<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-1
-----------------------------------------
AMENDMENT NO. 1
TO
APPLICATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
----------------------------------------------------
The AES Corporation
1001 North 19th Street
Arlington, VA 22209
(Name of company filing this statement and address
of principal executive offices)
------------------------------------------------------------------
None
(Name of top registered holding company
parent of each applicant or declarant)
---------------------------------
William R. Luraschi
General Counsel and Secretary
The AES Corporation
1001 North 19th Street
Arlington, VA 22209
(Name and address of agent for service)
----------------------------------
The Commission is also requested to send copies
of any communications in connection with this
matter to:
Clifford M. Naeve, Esq.
Judith A. Center, Esq.
Kathleen A. Foudy, Esq.
Skadden, Arps, Slate, Meagher & Flom L.L.P.
1440 New York Avenue, N.W.
Washington, D.C. 20005
<PAGE>
APPLICATION FOR EXEMPTION FROM THE PROVISIONS OF THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 PURSUANT TO
SECTION 3(a)(5)
THE APPLICATION PREVIOUSLY FILED IN THIS PROCEEDING IS HEREBY AMENDED AND
RESTATED IN ITS ENTIRETY TO READ AS FOLLOWS:
INTRODUCTION AND REQUEST FOR COMMISSION ACTION
The AES Corporation ("AES") hereby applies for an order from the
United States Securities and Exchange Commission (the "Commission") to the
effect that upon consummation of the merger transaction described in Item 1
below, the resulting public utility holding company, and every subsidiary
company thereof as such, will be exempt from the provisions of the Public
Utility Holding Company Act of 1935, as amended ("PUHCA" or "the Act"), other
than Section 9(a)(2), pursuant to Section 3(a)(5) of the Act.1
ITEM 1. DESCRIPTION OF THE TRANSACTION
A. SUMMARY OF THE TRANSACTION
Pursuant to a Merger Agreement dated November 22, 1998 between AES and
CILCORP Inc. ("CILCORP"), Midwest Energy, Inc., an Illinois corporation and
wholly-owned subsidiary of AES, will be merged with and into CILCORP, with
CILCORP as the surviving corporation (the "Transaction"). As a result of the
Transaction, each outstanding share of common stock of CILCORP ("CILCORP
Shares") and each associated purchase right under the Rights Agreement, dated as
of October 29, 1996, between Continental Stock Transfer and Trust Company and
CILCORP will be converted into the right to receive $65.00 (subject to
adjustment as described in the Merger Agreement) in cash, without interest. The
Merger Agreement is attached to this Application as Exhibit B-1.
Following the Transaction, CILCORP will be a first-tier, direct
subsidiary of AES, and CILCORP's subsidiaries will maintain their current
structure as direct or indirect subsidiaries, as the case may be, of CILCORP. In
addition, CILCORP will continue to be an Illinois corporation with its principal
- ---------------
1 Some AES subsidiaries also will continue to be exempt from the Act as
exempt wholesale generators ("EWGs"), pursuant to Section 32 of the Act, as
foreign utility companies ("FUCOs"), pursuant to Section 33 of the Act, or
as qualifying facilities ("QFs"), pursuant to Section 210(e) of the Public
Utility Regulatory Policies Act of 1978, and the implementing rules of the
Federal Energy Regulatory Commission.
1
<PAGE>
executive offices in Peoria, Illinois and AES will continue to be a Delaware
corporation with its principal executive offices in Arlington, Virginia.
The merger will provide important benefits to CILCORP's utility
customers and shareholders. AES's international and diversified experience in
competitive power markets will provide CILCORP's public utility subsidiary,
Central Illinois Light Company ("CILCO"), the resources necessary to provide
quality customer services in a deregulated environment. Pursuant to the Electric
Service Customer Choice and Rate Relief Law of 1997, which was enacted in
Illinois in December 1997 and becomes effective in October 1999, industrial and
commercial customers will be able to choose their own retail electric power
providers. Residential customers will have the same choice sometime thereafter,
ultimately leading to open choice for all Illinois electricity customers by
mid-year 2002. This deregulation will result in direct competition for customers
and will create demand for a broader range of services at competitive prices.
AES's worldwide experience and management resources, coupled with CILCORP's
utility expertise in Illinois, will facilitate enhanced customer services at
competitive prices.
The Merger Agreement is subject to the approval of CILCORP's
shareholders and was approved at a special meeting of CILCORP shareholders held
on May 20, 1999. The Merger also is subject to approval by the Federal Energy
Regulatory Commission ("FERC"). An application for such approval was filed with
the FERC on February 19, 1999. See Exhibit D-2. The Merger also is subject to
the notification and reporting requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"). On February 22, 1999, the Federal
Trade Commission granted early termination of the HSR Act waiting period.
In addition, CILCO provided notice to the Illinois Commerce Commission
("ICC") pursuant to Section 16-111(g) of the Illinois Public Utilities Act
regarding the Transaction, and filed a petition with the ICC for an order
finding that the ICC has no pre-approval jurisdiction over the Transaction, or,
in the alternative, for an order approving the Transaction with respect to
CILCO's gas operations.2 See Exhibit D-1. After the filing of its petition,
CILCO withdrew its request that the ICC make a ruling on the jurisdictional
issue. The ICC held an evidentiary hearing on February 5, 1999 and issued an
order approving the Transaction with respect to CILCO's gas operations on March
10, 1999. See Exhibit K-17. CILCO also requested that the ICC issue a state
commission certification in accordance with the requirements of Section 33(a)(2)
- ---------------
2 Pursuant to the Illinois Public Utilities Act, the ICC does not have
preapproval jurisdiction over the Transaction with respect to CILCO's
electric operations. Illinois restructuring legislation removed ICC
authority over the sale or other transfer of electric assets to affiliated
or unaffiliated entities until January 1, 2005.
2
<PAGE>
of the Act. The ICC issued such certification by letter to the Commission dated
March 10, 1999. See Exhibit K-18.3
Upon consummation of the Transaction, AES will own CILCORP, an
intrastate exempt holding company under Section 3(a)(1) of the Act, and its
direct and indirect subsidiaries, including CILCO, a utility subsidiary
principally engaged in the generation, transmission, distribution and sale of
electric energy, and the purchase, distribution, transportation and sale of
natural gas in central and east-central Illinois. After giving effect to the
Transaction, CILCORP will remain predominantly an intrastate holding company
that will not derive any material part of its income from an out-of-state
utility subsidiary. Accordingly, CILCORP will continue to claim an exemption
from registration under PUHCA pursuant to Section 3(a)(1) and Rule 2. For the
reasons set forth herein, AES will qualify for an exemption from registration
under Section 3(a)(5) of the Act.
B. DESCRIPTION OF PARTIES TO THE TRANSACTION
1. AES CORPORATION
AES, incorporated in Delaware, is a United States-based multinational
electric power generation and energy distribution company, with operations in 16
countries worldwide. AES is engaged principally in the development, ownership,
and operation of electric generating plants and electric and gas distribution
companies, all of which either are (or are owned by) EWGs, FUCOs or QFs.
Revenues from electric generation and distribution activities accounted for over
95 percent of revenues in 1997 and again in 1998. Other activities include the
sale of steam and other commodities related to AES's cogeneration operations, as
well as operational, construction and project development services, and gas and
power marketing.4 AES currently is not a holding company subject to the
provisions of the Act because none of its subsidiaries is a public utility
company as defined by the Act. Exhibit K-2 lists all AES subsidiaries and their
respective jurisdictions of organization.
AES has grown since its founding in 1981 to become one of the largest,
if not the largest, global electricity suppliers. AES currently owns and/or
- ---------------
3 The Transaction is not subject to pre-approval by this Commission under
Section 9(a)(2) of the Act, since AES will acquire and own only one
PUHCA-jurisdictional public utility company upon consummation of the
Transaction. See Coral Petroleum, Inc., Rel. No. 35-21, 632 (1980).
4 AES Power, a wholly owned subsidiary of AES active in power marketing,
generated less than 1 percent of AES's1998 net income. In addition, CEMIG,
in which AES has a minority investment, has operated a small gas distribu
tion company, Gasmig, since 1995.
3
<PAGE>
operates (entirely or in part) a diverse international portfolio of electric
power plants with a total capacity of 26,466 megawatts ("MW"), including plants
that are part of distribution companies in which AES has an interest. Of that
total, 6,449 MW (fifteen plants) are located in the United States, 1,818 MW
(five plants) are in the United Kingdom, 885 MW (six plants) are in Argentina,
817 MW (eight plants) are in China, 1,281 MW (three plants) are in Hungary,
6,456 MW (41 plants) are in Brazil, 5,384 MW (seven plants) are in Kazakhstan,
210 MW (one plant) are in the Dominican Republic, 110 MW (one plant) are in
Canada, 695 MW (two plants) are in Pakistan, 1,254 MW (three plants) are in
Australia, 405 MW (one plant) are in the Netherlands, 420 MW (one plant) are in
India and 282 MW (two plants) are in Panama. 20,017 MW of this generating
capacity is located outside the United States.5
As noted above, AES also owns partial interests (both majority and
minority) in companies that distribute and sell electricity directly to
commercial, industrial, governmental, and residential customers. AES has
majority ownership in three distribution companies in Argentina, one in Brazil,
one in the country of Georgia, one in Kazakhstan, and one in El Salvador, and
less than majority ownership in three additional distribution companies in
Brazil. AES also recently acquired the right to purchase a 50 percent interest
in a distribution company in the Dominican Republic, and expects to close on the
purchase soon. These eleven companies serve a total of approximately 13.6
million foreign customers with sales of nearly 107,000 gigawatt-hours. On a net
equity basis, AES's ownership in these companies will represent approximately
3.6 million foreign customers and sales of approximately 28,000 gigawatt-hours.
Pending increases in AES's ownership in two Brazilian distribution companies
will raise the company's net equity share to approximately 3.7 million foreign
customers and approximately 29,000 gigawatt-hours.
In addition to power generation and distribution, AES owns and
operates the Lyukobanya Coal Mine in Hungary. The mine has an output of
approximately one million tons per year of brown coal and is the sole supplier
of AES Borsod.
AES has grown rapidly throughout this decade. In 1990, the year before
it went public, AES had total assets of $1.1 billion, revenues of $190.2 million
and net income of $15.5 million.6 By the end of 1997, total assets grew by
approximately 700 percent to $8.9 billion, revenues grew by approximately 640
percent to $1.4 billion, and net income grew by nearly 1,100 percent to $185
million. From the end of 1997 to the end of 1998, AES's total assets expanded 21
percent to $10.8 billion, revenues rose 71 percent to $2.4 billion and net
income grew 68 percent to $311 million. In the eight year period between
year-end 1990 and 1998, AES's growth in total assets, revenues and net income
were 882 percent, 1,162 percent and 1,906 percent, respectively.
- ---------------
5 On a net equity basis, i.e., actual ownership interest, AES has 17,618 MW
of capacity, of which 11,194 MW is foreign-based.
6 Determined in accordance with Generally Accepted Accounting Principles
("GAAP").
4
<PAGE>
AES has continued its growth in 1999. Thus far in 1999, AES has
acquired or achieved commercial operations for two power plants totaling 282
megawatts ("MW") in Panama, a 420 MW plant in India and three power plants
totaling 1,254 MW in Australia. The company also recently completed financing
for the purchase of six power plants totaling 1,424 MW in New York.7 In 1999,
AES also expects to achieve financial closing on its acquisition of the four
electric generating plants of CILCO (1,152 MW). Also in 1999, AES is expected to
complete construction of and begin operating a 180 MW coal-fired plant in the
United States. Combining the 101 power plants currently in operation, planned
for acquisition in 1999 or projected to begin operations in 1999, AES is
expected to have a minimum of 27,798 MW of generating capacity by the end of the
current calendar year.8 As a result, the power generation capacity of companies
in which AES has an interest will have grown by 3,027 percent in 8 years.9 10
The growth of AES's distribution business also has been fast-paced. In
1996, AES purchased its first interests in a distribution company. By the end of
1998, companies in which AES had an interest served approximately 13 million
customers and sold over 102,000 gigawatt-hours of power.11 Thus far in 1999, AES
has acquired 75 percent of a distribution company serving 370,000 customers in
the country of Georgia and rights to purchase 50 percent of an electric
distribution company serving approximately 270,000 customers in the Dominican
Republic. In addition, AES recently acquired the right to increase its ownership
stakes in its Brazilian distribution companies, Light and Metropolitana, by 27
percent and 30 percent, respectively, and expects to acquire such additional
ownership during 1999.
AES's market capitalization has mirrored its growth over the decade.
AES's public offering in 1991 valued the company at $750 million. At present,
AES's market capitalization has risen to approximately $10 billion, an increase
of 1,233 percent in approximately 8 years.
- ---------------
7 These generating assets of New York State Electric and Gas Corporation
("NYSEG") will be owned by a wholly-owned subsidiary of AES that has EWG
status.
8 Of this 27,798 MW, 20,017 MW will be foreign. On a net equity basis, AES
is expected to have a generating capacity of 18,950 MW at year-end 1999;
11,194 MW of which will be foreign.
9 This projection conservatively assumes AES growth only from AES projects
under development which are expected to be operational in this period and
from existing projects which AES already has committed to acquire during
this period.
10 2,093 percent on a net equity basis.
11 Approximately 3.1 million customers and 25,000 gigawatt-hours on a net
equity basis.
5
<PAGE>
Exhibit K-3 lists the AES subsidiary companies which own generation
facilities currently in operation, and also includes company operating
locations, power generation capacities, AES net equity interests, and the
regulatory status of the companies and/or generating facilities (i.e., whether
QF, EWG, or FUCO). Exhibit K-3 also lists the distribution companies in which
AES owns an interest, including location, regulatory status and the nature of
AES's interest. Exhibit K-4 depicts the locations of AES's current and
prospective generation and distribution businesses worldwide.
2. CILCORP
CILCORP was incorporated as a utility holding company in the State of
Illinois in 1985. CILCORP is the parent of four first-tier subsidiaries: CILCO,
QST Enterprises Inc. ("QST"), CILCORP Investment Management Inc. ("CIM"), and
CILCORP Ventures Inc. ("CVI"). The consolidated assets, revenues and net income
of CILCORP for the year ending December 31, 1997 were $1.335 billion, $558
million and $16.4 million, respectively. For 1998, CILCORP's consolidated
assets, revenues and net income were $1.313 billion, $559 million and $16.3
million, respectively. CILCORP is exempt from the provisions of PUHCA (except
for Section 9(a)(2)) under Section 3(a)(1) pursuant to Rule 2.
CILCO, the primary business subsidiary of CILCORP, is an electric and
gas utility engaged in the generation, transmission, distribution, and sale of
electric energy in an area of approximately 3,700 square miles in central and
east-central Illinois, and the purchase, distribution, transportation and retail
sale of natural gas in an area of approximately 4,500 square miles in central
and east-central Illinois. As of December 31, 1998, CILCO served approximately
253,000 customers; approximately 189,000 retail electric customers and
approximately 197,000 gas customers, including 837 industrial, commercial and
residential gas transportation customers that purchase gas directly from
suppliers for transportation through CILCO's system. At the end of 1997, the
electric utility assets of CILCO were $723.8 million and the gas utility assets
were $290.5 million. At the end of 1998, the electric utility assets of CILCO
were $729.1 million and the gas utility assets were $286.2 million. In 1997,
CILCO earned $338.1 million in electric utility revenues (62 percent of total
operating revenue) and $208.8 million in gas utility revenues (38 percent of
total operating revenue). In 1998, CILCO earned $360.0 million in electric
utility revenues (68 percent of total operating revenue) and $172.3 million in
gas utility revenues (32 percent of total operating revenue). CILCO owns and
operates two steam-electric generating plants, one cogeneration plant and two
combustion turbine-generators. These facilities had an available summer
capability of 1,152 megawatts in 1998. At the end of 1998, CILCO's transmission
system included approximately 285 circuit miles operating at 138,000 volts, 48
circuit miles operating at 345,000 volts and 16 principal substations with an
installed capacity of 2,150,000 kilovolt-amperes. In 1998, the system peak
demand was 1,195 megawatts for electric activities and the peak day natural gas
send-out was 327,328 million cubic feet. CILCO had total assets, operating
revenues and net income of $1.023 billion, $546.9 million and $50.3 million,
respectively, for the year ending December 31, 1997. At the end of 1998, CILCO
had total assets, operating revenues and net income of $1.024 billion, $532.3
million and $41 million, respectively.
6
<PAGE>
CILCO has two wholly-owned subsidiaries, CILCO Exploration and
Development Company ("CEDCO") and CILCO Energy Corporation ("CECO"). CEDCO was
formed to engage in the exploration and development of gas, oil, coal, and other
mineral resources.
QST was formed in December 1995 to facilitate CILCORP's expansion into
non-regulated energy and related services businesses. QST has three wholly-owned
first-tier subsidiaries: QST Energy, Inc. ("QST Energy"), CILCORP Infraservices,
Inc. ("CII") and QST Environmental, Inc. ("QST Environmental"). QST Energy has
one wholly-owned subsidiary: QST Energy Trading Inc. ("QST Trading"). QST
Environmental has six active wholly-owned subsidiaries: Keck Instruments, Inc.,
QST Architectural Services, Inc., National Professional Casualty Co., Chemrox,
Inc., Environmental Staffing Solutions, Inc., and ESE Land Corporation. QST
Environmental also holds interests in ESE, Inc. and ESE New York, P.C.
QST provides non-regulated energy and energy-related services to
retail and wholesale customers through QST Energy, which began operations in
1996. QST Energy competed against marketers, brokers and utility affiliates to
market and provide energy and related services to customers of utilities and
other energy providers who have the ability to choose a supplier. QST Trading
was a wholesale natural gas and electric power marketer which purchased, sold,
and brokered energy and capacity at market-based rates to other marketers,
including QST Energy, utilities and other customers. In June of 1998, CILCORP
announced that it was reevaluating its strategy for QST Energy, and indicated
that the company would focus on opportunities for profitable growth in Illinois,
de-emphasizing energy trading activities at QST. After further consideration,
CILCORP decided to wind down the operations of QST Energy and QST Trading,
except to the extent required to fulfill commitments to existing customers and
counterparties. Once these commitments are fulfilled, the operations of QST
Energy and QST Trading will be completely wound down.
