File No. 70-9027
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM U-1
APPLICATION UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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DQE, Inc.
Cherrington Corporate Center
Suite 100
500 Cherrington Parkway
Coraopolis, PA 15108-3184
and
DQE Energy Services, Inc.
One North Shore Center
12 Federal Street, Suite 200
Pittsburgh, PA 15212
and
DH Energy, Inc.
One North Shore Center
12 Federal Street, Suite 200
Pittsburgh, PA 15212
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(Name of companies filing this statement and
address of principal executive offices)
None
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(Name of top registered holding company
parent of each applicant or declarant)
Linda S. Ackerman, Esq.
DQE, Inc.
411 Seventh Avenue, 15th Floor
Pittsburgh, PA 15230-1930
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(Name and address of agent for service)
The Commission is requested to mail copies of
all orders, notices and communications to:
William S. Lamb, Esq.
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019-4513
Pursuant to Section 9(a)(2) and 10 of the Public Utility Holding Company
Act of 1935, as amended (the "Act"), DQE, Inc., a Pennsylvania corporation and a
public utility holding company ("DQE"), DQE Energy Services, Inc., a
Pennsylvania corporation and a wholly owned subsidiary of DQE ("Energy
Services"), and DH Energy, Inc., a Pennsylvania corporation and a wholly owned
subsidiary of Energy Services ("DH Energy") hereby request that the Securities
and Exchange Commission (the "Commission") authorize (a) the assignment to DH
Energy by Allegheny Development Corporation, a Pennsylvania corporation and an
indirect wholly owned subsidiary of DQE ("ADC"), of all of ADC's rights and
obligations under (i) the Heinz Facility Lease (the "Lease") dated as of January
22, 1997 between Heinz USA, a division of H.J. Heinz Company ("Heinz"), and ADC
and (ii) the Energy Supply Agreement (the "Supply Agreement") dated as of
January 22, 1997 between Heinz, ADC and Duquesne Energy, Inc., a Pennsylvania
corporation and wholly owned subsidiary of Energy Services ("Duquesne Energy")
and (b) the execution of an Operation and Maintenance Services Agreement (the
"O&M Agreement") between ADC and Newco, an entity to be formed under the laws of
the Commonwealth of Pennsylvania which will be a wholly owned subsidiary of
Energy Services ("Newco"), pursuant to which Newco will serve as operator of
ADC's energy facility (the "Airport Facility") located at the Midfield Terminal
Complex at the Greater Pittsburgh International Airport (the "Airport"). The
Lease, the Supply Agreement and the assignment of ADC's rights thereunder may
hereinafter be referred to herein as the Heinz Transaction and the O&M Agreement
may hereinafter be referred to herein as the Airport Transaction. DQE, Energy
Services and DH Energy may hereinafter be referred to herein as the Applicants.
Following the consummation of the transactions described herein, DQE will
continue to be a public utility holding company entitled to an exemption under
Section 3(a)(1) of the Act. In addition, upon the consummation of the
transactions for which authority is sought herein, Energy Services will become a
holding company within the meaning of the Act, and will be entitled to an
exemption under Section 3(a)(1) of the Act.
Item 1 DESCRIPTION OF PROPOSED TRANSACTIONS
a. Description of DQE.
DQE is an energy services company organized in 1989 for the purpose of
becoming a holding company for Duquesne Light Company ("Duquesne"), an electric
utility company, and other energy related subsidiaries. Its principal office is
in Pittsburgh, Pennsylvania. For the year ended December 31, 1995, DQE reported
consolidated operating revenues of approximately $1.22 billion. DQE is currently
a public utility holding company exempt from all provisions of the Act except
Section 9(a)(2) under Section 3(a)(1) pursuant to Rule 2. DQE owns all of the
issued and outstanding common stock of two public utility companies as defined
under the Act: Duquesne and ADC, both of which are organized and operate
virtually exclusively in the Commonwealth of Pennsylvania. Consolidated assets
of DQE at December 31, 1995 were approximately $4.459 billion.
Duquesne is an electric utility engaged in the generation, transmission,
distribution and sale of electric energy in the Commonwealth of Pennsylvania.
Duquesne provides electric service to approximately 580,000 customers in
Allegheny County, Pennsylvania and sells electricity to other utilities beyond
its service area. For the year ended December 31, 1995, Duquesne Light Company
reported consolidated operating revenues of approximately $1.18 billion.
