for Electric Utilities, Licensees and
Others (Class A and Class B)," prescribed by Section
14.1 of the Commission's Rules and Regulations.
*Exhibit D - Statement of known contingent liabilities of RG&E,
except minor items.
*Exhibit E - RG&E's income statement for the 12-month period ended
December 31, 1997 in the form prescribed for Statement
C of Form No. 1, "Annual Report for Electric Utilities,
Licensees and Others (Class A and Class B)," prescribed
by Section 14.1 of the Commission's Rules and
Regulations.
*Exhibit F- An analysis of RG&E's retained earnings for the period
covered by the income statement referred to in
Exhibit E.
***Exhibit G - A copy of the application and each exhibit filed with
the NYPSC and NRC in connection with the proposed
transaction.
**Exhibit H - Agreement and Plan of Exchange.
*Exhibit I - System Map of Generating Stations and Transmission
Lines.
*Pursuant to the instructions for the filing of an application using
Form U-1, these appendices and exhibits have been omitted as they are neither
relevant nor material to this Application.
**Not yet filed. These exhibits will not be filed as part of the
instant application because they are neither relevant nor material.
***Filed or described as part of the instant Application.
Exhibit D-5
UNITED STATES OF AMERICA
BEFORE THE
NUCLEAR REGULATORY COMMISSION
ROCHESTER GAS AND ELECTRIC ) Docket Nos. 50-410 and 50-244
CORPORATION ) Facility Operating Licenses
Nos. NPF-69 and DPR-18
REQUEST FOR CONSENT TO
CORPORATE REORGANIZATION
I. INTRODUCTION
Rochester Gas and Electric Corporation ("RG&E," the "Company") hereby
requests the consent of the Nuclear Regulatory Commission (the "Commission"),
pursuant to 10 C.F.R. Section 50.80, to the indirect transfer of control of two
licenses granted by the Commission: RG&E's possessory license for its 14%
ownership interest in the Nine Mile Point Nuclear Station, Unit No. 2 ("Nine
Mile 2") located in Scriba, New York; and the Company's operating license for
its wholly-owned nuclear generating facility, the R.E. Ginna Nuclear Power Plant
("Ginna").
RG&E is a New York corporation engaged principally in the generation,
purchase, transmission, distribution and sale of electric power, and the
purchase, transportation, distribution and sale of natural gas in service
territories in western New York State, under the general regulatory supervision
of the New York State Public Service Commission (the "NYPSC"). RG&E also sells
electricity on the wholesale bulk power market, transmits electricity in
interstate commerce, and operates hydroelectric generating facilities, all of
which
<PAGE>
-2-
activities are subject to regulation by the Federal Energy Regulatory Commission
(the "FERC"). RG&E is an "electric utility" within the meaning of the
Commission's regulations (10 C.F.R. Section 50.2).
In conjunction with the restructuring of its regulated electric service
business pursuant to the policy direction of the NYPSC, and in accordance with
the provisions of the Amended and Restated Settlement Agreement, dated October
23, 1997 (the "Settlement"),(1) providing for such restructuring, RG&E proposes
to pursue a corporate reorganization, in which RG&E would become a wholly-owned
subsidiary of a holding company (the "Holdco")(2). This formal change in
corporate structure would, in light of prior Commission determinations, be
deemed to involve a change in control of RG&E, and accordingly an indirect
transfer of the licenses to Holdco as the new owner of RG&E. Thus, the Company
seeks the Commission's approval for this transaction, and for the indirect
transfer of RG&E's licenses that it would entail.
This application will set forth the regulatory background for, and the
purposes and framework of, the proposed reorganization; it will also address a
number of matters to which the Commission has directed particular attention in
considering similar applications in the past. RG&E believes that the proposed
reorganization would not affect its qualification for the licenses granted to it
by the Commission, would not affect its status as an "electric utility" for the
-----------------
1 Amended and Restated Settlement Agreement, dated October 23, 1997,
resolving issues with respect to RG&E in proceedings before the NYPSC,
Cases 94-E-0952, Matter of Competitive Opportunities Regarding Electric
Service, and 96-E-0898, Matter of Rochester Gas and Electric Corporation's
Plans for Electric Rate/Restructuring Pursuant to Opinion No. 96-12. A
copy of the Settlement is attached hereto as Exhibit A.
