DIRECT DIAL
(202) 371-7878
DIRECT FAX
(202) 371-7939
EMAIL ADDRESS
[email protected]
November 14, 2000
David P. Boergers
Secretary
Federal Energy Regulatory Commission
888 First Street, N.E.
Washington, D.C. 20426
Re: The AES Corporation and IPALCO Enterprises, Inc.
Docket No. EC01- -000
------------------------------------------------
Dear Mr. Boergers:
Pursuant to section 203 of the Federal Power Act ("FPA"), 16
U.S.C. section 824b (1994 and Supp. 1997), and Part 33 of the Commission's
regulations, 18 C.F.R. Part 33 (2000), The AES Corporation ("AES") and
IPALCO Enterprises, Inc. ("IPALCO") on behalf of their respective
FPA-jurisdictional subsidiaries (collectively, "Applicants") hereby apply
for all approvals necessary to consummate AES's acquisition of IPALCO.
Applicants respectfully request that the Commission approve the proposed
transaction by February 15, 2001.
The Application consists of one volume and contains the
affidavit of Dr. William H. Hieronymus of PA Consulting Group ("PA"). In
addition, the work papers for Dr. Hieronymus are contained on a CD-ROM.
Also included is a CD-ROM containing Competitive Analysis Screening model
("CASm"), a proprietary computer model used by Dr. Hieronymus to conduct
his competitive analysis. Applicants request confidential treatment
pursuant to 18 C.F.R. section 388.112 for the CASm model. Intervenors in this
proceeding may obtain a copy of the CASm model after entering into a
confidentiality agreement with PA, which is attached to this transmittal
letter. Finally, a diskette containing the form of notice is enclosed.
Sincerely,
Mary Margaret Farren
Enclosures
Confidentiality Agreement
This Confidentiality Agreement is dated __________________
WHEREAS PA Consulting Group ("PA") has developed the Competitive Analysis
Screening model ("CASm") for the specific purpose of performing analyses
related to Appendix A of the FERC Merger Policy Statement, Order No. 592;
WHEREAS CASm is confidential and valuable proprietary property of PA, and
is considered to be a trade secret; WHEREAS in connection with the
application of The AES Corporation and IPALCO Enterprises, Inc.
("Applicants") (before the Federal Energy Regulatory Commission, Docket No.
EC01-__-000) (the "Application"), ____________________________ requires
disclosure of CASm (the "Confidential Information") to certain of its staff
and to outside technical experts (collectively, the "Recipients"), and
agrees that such disclosure will be subject to the terms and conditions set
forth in this Confidentiality Agreement; and
WHEREAS, in consideration of the disclosure of CASm, the undersigned
Recipient is willing to keep the Confidential Information confidential in
accordance with the terms and conditions set forth in this Agreement.
NOW, THEREFORE, PA and the undersigned Recipient hereby agree as follows:
1. CONFIDENTIALITY. The Recipient agrees to hold CASm in strict
confidence, not to disclose, distribute or disseminate it in any way to
any third party who has not already signed a copy of this Agreement,
and not to use CASm for its own benefit or the benefit of others,
except in connection with the consideration of the Application as
expressly authorized in this Agreement. This Agreement does not extend
to the results of runs performed by Recipient using CASm. In order to
comply with this obligation, the Recipient further agrees to make only
two copies of CASm, and to restrict the access to CASm to only those
persons who have a need to know and who specifically agree in writing
to the terms of this Agreement. The obligations set forth herein do not
apply to information which is (1) publicly known or becomes publicly
known through no fault or unauthorized act of the Recipient, (2)
received from a third party not bound to secrecy to PA, or (3)
independently developed by the Recipient without use of PA's
proprietary property so long as such independent development can be
clearly documented and verified.
2. RETURN OF CASM. Upon completion of its review of the Application, the
Recipient agrees to return all copies of CASm it received or made, and
any and all derivatives thereof, to PA. Nothing in this Agreement shall
require the Recipient to return to PA any of the runs performed by
Recipient using CASm.
3. NO FURTHER RIGHTS. Nothing contained in this Agreement shall be construed
as granting or conferring any rights by license or otherwise in CASm,
except as expressly provided herein.
4. INJUNCTIVE RELIEF. The Recipient acknowledges and agrees that CASm is the
confidential, proprietary property of PA, and that the unauthorized use
or disclosure of CASm could cause irreparable harm and significant
injury to PA for which PA would have no adequate remedy at law.
Therefore, PA shall have the right, in addition to any other rights PA
may have at law or in equity, to seek immediate injunctive relief
enjoining any breach or potential breach of this Agreement by the
Recipient. The Recipient hereby waives the necessity of posting any
form of bond relating to the issuance of injunctive relief.
5. NO MODIFICATIONS. This Agreement may only be modified by a written
document executed by authorized representatives of the parties.
6. OTHER AGREEMENTS. Nothing in this Agreement provides for the disclosure
of information that Applicants contend is privileged and confidential.
To the extent that the disclosure of CASm-related data files includes
the disclosure of Applicants' privileged or confidential information,
the Recipients must obtain all necessary approvals for the disclosure
of such information from the Applicants prior to PA's disclosure of
CASm-related data files.
IN WITNESS WHEREOF, PA and the undersigned Recipient have each caused this
Agreement to be signed and delivered as of the date first set forth above.
PA CONSULTING GROUP THE RECIPIENT
By:_____________________________ By:________________________________
Name:__________________________ Name:______________________________
Title:____________________________ Title:_______________________________
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
THE AES CORPORATION ) DOCKET NO. EC01-___-000
IPALCO ENTERPRISES, INC. )
APPLICATION FOR AUTHORIZATION
UNDER SECTION 203 OF THE FEDERAL POWER ACT
FOR DISPOSITION OF JURISDICTIONAL FACILITIES
J. A. Bouknight, Jr. Mike Naeve
Gary A. Morgans Mary Margaret Farren
Steptoe & Johnson, LLP Skadden, Arps, Slate, Meagher
1330 Connecticut Avenue, N.W. & Flom LLP
Washington, D.C. 20036-1795 1440 New York Avenue, N.W.
(202) 429-6222 Washington, D.C. 20005-2111
(202) 429-3902 (fax) (202) 371-7070
[email protected] (202) 371-7939 (fax)
[email protected] [email protected]
[email protected]
Counsel for IPALCO Counsel for AES
Bryan G. Tabler William R. Luraschi
Marline R. Breece Robert A. Venerus
IPALCO Enterprises, Inc. The AES Corporation
One Monument Circle 1001 N. 19th Street, 20th Floor
Indianapolis, IN 46204 Arlington, VA 22209
(317) 261-5134 (703) 522-1315
(317) 261-8288 (fax) (703) 528-4510 (fax)
[email protected]
[email protected]
TABLE OF CONTENTS
I. INTRODUCTION..........................................................2
II. DESCRIPTION OF APPLICANTS.............................................4
A. AES.............................................................4
B. IPALCO..........................................................7
III. DESCRIPTION OF THE PROPOSED TRANSACTION...............................9
IV. THE PROPOSED TRANSACTION IS CONSISTENT WITH THE PUBLIC
INTEREST.............................................................11
A. The Transaction Will Have No Adverse Effect On Competition.....11
B. The Transaction Will Have No Adverse Effect On Rates...........22
C. The Transaction Will Have No Adverse Effect On Regulation......23
V. INFORMATION REQUIRED BY 18 C.F.R. section 33.2.......................24
VI. EXHIBITS REQUIRED BY 18 C.F.R. section 33.3..........................28
VII. REQUEST FOR EXPEDITED CONSIDERATION..................................32
VIII. CONCLUSION...........................................................33
Attachments & Exhibits
Attachment 1: Affidavit of William Hieronymus and Exhibits
Attachment 2: AES Affiliates and Subsidiaries (other than CILCO)
Attachment 3: Form of Notice
Exhibit B: Statement of Measure of Control
Exhibit H: Agreement and Plan of Share Exchange
Exhibit I: Maps
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
THE AES CORPORATION ) DOCKET NO. EC01-___-000
IPALCO ENTERPRISES, INC. )
JOINT APPLICATION FOR AUTHORIZATION
UNDER SECTION 203 OF THE FEDERAL POWER ACT
FOR DISPOSITION OF JURISDICTIONAL FACILITIES
Pursuant to section 203 of the Federal Power Act ("FPA"), 16
U.S.C. section 824b (1994 and Supp. 1997), and Part 33 of the Commission's
regulations, 18 C.F.R. Part 33 (2000), The AES Corporation ("AES") and
IPALCO Enterprises, Inc. ("IPALCO") on behalf of their respective
FPA-jurisdictional subsidiaries (collectively, "Applicants") hereby apply
for all approvals necessary to consummate AES's acquisition of IPALCO.(1)
Applicants respectfully request that the Commission approve the proposed
transaction by February 15, 2001.
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(1) Each Applicant owns one traditional utility subsidiary; AES owns Central
Illinois Light Company ("CILCO") and IPALCO owns Indianapolis Power & Light
Company ("IPL"). In addition, as described in Section II, both Appli cants
own entities authorized by the Commission to make wholesale sales of power
at market-based rates.
I. INTRODUCTION
IPALCO and AES have agreed to a share exchange under which
IPALCO will become a wholly-owned subsidiary of AES. Under the agreement,
each outstanding share of IPALCO's common stock will be converted into the
right to receive shares of AES common stock with a market value of $25.00
per share (subject to adjustment as described below). As a result of this
transaction, IPALCO's and AES's traditional public utility subsidiaries,
CILCO and IPL, will become affiliated. A description of the Applicants is
set forth in Section II below, and a more detailed description of the
transaction is set forth in Section III below.
The Commission considers three factors in evaluating proposed
mergers and other dispositions under FPA section 203: the proposed
transaction's effect on (i) competition, (ii) rates and (iii) regulation.(2)
As detailed in Section IV below, the proposed transaction easily satisfies
the Commission's section 203 review criteria, and the Commission should
find that the transaction is in the public interest.
The affidavit of William H. Hieronymus, attached as Attachment
1, demonstrates that the transaction will have no adverse effect on
competition in any relevant market. Dr. Hieronymus found that in every
destination market studied, the transaction did not result in any violation
of the thresholds used by the Commission to determine whether further
analysis is necessary. Similarly, Dr. Hieronymus concluded that the
transaction will have no adverse effect on vertical market power related to
control over transmission facilities.(3) Dr. Hieronymus also determined that
no other vertical market power concerns are present. The transaction also
will have no adverse effect on rates because IPL's only wholesale
requirements customer, Wabash Valley Power Association ("Wabash"), and
CILCO's only wholesale requirements customer, the Village of Riverton,
Illinois ("Riverton"), are subject to fixed rate contracts. Regarding
transmission rates, Applicants are committing to not seek to include in
their respective transmission revenue requirements any transaction-related
transmission costs that are not fully offset by transaction-related
transmission savings.
Finally, the transaction will not lead to the formation of a
registered public utility holding company and, consequently, will not alter
the effectiveness of state or federal regulation over Applicants. IPL and
CILCO will continue to be subject to the same state and FERC jurisdiction
as they are now. For the foregoingreasons, and as further explained below,
the transaction is in the public interest and should be approved
expeditiously without a formal hearing.(4)
---------------
(2) Inquiry Concerning the Commission's Merger Policy Under the Federal Power
Act; Policy Statement, Order No. 592, 61 Fed. Reg. 68,595 (Dec. 30, 1996),
III FERC Stats. & Regs. paragraph 31,044 (1996), recons. denied, 79 FERC
paragraph 61,321 (1997) (codified at 18 C.F.R. section 2.26) ("Merger
Policy Statement").
(3) As discussed below in Section IV.A.2, CILCO is a member of the Midwest
Independent System Operator ("MISO"), and AES commits that IPL, as an AES
subsidiary, will join a Regional Transmission Organization ("RTO") as a
condition of the transaction if necessary to avoid an evidentiary hearing.
(4) In support of their request, Applicants are submitting this Application,
including the statements and exhibits required under Part 33 of the Commis
sion's regulations, and the direct testimony and work papers of Dr.
Hieronymus of PA Consulting Group ("PA"), supporting Applicants' Appen dix
A screen analysis. Applicants also are submitting electronically the data
required by Appendix B of the Merger Policy Statement. The data inputs used
in Dr. Hieronymus' testimony and his supporting work papers are contained
in a CD-ROM format enclosed with this Joint Application. Parties desiring
to receive a copy of this CD-ROM should contact counsel for Applicants. A
second CD-ROM containing PA's CASm model, which is proprietary, is being
filed with the Commission pursuant to 18 C.F.R. section 388.112. Applicants
request privileged treatment for this second CD-ROM. Intervenors in this
proceeding may obtain a copy of the CASm model after entering into a
confidentiality agreement with PA, which is attached to the transmittal
letter accompanying this filing.
II. DESCRIPTION OF APPLICANTS
A. AES
AES, a Delaware corporation, is a public utility holding
company exempt from registration under the Public Utility Holding Company
Act of 1935 ("PUHCA") by reason of Section 3(a)(5) of PUHCA.(5) AES is a
United States-based multinational electric power generation and
distribution company with operations in 20 countries worldwide. It is
engaged principally in the development, ownership and operation of electric
generating plants and electric distribution companies, and owns or operates
more than 49,000 MW of electric generation world-wide. A description
of AES's domestic generation facilities and power marketing activities is
set forth in Attachment 2. Other activities include the sale of steam and
other commodities related to the company's generation operations, as well
as operating, construction and project development services and gas and
power marketing.
AES recently acquired CILCORP, Inc. ("CILCORP"), the parent company of CILCO.
CILCO is a combination gas and electric company organized in the state of
Illinois. CILCO is a "public utility" within the meaning of FPA Section 201
(e), 16 U.S.C. section 824(e). Its principal place of business is 300
Liberty Street, Peoria, Illinois 61602.(6) CILCO's parent, CILCORP, was
acquired last year by AES, making CILCO a wholly-owned indirect subsidiary
of AES.(7)
---------------
(5) 15 U.S.C. section 79c(a)(5). See The AES Corporation, SEC Rel. No. 35-27063
(1999).
(6) In addition to its ownership interest in CILCO, CILCORP, through subsidiar
ies, holds two non-operating investments in electric generating facilities:
(1) Springerville Unit 1. CILCORP Lease Management Inc. ("CLM") owns a
7.4257% undivided interest in Springerville Unit 1, a 380-MW coal-fired
power plant located in Springerville, Arizona. The plant is operated by
Tucson Electric Power ("TEP") and is leased to TEP under a long-term
leveraged lease. The lease expires in 2015. CLM is a wholly-owned subsid
iary of CILCORP Investment Inc. ("CIM"), which, in turn, is a wholly-owned
subsidiary of CILCORP Inc. CLM has no involvement in the operation of
Springerville Unit 1; (2) Energy Investors Fund, L.P. CIM Energy Invest
ments Inc., a wholly-owned subsidiary of CIM, owns a 3.13% limited
partnership interest in Energy Investors Fund, L.P. (the "Fund"). The Fund
holds interests in 18 independent power projects. CIM Energy, as a limited
partner, has no operating control of the Fund or of the Fund's investments.
All of these interests are passive investments.
(7) Central Illinois Light Co. and The AES Corporation, 87 FERC paragraph
61,293 (1999).
CILCO provides retail electric service to approximately 193,000
customers in central and east central Illinois and provides retail gas
service to approximately 202,000 customers in central and east central
Illinois. CILCO distributes electricity in Peoria, Pekin and Lincoln,
Illinois, and provides natural gas distribution service in Peoria, Pekin
and Springfield, Illinois and numerous other communities in central and
east central Illinois. CILCO's natural gas service is exempt from the
Commission's jurisdiction under the Hinshaw Amendment to the Natural Gas
Act. The Illinois Commerce Commission ("ICC") has jurisdiction over the
rates, terms and conditions of the retail electric and gas service provided
by CILCO. CILCO also provides wholesale electric sales service pursuant to
cost- based(8) and market-based(9) tariffs on file with the Commission.(10)
CILCO owns about 1,210 MW of generation. CILCO owns
approximately 350 miles of 345-kV, 138-kV and 34.5-kV lines which are
functionalized as transmission facilities. CILCO is part of the
Mid-American Interconnected Network ("MAIN") and is a member of the Midwest
Independent Transmission System Operator, Inc. ("MISO").
---------------
(8) CILCO's cost-based tariff was approved by the Commission's unpublished
letter order issued April 25, 1995, in Docket No. ER95-602-000.
(9) CILCO's market-based tariff was approved by the Commission's order in
Docket No. ER98-2440-000 issued on June 2, 1998. Central Illinois Light
Co., 83 FERC paragraph 61,252 (1998).
(10) CILCO provides full requirements sales service to one customer, the Village
of Riverton, Illinois, pursuant to a contract approved in Docket No. ER96-
1365-000. CILCO provides open access transmission service under a tariff
which was approved by the Commission in Docket Nos. OA96-36-000 and
OA97-612-000.
B. IPALCO
IPALCO, an Indiana corporation, is a public utility holding
company exempt from registration under PUHCA by reason of Section 3(a)(1)
of that Act. IPALCO has two principal wholly-owned subsidiaries, IPL and
Mid-America Capital Resources, Inc.
IPL operates as an integrated electric utility primarily
engaged in the generation, transmission and distribution of reliable and
economical electric power to more than 430,000 retail customers in
metropolitan Indianapolis and portions of other central Indiana communities
in surrounding counties. IPL owns three primarily coal-fired electric
generating stations with total net generating capacity of 2,957 MW, one
gas-fired peaking plant with a net generating capability of 79 MW, and one
steam generating plant with a net generating capability of 19 MW.(11) IPL's
electric transmission system consists of 345 kV, 138 kV and 34.5 kV lines
designed and constructed to transfer IPL's generation to serve retail load.
A map of IPL's transmission system is attached as Exhibit I. IPL's open
access transmission tariff has been accepted for filing by FERC.(12) IPL
operates its transmission system as a control area within the East Central
Area Reliability Council, and is a party to ECAR's Inadvertent Settlement
Tariff.(13) IPL engages in transactions in wholesale markets for the purposes
of maintaining overall system reliability and minimizing the cost of
electric service to its own retail customers. IPL has received FERC
authorization to make wholesale sales of electric energy at market-based
rates.(14) IPL also owns and operates a district steam service system in
downtown Indianapolis, which, in addition to IPL's steam generating plant,
IPL has contracted to sell to Citizens.
Mid-America Capital Resources, Inc., the holding company for
IPALCO's unregulated subsidiaries, was created in April 1984. After a
two-year venture in cablevision, Mid-America launched district cooling
systems which provide chilled water for air-conditioning services in
Indianapolis and Cleveland. A Mid-America subsidiary also produces and
distributes steam in Cleveland. Mid- America owns no electric generation or
transmission facilities, and is not engaged in the electric energy
business.
---------------
(11) The steam generating plant is the Perry K Steam Plant, which is being sold
to the Board of Directors for Utilities of the Department of Public
Utilities of the City of Indianapolis, as trustee of public charitable
trust, d/b/a Citizens Gas & Coke Utility ("Citizens"). The Commission
approved IPL's transfer of jurisdictional facilities to Citizens by order
issued September 26, 2000. Indianapolis Power & Light Co., 92 FERC
paragraph 62,257 (2000). Upon consum mation of IPL's sale of Perry K to
Citizens, IPL will purchase the generation under a five-year contract. The
Perry K generation is included in Dr. Hieronymus' analysis as an IPL
facility.
(12) Indianapolis Power & Light Co., 90 FERC paragraph 61,180 (2000), settlement
approved, 92 FERC paragraph 61,236 (2000).
(13) East Central Area Reliability Council, 91 FERC paragraph 61,197 (2000).
(14) Id.
III. DESCRIPTION OF THE PROPOSED TRANSACTION
On July 15, 2000, IPALCO and AES entered into an Agreement and
Plan of Share Exchange (the "Share Exchange Agreement") whereby AES will
acquire IPALCO for $25.00 per share in a stock-for-stock transaction valued
at approximately $2.15 billion plus the assumption of approximately $890
million of debt and preferred stock. As a result of the transaction, IPL
will become affiliated with AES's public utility subsidiaries, including
CILCO.(15)
Under the terms of the Share Exchange Agreement, upon closing,
each share of IPALCO common stock will be exchanged for a number of AES
shares such that IPALCO shareholders will receive a fixed value of $25.00
per IPALCO share, subject to adjustment as described below. The final
exchange ratio will be determined five business days prior to closing,
based upon the average daily closing prices of AES common stock for the
preceding twenty trading days, and is capped at 0.794 AES shares per IPALCO
share, subject to adjustment as described below. If the effective price at
the closing per IPALCO share would be less than $21, IPALCO has the right
to terminate the transaction. The transaction is expected to be tax free
to IPALCO shareholders. Upon closing, IPALCO will become a wholly-owned
subsidiary of AES with its headquarters remaining in Indianapolis.
The transaction is subject to certain conditions, including
receipt of the approval of IPALCO shareholders and receipt of the
regulatory approval of the Commission and the Securities and Exchange
Commission ("SEC"),(16) and expiration or termination of the applicable
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (as amended). AES also must obtain a certification from the Indiana
Utility Regulatory Commission pursuant to Section 33 of PUHCA relating to
its investments in foreign utility companies.(17) The parties anticipate
receiving regulatory approvals and closing the transaction by early 2001.
If the closing of the transaction is delayed beyond March 31, 2001, because
of delay in receiving SEC regulatory approvals, and all other conditions
are satisfied, the $25.00 purchase price per IPALCO share will be increased
by $0.15 plus a daily increase equal to $0.375 per calendar quarter.
---------------
(15) IPALCO shareholders voted on October 20, 2000 in favor of this transaction.
(16) AES also has committed, if required by the SEC as a condition to issuance
of the requisite orders, to enter into an agreement with an unaffiliated
person within three years of completion of the transaction to divest all
assets of CILCO subject to SEC jurisdiction. See The AES Corporation, Form
U-1 Application, SEC File No. 70-9779, filed Oct. 27, 2000, at 3, 12.
(17) The Indiana Utility Regulatory Commission provided this certification by
letter dated September 28, 2000.
IV. THE PROPOSED TRANSACTION IS CONSISTENT WITH THE PUBLIC INTEREST
The Commission's Merger Policy Statement provides that it will
consider the effects of potential mergers on competition, rates, and
regulation.
A. THE TRANSACTION WILL HAVE NO ADVERSE EFFECT ON COMPETITION
As summarized below and explained fully in Dr. Hieronymus'
testimony, the analysis demonstrates that the proposed transaction will
have no adverse effect on competition. In reaching this conclusion, Dr.
Hieronymus applied the thresholds adopted by the antitrust agencies and
FERC. If these thresholds are not exceeded, it is generally concluded that
the transaction will not adversely impact competition and that no further
review of the transaction is necessary. Here, Dr. Hieronymus found no
violation of the thresholds in any market or time period. To test the
robustness of this result, Dr. Hieronymus conducted a number of
sensitivities and found that the results basically are unchanged,
suggesting that the conclusions are valid under different assumptions
regarding data inputs and market structure.