Consolidated assets of Duquesne Light Company at December 31, 1995, were
approximately $4.07 billion.
ADC is an electric utility company engaged in the business of owning
facilities to provide complete energy services to the Midfield Terminal Complex
at the Greater Pittsburgh International Airport<F1>. The energy services
provided by ADC to the Midfield Terminal Complex are generated by four boilers
and seven chillers to provide hot and chilled water to the complex and three
unitized capacitors which connect Duquesne's facilities to Allegheny County's
facilities. For the year ended December 31, 1995, ADC earned operating revenues
of approximately $10.5 million. Total assets of ADC at December 31, 1995, were
approximately $10.3 million.
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1 See, In the Matter of DQE, Inc., et al., HCAR No. 35-26257
(1995).
Energy Services was formed on August 2, 1995 and is presently providing
energy services and solutions for customers in domestic and international
markets.
DH Energy was formed on January 9, 1997, for the purpose of entering into
the Lease and Supply Agreement.
Newco will be formed as a Pennsylvania corporation for the purpose of
entering into the O&M Agreement.
b. Description of the Proposed Transactions.
(i) The Heinz Transaction. On January 22, 1997, Heinz and ADC entered into
the Lease and the Supply Agreement. Each of the Lease and the Supply Agreement
provides for the right of ADC to assign its rights and obligations under the
respective agreement to DH Energy.
Pursuant to the Lease, ADC and, after the assignment to DH Energy, DH
Energy will lease, operate and maintain an inside the fence energy facility (the
"Energy Facility"), that provides energy in form of steam, electricity and
compressed air to the Heinz manufacturing plant (the "Manufacturing Plant")
located in Pittsburgh, Pennsylvania. The Energy Facility has two 3 MW steam
turbine generators capable of generating 40 million kilowatt hours of
electricity per year and coal/gas fired boilers capable of generating 1 million
mlbs of steam per year.
The Lease also provides that ADC and, after the assignment by ADC to DH
Energy, DH Energy, may enter into an agreement to supply steam to Pittsburgh
Thermal, L.P., a district heating and cooling system located approximately one
mile from the Manufacturing Plant.
Pursuant to the Supply Agreement, ADC and, after the assignment by ADC to
DH Energy, DH Energy, are obligated to sell to Heinz electricity and steam
produced by the Energy Facility for use by Heinz in the Manufacturing Plant.
ADC and, after the assignment by ADC to DH Energy, DH Energy, will provide
an energy facility supervisor to the Energy Facility who shall supervise the
operating and maintenance staff during the term of the Lease. ADC and, after the
assignment by ADC to DH Energy, DH Energy, will assume control and be
responsible for the day-to-day operation of the Energy Facility, including the
care and custody of all equipment at the Energy Facility. As a result of its
operation of the Energy Facility following the Assignment, DH Energy will be an
electric utility company under Section 2(a)(3) of the Act and Energy Services
will become a holding company as defined in Section 2(a)(7) of the Act. Revenues
of the Energy Facility are estimated to be approximately $2.7 million per year
during the 15 year term of the Lease and Supply Agreement.
(ii) The Airport Transaction. ADC and Newco intend to enter into the O&M
Agreement with respect to the operation and maintenance by Newco of the Airport
Facility and for the provision of electric and thermal energy to the Airport.
Pursuant to the O&M Agreement, Newco will operate and maintain the Airport
Facility including boilers and chillers to provide hot and chilled water to the
Airport and unitized capacitors and a busduct used to connect Duquesne's
electrical facilities to the Airport's electrical facilities. The term of the
O&M Agreement will be 5 years and the aggregate price to be paid to Newco under
the O&M Agreement will be approximately $4.5 million. Presently, Michael Baker
Corporation, an independent third party, serves as the operator of the Airport
Facility. The Airport Facility is presently operated by nine employees who
perform all routine preventive and corrective maintenance of the boilers and
chillers, and supervise any repairs performed by third party contractors. The
Airport Facility personnel also monitor in the in-house information systems to
determine when to bring any particular boiler or chiller on or off-line. As a
result of the O&M Agreement, Newco will be an electric utility company under
Section 2(a)(3) of the Act by virtue of the fact that it will operate the
Airport Facility and provide electric energy to the Airport.
