<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM U-57
NOTIFICATION OF FOREIGN UTILITY COMPANY STATUS
Filed under Section 33(a) of the
Public Utility Holding Company Act of 1935, as amended
(the "1935 Act")
Gas Natural BAN, S.A.
---------------------
(Name of Foreign Utility Company)
LG&E International Inc.
----------------------------
(Name of filing company, if filed on behalf
of a foreign utility company)
The Commission is requested to address communications to:
Earle H. O'Donnell
Laurel W. Glassman
Dewey Ballantine LLP
1775 Pennsylvania Avenue, N.W.
Washington, DC 20006
March 29, 1999
<PAGE>
FILE NO.
---------
LG&E International Inc. ("LII"), on behalf of Gas Natural
BAN, S.A. ("BAN"), an Argentine sociedad anonima, hereby files with the
Securities and Exchange Commission, pursuant to Section 33 of the Public Utility
Holding Company Act of 1935 ("Act"), as amended by Section 715 of the Energy
Policy Act of 1992, P.L. 102-487, and Rule 57 of the implementing regulations
thereunder, 17 C.F.R. ss. 250.57, this Notice claiming exemption as a foreign
utility company.
In support of this claim for exemption, the following
information is submitted.
ITEM 1
STATE THE NAME OF THE ENTITY CLAIMING FOREIGN UTILITY COMPANY
STATUS AND ITS BUSINESS ADDRESS.
The company claiming foreign utility company status within the meaning of
Section 33(a)(3) of the Act is:
Gas Natural BAN, S.A.
Isabel La Catolica 939
Buenos Aires, Argentina
Neither BAN nor any subsidiary company is a public utility company operating in
the United States.
DESCRIPTION OF THE FACILITIES USED FOR THE GENERATION,
TRANSMISSION AND DISTRIBUTION OF ELECTRIC ENERGY FOR SALE OR
FOR THE DISTRIBUTION AT RETAIL OF NATURAL OR MANUFACTURED GAS.
BAN is an Argentine company whose sole purpose is to own and operate
facilities for the distribution of natural gas at retail within the northern
zone of the province of Buenos Aires in Argentina, and the performance of all
other activities in connection with the distribution of
<PAGE>
natural gas. BAN has the exclusive right to provide natural gas distribution
services within its region. BAN owns approximately 18,800 km of network
pipeline. BAN also has the right to perform financial and investing
transactions.
TO THE EXTENT KNOWN, IDENTIFY EACH PERSON THAT HOLDS FIVE
PERCENT OR MORE OF ANY CLASS OF VOTING SECURITIES OF THE
FOREIGN UTILITY COMPANY AND DESCRIBE THE AMOUNT AND NATURE OF
SUCH INTEREST.
There are five entities which directly or indirectly own five percent or more of
any class of voting securities of BAN. These companies are:
1. LII, a Delaware corporation, is an indirect wholly-owned
subsidiary of LG&E Energy Corp. ("LG&E Energy"). LG&E Energy,
a Kentucky corporation, is a public utility holding company
exempt from registration under Section 3(a)(1) of the Act.
LII indirectly will have a 19.6% interest in BAN through its
ownership of 28% of the shares of Invergas S.A. as described
below.(1)
2. Gas Natural SDG, S.A., an Irish corporation, indirectly will
have a 50.4% interest in BAN through its direct and indirect
ownership of 72% of the shares of Invergas S.A. as described
below.
3. Farallon GAS BAN Investment LLC, an investment fund, directly
owns approximately 7.8% of the shares of BAN.
4. Invergas S.A., an Argentine holding company, directly owns
approximately 70% of the shares of BAN. The direct interest of
Invergas S.A. includes the indirect interests of LII and Gas
Natural SDG, S.A. described above.
(1) LII intends to transfer its interest in BAN to LG&E Power Argentina III
LLC ("LPA"), a Kentucky limited liability company and wholly-owned
subsidiary of LII, as soon as LPA is authorized to do business under
Argentina law.
2
<PAGE>
5. Administradoras de Fondos de Jubilaciones y Pensiones
(A.F.J.P.), a collection of Argentine company retirement
plans, life insurance plans and investment funds, directly
owns 15.24% of the shares of BAN.
ITEM 2
STATE THE NAME OF ANY DOMESTIC ASSOCIATE PUBLIC-UTILITY
COMPANY AND, IF APPLICABLE, ITS HOLDING COMPANY, AND A
DESCRIPTION OF THE RELATIONSHIP BETWEEN THE FOREIGN UTILITY
COMPANY AND SUCH COMPANY, AND THE PURCHASE PRICE PAID BY ANY
SUCH DOMESTIC ASSOCIATE PUBLIC-UTILITY COMPANY FOR ITS
INTEREST IN THE FOREIGN UTILITY COMPANY.