Thereafter the NYPSC issued two orders, the first approving the Settlement
subject to certain modifications, and the second setting forth in detail
the rationale for its decisions set forth in the earlier order. See Order
Adopting Terms of Settlement Subject to Conditions and Changes, issued
November 26, 1997 in Case No. 96-E-0898, and Opinion No. 98-1, Opinion and
Order Adopting Terms of Settlement Subject to Conditions and Changes,
issued January 14, 1998 in Case No. 96-E-0898. A copy of each Order is
attached hereto as Exhibit B and Exhibit C, respectively.
<PAGE>
-3-
Commission's purposes, and would in all other respects be consistent with law,
regulations and Commission orders. The Company further believes that the
information set forth herein should satisfy any concerns that the Commission
might have on these points. Should it appear, however, that additional
information would be helpful, the Company would be pleased to provide it
promptly.
II. THE PROPOSED REORGANIZATION
Pursuant to orders issued by the NYPSC, and after extensive
negotiations with the Staff of the Department of Public Service and other
parties, RG&E entered into the Settlement, establishing a framework for
competitive retail electric service in the Company's service territory, and
otherwise providing for the restructuring of the Company's electric utility
business consistent with the NYPSC's directives. The proposed corporate
reorganization, as described hereinafter, is explicitly contemplated in the
Settlement.(3)
The reorganization that RG&E proposes to undertake, subject to
shareholder and regulatory approvals, is substantially similar to
reorganizations pursued by other electric utilities(4) in recent years, likewise
involving the indirect transfer of control of licenses for nuclear generating
facilities, and which the Commission has approved.(5) In accordance with a plan
for
-----------------
(Footnote continued from previous page)
2 "Holdco" is used herein to indicate the proposed holding company solely
for purposes of this application; RG&E intends, in conjunction with the
creation of the holding company, to adopt an official corporate name for
it.
3 See Settlement (Exhibit A) Pars. 62, 67, at pp. 50, 52-53; see also
Settlement Schedule J, "Form of Petition to Form Holding Company."
4 For example, the other non-operating licensees for the Nine Mile 2
facility have similarly sought authorization to transfer their licenses in
connection with their corporate restructurings: New York State Electric &
Gas Corporation (application granted as of March 30, 1998); Long Island
Lighting Company (application granted as of January 12, 1998); and Central
Hudson Gas & Electric Corporation (application dated April 8, 1998).
5 See, e.g., Letter from NRC to Illinois Power Company, regarding Corporate
Restructuring of Illinois Power Company (TAC No. M88222), dated January
31, 1994; Letter from NRC to Pennsylvania Power and Light Company,
regarding Approval of Proposed Corporate Restructuring of Pennsylvania
Power and Light Company (TAC Nos. M90079 and M90080), dated December 26,
1994; Letter from NRC to Detroit Edison Company, regarding Approval of
Proposed Corporate Restructuring of Detroit Edison
(Footnote continued on next page)
<PAGE>
-4-
exchange of shares pursuant to Section 913 of the New York Business Corporations
Law, all the outstanding shares of the common stock of RG&E would be exchanged
on a share-for-share basis for the shares of common stock of Holdco (subject to
any exercise by shareholders of dissenters' rights). Upon consummation of the
share exchange, each holder of RG&E common stock immediately prior to the share
exchange would thereafter own a corresponding number of shares of Holdco common
stock, and Holdco would own all the outstanding shares of RG&E common stock.(6)
The 100 organizational shares of Holdco common stock held initially by RG&E
would either be canceled or retained by RG&E, depending upon certain income tax
consequences.
As a wholly-owned subsidiary of Holdco, RG&E would retain its separate
existence. It would continue to be an "electric utility" under Section 50.2 of
the Commission's regulations, engaged in the business of generating,
transmitting and distributing electric power. It would continue to be subject to
ratemaking and other regulation by the NYPSC and FERC. It would also continue to
be the owner of, and actual licensee for, its present interests in Nine Mile 2
and Ginna. It would, moreover, continue to recover its investment in those
facilities through its rates for service, subject to the provisions of the
Settlement during its term, and thereafter subject to the ratemaking authority
of the NYPSC.