Dr. Hieronymus analyzed the competitive effects of the proposed
transaction by following the approach outlined by FERC in the Merger Policy
Statement and Appendix A. There, the Commission stated that it has adopted
the Department of Justice/Federal Trade Commission ("DOJ/FTC") Horizontal
Acquisition Guidelines ("Guidelines") as the appropriate analytical
framework for evaluating the effects of an acquisition on competition. Dr.
Hieronymus, therefore, also has drawn on his understanding of the
Guidelines in performing his analysis. Dr. Hieronymus utilized PA's
Competitive Analysis Screening model ("CASm") to perform his analysis,
which implements the delivered price test and other calculations required
in Appendix A.
The primary focus of Dr. Hieronymus' testimony is the potential
horizontal market power effects arising from the combination of Applicants'
electric generating assets. He examines whether the transaction could
result in creating or enhancing Applicants' ability to increase prices in
the electricity market. Dr. Hieronymus also evaluated potential vertical
market power concerns between the electric generation and transmission
stages of production.
1. HORIZONTAL MARKET POWER
a. PRODUCT MARKETS AND TIME PERIODS
The first step in the Commission's analysis is to identify one
or more products sold by the combining entities. Consistent with prior
cases and Commission policies, Dr. Hieronymus concluded that the product
markets relevant to the analysis of competition in this case included a
single market for non-firm energy and short term capacity, which was
evaluated with respect to economic capacity and available economic capacity
over a broad range of prices. Dr. Hieronymus concluded that long-term
capacity need not be analyzed as a separate product, because he finds no
barriers to entry in the long-term capacity market and that Applicants
could not erect any barriers to such entry.
Dr. Hieronymus examined 11 time periods for both the economic
capacity and available economic capacity measures; the periods were
selected to reflect a broad range of system conditions. These time periods
include: three summer super-peak periods, super-peak periods for the winter
and shoulder seasons, and on-peak and off-peak periods for the summer,
winter and shoulder seasons. Each of these markets is distinguished based
upon season and market price. Dr. Hieronymus evaluated conditions assuming
destination market prices ranging from $15/MWh in the winter and shoulder
off-peak periods to $100/MWh in the summer highest peak period. This broad
range of prices and time periods should be reflective of a sufficient range
of system conditions, thus capturing a full picture of the transaction's
effect on competition.
b. DESTINATION MARKETS
To examine geographic markets, the Commission traditionally has
focused on those electric customers that are directly connected to
Applicants (or the utility system where Applicants' generating resources
are located). Each utility (or grouping of utilities in a holding company
or regional transmission organization with "non-pancaked" transmission
rates) that is directly interconnected to Applicants' system is considered
a separate "destination market" for which pre- and post- transaction market
concentration levels are computed. Additionally, the Commission has
indicated that indirectly connected utilities who historically (within two
years)have been customers of Applicants also are potential "destination
markets." Merger Policy Statement at 30,130.
Dr. Hieronymus analyzed ten destination markets that
potentially could be affected by the transaction: CILCO (including
CILCO-TDU); Ameren, Commonwealth Edison ("ComEd"), Illinois Power ("IP")
and Springfield, Illinois City Water Power & Light ("CWLP") (all of which
are first-tier utilities of CILCO); IPL (including IPL-TDU); and American
Electric Power ("AEP"), Cinergy, Hoosier Energy Rural Electric Cooperative
("Hoosier") and Southern Indiana Gas & Electric ("SIGE"). The two other
utilities with which IPL is interconnected, Indiana Municipal Power Agency
("IMPA"), and Wabash Valley Power Association ("Wabash"), were included as
part of the Cinergy-TDU node. Based on a review of Applicants' sales during
1998 and 1999, Dr. Hieronymus found no other potential destination markets
in which Applicants made more than de minimis sales.
c. RESULTS OF HORIZONTAL ANALYSIS
(1) ECONOMIC CAPACITY
Dr. Hieronymus analyzed the competitive impact of combining the
generation resources (owned or controlled) of AES/CILCO and IPL. Again,
CILCO owns about 1,210 MW of generation and IPL owns about 3,055 MW of
generation. Dr. Hieronymus also attributed to Applicants any generation
purchased pursuant to long-term contract. Also included in Dr. Hieronymus'
analysis is about 4,500 MW of additional capacity owned by AES either in
operation or planned to be operating within the next few years in the
Eastern Interconnection. Nearly all that capacity is located in New
England, New York, PJM, California, Ontario and SPP and is too remote from
the relevant markets in this instance to be a significant factor in the
market power analysis. As noted in Attachment 2, most of the output from
these AES units is committed to third parties under long-term contracts.
However, as a conservative assumption, Dr. Hieronymus has attributed all of
the capacity from these units to AES in his analysis. This conservative
treatment was done principally to avoid the Commission having to review the
specific long-term contracts.
CILCO is modeled as a member of the MISO. Dr. Hieronymus
modeled the competitive impacts of the merger under several different
assumptions regarding IPL's RTO membership. In the base case (Exhibit
WHH-2), IPL is assumed not to be a member of any RTO. Dr. Hieronymus
evaluated the impact of IPL joining the MISO or the Alliance RTO in two
ways. First, he assumed IPL was a member of the relevant RTO based on
existing RTO membership lists. See Exhibits WHH-4 (IPL joining MISO) and
WHH-5 (IPL joining Alliance). Second, Dr. Hieronymus performed the same
analysis, except that he assumed that Illinois Power and Commonwealth
Edison switched from the MISO to the Alliance RTO. See Exhibits WHH-5 (IPL
joining MISO) and WHH-6 (IPL joining Alliance).(18)
---------------
(18) Illinois Power and Commonwealth Edison recently announced their intention
to switch to the Alliance RTO. Dr. Hieronymus explains that he did not
include Ameren as a member of the Alliance RTO, despite its recently-
announced intention to join the Alliance RTO, because the resulting RTO
configuration would not appear to be sustainable. While the final RTO
configurations in the region are unclear at this time, Dr. Hieronymus
believes that the sensitivity analyses he conducted provide indicators of
the impact of the transaction under a broad range of alternative RTO
configurations.
The results for the base case analysis (IPL not a member of an
RTO), show that the largest HHI changes are 14 in the concentrated CILCO
market and 11 in the concentrated IPL market. These HHI changes are well
below the safe-harbor threshold of 50. The impact of the transaction on
other destination markets is de minimis in all time periods studied; the
highest HHI change is 4.
Dr. Hieronymus explains that these results are not surprising
given the relatively small size of the Applicants and their historical lack
of interaction. CILCO owns or controls 1,210 MW, while there are about
58,000 MW in the MAIN NERC region. IPALCO owns 3,055 MW, while there are
about 110,000 MW in the ECAR NERC region. Thus, the combined company will
own less than three percent of the combined capacity of the two NERC
regions (ECAR and MAIN) to which they belong.
As described above, Dr. Hieronymus conducted four RTO
sensitivity analyses and found that these differing RTO assumptions did not
significantly change the results of his base case analysis. See Exhibits
WHH-4, 5, 6, and 7.
Dr. Hieronymus also performed transmission sensitivity analyses
to test his results. First, he assumed zero transmission rates, which shows
the effects of market enlargement. Second, he assumed that full TTCs,
rather than ATCs, were available to interconnect markets. In both
scenarios, he found that the proposed transaction raised no competitive
concerns. See Exhibits WHH-16 and 17.
(2) AVAILABLE ECONOMIC CAPACITY
Dr. Hieronymus also analyzed the effects of the transaction on
competition using the available economic capacity measure. The only
difference between the economic capacity measure and available economic
capacity measure is that the latter accounts for retained load obligations.
Dr. Hieronymus believes that the available economic capacity measure is
losing its usefulness and, at least in the case of this transaction, an
analysis requires speculative and potentially contentious assumptions
concerning, inter alia, the pace of elimination of retail native load
obligations for utilities throughout the affected regions.(19) Noting the
Commission's concerns about the use of hypothetical assumptions regarding
the extent of retail access,(20) Dr. Hieronymus assumes that each utility
retains its full, historic load responsibility. The results of this
analysis, set forth in Exhibit WHH-3, show that all of the indicators are
well below the Commission's safe harbor levels.
---------------
(19) The Commission has stated that it has "not concluded that available
economic capacity is a superior measure upon which to base our merger
review deci sions" and, rather, has based its analysis on economic
capacity. Ohio Edison Co., 81 FERC paragraph 61,110, at 61,405 (1997).
(20) See EME Homer City Generation, L.P., 86 FERC paragraph 61,016 (1999).
(3) TOTAL CAPACITY
Dr. Hieronymus also conducted an analysis using the total
capacity measure, which is the total capacity owned or controlled by a
supplier.(21) Under the total capacity measure, capacity owned by a supplier
that is committed under long- term contracts is subtracted from the amount
of capacity owned by a supplier.(22) Dr. Hieronymus explains that the
Commission's traditional hub-and-spoke methodology could not be used
directly in this instance because neither CILCO or IPL would qualify as
being in common markets, given the transmission network around Applicants.
He constructed the narrowest possible geographic market by including CILCO,
IPL and their directly interconnected utilities. The results of this
analysis, set forth in Exhibit WHH-18, show that Applicants' combined
market share is about five percent and the change in market concentration
(using the HHI indicator) is 9, which is well below the Commission's safe
harbor levels.
---------------
(21) The Commission has stated that the total capacity measure, while providing
a sense of the overall size of a supplier in a market, "does not account
for native load obligations and does not capture the availability or cost
of genera tion, and thus is not useful for a delivered price test
analysis." Merger Policy Statement at 30,132.
(22) As discussed above, throughout his analysis, Dr. Hieronymus did not
subtract capacity sold by Applicants under long-term contracts from
Applicants' owned capacity. This is a conservative assumption because it
results in Applicants being attributed capacity which they do not control.
(4) UNCOMMITTED CAPACITY
Uncommited capacity is the amount of capacity owned or
controlled by a supplier minus the capacity that is committed to serve
native load and firm contractual obligations. Merger Policy Statement at
30,132. Dr. Hieronymus concludes that the proposed transaction raises no
competitive issues regarding uncommitted capacity because neither CILCO nor
IPL has uncommitted capacity, even assuming conservative reserve margins.
See Exhibit WHH-19. Dr. Hieronymus notes that the uncommitted capacity
measure, which is developed by subtracting a utility's native load
obligation, may not be a reliable indicator in cases, as here,(23) where
retail restructuring may reduce or eliminate a utility's native load
obligation.(24)
---------------
(23) CILCO's service territory, located in Illinois, is undergoing retail
restructuring.
(24) See EME Homer City Generation, L.P., 86 FERC paragraph 61,016, at 61,039
(1999).
2. VERTICAL MARKET POWER
Dr. Hieronymus concludes that this transaction does not raise
any significant vertical market power concerns. First, regarding control
over transmission, AES's only transmission-owning company, CILCO, is a
member of the FERC-approved MISO, which is scheduled to begin operations in
November 2001. CILCO has committed to creating an independently owned and
governed institution under the MISO to which it will turn over its retained
control area operator functions. IPALCO's transmission-owning utility, IPL,
currently is not a member of an RTO and, as explained in its Order 2000
compliance filing, has elected not to participate in an RTO at this time.
However, if necessary to avoid an evidentiary hearing, AES commits that
IPL, as an AES subsidiary, will join an RTO as a condition of the
transaction. These RTO commitments should be sufficient to extinguish any
vertical market power issues arising from control of transmission.
Second, Dr. Hieronymus concludes that neither Applicant
controls significant fuels supplies or fuels delivery systems that could be
used to exercise market power. IPL does not own or control any fuel supply
or transportation resources that could be used to prevent entry. CILCO does
provide natural gas transportation service to electric generating
facilities, however, the units served by CILCO also are owned by CILCO and
do not confer any additional ability for CILCO to exercise market power.
See Exhibit WHH-10. Dr. Hieronymus concludes that CILCO's natural gas
transportation assets do not warrant even a threshold concern regarding
vertical foreclosure.
Third, neither Applicant possesses a monopoly over potential
generation sites that would impact the Commission's prior finding that the
long-term market for generation is competitive.(25) Dr. Hieronymus finds
substantial evidence that additional entry of more than 17,000 MW of
planned new generating capacity either has entered the market or is planned
to enter service by around 2001 in just ECAR and MAIN.(26)
---------------
(25) Order No. 888, at 31,649 n.86.
(26) In the delivered price test, Dr. Hieronymus included about 6,500 MW of
planned generation capacity, representing only those units that are most
likely to be installed, given milestones reached to date.
B. THE TRANSACTION WILL HAVE NO ADVERSE EFFECT ON RATES
In the Merger Policy Statement, the Commission states that it
"will focus on ratepayer protection."(27) IPL has one wholesale
requirements and transmission customer, Wabash Valley Power Association.
IPL's contract with Wabash has fixed demand and energy rates during the
term of the contract and does not give IPL section 205 rights to alter
those rates. In these circumstances, the Commission has found that no
ratepayer protection mechanisms are necessary.(28) AES has no captive
customers. In its 1999 order approving the AES/CILCO merger, the Commission
found that the merger would not adversely affect (i) the rates of CILCO's
one wholesale requirement customer, Riverton, which is subject to a fixed
rate contract, (ii) the transmission rates of Corn Belt Electric
Cooperative, a transmission dependent utility of CILCO, which also is
subject to a fixed rate contract, or (iii) the rates charged by AES
affiliates owning QFs and EWGs, which AES cannot change unilaterally.(29) The
Commission should reach the same conclusion here.
Regarding transmission rates, AES committed in its merger with
CILCO that CILCO would not seek and increase in its transmission rates or
its MISO rates for four years following the merger consummation. IPL
commits to not seek to include in its transmission revenue requirement any
transaction-related transmission costs that are not fully offset by
transaction-related transmission savings for five years following
consummation of the transaction. CILCO also commits that when the MISO
transmission tariff goes into effect, it will notify the MISO of any such
transaction-related costs not offset by transaction-related transmission
savings so that the MISO can exclude such costs from CILCO's zonal rates
and for computation of MISO average rates.
---------------
(27) Merger Policy Statement, at 30,123.
(28) See Union Electric Co. and Central Illinois Public Service Co., 81 FERC
paragraph 61,011, at 61,066 (1997).
(29) Central Illinois Light Co. and The AES Corp., 87 FERC paragraph 61,293, at
62,161 (1999).
C. THE TRANSACTION WILL HAVE NO ADVERSE EFFECT ON REGULATION
Because IPL will retain its independent corporate form, the
transaction will not result in the loss of jurisdiction over retail rates
and terms and conditions of service for the only state that regulates it,
Indiana. Similarly, IPL's wholesale sales and transmission services will
remain fully subject to this Commission's jurisdiction following the
transaction.
The transaction also will not affect the Commission's
continuing jurisdiction over AES's power marketers or CILCO. Nor will the
transaction affect state or FERC jurisdiction over CILCO. AES will not
become a registered holding company as a result of the transaction and,
thus it will not affect the jurisdiction of the Commission to regulate
Applicants or their subsidiaries in relation to possible regulation by the
SEC.
V. INFORMATION REQUIRED BY 18 C.F.R. SECTION 33.2
(a) THE EXACT NAMES AND ADDRESSES OF THE PRINCIPAL BUSINESS OFFICES OF
APPLICANTS:
The AES Corporation IPALCO Enterprises, Inc.
1001 N. 19th Street, 20th Floor One Monument Circle
Arlington, VA 22209 Indianapolis, IN 46204
(b) NAME AND ADDRESS OF PERSONS AUTHORIZED TO RECEIVE NOTICES AND
COMMUNICATIONS IN RESPECT TO APPLICATION
William R. Luraschi Bryan G. Tabler
General Counsel and Secretary Marline R. Breece
The AES Corporation IPALCO Enterprises, Inc.
1001 N. 19th Street, 20th Floor One Monument Circle
Arlington, VA 22209 Indianapolis, IN 46204
Mike Naeve J. A. Bouknight, Jr.
Mary Margaret Farren Gary A. Morgans
Skadden, Arps, Slate, Meagher Steptoe & Johnson LLP
& Flom LLP 1330 Connecticut Avenue, N.W.
1440 New York Avenue, N.W. Washington, D.C. 20036-1795
Washington, D.C. 20005-2111
(c) DESIGNATION OF TERRITORIES SERVED, BY COUNTY AND STATE.
CILCO provides electric service entirely within the state of
Illinois, in the following counties: Fulton, Knox, McLean, Marshall, Mason,
Peoria, Putnam, Stark, Tazewell, Woodford, Champaign, DeWitt, Douglas,
Edgar, Logan, Moultrie, Piatt, Sangamon and Vermilion. None of AES's other
United States subsidiaries have franchised service territories.
IPL provides electric service entirely within the state of
Indiana. IPL renders service in all or parts of the following counties in
central Indiana: Boone, Hamilton, Hancock, Hendricks, Johnson, Marion,
Morgan, Owen, Putnam, and Shelby.
(d) GENERAL STATEMENT BRIEFLY DESCRIBING THE FACILITIES OWNED OR
OPERATED FOR TRANSMISSION OF ELECTRIC ENERGY IN INTERSTATE COMMERCE OR THE
SALE OF ELECTRIC ENERGY AT WHOLESALE IN INTERSTATE COMMERCE.
See Section II above.
(e) WHETHER THE APPLICATION IS FOR DISPOSITION OF FACILITIES BY SALE,
LEASE, OR OTHERWISE, A MERGER OR CONSOLIDATION OF FACILITIES, OR FOR
PURCHASE OR ACQUISITION OF SECURITIES OF A PUBLIC UTILITY, ALSO A
DESCRIPTION OF THE CONSIDERATION, IF ANY, AND THE METHOD OF ARRIVING AT THE
AMOUNT THEREOF.
Applicants request any approvals that may be needed under the
FPA to effectuate the acquisition of IPALCO by AES. Section III above
describes the consideration for the transaction.
(f) A STATEMENT OF FACILITIES TO BE DISPOSED OF, CONSOLIDATED, OR
MERGED, GIVING A DESCRIPTION OF THEIR PRESENT USE AND OF THEIR PROPOSED USE
AFTER DISPOSITION, CONSOLIDATION OR MERGER INCLUDING ALL THE OPERATING
FACILITIES OF THE PARTIES TO THE TRANSACTION.
Section II above describes IPL's facilities. Under the terms of
the Share Exchange Agreement, AES will acquire all of the operating
facilities of IPL. All affected jurisdictional facilities will be operated
after the consummation of the proposed transaction in substantially the
same manner as they are operated currently.
(g) A STATEMENT (IN THE FORM PRESCRIBED BY THE COMMISSION'S UNIFORM
SYSTEM OF ACCOUNTS FOR PUBLIC UTILITIES AND LICENSEES) OF THE COST OF THE
FACILITIES INVOLVED IN THE SALE, LEASE, OR OTHER DISPOSITION OR MERGER OR
CONSOLIDATION. IF ORIGINAL COST IS NOT KNOWN, AN ESTIMATE OF ORIGINAL COST
BASED, INSOFAR AS POSSIBLE, UPON RECORDS OR DATA OF THE APPLICANT OR ITS
PREDECESSORS MUST BE FURNISHED, TOGETHER WITH A FULL EXPLANATION OF THE
MANNER IN WHICH SUCH ESTIMATE HAS BEEN MADE, AND A DESCRIPTION AND
STATEMENT OF THE PRESENT CUSTODY OF ALL EXISTING PERTINENT DATA AND
RECORDS.
The transaction will involve all of IPL's jurisdictional
facilities. The jurisdictional facilities of Applicants that are accounted
for pursuant to the Commission's Uniform System of Accounts will continue
to be accounted for in that manner following the transaction. Original cost
is the basis for the valuation on Applicants' books and records of
Applicants' utility plant in service. Statements of the utility plant in
service and the cost thereof were filed by Applicants with the Commission
as part of their Form 1 data, and Applicants request a waiver of the
requirement that this data be filed again as part of this Application.
(h) A STATEMENT AS TO THE EFFECT OF THE PROPOSED TRANSACTION UPON ANY
CONTRACT FOR THE PURCHASE, SALE, OR INTERCHANGE OF ELECTRIC ENERGY.
Applicants do not expect the transaction to have any effect
upon any existing contracts for the purchase, sale or interchange of
electric energy.
(i) A STATEMENT AS TO WHETHER OR NOT ANY APPLICATION WITH RESPECT TO
THE TRANSACTION OR ANY PART THEREOF IS REQUIRED TO BE FILED WITH ANY OTHER
FEDERAL OR STATE REGULATORY BODY.
The transaction requires: (i) approval of the SEC, pursuant to
Section 9(a)(2) of PUHCA; (ii) expiration or termination of the applicable
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended; (iii) a certification from the Indiana Utility Regulatory
Commission pursuant to Section 33 of PUHCA relating to AES's investments in
foreign utility companies; and (iv) approval of the Federal Communications
Commission for the transfer of FCC licenses. Also, AES is seeking an SEC
determination that, following the transaction, AES and each of its
subsidiaries will continue to be exempt from the provisions of PUHCA, other
than Sections 9(a)(2) and 10, under Section 3(a)(5).
(j) THE FACTS RELIED UPON BY APPLICANTS TO SHOW THAT THE PROPOSED
DISPOSITION, MERGER, OR CONSOLIDATION OF FACILITIES OR ACQUISITION OF
SECURITIES WILL BE CONSISTENT WITH THE PUBLIC INTEREST.
The instant application, with accompanying attachments and
exhibits, provides the facts relied upon by Applicants to show that the
transaction will be consistent with the public interest.
(k) A BRIEF STATEMENT OF FRANCHISES HELD, SHOWING DATE OF EXPIRATION
IF NOT PERPETUAL.
IPL does not hold any franchises. IPL possesses an
indeterminate permit pursuant to Indiana Code section 8-1-2 under which the
utility provides retail electric service and is the exclusive electricity
supplier in its assigned service area established pursuant to Indiana Code
section 8-1-2.3. CILCO holds a franchise for the retail sale of electricity in
Illinois.
(1) A FORM OF NOTICE SUITABLE FOR PUBLICATION IN THE FEDERAL
REGISTER, AS WELL AS A COPY OF THE SAME NOTICE IN ELECTRONIC FORMAT.
A form of notice suitable for publication in the Federal
Register is set forth at Attachment 3 to this Application and a diskette
copy is included.
VI. EXHIBITS REQUIRED BY 18 C.F.R. SECTION 33.3
The following exhibits are attached pursuant to Section 33.3 of
the Commission's Regulations:
EXHIBIT A. COPIES OF ALL RESOLUTIONS OF DIRECTORS AUTHORIZING
THE PROPOSED DISPOSITION, MERGER, OR CONSOLIDATION OF FACILITIES, OR
ACQUISITION OF SECURITIES, IN RESPECT TO WHICH THE APPLICATION IS MADE,
AND, IF APPROVAL OF STOCKHOLDERS HAS BEEN OBTAINED, COPIES OF THE
RESOLUTIONS OF THE STOCKHOLDERS SHOULD ALSO BE FURNISHED SECURING ANY
OBLIGATION OF EACH PARTY TO THE TRANSACTION.