BAN will be an associate company of Louisville Gas and Electric Company ("LG&E")
and Kentucky Utilities Company ("KU"), which are domestic public-utility
companies. LG&E and KU are both direct, wholly-owned subsidiaries of LG&E
Energy. Neither LG&E nor KU will have an interest in BAN and, therefore, the
purchase price disclosure is inapplicable.
EXHIBIT A
- ---------
LG&E is subject to the jurisdiction of the Kentucky Public
Service Commission ("KPSC") with respect to its retail electric and gas
rates. KU is subject to the jurisdiction of the KPSC and the Virginia State
Corporation Commission ("VSCC") with respect to its retail electric rates. KU
is also subject to the jurisdiction of the Tennessee Regulatory Authority
("TRA") with respect to the electric service it provides to a few customers.
The Commission, through its Office of Public Utility Regulation, previously
recognized the adequacy of the KPSC's oversight of LG&E Energy's activities
for purposes of Section 33 of the Act based on an order from the KPSC
approving LG&E's formation of a holding company. SEE LG&E ENERGY CORP.
no-action letter dated February 22, 1994 (File No. 132-3).
3
<PAGE>
KU received an order from the KPSC on October 6, 1988 approving its formation
of a holding company which it attaches hereto (ATTACHMENT A) in satisfaction
of the requirements of the third sentence of Section 33(a)(2) of the Act. On
November 13, 1991, in Release No. 35-25409, the Commission concluded that the
KPSC possessed adequate regulatory authority to protect KU's customers from
any adverse effects resulting from its non-utility activities. KU also
received an order from the TRA on November 22, 1998 approving its formation
of a holding company which it attaches hereto (ATTACHMENT B) in satisfaction
of the requirements of the third sentence of Section 33(a)(2) of the Act.
Section 56-46.3 of the Virginia Code requires KU to submit a formal
application with the VSCC for certification under Section 33(a)(2) of the
Act. Va. Code ss. 56-46.3. As required by Virginia law, KU attaches hereto
(ATTACHMENT C) the certification issued by the VSCC on March 29, 1999
pursuant to Section 33(a)(2) of the Act.
Accordingly, BAN meets the criteria set forth in Section
33(a) for qualification as a "foreign utility company."
SIGNATURE
The undersigned company has duly caused this statement to be
signed on its behalf by the undersigned thereunto duly authorized.
By: /s/ R. Foster Duncan
------------------------------------
R. Foster Duncan
President
LG&E International Inc.
For: Gas Natural BAN, S.A.
4
<PAGE> I CERTIFY THAT THIS
IS A TRUE COPY OF
THE ORIGINAL
ATTACHMENT A
/s/ HELEN VANCE
--------------------
PUBLIC SERVICE COMMISSION
COMMONWEALTH OF KENTUCKY
BEFORE THE PUBLIC SERVICE COMMISSION
In the Matter of :
THE APPLICATION OF KENTUCKY )
UTILITIES COMPANY TO ENTER INTO AN )
AGREEMENT AND PLAN OF EXCHANGE AND ) CASE NO. 10296
TO CARRY OUT CERTAIN TRANSACTIONS )
IN CONNECTION THEREWITH )
O R D E R
---------
On June 16, 1988, Kentucky Utilities Company ("KU") filed an application
with this Commission seeking approval of its proposed reorganization.
Specifically, KU requested in its application that the Commission approve the
execution of the proposed Agreement and Plan of Exchange by KU and the
performance by it of actions reasonably necessary or appropriate to carry out
the same, and that the Commission find that the proposed holding company
("Holding Company"), if constituted as contemplated in the Agreement, will
not be a utility as defined in KRS 278.010(3). KU proposes to reorganize by
creating Holding Company which will issue its common stock to the holders of
KU's common stock in exchange for the shares of KU's common stock pursuant
to the provisions of KRS 271B.11-020. Each share of KU's common stock will be
exchanged for one share of Holding Company's common stock. After the
transaction has been consummated, Holding Company will own all the
outstanding common stock of KU and the former holders of KU's common stock
will own all the outstanding common stock of
<PAGE>
Holding Company. KU's preferred stock and debt obligations will not be
converted or otherwise exchanged in the reorganization.
KU has stated that the proposed reorganization is a reasonable response
to the changing business environment in the electric utility industry and
will improve opportunities for investment in non-utility activities while
ensuring there will be no adverse impact on KU's customers. KU has claimed
that reorganization is in the public interest and that the ability to make
investments in its service area will help improve the state's economy. KU has
stated that the exchange of stock will not in any way affect the financial,
technical, and managerial abilities of KU to provide reasonable service and
that approval of the proposed reorganization will not result in any increase
or change in any of KU's rates or charges. The electric utility business will
continue to be the dominant business of the consolidated companies. Although
Holding Company will deploy KU funds not presently needed for investment in
utility plans or facilities, it will retain the financial strength to return
to the expansion of utility facilities when required to meet customer needs.