Holdco, and not RG&E, would be the owner of any non-utility
subsidiaries engaged in unregulated business activities. Moreover, the
Settlement does not call for the divestiture of any utility assets. While it
establishes certain financial incentives for the Company to sell generating
facilities, and in particular offers the Company a greater share of any gains on
such sales if
-----------------
(Footnote continued from previous page)
Company by Establishment of a Holding Company (TAC Nos. M91890 and 92343),
dated August 30, 1995.
<PAGE>
-5-
consummated earlier rather than later in the Settlement term,(7) it does not
require the divestiture of any of RG&E generation assets, including its interest
in the Nine Mile 2 and the Ginna facilities. Nor does the Settlement permit the
transfer of any utility assets by RG&E unless necessary approvals are granted by
the NYPSC under Section 70 of the New York Public Service Law.
The adoption of the holding company structure in the manner described
would accomplish the clear separation of regulated public utility functions
(including the transmission and distribution of electricity, and the continued
provision of regulated retail electric service for customers not served by
competitive retailers) from unregulated, competitive non-utility operations,
consistent with regulatory policy directions at both the federal and State
levels for the restructuring of the electric service industry. Moreover, the
holding company structure represents a common and well-established form of
business organization for companies engaged in multiple lines of business,
particularly where some of the activities are regulated and others are conducted
on a competitive basis. The holding company structure would afford increased
financial, managerial and organizational flexibility to enhance RG&E's position
in the changing environment of the electric industry, in particular by enabling
a speedier response to competitive opportunities than is possible for a
regulated business. It would accommodate the creation of unregulated
subsidiaries, and thereby facilitate greater flexibility in financing
competitive activities. At the same time, it would protect the legally separate
regulated utility business -- and all of its customers -- from the risks
attending competitive business enterprises. The transfer of direct equity
ownership of RG&E to Holdco would constitute a legal change of control subject
to
-----------------
(Footnote continued from previous page)
6 The Company's preferred stock and existing debt would remain outstanding
securities of RG&E.
7 See Settlement (Exhibit A) at Par. 20, pp. 26-27.
<PAGE>
-6-
Commission approval. However, the proposed restructuring would have minimal
effect on the actual control of the Company, since its existing shareholders
would become the owners of Holdco and thereby would indirectly control RG&E, as
the regulated utility subsidiary of Holdco and the licensee for Nine Mile 2 and
Ginna.
In approving the Settlement, the NYPSC endorsed in principle the
proposed restructuring, subject to the Company's filing of a petition
substantially in the form attached as Schedule J to the Settlement. RG&E intends
to file such a petition presently, as well as petitions to the FERC (under the
Federal Power Act) for approval of the reorganization, and to the Securities and
Exchange Commission (under the Public Utilities Holding Company Act of 1935
("PUHCA")) for a determination that the proposed holding company structure would
be exempt from the provisions of PUHCA. The Company will submit to the
Commission copies of these petitions when filed.
III. EFFECT OF PROPOSED REORGANIZATION ON RG&E'S FINANCIAL CONDITION
The proposed reorganization would have no adverse effect on RG&E's
financial health, and in particular would not impair the availability to RG&E of
funds needed to carry out its activities and responsibilities under the Nine
Mile 2 and Ginna licenses. A copy of RG&E's Annual Report to the Securities and
Exchange Commission on Form 10-K, attached hereto as Exhibit D, demonstrates
that the Company has reasonable assurance of obtaining necessary funds for
ongoing operations.(8) As previously stated, after the proposed reorganization
RG&E would remain subject to jurisdiction of the NYPSC with respect to rates for
retail electric service, among other matters. Under the Settlement, the
Company's costs of implementing the proposed
-----------------
8 See Form 10-K (Exhibit D) at p. 26, "Competition and the Company's
Prospective Financial Position", and pp. 27-30, "Liquidity and Capital
Resources".
<PAGE>
-7-
corporate reorganization will not affect rates for service during the term of
the Settlement, and may be deferred for subsequent recovery only to the extent
of any excess of overall restructuring implementation costs over a specified
threshold in a given rate year.(9) Any changes in the Company's arrangements for
bulk power sales on the wholesale market, or in its rates for transmission of
electric energy in interstate commerce, would remain subject to review and
approval by FERC. The proposed corporate reorganization would not involve the
sale of RG&E stock, or the sale or lease of the Company's facilities or other
assets. It would have no effect on the Company's capital structure, or on its
costs of obtaining financing. Nor would the adoption of a holding company
structure alter the source of RG&E's funds for conducting its utility
operations. The Company's costs of operating its nuclear facilities, the costs
of any necessary capital improvements, and the funding of eventual
decommissioning activities with respect to both of those facilities, would
continue to be derived from customer payments for utility services subject to
regulated rates, in the same manner as before the adoption of a holding company
structure.