Applicants respectfully request a waiver of the requirement to
file the corporate resolutions called for by Exhibit A of the Commission's
regulations. 18 C.F.R. section 33.3 (1999). Such resolutions would not be
required by the Merger NOPR.(30)
---------------
(30) Merger NOPR at 33,364.
EXHIBIT B. A STATEMENT OF THE MEASURE OF CONTROL OR OWNERSHIP
EXERCISED BY OR OVER EACH PARTY TO THE TRANSACTION AS TO ANY PUBLIC
UTILITY, OR BANK, TRUST COMPANY, BANKING ASSOCIATION, OR FIRM THAT IS
AUTHORIZED BY LAW TO UNDERWRITE OR PARTICIPATE IN THE MARKETING OF
SECURITIES OF A PUBLIC UTILITY, OR ANY COMPANY SUPPLYING ELECTRIC EQUIPMENT
TO SUCH PARTY. WHERE THERE ARE ANY INTERCORPORATE RELATIONSHIPS THROUGH
HOLDING COMPANIES, OWNERSHIP OF SECURITIES OR OTHERWISE, THE NATURE AND
EXTENT OF SUCH RELATIONSHIP; ALSO STATE WHETHER ANY OF THE PARTIES TO THE
TRANSACTION HAVE OFFICERS OR DIRECTORS IN COMMON. IF NOT A MEMBER OF ANY
HOLDING COMPANY SYSTEM, INCLUDE A STATEMENT TO THAT EFFECT.
Attached at Exhibit B.
EXHIBIT C. BALANCE SHEETS AND SUPPORTING PLANT SCHEDULES FOR
THE MOST RECENT 12 MONTH PERIOD ONLY, ON AN ACTUAL BASIS AND ON A PRO FORMA
BASIS IN THE FORM PRESCRIBED FOR STATEMENT A AND B OF THE FPC ANNUAL REPORT
FORM NO. 1, PRESCRIBED BY SECTION 141.1 OF THIS CHAPTER. THE ADJUSTMENTS
NECESSARY TO ARRIVE AT THE PRO FORMA STATEMENTS SHOULD BE CLEARLY
IDENTIFIED.
In the Merger NOPR, the Commission proposed to limit the
accounting data to be supplied with an application to:
proposed accounting entries showing the effect of the
transaction with sufficient detail to indicate the effects on
all account balances (including amounts transferred on an
interim basis), the effect on the income statement, and the
effects on other relevant financial statements.
Proposed Section 33.5, IV FERC Stats. and Regs. paragraph 32,528 at 33,398.
Because the transaction will not affect either IPL's or CILCO's account
balances, Applicants request a waiver of the requirement to file accounting
entries. Applicants request that the Commission waive the filing of any other
information that may be required by the existing merger regulations. Most of
such information was filed by Applicants with the Commission as part of their
Form 1, and is available both to the Commission and the general public.
EXHIBIT D. A STATEMENT OF ALL KNOWN CONTINGENT LIABILITIES
EXCEPT MINOR ITEMS SUCH AS DAMAGE CLAIMS AND SIMILAR ITEMS INVOLVING
RELATIVELY SMALL AMOUNTS, AS OF THE DATE OF THE APPLICATION.
For the reasons described above, Applicants request waiver of
the requirement to file such information.
EXHIBIT E. INCOME STATEMENT FOR THE MOST RECENT 12 MONTH PERIOD
ONLY, ON AN ACTUAL BASIS AND ON A PRO FORMA BASIS IN THE FORM PRESCRIBED
FOR STATEMENT C OF THE FPC ANNUAL REPORT FORM NO. 1 PRESCRIBED BY SECTION 141.1
OF THIS CHAPTER. THE ADJUSTMENTS NECESSARY TO ARRIVE AT THE PRO FORMA
STATEMENTS SHOULD BE CLEARLY IDENTIFIED.
For the reasons described above, Applicants request waiver of
the requirement to file such information.
EXHIBIT F. AN ANALYSIS OF RETAINED EARNINGS FOR THE PERIOD
COVERED BY THE INCOME STATEMENTS REFERRED TO IN EXHIBIT E.
For the reasons described above, Applicants request waiver of
the requirement to file such information.
EXHIBIT G. A COPY OF EACH APPLICATION AND EXHIBIT FILED WITH
ANY OTHER FEDERAL OR STATE REGULATORY BODY IN CONNECTION WITH THE PROPOSED
TRANSACTION, AND IF ACTION HAS BEEN TAKEN THEREON, A CERTIFIED COPY OF EACH
ORDER RELATING THERETO.
In its Merger NOPR, the Commission suggested that it would not
be necessary for Applicants to submit copies of their applications filed
with other regulatory agencies provided that copies of the orders in
response to the applications are filed when received. Merger NOPR at
33,364. Because the provisions of the Merger NOPR are not yet implemented,
Applicants request a waiver of the requirement to file any applications
that may be filed before other agencies. Applicants will, consistent with
the Merger NOPR, provide the Commission with copies of any other regulatory
approvals. EXHIBIT H. A COPY OF ALL CONTRACTS IN RESPECT TO THE SALE,
LEASE, OR OTHER PROPOSED DISPOSITION, MERGER OR CONSOLIDATION OF
FACILITIES, OR PURCHASE OF SECURITIES, AS THE CASE MAY BE, TOGETHER WITH
COPIES OF ALL OTHER WRITTEN INSTRUMENTS ENTERED INTO OR PROPOSED TO BE
ENTERED INTO BY THE PARTIES TO THE TRANSACTION PERTAINING THERETO.
A copy of the Agreement and Plan of Share Exchange is attached
at Exhibit H.
EXHIBIT I. A GENERAL OR KEY MAP ON A SCALE OF NOT MORE THAN 20
MILES TO THE INCH SHOWING IN SEPARATE COLORS THE PROPERTIES OF EACH PARTY
TO THE TRANSACTION, AND DISTINGUISHING SUCH PARTS OF THEM AS ARE INCLUDED
IN THE PROPOSED DISPOSITION, CONSOLIDATION OR MERGER. THE MAP SHOULD ALSO
CLEARLY INDICATE ALL INTERCONNECTIONS AND THE PRINCIPAL CITIES OF THE AREA
SERVED. WHENEVER POSSIBLE, THE MAP SHOULD NOT BE OVER 30 INCHES IN ITS
LARGEST DIMENSION.
Maps of the utility service territories is provided at Exhibit
I.
VII. REQUEST FOR EXPEDITED CONSIDERATION
As discussed above, this transaction raises no significant
issues regarding competition, rates, or the effectiveness of federal or
state regulation. The Commission recognized in its Merger Policy Statement
that "as the pace of industry change increases, market participants require
greater regulatory certainty and expedition of regulatory action in order
to respond quickly to rapidly changing market conditions." III FERC Stats.
& Regs. at 30,111. Because this transaction will have no adverse effects on
competition, rates or regulation, to attain the benefits of certainty at
the earliest practicable time, and to meet the scheduled time for
consummation, Applicants respectfully request that the Commission grant the
instant application. Applicants respectfully request that the Commission
approve the proposed transaction by February 15, 2001.
VIII. CONCLUSION
For the reasons set forth above, Applicants respectfully
request that the Commission grant this application by February 15, 2001.
Respectfully submitted,
-------------------------
J. A. Bouknight, Jr. Mike Naeve
Gary A. Morgans Mary Margaret Farren
Steptoe & Johnson, LLP Skadden, Arps, Slate, Meagher
1330 Connecticut Avenue, N.W. & Flom LLP
Washington, D.C. 20036-1795 1440 New York Avenue, N.W.
(202) 429-6222 Washington, D.C. 20005-2111
(202) 429-3902 (fax) (202) 371-7070
[email protected] (202) 371-7939 (fax)
[email protected] [email protected]
[email protected]
Counsel for IPALCO Counsel for AES
Bryan G. Tabler William R. Luraschi
Marline R. Breece Robert A. Venerus
IPALCO Enterprises, Inc. The AES Corporation
One Monument Circle 1001 N. 19th Street, 20th Floor
Indianapolis, IN 46204 Arlington, VA 22209
(317) 261-5134 (703) 522-1315
(317) 261-8288 (fax) (703) 528-4510 (fax)
[email protected]
[email protected]
ATTACHMENT 1
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
THE AES CORPORATION )
) DOCKET NO. EC01-___-000
)
AND )
)
IPALCO ENTERPRISES, INC. )
)
JOINT APPLICATION OF
THE AES CORPORATION AND
IPALCO ENTERPRISES, INC.
FOR APPROVAL OF MERGER
PREPARED DIRECT TESTIMONY AND EXHIBITS OF
WILLIAM H. HIERONYMUS
ON BEHALF OF APPLICANTS
DIRECT TESTIMONY OF
WILLIAM H. HIERONYMUS
TABLE OF CONTENTS
I. INTRODUCTION
II. PURPOSE AND DESCRIPTION OF APPLICANTS' PROPOSAL AND
SUMMARY OF ANALYSIS AND CONCLUSIONS
PURPOSE..........................................................
APPLICANTS' MERGER PROPOSAL......................................
SUMMARY OF ANALYSIS AND CONCLUSIONS..............................
ORGANIZATION OF TESTIMONY........................................
III. DESCRIPTION OF THE PARTIES
AES..............................................................
IPALCO...........................................................
IV. FRAMEWORK FOR THE ANALYSIS
V. DESCRIPTION OF METHODOLOGY
VI. IMPACT OF THE MERGER ON COMPETITION
HORIZONTAL MARKET POWER..........................................
ECONOMIC CAPACITY................................................
AVAILABLE ECONOMIC CAPACITY......................................
TOTAL CAPACITY...................................................
UNCOMMITTED CAPACITY.............................................
VERTICAL MARKET POWER............................................
OTHER POTENTIAL MARKET POWER ISSUES..............................
VII. CONCLUSION
1. INTRODUCTION
Q. PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
A. My name is William H. Hieronymus. My business address is PA Consulting
Group ("PA"), One Memorial Drive, Cambridge, Massachusetts 02142.
Q. BY WHOM ARE YOU EMPLOYED?
A. I am a Member of the Management Group of PA. PA is a leading
management, systems and technology consultancy.
Q. WHAT IS YOUR EDUCATIONAL BACKGROUND AND WORK EXPERIENCE?
A. I received my Bachelor's degree from the University of Iowa in 1965,
my Master's degree in economics in 1967 and a Doctoral degree in
economics in 1969 from the University of Michigan, where I was a
Woodrow Wilson Fellow and National Science Foundation Fellow. After
serving in the U.S. Army, I began my consulting career. In 1973, I
joined Charles River Associates Inc. as a specialist in antitrust
economics. By the mid-1970s my focus was principally on the economics
of energy and network industries. In 1978, I joined Putnam Hayes &
Bartlett, Inc., where my consulting practice has focused almost
exclusively on network industries, particularly electric utilities.
Putnam, Hayes & Bartlett, Inc. merged with Hagler Bailly, Inc. in
1998. Hagler Bailly was acquired by PA in October, 2000.
During the past 25 years, I have completed numerous assignments for
electric utilities; state and federal government agencies and
regulatory bodies; energy and equipment companies; research
organizations and trade associations; independent power producers and
investors; international aid and lending agencies; and foreign
governments. While I have worked on most economics-related aspects of
the utility sector, a major theme has been public policies and their
relation to the operation of utility companies.
Since about 1988, the main focus of my consulting has been on electric
utility industry restructuring, regulatory innovation and
privatization. In that year, I began work on the restructuring and
privatization of the electric utility industry of the United Kingdom.
I also led a major study of the reorganization of the New Zealand
electricity sector, focusing mainly on competition issues in the
generating sector. Following privatization of the U.K. industry in
1990, I continued to work in the United Kingdom and was involved in
restructuring studies concerning the former Soviet Union, Eastern
Europe, the European Union and specific European countries.
In 1993, I returned to the United States, where I have worked primarily
on utility restructuring and regulatory reform. In this context, I
have testified before FERC and state commissions on market power
issues concerned with several electric utility mergers (including
convergence mergers), Regional Transmission Organization ("RTO")
tariff filings, sale and purchase of jurisdictional assets and market
rate applications. More generally, I have testified before state and
federal regulatory commissions, federal and state courts and
legislatures on numerous matters concerning the electric utility and
other network industries. My resume is included as Exhibit No. WHH-1.
2. PURPOSE AND DESCRIPTION OF APPLICANTS' PROPOSAL AND SUMMARY OF
ANALYSIS AND CONCLUSIONS
PURPOSE
Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY?
A. I have been asked by The AES Corporation ("AES") and IPALCO
Enterprises, Inc. ("IPALCO") (collectively, the "Applicants") to
determine the potential competitive impact of their proposed
transaction on electricity markets (for ease of reference, I will
refer to the Applicants' proposed transaction as a merger). I
performed the Competitive Analysis Screen described in Appendix A to
the Commission's Merger Policy Statement ("Order No. 592"),(1) which in
turn is intended to comport with the Department of Justice and Federal
Trade Commission ("DOJ/FTC") Horizontal Merger Guidelines
("Guidelines"). As appropriate, my testimony also takes into
consideration the Commission's Notice of Proposed Rulemaking ("Merger
NOPR").(2)
----------------
1 Order No. 592, Inquiry Concerning the Commission's Merge Policy Under the
Federal Power Act: Policy Statement, FERC Stats. & Regs. (Regulations
Preambles) paragraph 31,044 (1996), on reconsideration, Order No. 592-A, 79
FERC paragraph 61,321 (1997).
2 Revised Filing Requirements Under Part 33 of the Commission's Regulations
("Merger NOPR"), 83 FERC paragraph 61,027, FERC Stats. & Regs. paragraph
32,528 (1998), 63 Fed. Reg. 20340 (April 24, 1998).
APPLICANTS' MERGER PROPOSAL
Q. PLEASE DESCRIBE THE APPLICANTS' MERGER PROPOSAL.
A. On July 15, 2000, IPALCO and AES entered into an Agreement and Plan of
Share Exchange (the "Share Exchange Agreement") whereby AES will
acquire IPALCO for $25.00 per share in a stock-for-stock transaction
valued at approximately $2.15 billion plus the assumption of $890
million of debt and preferred stock. Upon closing, IPALCO will become
a wholly-owned subsidiary of AES with its headquarters remaining in
Indianapolis.
As a result of the transaction, IPALCO's principal subsidiary,
Indianapolis Power and Light ("IPL"), will become affiliated with AES'
existing regulated and unregulated affiliates in the electric
business, including AES' wholly owned subsidiary, Central Illinois
Light Company ("CILCO").
AES commits that IPL, as an AES subsidiary, will join an RTO as a
condition of the transaction if the Commission deems that this is
necessary to avoid an evidentiary hearing on this Application. However
IPL is not otherwise committed to join any RTO at this time.
Summary of Analysis and Conclusions
Q. PLEASE PROVIDE AN OVERVIEW OF YOUR ANALYSIS.
A. I have analyzed the competitive impacts of combining the resources of
AES and IPALCO. As noted, AES' principal subsidiary in the region is
CILCO, which owns both generation (about 1,200 MW) and transmission
assets in Illinois and is part of the Mid-American Interconnected
Network ("MAIN") NERC region. CILCO also provides natural gas in its
service territory in Illinois to end-users, including to some electric
generating facilities, as discussed below. AES also has about 4,600 MW
of generating assets either in operation or planned to be operating
within the next few years in the Eastern Interconnection that I have
included in the analysis. Nearly all of this capacity is remote from
IPALCO, chiefly located in New England, New York and PJM. The majority
of this capacity is committed under long-term contractual arrangements
to other parties. Under the analysis procedures specified by the
Commission in Order No. 592, capacity dedicated to third parties by
long-term contracts is not deemed to be controlled by Applicants.
Despite this guidance, however I have attributed all of the capacity
from these units to AES in my analysis. This conservative treatment
was done principally to avoid the Commission having to review specific
contractual provisions for these units.
IPL is a vertically integrated utility that owns approximately 3050 MW(3)
of generation as well as transmission and distribution assets in
Indiana. IPL is a member of the East Central Area Reliability Council
("ECAR"). IPL owns and controls no other generation, nor does any
existing affiliate of it.
---------------
3 Of this amount, 19 MW of generation (net generating capability) is located
at the IPL Perry K Steam Plant, which is being sold to the Board of
Directors for Utilities of the Department of Public Utilities of the City
of Indianapolis, as trustee of public charitable trust, d/b/a Citizens Gas
& Coke Utility ("Citizens"). The Commission approved IPL's transfer of
jurisdictional facilities to Citizens by order issued September 26, 2000.
Indianapolis Power & Light Co., 92 FERC paragraph 62,257 (2000). Upon
consummation of IPL's sale of Perry K to Citizens, IPL will purchase the
generation under a five-year contract, declaring the Perry K generation as
a Network Resource. The Perry K generation is included in this analysis as
an IPL resource.
I modeled CILCO as a member of the Midwest Independent Transmission
System Operator, Inc. ("MISO"), which CILCO has committed to join. The
MISO is expected to be operational in November 2001. IPL has not
committed to join an RTO. AES commits, however, that IPL, as an AES
subsidiary, will join an RTO as a condition of the transaction if the
Commission deems that this is necessary to avoid an evidentiary
hearing on this Application. I modeled the competitive impacts of the
merger under different assumptions regarding IPL's RTO membership in
order to evaluate the competitive impacts of each of the outcomes. For
the base case results presented in my analysis, I assumed that IPL is
not a member of any RTO. I also evaluated alternative analyses where I
assumed (1) that IPL joins the MISO,(4) and (2) that IPL joins the
Alliance RTO.(5) In both of the analyses where IPL joins an RTO, I
conducted the analyses in two ways: First, I assumed that IPL was a
member of the MISO or Alliance RTO both pre-and post-merger, and
assumed the current membership in the relevant RTO.(6) In my second
-------------------
4 As of October 17, 2000, seventeen transmission owners had signed the
MISO agreement. They are Alliant Energy, Ameren, American Transmission
Company (Milwaukee, WI) CILCO, Cinergy, Commonwealth Edison, Hoosier
Energy Rural Electric Cooperative, Illinois Power, LG&E Energy,
Madison Gas & Electric, Northwestern Wisconsin Electric, Southern
Illinois Power Cooperative, Southern Indiana Gas & Electric, Wabash
Valley Power Association, Wisconsin Electric Power and Wisconsin
Public Service Corporation,, and Xcel Energy (formerly Northern States
Power). (Source: http://www.midwestiso.org/newsroom.shtml).
5 The Alliance RTO currently consists of AEP, Consumers Energy, Detroit
Edison, FirstEnergy, and Virginia Electric & Power.
(http://www.alliancerto.com/PARTICIP.HTM)
6 In addition to the existing members, there have recently been
additional proposed changes to the membership of each RTO, including
Otter Tail Power and UtiliCorp joining the MISO and Dayton Power and
Light and NIPSCo joining the Alliance RTO. Including the other
utilities in each of the relevant RTOs, such as Otter Tail Power,
would generally have the effect of reducing transmission costs for
distant suppliers to the West and East of the relevant destination
markets. Thus, excluding these newly announced additions is
conservative and they are not included in either RTO for any of the
analyses.
analysis, I again assumed that IPL was a member of the MISO or
Alliance RTO, but assumed that Illinois Power ("IP") and Commonwealth
Edison ("ComEd") switch from the MISO to the Alliance RTO, as they
have indicated their intention to do.(7) In both cases, I assumed that
IPL's commitment was not merger related and that IPL was a member of
the relevant RTO both before and after the merger. This analysis
provides a direct evaluation of combining Applicants' resources absent
changes in the market due to transmission rate changes.(8)
--------------
7 According to news reports published November 9, 2000, Ameren has
announced that it plans to switch from the MISO to the Alliance RTO as
well. I did not revise my RTO sensitivity analysis to reflect this
most recent potential change as it may yet be followed by further
membership changes and because it requires additional changes in the
RTO sensitivity analysis. Specifically, if Ameren, in addition to IP
and ComEd, became a member of the Alliance RTO, CILCO would no longer
have any direct interconnections with other MISO members. While the
final RTO configurations in the region are unclear at this time, the
RTO sensitivity analysis that I did perform, along with an additional
analysis assuming all transmission rates are zero (discussed below),
provides indicators of the impact of the merger under a broad range of
alternative RTO configurations.
8 I also conducted a sensitivity analysis assuming that al transmission
rates were zero, except for incremental losses, and a sensitivity
analysis on transmission capacity. These analyses are discussed below.
The primary focus of my testimony is the potential horizontal market power
effects (i.e., those arising from the combination of electric
generating assets) of the merger. I have also evaluated potential
vertical market power concerns arising from Applicants' control over
transmission and their control over gas supplies and delivery systems.
Finally, I have also evaluated Applicants' ability to raise other
barriers to entry that might undercut the presumption that long-run
generation markets are competitive, such as might arise from
Applicants' control over potential generating sites.
Q. DOES YOUR ANALYSIS INDICATE THAT THIS MERGER WILL INCREASE THE ABILITY
OR INCENTIVE OF THE APPLICANTS TO EXERCISE MARKET POWER?
A. No, I have found that the proposed merger will not increase
Applicants' ability or incentive to exercise market power. I base this
conclusion on a market power analysis that I performed, which I
summarize below, and a more general review of the basic facts
concerning the electricity market in the region where the companies
operate.
As discussed more fully below, the Commission, in Order No. 592, has
adopted an analytic framework and related safe harbor thresholds used
to determine whether a merger is unlikely to adversely impact
competition. If these thresholds are met, then the Commission has
stated that it generally will conclude that the merger will not
adversely impact competition and that no further review is necessary
to allow the merger to go forward. I have conducted an analysis using
the framework adopted by the Commission to determine whether these
thresholds are violated by the combination of AES and IPALCO. I find
that they are not. A full description of the analysis and results is
provided later in my testimony and in workpapers supporting this
testimony.
Q. PLEASE SUMMARIZE YOUR FINDINGS REGARDING HORIZONTAL MARKET POWER.
A. Using the Commission's framework, I have found that the merger will
not impact the ability or incentive of the combined firm to exercise
market power. There are no instances in which the safe-harbor
thresholds are violated. I also conducted a number of sensitivities to
test the robustness of this result and have found that the results are
basically unchanged, suggesting that the conclusions are valid under
different assumptions regarding data inputs and market structure.
This result is not surprising. These are two small utilities in a region
characterized by much larger utilities that surround them and lie
between them. There is substantial transmission available to move
power within the region. Because of the size of Applicants relative to
the amount of generation located in the region, combining them has a
very minor effect on the structure of the power market.