Although KU has not made a decision as to what specific lines of business
Holding Company will enter, it plans to develop criteria for the evaluation
of proposed investment alternatives. Additionally, KU has stated that the
purpose of the reorganization is to achieve the following goals:
1. Respond to increasing competition;
2. Increase financial flexibility;
-2-
<PAGE>
3. Insulate ratepayers from risks and give shareholders rewards of
non-utility activities;
4. Provide opportunities for increased earnings;
5. Assist KU in maintaining a balanced capital structure; and
6. Seek opportunities for prudent investments at no risk or increased
cost to KU's customers.
Kentucky Industrial Utility Customers and the Utility and Rate
Intervention of the Office of the Attorney General filed petitions with the
Commission to intervene in this proceeding. These petitions were granted by
the Commission. On August 22, 1988, an informal conference was held. All
parties attended this conference and KU's application was discussed. No party
requested a public hearing and, consequently, the Commission's decision is
based upon KU's application and its responses to information requests.
REGULATORY CONCERNS
The Commission agrees that the competitive environment is changing in
the electric industry. KU should be allowed to position itself to meet the
changes and have the ability to meet increased competition for investor funds
and investment opportunities. In considering KU's proposed plan of
reorganization, the Commission has certain concerns and objectives with
regard to the protection of ratepayer interests. The Commission's concerns
relate to three areas. First, the protection of utility resources should be
provided. Second, the Commission should be able to adequately monitor the
corporate
-3-
<PAGE>
activities of KU, Holding Company, and any other subsidiaries established by
Holding Company. Third, certain reporting requirements should be established
to assist the Commission in its monitoring activities. The following
discussion expresses in greater detail some of the Commission's concerns and
the conditions and requirements which the Commission believes are necessary
in order to assure that the interests of the ratepayers are protected. This
discussion is not intended to be all inclusive. Furthermore, due to the fact
that many aspects of KU's business activities under reorganization are not
known, and cannot be reasonably anticipated at this time, the Commission will
maintain flexibility in its plans and procedures for monitoring Holding
Company's and KU's activities.
PROTECTION OF UTILITY RESOURCES
Accounting Procedures and Controls
One of the primary concerns facing the Commission with the issue of
diversification is the potential which will exist for cross-subsidization of
non-regulated activities by the regulated company. Cross-subsidization can
occur through misallocation of common or joint costs, or through improper
pricing of intercompany transactions. The process of assuring that
cross-subsidization does not occur will result in added regulatory oversight
by the Commission and will require increased focus on cost identification by
KU. Three major areas which can be readily identified for potential
cross-subsidization are accounting, cost allocation methodologies, and
pricing of intercompany transactions. As the
-4-
<PAGE>
expansion of diversified activities occurs, the proper accounting and cost
allocation methodologies will become even more important.
KU has developed a "responsibility reporting system" ("RRS") to handle
the task of properly identifying costs for internal and external reporting
purposes. As described by KU, the RRS is a system designed to codify
expenditures in a manner that will allow the utility to maintain its books
and records in a manner required for external financial reporting purposes
and to retrieve financial data in the various forms required by management,
the Commission, and others. The accounting procedures are important in
separating utility and non-utility costs. Inasmuch as the original entries
for expenditures are made at this level, this aspect of the separation
process is the most elementary since most costs are direct charges and
assignments to utility and non-utility operations can be accomplished through
accounting controls and procedures which specify the treatment of certain
elements of cost. The accounting and reporting system used by KU should be
adequate to provide assurance that directly assignable utility and
non-utility costs are accounted for properly and that reports on the utility
and non-utility operations are accurately presented. Adequate supporting
documentation of costs for Commission review should be maintained whether
those costs are generated at the KU level or Holding Company level. KU has
had only minimal experience with regard to accounting for Holding Company
costs, and time constraints in processing this case have made it impractical
for the Commission to conduct an in-depth review of the accounting system.
Therefore, the approval of the application in this case
-5-
<PAGE>
is not to be construed as approval of the cost assignment procedures or of
the proper method of separation of charges into utility and non-utility
operations.
While the accounting system utilized by KU to separate direct charges
appears to be relatively straightforward, the separation of costs through
allocation methodologies is more subjective in nature and will require
greater scrutiny to assure that cross-subsidization does not occur. As a part
of this proceeding, Staff and other parties were given a presentation of the
RRS. However, detailed documentation has not been provided in this proceeding
as to the allocation methodologies and procedures to be used by KU to
separate utility and non-utility operations under the reorganization.
Consequently, the Commission makes no findings herein as to the adequacy of
KU's cost allocation procedures.
It is within the cost allocation procedures that one of the greatest
areas of potential misclassification of utility and non-utility costs exists.