In sum, the proposed reorganization is expected to bring about no
change in the sources of RG&E's funds for continued plant operations, capital
investments, and eventual plant decommissioning. Nor is it expected to alter the
regulatory processes establishing rates and other terms and conditions of
service from which those revenues are derived. Accordingly, RG&E believes that
the proposed restructuring will not adversely affect its financial resources for
the conduct of future activities under the licenses issued by the Commission for
the Nine Mile 2 and Ginna facilities.
IV. EFFECT OF PROPOSED REORGANIZATION ON MANAGEMENT AND OPERATION OF
NUCLEAR FACILITIES
-----------------
9 See Settlement (Exhibit A) at Par. 17, p. 24.
<PAGE>
-8-
As noted above, RG&E has a 14% ownership interest in the Nine Mile 2
facility, sharing ownership with several other New York State electric
utilities; the owner of the largest interest, Niagara Mohawk Power Corporation
("Niagara Mohawk"), has responsibility for operation of the plant, pursuant to a
license issued by the Commission. RG&E's license for Nine Mile 2 is for the
possession, rather than the operation, of its share of that facility. In
contrast, RG&E is sole owner and operator of the Ginna plant, and it has an
operating license for that facility authorizing both possession and operation.
The reorganization proposed herein will have no effect on the
management and operation of either facility. Niagara Mohawk will continue to be
responsible for the ongoing on-site control, maintenance and operation of Nine
Mile 2, subject to oversight in budget and planning matters in which RG&E and
the other owner utilities will continue to participate. Niagara Mohawk's
continued maintenance of all necessary technical qualifications, and its
compliance in all other respects with the Nine Mile 2 operating license, will
not be affected by the adoption of a holding company structure for RG&E.
As discussed above, under the proposed reorganization RG&E would retain
its wholly discrete and legally separate identity as a subsidiary of the holding
company, and would continue to exercise its public utility functions as
heretofore. The functions of management at the Holdco level would be directed
chiefly toward the strategic development of its business enterprises, and toward
administrative and financial matters. Joint management oversight with respect to
Nine Mile 2, and all aspects of the operation of Ginna, would remain, as today,
the responsibility of RG&E as a regulated utility. The Company's existing
management functions, reporting channels, programs, policies and procedures with
respect to its activities pursuant to its nuclear
<PAGE>
-9-
licenses would continue unaltered by the proposed reorganization. A chart
showing the Company's nuclear operations organization is attached hereto as
Exhibit E.
Thus, with respect to Nine Mile 2, RG&E will continue to participate
with the other owner utilities in oversight of that facility, and in other
non-operational responsibilities allocated to the non-operating owners by the
governing contracts. Likewise, the Company's ownership and operational
responsibilities for the Ginna plant, and its resources and arrangements to
fulfill those responsibilities, would not be changed by the proposed
reorganization. In sum, the Company's adoption of a holding company structure
would in no way affect its management of nuclear operations, or its technical
qualifications to conduct those operations. RG&E would continue to fulfill its
obligations under the Commission's licenses as it has in the past.
V. EFFECT OF PROPOSED REORGANIZATION ON DOMESTIC OWNERSHIP AND CONTROL OF
RG&E
Under the proposed reorganization, as described above, shares of Holdco
would be exchanged on a one-for-one basis for publicly held shares of RG&E
common stock. RG&E, which would continue to be a licensee for Nine Mile 2 and
the licensee for Ginna, would become the wholly-owned subsidiary of Holdco. Upon
the reorganization, therefore, Holdco would be owned by the former holders of
RG&E's stock, in the same proportions as their prior ownership of RG&E.
Currently available information indicates that only about 10,000 of
approximately 39,000,000 outstanding shares of RG&E common stock --
significantly less than 1% -- are held by foreign persons or entities.