Q. PLEASE SUMMARIZE THE RESULTS OF YOUR BASE CASE ANALYSIS.
A. Because there are no changes in the market, other than the combination
of Applicants' shares, the merger's impact on the structure of power
markets is simply a combination of Applicants' pre-merger market
shares and examining how concentration in each of the relevant markets
is affected. This analysis is generally referred to as the "2AB
method."(9) It is essentially an analysis of a merger where there are no
changes resulting from a merger - no transmission rate impact, no
change in transmission for integration purposes, etc. This is the
proper type of analysis to evaluate how concentration in each market
changes and is consistent with standard antitrust analysis.
------------
9 "2AB" refers to the change in HHI resulting from the merger of company
a (with market share A) and Company b (with market share B). This
formula is derived from the HHI calculation as follows:
Applicants' pre-merger HHI = A2 + B2
Applicants' post-merger HHI = (A+B)2 = A2 + B2 2AB
Thus, the change in HHI resulting from the merger equals 2AB.
Exhibit No. WHH-2 shows that Applicants' market shares, pre-and
post-merger, in each of the destination markets for my base case
analysis using the Economic Capacity measure. The largest HHI change
in the CILCO market is 14 in a concentrated market (HHI over 1,800).
This change is well below the safe-harbor thresholds (50) and is the
result of adding about 4 MW of IPL's power to AES' power. Thus, I
conclude that no further investigation is required for the CILCO
market. The largest HHI change in the IPL market is 11 in a
concentrated market, again well below the safe-harbor thresholds. It
is the result of adding about 8 MW from AES to IPL's generation and is
not indicative of any market power concerns. The impact of the merger
on other destination markets is de minimis; the highest HHI change is
4.
The Available Economic Capacity measure also indicates that there are
no competitive concerns from the merger. To conduct this analysis, I
assumed all utilities retained their historical native load
obligations and Exhibit No. WHH-3 shows the results for the same
destination markets as were evaluated for the Economic Capacity
measure. Again there are no screen violations in any market. The
largest HHI change in the CILCO market is 7 in an unconcentrated
market (HHI less than 1,000). The largest HHI change in the IPL market
is 26 in a moderately concentrated market (HHI between 1,000 and
1,800). In other destination markets, the change in concentration are
again de minimis; the largest HHI change is 5.
Q. PLEASE SUMMARIZE THE RESULTS OF YOUR ALTERNATIVE ANALYSES.
A. I conducted additional analyses assuming different RTO membership for
IPL and have again found no competitive concerns from the merger. As
noted earlier, I evaluated the impact of IPL joining the MISO or
Alliance RTOs in two ways. First, I assumed IPL was a member of the
relevant RTO both pre- and post-merger, based on the existing RTO
membership lists. These results are shown in Exhibit No. WHH-4 for the
MISO and Exhibit No. WHH-5 for the Alliance RTO and are very similar
to those described above for the base case analysis; there are no
screen violations in any market.
Second, I performed the same analyses as those presented in Exhibit
Nos. WHH-4 and WHH-5, except that I assumed that Illinois Power ("IP")
and Commonwealth Edison ("ComEd") switched from the MISO to the
Alliance RTO, as discussed earlier. These results are shown in Exhibit
Nos. WHH-6 and WHH-7. Again, there are no screen violations in any
market.
Q. ARE THESE RESULTS CONSISTENT WITH YOUR UNDERSTANDING OF THE MARKET IN
THE REGIONS WHERE THE APPLICANTS OPERATE?
A. Yes. As noted briefly above, the analytical finding tha the merger
would not remove a significant competitor, and therefore not raise
market power concerns, follows from the relatively small size of the
Applicants in the regions where they operate and their historical lack
of interaction. As noted earlier, AES' CILCO subsidiary owns or
controls about 1,200 of the roughly 58,000 MW in the MAIN NERC
region.(10) IPL owns about 3,050 MW of the roughly 110,000 MW in the
ECAR NERC region.(11) The combined company will own less than 3 percent
of the total capacity in each of these NERC regions.(12)
------------
10 http://www.maininc.org/bod/2000/SATF2000r.pdf
11 http://www.ecar.org/publications/GRP/00-GRP-33.pdf
12 As noted, AES does own or control additional capacity in other parts of the
Eastern Interconnection (about 4,600 MW). This capacity is located in New
England, New York, Ontario, PJM and SPP and is too remote from the relevant
markets in this instance to be a significant factor in the market power
analysis. (These units were, however, included in the delivered price test
analysis.) In addition, most of the output from these units is committed to
other entities under long-term contractual arrangements.
Exhibit No. WHH-8 shows the relevant transmission networ around CILCO
and IPL. CILCO and IPL are not major participants in each other's
market or in common third markets, as discussed below. Indeed, my
review of historic sales and purchase data demonstrates that CILCO
trades primarily with other utilities in Illinois and IPL trades
primarily with other utilities in Indiana. The paucity of longer
distance trades likely is due to the very similar production costs
across the region. Most of the generation is coal-based and has
similar incremental costs.
AES owns other generation in the U.S. besides that owned by its CILCO
subsidiary. However, all of its other generation is located a
significant distance from markets to this merger, principally in New
York, New England, and California, and plays an insignificant role in
price determination in Illinois and Indiana.
The findings using the Commission's delivered price test are
consistent with historical trade data, which show little overlap in
the relevant markets. Exhibit No. WHH-9 shows the purchase and sales
made by CILCO and IPL for the most recent two years available (1998
and 1999).(13) As shown, CILCO sells primarily to Illinois utilities
and IPL sells mostly to Indiana utilities. The only common customers
of both companies are American Electric Power ("AEP"), Cinergy and
ComEd. In each case, at least one of the companies had very minor
sales to this customer and, when combined, these sales are a very
small share of the purchases of these companies, supporting my
conclusion that the combination will not eliminate a significant
market participant.
-----------
13 Sales information is based on FERC Form 1 data.
Q. PLEASE SUMMARIZE YOUR FINDINGS REGARDING VERTICAL MARKET POWER.
A. The proposed merger does not raise any significant vertical market
power issues. As noted earlier, AES' only transmission-owning company
(CILCO) is a member of the MISO, an ISO that has been approved by the
FERC and is currently scheduled to begin operations in November 2001.
The combined company will lack the requisite control over CILCO's
transmission to impede competition, even if it had the incentive to do
so.
IPL has not proposed to join an RTO in its Order 2000 compliance
filing. As IPL explains in that filing, IPL cannot justify
participation in either the MISO or Alliance RTO at this time because
these RTO proposals present regulatory, commercial and operational
uncertainty, and IPL's analysis indicates that its participation
presently is not cost-justified. IPL operates its transmission system
in accordance with Orders 888 and 889, and its open access
transmission tariff has been accepted for filing by FERC.(2145)
---------------
14 Indianapolis Power & Light Co., 90 FERC paragraph 1,180, settlement
approved, 92 FERC paragraph 61,236 (2000).
IPL is a geographically very small utility surrounded by much larger
utilities. IPL is an incidental transmission owner, and none of the
larger utilities that surround IPL needs to use the IPL transmission
system to reach any other utility. IPL's retail service territory is
wholly surrounded by Cinergy's and both Cinergy and other utilities
wishing to access the Cinergy system can do so without reserving
capacity on the IPL system. Indeed, IPL's transmission system can be
accurately described as either a high-voltage distribution system or a
local area transmission system. Thus, any attempt by IPL to foreclose
a supplier from markets, including specifically markets where its
merger partner, CILCO, sells power could be easily thwarted; the
supplier could simply use an alternative (and generally more
straightforward) route to the market.
While Applicants do not believe that this merger creates vertical
issues in the absence of an RTO commitment, and I agree with that
assessment, AES commits that IPL, as an AES subsidiary, will join an
RTO as a condition of the transaction if the Commission deems that
this is necessary to avoid an evidentiary hearing on this Application.
Neither utility controls significant fuels supplies or fuels delivery
systems that can be used to exercise market power. IPL does not own or
control any fuel supply or transportation resources that can be used
to prevent entry.(15) As noted earlier, CILCO does provide natural gas
transportation service to electric generating facilities, however the
units served by CILCO are also owned by CILCO and do not confer any
additional ability for CILCO to exercise market power.(16) Regardless,
the merger with IPL does not add any ability or incentive to foreclose
gas supplies since, as demonstrated by the horizontal analysis, power
from the CILCO area is an inconsequential share of the markets in
which IPL competes. Moreover, as the Commission noted in its order in
the NIPSCO-Columbia merger, gas almost never is on the margin in this
area.(17) Hence, a hypothetical foreclosure of a small amount of
gas-fired generation located on CILCO's system would have little, if
any, effect on power prices received by IPL. Thus, I conclude that
CILCO's natural gas transportation assets do not warrant even a
threshold concern regarding vertical foreclosure.
---------------
15 IPALCO does own some undeveloped coal reserves. As IPL stated in its
application for market-based rates, IPL owns the mineral rights to
several thousand acres of land, and has leased a small portion of this
acreage to an independent coal company for the purpose of mining at
some future date. Application of Indianapolis Power & Light Co.,
Docket No. ER00-1026, Exhibit J at 2 (Jan. 6, 2000).
16 These units are shown in Exhibit No. WHH-10. As shown i that Exhibit,
CILCO only serves three facilities with natural gas transportation
service, and it owns each of these units (Sterling Avenue (30 MW),
Indian Trails (12 MW), and Medina Valley (36 MW)). CILCO also provides
small amounts of gas for flame stabilization for two units whose
primary fuel is either distillate oil or coal.
17 92 FERC paragraph 61,068 (2000)
Finally, neither utility possesses a monopoly over potential
generation sites that would affect the Commission's prior finding that
the long-term market for generation is competitive.
ORGANIZATION OF TESTIMONY
Q. HOW IS THE REMAINDER OF YOUR TESTIMONY ORGANIZED?
A. In Section III, I outline Applicants' business operations. Section IV
describes the economic framework used in the analysis as set out in
the Commission's Order No. 592. A description of the methodology I
used in conducting the analysis is included in Section V. My analysis
of the merger's impact on competition is included in Section VI.
Section VII contains my conclusions.
3. DESCRIPTION OF THE PARTIES
AES
Q. PLEASE DESCRIBE AES.
A AES is a global power company. In the United States, AE owns
generation assets throughout the country. Exhibit No. WHH-11 shows the
generating units owned by AES included in the analysis, including
planned generation. CILCO is the only subsidiary that operates in the
region near IPL and the majority of CILCO's existing generation is
coal-fired. AES' generation in Northeast and Southwest Power Pool
("SPP") is generally committed under long-term contracts and a
description of AES' contracts is contained in an appendix to
Applicants' Section 203 Application.
CILCO is the only transmission-owning subsidiary of AES in the United
States. As noted earlier, CILCO is a member of the MISO and will
relinquish control of its transmission facilities to that
organization.
CILCO is interconnected to Ameren, ComEd (Exelon), IP an CWLP. It is
not a significant transmission provider in the region, largely because
its first-tier utilities are generally also directly connected with
each other. These utilities can transact directly and do not have to
rely on CILCO's facilities.
CILCO's only wholesale requirements customer is the Village of
Riverton, Illinois ("Riverton"). Riverton has a long-term fixed rate
contract and, therefore, is immunized from any price effects
hypothetically arising from this merger.
CILCO is undergoing restructuring as part of the deregulation process
in Illinois. At the end of 1997, the Illinois General Assembly passed
the Customer Choice Law as part of electric restructuring in the
state. Retail competition for large business customers (over 4 MW
load) and for a percentage of non-residential customers began October
1, 1999. By December 31, 2000 retail choice will be available to all
non-residential customers. Full retail competition (including
residential customers) will be effective by May 1, 2002.
IPALCO
Q. PLEASE DESCRIBE IPALCO .
A. IPL is one of the two the principal subsidiaries of IPALCO. IPL
operates as an integrated electric utility primarily engaged in the
generation, transmission and distribution of electric power to more
than 430,000 retail customers in metropolitan Indianapolis and
portions of other central Indiana communities in surrounding counties.
Like CILCO, the majority of IPL's capacity is coal-fired, although it
has recently developed a new gas-fired peaking facility in its own
service territory.(18) IPL's generation assets are shown in Exhibit No.
WHH-11. IPL also owns and operates a district steam service system in
downtown Indianapolis, which IPL has contracted to sell to Citizens.
---------------
18 IPL recently participated in developing new peaking facilities
(Georgetown units) that became operational last summer. IPL owns one
approximately 80 MW peaker, while DTE Energy owns two similar peakers
at the facility. I have included this capacity in my analysis.
IPL's open access transmission tariff has been accepted for filing by
FERC(19) and IPL operates its transmission system as a control area
within ECAR. IPL has received FERC authorization to make wholesale
sales of electric energy at market-based rates.(20)
IPALCO's other principal subsidiary is Mid-America Capital Resources,
Inc. ("Mid-America"). Mid-America is a holding company for IPALCO's
unregulated subsidiaries, which are engaged in various business
enterprises. Neither Mid-America nor its subsidiaries own any electric
generation or transmission facilities, and they are not engaged in the
electric energy business.
IPL is interconnected principally to AEP, Cinergy, Hoosier Energy
Rural Electric Cooperative ("Hoosier"), and SIGE.(21) As discussed
earlier, IPL is an incidental transmission owner, and none of the
larger utilities that surround IPL needs to use the IPL transmission
system to reach any other utility. IPL's retail service territory is
wholly surrounded by Cinergy's and both Cinergy and other utilities
wishing to access the Cinergy system can do so without reserving
capacity on the IPL system.
----------------
19 Indianapolis Power & Light Co., 90 FERC paragraph 61,180 (2000).
20 Id.
21 IPL also has interconnection agreements in place with Indiana
Municipal Power Agency ("IMPA") and Wabash Valley Power Association,
Inc. ("Wabash"), and accesses both IMPA and Wabash by way of IPL's
interconnections with the Cinergy transmission system. IMPA jointly
owns with Cinergy certain transmission facilities in the Cinergy
transmission system, as does Wabash. I have modeled IMPA and Wabash as
TDUs connected to Cinergy, largely because of the lack of OASIS
postings on transmission capacity for these entities. This modeling
does not significantly impact the results of my analysis.
IPL's only wholesale requirements customer is Wabash. Wabash has a
long-term fixed rate contract and, therefore, is protected from any
price effects hypothetically arising from the merger.
4. FRAMEWORK FOR THE ANALYSIS
Q. WHAT ARE THE GENERAL MARKET POWER ISSUES RAISED BY MERGE PROPOSALS?
A. Market power analysis of a merger proposal examines whether the merger
would cause a material increase in the merging firms' market power or
a significant reduction in the competitiveness of relevant markets.
Market power is defined as the ability of a firm or group of firms to
sustain profitably a significant increase in the price of their
products above a competitive level.
In merger analyses, the critical issue is the change in market
competitiveness due to the merger. While the pre-merger
competitiveness of markets may, as under the DOJ/FTC Guidelines,
affect the amount of such change that is acceptable, the focus remains
on the change in market competitiveness caused by the merger.
This focus on the effects of the merger means that the merger analysis
examines those business areas where the merging firms are competitors.
In most instances, the merger will not affect competition in markets
in which the merging firms do not compete. Analysis of the effects of
a merger on market power in businesses in which the merging firms both
participate is sometimes referred to as horizontal market power
assessment. In the proposed merger of AES and IPALCO, therefore, the
focus is properly on those markets in which both firms are actual or
potential competitors. The analysis is intended to measure the adverse
impact, if any, of the elimination of a competitor as a result of the
combination.
Vertical market effects of the merger relate to the merging firms'
ability and incentives to use their market position over a product or
service to affect competition in a related business or market. For
example, vertical effects could result if the merger of two electric
utilities created an opportunity and incentive to operate transmission
in a manner that created market power for the generation activity of
the merged company that did not exist previously. The Commission has
identified market power as also arising from dominant control over
potential generation sites or over fuels supplies and delivery
systems. These are issues that could undercut the presumption that
long-run generation markets are competitive.
Q. WHAT ARE THE MAIN ELEMENTS IN DEVELOPING AN ANALYSIS OF MARKET POWER?
A. Understanding the competitive impact of a merger require defining the
relevant market (or markets) in which the merging firms participate.
Participants in a relevant market include all suppliers and, in some
instances potential suppliers, who can compete to supply the products
produced by the merging parties and whose ability to do so diminishes
the ability of the merging parties to increase prices. Hence,
determining the scope of a market is fundamentally an analysis of the
potential for competitors to respond to an attempted price increase.
Typically, markets are defined in two dimensions: geographic and
product. Thus, the relevant market is composed of companies that can
supply a given product (or its close substitute) to customers in a
given geographic area.
Q. HOW HAS THE COMMISSION TYPICALLY EXAMINED PROPOSED MERGERS INVOLVING
ELECTRIC UTILITIES?
A. Historically, the Commission examined mergers by focusin on specific
product markets and by using a "hub-and-spoke" screening test to
evaluate whether a further examination of potential market power was
warranted. With the issuance of Order No. 592 in December 1996, the
Commission changed its analytic approach and adopted a "delivered
price test." Appendix A (the "Competitive Analysis Screen") of Order
No. 592 outlines a detailed analytic method that applicants are
required to follow in their applications and that the Commission will
use in screening the competitive impact of mergers. If a proposed
merger raises no market power concerns (i.e., passes the Appendix A
screen), the inquiry is generally complete. If a proposed merger
raises potential market power concerns, applicants can propose
mitigation measures at the time of application.
Q. WHAT PRODUCTS HAS THE COMMISSION GENERALLY CONSIDERED?
A. The Commission generally has defined the relevant produc markets to be
long-term capacity, short-term capacity and non-firm energy. The
Commission has used four measures to evaluate these products. These
are Total Capacity ("TC"), Uncommitted Capacity ("UC"), Economic
Capacity ("EC"), and Available Economic Capacity ("AEC").(22)
The Commission has determined that long-term capacity markets are
presumed to be competitive, unless special factors exist that limit
the ability of new generation to be sited or receive fuel.(23)
-------------------
22 Total Capacity refers to a supplier's total generation capacity, not
accounting for any load obligations or the cost of the generation.
Uncommitted Capacity is computed by subtracting load obligations from
the supplier's Total Capacity and adjusting for long-term firm
obligations and any required reserve margin. Economic Capacity is
capacity from generating units whose variable costs are such that they
can deliver energy to the relevant destination market, after paying
all applicable transmission and ancillary service costs, at a price
near the market's competitive price. Available Economic Capacity is
the same as Economic Capacity, except that the supplier's lowest cost
resources are "covered" by any load obligations of the supplier.
23 Promoting Wholesale Competition Through Open Access Non-Discriminatory
Transmission Services by Public Utilities; Recovery of Stranded Costs
by Public Utilities and Transmitting Utilities, Order No. 888, FERC
Stats. & Regs. paragraph 31,036 at 31,657 (1996).
The Commission also has considered vertical issues that might affect
competition in the wholesale electricity market. Specifically, it has
considered whether control over transmission by one merging entity
might be used to increase the profits earned by its merger partner in
selling energy. Similarly, it has considered whether control over gas
transmission could be used to raise the prices received by a
generation-owning merger partner.
Q. HOW HAS THE COMMISSION ANALYZED GEOGRAPHIC MARKETS?
A. To examine geographic markets, the Commission traditionally has
focused on the utilities that are directly interconnected to the
applicant companies. This "destination market" approach was continued
in Order No. 592. Each utility that is directly interconnected to the
applicants is considered a separate "destination market."
Additionally, the Commission has suggested that utilities who
historically have been customers of applicants are also potential
"destination markets," and requires that applicants analyze the
effects of mergers on such markets where their sales are material. If
the Appendix A analysis shows that a company will not be able to
exercise market power in its first-tier destination markets, it
generally follows that the applicants will not have market power in
more broadly defined and more geographically remote markets.
The supply alternatives to each destination market are defined using
the "delivered price test," which identifies suppliers that can reach
a destination market at a cost no more than 5 percent over the
pre-merger market price. Formally, the supply is considered economic
if a supplier's generation can be delivered to a destination market,
including delivery costs (which include transmission rates,
transmission losses and ancillary services), at a cost that is within
105 percent of the destination market price. Physical transmission
constraints also are taken into consideration in determining the
potential supply to the destination market. Thus, unlike the
"hub-and-spoke" methodology, competing suppliers are no longer defined
by bright lines. Competing suppliers are defined as those who have
capacity (energy) that is physically and economically deliverable to
the destination market. Their importance in the market (i.e., their
market share) is determined by the amount of such capacity.
This test is intended to be a conservative screen to determine whether
further analysis of market power is necessary. The screen is the first
step in determining whether there is a need for further investigation.
If the screening test is not passed, leaving open the issue of whether
the merger will create market power, applicants are invited to provide
further information to demonstrate that the merger will not adversely
affect competition. The Commission also invites applicants to propose
mitigation remedies targeted to reduce potential anti-competitive
effects to safe harbor levels. If it remains unpersuaded that the
merger is competitively benign, the Commission will undertake a
proceeding to determine whether unmitigated market power concerns mean
that the merger is contrary to the public interest.
Q. WHAT FRAMEWORK DOES THE COMMISSION USE TO DETERMINE WHETHER A MERGER
POSES POTENTIAL MARKET POWER CONCERNS?
A. In Order No. 592, the Commission adopted the DOJ/FTC Guidelines for
measuring market concentration levels by the HHI. A key part of the
Guidelines is a market power screen. To determine whether a proposed
merger will have a significant anti-competitive impact, the DOJ and
FTC consider the level of the HHI after the merger (the post-merger
HHI) and the change in the HHI that results from the combination of
the market shares of the merging entities. Markets with a post-merger
HHI of less than 1000 are considered "unconcentrated." The DOJ and FTC
generally consider mergers in such markets to have no anti-competitive
impact. Markets with post-merger HHIs of 1000 to 1800 are considered
"moderately concentrated." In those markets, mergers that result in an
HHI change of 100 points or fewer are considered unlikely to have
anti-competitive effects. Finally, post-merger HHIs of more than 1800
are considered to indicate "highly concentrated" markets. The
Guidelines suggest that in these markets, mergers that increase the
HHI by 50 points or fewer are unlikely to have a significant
anti-competitive impact, while mergers that increase the HHI by more
than 100 points are considered likely to reduce market
competitiveness. These are the screening thresholds (or "safe-harbor"
levels) that I have used in my analysis.
5. DESCRIPTION OF METHODOLOGY
Q. PLEASE SUMMARIZE THE METHODOLOGY THAT YOU USED TO ANALYZE THE
COMPETITIVE EFFECTS OF THE MERGER.
A. I evaluated the competitive effects of the merger using the
methodology described in Appendix A, as summarized above. I used PA
Consulting's Competitive Analysis Screening model ("CASm")(24), which
implements the delivered price test and other calculations required in
Appendix A, to do the required analyses. The source and methodology
for the data required to conduct the delivered price test in CASm are
described in Exhibit No. WHH-12. A technical description of CASm is
provided in Exhibit No. WHH-13. Given the number of periods,
destination markets, and sensitivity analyses, described in detail
below, I have evaluated about 880 separate measure/markets using the
delivered price test. In addition, I also analyzed the Total Capacity
and Uncommitted Capacity measures.
