FILE NO. 70-______
June 5, 2000
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM U-1
APPLICATION FOR AN EXEMPTIVE ORDER UNDER SECTION 2(A)(7)
OF THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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The AES Corporation
1001 North 19th Street
Arlington, VA 22209
(Name of company filing this statement and address
of principal executive offices)
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William R. Luraschi
General Counsel and Secretary
The AES Corporation
1001 North 19th Street
Arlington, VA 22209
(Name and address of agent for service)
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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.
William C. Weeden
Skadden, Arps, Slate, Meagher & Flom L.L.P.
1440 New York Avenue, N.W.
Washington, D.C. 20005
Application For Exemptive Order Under Section 2(a)(7)
of the Public Utility Holding Company Act of 1935
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION
A. INTRODUCTION AND GENERAL REQUEST
The AES Corporation ("AES") hereby submits this application
to the Securities and Exchange Commission (the "Commission") for an order
under Section 2(a)(7) of the Public Utility Holding Company Act of 1935
(the "Act") declaring that, under the circumstances described in this
application, AES will not be a holding company under Section 2(a)(7) of the
Act with respect to Florida Public Utilities Co. ("FPU"), a Florida
corporation and a public utility company under the Act, even though for a
brief period it may technically own indirectly approximately 9.9 percent of
FPU's common stock. AES is a public utility holding company exempt from
registration under Section 3(a)(5) of the Act. It believes that it is
entitled to relief under Section 2(a)(7)(B) because under the circumstances
and pursuant to the self- imposed ownership limitations described below,
AES will not be able to exercise control over FPU, and thus during the
brief period in which it would own FPU common stock indirectly, such stock
should not be deemed to be "voting securities" under Section 2(a)(17) of
the Act. AES believes that the circumstances surrounding its acquisition of
an interest in FPU justify a finding that it would not be a holding company
under Section 2(a)(7) of the Act with respect to its proposed acquisition
of C.A. La Electricidad de Caracas ("EDC"), a Venezuelan electric utility
holding company, and Corporacion EDC, C.A. ("CEDC," and together with EDC,
the "Companies"), and a concomitant finding that it will not be an
affiliate of FPU. For this reason, the Commission should determine that
Section 9(a)(2) of the Act does not apply to its indirect acquisition of
FPU.1
AES has no interest in acquiring, or intention to acquire,
any interest in FPU. However, in an attempt to thwart AES's plan to acquire
an interest in the Companies, EDC acquired on June 2, 2000 9.9 percent of
FPU's common stock. EDC has stated in a press release that because of this
acquisition it believes that any person who already owns 5 percent or more
of a U.S. public utility company must obtain Commission approval before
acquiring 5 percent or more of EDC.
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1 The common stock of the Companies trade together as "stapled" shares and
cannot be traded separately.
EDC's acquisition of FPU common stock is thus by its own
admission simply a "poison pill" adopted merely to foil a legitimate
attempt by a company such as AES to acquire an interest in it. AES believes
that such an action is not a legitimate application of the Act, as it
attempts to exploit one part of the statute, Section 9(a)(2), to thwart the
wishes of Congress expressed in another part, Section 33. Moreover, in
order to eliminate any possibility that an acquisition by AES of an
indirect interest in FPU would in any way raise any issues relevant to the
Commission's administration of the Act or the evils the Act was intended to
prevent, AES commits that it will (i) refrain from voting any FPU common
stock in which it may obtain an interest by reason of its acquisition of
EDC, (ii) take any steps the Commission may require so that it exercises no
control whatsoever over FPU, including placing any common stock of FPU in
which it may have an interest in a voting trust or similar legal vehicle,
and (iii) sell any interest in FPU common stock on the open market to an
unaffiliated third party or parties as soon as possible after acquiring
that interest by reason of its acquisition of EDC, thus severing all links
with FPU that AES would unwillingly encounter in connection with its
acquisition of an interest in a foreign utility company, EDC. AES will
structure its actions so that at no time will it have any substantive
corporate relationship with FPU, and so that any suggestion of formal legal
connections between AES and FPU are severed at the earliest possible time.
In short, AES is committed to full compliance with the Act in the face of
an illegitimate attempt to thwart a business initiative on its part that
the Act specifically encourages.