Implementation of the proposed reorganization, such that RG&E is owned by a
publicly held holding company, is not expected to bring about any change in the
proportion of foreign ownership. Accordingly, the reorganization will not result
in the ownership, control or domination of RG&E by an alien, a foreign
corporation or a foreign government.
<PAGE>
-10-
VI EFFECT OF PROPOSED REORGANIZATION ON COMPETITION
A further matter addressed by the Commission, in its consideration of
similar applications in the past, has been the potential effect of the proposed
indirect license transfer on competition, and in particular the potential for
the exercise of increased market power by the licensee as a result of the
transaction. The adoption of the holding company structure, while facilitating
the Company's entry into competitive business activities, would also effect the
legal and structural separation of such activities from regulated utility
businesses. The reorganization would therefore not enable the exercise of market
power, either vertical or horizontal, by Holdco (the indirect transferee of
control over the RG&E licenses) or by the licensee, RG&E, itself.
Quite to the contrary, RG&E's restructuring under the terms of the
Settlement can be expected to facilitate the growth of unprecedented competition
in the provision of energy services in RG&E's service territory. Over its term,
the Settlement provides for the introduction of competitive electric service for
increasing proportions of RG&E's market; retail customers in the Company's
service area will be able for the first time to purchase energy and capacity
from competitive suppliers. At the same time, during the Settlement term RG&E
will remain subject to an obligation to provide regulated retail electric
service to all customers that, by choice or otherwise, do not take service from
competitive suppliers.(10)
The indirect transfer of control over the licenses that would occur
with the adoption of a holding company structure could have no material effect
on the Company's ability to exercise market power, either within or without its
service territory, whether in retail or in wholesale markets. The consequences
of the Company's restructuring are pro-competitive, and the
-----------------
10 See Settlement (Exhibit A) at Par. 65, pp. 51-52.
<PAGE>
-11-
contemplated indirect transfer to Holdco of control of the licenses for Nine
Mile 2 and Ginna presents no impediment whatever to vigorous competition in any
market, retail or wholesale.
VII. SUBSEQUENT TRANSFERS OF RG&E ASSETS
RG&E undertakes to inform the Director of Nuclear Reactor Regulation
sixty days before the transfer from it to Holdco, or to any direct or indirect
subsidiary of Holdco, of facilities for the production, transmission or
distribution of electricity (but excluding grants of security interests or
liens) having a depreciated book value, in total as determined during any
twelve-month period, in excess of ten percent of the depreciated book value of
RG&E's consolidated net utility plant, as recorded on the Company's books of
account.
VIII. CONCLUSION
RG&E believes that the information set forth in this application, and
in the Exhibits attached hereto, is sufficient for the Commission to grant its
consent to the proposed reorganization, and to the indirect transfer of RG&E's
licenses in the manner described above. The proposed reorganization will not
impair RG&E's qualifications as a licensee for the Nine Mile 2 and Ginna
facilities, nor its ability to carry out its obligations under those licenses.
Moreover, the transaction described would be consistent with applicable laws and
regulations of the Commission. RG&E respectfully requests that the Commission
review and approve this application so as to enable the Company to proceed
promptly with further steps necessary for its restructuring in the manner
contemplated in the Settlement.
RG&E is planning to hold its annual shareholders' meeting in mid-April
1999, and would prefer to bring the proposed holding company reorganization
before the shareholders at that time. In order to enable the Company to complete
the substantial preparations necessary before the submission of such a proposal
for shareholder approval, including but not limited to formal
<PAGE>
-12-
action by the Company's Board of Directors and the preparation and dissemination
of appropriate disclosure materials, RG&E respectfully requests that the
Commission act upon the present application as soon as practicable, but in any
event by February 1, 1999. RG&E would be pleased to provide promptly any further
information that the Commission may require for its consideration of this
application.