Since KU's operations are monopolistic and subject to regulation with regard
to reasonable costs and earnings, it may be beneficial to the non-regulated
Holding Company to shift costs to the regulated operations to make pricing
more competitive for the market-oriented business activities and provide
greater returns to stockholders. KU has provided assurances that
cross-subsidization will not exist. However, diversification is in the public
interest only to the extent that utility operations will not be adversely
affected. Therefore, an essential ingredient to the reorganization plan
should be the establishment of reasonable cost allocation procedures to
achieve
-6-
<PAGE>
this objective. A major priority in the reorganization process should be the
development and implementation of cost allocation procedures that will
accomplish the objective of preventing cross-subsidization. In future
proceedings, it will be the responsibility of KU to show that its allocation
methodologies have not resulted in any cross-subsidization. As a part of that
showing, KU should be prepared to fully disclose all allocated costs, the
portion allocated to each subsidiary of Holding Company, complete details of
the methods of allocation and justification for the amount and the method.
The issue of cross-subsidization through pricing of inter-company
transactions also relates to the pricing of goods and services between
holding company affiliates as well as the establishment of prices for
transfer of assets of the utility. At present, other than participating in
economic development, Holding Company has not identified specific activities
into which it will diversify. Therefore, there are no definite plans for
subsidiaries to transact business with KU. However, these transactions are a
possibility which should be realistically anticipated. Regarding the sale or
transfer or assets, KU has introduced a cost or fair market standard in its
policies and guidelines for inter-company transactions to protect against
cross-subsidization of non-utility activities by KU's customers. These
policies and guidelines are explained in KU's CORPORATE POLICIES AND
GUIDELINES FOR INTERCOMPANY TRANSACTIONS.
KU has stated that the sale or transfer of assets will be settled by
cost or fair market value, whichever is greater, when a
-7-
<PAGE>
sale or transfer is made by KU to a related company, and by cost or fair
market value, whichever is lower, when a sale or transfer is made by a
related company to KU. In all instances, KU and each related company shall
comply with KU's CORPORATE POLICIES AND GUIDELINES FOR INTERCOMPANY
TRANSACTIONS. Additionally, in accordance with these policies and guidelines,
KU and each related company shall employ accounting and other procedures and
controls related to sales, transfers, and cost allocations to insure and
facilitate full review by the Commission and to protect against
cross-subsidization of non-utility activities by KU's customers. These
accounting and other procedures and controls will be reviewed periodically.
For certain they will be reviewed in all subsequent KU general rate cases,
and in other KU proceedings as appropriate or necessary. Whenever KU modifies
or amends these policies and guidelines, KU shall file with the Commission
the currently effective document indicating the modifications or amendments,
the effective date of such, and the accounting period(s) affected.
DIVERSION OF MANAGEMENT TALENT
The Commission is aware that it will be in the best interest of Holding
Company and its shareholders to secure the most skilled management available.
While KU will certainly share in the benefits of a well-managed corporate
structure, the Commission is concerned that diversion of management talent
away from KU to Holding Company and its affiliates could present a threat to
the continued efficient operation of KU and, therefore, would not be in the
best interests of the ratepayers. KU has stated that it
-8-
<PAGE>
intends to maintain its present management team which will, at all times, be
dedicated to utility activities so as to ensure that utility operations are
not neglected as a result of non-utility activities. The continuity of the
management of KU is important to the ratepayer. Furthermore, the Commission
notes KU's commitment that utility operations will not be neglected and will
be assigned the same priority and level of expertise as in the past. The
Commission will monitor, on an on-going basis, the composition of KU's
management team.
FINANCIAL RESOURCES
There is a concern that Holding Company may divert KU's financial
resources to benefit the activities of non-regulated affiliates at the
expense of utility ratepayers. The Commission's objective is to minimize the
degree of this risk which arises from Holding Company's control of KU's
financial resources.
The Commission has primarily focused on four main concerns regarding the
insulation of KU's financial resources from increased risks and the exposure
of KU to increased costs of capital stemming from those risks.
First, the Commission is concerned that attempts by Holding Company to
adjust KU's capital structure could adversely affect KU's cost of capital and
financial integrity. KU acknowledged in the Summary of Management
Recommendations Regarding Formation of a Holding Company that the utility's
capital structure can easily be adjusted to meet changing needs when a
holding company is in place. Consistent with KU's stated assurance, the
Commission
-9-
<PAGE>
believes that Holding Company should assist KU in maintaining a balanced
capital structure.
Second, the Commission is concerned that the dividend policy of KU could
adversely affect its financing requirements and capabilities. The Commission
is convinced that KU's dividend policy must not adversely affect the utility
ratepayers. KU has acknowledged that the payment of dividends to Holding
Company will be the mechanism by which Holding Company will adjust KU's
equity position. Through these adjustments to retained earnings, KU contends
Holding Company will help KU maintain an acceptable cost of capital and
thereby favorable rates for utility customers.