-----------------
24 CASm was developed by predecessor companies, PHB and PHB-Hagler Bailly, and
has been used in analyzing numerous mergers and power plant acquisitions in
proceedings before the Commission.
Q. WHAT DESTINATION MARKETS DID YOU ANALYZE?
A. I examined 10 destination markets that could potentially be impacted
by the merger.25
I included the first-tier utilities of CILCO and IPL. A noted earlier,
CILCO's first-tier utilities are Ameren, ComEd, IP, and CWLP and IPL's
first-tier utilities are AEP, Cinergy, Hoosier, and SIGE.
Appendix A instructs Applicants to also include as destination markets
historical customers. Based on a review of Applicants' sales during
1998 and 1999 reported in their respective FERC Form 1's, there are no
markets that Applicants made more that a de minimis amount of sales to
outside of each utilities' directly interconnected utilities.(26)
----------------
25 Exhibit No. WHH-14 includes a list of the entities (and corresponding
abbreviations used in other exhibits), included in the analysis.
26 I excluded certain categories of customers as destinatio markets. First, I
excluded power marketers, for the obvious reason that they do not comprise
control areas. Similarly, I excluded municipals, cooperatives and TDUs
which do not comprise a control area; instead, utility control areas that
are destination markets are proxies for the competitive alternatives faced
by these customers. Finally, I excluded markets where the Applicants sold
an insignificant amount of energy (less than $100,000 for this purpose).
For 1998, this would include Alliant (WPL), Wisconsin Electric Power, and
IMPA. For 1999, this would also include DP&L. Note these markets are not
between CILCO and IPL and the indicators of the merger's impact will be
less than that shown in the markets analyzed.
Q. DID YOU ANALYZE A DESTINATION MARKET FOR APPLICANTS' TDU CUSTOMERS?
A. Yes. The CILCO and IPL home destination markets are reasonable proxies
for any of Applicants' TDU customers.
Q. WHAT TIME PERIODS DID YOU ANALYZE?
A. For each destination market, I examined eleven time periods for both
the Economic Capacity and Available Economic Capacity measures,
selected to reflect a broad range of system conditions. I evaluated
hourly load data to aggregate similar hours.(27) I defined periods
within three seasons (Summer, Winter and Shoulder) to reflect the
differences in unit availability and transmission capacity as well as
base flows on the network, as reflected in ATC values.
The periods evaluated (and the designations used to refe to these
periods in exhibits) are:
SUMMER (June-July-August)
SUPER PEAK 1 (S_SP1): Top 25 load hours
SUPER PEAK 2 (S_SP2): Next 125 load hours
SUPER PEAK 3 (S_SP3): Next 350 load hours
PEAK (S_P): Remaining peak hours(28)
OFF-PEAK (S_OP): All off-peak hours
WINTER (December-January-February)
SUPER PEAK (W_SP): Top 150 load hours
PEAK (W_P): Remaining peak hours
OFF-PEAK (W_OP): All off-peak hours
SHOULDER (March-April-May-September-October-November).
SUPER PEAK (SH_SP): Top 150 load hours
PEAK (SH_P): Remaining peak hours
OFF-PEAK (SH_OP): All off-peak hours
---------------
27 IPL's hourly load data was used as the basis for aggregating similar hours.
The results would not differ significantly if this aggregation was done
using a different reference utility.
28 Peak and off-peak hours were defined based on NERC's definition, except
that I considered only non-holiday Monday-Friday as peak days, whereas NERC
defines the peak days as non-holiday Monday-Saturday. See
ftp://www.nerc.com/pub/sys/all_updl/oc/opman/apdx1f.doc .
Q. WHAT COMPETITIVE PRICE LEVELS DID YOU ANALYZE?
A. For each destination market, I evaluated conditions assuming
destination market prices ranging from $15/MWh in the Winter and
Shoulder Off-Peak periods (W_OP and SH_OP) to $100/MWh in the Summer
Super Peak 1 period (S_SP1). This broad range of prices, in
combination with the time periods, should be reflective of a
sufficient range of system conditions such that a full picture of the
merger's effects is captured.
Q. DID YOU TAKE SYSTEM LAMBDAS AND OTHER PUBLICLY AVAILABLE PRICING
INFORMATION INTO CONSIDERATION IN CHOOSING THE PRICE LEVELS TO
ANALYZE?
A. Broadly yes. Exhibit No. WHH-15 shows the relevant system lambda and
Power Markets Week information. Both sources are subject to well known
limitations. System lambda data are subject to the vagaries of the
source utility's methodology. For example, a number of utilities
report a constant system lambda on a year-round basis, while other
utilities in the region show significant differences depending on
season. However, I did take the system lambda data into account in
selecting the prices to analyze, particularly to identify the lower
range of price to be analyzed.
Reported power market prices are subject to potential sampling error;
they represent a fairly limited number of trades in relevant regions;
they are not necessarily consistent with all the underlying data used
in the Appendix A analysis (e.g., in Appendix A transmission rates are
assumed to be the maximum filed-rates, while the market prices would
reflect actual transmission costs incurred); and there are far fewer
pricing "hubs" for reported market data than there are destination
markets.
The purpose of considering varying conditions (prices, seasons and
load levels) in Appendix A analyses is to test whether a merger that
might be benign under particular market conditions (e.g., at peak
load) would be less benign under other, frequently occurring,
conditions. Thus, the key requirement is to span the full range of
likely conditions. Ultimately, I concluded that a range of prices from
$15 per MWh in off-peak periods to $100 in the summer super peak was
sufficient to fully explore possible differences in expected
competitive conditions throughout the year. The $15 price is the
lowest typical price that can be anticipated on a non-transitory
basis. While transactions data (and some occasional system lambda
data) demonstrate that prices can sometimes exceed $100 per MWh,
modeling higher prices would not change my results. At $100 per MWh,
essentially all of the capacity of all of the market participants in
all of the relevant markets is economic (the incremental costs even of
inefficient peaking units is less than $105/MWh), so the supply of
economic energy would not be different at higher prices.
Q. PLEASE DESCRIBE THE BASIC MODEL ARCHITECTURE YOU USED IN ANALYZING
THIS MERGER.
A. Briefly, CASm is a linear programming model developed specifically to
perform the calculations required in undertaking the delivered price
test. The model includes each potential supplier as a distinct "node"
or area that is connected via a transportation (or "pipes")
representation of the transmission network. Each link in the network
has its own non-simultaneous limit and cost. Potential suppliers are
allowed to use all economically and physically feasible links or paths
to reach the destination market. In instances where more generation
meets the economic facet of the delivered price test than can actually
be delivered on the transmission network, scarce transmission capacity
is allocated based on the relative amount of economic generation that
each party controls at a constrained interface.
I represented simultaneous imports into a destination market based on
a "common limiting element" approach consistent with the Commission's
approach outlined in Ohio Edison Co.(29)
---------------
29 Ohio Edison Co., et al., 80 FERC paragraph 61,039 at 61,107 (1997) (joint
application to form FirstEnergy Corp.).
Q. WHAT REPRESENTATIVE YEAR DID YOUR ANALYSIS COVER?
A. Order No. 592 requires that the analysis be forward looking. I intend
my analysis to approximate conditions in 2001 as a representative
near-term future year. I used control area to control area limits
(ATCs and TTCs) from current OASIS postings to represent the transfer
capacity between each area in the model.(30) These are the most recently
available data. (The analysis is conducted in year 2000 dollars.)
Where appropriate, I adjusted other relevant data to approximate 2001
conditions. As described in Exhibit No. WHH-12, this includes load,
generation costs and a conservative amount of confirmed new construction.
---------------
30 The OASIS data were retrieved during July and August and generally provide
postings from August 2000 to August 2001. The data from each month were
averaged to derive seasonal values in the analysis, as described in Exhibit
No. WHH-12.
6. IMPACT OF THE MERGER ON COMPETITION HORIZONTAL MARKET POWER
Q. WHAT SPECIFIC ANALYSES DID YOU CONDUCT TO EVALUATE THE POTENTIAL
EFFECTS ARISING FROM THE COMBINATION OF GENERATION ASSETS?
A. Consistent with the guidance in Order No. 592, I analyzed Economic
Capacity and Available Economic Capacity, focusing on the combination
of Applicants' generation. Given the status of restructuring in
Illinois and surrounding regions, the Economic Capacity analysis is
the measure most relevant to this merger. As discussed infra, the
Available Economic Capacity analyses does not provide a fully reliable
and useful insight into future market conditions since the native load
that distinguishes this analysis from the Economic Capacity analysis
is changing at unpredictable rates.
I have also analyzed Total Capacity and Uncommitted Capacity, although
these measures are not required explicitly by Order No. 592 or the
Merger NOPR. Under the normal application of the Commission's
"hub-and-spoke" analysis of Total and Uncommitted Capacity Applicants'
would not be in the same market due to their geographical
configuration. Nevertheless, I did perform an analysis of these two
measures including only the directly interconnected utilities of CILCO
and IPL. This is the narrowest, feasible geographic market that can be
defined that includes both CILCO and IPL.(31)
---------------
31 If the market were defined to also include AES' units in other parts of the
Eastern Interconnection, such as New York, the resulting market shares
would be even lower than those reported since the market would also include
all of the other capacity located between ECAR and New York.
ECONOMIC CAPACITY
Q. PLEASE SUMMARIZE THE ECONOMIC CAPACITY MEASURE.
A. My analysis of Economic Capacity shows that there are no screen
failures in any relevant market. As noted earlier, this is principally
due to the presence of several much larger suppliers in the
Applicants' region that can compete in the energy market, including
AEP, Ameren, Cinergy and ComEd, as well as other suppliers at
approximately the scale of Applicants. It is also due to the
relatively limited transmission capacity into and out of Applicants'
principal electric generating companies.
Exhibit No. WHH-2 shows that Applicants' market shares, pre- and
post-merger, in each of the destination markets. As noted earlier, I
assumed in my base case analysis that IPL was not a member of any RTO
both pre- and post-merger. All of the results are less than the
safe-harbor thresholds, indicating that there are no competitive
concerns raised by the merger. Exhibit Nos. WHH-4 through WHH-7,
Exhibit No. WHH-16, and Exhibit No. WHH-17 are sensitivity analyses
performed using the Economic Capacity measure. These analyses are
described under "Sensitivities" below. These analyses contain no
screen violations, and indicate no competitive concerns associated
with the merger.
AVAILABLE ECONOMIC CAPACITY
Q. PLEASE SUMMARIZE THE AVAILABLE ECONOMIC CAPACITY MEASURE
A. For the Available Economic Capacity analysis, I conducte my analysis
using the base case assumptions, as described above regarding the
Economic Capacity analysis. The only difference between the Economic
Capacity measure and the Available Economic Capacity measure is that
the latter accounts for retained load obligations. I based each
supplier's load on information for 1999 retail loads, escalating those
loads based on projected growth in electric demands throughout the
region.(32)
I assumed that each utility retains its full, historic load
responsibility (i.e., I made no assumption about retail access for
this analysis). In a slightly different context,(33) the Commission has
indicated its distaste for hypothetical assumptions about the extent
of retail access in markets where such access has begun. To avoid such
hypothetical assumptions, I simply have assumed that retail access
will not materially affect the amount that the various suppliers can
make available to the wholesale market. In the Midwestern markets that
are most likely to be problematic based on the Economic Capacity
analysis, retail access either has not yet begun or is just now
beginning. Hence, the zero access assumption for suppliers to these
markets likely is not far off the mark.(34)
The results of the analysis are shown in Exhibit No. WHH-3. The
analysis shows that all of the indicators are well below the
Commission's safe-harbor levels, again supporting my conclusion that
the merger raises no competitive concerns.
---------------
32 See Exhibit No. WHH-12 for further details.
33 EME Homer City Generation, L.P., 86 FERC paragraph 61,016 (1999).
34 CILCO has not lost a significant amount of load to date due to
restructuring in Illinois. Thus, the zero access assumption is applicable
for CILCO.
SENSITIVITIES
Q. PLEASE DESCRIBE THE SENSITIVITY ANALYSES YOU UNDERTOOK USING THE
ECONOMIC CAPACITY MEASURE.
A. The key variables in the FERC's delivered price test in this instance
are related to transmission rates and transmission capacity. Since the
Applicants are not contiguous and, in fact do not even have any common
interconnections, these items are significant determinants of whether
the companies appear as significant potential competitors in any
destination market under the delivered price test.(35) I performed
sensitivity analysis on RTO configurations, as described earlier. I
also performed an analysis using increased transmission capacity.
In the first RTO configuration sensitivity, I assumed that IPL was a
member of the MISO or Alliance RTO pre and post-merger. This
assumption does not significantly impact the results, as shown in
Exhibit No. WHH-4 and Exhibit No. WHH-5. In these analyses, I assumed
that Illinois Power and Commonwealth Edison were members of the MISO.
In the second RTO sensitivity, I again assumed that IPL was a member
of the MISO or Alliance RTO, but assumed that Illinois Power and
Commonwealth Edison switch from the MISO to the Alliance RTO. This
analysis again does not significantly impact the results. These
results are shown in Exhibit No. WHH-6 and Exhibit No. WHH-7.
I also conducted an additional sensitivity analysis wher I assumed all
transmission rates were zero, except for incremental losses. This
sensitivity is intended to be a limiting case showing the effects of
market enlargement on the competitive effects of the merger. Again,
even under this extreme assumption, the results were not significantly
different than those found in the base case. These results are shown
in Exhibit No. WHH-16.
In the transmission capacity sensitivity, I assumed that full TTC
values, rather than ATCs, were available to interconnect markets. This
increases the ability of Applicants, and other potential suppliers, to
deliver into the destination markets. Again, the results indicate that
the merger raises no competitive concerns. These results are shown in
Exhibit No. WHH-17.
My conclusions are further supported by these sensitivit analyses.
---------------
35 Note that since the delivered price test does not accoun for opportunity
costs, even if the analysis did find evidence of the Applicants'
potentially serving common markets, it would not necessarily indicate any
competitive concern, but rather that further investigation is required.
TOTAL CAPACITY
Q. PLEASE DESCRIBE THE RESULTS OF THE TOTAL CAPACITY ANALYSIS.
A. The Commission's traditional "hub-and-spoke" methodology could not be
used directly in this instance since neither CILCO nor IPL would
qualify as being in common markets, given the transmission network
around the Applicants. Thus, I constructed the narrowest possible
geographic market by including CILCO, IPL and their directly
interconnected utilities. If the safe-harbor thresholds are met for
the Total Capacity measure under this unrealistically narrow market
definition, the Commission can be very certain that there are no
competitive concerns arising from this measure from any other credible
market definition.(36)
The results are shown in Exhibit No. WHH-18. As shown, Applicants'
combined market share is about 5 percent and the change in market
concentration, as defined using the HHI indicator, is about 11.
---------------
36 I also excluded merchant capacity for purposes of this analysis. Including
planned and operational merchant facilities would further reduce the
Applicants' reported market shares.
UNCOMMITTED CAPACITY
Q. PLEASE DESCRIBE THE RESULTS OF THE UNCOMMITTED CAPACITY ANALYSIS.
A. The proposed merger raises no competitive issues regarding Uncommitted
Capacity. First, IPL has no Uncommitted Capacity, even assuming
conservative reserve margins, as shown in Exhibit No. WHH-19. Thus,
there can be no merger effect under this measure. Similarly, based on
historic load obligations CILCO does not have any uncommitted
capacity, as shown in Exhibit No. WHH-19. Thus, there are no
competitive concerns raised by my evaluation of the Uncommitted
Capacity measure.
VERTICAL MARKET POWER
Q. PLEASE DESCRIBE YOUR ANALYSIS OF VERTICAL MARKET POWER.
A. I evaluated two vertical relationships in order to examine whether
the proposed combination would facilitate vertical market power.
First, I evaluated the combination of the companies' electric
generating resources with their electric transmission assets. This
merger should raise no vertical market power concerns in this respect.
CILCO has committed to join the MISO and to creating an independently
owned and governed institution under MISO to which it will turn over
its retained control area operator functions. In addition, AES has
committed that IPL, as an AES subsidiary, will join an RTO if
necessary to avoid an evidentiary hearing on this Application.
Furthermore, even absent the RTO commitments, Order Nos. 888 and 889
ensure that transmission owners such as Applicants will not be able to
foreclose access to any essential transmission facilities, including
connecting new merchant plants to their grids. In its Order 2000
compliance filing, IPL explains that it is an incidental transmission
owner, and its system can be accurately described as either a high
voltage distribution system or a local area transmission system.
Neither Cinergy, nor any other utility directly interconnected with
IPL, needs to use the IPL transmission system to reach any other
utility. IPL has no TDUs that are not contractually covered with
long-term contracts with IPL There is no schedule for retail access in
Indiana that could create a market opportunity for competitors to
serve IPL's retail customers.
OTHER POTENTIAL MARKET POWER ISSUES
Q. ARE THERE ANY OTHER ISSUES THAT WOULD AFFECT COMPETITION IN THE
RELEVANT MARKETS?
A. As noted earlier, I have not formally analyzed competition in
long-term markets which the Commission has found to be presumptively
competitive (although I discuss entry in this section as well).
In addition, in Order No. 888, the Commission in referring to a
decision in Entergy Services, Inc. noted that "after examining
generation dominance in many different cases over the years, we have
yet to find an instance of generation dominance in long-run bulk power
markets."(37) In the Merger NOPR, the Commission stated that "[a]s
restructuring in the wholesale and retail electricity markets
progresses, short-term markets appear to be growing in importance. The
role of long-term capacity markets appears to be diminishing."(38)
The possible exceptions to this presumption arise from vertical
issues, such as control over transmission, fuels supplies or
generating sites, that might block entry in the long-term. As
discussed above, the RTO commitments of CILCO and AES (on behalf of
IPL as an AES subsidiary) and the facts specific to IPL's transmission
ensure that they cannot use their control over transmission to block
entry into the long-run market.
---------------
37 Order No. 888 at 31,649 n.86 (citation omitted)
38 Merger NOPR, FERC Stats. & Regs. paragraph 32,528 at 33,367.
Q. WHAT IS THE ISSUE CONCERNING AN APPLICANT'S CONTROL OVER ESSENTIAL
FUELS OR DELIVERY SYSTEMS?
A. In the context of long-term capacity markets, the issue is whether the
merging parties can foreclose or impede the entry of competing
generators. As discussed above, CILCO is not in a position to
foreclose current competitors. This review examines whether the merger
would allow the combined company to impede entry by new competitors
through the use of fuel supply inputs.
Q. DO THESE APPLICANTS HAVE THE ABILITY TO FRUSTRATE ENTRY DUE TO THEIR
CONTROL OVER FUELS OR FUEL DELIVERY SYSTEMS?
A. No. As noted earlier, CILCO's natural gas transportatio assets serve
basically only a small amount of CILCO owned facilities. Similarly,
IPL's ownership of undeveloped coal reserves does not convey any
ability of IPL to frustrate entry.
Q. DO APPLICANTS EXERCISE CONTROL OVER THE AVAILABLE GENERATION SITES?
A. No. I was unable to identify any special barriers to entry in this
regard. While IPL and CILCO own a few potential generating sites,
there are numerous other sites available, as shown by actual recent
entry in the area.
The geographic areas served by these Applicants are relatively small
and the geographic area that must be included in any market definition
that contains both Applicants encompasses quite a large region and
includes many control areas. Entrants who could compete in areas
potentially affected by this merger would not need to locate new
facilities in Applicants' service areas or connect to Applicants'
transmission systems. This is especially true given Applicants' open
access transmission, overseen by the Commission, and the RTO
membership and commitments discussed above.
Q. IS THERE ANY EVIDENCE THAT THERE WILL BE ENTRY INTO THE MAIN AND ECAR
MARKETS WITHIN THE NEXT FEW YEARS?
A. Yes. First, entry can be accomplished in far shorter periods of time
than were required with the large coal and nuclear generation
facilities that used to be the chosen technology. According to the
Department of Energy, conventional and advanced combined cycle
generating units have a lead time of three years, and combustion
turbines (i.e., peaking capacity) have a lead time of only two
years.(39)
There is substantial evidence that additional entry will occur and, in
fact, is already taking place. For example, I identified more than
17,000 MW of planned new generating capacity that has either entered
service or is planned to enter service by around 2001 in just ECAR and
MAIN.(40)
There is also evidence of entry in the specific regions where IPL and CILCO
operate. For example, in the past year, DTE Energy has located two
combustion turbines in IPL's control area, and an affiliate of Enron Power
Marketing has interconnected with the transmission systems of both IPL and
Cinergy near Wheatland, Indiana. In Illinois, there were proposals for over
2,400 MW of new generation from a variety of suppliers during the first
quarter of this year.(41)
---------------
39 Assumptions to the Annual Energy Outlook 1999, Energy Information
Administration, U.S. Department of Energy, December 1998, p. 59.
40 In my analyses, I included only about 6,500 MW of this generating
capacity, representing only those units that are most likely to be
in-service given the milestones that they have reached to date. These
units are shown in workpapers.
41 See Power Generation Markets Quarterly (1st quarter, 2000), page 48.
7. CONCLUSION
Q. PLEASE SUMMARIZE YOUR RECOMMENDATION.
A. I recommend that the Commission determine that this merger will not
have an adverse effect on competition in markets subject to its
jurisdiction.
Q. DOES THIS COMPLETE YOUR TESTIMONY?
A. Yes.
EXHIBITS
Exhibit No. WHH-1 Resume of William H. Hieronymus
Exhibit No. WHH-2 Economic Capacity - Base case
Exhibit No. WHH-3 Available Economic Capacity - Base case
Exhibit No. WHH-4 Economic Capacity - IPL in MISO Pre and Post-Merger (IP
and ComEd in MISO)
Exhibit No. WHH-5 Economic Capacity - IPL in Alliance Pre and Post-Merger
(IP and ComEd in MISO)
Exhibit No. WHH-6 Economic Capacity - IPL in MISO Post-Merger (IP and ComEd
in Alliance)
Exhibit No. WHH-7 Economic Capacity - IPL in Alliance Post-Merger (IP and
ComEd in Alliance)
Exhibit No. WHH-8 Transmission Network Around CILCO and IPL
Exhibit No. WHH-9 Purchases and Sales - 1998-1999
Exhibit No. WHH-10 Natural Gas Units Served By CILCO
Exhibit No. WHH-11 AES / IPL Generating Units Included In The Analysis
Exhibit No. WHH-12 Data and Methodology
Exhibit No. WHH-13 Description of Competitive Analysis Screening Model
("CASm")
Exhibit No. WHH-14 Abbreviations Used In Exhibit
Exhibit No. WHH-15 Destination Market Price Data
Exhibit No. WHH-16 Economic Capacity - No Transmission Rates Sensitivity
Exhibit No. WHH-17 Economic Capacity - Increased Transmission Capacity
Sensitivity
Exhibit No. WHH-18 Total Capacity Analysis
Exhibit No. WHH-19 Uncommitted Capacity Analysis
Exhibit No. WHH-1
WILLIAM H. HIERONYMUS MEMBER OF THE MANAGEMENT GROUP
William Hieronymus has consulted extensively to managements of electricity
and gas companies, their counsel, regulators and policy makers. His
principal areas of concentration are the structure and regulation of
network utilities and associated management, policy and regulatory issues.