QST Environmental is an environmental consulting and engineering firm
serving governmental, industrial and commercial customers. In late 1998, CILCORP
decided to sell QST Environmental and expects that the sale will be completed
before the end of June 1999. In August of 1998, QST completed the sale of QST
Communications Inc., formerly a wholly-owned QST subsidiary which provides
telecommunications services.
As a result of the winding down and sale of various QST operations,
CILCORP is reporting the results of QST and certain of its subsidiaries as
discontinued operations. For the year ending December 31, 1998, QST had total
assets and a net loss of $121.6 million and $21.9 million, respectively.
7
<PAGE>
CII provides utility operation and maintenance services. CII currently
serves one customer in central Illinois.
CIM invests in a diversified portfolio of long-term financial
investments which currently include leveraged leases, energy-related projects
and affordable residential housing. CIM has four wholly-owned subsidiaries:
CILCORP Lease Management, Inc., CIM Leasing, Inc., CIM Air Leasing, Inc., and
CIM Energy Investments, Inc. For the year ending December 31, 1998, CIM had
total assets, revenues and net income of $162.5 million, $11.1 million and $4.3
million, respectively.
CVI primarily invests in ventures in energy-related products and
services. CVI has an 80 percent interest in the Agricultural Research and
Development Corporation and has one wholly-owned subsidiary, CILCORP Energy
Services Inc., ("CESI"). CESI's primary business is the sale of non-regulated
energy services, including non-regulated sales of natural gas. For the year
ending December 31, 1998, CVI had total assets, revenues and a net loss of $7.8
million, $13.5 million and $1.4 million, respectively.
ITEM 2. FEES, COMMISSIONS AND EXPENSES
The fees, commissions and expenses to be paid or incurred, directly or
indirectly, by all parties in connection with the Transaction are estimated to
total approximately $28 million.
ITEM 3. APPLICABLE STATUTORY PROVISION
SECTION 3(A)(5)
Under Section 3(a)(5), a holding company and its subsidiaries will be
exempt from the provisions of the Act (except for Section 9(a)(2)) if the
holding company is not and does not derive any material part of its income from
a subsidiary whose principal business within the U.S. is that of a public
utility company. As the Commission has noted, the Section 3(a)(5) exemption is
meant to be available to a holding company system with foreign operations whose
U.S. utility operations "account for no material part of the holding company's
income" and are "small in size". Gaz Metropolitain, Inc., Rel. No. 26170 (1994)
(quoting and citing Electric Bond and Share Company, Rel. No. 11004, 1952 WL
1058 (1952) ("Electric Bond and Share")). For the reasons set forth below, it is
clear that AES will qualify for a Section 3(a)(5) exemption upon completion of
the Transaction.
A. MATERIALITY OF CILCO INCOME
In the relatively few cases decided under Section 3(a)(5) where the
Commission has addressed the materiality of the U.S. utility subsidiary, the
8
<PAGE>
Commission has considered the relative size of the U.S. utility subsidiary's
operations, expressed as a percentage of the applicant holding company's total
operations, based upon a variety of financial yardsticks. See, e.g., Gaz
Metropolitain (citing to U.S. utility contributions to holding company total
consolidated revenues, net income, and net utility plant); TransCanada Pipelines
Limited, Rel. No. 35-25647 (1992)(citing to percentages of holding company total
revenues and net assets); Consumers' Gas Company, Rel. No. 35-14956
(1963)(comparing U.S. utility and holding company revenues, net income, and net
assets). In considering these various financial measurements, the Commission has
not indicated that any given one is entitled to particular deference.
The Commission similarly has not applied a strict percentage test of
materiality under Section 3(a)(5). The Commission has granted Section 3(a)(5)
exemptions where the U.S. utility subsidiary represented less than approximately
5 percent of total holding company operations. See, e.g., Gaz Metropolitain;
TransCanada Pipelines. The Commission also has indicated that a holding company
that derived approximately 46 percent of its total business revenues from a
utility subsidiary (in the form of fees for underwriting services) received a
material amount of income from such subsidiary. H.M. Byllesby & Company, Rel.
No. 1882 (1940). See also Cities Service Company, 8 SEC 318 (1940)(noting in
dicta that U.S. utility subsidiary contributions to holding company of
approximately 30 percent of gross revenues and 45 percent of net fixed assets
would be considered material). See also NIPSCO Industries, Inc., Rel. No.
35-26975 (Feb. 10, 1999) ("NIPSCO") (in the Section 3(a)(1) context, the
Commission has emphasized that there is no strict percentage test for assessing
materiality under Section 3(a)(1)).
It should be noted that the Commission Staff has recommended that the
Commission adopt a more flexible standard for exemptions under Section 3(a),
urging the agency to take into account the ability of affected state commissions
to "adequately protect utility consumers against any detriment that might be
associated with certain activities of exempt holding companies." The Regulation
of Public-Utility Holding Companies (June 1995), pp. 119-120. As explained
below, the ICC has such ability here.
A review of CILCO's contributions to AES's total operations (including
CILCORP), from the perspective of a variety of financial indicators, reveals
that CILCO's utility activities and assets constitute only a very minor
percentage of AES's overall business, a percentage that will become increasingly
minor over time, as the size of AES's business continues to grow.12 Set forth
below in Table 1 are the percentages, on a pro forma basis for 1996-1998, of
gross revenues, net operating revenues13, operating income, net income, and net
assets of CILCO, to the total combined gross revenues, net operating revenues,
operating income, net income, and net assets of AES as a whole.
- ---------------
12 In fact, AES expects that CILCO's activities and assets as a percentage of
AES's overall business will trend down to below 10 percent within five
years.
13 Net operating revenues are gross revenues less cost of purchased gas for
retail gas distribution and the cost of fuel for electric generation, for
both AES and CILCO.
9
<PAGE>
CILCO Contributions To
AES/CILCORP Consolidated Holding Company
(Proportional Consolidation Basis)
($MM)
1996 1997 1998
GROSS REVENUES* 31.26% 21.24% 12.81%
AES 1,149 2,045 3,640
CILCO 524 553 538
CILCORP (excluding CILCO) 3 5 21
AES/CILCORP 1,676 2,603 4,199
NET OPERATING REVENUES 26.66% 17.75% 10.35%
AES 891 1,557 3,011
CILCO 325 337 350
CILCORP (excluding CILCO) 3 5 21
AES/CILCORP 1,219 1,899 3,382
OPERATING INCOME 21.05% 14.59% 8.54%
AES 365 608 997
CILCO 96 103 93
CILCORP (excluding CILCO) (5) (5) (1)
AES/CILCORP 456 706 1,089
NET INCOME 27.45% 24.88% 12.54%
AES 125 185 311
CILCO 42 50 41
CILCORP (excluding CILCO) (14) (34) (25)
AES/CILCORP 153 201 327
NET ASSETS 20.07% 9.12% 7.78%
AES 3,876 9,883 11,851
CILCO 1,036 1,023 1,024
CILCORP (excluding CILCO) 250 312 289
AES/CILCORP 5,162 11,218 13,164
* In calculating the gross revenues percentage, the numerator is equal to the
total gross business revenues of CILCO, which include revenues from minor
non-utility activities (nearly all of which are from service transactions
with CILCORP affiliates). The denominator is comprised of all CILCORP
business revenues (including revenues from all CILCO activities and CILCORP
non-utility activities) plus all of AES's business revenues.
10
<PAGE>
The AES data contained in Table 1 is compiled on a proportional
consolidation basis rather than in accordance with GAAP. On a proportional
consolidation basis, revenues, income and assets are allocated to AES on a pro
rata basis in proportion to the ownership percentages held by AES in each of the
projects/companies in which it has an equity interest. AES holds a less-than-50
percent equity interest in a number of projects that generate substantial
revenues.14 On a proportional consolidation basis, revenues from sales made by
these minority-interest investments are included as revenues in statements of
operations. On financial statements prepared in accordance with GAAP, on the
other hand, returns from minority-interest projects are not reported as
revenues, but instead are reported as equity in earnings of affiliates (net of
income taxes). Thus, using GAAP-based data here would understate the revenues
AES earns from its electric business. The proportional consolidation data
provides a more accurate representation of the size of AES's generation and
distribution business relative to that of CILCO's business.
Commission case law provides support for making appropriate
adjustments to financial data reported on the basis of prescribed, conventional
accounting treatments, where such adjustments would yield a more accurate
picture, from a PUHCA perspective, of a company's operations, revenues, or other
pertinent criteria. For example, on several occasions, the Commission has
considered proportional consolidation data. See, e.g., Northern New England
Company, et al., Rel. No. 11711 (February 13, 1953) (1953 SEC LEXIS 875)
(applying proportional consolidation approach to re-state and allocate income
and balance sheet amounts to reflect ownership percentages) and Sioux City Gas
and Electric Company, Rel. No. 9303 (September 8, 1949) (1949 SEC LEXIS 613)
(applying proportional consolidation approach to evaluation of dividend coverage
ratios). See also Consolidated Cities Light, Power & Traction Company, et al.,
Rel. No. 4130 (February 23, 1943) (1943 SEC LEXIS 556) (consideration of
company's "indirect" sources of income, such as payments by another company of
its interest and sinking fund requirements on outstanding debt).
Moreover, it generally is recognized that proportional accounting is
an acceptable approach for accounting for joint ventures in the utility
industry. See CCH Accountants SEC Practice Manual P. 4330 "[w]here pro-rata
consolidation is a widespread industry practice, as in the case of utilities, it
- ---------------
14 AES holds majority equity interests in a number of projects/companies.
Under GAAP, revenues and income from such projects are included in AES's
consolidated financial statements in the same manner as wholly-owned
projects. However, the revenue impact of these holdings is far outweighed
by the exclusion of minority-owned projects from the calculation of AES's
GAAP-based gross revenues.
11
<PAGE>
will continue to be permitted"). Proportional consolidation also has been used
historically by the oil and gas industry, where multinational oil companies
commonly own fractional interests in oil field production rights and facilities.
Proportional consolidation also has been adopted recently by other industries,
including some joint ventures in the telecommunication and satellite industries.
The AES businesses which, for financial reporting purposes, are
accounted for using the equity method, are similar to joint venture utility
projects that use the proportional consolidation method. Each project is
governed by a joint venture agreement, and these joint venture agreements
provide for the management of the company, setting of budgets, appointment of
directors and transfer of shares. Moreover, AES always is an active partner with
significant management responsibility and representation on the board, and
usually is responsible for directly staffing specific needs of the business. The
pro-rata approach used with proportional consolidation paints a more accurate
picture of the size and configuration of AES and the relative contributions from
each of its businesses. For this reason, in non-SEC matters, including
presentations to investors and analysts, AES has used proportional consolidation
to describe the minority businesses which are accounted for under the equity
method in its GAAP financials.
In addition, proportional consolidation is consistent with the status
of the minority-interest businesses as subsidiary companies of AES. AES owns at
least 10 percent of the voting securities of such companies, and as noted above,
participates in their management and operation. Therefore, it is appropriate to
allocate the revenues and assets of these companies to AES on a pro-rata basis.
To do otherwise significantly would underestimate the extent of AES's foreign
operations.15
Although Table 1 includes data for 1996, 1997 and 1998, given AES's
phenomenal growth, the 1998 data is by far the most relevant for purposes of
comparing the relative size of CILCO and AES. As the description in Item 1,
Section B above notes, AES's revenues increased approximately 640 percent
between 1990 and 1997, and increased by 71 percent from 1997 to 1998. Unlike a
traditional utility company, whose financial results are relatively static over
time or who have year-to-year variations (perhaps attributable to weather
conditions, or one-time extraordinary changes) that can best be viewed over a
- ---------------
15 AES also has calculated the percentages set forth in Table 1 in accordance
with GAAP. Such calculations are set forth in Exhibit K-5. As explained
above, however, use of this GAAP-based data understates the size of AES's
worldwide business relative to CILCO, whereas data compiled on a propor
tional consolidation basis provides a more accurate comparison of the size
of CILCO to the size of the AES/CILCORP merged company.
12
<PAGE>
several-year period, AES has experienced and will continue to experience rapid
growth through project development and acquisitions. In fact, in light of its
rapid growth, AES was quite a different company at the end of 1998 than it was
in 1996 or even 1997. As reflected in Table 1, between the end of 1996 and 1998,
AES gross revenues grew 217 percent, from $1.15 billion to $3.64 billion; net
operating revenues grew 238 percent, from $891 million to $3.01 billion;
operating income grew 173 percent, from $365 million to $997 million; net income
grew 149 percent, from $125 million to $311 million; and net assets grew 205
percent, from $3.88 billion to $11.85 billion.16 Therefore, in light of AES's
significant growth from the years 1996 through 1998, the financial data for 1996
and 1997 do not provide an accurate picture of the relative size of AES and its
current foreign operations. Thus, to avoid a misleading comparison, greatest
weight should be given to AES's most recent financial results (1998) in
evaluating the relative contribution of CILCO to the holding company.
Table 1 demonstrates the relative size of AES and the merged
AES/CILCORP holding company based on five financial yardsticks. In this
instance, because of the differing nature of AES's and CILCO's operations,
certain of the financial yardsticks, particularly gross revenues and net income,
tend to overstate CILCO's contributions to the merged AES/CILCORP holding
company. Thus, as explained below, the Table 1 data comparing net operating
revenues, operating income and net assets present the most accurate
representation of the relative size of CILCO to the merged AES/CILCORP holding
company.
There are several reasons why a comparison of gross revenues presents
a misleading picture of the relative size of AES and CILCO. First, between 30
and 40 percent of CILCO's gross revenues over the past four years were earned
from its natural gas business, whereas virtually all of AES's current revenues
have been derived from electric generation and distribution. The Commission has
recognized the difficulty of making size comparisons between an electric company
and a natural gas distribution company based upon gross revenues. Houston
Industries, Inc., Rel. No. 35-26744 (1997); NIPSCO, supra. In NIPSCO, the
Commission observed that the "[c]omponents of gross revenues are different for
electric and gas utilities" and that "pass-through costs" (e.g., purchased gas
and fuel for electric generation) constitute a larger part of gross revenues for
- ---------------
16 Similarly, use of an average of financial information for the years 1996
through 1998 also significantly understates the extent of AES's operations
and therefore also proves inadequate. AES's 1998 gross revenues are 52
percent greater than the average of AES's gross revenues for the years 1996
through 1998. AES's 1998 net operating revenues are 54 percent greater than
the average of AES's net operating revenues for the years 1996 through
1998; 1998 operating income is 46 percent greater than the three-year
average; 1998 net income is 43 percent greater than the three-year average;
and 1998 net assets are 51 percent greater than the three-year average.
13
<PAGE>
a gas utility than for an electric utility. The Commission thus concluded that
where a predominantly electric system (NIPSCO) acquired an exclusively gas
system (Bay State), a reliance on gross revenues comparisons would distort the
relative sizes of the merging companies.
The same considerations apply in this instance. Here AES, almost
exclusively an electric company, is acquiring CILCO, a company earning a
substantial portion of its gross revenues from gas distribution. Although AES
does not, for the most part, have automatic "pass-throughs" of its electric fuel
costs in the manner of a domestic regulated electric utility, subtracting AES's
electric fuel and purchased gas costs (as well as CILCO's electric fuel and
purchased gas costs) from gross revenues reveals the impact of different
operating margins of the two companies. In 1998 CILCO had operating revenues of
$532.3 million and net income of $41 million -- a margin of 7.6 percent. AES
reported revenues of $2.4 billion and net income of $311 million --a margin of
approximately 13 percent. Part of this differential also can be explained by the
fact that CILCO provides service which is subject to rate regulation (including,
inter alia, tariff provisions for electric fuel cost recovery and pass-through
of purchased gas costs which provide automatic recoupment from ratepayers),
while AES conducts the vast bulk of its business in unregulated, competitive
markets.
A comparison of AES and CILCO net income also may obscure the true
scope of CILCO's business vis-a-vis that of AES. Net income is sensitive to
differences in capital structure, and AES and CILCO have disparate capital
structures driven by differences in their respective business operations. AES
uses project financing for much of its investment, and thus has proportionally
larger interest expenses than does CILCO.17 Since interest is deducted before
calculating net income, comparisons based on net income may result merely from
differences in capital structure rather than differences in size or scope of
business operations. Such is the case with AES and CILCO, because AES maintains
a more highly leveraged capital structure than does CILCO. A more accurate
comparison of the scope of CILCO's business vis-a-vis the merged AES holding
company is achieved by comparing net operating revenues, operating income and
net assets.
- ---------------
17 For example, comparing the unleveraged net income of CILCO to the
unleveraged net income of the AES holding company provides a better
understanding of the relative size of the CILCO and AES holding company
business operations. (Unleveraged net income is calculated by determining
net income on a before-interest expense, after-tax basis.) For example,
CILCO would represent 8.26 percent of 1998 total holding company
unleveraged net income, compared to 12.54 percent of total holding company
net income on a GAAP basis.
14
<PAGE>
Table 1 shows that in 1998, CILCO's contributions to AES's total net
operating revenues, operating income, and net assets were 10.35, 8.54 and 7.78
percent, respectively. In fact, as noted above, AES expects CILCO's
contributions to AES's gross revenues, net operating revenues, operating income,
net income and net assets to trend down to below 10 percent within five years.
The results of the analysis demonstrate that CILCO will not make a contribution
to AES's total operations that is sufficiently appreciable so as to be deemed
"material" within the Commission's understanding of materiality under Section
3(a). In NIPSCO, for example, the Commission recently determined that a
utility's contributions to net operating revenues of 10.8 percent to 11.2
percent and to operating income of 7.1 percent to 8.7 percent would not be
considered material in the context of Section 3(a)(1).