However, since retained earnings are a form of internal financing, the
dividend decision can significantly affect KU's external financing
requirements. In other words, if KU needs capital, the larger the cash
dividend paid to Holding Company, the greater the amount of capital that must
be raised externally through borrowing or through the public sale of
preferred stock or, in the extreme case, through the sale of common equity.
This external financing requirement could adversely affect KU's cost of
capital. Therefore, KU through its Board of Directors has the responsibility
to use its dividend policy consistent with preserving the financial strength
of the utility.
Third, the Commission is concerned that an unwillingness on the part of
Holding Company to provide necessary capital to KU could severely impair KU's
ability to provide utility services, as is its statutory obligation. KU has
stated that since it will continue to issue its own preferred stock and debt
as needed,
-10-
<PAGE>
capital attraction by KU will not be affected by the operations of Holding
Company's non-utility affiliates. Furthermore, KU has stated that, if at any
time Holding Company is, for whatever reason, unable or unwilling to provide
needed capital to KU, KU's Board of Directors will have access to markets to
obtain needed common equity. Any action or decision by the Board of Directors
of Holding Company, including the unwillingness to provide adequate capital
to KU, that, in any way, impairs KU's ability to provide utility service,
will be in direct violation of KRS 278.030(2).
Fourth, the Commission is concerned that the guaranteeing of the debt of
non-utility affiliates, as well as that of Holding Company, by KU could
unnecessarily place in jeopardy the financial position and resources of KU.
KU has stated that it will provide financing for Holding Company only through
the payment of dividends from shareholder-owned funds and will not guarantee
credit for its affiliates without Commission approval. KU, pursuant to KRS
278.300, is restricted from guaranteeing debt without express Commission
approval.
For rate-making purposes, the Commission has jurisdiction over KU's
capital structure, financing, and cost of capital. Through this authority,
the Commission can protect utility customers from financial effects resulting
from non-utility activities. The Commission approves all new debt, preferred
stock, and common equity issued by KU which prevents significant deviations
from the approved capital structure, which is the key to ensuring that KU
maintains its financial integrity. In
-11-
<PAGE>
addition to that financial control, the Commission has authority to approve
any guarantee of debt obligations by KU for Holding Company and its
affiliates. Under the proposed reorganization, the Commission will continue
to determine for rate-making purposes KU's capital structure and its return
on common equity.
Employer/Purchaser of Last Resort
There is a risk, under the proposed reorganization, that KU could be used
as the "dumping ground" for employees, assets and products associated with
failed or troubled affiliate ventures. The Commission is concerned that KU's
strength and stability could give the management of Holding Company or its
affiliates the false impression that it can be the employer or purchaser of
last resort.
KU has assured the Commission that its management has no intention of
using the utility for such purposes, except in those instances where a
transfer or purchase would be cost effective for the utility. However, the
Commission intends to monitor KU's activities to assure the ratepayers that
this has not occurred.
Divestiture
As part of its investigation of KU's proposed reorganization, the
Commission felt obligated to consider the worst case situation of a failed or
failing unregulated affiliate and its affect on the operations of KU. In
response to a question in the Commission's First Information Request, KU
indicated that, upon the determination that an investment in any subsidiary
is no longer viable or does not meet corporate objectives, Holding Company
will undertake divestiture. The response further stated that, because
-12-
<PAGE>
the ability of KU to attract capital is in no danger of being impaired, it is
unnecessary to consider divestiture. The Commission agrees that at this point
in KU's reorganization process, it may appear unnecessary to consider the
option of divestiture. However, if future circumstances dictate that the only
reasonable course of action is divestiture, including that of the utility, it
will be the responsibility of KU's management, as those charged with the
well-being of the dominant subsidiary, to ensure that divestiture takes place.
MONITORING THE HOLDING COMPANY AND THE SUBSIDIARIES
- ---------------------------------------------------
In the course of the Commission's investigation of the regulatory
safeguards necessary in cases of utility reorganization, it has become
obvious that the most basic and indispensable requirement is open access to
all books, records, and personnel of the holding company and each subsidiary.
It is absolutely essential that the Commission has the ability to pursue any
problems perceived in the operations of the utility through access to the
books and records of the holding company and affiliates. During formal
proceedings, the Commission may also choose to cross-examine personnel of the
unregulated entities, in the event it appears necessary, to effectively
monitor the relationship between KU and its parent and affiliates.
In response to the Commission's Second Information Request, KU has
indicated its agreement to provide access to the books and records of Holding
Company and its affiliates and subsidiaries. The Commission will have access,
as necessary in the exercise of its statutory duties, to the books and
records of Holding Company
-13-
<PAGE>
and its other affiliates and subsidiaries. Such books and records will be
produced in this Commonwealth upon written request by the Commission. The
request should state with particularity the specific issue of concern and the
reason or reasons why access to the books and records is necessary. Such
request will be deemed presumptively valid, material, and relevant. Any
objection to such request shall be timely raised and the respondent will
have the burden to show that the request is neither reasonably related to an
issue before the Commission nor reasonably calculated to result in the
discovery of evidence admissible in the proceeding. Confidential,
proprietary, or otherwise privileged information related to non-utility
activities will be afforded appropriate protection under applicable
Commission procedures.