He has spent the last several years working on restructuring and
privatization of utility systems internationally and on changing regulatory
systems and management strategies in mature electricity systems. In his
twenty-plus years of consulting to this sector he also has performed a
number of more specific functional tasks including the selection of
investments, determining procedures for contracting with independent power
producers, assistance in contract negotiation, tariff formation, demand
forecasting and fuels market forecasting. Dr. Hieronymus has testified
frequently on behalf of utility clients before regulatory bodies, federal
courts and legislative bodies in the United States and United Kingdom. Dr.
Hieronymus was previously a Senior Vice President of Putnam, Hayes and
Bartlett (PHB), which merged with Hagler Bailly, Inc. in 1998. Hagler
Bailly, Inc. was purchased by the PA Consulting Group in October 2000. A
brief description of projects that he has led or contributed to include the
following.
ELECTRICITY SECTOR STRUCTURE, REGULATION AND
RELATED MANAGEMENT AND PLANNING ISSUES
U.S. ASSIGNMENTS
1. Dr. Hieronymus served as an advisor to a western electric utility on
restructuring and related regulatory issues and has worked with senior
management in developing strategies for shaping and adapting to the
emerging competitive market in electricity. As a part of this general
assignment he helped develop, and testified respecting, a settlement with
the state regulatory commission staff that provides, among other things,
for accelerated recovery of strandable assets. He also prepared numerous
briefings for the senior management group on various topics related to
restructuring.
1. For several utilities seeking merger approval he has prepared and
testified to market power analyses at FERC and before state commissions. He
also has assisted in discussions with the Antitrust Division of the
Department of Justice and in responding to information requests. The
analyses he has sponsored cover the destination market-oriented traditional
FERC tests, Justice Department-oriented market structure tests similar to
the Order 592 required analyses, behavioral tests of the ability to raise
prices and examination of vertical market power arising from ownership of
transmission and generation and from ownership of distribution facilities
in the context of retail access. The mergers on which he has testified
include both electricity mergers and combination mergers involving
electricity and gas companies.
1. For utilities and power pools preparing structural reforms, he has
assisted in examining various facets of proposed reforms. This analysis has
included both features of the proposals affecting market efficiency and
those that have potential consequences for market power. Where relevant,
the analysis also has examined the effects of alternative reforms on the
client's financial performance and achievement of other objectives.
1. For the New England Power Pool he examined the issue of market power in
connection with its movement to market-based pricing for energy, capacity
and ancillary services. He also assisted the New England utilities in
preparing their market power mitigation proposal. The main results of his
analysis were incorporated in NEPOOL's market power filing before FERC.
1. As part of a large PHB team he assisted a midwest utility in developing
an innovative proposal for electricity industry restructuring. This work
formed the basis for that utility's proposals in its state's restructuring
proceeding.
1. Dr. Hieronymus has contributed substantially to PHB's activities in the
restructuring of the California electricity industry. In this context he
also is a witness in California and FERC proceedings on the subject of
market power and mitigation.
1. He has testified in state securitization and stranded cost quantification
proceedings, primarily in forecasting the level of market prices that
should be used in assessing the future revenues and the operating
contribution earned by the owner of the utilities' assets in energy and
capacity markets. The market price analyses are tailored to the specific
features of the market in which the utility will operate and reflect
transmission-constrained trading over a wide geographic area. He also has
testified in rebuttal to other parties' testimony concerning stranded costs
and assisted companies in internal stranded cost and asset valuation
studies.
1. He has contributed to the development of benchmarking analyses for U.S.
utilities. These have been used in work with PHB's clients to develop
regulatory proposals, set cost reduction targets, restructure internal
operations and assess merger savings.
1. Dr. Hieronymus was a co-developer of a market simulation package that PHB
has tailored to region-specific applications. He and other PHB personnel
have provided numerous multi-day training sessions using the package to
help our utility clients in educating management personnel in the
consequences of wholesale and retail deregulation and in developing the
skills necessary to succeed in this environment.
1. Dr. Hieronymus has made numerous presentations to U.S. utility
managements on the U.K. electricity system and has arranged meetings with
senior executives and regulators in the U.K. for the senior managements of
U.S. utilities.
1. For a task force of utilities, regulators, legislators and other
interested parties created by the Governor's office of a northeastern state
he prepared background and briefing papers as part of a PHB assignment to
assist in developing a consensus proposal for electricity industry
restructuring.
1. For an East Coast electricity holding company, he prepared and testified
to an analysis of the logic and implementation issues concerning
utility-sponsored conservation and demand management programs.
1. In connection with nuclear generating plants nearing completion, he has
testified in Pennsylvania, Louisiana, Arizona, Illinois, Missouri, New
York, Texas, Arkansas, New Mexico and before the Federal Energy Regulatory
Commission in plant-in-service rate cases on the issues of equitable and
economically efficient treatment of plant cost for tariff setting purposes,
regulatory treatment of new plants in other jurisdictions, the prudence of
past system planning decisions and assumptions, performance incentives and
the life-cycle costs and benefits of the units. In these and other utility
regulatory proceedings, Dr. Hieronymus and his colleagues have provided
extensive support to counsel, including preparation of interrogatories,
cross-examination support and assistance in writing briefs.
1. On behalf of utilities in the states of Michigan, Massachusetts, New
York, Maine, Indiana, Pennsylvania, New Hampshire and Illinois, he has
submitted testimony in regulatory proceedings on the economics of
completing nuclear generating plants that are currently under construction.
His testimony has covered the likely cost of plant completion, forecasts of
operating performance and extensive analyses of ratepayer and shareholder
impacts of completion, deferral and cancellation.
1. For utilities engaged in nuclear plant construction, Dr. Hieronymus has
performed a number of highly confidential assignments to support strategic
decisions concerning continuing the construction projects. Areas of inquiry
included plant cost, financial feasibility, power marketing opportunities,
the impact of potential regulatory treatments of plant cost on shareholders
and customers and evaluation of offers to purchase partially completed
facilities.
1. For an eastern Pennsylvania utility that suffered a nuclear plant
shutdown due to NRC sanctions relating to plant management, he filed
testimony regarding the extent to which replacement power cost exceeded the
costs that would have occurred but for the shutdown.
1. For a major midwestern utility, he headed a team that assisted senior
management in devising its strategic plans including examination of such
issues as plant refurbishment/life extension strategies, impacts of
increased competition and diversification opportunities.
1. On behalf of two West Coast utilities, he testified in a needs
certification hearing for a major coal-fired generation complex concerning
the economics of the facility relative to competing sources of power,
particularly unconventional sources and demand reductions.
1. For a large western combination utility, Dr. Hieronymus participated in a
major 18-month effort to provide it with an integrated planning and rate
case management system. His specific responsibilities included assisting
the client in design and integration of electric and gas energy demand
forecasts, peak load and load shape forecasts and forecasts of the impacts
of conservation and load management programs.
1. For two midwestern utilities, he prepared an analysis of
intervenor-proposed modifications to the utilities' resource plans. He then
testified on their behalf before a legislative committee.
1. For a major combination electric and gas utility, he directed the
adaptation of a PHB-developed financial simulation model for use in
resource planning and evaluation of conservation programs.
U.K. ASSIGNMENTS
1. Following promulgation of the White Paper setting out the general
framework for privatization of the electricity industry in the United
Kingdom, Dr. Hieronymus participated extensively in the task forces charged
with developing the new market system and regulatory regime. His work on
behalf of the Electricity Council and the twelve regional electricity
councils focused on the proposed regulatory regime, including the price cap
and regulatory formulas, and distribution and transmission use of system
tariffs. He was an active participant in industry-government task forces
charged with creating the legislation, regulatory framework, initial
contracts and rules of the pooling and settlements system. He also assisted
the regional companies in the valuation of initial contract offers from the
generators, including supporting their successful refusal to contract for
the proposed nuclear power plants that subsequently were canceled as being
non-commercial.
1. During the preparation for privatization, he assisted several of the U.K.
individual electricity companies in understanding the evolving system, in
development of use of system tariffs, and in developing strategic plans and
management and technical capabilities in power purchasing and contracting.
He continued to advise a number of clients, including regional companies,
power developers, large industrial customers and financial institutions on
the U.K. power system for a number of years after privatization.
1. Dr. Hieronymus assisted four of the regional electricity companies in
negotiating equity ownership positions and developing the power purchase
contracts for an 1,825 megawatt combined cycle gas station. He also
assisted clients in evaluating other potential generating investments
including cogeneration and non-conventional resources.
1. He also has consulted on the separate reorganization and privatization of
the Scottish electricity sector. PHB's role in that privatization included
advising the larger of the two Scottish companies and, through it, the
Secretary of State on all phases of the restructuring and privatization,
including the drafting of regulations, asset valuation and company
strategy.
1. He has assisted one of the Regional Electricity Companies in England and
Wales in the 1993 through 1995 regulatory proceedings that reset the price
caps for its retailing and distribution businesses. Included in this
assignment have been policy issues such as incentives for economic
purchasing of power, the scope of the price control, and the use of
comparisons among companies as a basis for price regulation. His model for
determining network refurbishment needs was used by the regulator in
determining revenue allowances for capital investments.
1. He assisted this same utility in its defense against a hostile takeover,
including preparation of its submission to the Cabinet Minister who had the
responsibility for determining whether the merger should be referred to the
competition authority.
ASSIGNMENTS OUTSIDE THE U.S. AND U.K.
1. Dr. Hieronymus has assisted a large state-owned European electricity
company in evaluating the impacts of the 1997 EU directive on electricity
that inter alia requires retail access and competitive markets for
generation. The assignment includes advice on the organizational solution
to elements of the directive requiring a separate transmission system
operator and the business need to create a competitive marketing function.
1. For the European Bank for Reconstruction and Development he performed
analyses of least cost power options, evaluation of the return on a major
plant investment that the Bank was considering and forecasts of electricity
prices in support of assessment of a major investment in an electricity
intensive industrial plant.
1. For the OECD he performed a study of energy subsidies worldwide and the
impact of subsidy elimination on the environment, particularly on
greenhouse gases.
1. For the Magyar Villamos Muvek Troszt, the electricity company of Hungary,
he developed a contract framework to link the operations of the different
entities of an electricity sector in the process of moving from a
centralized command and control system to a decentralized, corporatized
system.
1. For Iberdrola, the largest investor-owned Spanish electricity company, he
assisted in development of their proposal for a fundamental reorganization
of the electricity sector, its means of compensating generation and
distribution companies, its regulation and the phasing out of subsidies. He
also has assisted the company in evaluating generation expansion options
and in valuing offers for imported power.
1. Dr. Hieronymus contributed extensively to a project for the Ukrainian
Electricity Ministry, the goal of which is to reorganize the Ukrainian
electricity sector and prepare it for transfer to the private sector and
the attraction of foreign capital. The proposed reorganization will be
based on regional electricity companies, linked by a unified central
market, with market-based prices for electricity.
1. At the request of the Ministry of Power of the USSR, Dr. Hieronymus
participated in the creation of a seminar on electricity restructuring and
privatization. The seminar was given for 200 invited Ministerial staff and
senior managers for the USSR power system. His specific role was to
introduce the requirements and methods of privatization. Subsequent to the
breakup of the Soviet Union, he continued to advise the Russian energy and
power ministry and government-owned generation and transmission company on
restructuring and market development issues.
1. On behalf of a large continental electricity company he analyzed the
proposed directives from the European Commission on gas and electricity
transit (open access regimes) and on the internal market for electricity.
The purpose of this assignment was to forecast likely developments in the
structure and regulation of the electricity sector in the common market and
assist the client in understanding their implications.
1. For the electric utility company of the Republic of Ireland, he assessed
the likely economic benefit of building an interconnector between Eire and
Wales for the sharing of reserves and the interchange of power.
1. For a task force representing the Treasury, electric generating and
electricity distribution industries in New Zealand, he undertook an
analysis of industry structure and regulatory alternatives for achieving
economically efficient generation of electricity. The analysis explored how
the industry likely would operate under alternative regimes and their
implications for asset valuation, electricity pricing, competition and
regulatory requirements.
TARIFF DESIGN METHODOLOGIES
AND POLICY ISSUES
1. Dr. Hieronymus participated in a series of studies for the National Grid
Company of the United Kingdom and for ScottishPower on appropriate pricing
methodologies for transmission, including incentives for efficient
investment and location decisions.
1. For a U.S. utility client, he directed an analysis of time-differentiated
costs based on accounting concepts. The study required selection of rating
periods and allocation of costs to time periods and within time periods to
rate classes.
1. For EPRI, he directed a study that examined the effects of time-of-day
rates on the level and pattern of residential electricity consumption.
1. For the EPRI-NARUC Rate Design Study, Dr. Hieronymus developed a
methodology for designing optimum cost-tracking block rate structures.
1. On behalf of a group of cogenerators, he filed testimony before the
Energy Select Committee of the UK Parliament on the effects of prices on
cogeneration development.
1. For the Edison Electric Institute (EEI), he prepared a statement of the
industry's position on proposed federal guidelines on fuel adjustment
clauses. He also assisted EEI in responding to the U.S. Department of
Energy (DOE) guideline on cost-of-service standards.
1. For private utility clients, he assisted in the preparation of comments
on draft Federal Energy Regulatory Commission (FERC) regulations and in
preparing their compliance plans for PURPA Section l33.
1. For the EEI Utility Regulatory Analysis Program, he co-authored an
analysis of the DOE position on the purposes of the Public Utilities
Regulatory Policies Act of 1978. The report focused on the relationship
between those purposes and cost-of-service and ratemaking positions under
consideration in the generic hearings required by PURPA.
1. For a state utilities commission, Dr. Hieronymus assessed its utilities'
existing automatic adjustment clauses to determine their compliance with
PURPA and recommended modifications.
1. For the DOE, he developed an analysis of automatic adjustment clauses
currently employed by electric utilities. The focus of this analysis was on
efficiency incentive effects.
1. For the commissioners of a public utility commission, he assisted in
preparation of briefing papers, lines of questioning and proposed findings
of fact in a generic rate design proceeding.
SALES FORECASTING METHODOLOGIES
FOR GAS AND ELECTRIC UTILITIES
1. For the White House Sub-Cabinet Task Force on the future of the electric
utility industry, Dr. Hieronymus co-directed a major analysis of
"least-cost planning studies" and "low-growth energy futures." That
analysis was the sole demand-side study commissioned by the task force and
formed an important basis for the task force's conclusions concerning the
need for new facilities and the relative roles of new construction and
customer side-of-the-meter programs in utility planning.
1. For a large eastern utility, he developed a load forecasting model
designed to interface with the utility's revenue forecasting system-
planning functions. The model forecasts detailed monthly sales and seasonal
peaks for a 10-year period.
1. For the DOE, he directed the development of an independent needs
assessment model for use by state public utility commissions. This major
study developed the capabilities required for independent forecasting by
state commissions and constructed a forecasting model for their interim
use.
1. For several state regulatory commissions, Dr. Hieronymus has consulted in
the development of service area level forecasting models of electric
utility companies.
1. For EPRI, he authored a study of electricity demand and load forecasting
models. The study surveyed state-of-the-art models of electricity demand
and subjected the most promising models to empirical testing to determine
their potential for use in long-term forecasting.
1. For a midwestern electric utility, he has provided consulting assistance
in improving its load forecast and has testified in defense of the revised
forecasting models.
1. For an East Coast gas utility, he testified with respect to sales
forecasts and provided consulting assistance in improving the models used
to forecast residential and commercial sales.
OTHER STUDIES PERTAINING TO
REGULATED AND ENERGY COMPANIES
1. In a number of antitrust and regulatory matters, Dr. Hieronymus has
performed analyses and litigation support tasks. These include both Sherman
Act Section One and Two cases, contract negotiations, generic rate
hearings, ITC hearings and a major asset valuation suit. In a major
antitrust case, he testified with respect to the demand for business
telecommunications services and the impact of various practices on demand
and on the market share of a new entrant. For a major electrical equipment
vendor he has testified on damages with respect to alleged defects and
associated fraud and warranty claims. In connection with mergers for which
he is the market power expert, he is assisting clients in responding to the
Antitrust Division of the U.S. Department of Justice's Hart-Scott-Rodino
requests.
1. For a private client, he headed a project that examined the feasibility
and value of a major synthetic natural gas project. The study analyzed both
the future supply costs of alternative natural gas sources and the effects
of potential changes in FPC rate regulations on project viability. The
analysis was used in preparing contract negotiation strategies.
1. For a industrial client considering development and marketing of a total
energy system for cogeneration of electricity and low-grade heat, he
developed an estimate of the potential market for the system by geographic
area.
1. For the U.S. Environmental Protection Agency (EPA), Dr. Hieronymus was
the principal investigator in a series of studies for forecasting future
supply availability and production costs for various grades of steam and
metallurgical coal to be consumed in process heat and utility uses.
Dr. Hieronymus has addressed a number of conferences on such issues as
market power, industry restructuring, utility pricing in competitive
markets, international developments in utility structure and regulation,
risk analysis for regulated investments, price squeezes, rate design,
forecasting customer response to innovative rates, intervenor strategies in
utility regulatory proceedings, utility deregulation and utility-related
opportunities for investment bankers.
Before joining PHB, Dr. Hieronymus was program manager for Energy Market
Analysis at Charles River Associates. Previously, he served as a project
director at Systems Technology Corporation and as an economist while
serving in the U.S. Army. He is a present or past member of the American
Economics Association and the International Association of Energy
Economists, and a past member of the Task Force on Coal Supply of the New
England Energy Policy Commission. He is the author of a number of reports
in the field of energy economics and has been an invited speaker at
numerous conferences.
Dr. Hieronymus received a B.A. from the University of Iowa and M.A. and
Ph.D. degrees in economics from the University of Michigan.