In making such determination, the Commission noted that Section
3(a)(1) "has no specific numerical tests to guide a finding that a
public-utility subsidiary is material" and that the Commission has not "embraced
any numerical bright-line test of materiality under section 3(a)(1)." See
NIPSCO, slip op. at 34-35. Instead, the Commission noted that "factors other
than mere percentages must be taken into consideration in determining the
application of the materiality standard of section 3(a)(1)" and noted the
Division of Investment Management's recommendation (set forth in its 1995 study,
supra) that the Commission "adopt a more flexible standard for exemptions under
section 3(a) that would consider the facts and circumstances of each situation
and take into account the ability of the affected state regulators to adequately
protect the interests of utility consumers." Id. See also Atlanta Gas Light
Company, Rel. No. 35-26482 (1996)(granting Section 3(a)(1) exemption to holding
company with an out-of-state subsidiary representing over 6 percent of the
holding company's consolidated operating revenues and total net assets).18
B. SIZE OF CILCO OPERATIONS
In Gaz Metropolitain, the Commission stated that the standard under
which a foreign holding company system could be exempted under Section 3(a)(5)
included, in addition to an inquiry into materiality, an assessment of whether
U.S. utility operations were "small in size."19 This concern about size under
Section 3(a)(5) was articulated in Cities Service Company, where the Commission
stated, based on the legislative history of the Act, that the size standard was
established in order to prevent abuse of the Section 3(a)(5) exemption by
holding companies that had very large, nonutility domestic businesses. The
Commission emphasized that the fact that a holding company's domestic utility
- ---------------
18 Although Section 3(a)(1) sets forth a different standard for exemption than
Section 3(a)(5), both Section 3(a)(5) and Section 3(a)(1) incorporate the
concept of "materiality." The Act does not suggest that the term would have
different meanings in the two sections. Thus, the Commission's analysis of
materiality in the Section 3(a)(1) context does provide insight into the
concept of materiality in the Section 3(a)(5) context.
19 58 SEC Docket 189 at 193 (1994) (quoting Electric Bond and Share).
15
<PAGE>
income is not material to its total income is irrelevant if the holding company
is so large that domestic utility activity is still large in an absolute sense.
8 SEC 318, 334-335 (1940). The merged AES/CILCORP holding company will satisfy
both the "small in size" standard and the policy concern underlying the
standard. CILCO's U.S. utility operations clearly are "small in size," both in
terms of prior Commission precedent and as compared to other state regional and
U.S. utilities today. Moreover, AES has significant foreign operations, and its
existing domestic activity consists of owning and operating EWG and QF
facilities, and engaging in energy marketing.
The context of this transaction is sharply different from that which
confronted the Commission in Electric Bond and Share and Cities Service. In
those cases, the applicants seeking exemption under Section 3(a)(5) were
companies with little or no foreign business of any sort, and with very large
domestic non-utility businesses. As the Commission pointed out, granting a
Section 3(a)(5) exemption under such circumstances would necessarily mean that
the exemption "[w]ould not be contingent on the existence in the system of
foreign operations and an exemption would be afforded even where the holding
company system has no foreign interest, a result obviously not intended by
Congress." Electric Bond and Share, 1952 WL 1058 at 19. In denying exemptions to
Electric Bond and Share and Cities Service, the Commission also expressed its
concern that Section 3(a)(5) not be used as an exemption for large U.S.
non-utility enterprises that could not qualify for exemption under Section
3(a)(3).
Unlike either Electric Bond and Share or Cities Service, AES has very
significant foreign electric generation and distribution operations and is
without question a global provider of electric services. AES has electric
generation and/or distribution operations in 16 countries. AES owns and/or
operates (entirely or in part) 20,017 MW of generating capacity located outside
of the United States.20 As demonstrated on Exhibit K-23, this foreign generation
capacity constitutes a significant portion of AES's total generating capacity.
In addition, AES owns partial interests (both majority and minority) in ten
companies located outside of the United States that sell electricity directly to
commercial, industrial, governmental, and residential customers; and expects to
close soon on the acquisition of 50 percent of the shares of an eleventh
electric distribution company. These eleven companies serve a total of
approximately 13.6 million foreign customers with sales of approximately 107,000
gigawatt-hours. On a net equity basis, AES's ownership in these companies will
represent approximately 3.6 million foreign customers and foreign sales
exceeding 28,000 gigawatt-hours. Pending increases in AES's ownership in two
Brazilian distribution companies this year will increase the company's net
equity share to approximately 3.7 million foreign customers and foreign sales of
approximately 29,000 gigawatt-hours by year-end 1999. As demonstrated on Exhibit
K-23, in 1998, 100 percent of the distribution company customers served by AES
were located outside of the United States and 100 percent of the gigawatt-hours
- ----------------
20 11,194 MW on a net equity basis.
16
<PAGE>
provided by such companies were provided outside of the United States.21
Companies in which AES has an ownership interest supply approximately half of
the electricity in Northern Ireland, 40 percent of the electricity in Panama, 30
percent of the electricity in the Dominican Republic, 19 percent of the
electricity in Hungary, 18 percent of the electricity in Kazakhstan, and 10
percent of the electricity in Pakistan. Moreover, as illustrated on Exhibit K-1,
96 percent of AES employees are located outside of the United States, and only 6
percent of AES employees speak English as a first language.
Furthermore, as demonstrated in Exhibits K-19 through K-22, AES's
foreign operations contribute significantly to AES's gross revenues, net
operating revenues, operating income, and assets. For example, in 1998, on a
proportional consolidation basis, AES's foreign operations contributed 83
percent of AES's gross revenues, 84 percent of AES's net operating revenues, 70
percent of AES's operating income, and 73 percent of AES's assets. On a total
project basis, those percentages increase to 93 percent of gross revenues, 94
percent of net operating revenues, 87 percent of operating income, and 91
percent of assets. As also demonstrated in Exhibits K-19 through K-22, the
percentage contribution of AES's foreign operations has increased considerably
since 1996. Based on conservative projections of AES growth in 1999 (see
footnote 9), AES anticipates that in 1999, AES's foreign operations will
contribute, on a proportional consolidation basis, 78 percent of AES's gross
revenues, 82 percent of AES's net operating revenues and 64 percent of AES's
operating income. On a total project basis, those percentages increase to 92
percent of AES's gross revenues, 94 percent of AES's net operating revenues and
88 percent of AES's net operating income. As AES continues its growth as a
global energy company, the percentage of AES's gross revenues, net operating
revenues, operating income, and assets resulting from AES's foreign operations
in the year 2000 will be greater than the percentages in 1999.
While AES does have operations within the United States, its domestic
businesses are all either QFs or EWGs, which are deemed not to be public utility
companies under the Act and which the Commission does not need to regulate to
protect the interests of U.S. ratepayers and investors. The Commission Staff has
recognized that ownership of QF and EWG interests by foreign utility companies
("FUCOs") should not defeat FUCO status. The Southern Company, 1996 SEC No-Act.
LEXIS 496 (No-Action Letter Issued May 10, 1996). Just as QF and EWG investments
do not transform a FUCO into a holding company subject to the potential full
brunt of jurisdiction under the Act, AES's domestic QF and EWG investments
should not prevent AES from qualifying for a Section 3(a)(5) exemption, where
its only other current investments are FUCOs and foreign EWGs and its proposed
single U.S. regulated utility investment is small in size from any relevant
perspective.
- ---------------
21 The addition of CILCO in 1999 will provide AES its first and only domestic
distribution customers and sales: approximately 252,800 customers and sales
of approximately 6,152 gigawatt-hours.
17
<PAGE>
As the facts set forth in this Application demonstrate, AES is a
global energy company whose present business, both domestic and foreign, is the
"exempt utility" business -- i.e., the business of EWGs, QFs and power marketers
in the United States and EWGs and FUCOs outside the United States. As a company
engaged in the "exempt utility" business, AES is the type of company for which
the 3(a)(5) exemption was designed -- a company whose business and experience is
in the utility industry. See The AES Corporation, Rel. No. 35-25539 (May 21,
1992) (granting AES a Section 3(a)(5) application upon AES's acquisition of
indirect ownership interests of an electric utility company in Northern Ireland,
where AES's existing business was the development, ownership, operation, and
maintenance of qualifying facilities in the United States).
AES's acquisition of CILCORP is a natural outgrowth and consequence of
AES's corporate focus, i.e., a natural outgrowth of AES's business of being a
global energy provider. For example, AES has extensive business expertise in
competitive domestic and foreign energy markets which will enable CILCO to
compete more effectively in restructured energy markets. This benefit was
recognized by the ICC when it adopted as a finding of fact CILCO's statement
that AES's acquisition of CILCORP will provide CILCO with "access to the
extensive experience of AES in energy markets around the world" and that "CILCO
expects to draw on the experience of AES to improve CILCO's operating efficiency
and customer service." See ICC March 10, 1999 order at 5, 9. As such, AES easily
can be distinguished from Electric Bond and Share and Cities Service, each
non-utility (and non-exempt utility) companies seeking to own large domestic
utility companies even though as a non-utility each had, at best, limited
experience with the utility industry, domestic or foreign. Granting a Section
3(a)(5) exemption to AES, a global energy provider engaged in the exempt utility
business, helps to ensure that the Section 3(a)(5) exemption is granted to those
companies for which it was intended, and not to those companies who seek
exemption under Section 3(a)(5) as a means of evading the restriction on
exemption under Section 3(a)(3). See Electric Bond and Share; Cities Service.
CILCO's U.S. utility operations are small in size, both in terms of
prior Commission precedent and when compared to other regional and U.S.
utilities. In denying the Cities Service exemption application, the Commission
held that Cities Service and its utility subsidiaries: (i) comprised "one of the
most important public utility holding company systems in the United States,"
(ii) "controlled a far-flung utility empire with assets valued at more than
$400,000,000," and (iii) had operations that extended to "20 states and Canada
with an estimated population in the areas served of approximately 4,500,000."
Id. at 336.
In Electric Bond and Share, Electric Bond and Share Company ("Electric
Bond") sought to be relieved of its commitment to dispose of the common stock it
held in United Gas Corporation ("United"), its gas utility subsidiary, through
exemptions under, inter alia, Section 3(a)(5) of PUHCA. 33 SEC 21 (1952).
18
<PAGE>
Applying the "small in size" standard developed in Cities Service, the
Commission held that the gas utility operations of United, a recently acquired
subsidiary of Electric Bond, were "very substantial" in magnitude and,
therefore, rejected the application. Id. at 43. The Commission focused on the
fact that United operated the second largest gas distribution operations in its
region, and accounted "for a large and significant part of the natural gas
distribution business in the United States." Id. at 43-44. The Commission cited
to the following facts in its analysis of the magnitude of United's gas utility
operations:
o United's non-industrial gas distribution operations were
"approximately twice as large as those carried on in the entire State
of Mississippi, slightly greater than those in the State of Louisiana,
and about 25 percent of those in the State of Texas. With one
exception, there [was] no company whose residential and commercial gas
distribution operations in the three (3) state area [were] as large as
those of United."
o Within the three-state region in which it operated, United served
"approximately 21.1 percent of all residential and commercial
customers, with approximately 18.2 percent of all the residential and
commercial gas consumed and accounted for approximately 19.2 percent
of the total gross residential and commercial gas revenues."
o United's gas distribution operations were large in relation to other
gas distributors in the United States.
The absolute size of CILCO's utility business clearly is smaller when
compared to modern utility companies than the utility businesses of Electric
Bond and Cities Service in their day. Electric Bond's gas operations were in
three states - Texas, Louisiana and Mississippi - in which Electric Bond served
21.2 percent of all customers, provided 18.2 percent of all gas consumed and
accounted for 19.2 percent of total gas reserves. CILCO, on the other hand,
operates only in one state, in which it only serves 5.4 percent of all gas
utility customers, accounts for only 5.9 percent of all gas utility assets and
accounts for only 5.8 percent of total gas revenues (see Exhibit K-15). In Gaz
Metropolitain, on the other hand, the Commission granted a Section 3(a)(5)
exemption to Gaz Metropolitain, whose domestic utility subsidiary, Vermont Gas
Systems, Inc., had a state-wide franchise to sell natural gas at retail and
appeared at that time to deliver nearly all of the natural gas sold at retail in
Vermont. In addition, there are four gas companies larger than CILCO in the
state of Illinois (see Exhibit K-15), while only one gas company was larger than
Electric Bond in its three-state service area. Cities Service, in sharp contrast
to CILCO, had operations in 19 states, compared to CILCO's single-state
operations. It also should be noted that an analysis of the size of CILCO's
utility activities should reflect the realities of today's public utility
markets. Since
19
<PAGE>
the time of Cities Service and Electric Bond, utility operations have become
larger enterprises commensurate with growth in population and number of utility
customers, as well as increased electricity and gas consumption per utility
customer. Recently, the size of public utility companies has grown and will
continue to grow in the wake of consolidations undertaken in response to
increased competition and restructuring initiatives.
It is clear from the case law, in particular Electric Bond and Share,
that the Commission is concerned with the size of the holding company's U.S.
utility operations as compared to state, regional and national competitors.
CILCO's utility operations are small in size relative to other utilities,
whether on a state, regional22, or national basis. The data establishes that the
activities of CILCO, in terms of electric and gas utility activities considered
separately and in terms of combined utility activity, are small in scale.
Exhibit K-14 compares CILCO's electric utility activities to other
Illinois electric utilities in terms of assets, revenues and customers.
According to all three measures, CILCO's electric utility business accounts for:
o 2.8 percent of Illinois' electric utility revenues;
o 2.7 percent of Illinois' electric utility assets, and
o 3.4 percent of Illinois' electric utility customers.
Only 2.0 percent of Illinois' electric utility revenues are earned by electric
utility companies with fewer revenues than CILCO; only 0.8 percent of Illinois'
electric utility assets are owned by electric utility companies with fewer
assets than CILCO; and only 0.1 percent of Illinois' electric utility customers
are served by electric utilities with fewer customers than CILCO.
Exhibit K-15 compares CILCO's gas utility activities to other Illinois
state gas utilities in terms of assets, revenues and customers. According to all
three measures, CILCO's gas utility business accounts for:
o 5.8 percent of Illinois' gas utility revenues;
o 5.9 percent of Illinois' gas utility assets, and
o 5.4 percent of Illinois' gas utility customers.
Only 0.3 percent of Illinois' gas utility revenues are earned by gas utility
companies with fewer revenues than CILCO; only 0.2 percent of Illinois' gas
utility assets are owned by gas utility companies with fewer assets than CILCO;
and only 0.4 percent of Illinois' gas utility customers are served by gas
utilities with fewer customers than CILCO.
- ---------------
22 The Region is defined as the State of Illinois and the five states
bordering Illinois - Indiana, Kentucky, Missouri, Iowa, and Wisconsin.
20
<PAGE>
Exhibit K-16 compares CILCO's total utility activities to all other
Illinois utilities (electric, gas and combination electric and gas), again in
terms of assets, revenues and customers. According to all three measures,
CILCO's combined electric and gas utility business accounts for:
o 3.5 percent of Illinois' utility revenues;
o 3.0 percent of Illinois' utility assets, and
o 4.2 percent of Illinois' utility customers.
Only 2.6 percent of Illinois' total utility revenues are earned by utility
companies with fewer revenues than CILCO; only 1.5 percent of Illinois' total
utility assets are owned by utility companies with fewer assets than CILCO; and
only 0.1 percent of Illinois' total utility customers are served by utilities
with fewer customers than CILCO.
Exhibit K-6 compares CILCO's electric utility activities to other
regional electric utilities in terms of assets, revenues and customers.
According to all three measures, CILCO's electric utility business accounts for:
o 0.9 percent of the Region's electric utility revenues,
o 1.0 percent of the Region's electric utility assets, and
o 1.1 percent of the Regions's electric utility customers.
Only 3 percent of the Region's electric utility revenues are earned by electric
utility companies with fewer revenues than CILCO; only 3.5 percent of the
Region's electric utility assets are owned by electric utility companies with
fewer assets than CILCO; and only 3.5 percent of the Region's electric utility
customers are served by electric utilities with fewer customers than CILCO.
Exhibit K-7 compares CILCO's gas utility activities to other regional
gas utilities, also in terms of assets, revenues and customers. According to all
three measures, CILCO's gas utility business accounts for:
o 1.7 percent of the Region's gas utility revenue,
o 1.9 percent of the Region's gas utility assets, and
o 1.5 percent of the Region's gas utility customers.
Only 4.4 percent of the Region's gas utility revenues are earned by gas utility
companies with fewer revenues than CILCO; only 5.7 percent of the Region's gas
utility assets are owned by gas utility companies with fewer assets than CILCO;
and only 2.9 percent of the Region's gas utility customers are served by gas
utilities with fewer customers than CILCO.
Exhibit K-8 compares CILCO's combined electric and gas utility
activities to other regional combination electric and gas utilities, again in
terms of revenues, assets and customers. According to all three measures,
CILCO's combined electric and gas utility business accounts for:
21
<PAGE>
o 2.5 percent of the Region's combination electric and gas utility
revenue,
o 2.5 percent of the Region's combination electric and gas utility
assets, and
o 2.9 percent of the Region's combination electric and gas utility
customers.
Only 5.6 percent of the Region's combination electric and gas utility revenues
are earned by combination electric and gas utility companies with fewer revenues
than CILCO; only 5.5 percent of the Region's combination electric and gas
utility assets are owned by combination electric and gas utility companies with
fewer assets than CILCO; and only 5 percent of the Region's combination electric
and gas utility customers are served by combination electric and gas utilities
with fewer customers than CILCO.
Exhibit K-9 compares CILCO's total utility activities to all other
regional utilities (electric, gas and combination electric and gas), again in
terms of revenues, assets and customers. According to all three measures,
CILCO's combined electric and gas utility business accounts for:
o 1.1 percent of the Region's utility revenues,
o 1.2 percent of the Region's utility assets, and
o 1.3 percent of the Region's utility customers.
Only 8.8 percent of the Region's total utility revenues are earned by utility
companies with fewer revenues than CILCO; only 8.4 percent of the Region's
utility assets are owned by utility companies with fewer assets than CILCO; and
only 3.9 percent of the Region's utility customers are served by utilities with
fewer customers than CILCO.
The Exhibits described above clearly indicate that CILCO's utility
operations are small in size, particularly when compared to other utilities in
the state and the Region. Comparing the size of CILCO's utility operations to
all United States utilities, again in terms of revenues, assets and customers,
makes it even clearer that CILCO's utility operations are small in size.
Exhibit K-10 compares CILCO's electric utility activities to all other
United States electric utilities in terms of assets, revenues and customers.
According to all three measures, CILCO's electric utility business accounts for:
o 0.2 percent of U.S. electric utility revenues,
o 0.2 percent of U.S. electric utility assets, and
o 0.2 percent of U.S. electric utility customers.