Further, in order to assure the full protection of ratepayer interests,
the Commission considers it necessary to monitor significant transfers of
utility assets, business ventures of Holding Company, and other major
transactions. KU has indicated that it has no present plans to transfer any
assets nor has it identified non-utility activities in which Holding Company
will participate other than in economic development. Since there is the
potential that these and future actions may have a significant impact on the
ratepayers, the Commission should review them at the time they are completed.
Subsequent to the issuance of this Order, the Commission believes that an
informal conference should be scheduled so that the specific information to
be filed for this review can be determined.
-14-
<PAGE>
REPORTING REQUIREMENTS
In order for the Commission to effectively monitor the activities of KU,
Holding Company and its related subsidiaries, and to assure ratepayer
protection, certain additional reports shall be required of KU and shall be
furnished to the Commission on an annual, periodic, or other basis as
appropriate.
PERIODIC REPORTS
KU should furnish the Commission with the annual financial statements of
Holding Company including consolidating adjustments of Holding Company and
its subsidiaries with a brief explanation of each adjustment; the annual
balance sheets and income statements of any non-consolidated subsidiaries of
Holding Company; and all periodic reports filed with the Securities and
Exchange Commission.
KU has agreed to and should file on a quarterly basis a report detailing
KU's proportionate share of Holding Company's total operating revenues,
operating and maintenance expenses, and number of employees.
KU should furnish the following reports on an annual basis:
1. A general description of the nature of intercompany transactions with
specific identification of major transactions, and a description of the basis
upon which cost allocations and transfer pricing have been established.
Included in this report should be a discussion indicating the use of the cost
or market standard for the sale or transfer of assets, the allocation factors
used and the procedures used to determine these factors if they are different
from the procedures used in prior years.
-15-
<PAGE>
2. A report which identifies professional personnel transferred from KU
to Holding Company or any of the non-utility subsidiaries. Included should be
a brief description of the duties performed while employed by KU and to be
performed subsequent to transfer.
Any questions concerning the specific information to be filed for the
above reports should be resolved at an informal conference to be scheduled
subsequent to the issuance of this Order.
SPECIAL REPORTS/INFORMAL CONFERENCE
Other special reports should be furnished to the Commission as
necessary. At the present time, KU has no plans to transfer utility assets,
nor has it identified any investment activities of Holding Company, nor has
it proposed any other transactions. However, the Commission is of the opinion
that it is realistic to anticipate that such actions will occur in the future
and that certain reports will be required for the Commission to effectively
monitor these activities. Therefore, any contracts or other agreements
concerning the transfer of such assets or the pricing of intercompany
transactions should be filed with the Commission. The Commission believes
that an informal conference between KU, Commission Staff, and the parties
will provide the most efficient means to determine the specific information
which is required for the Commission to effectively perform its monitoring
role.
FINDINGS
The Commission, after consideration of the evidence of record and being
advised, is of the opinion and finds that:
-16-
<PAGE>
1. KU will, after the consummation of the transactions contemplated in
its proposed Agreement and Plan of Exchange, continue to have the financial,
technical, and managerial abilities to provide reasonable utility services,
within the meaning of KRS 278.020(4).
2. Holding Company will not, by reason of its ownership of all
outstanding shares of common stock of KU, be a utility as defined in KRS
278.010(3) as it will not own, control, operate, or manage any facilities
used in connection with the generation, production, transmission, and
distribution of electricity to or for the public.
3. With the conditions and assurances discussed in this Order, the
proposed reorganization of KU as a subsidiary of the non-regulated Holding
Company is in the public interest and should be approved.
4. The reorganization of KU as approved in this Order should not result
in an increase or change in any of KU's rates or charges.
5. The reorganization of KU should have no adverse impact whatsoever on
the utility or its ratepayers.
6. The interests of KU company and its ratepayers should be given first
priority in the business decisions of Holding Company.
7. KU should maintain adequate supporting documentation of all costs,
regardless of their origin.
8. KU should develop, implement, and maintain cost allocation procedures
that will prevent cross-subsidization.
-17-
<PAGE>
9. The pricing of intercompany transactions should not result in an
adverse impact on the ratepayers of the utility.
10. In future rate proceedings, KU should be able to show that no
cross-subsidization has occurred by disclosing all allocated costs, the
portion allocated to each segment of Holding Company, complete details of the
methods of allocation and justification for the amount and the method.
11. KU and each related company shall comply with KU's CORPORATE POLICIES
AND GUIDELINES FOR INTERCOMPANY TRANSACTIONS.