B. DESCRIPTION OF THE PARTIES
1. INFORMATION CONCERNING AES
AES, incorporated in Delaware, is a public utility holding
company exempt from registration under Section 3(a)(5) of the Act. AES
Corporation, Holding Co. Act Release No. 27063 (August 20, 1999). It is a
United States-based multinational electric power generation and energy
distribution company, with 125 generation facilities in 16 countries and 17
distribution companies with operations in eight countries worldwide. It
owns all of the common stock of CILCORP, the parent of CILCO, an electric
and gas utility engaged in the generation, transmission, distribution, and
sale of electric energy, and the purchase, distribution, transportation and
retail sale of natural gas, in central and east-central Illinois. 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. AES also owns partial
interests (both majority and minority) in companies that distribute and
sell electricity directly to commercial, industrial, governmental, and
residential customers.
2. INFORMATION CONCERNING EDC
The information contained in this application concerning EDC
was obtained from public sources and AES has not independently verified
such information.
EDC is the largest privately owned electricity generation,
transmission and distribution company in Venezuela and one of the largest
companies in Venezuela. EDC provides electric service principally to
Caracas and its surrounding areas and is the largest private sector
electric utility in Venezuela. EDC is organized under the laws of
Venezuela, and its principal executive offices are located in Caracas,
Venezuela. CEDC was incorporated in 1996 as a holding company for
non-Venezuelan investments and for Venezuelan investments other than in
regulated electricity activities.
During the year ended December 31, 1999, EDC sold 9,798 GWh
of electricity to 1,131,552 customers. EDC's generation facilities have an
aggregate installed capacity at December 31, 1999 of 2,265 MW. During the
year ended December 31, 1999, EDC generated 7,163 GWh and purchased for
redistribution and sale to EDC's clients 4,384 GWh. EDC holds a 28%
interest in Empresa Engergia de Pacifico, S.A. ("EPSA") an electric utility
in Colombia. EDC has stated that it intends to transfer its interest in
EPSA to CEDC during the current year.
CEDC holds interests in companies dedicated to the
production and distribution of electricity, telecommunications and
distribution of natural gas. It also holds interests in electric utilities
located in El Salvador, Colombia and Venezuela. In December 1999, CEDC
indirectly acquired a 60% interest in Phoenix Internacional, C.A., a oil
industry services company. CEDC also holds an interest in S.A. Venezolana
Domestica de Gas ("DOMEGAS"), which is engaged in the distribution of
natural gas for domestic use in southeastern Caracas. CEDC also has
interests in companies that provide stock transfer, security, engineering
and property services in Venezuela. CEDC is organized under the laws of
Venezuela, and has its principal executive offices are located in Caracas.
3. INFORMATION CONCERNING FPU
The information contained in this application concerning FPU
was obtained from public sources and AES has not independently verified
such information.
FPU is a Florida public utility which provides natural and
propane gas service, electric service and water service in Florida. It is
comprised of four divisions, which serve customers in different regions of
the state. Two of the divisions, those serving West Palm Beach and the
Mid-Florida districts of Sanford and DeLand provide only natural gas and
propane service. The remaining two, which serve Marianna and Fernandina
Beach, provide only electric service.
The Company is comprised of the following four divisions and
number of customers as of December 31, 1999: (1) West Palm Beach, located
in southeast Florida, serves natural gas to 28,784 customers and propane
gas to 5,405 customers; (2) Mid-Florida, consisting of the Sanford and
DeLand districts, serves 9,622 natural gas distribution customers and 2,856
propane customers; (3) Marianna, located in the Florida panhandle, provides
electricity to 11,934 customers; and (4) Fernandina Beach, located in
extreme northeast Florida, serves 12,956 electric customers and 6,665 water
customers. The Company receives its total supply of natural gas at eleven
City Gate Stations connected to Florida Gas Transmission Company's (FGT)
pipeline system. It purchases most of its electrical power supply
requirements at wholesale rates from two nearby generating utilities, Gulf
Power Company and The Jacksonville Electric Authority.
FPU's properties consist primarily of distribution systems
and related facilities, i.e., electric transmission and distribution lines
and gas mains. The company's propane gas systems have bulk storage
facilities and tank installations on the customers' premises. Finally, FPU
has water properties consisting of deep wells, pumping equipment, water
treatment facilities and distribution systems.