Item 2 FEES,COMMISSIONS AND EXPENSES
The fees, commissions and expenses of the Applicants expected to be paid or
incurred, directly or indirectly, in connection with the transactions described
above are estimated as follows:
(a) Heinz Transaction
Legal Fees.........................................$15,000
Miscellaneous........................................1,200
Total.............................16,200
(b) Airport Transaction
Legal Fees..........................................$5,000
Miscellaneous..........................................500
Total..............................5,500
Item 3 APPLICABLE STATUTORY PROVISIONS
The following sections of the Act are directly or indirectly applicable to
each of the Heinz Transaction and the Airport Transaction: Sections 9(a)(2) and
10.
Section 9(a)(2) makes it unlawful, without approval of the Commission under
Section 10, "for any person ... to acquire, directly or indirectly, any security
of any public utility company, if such person is an affiliate ... of such
company and of any other public utility or holding company, or will by virtue of
such acquisition become such an affiliate." DQE presently is the parent of two
public utility companies, Duquesne and ADC. By virtue of the transactions
described herein, DQE will become the parent of a third and fourth public
utility company, DH Energy and Newco respectively. Accordingly, DQE is seeking
approval under Sections 9(a)(2) and 10 for the proposed transactions. The
Applicants believe that both of the proposed transactions meet the requirements
of Sections 9(a)(2) and 10.
A. Section 10(b)(1)
Section 10(b)(1) provides that, if the requirements of Section 10(f) are
satisfied, the Commission shall approve a transaction unless:
(1) such acquisition will tend towards interlocking
relations or the concentration of control of public utility
companies, of a kind or to an extent detrimental to the public
interest or the interest of investors or consumers.
Section 10(b)(1) requires a finding that control is "of a kind or to an
extent detrimental to the public interest or the interest of investors or
consumers." The framers of the Act sought through Section 10(b)(1) to avoid "an
excess of concentration and bigness" while preserving the "opportunities for
economies of scale, the elimination of duplicative facilities and activities,
the sharing of production capacity and reserves and generally more efficient
operations" afforded by certain combinations. American Electric Power Co., Inc.,
46 S.E.C. 1299, 1309 (1978). The Heinz Transaction has not created an "excess of
concentration and bigness" and the assignment of ADC's rights to DH Energy will
not alter the situation in any respect. The Energy Facility is a small utility
facility whose customers are large, sophisticated entities and the Applicants do
not believe the Heinz Transaction will be detrimental to the interests of the
public or shareholders. Similarly, the Airport Facility is a small utility
facility with a capacity of 20 MW and only one customer, the Midfield Terminal
Complex. Consequently, the Applicants do not believe the Airport Transaction
will be detrimental to the interests of the public or shareholders. Thus,
neither the Heinz Transaction nor the Airport Transaction rise to the level of
transaction that the Act's framers were attempting to avoid.
B. Section 10(b)(2)
Section 10(b)(2) provides that a transaction should be approved unless the
price paid:
is not reasonable or does not bear a fair relation to the sums
invested in or the coming capacity of the utility assets to be
acquired or the utility assets underlying the securities to be
acquired.
In the Heinz Transaction, the payments under the Lease and the Supply
Agreement are the result of arms length negotiations between commercially
sophisticated parties and the payments under the Lease constitute a small
portion of DQE's overall capital expenditures.<F2> Consequently, the payments to
be made under the Lease and the Supply Agreement are fair and do not warrant any
of the negative findings that call for disapproval under Section 10(b)(2).
Similarly, the payments to be made under the O&M Agreement will constitute
a small portion of DQE's overall capital expenditures. In addition, the payments
will be within the range commonly found in the industry. Consequently, The
Airport Transaction does not warrant any of the negative findings that call for
disapproval under Section 10(b)(2).
C. Section 10(b)(3)
Section 10(b)(3) directs approval of the transaction unless the Commission
finds that:
(3) such acquisition will unduly complicate the
capital structure of the holding-company system of
the applicant ... or will be detrimental to ...
the proper functioning of such holding-company
system.
Section 10(c)(1) provides that the Commission not approve a transaction that is
"unlawful under the provisions of section 8 or is detrimental to the carrying
out of the provisions of section 11." Together they relate to the corporate
simplification standards of Section 11(b)(2), which require that each registered
holding company take the necessary steps
to ensure that the corporate or continued
existence of any company in the holding-company
system does not unduly or unnecessarily complicate
the structure ... of such holding-company system.