12. Any amendment to KU's policies and guidelines should be filed with
this Commission, along with its effective date and the accounting periods
affected.
13. KU should avoid a diversion of management talent that would adversely
impact the utility and ratepayers.
14. KU should maintain a balanced capital structure.
15. KU's Board of Directors should not allow the dividend policy to
adversely affect its financial integrity nor the rates of KU's customers.
16. Pursuant to KRS 278.030(2), KU's obligation to provide utility
service must not be impaired by Holding Company.
17. Pursuant to KRS 278.300, KU is restricted from guaranteeing the debt
of Holding Company and its affiliates.
18. KU should take whatever protective measures necessary, including
divestiture, to ensure that KU maintains its present level of services and
operations.
-18-
<PAGE>
19. Holding Company and its subsidiaries should provide open access to
all books, records, and personnel as discussed in this Order.
20. KU should file the details of significant transfers of utility
assets, business ventures of Holding Company, and other major transactions as
they are completed.
21. KU should provide the reports and other information as specifically
set out in the Reporting Requirements Section of this Order.
22. An informal conference should be scheduled to address the specific
reporting requirements identified in this Order at a time mutually convenient
to the parties.
IT IS THEREFORE ORDERED that:
1. KU is authorized to execute its proposed Agreement and Plan of
Exchange and perform the actions reasonably necessary or appropriate to
accomplish it.
2. The reorganization of KU as a regulated subsidiary of the
non-regulated Holding Company is hereby approved.
3. KU shall comply with all reporting requirements contained herein.
4. Within 30 days of the date of this Order, an informal conference
shall be scheduled with KU to address the specifics of reporting requirements.
5. Access to the books and records of Holding Company and its other
affiliates and subsidiaries shall be provided as described herein.
-19-
<PAGE>
6. KU shall file with the Commission a copy of the Agreement and Plan of
Exchange promptly upon its execution by KU and Holding Company, and shall
promptly notify the Commission in writing of the consummation of the Plan of
Exchange under the Agreement.
Done at Frankfort, Kentucky, this 6th day of October, 1988.
By the Commission
ATTEST:
/s/ Forest M. Skaggs
- -----------------------
Executive Director
20
<PAGE>
ATTACHMENT B
BEFORE THE TENNESSEE PUBLIC SERVICE COMMISSION
November 22, 1988 Nashville, Tennessee
IN RE: APPLICATION OF KENTUCKY UTILITIES
COMPANY TO ENTER INTO AN AGREEMENT
AND PLAN OF EXCHANGE AND TO CARRY
OUT CERTAIN TRANSACTIONS IN
CONNECTION THEREWITH
DOCKET NO. U-88-7579
O R D E R
---------
This matter is before the Tennessee Public Service Commission upon
the application of Kentucky Utilities Company ("KU") for an order, pursuant
to the provisions of TCA Section 65-4-104, authorizing KU to enter into an
Agreement and Plan of Exchange and to carry out certain transactions in
connection therewith.
The Commission considered this matter at its regularly scheduled
Commission Conference on November 8, 1988 and concluded that the application
should be granted.
On the 19th day of July, 1988 KU filed its duly verified application
seeking authority to enter into an Agreement and Plan of Exchange (the
"Agreement") with a holding company ("Holding") formed by KU under the laws
of Kentucky. Pursuant to the Agreement, a form of which was attached to the
Application, KU would become a wholly-owned
<PAGE>
subsidiary of Holding and the present common stockholders of KU would become
common stockholders of Holding.
The purposes of the proposed reorganization under the Agreement, as set
forth in the Application, are:
(1) to respond to increasing competition in the electric industry;
(2) to increase financial flexibility;
(3) to insulate ratepayers from risks and give shareholders rewards
of non-utility activities;
(4) to provide opportunities for increased earnings;
(5) to assist KU in maintaining a balanced capital structure; and
(6) to seek opportunities for prudent investments at no risk or
increased cost to KU's customers, including opportunities for
economic development of KU's service area.
Only a small portion of KU's property used or useful in its utility
business is located in the State of Tennessee, the greater portion of such
property being located in the State of Kentucky. An application was made to
the Public Service Commission of Kentucky for authority to enter into the
Agreement and a certified copy of the Order of the Kentucky Commission,
entered October 6, 1988, approving the execution of the Agreement and the
consummation of the transaction contemplated thereby, on the
2
<PAGE>
terms and conditions set forth therein, has been filed in the proceedings of
this case.
The Commission after consideration of the Application and being
advised by the Staff finds that (1) the execution of the Agreement and the
consummation of the transactions contemplated thereby will not impair the
ability of KU to perform its service to the public; (2) Holding if
constituted as contemplated in the Agreement will not be a public utility as
defined in TCA Section 65-4-101 as Holding will not own, operate, manage or
control any electric light or power system, plant or equipment, or control,
operate or manage any such facilities in the State of Tennessee.