B. DISCUSSION
1. STATUTORY FRAMEWORK
Section 9(a)(2) of the Act provides that it shall be
unlawful without prior Commission approval for any person that owns five
percent of the voting securities of a public utility company, i.e., that is
an affiliate of that company as that term is defined in Section 2(a)(11),
to acquire five percent or more of the voting securities of another public
utility company, i.e., to become an affiliate of a second public utility
company. Section 2(a)(17) of the Act defines a voting security as "any
security presently entitling the owner or holder thereof to vote in the
direction of the affairs of a company . . . ." Finally, under Section
2(a)(7)(B) of the Act, the Commission may, upon application, declare a
person not to be a holding company upon a finding that the person does not
directly or indirectly control a public utility company, is not an
intermediary through which such control is exercised, and does not exercise
such controlling influence over the management or policies of a public
utility company as to make it necessary or appropriate in light of policies
the Act was intended to promote to find that person to be a holding
company.
2. ANALYSIS
The Act states in Section 1 that it was intended to
eliminate certain evils caused by the use of holding company structures
within the public utility industry and to prevent those evils from
recurring. It does this through limiting the scope of holding company
systems, regulating their activities, and controlling utility acquisitions
that do not create holding companies, as defined in the Act, but result
rather only multiple affiliate relationships that could foster situations
which promote the evils the Act was designed to counter. The Act focuses on
practical realities and not on mere forms, as is demonstrated by the
considerable discretion the Act grants to the Commission both to forego its
application in situations where the form but not the substance of a
proscribed undertaking is present, and to enforce its requirements where
the substance but not the form is detected. In its origins and throughout
the course of its administration the Act's focus has been substantive, not
formalistic.
AES currently finds itself in a situation not of its
choosing in which a party is seeking to use the Act for purposes that have
nothing to do with its substance and intent, and which undermine policies
Congress has attempted to promote through the Act, especially through
amendments to the Act in the Energy Policy Act of 1992. EDC has on June 2,
2000 purchased 9.9 percent of the voting securities of FPU, at a 73 percent
premium to the closing price of the FPU common stock on the American Stock
Exchange on June 1, 2000. EDC has acquired those securities not on the
basis of any assessment of their investment value or because of plans to
gain control of the underlying utility assets of FPU. On the contrary, by
its own admission, as set forth it its press release of June 2, "EDC has
acquired the FPU shares for strategic purposes." EDC is furthermore quite
specific about its strategy. It intends to use the Act not for any purposes
which are consistent with its underlying policies, but purely as a
defensive corporate policy. In its own words:
Under the Public Utility Holding Company Act of 1935, FPU is
now an affiliate of EDC. Because of that affiliate
relationship EDC believes that, any person who already owns
5% or more of a United States public utility must obtain the
prior approval of the U.S. Securities and Exchange
Commission before acquiring 5% or more of EDC.
EDC's acquisition of FPU was made in the context of a
contest for control of EDC currently ongoing in Caracas, Venezuela and in
the United States. AES plans to acquire, at a minimum, approximately 45
percent of the shares of EDC. However, upon acquiring those shares AES
cannot gain control of EDC's board of directors until a meeting of the
shareholders of EDC is held, at which time AES would be able to elect new
board members. Under Article 9 of EDC's By-Laws, any shareholder owning
more than one-fifth of the shares of the company can require the directors
to call a special meeting of the shareholders. Once a meeting has been
requested, Article 278 of the Venezuelan Commercial Code requires that the
meeting must be called within 30 days. Under current circumstances, AES
expects that EDC management will attempt to postpone for as long as
possible a shareholder meeting that would allow AES to elect its
representatives to the EDC board of directors. Prior to such a meeting, AES
as a shareholder clearly does not have the opportunity to vote its shares
in a way that would allow it to participate in the affairs or management of
EDC, much less FPU. Given the extreme hostility that EDC management has
manifested toward AES, AES will have no opportunity to exercise any
influence whatsoever over EDC prior to any board meeting in which its
representatives participate. This situation would be unchanged even if AES
were to acquire 50 percent or more of the shares of EDC.
Immediately upon gaining control of the EDC board of
directors, AES will take all necessary steps to dispose of EDC's interest
in FPU. FPU shares are publicly traded on the American Stock Exchange, and
the new management at EDC will thus be in a position to dispose of the
shares it holds without delay. If for any reason EDC is prevented from
selling those shares immediately, AES will have in place steps to ensure
that the shares of FPU held by EDC are not voted and, if necessary, will be
placed in a voting trust or other legal device which prevents AES or EDC
exercising any control over FPU. AES will establish such a trust or other
legal device prior to exercising any control over EDC.