The intent of these requirements is to assure the financial soundness of the
holding-company system, with a proper balance of debt and equity. No such
complexities will result from either the Heinz Transaction or the Airport
Transaction.
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2 The terms of the Lease require an initial rent payment of $1.0 million,
plus monthly base rent payments of approximately $71,000 for 180
months, for the lease of the Energy Facility.
Capital Expenditures for DQE were approximately $94 million, $121
million and $124 million for the years ended December 31, 1995, 1994
and 1993, respectively.
D. Section 10(c)(1) and 10(c)(2)
Section 10(c) provides for two distinct findings with respect to a proposed
transaction, and both are related to the standards prescribed in Section 11(b).
Section 10(c)(1) requires that the proposed transaction not be "unlawful under
the provisions of section 8 or is detrimental to the carrying out of the
provisions of Section 11." Section 8 by its terms applies only to registered
holding companies and prohibits such companies from combining electric and gas
utilities in a manner that violates state law. Both the Heinz Transaction and
the Airport Transaction involve only electric utilities. As discussed below,
Section 11 of the Act relates to the simplification of holding company systems,
which was one of the major purposes behind the passage of the Act. The terms of
Section 11 are also only directly applicable to registered holding companies,
although through the operation of Section 10(c)(2) discussed below, the larger
policy concerns animating this section must be taken into account with respect
to both the Heinz Transaction and the Airport Transaction.
Section 10(c)(2) is a more specialized provision. It requires that any
acquisition not be approved unless the Commission finds that:
[S]uch acquisition will serve the public interest by tending
towards the economical and efficient development of an
integrated public-utility system.
Section 2(a)(29)(A) defines an "integrated public utility system" as applied to
electric utility companies as:
[A] System consisting of one or more units of generating
plants and/or transmission lines and/or distributing
facilities, whose utility assets, whether owned by one or more
electric utility companies, are physically interconnected or
capable of physical interconnection and which under normal
conditions may be economically operated as a single area or
region in one or more States, not so large as to impair
(considering the state of the art and the area or region
affected) the advantages of localized management, efficient
operation, and the effectiveness of regulation.
Both the Heinz Transaction and the Airport Transaction satisfy the
integration standard set forth in Section 2(a)(29)(A) of the Act because DQE's
four utility company subsidiaries will constitute a system so located and
related that substantial economies may be effectuated by their operation as a
single coordinated system confined in its operation to a single area or region
not so large as to impair the advantages of localized management, efficient
operation, and the effectiveness of regulation. Both the Energy Facility and the
Airport Facility are located in Pittsburgh, the center of Duquesne's service
territory. Because the Energy Facility is an inside-the-fence facility serving
only one customer, it is not interconnected with the Duquesne transmission
system. It is, however, located in the same area and is capable of
interconnection. Similarly, the Airport Facility is not interconnected with the
Duquesne transmission system but is capable of such interconnection. Moreover,
the de minimis size of the Energy Facility and the Airport Facility relative to
the existing system in the DQE holding company system further underscores the
fact that the Heinz Transaction and the Airport Transaction will not materially
increase the size of or effect the operation of the DQE utility system as a
single coordinated system. The capacity of the Energy facility is 2-3 MW and the
size and capacity of the Airport Facility is 20 MW as compared to DQE's total
capacity of 3,374 MW. Given that no changes in the overall system's management
or regulatory status will occur as a result of the Heinz Transaction or the
Airport Transaction, neither transaction will impair the advantages of local
management, or effective regulation or operation. The Heinz Transaction will
also result in economies and efficiencies accruing to the benefit of the Energy
Facility and the Applicants and DQE's integrated system and thus should be
approved by the Commission. The benefits of the Heinz Transaction to Heinz
include (i) cost containment (ii) the expertise of DQE to support the Energy
Facility capital upgrades and modernization of the Energy Facility resulting in
increased capacity. The benefit of the Heinz Transaction to the Applicants is
that it results in an expansion of the Applicants' service to their existing
customer, Heinz.
Similar benefits will result from the Airport Transaction. In addition, the
Airport Transaction will permit an affiliate of ADC to operate the Airport
Facility owned by ADC.