IT IS THEREFORE ORDERED:
1. That KU is authorized to execute the proposed Agreement and
Plan of Exchange and perform the actions reasonably necessary or appropriate
to accomplish the Plan;
2. That KU shall, as soon as reasonably possible after the
execution of the Agreement, file with this Commission a copy of the Agreement
and notify the Commission in writing of the consummation of the Plan of
Exchange under the Agreement;
3. That any party aggrieved with the Commission's decision in this
matter may file a Petition for Reconsideration with the Commission within ten
(10) days from and after the date of this Order;
3
<PAGE>
4. That any party aggrieved with the Commission's decision in
this matter has the right of judicial review by filing a Petition for Review
in the Tennessee Court of Appeals, Middle Section, within sixty (60) days
from and after the date of this Order.
/s/ Frank Cochran
--------------------------
CHAIRMAN
/s/ Illegible
--------------------------
COMMISSIONER
/s/ Stephen Hewlett
--------------------------
COMMISSIONER
ATTEST:
/s/ Illegible
- -------------------------------
EXECUTIVE DIRECTOR
4
<PAGE>
Attachment C
[LETTERHEAD]
March 29, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
RE: LG&E Energy Corporation
Gentlemen:
LG&E Energy Corporation ("LG&E") has advised the Virginia State
Corporation Commission ("SCC") that it proposes to acquire, an indirect
interest in Gas Natural BAN, S.A., a natural gas local distribution company
located in Buenos Aires, Argentina, through LG&E Power Argentine III LLC
("LPA"), an indirect wholly-owned subsidiary. In that regard, LPA intends to
file a Notification of Foreign Utility Company Status (Form U-57) with the
Securities and Exchange Commission ("SEC") pursuant to the SEC's Rule 57, and
under Section 33 of the Public Utility Holding Company Act of 1935, as
amended ("PUHCA"). In connection with that filing, LG&E requires, and has
requested from this Commission, a certificate under Section 33(a)(2) of PUHCA
(15 U.S.C. Section 79z-5b) that this Commission "has the authority and
resources to protect ratepayers subject to its jurisdiction and that it
intends to exercise its authority."
This Commission has jurisdiction over the retail electric rates in
Virginia of LG&E's public utility subsidiary, Kentucky Utilities Company
("KU"), and has the statutory authority to supervise and regulate such
electric utilities in all matters relating to the performance of their public
duties and their charges therefor.
The specifics of this proposal have been addressed in an application
filed with the SCC under Section 56-46.3 of the Code of Virginia. In its
application LG&E represents that the proposed acquisition will have no
detrimental effect on KU or its electric customers in Virginia or elsewhere.
LG&E further represents that the acquisition will not affect KU's ability to
meet its capital requirements. LG&E notes that KU's capital structure,
currently includes approximately 50.9% equity to total capitalization and KU
is able to raise new capital on reasonable terms to meet the needs of its
utility customers. Moreover, LG&E notes that the capitalization of LG&E
Energy is approximately $2.9 billion, so the proposed $73.5 million
acquisition represents a modest investment.
<PAGE>
Securities and Exchange Commission
March 29, 1999
Page 2
Our action in regard to LG&E's request is based on KU's high equity
ratio and its strong financial standing. Moreover, we note that KU has
historically funded all of its capital requirements internally and expects to
do so in 1999 also. In addition, if and when KU accesses the debt capital
markets it will do so on a stand-alone basis, thus insulating itself from
LG&E's foreign investments. Moreover, our actions reflect the relatively
small size of this single investment.
Therefore, based upon the Company's application and representations,
including specifically, with without limitation, those found in the letter
from Guy T. Tripp, III, Counsel to the Company, to Joel H. Peck, Clerk of the
Commission, dated March 29, 1999, the SCC has directed me to certify to the
SEC under Section 33(a)(2) of PUHCA that this Commission has the authority
and resources to protect the ratepayers of KU subject to its jurisdiction and
that it intends to exercise its authority.
Such certification is made only as to the proposed acquisition of Gas
Natural BAN, S.A., and has no application to any other acquisition
whatsoever. In particular, Section 33(a)(2) of PUHCA provides that:
Such certification, upon the filing of a notice by
such State Commission, may be revised or
withdrawn by the State commission prospectively
as to any future acquisition.
In that regard, the Virginia State Corporation Commission hereby files
such a notice of withdrawal with the SEC, and hereby withdraws its
certification prospectively as to any future acquisition, other than the
acquisition of Gas Natural BAN, S.A., as described herein.
Sincerely,
/s/ Stewart E. Farrar
Stewart E. Farrar
Solicitor General
cc: Chairman Theodore V. Morrison, Jr.
Commissioner Hullihen Williams Moore
Commissioner Clinton Miller
Ronald L. Willhite, LG&E Energy Corp.