EDC's attempt to thwart AES's legitimate business objectives
through recourse to the Act, in particular a provision of the Act, Section
9(a)(2), which was intended to control the growth of holding company
systems, represents a use of the Act for an end that Congress never
intended, and, if effective, would discourage the kind of transactions that
Congress explicitly has authorized. Congress passed Section 33 of the Act,
which precludes foreign utility companies from being deemed public utility
companies under Section 2(a)(5), to facilitate investments by U.S.
companies in foreign utility operations. It would be highly anomalous if a
party were to be allowed to undermine that policy simply by purchasing a
small share of a U.S. utility and invoking another provision of the statute
with no relevance to the substance of the underlying transaction.
AES believes the Act provides ample basis to remedy this
situation and for the Commission to find that approval under Section
9(a)(2) is not necessary in connection with its acquisition of a
controlling interest in EDC. First of all, under the circumstances in which
AES will hold both EDC securities and, indirectly, FPU securities, those
securities should not be deemed to be voting securities. Under Section
2(a)(17) of the Act a voting security is "any security presently entitling
the owner or holder thereof to vote in the direction or management of the
affairs of the company . . . ." (emphasis added). The Commission has
concurred in the view that "[t]he two salient features of the definition of
a 'voting security' are (i) that it provides the owner or holder with the
present right to vote; and (ii) that such present right to vote may be
exercised in the direction or affairs of a company." Pinacle West Capital
Corporation, SEC No-Action Letter (Feb. 7, 1990). Prior to the time an EDC
shareholders meeting is convened, AES will have no opportunity, i.e., it
will not be presently entitled to vote any EDC securities it may hold or to
participate in the direction or management of the affairs of either EDC or
FPU.
The Commission on numerous occasions has found that
securities presently entitling their holder to influence decisions on
certain limited major transactions, and other matters deemed by the
Commission to be necessary or appropriate to protect a passive investment
interest, are not voting securities. See, e.g., Berkshire Hathaway Inc.,
SEC No-Action Letter (March 10, 2000); Western Resources, Inc., SEC
No-Action Letter (Nov. 24 1997). In practice, those securities give some
limited control over the management or affairs of a public utility company
in specific, clearly-defined circumstances. The position of AES prior to
any EDC shareholders meeting will be substantially less secure than that of
a holder of securities carrying certain investor protection rights. AES
will be entirely at the mercy of current, and hostile, EDC management and
fully expects that management will use every available opportunity to
subvert AES's interests. In short, during this period AES will have no
actual or effective influence or control over EDC or FPU.
Because it will not under these circumstances hold voting
securities as defined in the Act, AES maintains that in those circumstances
it also will not be a holding company under Section 2(a)(7)(A) of the Act.
Section 2(a)(7)(B) of the Act, empowers the Commission, upon application,
to declare a person not to be a holding company upon a finding that the
person does not directly or indirectly control a public utility company, is
not an intermediary through which such control is exercised, and does not
exercise such controlling influence over the management or policies of a
public utility company so as to make it necessary or appropriate in light
of policies the Act was intended to promote to find that person to be a
holding company. A party that makes a good faith filing under Section
2(a)(7)(B) is exempted from any obligation, duty, or liability imposed by
the Act until the Commission has acted on the application.
AES believes this application constitutes such a filing.
Upon acquiring an interest in EDC, but prior to any EDC shareholders'
meeting, AES will not in any practical or operative sense directly or
indirectly hold securities in EDC that give AES a present entitlement to
vote in the direction or management of the affairs of EDC. Under these
circumstances, AES cannot be deemed to be a holding company with respect to
EDC. The case of Kaneb Pipe Line Company, Holding Co. Act Release No.
16250, confirms this analysis on almost precisely the same facts. In that
case, Kaneb Pipe Line Company ("Kaneb"), acquired 19.48% of the common
stock of the Kansas- Nebraska Natural Gas Company ("K-N"), a public utility
company under the Act. Kaneb explicitly admitted its intention to force a
merger between Kaneb and K-N, but K-N's management had rejected any such
offers. Kaneb filed an application with the Commission under Section
2(a)(7) of the Act to be declared not a holding company despite the fact
that it owned more than 10 percent of K-N's outstanding voting securities.
K-N's management objected to Kaneb's filing of the application, arguing
that since Kaneb, against its wishes, was actually trying to gain control
over K-N, Kaneb was already attempting to exercise a controlling influence
and its application was made in bad faith. The Commission, however,
disagreed, noting that attempting to exercise a controlling influence
differs from actually being able to do so, and found that "the record shows
an absence of the business, financial or personal relationships between the
two managements that are often referred to as indicative of a controlling
influence, other than stock ownership." As a result, the Commission issued
an order granting Kaneb's application subject to certain conditions
designed to ensure that any controlling influence available to Kaneb did
not exceed an acceptable level.