Only 1.6 percent of U.S. electric utility revenues are earned by electric
utility companies with fewer revenues than CILCO; only 2.2 percent of United
22
<PAGE>
States electric utility assets are owned by electric utility companies with
fewer assets than CILCO; and only 1.9 percent of United States electric utility
customers are served by electric utilities with fewer customers than CILCO.
Exhibit K-11 compares CILCO's gas utility activities to all United
States gas utilities, also in terms of assets, revenues and customers. According
to all three measures, CILCO's gas utility business accounts for:
o 0.5 percent of U.S. gas utility revenue,
o 0.5 percent of U.S. gas utility assets, and
o 0.4 percent of U.S. gas utility customers.
Only 7.3 percent of U.S. gas utility revenues are earned by gas utility
companies with fewer revenues than CILCO; only 8.5 percent of U.S. gas utility
assets are owned by gas utility companies with fewer assets than CILCO; and only
6 percent of U.S. gas utility customers are served by gas utilities with fewer
customers than CILCO.
Exhibit K-12 compares CILCO's combined electric and gas utility
activities to all U.S. combination electric and gas utilities, again in terms of
revenues, assets and customers. According to all three measures, CILCO's
combined electric and gas utility business accounts for:
o 0.7 percent of U.S. combination electric and gas utility revenue,
o 0.7 percent of U.S. combination electric and gas utility assets,
and
o 0.7 percent of U.S. combination electric and gas utility
customers.
Only 2.8 percent of U.S. combination electric and gas utility revenues are
earned by combination electric and gas utility companies with fewer revenues
than CILCO; only 3.2 percent of U.S. combination electric and gas utility assets
are owned by combination electric and gas utility companies with fewer assets
than CILCO; and only 3.9 percent of U.S. combination electric and gas utility
customers are served by combination electric and gas utilities with fewer
customers than CILCO.
Exhibit K-13 compares CILCO's total utility activities to all other
U.S. utilities (electric, gas and combination electric and gas), again in terms
of revenues, assets and customers. According to all three measures, CILCO's
combined electric and gas utility business accounts for:
o 0.2 percent of U.S. utility revenues,
o 0.2 percent of U.S. utility assets, and
o 0.3 percent of U.S. utility customers.
23
<PAGE>
Only 6.1 percent of U.S. utility revenues are earned by utility companies with
fewer revenues than CILCO; only 6.3 percent of U.S. utility assets are owned by
utility companies with fewer assets than CILCO; and only 7.6 percent of U.S.
utility customers are served by utilities with fewer customers than CILCO.
It is clear from the data described above that the utility activities
of CILCO, in terms of combined utility activity and in terms of electric and gas
utility activities considered separately, whether on a state, regional or
national basis, are small in scale.
C. PUBLIC INTEREST
Under the "unless and except" clause of Section 3(a), the Commission
has the authority to deny a request for exemption if it were to determine that
granting the exemption would be "detrimental to the public interest or the
interest of investors or consumers." No such concerns, however, are presented
with respect to this Transaction and request for exemption. The Transaction will
result in a holding company which will be well-equipped to respond effectively
to the changing nature of the electric and gas industries, thus promoting the
interests of both investors and ratepayers.
The Transaction is subject to approval by the FERC and the ICC. As
explained earlier, the ICC approved the Transaction with respect to CILCO's gas
operations. After noting that AES "is a global energy company that operates
electric generation facilities in the United States and in foreign countries ...
[and] also owns foreign electric distribution businesses, mostly in South
America, and a small amount of gas distribution in foreign countries ...[and]
does not own or operate any regulated utilities in the United States," the ICC
found that AES's acquisition of CILCORP would not adversely affect CILCO's
ability to perform its duties under the Illinois Public Utilities Act with
respect to its gas operations. Specifically, the ICC found that:
o AES's acquisition of CILCORP will not diminish CILCO's ability to
provide adequate, reliable, efficient, safe and least-cost gas
public utility service;
o AES's acquisition of CILCORP will not result in the unjustified
subsidization of non-utility activities by CILCO or its customers
with respect to CILCO's gas operations;
o costs and facilities are fairly and reasonably allocated between
utility and non-utility activities in such a manner that the
Commission may identify those costs and facilities which are
properly included by CILCO for ratemaking purposes for its gas
utility operations;
24
<PAGE>
o AES's acquisition of CILCORP will not significantly impair
CILCO's ability to raise necessary capital on reasonable terms or
to maintain a reasonable capital structure with respect to its
gas utility operations;
o CILCO will remain subject to all applicable laws, regulations,
rules, decisions and policies governing the regulation of
Illinois public utilities with respect to CILCO's gas utility
operations:
o AES's acquisition of CILCORP is not likely to have a significant
adverse effect on competition in the Illinois gas utility markets
over which the Commission has jurisdiction; and
o AES's acquisition of CILCORP is not likely to result in any
adverse rate impacts on retail gas customers of CILCO.
See March 10, 1999 ICC Order at 9-10 (see Exhibit K-17). Although the ICC's
jurisdictional focus was limited to the transfer of CILCO's gas operations, most
of its findings (for example, the Transaction's impact on capital structure and
affiliate transactions) are applicable to CILCO as a whole, including its
electric operations. In addition, in a letter issued to the Commission pursuant
to Section 33(a)(2), the ICC acknowledged that AES "currently holds, and intends
to continue to hold and acquire, ownership interest in electric and natural gas
facilities in one or more foreign countries." The ICC then certified to the
Commission that it has "the authority and resources to protect Illinois
consumers in accordance with the Illinois statutes ... and intends to exercise
such authority."
After AES's acquisition of CILCORP, CILCO's operations will continue
to be subject to regulation by the FERC and the ICC, both of whom regulate
utility transactions with affiliates. With respect to the ICC, the Illinois
Public Utilities Act specifically grants the ICC jurisdiction over affiliate
transactions with electric and gas public utilities, "to the extent of access to
all accounts and records of such affiliated interest relating to such
transactions, including access to accounts and records of joint and general
expenses with the electric or gas public utility any portion of which is related
to such transactions; and to the extent of authority to require such reports
with respect to such transactions to be submitted by such affiliated interests,
as the [ICC] may prescribe". Illinois Public Utilities Act, Section
7-101(2)(ii). Thus, the Commission has broad authority to access the books and
records of any member of the AES corporate family, wherever located, if such AES
entity engages in transactions with CILCO or if any costs associated with such
entity are allocated to CILCO.
In addition, the ICC recently adopted rules and regulations governing
the relationship between electric utilities and their affiliates. See 83
25
<PAGE>
Illinois Administrative Code Part 450. Pursuant to such rules, transactions
between electric utilities and their affiliates are prohibited from subsidizing
the affiliate. To that end, transfers of goods and services between electric
utilities and their affiliates must be approved by the ICC (unless approval has
been waived by statute or ICC rule). In addition, the ICC has access to the
electric utility's books and records regarding affiliate transactions and
electric utilities must conduct biennial internal audits regarding affiliate
transactions, which provide assurance that non-utility activities are not
subsidized by the electric utility or its customers.
ITEM 4. REGULATORY APPROVAL
The Merger Agreement is subject to the approval of CILCORP's
shareholders and was approved by CILCORP's shareholders at a special meeting
held May 20, 1999. The Merger also is subject to approval by the FERC. An
application for such approval was filed with the FERC on February 19, 1999. See
Exhibit D-2. The Merger also is subject to the notification and reporting
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act"). On February 22, 1999, the Federal Trade Commission granted early
termination of the HSR Act waiting period. In addition, as noted above, all
necessary State approvals for the transaction have been received. The ICC has
approved the Transaction with respect to the transfer of CILCO's gas operations.
See Exhibit K-17. The ICC also has issued a certification in accordance with the
requirements of Section 33(a)(2) of the Act. See Exhibit K-18.
ITEM 5. PROCEDURE
AES respectfully requests that the Commission issue its order granting
and permitting the requested exemption as soon as practicable, but in any event
not later than July 6, 1999.
It is submitted that a recommended decision by a hearing or
other responsible officer of the Commission is not needed for approval of the
proposed Transaction. The Division of Investment Management may assist in the
preparation of the Commission's decision. There should be no waiting period
between issuance of the Commission's order and the date on which it is to become
effective.
26
<PAGE>
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
A. EXHIBITS
Exhibits attached to this Amendment No. 1 supplement and, where applicable,
replace the exhibits previously filed in this proceeding.
A-1 Articles of Incorporation of AES
A-2 By-Laws of AES
A-3 Articles of Incorporation of CILCORP
A-4 By-Laws of CILCORP
A-5 Articles of Incorporation of Midwest Energy, Inc.
A-6 By-Laws of Midwest Energy, Inc.
B-1 Agreement and Plan of Merger (Exhibit A to Exhibit D-2 hereto)
C-1 Definitive Proxy Statement relating to the special meeting of
shareholders of CILCORP, Inc. to approve the merger with Midwest
Energy, Inc. (File No. 1-8946, filed on March 24, 1999, and
incorporated herein by reference)
D-1 Petition to the Illinois Commerce Commission, filed on December 11,
1998, together with testimony and exhibits (Exhibit F to Exhibit D-2
hereto)
D-2 Application to FERC, filed on February 19, 1999, together with
testimony and exhibits
E-1 AES organization chart (to be filed by amendment)
E-2 CILCORP organization chart (to be filed by amendment)
E-3 Combined company organization chart after the Transaction (to be filed
by amendment)
F-1 Opinion of Counsel (to be filed by amendment)
F-2 Past Tense Opinion of Counsel (to be filed by amendment with Rule 24
certificate)
G-1 AES's Annual Report on Form 10-K for the fiscal year ended December
31, 1997 (File No. 1-12291, filed March 30, 1998, and incorporated
herein by reference)
G-2 AES' Quarterly Report on Form 10-Q for the quarters ended March 31,
1998, June 30, 1998 and September 30, 1998 (File No. 1-12291 and
incorporated herein by reference)
G-3 CILCORP's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 (File No. 1-8946, filed March 18, 1998, and
incorporated herein by reference)
G-4 CILCORP's Quarterly Report on Form 10-Q for the quarters ended March
31, 1998, June 30, 1998 and September 30, 1998 (File No. 1-8946 and
incorporated herein by reference)
27
<PAGE>
G-5 AES's Annual Report on Form 10-K for the fiscal year ended December
31, 1998 (File No. 1-12291, filed March 30, 1999, and incorporated
herein by reference)
G-6 CILCORP's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 (File No. 1-8946, filed March 26, 1999, and
incorporated herein by reference)
H-1 Proposed Form of Notice
K-1 AES Employees
K-2 AES Subsidiaries
K-3 Generating Plants in Operation
K-4 Global Map of Generating Plants and Distribution Companies
K-5 CILCO Contributions To AES Consolidated Holding Company (GAAP Basis)
K-6 Market Shares for Electric Companies in Illinois and Bordering States
K-7 Market Shares for Gas Companies in Illinois and Bordering States
K-8 Market Shares for Combined Gas and Electric Companies in Illinois and
Bordering States
K-9 Market Shares for Utilities in Illinois and Bordering States
K-10 Market Shares for Electric Companies in the U.S.
K-11 Market Shares for Gas Companies in the U.S.
K-12 Market Shares for Combined Gas and Electric Companies in the U.S.
K-13 Market Shares for Utility Companies in the U.S.
K-14 Market Shares for Electric Companies in Illinois
K-15 Market Shares for Gas Companies in Illinois
K-16 Market Shares for Utilities in Illinois
K-17 Order Issued by the Illinois Commerce Commission pursuant to petition
filed by CILCO (March 10, 1999)
K-18 Letter from Richard L. Mathias, Chairman of the Illinois Commerce
Commission to the Securities and Exchange Commission (March 10, 1999)
K-19 AES Foreign Breakout: Gross Revenues
K-20 AES Foreign Breakout: Net Operating Revenues
K-21 AES Foreign Breakout: Operating Income
K-22 AES Foreign Breakout: Assets
K-23 AES Foreign Breakout for Generation, Power Plants and Distribution
B. FINANCIAL STATEMENTS
FS-1 AES Consolidated Balance Sheet as of December 31, 1997 (previously
filed with the Commission in AES's Annual Report on Form 10K for the
year ended December 31, 1997 (Exhibit G-1 hereto), filed March 30,
1998, File No. 1- 12291, and incorporated herein by reference)
FS-2 AES Consolidated Balance Sheet as of September 30, 1998 (previously
filed with the Commission in AES's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998 (Exhibit G-2 hereto), filed
November 16, 1998, File No. 1-12291, and incorporated herein by
reference)
28
<PAGE>
FS-3 AES Consolidated Statement of Income for the 12 months ended December
31, 1997 (previously filed with the Commission in AES's Annual Report
on Form 10K for the year ended December 31, 1997 (Exhibit G-1 hereto),
filed March 30, 1998, File No. 1-12291, and incorporated herein by
reference)
FS-4 AES Consolidated Statement of Income for the 9 months ended September
30, 1998 (previously filed with the Commission in AES's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998 (Exhibit
G-2 hereto), filed November 16, 1998, File No. 1-12291, and
incorporated herein by reference)
FS-5 CILCORP Consolidated Balance Sheet as of December 31, 1997 (previously
filed with the Commission in CILCORP's Annual Report on Form 10K for
the year ended December 31, 1997 (Exhibit G-3 hereto), filed March 18,
1998, File No. 1-8946, and incorporated herein by reference)
FS-6 CILCORP Consolidated Balance Sheet as of September 30, 1998
(previously filed with the Commission in CILCORP's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998 (Exhibit G-4
hereto), filed November 10, 1998, File No. 1-8946, and incorporated
herein by reference)
FS-7 CILCORP Consolidated Statement of Income for the 12 months ended
December 31, 1997 (previously filed with the Commission in CILCORP's
Annual Report on Form 10K for the year ended December 31, 1997
(Exhibit G-3 hereto), filed March 18, 1998, File No. 1-8946, and
incorporated herein by reference)
FS-8 CILCORP Consolidated Statement of Income for the 9 months ended
September 30, 1998 (previously filed with the Commission in CILCORP's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998
(Exhibit G-4 hereto), filed November 10, 1998, File No. 1-8946, and
incorporated herein by reference)
FS-9 AES Consolidated Balance Sheet as of December 31, 1998 (previously
filed with the Commission in AES's Annual Report on Form 10K for the
year ended December 31, 1998 (Exhibit G-5 hereto), filed March 30,
1999, File No. 1- 12291, and incorporated herein by reference)
FS-10 AES Consolidated Statement of Income for the 12 months ended December
31, 1998 (previously filed with the Commission in AES's Annual Report
on Form 10K for the year ended December 31, 1998 (Exhibit G-5 hereto),
filed March 30, 1999, File No. 1-12291, and incorporated herein by
reference)
FS-11 CILCORP Consolidated Balance Sheet as of December 31, 1998 (previously
filed with the Commission in CILCORP's Annual Report on Form 10K for
the year ended December 31, 1998 (Exhibit G-6 hereto), filed March 26,
1999, File No. 1-8946, and incorporated herein by reference)
FS-12 CILCORP Consolidated Statement of Income for the 12 months ended
December 31, 1998 (previously filed with the Commission in CILCORP's
Annual Report on Form 10K for the year ended December 31, 1998
(Exhibit G-6 hereto), filed March 26, 1999, File No. 1-8946, and
incorporated herein by reference)
29
<PAGE>
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the undersigned company has duly caused this Application to be signed on
its behalf by the undersigned thereunto duly authorized.