Exhibit No. WHH-2
<TABLE>
<CAPTION>
BASE MERGER
AES HHI HHI HHI
Market Period Price MW Mkt Share MW Mkt Share Pre-Merger MW Mkt Share Post-Merger Change
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CILCO S_SP1 100 1210 44.70% 2 0.10% 2409 1212 44.80% 2417 8
CILCO S_SP2 75 1210 44.70% 2 0.10% 2406 1212 44.80% 2414 8
CILCO S_SP3 50 1185 44.20% 2 0.10% 2369 1188 44.30% 2377 8
CILCO S_P 30 1160 43.70% 3 0.10% 2335 1163 43.80% 2345 10
CILCO S_OP 20 1120 45.50% 0 0.00% 2516 1120 45.50% 2516 0
CILCO W_SP 25 1019 41.50% 0 0.00% 2222 1019 41.50% 2222 0
CILCO W_P 20 1019 41.90% 0 0.00% 2317 1019 41.90% 2317 0
CILCO W_OP 15 330 19.50% 0 0.00% 1476 330 19.50% 1476 0
CILCO SH_SP 40 975 39.50% 4 0.20% 1958 980 39.60% 1971 14
CILCO SH_P 25 911 38.80% 0 0.00% 2037 911 38.80% 2037 0
CILCO SH_OP 15 294 17.90% 0 0.00% 1465 294 17.90% 1465 0
IPL S_SP1 100 4 0.10% 2844 52.10% 2954 2848 52.10% 2961 8
IPL S_SP2 75 4 0.10% 2844 52.10% 2954 2848 52.10% 2961 8
IPL S_SP3 50 4 0.10% 2658 50.40% 2801 2662 50.50% 2809 8
IPL S_P 30 5 0.10% 2440 49.60% 2747 2446 49.70% 2757 10
IPL S_OP 20 5 0.10% 2440 49.60% 2755 2445 49.70% 2765 10
IPL W_SP 25 8 0.10% 2450 40.00% 2041 2458 40.20% 2051 11
IPL W_P 20 6 0.10% 2450 40.10% 2159 2456 40.20% 2167 8
IPL W_OP 15 0 0.00% 2450 40.40% 2327 2450 40.40% 2327 0
IPL SH_SP 40 6 0.10% 2382 40.40% 2031 2389 40.50% 2039 9
IPL SH_P 25 8 0.10% 2177 39.20% 2039 2185 39.40% 2050 11
IPL SH_OP 15 0 0.00% 2177 39.70% 2207 2177 39.70% 2207 0
AEP S_SP1 100 152 0.20% 1678 2.60% 1434 1831 2.90% 1435 1
AEP S_SP2 75 153 0.20% 1679 2.60% 1434 1832 2.90% 1435 1
AEP S_SP3 50 155 0.20% 1665 2.60% 1436 1821 2.90% 1437 1
AEP S_P 30 182 0.30% 1761 2.80% 1482 1943 3.10% 1484 2
AEP S_OP 20 207 0.30% 1763 2.90% 1496 1970 3.20% 1498 2
AEP W_SP 25 105 0.20% 2003 3.00% 1375 2108 3.20% 1376 1
AEP W_P 20 157 0.30% 1628 2.60% 1526 1785 2.90% 1528 1
AEP W_OP 15 111 0.20% 0 0.00% 2042 111 0.20% 2042 0
AEP SH_SP 40 90 0.20% 1965 3.40% 1344 2054 3.60% 1345 1
AEP SH_P 25 89 0.20% 1822 3.20% 1401 1912 3.40% 1402 1
AEP SH_OP 15 94 0.20% 0 0.00% 2094 94 0.20% 2094 0
AMEREN S_SP1 100 452 2.00% 68 0.30% 2088 520 2.30% 2089 1
AMEREN S_SP2 75 452 2.10% 68 0.30% 2051 520 2.40% 2052 1
AMEREN S_SP3 50 452 2.10% 68 0.30% 2026 521 2.40% 2027 1
AMEREN S_P 30 463 2.10% 77 0.40% 2004 540 2.50% 2005 2
AMEREN S_OP 20 492 2.60% 65 0.40% 2375 558 3.00% 2377 2
AMEREN W_SP 25 350 1.50% 76 0.30% 1576 426 1.80% 1576 1
AMEREN W_P 20 156 0.70% 0 0.00% 1630 156 0.70% 1630 0
AMEREN W_OP 15 37 0.20% 0 0.00% 1515 37 0.20% 1515 0
AMEREN SH_SP 40 314 1.40% 60 0.30% 1463 374 1.60% 1464 1
AMEREN SH_P 25 321 1.50% 65 0.30% 1533 386 1.80% 1534 1
AMEREN SH_OP 15 45 0.20% 0 0.00% 1514 45 0.20% 1514 0
CIN S_SP1 100 22 0.10% 968 3.70% 2001 990 3.80% 2001 1
CIN S_SP2 75 22 0.10% 968 3.70% 1989 990 3.80% 1990 1
CIN S_SP3 50 23 0.10% 941 3.70% 1933 964 3.80% 1934 1
CIN S_P 30 30 0.10% 942 4.10% 1840 972 4.20% 1841 1
CIN S_OP 20 14 0.10% 941 4.20% 1997 955 4.30% 1998 1
CIN W_SP 25 35 0.20% 727 3.20% 1903 762 3.30% 1904 1
CIN W_P 20 24 0.10% 727 3.30% 2006 751 3.40% 2006 1
CIN W_OP 15 0 0.00% 0 0.00% 2496 0 0.00% 2496 0
CIN SH_SP 40 30 0.10% 744 3.10% 1846 773 3.20% 1846 1
CIN SH_P 25 34 0.20% 728 3.40% 1803 762 3.50% 1804 1
CIN SH_OP 15 0 0.00% 0 0.00% 2258 0 0.00% 2258 0
COMED S_SP1 100 119 0.50% 13 0.00% 5300 131 0.50% 5300 0
COMED S_SP2 75 119 0.50% 13 0.10% 5244 131 0.50% 5244 0
COMED S_SP3 50 117 0.50% 13 0.10% 5227 130 0.50% 5227 0
COMED S_P 30 117 0.50% 14 0.10% 5153 131 0.50% 5153 0
COMED S_OP 20 126 0.70% 14 0.10% 6713 140 0.80% 6713 0
COMED W_SP 25 110 0.60% 20 0.10% 6424 129 0.70% 6425 0
COMED W_P 20 121 0.70% 18 0.10% 6752 138 0.80% 6752 0
COMED W_OP 15 1 0.00% 0 0.00% 6771 1 0.00% 6771 0
COMED SH_SP 40 108 0.50% 17 0.10% 4758 125 0.50% 4758 0
COMED SH_P 25 104 0.60% 20 0.10% 6181 124 0.70% 6182 0
COMED SH_OP 15 1 0.00% 0 0.00% 6420 1 0.00% 6420 0
CWLP S_SP1 100 101 9.40% 1 0.10% 3038 102 9.50% 3040 1
CWLP S_SP2 75 101 9.40% 1 0.10% 3036 102 9.50% 3038 1
CWLP S_SP3 50 100 9.70% 1 0.10% 2892 101 9.80% 2894 2
CWLP S_P 30 98 9.40% 1 0.10% 2907 99 9.50% 2909 2
CWLP S_OP 20 98 10.60% 1 0.10% 2405 99 10.70% 2408 2
CWLP W_SP 25 85 8.60% 2 0.20% 2065 87 8.80% 2069 4
CWLP W_P 20 67 6.70% 0 0.00% 2072 67 6.70% 2072 0
CWLP W_OP 15 0 0.00% 0 0.00% 1016 0 0.00% 1016 0
CWLP SH_SP 40 82 7.80% 2 0.20% 2413 83 8.00% 2416 3
CWLP SH_P 25 80 8.50% 2 0.20% 1959 82 8.70% 1963 4
CWLP SH_OP 15 2 0.30% 0 0.00% 998 2 0.30% 998 0
HEC S_SP1 100 2 0.00% 187 5.60% 1770 188 5.70% 1771 1
HEC S_SP2 75 2 0.00% 187 5.60% 1768 189 5.70% 1769 1
HEC S_SP3 50 2 0.00% 183 5.50% 1757 184 5.60% 1757 1
HEC S_P 30 2 0.10% 189 5.70% 1754 191 5.70% 1754 1
HEC S_OP 20 2 0.10% 189 5.70% 1768 191 5.80% 1769 1
HEC W_SP 25 2 0.10% 134 4.10% 1841 137 4.20% 1842 1
HEC W_P 20 2 0.00% 134 4.10% 1879 136 4.20% 1880 0
HEC W_OP 15 0 0.00% 0 0.00% 2008 0 0.00% 2008 0
HEC SH_SP 40 2 0.10% 137 4.50% 1687 138 4.50% 1687 1
HEC SH_P 25 2 0.10% 137 4.50% 1715 139 4.60% 1716 1
HEC SH_OP 15 0 0.00% 0 0.00% 1843 0 0.00% 1843 0
IP S_SP1 100 435 4.10% 38 0.40% 1878 473 4.40% 1881 3
IP S_SP2 75 435 4.10% 38 0.40% 1873 473 4.40% 1875 3
IP S_SP3 50 435 4.10% 38 0.40% 1897 473 4.50% 1900 3
IP S_P 30 436 4.40% 42 0.40% 1782 478 4.80% 1785 4
IP S_OP 20 439 4.90% 0 0.00% 1926 439 4.90% 1926 0
IP W_SP 25 267 2.30% 65 0.60% 1386 332 2.80% 1389 3
IP W_P 20 120 1.10% 0 0.00% 1488 120 1.10% 1488 0
IP W_OP 15 2 0.00% 0 0.00% 1475 2 0.00% 1475 0
IP SH_SP 40 438 4.00% 41 0.40% 1314 479 4.40% 1317 3
IP SH_P 25 438 4.40% 47 0.50% 1364 485 4.80% 1368 4
IP SH_OP 15 3 0.00% 0 0.00% 1420 3 0.00% 1420 0
SIGE S_SP1 100 1 0.00% 100 5.50% 3931 101 5.50% 3932 1
SIGE S_SP2 75 1 0.00% 100 5.50% 3931 101 5.50% 3931 1
SIGE S_SP3 50 1 0.00% 97 5.40% 3880 97 5.40% 3880 1
SIGE S_P 30 1 0.10% 96 5.90% 3446 97 5.90% 3447 1
SIGE S_OP 20 1 0.10% 96 6.00% 3572 97 6.00% 3573 1
SIGE W_SP 25 1 0.10% 75 4.60% 3484 76 4.70% 3484 1
SIGE W_P 20 0 0.00% 75 4.70% 3577 75 4.70% 3577 0
SIGE W_OP 15 0 0.00% 0 0.00% 3677 0 0.00% 3677 0
SIGE SH_SP 40 1 0.00% 76 4.80% 3352 77 4.90% 3352 0
SIGE SH_P 25 1 0.10% 74 4.90% 3202 76 5.00% 3202 1
SIGE SH_OP 15 0 0.00% 0 0.00% 3438 0 0.00% 3438 0
</TABLE>
Exhibit No. WHH-3
<TABLE>
<CAPTION>
BASE MERGER
AES HHI AHHI HHI
Market Period Price MW Mkt Share MW Mkt Share Pre-Merger MW Mkt Share Post-Merger Change
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CILCO S_SP1 100 203 12.00% 2 0.10% 488 204 12.10% 491 3
CILCO S_SP2 75 203 12.00% 2 0.10% 473 205 12.10% 476 3
CILCO S_SP3 50 178 10.80% 0 0.00% 470 178 10.80% 470 0
CILCO S_P 30 320 18.20% 3 0.20% 785 323 18.40% 792 7
CILCO S_OP 20 377 22.50% 0 0.00% 1017 377 22.50% 1017 0
CILCO W_SP 25 161 10.70% 0 0.00% 434 161 10.70% 434 0
CILCO W_P 20 248 16.10% 0 0.00% 736 248 16.10% 736 0
CILCO W_OP 15 11 0.80% 0 0.00% 1288 11 0.80% 1288 0
CILCO SH_SP 40 108 7.10% 0 0.00% 399 108 7.10% 399 0
CILCO SH_P 25 170 11.10% 0 0.00% 622 170 11.10% 622 0
CILCO SH_OP 15 12 0.90% 0 0.00% 1188 12 0.90% 1188 0
IPL S_SP1 100 21 0.80% 140 5.10% 469 161 5.80% 477 8
IPL S_SP2 75 23 0.80% 140 5.10% 474 162 5.90% 482 8
IPL S_SP3 50 32 1.20% 0 0.00% 552 32 1.20% 552 0
IPL S_P 30 41 1.50% 221 8.20% 698 262 9.70% 723 25
IPL S_OP 20 23 0.80% 513 17.20% 1007 535 17.90% 1032 26
IPL W_SP 25 60 1.60% 0 0.00% 701 60 1.60% 701 0
IPL W_P 20 39 1.00% 322 8.40% 1011 362 9.40% 1028 17
IPL W_OP 15 0 0.00% 593 15.10% 2346 593 15.10% 2346 0
IPL SH_SP 40 41 1.20% 0 0.00% 508 41 1.20% 508 0
IPL SH_P 25 41 1.10% 239 6.70% 670 280 7.80% 685 15
IPL SH_OP 15 0 0.00% 594 16.00% 2761 594 16.00% 2761 0
AEP S_SP1 100 334 1.10% 134 0.50% 486 469 1.60% 487 1
AEP S_SP2 75 337 1.20% 134 0.50% 494 471 1.60% 495 1
AEP S_SP3 50 331 1.20% 0 0.00% 539 331 1.20% 539 0
AEP S_P 30 424 1.50% 214 0.80% 821 638 2.30% 824 2
AEP S_OP 20 454 1.50% 496 1.70% 1044 950 3.20% 1049 5
AEP W_SP 25 330 1.40% 0 0.00% 758 330 1.40% 758 0
AEP W_P 20 288 1.10% 311 1.20% 867 599 2.30% 869 3
AEP W_OP 15 276 1.30% 0 0.00% 1575 276 1.30% 1575 0
AEP SH_SP 40 334 1.40% 0 0.00% 507 334 1.40% 507 0
AEP SH_P 25 363 1.60% 231 1.00% 778 595 2.60% 781 3
AEP SH_OP 15 257 1.40% 0 0.00% 1836 257 1.40% 1836 0
AMEREN S_SP1 100 322 2.50% 24 0.20% 269 346 2.70% 270 1
AMEREN S_SP2 75 323 2.60% 0 0.00% 261 323 2.60% 261 0
AMEREN S_SP3 50 235 1.90% 0 0.00% 300 235 1.90% 300 0
AMEREN S_P 30 441 3.40% 36 0.30% 474 477 3.70% 476 2
AMEREN S_OP 20 426 4.20% 0 0.00% 796 426 4.20% 796 0
AMEREN W_SP 25 434 3.50% 0 0.00% 355 434 3.50% 355 0
AMEREN W_P 20 361 2.50% 0 0.00% 574 361 2.50% 574 0
AMEREN W_OP 15 266 1.90% 0 0.00% 662 266 1.90% 662 0
AMEREN SH_SP 40 169 1.20% 0 0.00% 280 169 1.20% 280 0
AMEREN SH_P 25 231 1.80% 40 0.30% 444 271 2.10% 445 1
AMEREN SH_OP 15 242 2.30% 0 0.00% 635 242 2.30% 635 0
CIN S_SP1 100 126 0.80% 135 0.80% 477 260 1.60% 478 1
CIN S_SP2 75 139 0.90% 135 0.90% 487 274 1.70% 489 2
CIN S_SP3 50 160 1.00% 0 0.00% 571 160 1.00% 571 0
CIN S_P 30 200 1.40% 213 1.50% 843 413 2.80% 847 4
CIN S_OP 20 96 0.70% 415 3.00% 1149 511 3.70% 1153 4
CIN W_SP 25 232 1.90% 0 0.00% 1078 232 1.90% 1078 0
CIN W_P 20 97 0.90% 133 1.20% 1042 230 2.00% 1044 2
CIN W_OP 15 5 0.00% 0 0.00% 1499 5 0.00% 1499 0
CIN SH_SP 40 166 1.20% 0 0.00% 647 166 1.20% 647 0
CIN SH_P 25 141 1.10% 165 1.30% 1047 306 2.40% 1050 3
CIN SH_OP 15 0 0.00% 0 0.00% 2283 0 0.00% 2283 0
COMED S_SP1 100 119 1.30% 5 0.00% 1266 124 1.30% 1266 0
COMED S_SP2 75 127 1.40% 5 0.10% 1140 131 1.40% 1140 0
COMED S_SP3 50 43 0.50% 0 0.00% 1159 43 0.50% 1159 0
COMED S_P 30 68 0.60% 9 0.10% 1982 77 0.70% 1982 0
COMED S_OP 20 246 3.60% 13 0.20% 3017 259 3.80% 3019 1
COMED W_SP 25 52 1.00% 0 0.00% 1081 52 1.00% 1081 0
COMED W_P 20 67 1.10% 8 0.10% 2338 74 1.20% 2338 0
COMED W_OP 15 15 0.20% 0 0.00% 3943 15 0.20% 3943 0
COMED SH_SP 40 30 0.30% 0 0.00% 1008 30 0.30% 1008 0
COMED SH_P 25 42 0.70% 14 0.20% 1559 56 1.00% 1560 0
COMED SH_OP 15 14 0.20% 0 0.00% 3412 14 0.20% 3412 0
CWLP S_SP1 100 31 4.20% 1 0.10% 1067 31 4.30% 1068 1
CWLP S_SP2 75 31 4.30% 1 0.10% 1066 32 4.40% 1067 1
CWLP S_SP3 50 28 4.00% 0 0.00% 920 28 4.00% 920 0
CWLP S_P 30 42 5.50% 1 0.20% 1367 43 5.70% 1369 2
CWLP S_OP 20 53 7.80% 0 0.00% 1092 53 7.80% 1092 0
CWLP W_SP 25 25 3.50% 0 0.00% 791 25 3.50% 791 0
CWLP W_P 20 5 0.70% 0 0.00% 1065 5 0.70% 1065 0
CWLP W_OP 15 0 0.00% 0 0.00% 1137 0 0.00% 1137 0
CWLP SH_SP 40 12 1.60% 0 0.00% 969 12 1.60% 969 0
CWLP SH_P 25 26 3.60% 4 0.60% 810 30 4.20% 814 4
CWLP SH_OP 15 7 1.40% 0 0.00% 1083 7 1.40% 1083 0
HEC S_SP1 100 13 0.50% 35 1.40% 649 48 2.00% 651 1
HEC S_SP2 75 13 0.50% 36 1.50% 683 49 2.00% 685 2
HEC S_SP3 50 14 0.60% 0 0.00% 783 14 0.60% 783 0
HEC S_P 30 17 0.60% 55 2.10% 1129 72 2.70% 1132 3
HEC S_OP 20 16 0.60% 106 4.00% 1210 122 4.60% 1215 5
HEC W_SP 25 22 0.90% 0 0.00% 1156 22 0.90% 1156 0
HEC W_P 20 13 0.50% 86 3.40% 876 99 4.00% 880 4
HEC W_OP 15 0 0.00% 0 0.00% 1307 0 0.00% 1307 0
HEC SH_SP 40 15 0.70% 0 0.00% 735 15 0.70% 735 0
HEC SH_P 25 25 1.00% 45 1.90% 888 70 2.90% 891 4
HEC SH_OP 15 0 0.00% 0 0.00% 1329 0 0.00% 1329 0
IP S_SP1 100 211 2.70% 14 0.20% 522 225 2.90% 523 1
IP S_SP2 75 213 2.80% 0 0.00% 523 213 2.80% 523 0
IP S_SP3 50 199 2.70% 0 0.00% 556 199 2.70% 556 0
IP S_P 30 177 2.40% 0 0.00% 701 177 2.40% 701 0
IP S_OP 20 180 2.80% 0 0.00% 908 180 2.80% 908 0
IP W_SP 25 147 1.60% 0 0.00% 501 147 1.60% 501 0
IP W_P 20 149 1.60% 0 0.00% 695 149 1.60% 695 0
IP W_OP 15 25 0.30% 0 0.00% 1054 25 0.30% 1054 0
IP SH_SP 40 86 1.00% 0 0.00% 384 86 1.00% 384 0
IP SH_P 25 117 1.50% 33 0.40% 542 150 1.90% 543 1
IP SH_OP 15 27 0.40% 0 0.00% 972 27 0.40% 972 0
SIGE S_SP1 100 4 0.60% 11 1.60% 546 15 2.20% 548 2
SIGE S_SP2 75 5 0.70% 11 1.60% 565 16 2.30% 567 2
SIGE S_SP3 50 5 0.70% 0 0.00% 650 5 0.70% 650 0
SIGE S_P 30 6 0.90% 18 2.60% 793 24 3.40% 797 5
SIGE S_OP 20 2 0.30% 36 4.90% 874 38 5.20% 877 3
SIGE W_SP 25 7 1.00% 0 0.00% 973 7 1.00% 973 0
SIGE W_P 20 1 0.20% 19 3.00% 745 20 3.20% 746 1
SIGE W_OP 15 0 0.00% 0 0.00% 1456 0 0.00% 1456 0
SIGE SH_SP 40 5 0.70% 0 0.00% 793 5 0.70% 793 0
SIGE SH_P 25 6 0.90% 14 2.00% 857 20 3.00% 860 4
SIGE SH_OP 15 0 0.00% 0 0.00% 1200 0 0.00% 1200 0
</TABLE>
Exhibit No. WHH-4
<TABLE>
<CAPTION>
BASE MERGER
AES HHI HHI HHI
Market Period Price MW Mkt Share MW Mkt Share Pre-Merger MW Mkt Share Post-Merger Change
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CILCO S_SP1 100 1210 44.70% 2 0.10% 2409 1212 44.80% 2417 8
CILCO S_SP2 75 1210 44.70% 2 0.10% 2406 1212 44.80% 2414 8
CILCO S_SP3 50 1185 44.20% 2 0.10% 2369 1188 44.30% 2377 8
CILCO S_P 30 1160 43.70% 3 0.10% 2335 1163 43.80% 2345 10
CILCO S_OP 20 1120 45.50% 3 0.10% 2516 1123 45.60% 2527 11
CILCO W_SP 25 1019 41.40% 6 0.20% 2212 1025 41.60% 2231 19
CILCO W_P 20 1019 41.90% 0 0.00% 2318 1019 41.90% 2318 0
CILCO W_OP 15 330 19.50% 0 0.00% 1482 330 19.50% 1482 0
CILCO SH_SP 40 975 39.50% 4 0.20% 1958 980 39.60% 1971 14
CILCO SH_P 25 911 38.70% 6 0.20% 2027 916 38.90% 2046 19
CILCO SH_OP 15 294 17.90% 0 0.00% 1471 294 17.90% 1471 0
IPL S_SP1 100 4 0.10% 2844 52.10% 2954 2848 52.10% 2962 8
IPL S_SP2 75 4 0.10% 2844 52.10% 2954 2848 52.10% 2962 8
IPL S_SP3 50 4 0.10% 2658 50.40% 2801 2662 50.50% 2809 8
IPL S_P 30 5 0.10% 2440 49.60% 2747 2445 49.70% 2757 10
IPL S_OP 20 5 0.10% 2440 49.80% 2766 2445 49.90% 2776 10
IPL W_SP 25 8 0.10% 2450 40.00% 2039 2458 40.20% 2050 11
IPL W_P 20 7 0.10% 2450 41.10% 2209 2457 41.20% 2219 10
IPL W_OP 15 0 0.00% 2450 41.50% 2356 2450 41.50% 2356 0
IPL SH_SP 40 6 0.10% 2382 40.40% 2031 2389 40.50% 2040 9
IPL SH_P 25 7 0.10% 2177 39.30% 2040 2185 39.40% 2050 11
IPL SH_OP 15 0 0.00% 2177 40.50% 2218 2177 40.50% 2218 0
AEP S_SP1 100 152 0.20% 1678 2.60% 1434 1831 2.90% 1435 1
AEP S_SP2 75 153 0.20% 1679 2.60% 1434 1832 2.90% 1435 1
AEP S_SP3 50 155 0.20% 1665 2.60% 1436 1821 2.90% 1437 1
AEP S_P 30 182 0.30% 1761 2.80% 1482 1943 3.10% 1484 2
AEP S_OP 20 207 0.30% 1764 2.90% 1496 1971 3.20% 1498 2
AEP W_SP 25 105 0.20% 2003 3.00% 1375 2108 3.20% 1376 1
AEP W_P 20 157 0.30% 1752 2.80% 1520 1909 3.10% 1521 1
AEP W_OP 15 111 0.20% 1485 2.90% 1967 1597 3.10% 1969 1
AEP SH_SP 40 90 0.20% 1964 3.40% 1344 2054 3.60% 1345 1
AEP SH_P 25 89 0.20% 2099 3.70% 1392 2188 3.90% 1393 1
AEP SH_OP 15 94 0.20% 1174 2.70% 1974 1268 2.90% 1975 1
AMEREN S_SP1 100 452 2.00% 68 0.30% 2088 520 2.30% 2089 1
AMEREN S_SP2 75 452 2.10% 68 0.30% 2051 520 2.40% 2052 1
AMEREN S_SP3 50 452 2.10% 68 0.30% 2026 521 2.40% 2027 1
AMEREN S_P 30 463 2.10% 77 0.40% 2004 540 2.50% 2005 2