Respectfully submitted,
ROCHESTER GAS AND ELECTRIC
CORPORATION
By: /s/ Paul C. Wilkens
Paul C. Wilkens
Title: Senior Vice President - Generation
Dated: July 30, 1998
Rochester, New York
<PAGE>
Exhibit to Exhibit D-5
EXHIBITS TO ROCHESTER GAS AND ELECTRIC CORPORATION'S
JULY 31, 1998 FILING AT THE NUCLEAR REGULATORY
COMMISSION UNDER SECTION 184 OF THE ATOMIC ENERGY ACT
AND 10 C.F.R. PART 50.80
*Exhibit A Amended and Restated Settlement Agreement dated October 23, 1997
*Exhibit B Order of the New York State Public Service Commission, Case
96-E-0898, In the Matter of Rochester Gas and Electric
Corporation's Plans for Electric Rate/ Restructuring Pursuant
to Opinion No. 96-12, Order Adopting Terms of Settlement
Subject to Conditions and Changes
(Nov. 26, 1997)
*Exhibit C Order of the New York State Public Service Commission, Case
96-E-0898, In the Matter of Rochester Gas and Electric
Corporation's Plans for Electric Rate/ Restructuring Pursuant
to Opinion No. 96-12, Opinion and Order Adopting Terms of
Settlement Subject to Conditions and
Changes (Jan. 14, 1998)
**Exhibit D Rochester Gas and Electric Corporation's Form 10-K for the year
ending December 31, 1997
*Pursuant to the instructions for the filing of an application using
Form U-1, these exhibits have been omitted as they are neither relevant nor
material to this Application.
**This exhibit is incorporated by reference.
Exhibit E-1
Pursuant to Securities and Exchange Commission Regulations, 17 C.F.R.
Part 232.304, Rochester Gas and Electric Corporation ("RG&E") hereby submits a
summary of Exhibit E-1 since that exhibit contains graphic information which
cannot be filed electronically.
Exhibit E-1 is a map showing RG&E's gas and electric service territory.
The map, through color designations, shows the counties or portions thereof, in
the greater Rochester, New York area, within RG&E's service territory for gas
service or electric service, or both. This map also contains a small detail of
the entire state showing the location of RG&E's service territory.
Exhibit F-1
NIXON, HARGRAVE, DEVANS & DOYLE LLP
CLINTON SQUARE
ROCHESTER, NEW YORK 14603
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Form U-1 Application Filed by Rochester Gas and Electric
Corporation of September 1, 1998
Ladies and Gentlemen:
We have been requested by Rochester Gas and Electric Corporation
("RG&E") to provide you with our legal opinion with respect to New York law as
it applies to the matters referred to in paragraph F of Instructions to Exhibits
of Form U-1 under the Public Utility Holding Company Act of 1935 (the "Act")
with respect to the application filed by RG&E for an order under section 3(a)(1)
of the Act.
As counsel for RG&E, we have examined, among other things, copies
identified or certified to our satisfaction as being true copies of the
following documents:
A. Restated Certificate of Incorporation of RG&E as presently in
effect;
B. RG&E Bylaws as presently in effect;
C. Evidence as to the good standing of RG&E under the laws of
the State of New York; and
D. The form U-1 to be filed by RG&E ("Form U-1").
RG&E has advised us and we are assuming that the transaction with
respect to which Form U-1 will be filed, to the extent pertinent to this
opinion, is as described in this paragraph. RG&E is a New York corporation. RG&E
plans the formation of a holding company ("HoldCo") to be incorporated in New
York. HoldCo is to have three subsidiaries (1) RG&E, which would continue to
operate its regulated utility businesses exclusively in New York; (2) Energetix,
Inc. ("Energetix"), which engages in various unregulated businesses; and (3) RGS
Development Corporation ("RGS"), which also engages in various unregulated
businesses. HoldCo may have a forth subsidiary, Energyline Corporation
("Energyline"), which is currently an inactive subsidiary of RG&E; however, RG&E
intends to dissolve Energyline before the holding company structure is
implemented.
Based upon the foregoing, and subject to RG&E obtaining certain
approvals in connection with the foregoing transaction including (1) approval by
the holders of RG&E's common stock; (2) approval by RG&E's board of directors;
and (3) regulatory approval by the
<PAGE>
New York State Public Service Commission, the Federal Energy Regulatory
Commission, and the Nuclear Regulatory Commission, it is our opinion that, in
the event the proposed transaction is consummated as described above:
1. All laws of the State of New York applicable to the
proposed transaction will have been complied with;
2. RG&E is and HoldCo will be duly incorporated and validly
existing under the laws of the State of New York;
3. Insofar as the laws of the State of New York are
concerned, HoldCo will legally acquire all of the securities
of each of RG&E, Energetix, RGS and Energyline, if existing
at the time of the formation of the holding company, that
HoldCo is required to acquire in connection with the
transaction;
4. The stock of RG&E, Energetix, RGS and Energyline, if
existing at the time of the formation of the holding
company, to be acquired by HoldCo, as well as the stock of
HoldCo to be issued in connection with the proposed
transaction, will in each case be validly issued, fully paid
and non-assessable, and the holders thereof will be entitled
to the rights and privileges appertaining thereto set forth
in the charter or other documents defining such rights and
privileges; and
5. Insofar as the laws of the State of New York are
concerned, the consummation of the proposed transaction will
not violate the legal rights of the holders of any stock of
RG&E, or the rights of the holders of any securities issued
by any "associate company" of RG&E as defined in the Act.