The AES Corporation
By: /s/ William R. Luraschi
-----------------------------------
Name: William R. Luraschi
Title: General Counsel and Secretary
Date: June 8, 1999
30
<PAGE>
EXHIBIT K-2
AES SUBSIDIARIES
<TABLE>
<CAPTION>
Subsidiary Jurisdiction
---------- ------------
<S> <C>
AEE2, L.L.C. Delaware
AES (India) Private Limited India
AES - MS Pty Ltd. Australia
AES Alamitos Development, Inc. Delaware
AES Alamitos, L.L.C. Delaware
AES Allegheny, Inc. Delaware
AES Altoona, Inc. Delaware
AES Americas International Holdings, Limited Bermuda
AES Americas Investments, Inc. Delaware
AES Americas, Inc. Delaware
AES Andean Partners, L.P. Delaware
AES Andes II, Inc. Delaware
AES Andes III, Inc. Delaware
AES Andes, Inc. Delaware
AES Andino, L.L.C Delaware
AES Angel Falls, L.L.C. Delaware
AES Anhui Power Co. Ltd. British Virgin Islands
AES Anhui Power Company (L) Ltd. Labuan
AES Aramtermelo Holdings B.V. Netherlands
AES Argentina Operations, Ltd. Cayman Islands
AES Argentina, Inc. Delaware
AES Aurora, Inc. Delaware
AES Australia Holding B.V. Netherlands
AES Balboa, Inc. Delaware
AES Bandeirante Empreendimentos Ltda. Brazil
AES Bandeirante, Ltd. Cayman Islands
AES Barry Operations Ltd. United Kingdom
AES Barry, Ltd. United Kingdom
AES Beauvior B.V. Netherlands
AES Beaver Valley, Inc. Delaware
AES Big Sky, L.L.C. Delaware
AES Borsodi Avamtermelo Kft Hungary
AES Brasil Ltda. Brazil
AES Brazil Holdings, Inc. Delaware
AES Brazil International Holdings, Limited Bermuda
AES Brazil, Inc. Delaware
AES Bucks County, Inc. Delaware
AES California Management Co., Inc. Delaware
AES Canada, Inc. Delaware
AES Canal Power Services, Inc. Delaware
AES Canal, Ltd. Cayman Islands
AES Caracoles I Cayman Islands
AES Caracoles II Cayman Islands
<PAGE>
AES Caracoles III L.P. Cayman Islands
AES Caracoles SRL Argentina
AES Caribbean Holdings, Inc. Delaware
AES Caribbean Services, Inc. Delaware
AES Cayman Empreendimentos Ltda. Brazil
AES Cayman Guaiba, Ltd. Cayman Islands
AES Cayman I Cayman Islands
AES Cayman II Cayman Islands
AES Cayman Islands Holdings, Ltd. Cayman Islands
AES Cayman Pampas, Ltd. Cayman Islands
AES Cayuga, L.L.C. Delaware
AES Cemig Empreendimentos, Inc. Cayman Islands
AES Cemig Holdings, Inc. Delaware
AES Central America Power Ventures, Ltd. Cayman Islands
AES Central American Management Services, Inc. Delaware
AES Cerros Negros Holdings, Ltd. Cayman Islands
AES Chengdu Power Co. (L) Ltd. Malaysia
AES Chesapeake, Inc. Delaware
AES Chigen Co. Ltd. British Virgin Islands
AES Chigen Company (L) Limited Malaysia
AES China Company Cayman Islands
AES China Generating Co. Ltd. China
AES China Holding Co. (L) Ltd. Malaysia
AES Cilcorp Funding, L.L.C. Delaware
AES Colstrip, L.L.C. Delaware
AES Connecticut Management, Inc. Delaware
AES Constructors, Inc. Delaware
AES Coral Reef, LLC Cayman Islands
AES Costa Rica Hydroelectrica, Ltd. Cayman Islands
AES Creative Resources, L.P. Delaware
AES Dahe Power Co. Ltd. British Virgin Islands
AES Deepwater Owner Trust Delaware
AES Deepwater, Inc. Delaware
AES Del Sol, Inc. Cayman Islands
AES Development of Argentina S.A. Argentina
AES Distribucion Dominicana, Ltd. Cayman Islands
AES Distribuidores Salvadorenos Limitada San Salvador
AES Distribuidores Salvadorenos Y Campania San Salvador
AES Dominican Holdings, Inc. DE/USA
AES Eagle, Inc. Delaware
AES Eastern Energy, L.P. Delaware
AES Edelap Funding Corporation, L.L.C. Delaware
AES El Salvador, Ltd. El Salvador
AES Electric Investments, Ltd. Bermuda
AES Electric, Ltd. United Kingdom
AES Elsta B.V. Netherlands
<PAGE>
AES Emerald III, Inc. Delaware
AES Emerald, Ltd. Cayman Islands
AES Energen, Ltd. Cayman Islands
AES Energia Cartagena S.R.L. Spain
AES Energia de Mexico, S.A. de C.V. Mexico
AES Energia SRL Italy
AES Energy (Asia) Pte Ltd. Singapore
AES Energy Canada, Inc. Canada
AES Energy Mexico, Inc. Delaware
AES Energy, Ltd. Bermuda
AES Engineering, Ltd. Cayman Islands
AES Enterprise, Inc. Delaware
AES Europe S.A. France
AES Forca Empreendimentos Ltda. Brazil
AES Forca, Ltd. Cayman Islands
AES FSC Corporation Barbados
AES Gas Empreendimentos Ltda. Brazil
AES Gas Power, Inc. Delaware
AES Generacion Dominicana, Ltd. Cayman Islands
AES Gerasul Empreendimentos Ltda. Brazil
AES Gerasul, Ltd. Cayman Islands
AES Global Power Holdings, B.V. Netherlands
AES Goldfields Power B.V. Netherlands
AES GPH, L.L.C. Delaware
AES Granbury, L.P. Delaware
AES Great Falls, B.V. Netherlands
AES Greenfield, L.L.C. Delaware
AES Greenidge, L.L.C Delaware
AES Guaiba Empreendimentos Ltda. Brazil
AES Guaiba II Empreendimentos Ltda. Brazil
AES Haripur (Pvt.) Limited Bangladesh
AES Harriman Cove, Inc. Delaware
AES Hawaii Management Company, Inc. Delaware
AES Hawaii, Inc. Delaware
AES Hazleton, Inc. Delaware
AES HGP, Inc. Delaware
AES Hickling, L.L.C. Delaware
AES HLP, Inc. Delaware
AES Holdings Limited Cayman Islands
AES Hungary Investment Ltd. Hungary
AES Hungary Limited United Kingdom
AES Huntington Beach Development, Inc. Delaware
AES Huntington Beach, L.L.C. Delaware
AES IB Valley Holding Mauritius
AES Inchon Generating Ltd. Korea
AES India, L.L.C. Delaware
<PAGE>
AES Indian Queens Power Ltd. United Kingdom
AES Intercon II, Ltd. Cayman Islands
AES Intercon, Ltd. Cayman Islands
AES Interenergy, Ltd. Cayman Islands
AES International Holdings II, Ltd. British Virgin Islands
AES International Holdings, Ltd. British Virgin Islands
AES International Power Marketing, Inc. Delaware
AES Investments II, Ltd. Cayman Islands
AES Ironwood Funding, L.L.C. Delaware
AES Ironwood, Inc. Delaware
AES Ironwood, L.L.C. Delaware
AES Isthmus Energy, S.A. Panama
AES Jennison, L.L.C. Delaware
AES Joshua Tree, Inc. Delaware
AES Juniata, Inc. Delaware
AES Kelanitissa (Private) Limited Sri Lanka
AES King Harbor, Inc. Delaware
AES Kingston, Inc. Canada
AES Korea, Inc. Delaware
AES Korean Investments, L.L.C. Delaware
AES La Gloria II, Inc. Delaware
AES la Playa Holdings, B.V. Netherlands
AES Lal Pir Limited Pakistan
AES Lal Pir, L.L.C. Delaware
AES Las Mareas, Inc. Delaware
AES las Palmas, L.L.C. Delaware
AES Latrobe Valley, BV Netherlands
AES Light II, Inc. Delaware
AES Londonderry, L.L.C. Delaware
AES Los Mina Finance Company Cayman Islands
AES Los Mina Holdings, Inc. Delaware
AES Madison Holdings BV Netherlands
AES Mayan Holdings, S. de R.L. de C.V. Mexico
AES Medway Electric Limited United Kingdom
AES Medway Operations Limited United Kingdom
AES Meghnaghat Limited Bangladesh
AES Merida B.V. Netherlands
AES Merida III, S. de R.L. de C.V. Mexico
AES Merida Management Services, S. de R.L. de C.V. Mexico
AES Merida Operaciones SRL de CV Mexico
AES Mexico Development, S. de R.L. de C.V. Mexico
AES Mexico Farms, Inc. Delaware
AES Monroe Holdings B.V. Netherlands
AES Monterey, Inc. Delaware
AES Monticello B.V. Netherlands
AES Mount Vernon B.V. Netherlands
<PAGE>
AES Mt. Stuart B.V. Netherlands
AES Mt. Stuart General Partnership Australia
AES New York Funding, L.L.C. Delaware
AES New York Holdings, L.L.C. Delaware
AES Nograd Holdings B.V. Netherlands
AES NY, L.L.C. Delaware
AES NY2, L.L.C. Delaware
AES NY3, L.L.C. Delaware
AES Oasis Private Ltd. Singapore
AES Ocean Springs, Ltd. Cayman Islands
AES Oklahoma Management Co., Inc. Delaware
AES Operations Colombia Ltda. Colombia
AES OPGC Holding Mauritius
AES Orient, Inc. Delaware
AES Orissa Operations Private Limited India
AES Pacific, Inc. Delaware
AES Pak Gen (Pvt) Company Pakistan
AES Pak Gen Holdings, Inc. Pakistan
AES Pakistan (Holdings) Limited United Kingdom
AES Pakistan (Pvt) Ltd. Pakistan
AES Pakistan Holdings Mauritius
AES Pakistan Operations, Ltd. Delaware
AES Panama Energy, S.A. Panama
AES Panama Holding, Ltd. Cayman Islands
AES Parana Gas S.A. China
AES Parana Holdings, Ltd. Cayman Islands
AES Parana I Limited Partnership Cayman Islands
AES Parana IHC, Ltd. Cayman Islands
AES Parana II Limited Partnership Cayman Islands
AES Parana SCA Partnership Argentina
AES Parana Sociedad Anonima Argentina
AES Partington Ltd. United Kingdom
AES Pasadena, Inc. Delaware
AES Peru S.R.L. Peru
AES Phoenix Ltd. Hungary
AES PJM, Inc. Delaware
AES Placerita, Incorporated Delaware
AES Power North, Inc. Delaware
AES Power, Inc. Delaware
AES Prachinburi Holdings B.V. Netherlands
AES Prescott, L.L.C. Delaware
AES Puerto Rico, Inc. Delaware
AES Puerto Rico, L.P. Delaware
AES Pumped Storage Arkansas, L.L.C. Delaware
AES Red Oak, Inc. Delaware
AES Red Oak, L.L.C. Delaware
<PAGE>
AES Redondo Beach, L.L.C. Delaware
AES Rio Diamante, Inc. Delaware
AES Rio Ozama Holdings, Ltd. Cayman Islands
AES River Bend, L.L.C. Delaware
AES Riverside, Inc. Delaware
AES Rock Springs, B.V. Netherlands
AES San Nicolas, Inc. Delaware
AES Santa Ana, Ltd. Cayman Islands
AES Services, Ltd. Cayman Islands
AES Shady Point, Inc. Delaware
AES Silk Road Holdings B.V. Netherlands
AES Silk Road Ltd. United Kingdom
AES Silk Road, Inc. Delaware
AES Somerset, L.L.C. Delaware
AES South City, L.L.C. Delaware
AES Southington Holdings, Inc. Delaware
AES Southington, L.L.C. Delaware
AES Southland Funding, L.L.C. Delaware
AES Southland Holdings, L.L.C. Delaware
AES Southland, L.L.C. Delaware
AES Sul Distribuidora Gaucha de Energia S.A. Brazil
AES Sul Funding, L.L.C. Delaware
AES Summit Generation Ltd. United Kingdom
AES Sunbelt, L.L.C. Delaware
AES Suntree Power Ltd. Kazakstan
AES Taiwan, Inc. Delaware
AES Tau Power B.V. Netherlands
AES Termosul Empreendimentos Ltda. Brazil
AES Terneuzen Cogen B.V. Netherlands
AES Terneuzen Engineering B.V. Netherlands
AES Terneuzen Management Services B.V Netherlands
AES Thames, Inc. Delaware
AES Tisza Holdings B.V. Netherlands
AES Trading Limited Cayman Islands
AES Transgas Empreendimentos Ltda. Brazil
AES Transpower - Taiwan Taiwan
AES Transpower Australia Pty Ltd. Australia
AES Transpower Private Ltd. Singapore
AES Transpower, Inc. Mauritius
AES Transpower, Inc. (DE) Delaware
AES Treasure Cove, Ltd. Cayman Islands
AES Trust I Delaware
AES Trust II Delaware
AES Trust III Delaware
AES Trust IV Delaware
AES Trust V Delaware
<PAGE>
AES Turbine Equipment, Inc. Delaware
AES Turkish Holdings B.V. Netherlands
AES Tyneside Ltd. United Kingdom
AES U&K Holdings B.V. Netherlands
AES UK Holdings, Ltd. United Kingdom
AES Uruguaiana Empreedimentos Ltda. Brazil
AES Uruguaiana, Inc. Cayman Islands
AES Venezuela Holdings, B.V. Netherlands
AES Venezuela, C.A. Venezuela
AES Victoria Holdings B.V. Netherlands
AES Victoria Partners B.V. Netherlands
AES Warrior Run Funding, L.L.C. Delaware
AES Warrior Run, Inc. Delaware
AES Western Australia Holdings B.V. Netherlands
AES Western Maryland Management Co., Inc. Delaware
AES Westover, L.L.C. Delaware
AES White Cliffs B.V. Netherlands
AES WR Limited Partnership Delaware
AES Yucatan, S. de R.L. de C.V. Mexico
AES ZEG Holdings B.V. Netherlands
AES Zemplen Ltd. Hungary
AES-CLESA Services Limitada San Salvador
AES-ST Ekibastuz, LLP Kazakstan
AES-TB Power Company Limited Cayman Islands
AES/Sonat Adelanto, Inc. Delaware
AES/Sonat Power, L.L.C. Virginia
AESE SRL Italy
AESEBA S.A. Argentina
Altoona Cogeneration Partners, L.P. Pennsylvania
Anhui Liyuan - AES Power Co., Ltd. China
Belfast West Power Limited Northern Ireland
Blank Inc Venezuela
Blue Mountain Power LP Pennsylvania
Blue Mountain Power, Inc. Delaware
Borsod Energetikia, Kft. Hungary
BV Partners Delaware
Camille, Ltd. Cayman Islands
Cavanal Minerals, Inc. Delaware
Cayman Energy Traders Cayman Islands
Central Dique, S.A. Argentina
Central Termica San Nicolas S.A. Argentina
Chengdu AES Kaihua Gas Turbine Power Co. Ltd. China
Chiahui Power Corporation Taiwan
Chongqing Nanchuan Aixi Power Company Limited China
Cloghan Limited Northern Ireland
Cloghan Point Holdings Limited Northern Ireland
<PAGE>
CMS Generation San Nicolas Company Michigan
Coal Creek Minerals, Inc. Delaware
Compagnia Energetica de Minas Gerais Brazil
Companhia Centro-Oeste de Distribuicao de Energia Eletrica Brazil
Compania de Inversiones en Electricidad, S.A. Argentina
DEMEX, Inc. Delaware
DEMSA, Inc. Delaware
DOC Dominicana, S.A. Dominican Republic
DOC Guatemala S.A. Guatemala
Dominican Power Metering, Ltd. Cayman Islands
Dominican Power Partners LDC Cayman Islands
Eden Village Produce Limited Northern Ireland
Elsta BV Netherlands
Elsta BV & Co. CV Netherlands
Emerald Power Holdings C.V. Netherlands
Empresa Distribuidora de Energia Norte S.A. Argentina
Empresa Distribuidora de Energia Sur S.A. Argentina
Empresa Distribuidora La Plata, S.A. Argentina
Global Power Holdings CV Netherlands
Hefei Zhongli Energy Co. Ltd. China
Hidroelectrica Rio Juramento S.A. Argentina
Hidrotermica San Juan S.A. Argentina
Hispaniola Power Ventures, Ltd. Cayman Islands
Hunan Xiangci - AES Hydro Power Company Ltd. China
Inversora AES Americas S.A. Argentina
Inversora de San Nicolas S.A. Argentina
Ir. G. Passchier Management B.V. Netherlands
Jiaozuo AES Wan Fang Power Company Limited China
JSC Telasi Republic of Georgia
Kilroot Electric Limited Cayman Islands
Kilroot Power Limited Northern Ireland
Kingston CoGen Limited Partnership Canada
La Plata Holdings Delaware
La Plata Holdings, Inc. Delaware
La Plata I Empreendimentos Ltda. Brazil
La Plata I, Inc. Delaware
La Plata II Empreendimentos Ltda. Brazil
La Plata II, Inc. Delaware
La Plata III, Inc. Delaware
La Plata IV, L.L.C. Delaware
Light Servicos de Eletricidade S.A. Brazil
LIGHT.COM, Inc. Delaware
LIGHT.COM, L.L.C. Delaware
Loy Yang Energy Pty Ltd. Australia
Loy Yang Finance Corporation Pty Ltd Australia
Loy Yang Management Pty Limited Australia
<PAGE>
Luz del Plata S.A. Argentina
Medway Power Limited United Kingdom
Merco Intercon, Ltda. Brazil
Midwest Energy, Inc. Illinois
Mountain Minerals, Inc. Delaware
myLIGHT.COM, Inc. Delaware
myLIGHT.COM, L.L.C. Delaware
NIGEN Limited Northern Ireland
Nogradszen Kft Hungary
Northern/AES Energy, LLC Minnesota
Placerita Oil Co., Inc. Delaware
San Francisco Energy Company, L.P. Delaware
Shazia S.R.L. Argentina
Southern Electric Brazil Participacoes, Ltda. Brazil
Terneuzen Cogen B.V. Netherlands
The AES Corporation Delaware
Tisza Eromu Rt. Hungary
Twin Rivers Power, Inc. Delaware
UK Asset Management Services, Ltd. United Kingdom
UK Energy Holdings Limited United Kingdom
Wildwood Funding, Ltd. Cayman Islands
Wildwood II, Ltd. Cayman Islands
Wuhu Shaoda Electric Power Development Co. Ltd. China
Wuxi AES CAREC Gas Turbine Power Company Limited China
Wuxi AES Zhong Hang Power Company Limited China
Yangcheng International Power Generating Co. Ltd. China
Yangchun Fuyang Diesel Engine Power Co. Ltd. China
Zarnowicka Elektrownia Gazowa Sp.zo.o. Poland
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit K-3
GENERATING PLANTS IN OPERATION
AES
Capacity AES Equity Regulatory
Company Country (MW) Interest (%) (MW) Status
- ------- ------- ---- ----------- ------ ------
<S> <C> <C> <C> <C> <C>
AES Deepwater USA 143 100.00 143.00 QF
AES Beaver Valley USA 125 80.00 100.00 QF
AES Placerita USA 120 100.00 120.00 QF
AES Thames USA 181 100.00 181.00 QF
AES Shady Point USA 320 100.00 320.00 QF
AES Hawaii USA 180 100.00 180.00 QF
NGE Generation (6 plants) USA 1,424 100.00 1,424.00 EWG
AES Alamitos USA 2,083 100.00 2,083.00 EWG
AES Redondo Beach USA 1,310 100.00 1,310.00 EWG
AES Huntington Beach USA 563 100.00 563.00 EWG
AES Kingston Canada 110 50.00 55.00 EWG
AES San Nicolas Argentina 650 69.00 448.50 EWG
AES Cabra Corral Argentina 102 98.00 99.96 FUCO
AES El Tunal Argentina 10 98.00 9.80 FUCO
AES Sarmiento Argentina 33 98.00 32.34 FUCO
AES Ullum Argentina 45 98.00 44.10 FUCO
AES Quebrada Argentina 45 100.00 45.00 FUCO
Fontes Nova - Light Brazil 144 13.75 19.80 FUCO
Ilha dos Pombos - Light Brazil 164 13.75 22.55 FUCO
Nilo Pecanha - Light Brazil 380 13.75 52.25 FUCO
Pereira Passos - Light Brazil 100 13.75 13.75 FUCO
CEMIG (37 plants) Brazil 5,668 20.96* 1,188.14 FUCO
EGE Bayano Panama 192 49.00 94.08 FUCO
EGE Chiriqui Panama 90 49.00 44.10 FUCO
AES Los Mina Dom. Rep. 210 100.00 210.00 EWG
ECOGEN (2 plants) Australia 966 100.00 966.00 FUCO
AES Mt. Stuart Australia 288 100.00 288.00 FUCO
AES Xiangci - Cili China 26 51.00 13.26 FUCO
AES Wuxi China 63 55.00 34.65 FUCO
Wuhu China 250 25.00 62.50 FUCO
Yangchun China 15 25.00 3.75 FUCO
Chengdu Lotus City China 48 35.00 16.80 FUCO
AES Jiaozou China 250 70.00 175.00 FUCO
AES Hefei China 115 70.00 80.50 FUCO
AES Fuling Aixi China 50 70.00 35.00 FUCO
AES Ekibastuz Kazakhstan 4,000 70.00 2,800.00 FUCO
AES Ust-Kamenogorsk GES Kazakhstan 332 85.00 282.20 FUCO
AES Shulbinsk GES Kazakhstan 702 85.00 596.70 FUCO
AES Ust-Kamenogorsk TETS Kazakhstan 240 85.00 204.00 FUCO
AES Leninogorsk TETS Kazakhstan 50 85.00 42.50 FUCO
AES Sogrinsk TETS Kazakhstan 50 85.00 42.50 FUCO
<PAGE>
AES
Capacity AES Equity Regulatory
Company Country (MW) Interest (%) (MW) Status
- ------- ------- ---- ----------- ------ ------
AES Semipalatinsk TETS Kazakhstan 10 85.00 8.50 FUCO
OPGC India 420 49.00 205.80 FUCO
AES Lal Pir Pakistan 351 90.00 315.90 FUCO
AES Pak Gen Pakistan 344 90.00 309.60 FUCO
AES Borsod Hungary 171 96.00 164.16 FUCO
AES Tisza II Hungary 860 96.00 825.60 FUCO
AES Tiszapalkonya Hungary 250 96.00 240.00 FUCO
AES Elsta Netherlands 405 50.00 202.50 FUCO
Medway U.K. 688 25.00 172.00 FUCO
AES Indian Queens U.K. 140 100.00 140.00 EWG
Kilroot U.K. 520 47.00 244.40 FUCO
Belfast West U.K. 240 47.00 112.80 FUCO
AES Barry U.K. 230 100.00 230.00 FUCO
--- ------
TOTALS 26,466 17,617.99
Percentage of Foreign Generation 75.63% 63.54%
</TABLE>
<TABLE>
<CAPTION>
ELECTRIC DISTRIBUTION COMPANIES
Company Location AES Interest Regulatory Status
- ------- -------- ------------ -----------------
<S> <C> <C> <C>
AES EDEN Argentina Majority FUCO
AES EDES Argentina Majority FUCO
AES EDELAP Argentina Majority FUCO
AES Sul Brazil Majority FUCO
Light Servicios de Electricidade, S.A. Brazil Minority FUCO
o Electropaulo Metropolitana, S.A. Brazil Minority FUCO
Cemig, S.A. Brazil Minority FUCO
AES CLESA El Salvador Majority FUCO
AES Telasi Georgia Majority FUCO
ALTAI Kazakhstan Majority FUCO
EDE Este ** Dominican 50% FUCO
Republic
</TABLE>
* CEMIG owns 21.648% of 36 plants accounting for 5,458 MW and 3.14% of 1
plant accounting for 210 MW.