Kaneb intended to remain involved in the operations of K-N.
In this case, however, AES intends to divest itself immediately of any
connection with the company that EDC appears to believe raise issues under
the Act, FPU. The Commission's holding in Kaneb should thus apply a
fortiori in this case, as once AES gains control of EDC, it will
immediately eliminate the source of any concern that could possibly arise
under the Act, namely EDC's interest in FPU.2
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2 Upon obtaining actual control of EDC and disposing of EDC's
interest in FPU, AES will file with the Commission a notice of
foreign utility company status with respect to EDC.
Moreover, if the absence of actual power to vote in the
management of EDC means that EDC is not a subsidiary of AES, as that term
is defined in the Act, FPU a fortiori would not be an affiliate of AES
under the Act. The relations existing between AES, EDC and FPU during the
period before AES is able to exercise any control over EDC or FPU -
relations which would arise because of unilateral action taken by EDC -
would not be of the type that concerned the Act's drafters because they do
not create a present opportunity to engage in any of the evils the Act was
intended to eliminate. At the first opportunity it has to exercise a right
to vote in the management and the affairs of EDC, AES intends to cause EDC
to dispose of that company's interest in FPU. The Commission should find
that Section 9(a)(2) jurisdiction does not attach under these
circumstances. The well-established "simultaneous merger" doctrine makes it
clear that the Commission focuses only on the end-result of various related
acquisition/merger transactions in assessing whether Section 9(a)(2) should
apply. See, e.g., Association of Massachusetts Consumers, Inc. v. SEC, 516
F.2d 711 (D.C. Cir. 1975), cert. denied, 423 U.S. 1052 (1976). Here it
would be wasteful and unnecessary (as well as harmful to the Act's
purposes) to impose Section 9(a)(2) jurisdiction, as AES will functionally
dispose of EDC's interest in FPU at the same time it acquires control over
EDC.
C. CONCLUSION
For the above-stated reasons, AES requests that the
Commission find that it entitled to the relief requested in this
Application.
ITEM 2. FEES, COMMISSIONS AND EXPENSES
Estimated Legal Fees and Expenses $ **
Estimated Miscellaneous Expenses $ **
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Total $ **
** To be filed by amendment.
ITEM 3. APPLICABLE STATUTORY PROVISIONS
Section 2(a)(7) is considered applicable to the proposed
relief.
To the extent that the proposed relief is considered by the
Commission to require authorization, exemption or approval under any
section of the Act or the rules and regulations other than that set forth
above, request for such authorization, exemption or approval is hereby
made.
ITEM 4. REGULATORY APPROVALS
No regulatory approvals, other than the relief requested in
this Application, is required in connection with the transactions described
in this Application.
ITEM 5. PROCEDURE
AES respectfully requests that the Commission issue and
publish not later than July 14, 2000, the requisite notice under Rule 23
with respect to the filing of this Application, such notice to specify a
date not later than August 8, 2000, by which comments may be entered and a
date not later than September 1, 2000, as a date after which an order of
the Commission granting this Application may be entered by the Commission.
The AES hereby (i) waive a recommended decision by a hearing
officer, (ii) waives a recommended decision by any other responsible
officer or the Commission, (iii) consents that the Division of Investment
Management may assist in the preparation of the Commission's decision and
(iv) waives a 30-day waiting period between the issuance of the
Commission's order and the date on which it is to become effective.
ITEM 6. EXHIBITS
H-1 Proposed Form of Notice
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
The transactions described in the Application will not
involve major federal action significantly affecting the quality of the
human environment as those terms are used in Section 102(2)(C) of the
National Environmental Policy Act, 42 U.S.C. Section 4321 et seq. ("NEPA").
First, no major federal action within the meaning of NEPA is involved
Second, consummation of the transactions will not result in changes in the
operations of any of the companies mentioned in this Application that would
have any significant impact on the environment. To AES's knowledge, no
federal agency is preparing an environmental impact statement with respect
to this matter.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the undersigned Applicant has duly caused this
pre-effective Amendment No. 1 to its Application/Declaration on Form U-1 to
be signed on its behalf by the undersigned thereunto duly authorized.
THE AES CORPORATION:
By: /s/ Paul Hanrahan
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Name: Paul Hanrahan
Title: Senior Vice President
Date: June 5, 2000