Our opinion expressed in paragraph 5 above is limited to our knowledge
of the matters set forth in the Restated Certificate of Incorporation and Bylaws
of RG&E, each as presently in effect, and to the applicable laws of the State of
New York.
We express no opinion concerning (1) federal securities laws or
regulations or such laws or regulations of any state other than New York; (2)
federal or state antitrust, unfair competition or trade practice laws or
regulations; (3) pension and employee benefit laws and regulations; or (4)
compliance with fiduciary requirements.
We hereby consent to the use of this opinion as an exhibit to Form U-1.
Respectfully submitted,
/s/NIXON, HARGRAVE, DEVANS & DOYLE LLP
2
<TABLE> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
This schedule contain summary financial information extracted from consolidated
balance sheet, consolidated statement of income and consolidated statement of
cash flows and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1998
<PERIOD-END> Jun-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,556,704
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 226,283
<TOTAL-DEFERRED-CHARGES> 439,950
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,222,937
<COMMON> 193,561
<CAPITAL-SURPLUS-PAID-IN> 500,776
<RETAINED-EARNINGS> 125,670
<TOTAL-COMMON-STOCKHOLDERS-EQ> 820,007
35,000
47,000
<LONG-TERM-DEBT-NET> 485,451
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 101,900
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 30,000
10,000
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 693,562
<TOT-CAPITALIZATION-AND-LIAB> 2,222,937
<GROSS-OPERATING-REVENUE> 493,212
<INCOME-TAX-EXPENSE> 34,332
<OTHER-OPERATING-EXPENSES> 389,702
<TOTAL-OPERATING-EXPENSES> 421,097
<OPERATING-INCOME-LOSS> 48,910
<OTHER-INCOME-NET> 7,610
<INCOME-BEFORE-INTEREST-EXPEN> 76,788
<TOTAL-INTEREST-EXPENSE> 22,878
<NET-INCOME> 53,910
2,610
<EARNINGS-AVAILABLE-FOR-COMM> 51,300
<COMMON-STOCK-DIVIDENDS> 34,905
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 147,720
<EPS-PRIMARY> 1.32
<EPS-DILUTED> 0
</TABLE>
Exhibit H-1
Filings Under the Public Utility Holding Company
Act of 1935, as amended
SECURITIES AND EXCHANGE COMMISSION
Rochester Gas and Electric Corporation ) File No. _________
NOTICE OF FILING
September ___, 1998
Take notice that on September 1, 1998, Rochester Gas and Electric
Corporation ("RG&E"), a New York corporation, filed an application seeking an
order granting exemption on behalf of its future holding company ("HoldCo")
under section 3(a)(1) of the Public Utility Holding Company Act of 1935 (the
"Act") from regulation under the Act, except section 9(a)(2) thereof. The
reorganization through which HoldCo is being formed is part of a comprehensive
rate and restructuring plan intended to satisfy electric industry restructuring
goals established by the Public Service Commission of the State of New York.
All interested persons are referred to the application for complete
statements of the facts related to this request for an order granting exemption.
The application is available for public inspection through the Commission's
Office of Public Reference.
Interested persons wishing to comment or request a hearing on the
application should submit their views in writing by __________, 1998, to the
Secretary, Securities and Exchange Commission, Washington, D.C. 20549, and serve
a copy on the applicant. Proof of service (by affidavit or, in case of an
attorney at law, by certificate) should be filed with the request. Any request
for hearing shall identify specifically the issues of fact or law that are
disputed. A person who so requests will be notified of any hearing, if ordered,
and will receive a copy of any notice or order issued in the matter. After said
date, the application, as filed or as amended, may be granted and/or permitted
to become effective.