** Closing expected in June of 1999.
<PAGE>
Exhibit K-4
[Map]
Map of the world, including national borders. The map identifies the location of
AES's generating plants (designated by purple triangles), distribution companies
(designated by red squares), projects under construction or advanced development
(designated by orange circles with orange borders) and pending acquisitions
(designated by black squares). In cases where numerous generating plants are
located in the same country or region within a country, the multiple plants may
be designated by a large purple triangle and footnoted in order to identify the
number of generating plants represented by such box.
AES has ninety-six generating plants located in the following countries:
the United States - fifteen,
Canada - one,
Panama - two,
the Dominican Republic - one,
Argentina - six,
Brazil - forty-one,
the United Kingdom - five,
the Netherlands - one,
Hungary - three,
Pakistan - two,
India - one,
Kazakhstan - seven,
China - eight,
Australia - three.
AES has ten distribution companies (and expects to achieve financial closing on
an eleventh in the Dominican Republic this June) located in the following
countries:
Brazil - four,
Argentina - three,
El Salvador - one,
Georgia - one,
Kazakhstan - one,
Dominican Republic - one.
<PAGE>
AES has eighteen projects under construction or advanced development located in
the following countries;
the United States - three,
Mexico - one,
Puerto Rico - one,
Brazil - one,
Argentina - two,
the United Kingdom - two,
Hungary - one,
Poland - one,
Egypt - one,
India - one,
Sri Lanka - one,
Bangladesh - two,
China - one.
AES has one pending acquisition in the United States (CILCORP).
<PAGE>
EXHIBIT K-5
CILCO Contributions To
AES/CILCORP Consolidated Holding Company
(GAAP Basis)
($MM)
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
GROSS REVENUES* 38.47% 28.09% 18.19%
AES 835 1,411 2,398
CILCO 524 553 538
CILCORP (excluding CILCO) 3 5 21
AES/CILCORP 1,362 1,969 2,957
NET OPERATING REVENUES 34.50% 25.63% 16.06%
AES 614 973 1,809
CILCO 325 337 350
CILCORP (excluding CILCO) 3 5 21
AES/CILCORP 942 1,315 2,180
OPERATING INCOME 26.02% 22.10% 11.27%
AES 278 368 733
CILCO 96 103 93
CILCORP (excluding CILCO) (5) (5) (1)
AES/CILCORP 369 466 825
NET INCOME 27.45% 24.88% 12.54%
AES 125 185 311
CILCO 42 50 41
CILCORP (excluding CILCO) (14) (34) (25)
AES/CILCORP 153 201 327
NET ASSETS 21.11% 9.99% 8.47%
AES 3,622 8,909 10,781
CILCO 1,036 1,023 1,024
CILCORP (excluding CILCO) 250 312 289
AES/CILCORP 4,908 10,244 12,094
</TABLE>
* In calculating the gross revenues percentage, the numerator is equal to the
total gross business revenues of CILCO, which include revenues from minor
non-utility activities (nearly all of which are from service transactions
with CILCORP affiliates). The denominator is comprised of all CILCORP
business revenues (including revenues from all CILCO activities and CILCORP
non-utility activities) plus all of AES's business revenues.
<PAGE>
Exhibit K-14
Market Shares for Electric Companies in Illinois
(Companies Listed in Order of Customers Served)
- --------------------------------------------------------------------------------
[Vertical Bar Chart]
X-axis (bottom of chart):
Unicom Corp.
Ameren Corp.
Illinova Corp.
Cilcorp, Inc.
Everyone else
Y-axis (left side of chart): Market Share Percentages (listed in increments of
10 percent between and including 0 and 70%)
[Bar Chart lists market shares for electric companies in Illinois in terms of
assets, revenues and number of customers. The companies are listed in the order
of customers served as provided below. Assets, revenues and customers are
represented by green, violet and red bars, respectively.]
Electric Utility Assets Revenues Customers
- ---------------- ------ -------- ---------
Unicom Corp. 58.8% 59.5% 60.3%
Ameren Corp. 23.3% 23.9% 26.3%
Illinova Corp. 14.4% 11.8% 9.9%
Cilcorp, Inc. 2.7% 2.8% 3.4%
Everyone else 0.8% 2.0% 0.1%
<PAGE>
MARKET SHARE FOR ELECTRIC COMPANIES IN ILLINOIS
COMPANIES SORTED BY ASSETS
Assets Share of Cumulative
Holding Company (millions of $) Rank Total Share
- --------------------------------------------------------------------------------
Unicom Corp. 26,322 1 58.8% 58.8%
Ameren Corp. 10,446 2 23.3% 82.1%
Illinova Corp. 6,465 3 14.4% 96.5%
CILCORP, INC. 1,187 4 2.7% 99.2%
Everyone else combined 366 0.8% 100%
Total 44,786
<PAGE>
MARKET SHARE FOR ELECTRIC COMPANIES IN ILLINOIS
COMPANIES SORTED BY REVENUE
Revenue Share of Cumulative
Holding Company (millions of $) Rank Total Share
- --------------------------------------------------------------------------------
Unicom Corp. 7,176 1 59.5% 59.5%
Ameren Corp. 2,889 2 23.9% 83.4%
Illinova Corp. 1,420 3 11.8% 95.2%
CILCORP, INC. 338 4 2.8% 98.0%
Everyone else combined 241 2.0% 100%
Total 12,064
<PAGE>
MARKET SHARE FOR ELECTRIC COMPANIES IN ILLINOIS
COMPANIES SORTED BY NUMBER OF CUSTOMERS
Customers Share of Cumulative
Holding Company (thousands) Rank Total Share
- --------------------------------------------------------------------------------
Unicom Corp. 3,420 1 60.3% 60.3%
Ameren Corp. 1,495 2 26.3% 86.6%
Illinova Corp. 559 3 9.9% 96.5%
Cilcorp, Inc. 194 4 3.4% 99.9%
Mount Carmel Public Utility Co. 6 5 0.1% 100.0%
Electric Energy, Inc. 0 6 0.0% 100.0%
Everyone else combined 6 0.1% 100%
Total 5,674
<PAGE>
Exhibit K-15
Market Shares for Gas Companies in Illinois
(Companies Listed in Order of Customers Served)
- --------------------------------------------------------------------------------
[Vertical Bar Chart]
X-axis (bottom of chart):
Nicor, Inc.
Peoples Energy Corp.
Illinova Corp.
Ameren Corp.
Cilcorp, Inc.
Everyone else
Y-axis (left side of chart): Market Share Percentages (listed in increments of
10 percent between and including 0 and 60%)
[Bar Chart lists market shares for gas companies in Illinois in terms of assets,
revenues and number of customers. The companies are listed in the order of
customers served as provided below. Assets, revenues and customers are
represented by green, violet and red bars, respectively.]
Electric Utility Assets Revenues Customers
- ---------------- ------ -------- ---------
Nicor, Inc. 45.3% 45.5% 49.8%
Peoples Energy Corp. 32.0% 32.5% 25.9%
Illinova Corp. 9.7% 9.3% 10.6%
Ameren Corp. 6.9% 6.6% 7.9%
Cilcorp, Inc. 5.9% 5.8% 5.4%
Everyone else 0.2% 0.3% 0.4%
<PAGE>
MARKET SHARE FOR GAS COMPANIES IN ILLINOIS
COMPANIES SORTED BY ASSETS
Assets Share of Cumulative
Holding Company (millions of $) Rank Total Share
- --------------------------------------------------------------------------------
Nicor, Inc. 2,956 1 45.3% 45.3%
Peoples Energy Corp. 2,083 2 32.0% 77.3%
Illinova Corp. 634 3 9.7% 87.0%
Ameren Corp. 447 4 6.9% 93.9%
CILCORP, INC. 383 5 5.9% 99.8%
Everyone else combined 16 0.2% 100.0%
Total 6,519
<PAGE>
MARKET SHARE FOR GAS COMPANIES IN ILLINOIS
COMPANIES SORTED BY REVENUE
Revenue Share of Cumulative
Holding Company (millions of $) Rank Total Share
- --------------------------------------------------------------------------------
Nicor, Inc. 1,731 1 45.5% 45.5%
Peoples Energy Corp. 1,238 2 32.5% 78.1%
Illinova Corp. 354 3 9.3% 87.4%
Ameren Corp. 250 4 6.6% 93.9%
CILCORP, INC. 219 5 5.8% 99.7%
Everyone else combined 12 0.3% 100.0%
Total 3,803
<PAGE>
MARKET SHARE FOR GAS COMPANIES IN ILLINOIS
COMPANIES SORTED BY NUMBER OF CUSTOMERS
Customers Share of Cumulative
Holding Company (thousands) Rank Total Share
- --------------------------------------------------------------------------------
Nicor, Inc. 1,848 1 49.8% 49.8%
Peoples Energy Corp. 963 2 25.9% 75.7%
Illinova Corp. 394 3 10.6% 86.3%
Ameren Corp. 294 4 7.9% 94.2%
CILCORP, INC. 200 5 5.4% 99.6%
Everyone else combined 14 0.4% 100.0%
Total 3,714
<PAGE>
Exhibit K-16
Market Shares for Utilities in Illinois
(Companies Listed in Order of Customers Served)
- --------------------------------------------------------------------------------
[Vertical Bar Chart]
X-axis (bottom of chart):
Unicom Corp.
Nicor, Inc.
Ameren Corp.
Peoples Energy Corp.
Illinova Corp.
Cilcorp, Inc.
Everyone else
Y-axis (left side of chart): Market Share Percentages (listed in increments of
10 percent between and including 0 and 60%)
[Bar Chart lists market shares for utilities in Illinois in terms of assets,
revenues and number of customers. The companies are listed in the order of
customers served as provided below. Assets, revenues and customers are
represented by green, violet and red bars, respectively.]
Electric Utility Assets Revenues Customers
- ---------------- ------ -------- ---------
Unicom Corp. 50.9% 44.8% 36.5%
Nicor, Inc. 5.7% 10.8% 19.7%
Ameren Corp. 21.1% 19.6% 19.1%
Peoples Energy Corp. 4.0% 7.7% 10.3%
Illinova Corp. 13.7% 11.1% 10.2%
Cilcorp, Inc. 3.0% 3.5% 4.2%
Everyone else 1.5% 2.6% 0.1%
<PAGE>
MARKET SHARE FOR UTILITIES IN ILLINOIS
COMPANIES SORTED BY ASSETS
Assets Share of Cumulative
Holding Company (millions of $) Rank Total Share
- --------------------------------------------------------------------------------
Unicom Corp. 26,322 1 50.9% 50.9%
Ameren Corp. 10,893 2 21.1% 72.0%
Illinova Corp. 7,099 3 13.7% 85.7%
Nicor, Inc. 2,956 4 5.7% 91.5%
Peoples Energy Corp. 2,083 5 4.0% 95.5%
CILCORP, INC. 1,570 6 3.0% 98.5%
Everyone else combined 763 1.5% 100%
Total 51,686
<PAGE>
MARKET SHARE FOR UTILITIES IN ILLINOIS
COMPANIES SORTED BY REVENUE
Revenue Share of Cumulative
Holding Company (millions of $) Rank Total Share
- --------------------------------------------------------------------------------
Unicom Corp. 7,176 1 44.8% 44.8%
Ameren Corp. 3,139 2 19.6% 64.3%
Illinova Corp. 1,774 3 11.1% 75.4%
Nicor, Inc. 1,731 4 10.8% 86.2%
Peoples Energy Corp. 1,238 5 7.7% 93.9%
CILCORP, INC. 557 6 3.5% 97.4%
Everyone else combined 417 2.6% 100%
Total 16,031
<PAGE>
MARKET SHARE FOR UTILITIES IN ILLINOIS
COMPANIES SORTED BY NUMBER OF CUSTOMERS
Customers Share of Cumulative
Holding Company (thousands) Rank Total Share
- --------------------------------------------------------------------------------
Unicom Corp. 3,420 1 36.5% 36.5%
Nicor, Inc. 1,848 2 19.7% 56.2%
Ameren Corp. 1,789 3 19.1% 75.3%
Peoples Energy Corp. 963 4 10.3% 85.5%
Illinova Corp. 953 5 10.2% 95.7%
CILCORP, INC. 395 6 4.2% 99.9%
Everyone else combined 9 0.1% 100%
Total 9,378
<PAGE>
Exhibit K-17
STATE OF ILLINOIS
ILLINOIS COMMERCE COMMISSION
CENTRAL ILLINOIS LIGHT COMPANY :
:
PETITION PURSUANT TO SECTION :
16-111(G) OF THE PUBLIC UTILITIES ACT : 98-0882
REQUESTING THE ILLINOIS COMMERCE :
COMMISSION TO ENTER AN ORDER :
FINDING IT HAS NO PRE-APPROVAL :
JURISDICTION OVER CERTAIN :
REORGANIZATIONS, OR, IN THE :
ALTERNATIVE, APPROVING THE :
REORGANIZATIONS WITH RESPECT TO THE :
GAS OPERATIONS OF CENTRAL ILLINOIS :
LIGHT COMPANY PURSUANT TO THE :
PROVISIONS OF SECTION 7-204 OF THE :
PUBLIC UTILITIES ACT. :
ORDER
By the Commission:
I. PROCEDURAL HISTORY
On December 14, 1998, Central Illinois Light Company ("CILCO") filed a
petition with the Illinois Commerce Commission ("Commission") pursuant to
Section 16-111(g) of the Public Utilities Act ("Act") (220 ILCS 5/16-111(g)),
seeking a determination that the Commission does not have pre-approval
jurisdiction of two proposed reorganizations involving CILCO's parent
corporation, CILCORP Inc. ("CILCORP"). In the alternative, CILCO requested entry
of an order pursuant to Section 7-204 of the Act (220 ILCS 5/7-204) seeking an
expedited order of the Commission approving the two reorganizations with respect
to CILCO's gas operations. The first reorganization involves a transaction by
which The AES Corporation ("AES") will acquire ownership and control of CILCORP,
which owns all of the common stock of CILCO. As a result of the second
<PAGE>
reorganization, which will occur only at the discretion of AES, AES will acquire
direct ownership of all of CILCO's common stock.
Local Union No. 51, International Brotherhood of Electrical Workers,
AFL-CIO ("Local No. 51, IBEW") filed a petition to intervene. That petition was
allowed by the Hearing Examiner.
Pursuant to proper legal notice, a prehearing conference was held in
this matter on January 13,1999, and an evidentiary hearing was held on February
5,1999, at the Commission's offices in Springfield, Illinois. Appearances were
entered by counsel on behalf of CILCO, the Commission Staff, and Local No. 51,
IBEW. At the hearing on February 5,1999, CILCO submitted the testimony of
William M. Shay, a Senior Vice President of CILCO, Nicholas T. Shay, CILCO's
Director of Rates and Regulatory Affairs, and Robert J. Sprowls, Vice President
and Chief Financial Officer of CILCO. Mr. Robert Plaza, Case Manager for Staff,
testified that Staff had no objection to the proposed reorganizations and did
not oppose the granting of the application. At the conclusion of the hearing on
February 5, 1999, the record was marked "Heard and Taken."