E. Section 10(f)
Section 10(f) provides that the Commission shall not approve an acquisition
unless it appears as though all state laws are satisfied. As noted in Item 4
below, neither the Heinz Transaction nor the Airport Transaction requires any
state regulatory approvals and the Applicants undertake to complete the
transactions in a manner consistent with the laws of the Commonwealth of
Pennsylvania.
F. Section 3(a)(1)
DQE is currently exempt from all provisions of the Act except Section
9(a)(2). Upon consummation of the transactions contemplated herein, DQE will
continue to be entitled to such exemption because it and each of its public
utility subsidiaries from which it derives a material part of its income will be
predominantly intrastate in character and will carry on their businesses
substantially within the Commonwealth of Pennsylvania. In addition, as a result
of the transactions, Energy Services will become a public utility holding
company over DH Energy and Newco. Energy Services will also be entitled to an
exemption from all provisions of the Act except Section 9(a)(2) under the same
analysis. Energy Services intends to claim an exemption under Section 3(a)(1) of
the Act pursuant to Rule 2.
Item 4 REGULATORY APPROVALS
No federal or state commission, other than this Commission has jurisdiction
over the Heinz Transaction or the Airport Transactions as described herein.
Item 5 PROCEDURE
The Applicants hereby request that there be no hearing on this Application
and that the Commission issue its order as soon as practicable after the filing
hereof. The Commission is respectfully requested to issue and publish the
requisite notice under Rule 23 with respect to the filing of this Application
not later than March 21, 1997, and notice to specify a date not later than April
15, 1997, by which comments may be entered and a date not later than April 18,
1997, as the date after which an order of the Commission granting and permitting
the Application to become effective may be entered by the Commission. A Form of
Notice is filed herewith as Exhibit H.
Without prejudice to their right to modify the same if a hearing should be
ordered on this Application, the Applicants submit that a recommended decision
by a hearing officer or any other responsible officer of the Commission is not
needed for approval of the transactions described herein. The Division of
Investment Management may assist in the preparation of the Commission's decision
and/or order. There should be no waiting period between issuance of the
Commission's order and the date on which the order is to become effective.
It is requested that the Commission send copies of all communications to
the Applicants as follows:
Linda S. Ackerman, Esq.
DQE, Inc.
411 Seventh Avenue
15th Floor
Pittsburgh, PA 15230-1930
with concurrent copies to:
William S. Lamb, Esq.
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, NY 10019-4513
Item 6 EXHIBITS AND FINANCIAL STATEMENTS
a) Exhibits
B-1 Heinz Facility Lease dated as of January 22,
1997 between Heinz and ADC (previously filed)
B-2 First Amendment to Heinz Facility Lease dated
as of March 11, 1997 (previously filed)
B-3 Energy Supply Agreement dated as of January
22, 1997 between Heinz and ADC (previously
filed)
B-4 First Amendment to Energy Supply Agreement
(previously filed)
B-5 Draft Operation and Maintenance Services
Agreement between ADC and Newco (previously
filed)
F-1 Opinion of counsel (previously filed)
F-2 Past Tense Opinion of Counsel (to be filed by
amendment)
G. Financial Data Schedule (previously filed)
H. Form of Notice (previously filed)
b) Financial Statements
FS-1 Consolidated Balance Statement of DQE for
the year ended December 31, 1996
(incorporated by reference to the Form 10-K
of DQE filed on March 28, 1997 (File No.
1-10290).
FS-2 Consolidated Statement of Income for the
Preceding Three Years (incorporated by
reference to the Form 10-K of DQE filed on
March 28, 1997 (File No. 1-10290).
Item 7 INFORMATION AS TO ENVIRONMENTAL EFFECTS
None of the matters that are the subject of this Application and
declaration involve a "major federal action" nor do they "significantly affect
the quality of the human environment" as those terms are used in section
102(2)(C) of the National Environmental Policy Act. The transaction that is the
subject of this Application will not result in changes in the operation of the
company that will have an impact on the environment. The Applicants are not
aware of any federal agency that has prepared or is preparing an environmental
impact statement with respect to the transactions that are the subject of this
Application.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the undersigned have duly caused this application and declaration to be
signed on their behalf by the undersigned thereunto duly authorized.
DQE, INC.
By:/s/ Victor A. Roque
Victor A. Roque
Vice President
DQE ENERGY SERVICES, INC.
DH ENERGY, INC.
By:/s/ Alexis Tsaggaris
Alexis Tsaggaris
President
April 30, 1997