CILCO, Staff and Local No. 51, IBEW, waived the filing of initial and
reply briefs and the service of the Hearing Examiner's proposed order.
II. DESCRIPTION OF THE PROPOSED REORGANIZATIONS
CILCORP is an Illinois corporation and the owner of a majority of the
voting capital stock of CILCO. Under date of November 22, 1998, CILCORP entered
into an Agreement and Plan of Merger ("Agreement") with AES, a Delaware
corporation, and Midwest Energy, Inc. ("Midwest"), an Illinois corporation and a
wholly-owned subsidiary of AES. Pursuant to the Agreement, Midwest will be
merged into CILCORP, and CILCORP will be the surviving corporation. The capital
stock of CILCORP issued and outstanding immediately prior to the merger will be
canceled and extinguished and converted into the right to receive $65 per share,
and AES, as the owner of all the capital stock of Midwest, will become the owner
of all the capital stock of CILCORP. Under the Agreement, a second proposed
merger may occur. In the second merger, CILCORP will be merged into AES, CILCORP
will cease to exist, and AES will become the owner of a majority of the voting
capital stock of CILCO.
2
<PAGE>
CILCO is a combination gas and electric utility providing retail gas
and electric service to customers in Illinois. Midwest was created by AES solely
for the purpose of effecting the first merger. AES is a global energy company
that operates electric generation facilities in the United States and in foreign
countries. AES also owns foreign electric distribution businesses, mostly in
South America, and a small amount of natural gas distribution in foreign
countries. AES does not own or operate any regulated utilities in the United
States.
III. APPLICABLE LAW
The action of the Commission in this proceeding is governed by Section
7-204 of the Act relating to the approval of reorganizations. Under Section
7-204, the term "reorganization" is defined as "any transaction which,
regardless of the means by which it is accomplished, results in a change of a
majority of the voting capital stock of an Illinois public utility; or the
ownership or control of any entity which owns or controls a majority of the
voting capital stock of a public utility . . . ." This section further provides
that the "Commission shall not approve any proposed reorganization if the
Commission finds, after notice and hearing, that the reorganization will
adversely affect the utility's ability to perform its duties under this Act."
In reviewing the proposed reorganization, the Commission is required
by Section 7-204 to find that:
(1) the proposed reorganization will not diminish the utility's
ability to provide adequate, reliable, efficient, safe and
least-cost public utility service;
(2) the proposed reorganization will not result in the unjustified
subsidization of non-utility activities by the utility or its
customers;
(3) costs and facilities are fairly and reasonably allocated between
utility and non-utility activities in such a manner that the
Commission may identify those costs and facilities which are
properly included by the utility for ratemaking purposes;
3
<PAGE>
(4) the proposed reorganization will not significantly impair the
utility's ability to raise necessary capital on reasonable terms
or to maintain a reasonable capital structure;
(5) the utility will remain subject to all applicable laws,
regulations, rules, decisions and policies governing the
regulation of Illinois public utilities;
(6) the proposed reorganization is not likely to have a significant
adverse effect on competition in those markets over which the
Commission has jurisdiction; and
(7) the proposed reorganization is not likely to result in any
adverse rate impacts on retail customers.
Section 7-204(c) provides that the Commission shall not approve a
reorganization without ruling on:
(i) the allocation of any savings resulting from the proposed
reorganization; and
(ii) whether the companies should be allowed to recover any costs
incurred in accomplishing the proposed reorganization and,
if so, the amount of costs eligible for recovery and how the
costs will be allocated.
Section 7-204(f) provides that "in approving any proposed
reorganization pursuant to this Section the Commission may impose such terms,
conditions or requirements as, in its judgment, are necessary to protect the
interests of the public utility and its customers."
After CILCO filed its petition in this proceeding, the Commission
entered an order in MidAmerican Energy Company, Docket No. 98-0853. In that
docket, which involved a merger of the parent of a combination gas and electric
utility, the Commission exercised pre-approval jurisdiction under Section 7-204
of the Act with regard to the gas operations of the utility. In view of the
decision in that case, CILCO acknowledges that the Commission has effectively
determined that with respect to CILCO's gas operations, the Commission has
jurisdiction over the reorganization proposed in this proceeding. Accordingly,
without waiving its jurisdictional argument, CILCO has withdrawn its request
4
<PAGE>
that the Commission make a specific ruling on the jurisdictional issue in this
proceeding, and CILCO requests the Commission to approve the proposed
reorganization, based upon the evidence submitted in this proceeding.
IV. REQUEST FOR EXPEDITED TREATMENT
CILCO requests that the Commission expedite its consideration of the
reorganizations proposed in this proceeding and issue an order in this docket by
the end of March. In support of its request, CILCO pointed out that CILCORP and
AES had not expected that a separate approval proceeding would be required in
Illinois, and had planned to have all other regulatory approvals secured so that
the mergers could be finalized prior to the middle of 1999. CILCO explained that
a closing before the end of June is essential, among other reasons, for CILCO's
participation in the initial opening of the Illinois electricity markets on
October 1, 1999. CILCO stated that the expectation that no regulatory approval
would be required in Illinois was part of the attraction of the merger
transactions for AES and CILCORP. The requirement for an additional,
unanticipated regulatory approval with respect to CILCO's gas operations adds
uncertainty to the proposed mergers. CILCO expressed further concern that
federal regulators may wait until state regulators have completed their review
before acting on the merger proposals, and that state approval may become
crucial in soliciting stockholder approval. For all these reasons, CILCO
requested that this proceeding be considered on an expedited basis to assure
that it does not interfere with the merger timetable that has been established
or endanger the closing of the merger transactions.
V. SECTION 7-204 CRITERIA
A. CILCO'S ABILITY TO PROVIDE ADEQUATE, RELIABLE, EFFICIENT, SAFE
AND LEAST-COST PUBLIC UTILITY SERVICE.
With regard to the quality of ClLCO's future customer service, Mr.
Shay testified that the proposed reorganizations will involve only CILCORP,
Midwest, and AES. The mergers will have no direct effect upon ClLCO other than a
change in the ownership of the capital stock of CILCO's parent, and, thereafter,
a possible change in the direct ownership of CILCO's common stock. CILCO's gas
utility operations and assets and the capital structure of CILCO's gas utility
operations will not change as a result of the reorganizations. CILCO's gas
operations are not involved in the proposed mergers, and CILCO does not expect
5
<PAGE>
any changes in the provision of gas service or its gas budgets because of the
proposed mergers. CILCO's ability to perform its duties under the Act will not
be impaired. CILCO adds that in all likelihood, its abilities to provide
adequate, reliable, efficient, safe and least-cost public utility service will
be enhanced by the mergers and that there will be a positive benefit to the
public. Mr. Shay testified that the reorganizations will provide an enlarged
financial base and access to the extensive experience of AES in energy markets
around the world. CILCO asserts that its is an efficient, low-cost provider of
energy, and has demonstrated its commitment to the deregulation of retail energy
markets through its leadership in offering choice to all customers, including
residential customers, through pilot open access programs for both natural gas
and electricity. CILCO believes that if it is unable to enlarge its financial
and skill base, there is less assurance that CILCO can remain a viable, separate
competitor in Illinois, offering an additional option to customers seeking
competitive energy services. In addition to the enlarged financial base that
will result from the proposed reorganizations, CILCO expects to draw on the
experience of AES to improve CILCO's operating efficiency and customer service.
B. UNJUSTIFIED SUBSIDIZATION OF NON-UTILITY ACTIVITIES BY CILCO
OR ITS CUSTOMERS.
CILCO witness Shay testified that because the proposed reorganizations
do not directly involve CILCO, CILCO will continue to operate in the same way as
before the reorganizations. All the guidelines and procedures currently
applicable to CILCO's non-utility transactions will remain applicable after the
reorganizations and assure that there is no subsidization of non-utility
activities by CILCO's gas operations or CILCO's gas customers. Mr. Shay stated
that CILCO has on file with the Commission guidelines and procedures covering
transactions between CILCO and its affiliates. These guidelines were adopted and
filed pursuant to the Commission's Order in Docket No. 84-0413. In addition,
CILCO has filed guidelines and procedures with the Commission applicable to
non-utility activities of CILCO. These guidelines and procedures were adopted
pursuant to the rule recently approved by the Commission at 83 Ill. Adm. Code,
Part 506, Accounting for Non-Public Utility Business of Gas Utilities. Mr. Shay
testified that these two sets of procedures assure that there will be no
subsidization of affiliate or other non-utility transactions by CILCO's gas
utility operations or CILCO's gas customers.
6
<PAGE>
CILCO is required by the Commission's rules to make biennial audits of
its compliance with the guidelines and procedures described by Mr. Shay. CILCO
recently completed those audits and filed them with the Commission on December
1, 1998. The audits found that CILCO was in compliance with the guidelines
covering affiliate and other non-utility transactions. Audits of affiliate and
non-utility transactions will be performed at two-year intervals in the future,
and Mr. Shay testified that the audits and the reports filed with the Commission
provide continuing assurance that there will be no subsidy of non-utility
activities by CILCO or its customers.
C. FAIR AND REASONABLE ALLOCATION OF COSTS AND FACILITIES BETWEEN
CILCO'S ILLINOIS GAS UTILITY OPERATIONS AND NON-UTILITY
ACTIVITIES.
Mr. Shay testified that the guidelines and procedures applicable to
non-utility activities assure that costs and facilities are fairly and
reasonably allocated between utility and non-utility activities. The procedures
applicable under 83 Ill. Adm. Code, Part 506, require that all non-utility
transactions be recorded in sub-accounts. The sub-accounts facilitate review of
non-utility transactions and cost allocations by the Commission as well as by
CILCO's own auditors, and assist in assuring proper allocation of costs and
facilities for ratemaking purposes.
D. IMPAIRMENT OF THE ABILITY OF CILCO'S GAS UTILITY OPERATIONS TO
RAISE NECESSARY CAPITAL ON REASONABLE TERMS OR TO MAINTAIN A
REASONABLE CAPITAL STRUCTURE.
CILCO witness Sprowls testified that the proposed reorganizations will
not impair CILCO's ability to raise capital on reasonable terms, and will not
impair CILCO's ability to maintain a reasonable capital structure. Mr. Sprowls
stated that the balance sheet and capitalization of CILCO will not be changed by
the proposed mergers, and CILCO's financial ratios will not be changed as a
result of the proposed mergers. After the mergers, CILCO will continue to have
the ability to raise capital through the issuance of short-term debt, and, with
Commission approval, the issuance of long-term debt and preferred stock.
Mr. Sprowls testified that CILCO's debt and preferred stock ratings
were placed on credit watch with negative implications following the
announcement of the proposed merger transactions, but Mr. Sprowls stated that
7
<PAGE>
this is a normal practice. CILCO's ratings will be more carefully analyzed by
the rating agencies after the mergers are completed, and Mr. Sprowls testified
that the ratings should remain at investment grade.
Mr. Sprowls further testified that common equity capital is provided
to CILCO through retained earnings. If common equity is required in greater
amounts than normal, CILCO can reduce the amount of dividends payable to its
parent corporation. If common equity capital is required in excess of earnings,
the parent corporation would have to invest additional capital, out of cash
flow, retained earnings, borrowings, or the issuance of common equity or
preferred stock by the parent. CILCO has not required an infusion of common
equity capital in excess of its own earnings since it became a subsidiary of
CILCORP in 1985, and CILCO does not anticipate the need for the investment of
common equity capital for its gas operations within the foreseeable future.
However, if investments of common equity capital were required after the
mergers, the larger financial base of AES would likely make it easier to obtain
such capital.
In supplemental testimony, Company witness Shay confirmed that in the
absence of advance approval of the Commission, no debt incurred by AES will have
any recourse against the funds or other assets of CILCO's gas utility.
E. CONTINUED APPLICATION OF ALL APPLICABLE LAWS, REGULATIONS,
RULES, DECISIONS AND POLICIES GOVERNING THE REGULATION OF
ILLINOIS PUBLIC UTILITIES TO CILCO'S GAS UTILITY OPERATIONS.
Mr. Shay testified that CILCO will continue to operate as a regulated
public utility after the proposed reorganizations, and will remain subject to
all requirements applicable to public utilities. The reorganizations will cause
no change affecting the regulation of CILCO as a public utility.
F. IMPACT OF PROPOSED REORGANIZATION ON COMPETITION IN THE
NATURAL GAS UTILITY MARKET OVER WHICH THE COMMISSION HAS
JURISDICTION.
Mr. Shay testified that the proposed reorganization will have no
adverse effects in the retail gas sales markets in Illinois. AES is not engaged
in the sale or delivery of gas at wholesale or retail to any customers in
Illinois or adjoining states. On the basis of these facts, Mr. Shay concluded
that the level of competition in Illinois gas markets will not be diminished in
8
<PAGE>
any manner as a result of the proposed reorganizations. Mr. Shay added that the
proposed reorganizations are more likely to have a positive effect on
competition in Illinois, because CILCO will be part of a larger and economically
stronger corporate system, which should enhance CILCO's ability to remain a
separate utility and compete with other gas utilities and marketers in Illinois.
G. RATE IMPACT OF PROPOSED REORGANIZATIONS ON RETAIL CUSTOMERS.
Mr. Shay testified that the proposed reorganizations will not directly
affect CILCO's gas operations, and will not result in any increase in the costs
incurred by CILCO in providing gas service. Therefore, the proposed mergers will
have no rate impact on CILCO's retail gas customers. CILCO indicated in response
to Staff data request ML-3 that AES will take a role in the management of
CILCO's gas operations in the same manner as CILCORP does at the present time,
by electing the Board of Directors, assuring that capable management of CILCO
gas operations is being provided, and reviewing the results of operations. To
the extent AES personnel take a direct role in the management of gas operations,
there would be corresponding reduction in the need for management personnel
employed directly by CILCO. Accordingly, CILCO does not expect an increase in
the overall costs of gas operations as the result of AES participation in the
management of CILCO gas operations.
In supplemental testimony, CILCO witness Shay stated that CILCO has no
current plans to file a gas rate case.
H. ALLOCATION OF SAVINGS AND COSTS ASSOCIATED WITH THE PROPOSED
REORGANIZATIONS.
Section 7-204(c) of the Act requires the Commission to rule on the
allocation of any savings resulting from the proposed reorganizations. This
Section also requires the Commission to rule whether the reorganizing companies
should be allowed to recovery any costs incurred in accomplishing the proposed
reorganizations, and if so, the amount of costs eligible for recovery and how
the costs will be allocated.
Mr. Shay testified that the proposed mergers involving CILCORP and AES
are different from situations in which two public utilities or their holding
companies merge. In those cases, it is often possible to reduce operating costs
and produce savings by combining operations and eliminating duplicative
9
<PAGE>
resources, functions or personnel. No such operational synergies will occur as a
result of the mergers proposed in this case, and none are intended. AES is not a
regulated public utility and does not own or operate any regulated public
utility in the United States. CILCO will remain a separate, public,
SEC-reporting company, with preferred stock that is publicly traded. The
proposed mergers are strategic in nature, to provide AES a mid-west presence and
a base from which to grow in the Illinois energy markets, and perhaps beyond,
and to provide CILCO a broader financial base and an assured future as a
separate operating utility. For these reasons, CILCO does not anticipate any
measurable savings in the operation of its gas utility business as a result of
the proposed mergers. In his supplemental testimony, Mr. Shay stated that if
savings did unexpectedly result from the mergers in the future, CILCO would not
in any future gas rate case request any different treatment for those savings
than for any other reduction in the cost of providing gas service. In addition,
Mr. Shay stated that CILCO would not seek recovery in any future gas rate case
of the costs incurred, including the premium paid by AES for CILCORP's stock, in
accomplishing the mergers. These undertakings assure that if the proposed
reorganizations do result in any savings in gas operating costs in the future,
the Commission will be free to allocate those savings to CILCO's gas customers
in any future gas rate case.
VI. SECTION 7-204A
Section 7-204A of the Act sets forth information to be furnished in
connection with certain applications for approval of reorganizations under
Section 7-204. Although Section 7-204A is not applicable to CILCO, because CILCO
became a subsidiary of CILCORP prior to 1989, CILCO provided to Staff all the
information required under Section 7-204A, or proxies for that information, as
requested by Staff.
VII. FINDINGS AND ORDERING PARAGRAPHS
The Commission, having considered the entire record, is of the opinion
and finds that:
(1) CILCO is an Illinois corporation providing natural gas service to
customers in the State of Illinois and is a public utility within
the meaning of the Act;
(2) the Commission has jurisdiction over CILCO and the subject matter
of this proceeding;
10
<PAGE>
(3) the recitals of fact and conclusions reached in the prefatory
portion of this Order are supported by the evidence of record,
and are hereby adopted as findings of fact;
(4) the proposed reorganizations meet the criteria set forth in
Section 7-204 of the Act with respect to CILCO gas operations, in
that:
a) the proposed reorganizations will not diminish CILCO's
ability to provide adequate, reliable, efficient, safe and
least-cost gas public utility service;
b) the proposed reorganizations will not result in the
unjustified subsidization of non-utility activities by CILCO
or its customers with respect to CILCO's gas operations;
c) costs and facilities are fairly and reasonably allocated
between utility and non-utility activities in such a manner
that the Commission may identify those costs and facilities
which are properly included by CILCO for ratemaking purposes
for its gas utility operations;
d) the proposed reorganizations will not significantly impair
CILCO's ability to raise necessary capital on reasonable
terms or to maintain a reasonable capital structure with
respect to its gas utility operations;
e) CILCO will remain subject to all applicable laws,
regulations, rules, decisions and policies governing the
regulation of Illinois public utilities with respect to
CILCO's gas utility operations;
f) the proposed reorganization is not likely to have a
significant adverse effect on competition in the Illinois
gas utility markets over which the Commission has
jurisdiction;
g) the proposed reorganizations are not likely to result in any
adverse rate impacts on retail gas customers of CILCO;
11
<PAGE>
(5) CILCO has furnished information specified in Section 7-204A
adequate to enable the Staff to review and analyze the proposed
reorganizations;
(6) the proposed reorganizations will not adversely affect the
ability of CILCO to perform its duties under the Act with respect
to its gas utility operations;
(7) any savings resulting from the proposed reorganizations with
respect to CILCO's gas utility operations shall be reflected in
CILCO's cost of service for recognition in future rate
proceedings;
(8) transaction costs, including the premium paid for CILCORP's
stock, with respect to CILCO's gas utility operations portion of
the reorganizations shall be recorded below-the-line at the
holding company level;
(9) transition costs that result directly from the reorganizations
shall not be recovered from CILCO's gas customers;
(10) the application of CILCO for approval of the proposed
reorganizations with respect to CILCO's gas utility operations
should be approved;
(11) the consent, authority and approval of the Commission should be
granted to CILCO to do any and all other things not contrary to
law or to the rules and regulations of the Commission that are
incidental, necessary or appropriate to the performance of any
and all acts specifically authorized by the Commission in this
Order.
IT IS THEREFORE ORDERED that approval is hereby granted to Central
Illinois Light Company, with respect to its gas utility operations, for the
reorganizations that are the result of the transactions in which The AES
Corporation will acquire ownership and control of CILCORP Inc., and, at the
discretion of The AES Corporation, The AES Corporation will acquire direct
ownership of a majority of the voting capital stock of Central Illinois Light
Company.
12
<PAGE>
IT IS FURTHER ORDERED that Central Illinois Light Company shall file
with the Commission written notice of completion of the reorganizations and the
effective date thereof within 30 days after the effective dates of the
respective reorganizations.
IT IS FURTHER ORDERED that the consent, authority and approval of the
Commission are granted to Central Illinois Light Company to do any and all other
things not contrary to law or to the rules and regulations of the Commission
that are incidental, necessary or appropriate to the performance of any and all
acts specifically authorized by the Commission in this Order.
IT IS FURTHER ORDERED that subject to the provisions of Section 10-113
of the Public Utilities Act and 83 Ill. Adm. Code 200.880, this Order is final;
it is not subject to the Administrative Review Law.
By order of the Commission this 10th day of March, 1999.
(SIGNED) RICHARD L. MATHIAS
Chairman
(SEAL)
13
<PAGE>
Exhibit K-18
[Letterhead]
[State of Illinois]
[Illinois Commerce Commission]
150 NORTH LASALLE STREET
SUITE C-800
CHICAGO, ILLINOIS 60601-3104
March 10, 1999 TEL: (312) 814-2859
FAX: (312) 814-1818
[Richard L. Mathias]
[Chairman]
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Ladies and Gentlemen:
We are writing to you with respect to Central Illinois Light Company
("CILCO") and its parent, CILCORP Inc., and the pending merger transaction
involving CILCORP Inc. and The AES Corporation.
We have been advised that The AES Corporation, through its
subsidiaries (other than CILCORP Inc. or subsidiaries of CILCORP Inc.),
affiliates, or through other entities, currently holds, and intends to continue
to hold and acquire, ownership interest in electric and natural gas facilities
in one or more foreign countries. We submit this letter pursuant to the
requirements of Section 33(a)(2) of the Public Utility Holding Company Act of
1935, as amended (the "Act").
A 1997 Illinois law implemented changes to historical utility
regulation. The law required all regulated electric utilities to reduce their
rates to residential consumers in 1998 and, subject to certain specified
exceptions, froze such electric rates until 2005. While neither the utilities
nor the Illinois Commerce Commission ("Commission") can change bundled electric
rates until 2005, the Commission retains jurisdiction to set rates for unbundled
delivery service. In addition, electric utilities are subject to other statutory
provisions that require a sharing of revenues with consumers if the utility
earns more than certain specified thresholds. However, the restructuring
legislation gave electric utilities great flexibility in writing down assets and
<PAGE>
Securities and Exchange Commission
Page 2
June 2, 1999
accelerating depreciation, so utilities may be able to avoid triggering the
over-earning threshold. Also, the legislation removed Commission authority over
the sale, lease or other transfer of assets to affiliated or unaffiliated
entities until January 1, 2005. Also, the Commission has jurisdiction over
electric and gas delivery system reliability. However, the Commission cannot
order a utility to construct additional generation. Finally, while the
Commission's authority to approve or disapprove some merger and reorganization
transactions has been suspended until 2005, regulated utilities are required to
provide the Commission with a 30-day advanced notice of any proposed
transaction, with supporting documentation, and to file certain reports
thereafter.
The Illinois Commerce Commission hereby certifies to you that we have
the authority and resources to protect Illinois consumers in accordance with the
Illinois statutes discussed in the previous paragraph. We intend to exercise
such authority.
Sincerely,
Illinois Commerce Commission
/s/ Richard L. Mathias
----------------------------------------
Richard L. Mathias
Chairman
cc: Mr. Edward J. Griffin, DeFrees & Fiske
Mr. Robert W. Wason, Security and Exchange Commission
<PAGE>
Exhibit K-19
AES Foreign Breakout
Gross Revenues
- --------------------------------------------------------------------------------
[Vertical Bar Chart]
X-axis (bottom of chart):
1996
1997
1998
1999
Y-axis (left side of chart): Percentages of AES Gross Revenues earned by AES's
foreign operations, on a GAAP basis, Proportional Consolidated basis, and a
Total Project basis (listed in increments of 10 percent between and including 0
and 100%)
[Bar Chart provides the below-listed percentages of AES gross revenues earned by
AES's foreign operations on a GAAP basis, Proportional Consolidated basis, and a
Total Project basis. GAAP percentages are reflected by violet bars, Proportional
Consolidated percentages are reflected by red bars, and Total Project
percentages are reflected by green bars]
Proportional Total
Year GAAP Consolidated Project
- ---- ---- ------------ -------
1996 33% 52% 83%
1997 58% 72% 90%
1998 76% 83% 93%
1999* 70% 78% 92%
* Assumes CILCORP operations for the last two months of 1999.
<PAGE>
Exhibit K-20
AES Foreign Breakout
Net Operating Revenues
- --------------------------------------------------------------------------------
[Vertical Bar Chart]
X-axis (bottom of chart):
1996
1997
1998
1999
Y-axis (left side of chart): Percentages of AES Net Operating Revenues earned by
AES's foreign operations, on a GAAP basis, Proportional Consolidated basis, and
a Total Project basis (listed in increments of 10 percent between and including
0 and 100%)
[Bar Chart provides the below-listed percentages of AES net operating revenues
earned by AES's foreign operations on a GAAP basis, Proportional Consolidated
basis, and a Total Project basis. GAAP percentages are reflected by violet bars,
Proportional Consolidated percentages are reflected by red bars, and Total
Project percentages are reflected by green bars]
Proportional Total
Year GAAP Consolidated Project
- ---- ---- ------------ -------
1996 32% 54% 86%
1997 55% 72% 92%
1998 77% 84% 94%
1999* 74% 82% 94%
* Assumes CILCORP operations for the last two months of 1999.
<PAGE>
Exhibit K-21
AES Foreign Breakout
Operating Income
- --------------------------------------------------------------------------------
[Vertical Bar Chart]
X-axis (bottom of chart):
1996
1997
1998
1999
Y-axis (left side of chart): Percentages of AES Operating Income earned by AES's
foreign operations, on a GAAP basis, Proportional Consolidated basis, and a
Total Project basis (listed in increments of 10 percent between and including 0
and 100%)
[Bar Chart provides the below-listed percentages of AES operating income earned
by AES's foreign operations on a GAAP basis, Proportional Consolidated basis,
and a Total Project basis. GAAP percentages are reflected by violet bars,
Proportional Consolidated percentages are reflected by red bars, and Total
Project percentages are reflected by green bars]
Proportional Total
Year GAAP Consolidated Project
- ---- ---- ------------ -------
1996 9% 32% 67%
1997 30% 58% 83%
1998 59% 70% 87%
1999* 53% 64% 88%
* Assumes CILCORP operations for the last two months of 1999.
<PAGE>
Exhibit K-22
AES Foreign Breakout
Assets
- --------------------------------------------------------------------------------
[Vertical Bar Chart]
X-axis (bottom of chart):
1996
1997
1998
1999
Y-axis (left side of chart): Percentages of AES Assets held by AES's foreign
operations, on a GAAP basis, Proportional Consolidated basis, and a Total
Project basis (listed in increments of 10 percent between and including 0 and
100%)
[Bar Chart provides the below-listed percentages of AES assets held by AES's
foreign operations on a GAAP basis, Proportional Consolidated basis, and a Total
Project basis. GAAP percentages are reflected by violet bars, Proportional
Consolidated percentages are reflected by red bars, and Total Project
percentages are reflected by green bars]
Proportional Total
Year GAAP Consolidated Project
- ---- ---- ------------ -------
1996 52% 52% 80%
1997 82% 77% 93%
1998 74% 73% 91%
1999*
* Numbers not available
<PAGE>
<TABLE>
<CAPTION>
Exhibit K-23
AES Foreign Breakout for Generation,
Power Plants and Distribution
- ------------------------------------------------------------------------------------------------------------------------------------
THE AES CORPORATION
- ------------------------------------------------------------------------------------------------------------------------------------
AES 1991 1992 1993 1994 1995 1996 1997 1998 6/30/99 12/31/99 2000
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GENERATION - IN OPERATION
Capacity (MW) 889 1,829 2,479 2,505 3,383 9,655 17,682 23,086 26,466 27,798 31,892
Foreign 0 760 1,410 1,436 2,314 8,586 16,613 18,061 20,017 20,017 24,111
Domestic 889 1,069 1,069 1,069 1,069 1,069 1,069 5,025 6,449 7,781 7,781
Percentage Foreign 0% 42% 57% 57% 68% 89% 94% 78% 76% 72% 76%
- ------------------------------------------------------------------------------------------------------------------------------------
AES Equity (MW) 864 1,401 1,850 1,863 2,221 6,429 9,697 14,596 17,618 18,950 21,251
Foreign 0 357 806 819 1,177 5,385 8,653 9,596 11,194 11,194 13,495
Domestic 864 1,044 1,044 1,044 1,044 1,044 1,044 5,000 6,424 7,756 7,756
Percentage Foreign 0% 25% 44% 44% 53% 84% 89% 66% 64% 59% 64%
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PLANTS - IN
OPERATION 5 8 9 10 15 26 75 85 96 101 107
---------------------
Foreign 0 2 3 4 9 20 69 76 81 81 87
Domestic 5 6 6 6 6 6 6 9 15 20 20
Percentage Foreign 0% 25% 33% 40% 60% 77% 92% 89% 84% 80% 81%
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTION COMPANIES
Number of Customers 0 0 0 0 0 2,700,000 8,197,000 12,982,000 13,622,000 13,874,800 13,874,800
Foreign 0 0 0 0 0 2,700,000 8,197,000 12,982,000 13,622,000 13,622,000 13,622,000
Domestic 0 0 0 0 0 0 0 0 0 252,800 252,800
Percentage Foreign 0% 0% 0% 0% 0% 100% 100% 100% 100% 98% 98%
- ------------------------------------------------------------------------------------------------------------------------------------
AES Equity 0 0 0 0 0 371,250 2,407,550 3,139,527 3,552,027 3,944,938 3,944,938
Foreign 0 0 0 0 0 371,250 2,407,550 3,139,527 3,552,027 3,692,138 3,692,138
Domestic 0 0 0 0 0 0 0 0 0 252,800 252,800
Percentage Foreign 0% 0% 0% 0% 0% 100% 100% 100% 100% 94% 94%
- ------------------------------------------------------------------------------------------------------------------------------------
GWH 0 0 0 0 0 19,981 64,686 102,036 106,890 113,042 113,042
Foreign 0 0 0 0 0 19,981 64,686 102,036 106,890 106,890 106,890
Domestic 0 0 0 0 0 0 0 0 0 6,152 6,152
Percentage Foreign 0% 0% 0% 0% 0% 100% 100% 100% 100% 95% 95%
- ------------------------------------------------------------------------------------------------------------------------------------
AES Equity GWH 0 0 0 0 0 2,747 19,808 24,950 27,927 35,170 35,170
Foreign 0 0 0 0 0 2,747 19,808 24,950 27,927 29,018 29,018
Domestic 0 0 0 0 0 0 0 0 0 6,152 6,152
Percentage Foreign 0% 0% 0% 0% 0% 100% 100% 100% 100% 83% 83%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Total AES MW
[Vertical Bar Chart]
X-axis (bottom of chart): Years 1991 through and including 2000.
Y-axis (left side of chart): Megawatt capacity of AES power plants (listed in
increments of 2,000 megawatts between and including 0 and 26,000 megawatts).
[Bar Chart lists two sets of data (i) megawatt capacity of foreign AES power
plants and (ii) megawatt capacity of domestic AES power plants. Foreign capacity
is represented by blue bars and domestic capacity is represented by yellow
bars.]
<TABLE>
<CAPTION>
Foreign Domestic
Year Capacity Capacity
---- -------- --------
(MW) (MW)
<S> <C> <C>
1991 0 889
1992 760 1,069
1993 1,410 1,069
1994 1,436 1,069
1995 2,314 1,069
1996 8,586 1,069
1997 16,613 1,069
1998 18,061 5,025
6/30/99 20,017 6,449
12/31/99 20,017 7,781
2000 24,111 7,781
</TABLE>
<PAGE>
AES Equity MW
[Vertical Bar Chart]
X-axis (bottom of chart): Years 1991 through and including 2000.
Y-axis (left side of chart): Megawatt capacity of AES power plants in terms of
AES equity in such plants (listed in increments of 1,000 megawatts between and
including 0 and 14,000 megawatts).
[Bar Chart lists two sets of data (i) megawatt capacity of foreign AES power
plants in terms of AES equity in such plants and (ii) megawatt capacity of
domestic AES power plants in terms of AES equity in such plants. Foreign
capacity is represented by blue bars and domestic capacity is represented by
yellow bars.]
<TABLE>
<CAPTION>
Foreign Domestic
Year Capacity Capacity
---- -------- --------
(MW) (MW)
<S> <C> <C>
1991 0 864
1992 357 1,044
1993 806 1,044
1994 819 1,044
1995 1,177 1,044
1996 5,385 1,044
1997 8,653 1,044
1998 9,596 5,000
6/30/99 11,194 6,424
12/31/99 11,194 7,756
2000 13,495 7,756
</TABLE>
<PAGE>
Total AES Plants
[Vertical Bar Chart]
X-axis (bottom of chart): Years 1991 through and including 2000.
Y-axis (left side of chart): Number of AES power plants (listed in increments of
5 plants between and including 0 and 90 plants).
[Bar Chart lists two sets of data (i) number of foreign AES power plants and
(ii) number of domestic AES power plants. The number of foreign power plants is
represented by blue bars and the number of domestic power plants is represented
by yellow bars.]
<TABLE>
<CAPTION>
Foreign Domestic
Year Plants Plants
---- -------- --------
<S> <C> <C>
1991 0 5
1992 2 6
1993 3 6
1994 4 6
1995 9 6
1996 20 6
1997 69 6
1998 76 9
6/30/99 81 15
12/31/99 81 20
2000 87 20
</TABLE>
<PAGE>
Total AES Distribution Customers
[Vertical Bar Chart]
X-axis (bottom of chart): Years 1996 through and including 2000.
Y-axis (left side of chart): Total AES distribution customers (listed in
increments of 1,000,000 customers between and including 0 and 14,000,000
customers).
[Bar Chart lists two sets of data (i) total foreign AES distribution customers
and (ii) total domestic AES distribution customers. The number of foreign
customers is represented by blue bars and the number of domestic customers is
represented by yellow bars.]
<TABLE>
<CAPTION>
Foreign Domestic
Year Customers Customers
---- --------- ---------
<S> <C> <C>
1996 2,700,000 0
1997 8,197,000 0
1998 12,982,000 0
6/30/99 13,622,000 0
12/31/99 13,622,000 252,800
2000 13,622,000 252,800
</TABLE>
<PAGE>
AES Equity Customers
[Vertical Bar Chart]
X-axis (bottom of chart): Years 1996 through and including 2000.
Y-axis (left side of chart): Total AES distribution customers on a net equity
basis (listed in increments of 200,000 customers between and including 0 and
3,800,000 customers).
[Bar Chart lists two sets of data (i) total foreign AES distribution customers
on a net equity basis and (ii) total domestic AES distribution customers on a
net equity basis. The number of foreign customers is represented by blue bars
and the number of domestic customers is represented by yellow bars.]
<TABLE>
<CAPTION>
Foreign Domestic
Year Customers Customers
---- --------- ---------
<S> <C> <C>
1996 371,250 0
1997 2,407,550 0
1998 3,139,527 0
6/30/99 3,552,027 0
12/31/99 3,692,138 252,800
2000 3,692,138 252,800
</TABLE>
<PAGE>
Total AES GWH
[Vertical Bar Chart]
X-axis (bottom of chart): Years 1996 through and including 2000.
Y-axis (left side of chart): Total AES gigawatt-hour sales (listed in increments
of 10,000 gigawatt-hours between and including 0 and 120,000 gigawatt-hours).
[Bar Chart lists two sets of data (i) gigawatt-hour sales of foreign AES
operations and (ii) gigawatt-hour sales of domestic AES operations. Foreign
sales are represented by blue bars and domestic sales are represented by yellow
bars.]
<TABLE>
<CAPTION>
Foreign Domestic
Year Sales Sales
---- ------- --------
(GWH) (GWH)
<S> <C> <C>
1996 19,981 0
1997 64,686 0
1998 102,036 0
6/30/99 106,890 0
12/31/99 106,890 6,152
2000 106,890 6,152
</TABLE>
<PAGE>
AES Equity GWH
[Vertical Bar Chart]
X-axis (bottom of chart): Years 1996 through and including 2000.
Y-axis (left side of chart): Total AES gigawatt-hour sales on a net equity basis
(listed in increments of 2,000 gigawatt-hours between and including 0 and 30,000
gigawatt-hours).
[Bar Chart lists two sets of data (i) gigawatt-hour sales of foreign AES
operations on a net equity basis and (ii) gigawatt-hour sales of domestic AES
operations on a net equity basis. Foreign sales are represented by blue bars and
domestic sales are represented by yellow bars.]
<TABLE>
<CAPTION>
Foreign Domestic
Year Sales Sales
---- ------- --------
(GWH) (GWH)
<S> <C> <C>
1996 2,747 0
1997 19,808 0
1998 24,950 0
6/30/99 27,927 0
12/31/99 29,018 6,152
2000 29,018 6,152
</TABLE>