AMEREN S_OP 20 493 2.60% 77 0.40% 2373 569 3.10% 2375 2
AMEREN W_SP 25 350 1.50% 76 0.30% 1576 426 1.80% 1576 1
AMEREN W_P 20 80 0.30% 74 0.30% 1630 154 0.70% 1630 0
AMEREN W_OP 15 37 0.20% 0 0.00% 1515 37 0.20% 1515 0
AMEREN SH_SP 40 314 1.40% 60 0.30% 1463 374 1.60% 1464 1
AMEREN SH_P 25 321 1.50% 66 0.30% 1533 386 1.80% 1534 1
AMEREN SH_OP 15 45 0.20% 0 0.00% 1514 45 0.20% 1514 0
CIN S_SP1 100 22 0.10% 968 3.70% 2001 990 3.80% 2001 1
CIN S_SP2 75 22 0.10% 968 3.70% 1989 990 3.80% 1990 1
CIN S_SP3 50 23 0.10% 941 3.70% 1933 964 3.80% 1934 1
CIN S_P 30 30 0.10% 942 4.10% 1840 972 4.20% 1841 1
CIN S_OP 20 14 0.10% 942 4.20% 2006 955 4.30% 2007 1
CIN W_SP 25 35 0.20% 727 3.20% 1903 762 3.30% 1904 1
CIN W_P 20 26 0.10% 727 3.20% 1999 753 3.40% 1999 1
CIN W_OP 15 0 0.00% 729 3.80% 2380 729 3.80% 2380 0
CIN SH_SP 40 29 0.10% 744 3.10% 1846 773 3.20% 1846 1
CIN SH_P 25 37 0.20% 728 3.40% 1803 765 3.50% 1804 1
CIN SH_OP 15 0 0.00% 735 4.00% 2148 735 4.00% 2148 0
COMED S_SP1 100 119 0.50% 13 0.00% 5300 131 0.50% 5300 0
COMED S_SP2 75 119 0.50% 13 0.10% 5244 131 0.50% 5244 0
COMED S_SP3 50 117 0.50% 13 0.10% 5227 130 0.50% 5227 0
COMED S_P 30 117 0.50% 14 0.10% 5153 131 0.50% 5153 0
COMED S_OP 20 126 0.70% 16 0.10% 6713 142 0.80% 6713 0
COMED W_SP 25 110 0.60% 20 0.10% 6424 129 0.70% 6425 0
COMED W_P 20 121 0.70% 20 0.10% 6752 140 0.80% 6752 0
COMED W_OP 15 1 0.00% 6 0.00% 6772 7 0.00% 6772 0
COMED SH_SP 40 108 0.50% 17 0.10% 4758 125 0.50% 4758 0
COMED SH_P 25 104 0.60% 20 0.10% 6181 124 0.70% 6182 0
COMED SH_OP 15 1 0.00% 7 0.00% 6420 8 0.10% 6420 0
CWLP S_SP1 100 101 9.40% 1 0.10% 3038 102 9.50% 3040 1
CWLP S_SP2 75 101 9.40% 1 0.10% 3036 102 9.50% 3038 1
CWLP S_SP3 50 100 9.70% 1 0.10% 2892 101 9.80% 2894 2
CWLP S_P 30 98 9.40% 1 0.10% 2907 99 9.50% 2909 2
CWLP S_OP 20 98 10.60% 1 0.10% 2405 99 10.70% 2408 3
CWLP W_SP 25 85 8.60% 3 0.30% 2065 88 8.80% 2069 4
CWLP W_P 20 67 6.70% 1 0.10% 2072 68 6.80% 2073 1
CWLP W_OP 15 0 0.00% 3 0.50% 1013 3 0.50% 1013 0
CWLP SH_SP 40 82 7.80% 2 0.20% 2413 83 8.00% 2416 3
CWLP SH_P 25 80 8.50% 2 0.20% 1959 82 8.80% 1963 4
CWLP SH_OP 15 2 0.30% 4 0.60% 994 5 0.90% 994 0
HEC S_SP1 100 2 0.00% 187 5.60% 1770 188 5.70% 1771 1
HEC S_SP2 75 2 0.00% 187 5.60% 1768 189 5.70% 1769 1
HEC S_SP3 50 2 0.00% 183 5.50% 1757 184 5.60% 1757 1
HEC S_P 30 2 0.10% 189 5.70% 1754 191 5.70% 1754 1
HEC S_OP 20 2 0.10% 189 5.70% 1763 191 5.80% 1764 1
HEC W_SP 25 3 0.10% 83 2.50% 1906 86 2.60% 1906 0
HEC W_P 20 2 0.10% 83 2.50% 1891 85 2.60% 1891 0
HEC W_OP 15 0 0.00% 139 4.20% 1881 139 4.20% 1881 0
HEC SH_SP 40 2 0.10% 85 2.80% 1734 87 2.80% 1735 0
HEC SH_P 25 2 0.10% 83 2.70% 1759 85 2.80% 1760 0
HEC SH_OP 15 0 0.00% 142 4.60% 1729 142 4.60% 1729 0
IP S_SP1 100 435 4.10% 38 0.40% 1878 473 4.40% 1881 3
IP S_SP2 75 435 4.10% 38 0.40% 1873 473 4.40% 1875 3
IP S_SP3 50 435 4.10% 38 0.40% 1897 473 4.50% 1900 3
IP S_P 30 436 4.40% 42 0.40% 1782 478 4.80% 1785 4
IP S_OP 20 438 4.90% 42 0.50% 1910 481 5.40% 1915 5
IP W_SP 25 267 2.30% 66 0.60% 1386 333 2.90% 1389 3
IP W_P 20 58 0.50% 69 0.60% 1487 127 1.10% 1488 1
IP W_OP 15 2 0.00% 0 0.00% 1475 2 0.00% 1475 0
IP SH_SP 40 438 4.00% 41 0.40% 1314 479 4.40% 1317 3
IP SH_P 25 438 4.40% 47 0.50% 1364 485 4.80% 1368 4
IP SH_OP 15 3 0.00% 0 0.00% 1422 3 0.00% 1422 0
SIGE S_SP1 100 1 0.00% 100 5.50% 3931 101 5.50% 3932 1
SIGE S_SP2 75 1 0.00% 100 5.50% 3931 101 5.50% 3931 1
SIGE S_SP3 50 1 0.00% 97 5.40% 3880 97 5.40% 3880 1
SIGE S_P 30 1 0.10% 96 5.90% 3446 97 5.90% 3447 1
SIGE S_OP 20 1 0.10% 84 5.20% 3456 85 5.20% 3457 1
SIGE W_SP 25 1 0.10% 75 4.60% 3484 76 4.70% 3484 1
SIGE W_P 20 1 0.10% 75 4.70% 3568 76 4.70% 3568 1
SIGE W_OP 15 0 0.00% 75 4.60% 3502 75 4.60% 3502 0
SIGE SH_SP 40 1 0.00% 76 4.80% 3352 77 4.90% 3352 0
SIGE SH_P 25 1 0.10% 74 4.90% 3202 76 5.00% 3202 1
SIGE SH_OP 15 0 0.00% 74 4.90% 3229 74 4.90% 3229 0
</TABLE>
Exhibit No. WHH-5
<TABLE>
<CAPTION>
BASE MERGER
AES HHI HHI HHI
Market Period Price MW Mkt Share MW Mkt Share Pre-Merger MW Mkt Share Post-Merger Change
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CILCO S_SP1 100 1210 44.70% 2 0.10% 2409 1212 44.80% 2417 8
CILCO S_SP2 75 1210 44.70% 2 0.10% 2406 1212 44.80% 2414 8
CILCO S_SP3 50 1185 44.20% 2 0.10% 2369 1188 44.30% 2377 8
CILCO S_P 30 1160 43.70% 3 0.10% 2335 1163 43.80% 2345 10
CILCO S_OP 20 1120 45.50% 5 0.20% 2515 1124 45.60% 2533 17
CILCO W_SP 25 1019 41.40% 6 0.20% 2212 1025 41.60% 2232 20
CILCO W_P 20 1019 41.90% 0 0.00% 2317 1019 41.90% 2317 0
CILCO W_OP 15 330 19.40% 0 0.00% 1465 330 19.40% 1465 0
CILCO SH_SP 40 975 39.50% 4 0.20% 1958 980 39.60% 1971 14
CILCO SH_P 25 911 38.70% 6 0.30% 2026 917 38.90% 2047 20
CILCO SH_OP 15 294 18.00% 0 0.00% 1478 294 18.00% 1478 0
IPL S_SP1 100 4 0.10% 2844 52.10% 2954 2848 52.10% 2961 8
IPL S_SP2 75 4 0.10% 2844 52.10% 2954 2848 52.10% 2961 8
IPL S_SP3 50 4 0.10% 2658 50.40% 2800 2662 50.50% 2808 8
IPL S_P 30 5 0.10% 2440 49.60% 2749 2445 49.70% 2759 10
IPL S_OP 20 5 0.10% 2440 49.80% 2764 2446 49.90% 2774 11
IPL W_SP 25 8 0.10% 2450 40.10% 2042 2458 40.20% 2053 11
IPL W_P 20 8 0.10% 2450 40.10% 2028 2458 40.20% 2038 10
IPL W_OP 15 9 0.10% 2450 40.10% 2154 2459 40.20% 2165 12
IPL SH_SP 40 6 0.10% 2382 40.40% 2029 2388 40.50% 2037 9
IPL SH_P 25 7 0.10% 2177 39.30% 2036 2184 39.40% 2046 10
IPL SH_OP 15 8 0.10% 2177 39.40% 2197 2185 39.60% 2208 11
AEP S_SP1 100 152 0.20% 1678 2.60% 1434 1831 2.90% 1435 1
AEP S_SP2 75 153 0.20% 1679 2.60% 1434 1832 2.90% 1435 1
AEP S_SP3 50 155 0.20% 1665 2.60% 1436 1821 2.90% 1437 1
AEP S_P 30 182 0.30% 1761 2.80% 1482 1943 3.10% 1484 2
AEP S_OP 20 207 0.30% 1764 2.90% 1496 1971 3.20% 1498 2
AEP W_SP 25 105 0.20% 2003 3.00% 1375 2108 3.20% 1376 1
AEP W_P 20 157 0.30% 1628 2.60% 1526 1785 2.90% 1528 1
AEP W_OP 15 111 0.20% 1286 2.50% 1947 1398 2.70% 1948 1
AEP SH_SP 40 90 0.20% 1965 3.40% 1344 2054 3.60% 1345 1
AEP SH_P 25 89 0.20% 2099 3.70% 1392 2188 3.90% 1393 1
AEP SH_OP 15 94 0.20% 1337 3.10% 1972 1431 3.30% 1974 1
AMEREN S_SP1 100 452 2.00% 68 0.30% 2089 520 2.30% 2090 1
AMEREN S_SP2 75 452 2.10% 68 0.30% 2051 520 2.40% 2052 1
AMEREN S_SP3 50 452 2.10% 68 0.30% 2026 521 2.40% 2027 1
AMEREN S_P 30 463 2.10% 77 0.40% 2002 540 2.50% 2003 2
AMEREN S_OP 20 493 2.60% 78 0.40% 2373 571 3.10% 2375 2
AMEREN W_SP 25 350 1.50% 77 0.30% 1576 427 1.80% 1576 1
AMEREN W_P 20 155 0.70% 0 0.00% 1630 155 0.70% 1630 0
AMEREN W_OP 15 37 0.20% 0 0.00% 1515 37 0.20% 1515 0
AMEREN SH_SP 40 314 1.40% 60 0.30% 1463 374 1.60% 1464 1
AMEREN SH_P 25 321 1.50% 67 0.30% 1533 387 1.80% 1534 1
AMEREN SH_OP 15 46 0.20% 0 0.00% 1514 46 0.20% 1514 0
CIN S_SP1 100 22 0.10% 968 3.70% 2001 990 3.80% 2001 1
CIN S_SP2 75 22 0.10% 968 3.70% 1989 990 3.80% 1990 1
CIN S_SP3 50 23 0.10% 941 3.70% 1933 964 3.80% 1934 1
CIN S_P 30 30 0.10% 942 4.10% 1839 972 4.20% 1841 1
CIN S_OP 20 14 0.10% 942 4.20% 2006 955 4.30% 2007 1
CIN W_SP 25 35 0.20% 727 3.20% 1903 762 3.30% 1904 1
CIN W_P 20 26 0.10% 727 3.20% 1999 753 3.40% 1999 1
CIN W_OP 15 0 0.00% 0 0.00% 2469 0 0.00% 2469 0
CIN SH_SP 40 29 0.10% 744 3.10% 1846 773 3.20% 1846 1
CIN SH_P 25 37 0.20% 728 3.40% 1803 765 3.50% 1804 1
CIN SH_OP 15 0 0.00% 0 0.00% 2297 0 0.00% 2297 0
COMED S_SP1 100 119 0.50% 13 0.00% 5300 131 0.50% 5300 0
COMED S_SP2 75 119 0.50% 13 0.10% 5244 131 0.50% 5244 0
COMED S_SP3 50 117 0.50% 13 0.10% 5227 130 0.50% 5227 0
COMED S_P 30 117 0.50% 14 0.10% 5153 131 0.50% 5153 0
COMED S_OP 20 126 0.70% 16 0.10% 6713 142 0.80% 6713 0
COMED W_SP 25 110 0.60% 20 0.10% 6424 129 0.70% 6425 0
COMED W_P 20 121 0.70% 17 0.10% 6752 138 0.80% 6752 0
COMED W_OP 15 1 0.00% 24 0.10% 6772 25 0.10% 6772 0
COMED SH_SP 40 108 0.50% 18 0.10% 4754 126 0.50% 4754 0
COMED SH_P 25 104 0.60% 20 0.10% 6181 124 0.70% 6181 0
COMED SH_OP 15 1 0.00% 21 0.10% 6422 22 0.10% 6422 0
CWLP S_SP1 100 101 9.40% 1 0.10% 3038 102 9.50% 3040 1
CWLP S_SP2 75 101 9.40% 1 0.10% 3036 102 9.50% 3038 1
CWLP S_SP3 50 100 9.70% 1 0.10% 2892 101 9.80% 2894 2
CWLP S_P 30 98 9.40% 1 0.10% 2907 99 9.50% 2909 2
CWLP S_OP 20 98 10.60% 1 0.10% 2405 99 10.70% 2408 3
CWLP W_SP 25 85 8.60% 3 0.30% 2065 88 8.80% 2069 5
CWLP W_P 20 67 6.70% 4 0.40% 2071 71 7.10% 2076 5
CWLP W_OP 15 0 0.00% 0 0.00% 1016 0 0.00% 1016 0
CWLP SH_SP 40 82 7.80% 2 0.20% 2413 83 8.00% 2416 3
CWLP SH_P 25 80 8.50% 2 0.20% 1959 82 8.80% 1963 4
CWLP SH_OP 15 2 0.30% 0 0.00% 998 2 0.30% 998 0
HEC S_SP1 100 2 0.00% 187 5.60% 1770 188 5.70% 1771 1
HEC S_SP2 75 2 0.00% 187 5.60% 1768 189 5.70% 1769 1
HEC S_SP3 50 2 0.00% 183 5.50% 1757 184 5.60% 1757 1
HEC S_P 30 2 0.10% 189 5.70% 1754 191 5.70% 1754 1
HEC S_OP 20 2 0.10% 189 5.70% 1763 191 5.80% 1764 1
HEC W_SP 25 2 0.10% 134 4.10% 1836 137 4.20% 1836 1
HEC W_P 20 2 0.10% 135 4.10% 1848 136 4.10% 1848 0
HEC W_OP 15 0 0.00% 105 3.20% 1889 105 3.20% 1889 0
HEC SH_SP 40 2 0.10% 137 4.50% 1687 138 4.50% 1687 1
HEC SH_P 25 2 0.10% 137 4.50% 1710 139 4.50% 1711 1
HEC SH_OP 15 0 0.00% 106 3.50% 1736 106 3.50% 1736 0
IP S_SP1 100 435 4.10% 38 0.40% 1877 473 4.40% 1880 3
IP S_SP2 75 435 4.10% 38 0.40% 1872 473 4.40% 1875 3
IP S_SP3 50 435 4.10% 38 0.40% 1897 473 4.50% 1900 3
IP S_P 30 436 4.40% 42 0.40% 1782 478 4.80% 1785 4
IP S_OP 20 439 4.90% 8 0.10% 1923 447 5.00% 1924 1
IP W_SP 25 267 2.30% 66 0.60% 1387 333 2.90% 1389 3
IP W_P 20 115 1.00% 0 0.00% 1488 115 1.00% 1488 0
IP W_OP 15 2 0.00% 0 0.00% 1476 2 0.00% 1476 0
IP SH_SP 40 438 4.00% 41 0.40% 1314 479 4.40% 1317 3
IP SH_P 25 438 4.40% 47 0.50% 1364 485 4.80% 1368 4
IP SH_OP 15 3 0.00% 0 0.00% 1425 3 0.00% 1425 0
SIGE S_SP1 100 1 0.00% 100 5.50% 3931 101 5.50% 3932 1
SIGE S_SP2 75 1 0.00% 100 5.50% 3931 101 5.50% 3931 1
SIGE S_SP3 50 1 0.00% 97 5.40% 3880 97 5.40% 3880 1
SIGE S_P 30 1 0.10% 96 5.90% 3446 97 5.90% 3447 1
SIGE S_OP 20 1 0.10% 96 5.90% 3457 97 5.90% 3457 1
SIGE W_SP 25 1 0.10% 75 4.60% 3484 76 4.70% 3485 1
SIGE W_P 20 1 0.10% 75 4.70% 3568 76 4.70% 3569 1
SIGE W_OP 15 0 0.00% 8 0.50% 3692 8 0.50% 3692 0
SIGE SH_SP 40 1 0.00% 76 4.80% 3352 77 4.90% 3352 0
SIGE SH_P 25 1 0.10% 74 4.90% 3201 76 5.00% 3202 1
SIGE SH_OP 15 0 0.00% 6 0.40% 3430 6 0.40% 3430 0
</TABLE>
Exhibit No. WHH-6
<TABLE>
<CAPTION>
BASE MERGER
AES HHI HHI HHI
Market Period Price MW Mkt Share MW Mkt Share Pre-Merger MW Mkt Share Post-Merger Change
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CILCO S_SP1 100 1210 46.70% 3 0.10% 2525 1213 46.80% 2534 9
CILCO S_SP2 75 1210 46.70% 3 0.10% 2523 1213 46.80% 2532 9
CILCO S_SP3 50 1185 46.20% 3 0.10% 2483 1188 46.30% 2492 10
CILCO S_P 30 1160 45.70% 4 0.10% 2486 1164 45.80% 2498 13
CILCO S_OP 20 1120 45.20% 3 0.10% 2488 1123 45.30% 2499 11
CILCO W_SP 25 1019 42.70% 6 0.30% 2154 1026 42.90% 2177 23
CILCO W_P 20 1019 43.40% 0 0.00% 2266 1019 43.40% 2266 0
CILCO W_OP 15 330 20.20% 0 0.00% 1131 330 20.20% 1131 0
CILCO SH_SP 40 975 41.30% 5 0.20% 2009 980 41.50% 2026 17
CILCO SH_P 25 911 39.90% 6 0.30% 1958 917 40.20% 1981 23
CILCO SH_OP 15 294 18.40% 0 0.00% 1118 294 18.40% 1118 0
IPL S_SP1 100 4 0.10% 2844 52.10% 2954 2848 52.10% 2961 8
IPL S_SP2 75 4 0.10% 2844 52.10% 2954 2848 52.10% 2961 8
IPL S_SP3 50 4 0.10% 2658 50.40% 2799 2662 50.40% 2807 8
IPL S_P 30 5 0.10% 2440 49.60% 2745 2445 49.70% 2754 10
IPL S_OP 20 5 0.10% 2440 49.80% 2763 2445 49.90% 2773 9
IPL W_SP 25 8 0.10% 2450 40.00% 2075 2458 40.20% 2086 11
IPL W_P 20 6 0.10% 2450 41.00% 2206 2456 41.10% 2214 8
IPL W_OP 15 0 0.00% 2450 41.50% 2357 2450 41.50% 2357 0
IPL SH_SP 40 6 0.10% 2382 40.40% 2030 2389 40.50% 2039 9
IPL SH_P 25 7 0.10% 2177 39.20% 2039 2185 39.40% 2049 10
IPL SH_OP 15 0 0.00% 2177 40.50% 2220 2177 40.50% 2220 0
AEP S_SP1 100 196 0.30% 1671 2.60% 1386 1866 2.90% 1388 2
AEP S_SP2 75 196 0.30% 1672 2.60% 1386 1868 2.90% 1388 2
AEP S_SP3 50 81 0.10% 1662 2.60% 1400 1743 2.70% 1401 1
AEP S_P 30 93 0.10% 1761 2.80% 1460 1854 2.90% 1461 1
AEP S_OP 20 204 0.30% 1765 2.90% 1496 1969 3.20% 1498 2
AEP W_SP 25 105 0.20% 2003 3.00% 1377 2108 3.20% 1378 1
AEP W_P 20 157 0.30% 1755 2.80% 1518 1912 3.10% 1519 1
AEP W_OP 15 111 0.20% 1486 2.90% 1967 1597 3.10% 1969 1
AEP SH_SP 40 89 0.20% 1963 3.40% 1332 2053 3.50% 1333 1
AEP SH_P 25 89 0.20% 2101 3.70% 1392 2190 3.90% 1393 1
AEP SH_OP 15 94 0.20% 1174 2.70% 1973 1268 2.90% 1975 1
AMEREN S_SP1 100 452 2.00% 66 0.30% 2067 518 2.30% 2068 1
AMEREN S_SP2 75 452 2.00% 66 0.30% 2029 518 2.30% 2031 1
AMEREN S_SP3 50 452 2.10% 67 0.30% 2005 519 2.40% 2006 1
AMEREN S_P 30 464 2.10% 75 0.30% 1997 539 2.50% 1999 1
AMEREN S_OP 20 492 2.60% 74 0.40% 2347 566 3.00% 2349 2
AMEREN W_SP 25 484 2.00% 79 0.30% 1592 564 2.40% 1593 1
AMEREN W_P 20 273 1.20% 0 0.00% 1619 273 1.20% 1619 0
AMEREN W_OP 15 37 0.20% 0 0.00% 1529 37 0.20% 1529 0
AMEREN SH_SP 40 266 1.10% 56 0.20% 1464 322 1.40% 1464 1
AMEREN SH_P 25 461 2.10% 60 0.30% 1528 521 2.40% 1529 1
AMEREN SH_OP 15 45 0.20% 0 0.00% 1540 45 0.20% 1540 0
CIN S_SP1 100 21 0.10% 968 3.70% 2001 989 3.80% 2002 1
CIN S_SP2 75 21 0.10% 968 3.70% 1989 990 3.80% 1990 1
CIN S_SP3 50 22 0.10% 941 3.70% 1934 963 3.80% 1934 1
CIN S_P 30 33 0.10% 942 4.10% 1839 975 4.20% 1840 1
CIN S_OP 20 14 0.10% 942 4.20% 2003 956 4.30% 2004 1
CIN W_SP 25 36 0.20% 727 3.20% 1903 763 3.30% 1904 1
CIN W_P 20 15 0.10% 727 3.20% 2000 742 3.30% 2000 0
CIN W_OP 15 0 0.00% 729 3.80% 2369 729 3.80% 2369 0
CIN SH_SP 40 30 0.10% 744 3.10% 1846 773 3.20% 1847 1
CIN SH_P 25 38 0.20% 728 3.40% 1804 766 3.60% 1805 1
CIN SH_OP 15 0 0.00% 734 4.00% 2102 735 4.00% 2102 0
COMED S_SP1 100 119 0.50% 13 0.00% 5300 131 0.50% 5300 0
COMED S_SP2 75 119 0.50% 13 0.10% 5244 131 0.50% 5244 0
COMED S_SP3 50 117 0.50% 13 0.10% 5228 130 0.50% 5228 0
COMED S_P 30 115 0.50% 14 0.10% 5154 129 0.50% 5154 0
COMED S_OP 20 126 0.70% 15 0.10% 6694 141 0.80% 6694 0
COMED W_SP 25 110 0.60% 18 0.10% 6415 128 0.70% 6415 0
COMED W_P 20 99 0.50% 15 0.10% 6742 115 0.60% 6742 0
COMED W_OP 15 1 0.00% 19 0.10% 6758 20 0.10% 6758 0
COMED SH_SP 40 107 0.50% 16 0.10% 4755 123 0.50% 4755 0
COMED SH_P 25 105 0.60% 18 0.10% 6172 123 0.70% 6172 0
COMED SH_OP 15 7 0.00% 29 0.20% 6413 36 0.20% 6413 0
CWLP S_SP1 100 101 9.40% 1 0.10% 3043 102 9.50% 3045 1
CWLP S_SP2 75 101 9.40% 1 0.10% 3041 102 9.50% 3043 1
CWLP S_SP3 50 100 9.70% 1 0.10% 2896 101 9.70% 2898 2
CWLP S_P 30 97 9.40% 1 0.10% 2913 99 9.50% 2915 2
CWLP S_OP 20 98 10.60% 1 0.10% 2411 99 10.70% 2414 3
CWLP W_SP 25 85 8.60% 2 0.30% 2075 87 8.80% 2079 4
CWLP W_P 20 67 6.80% 2 0.20% 2109 69 7.00% 2112 3
CWLP W_OP 15 0 0.00% 2 0.30% 1021 2 0.30% 1021 0
CWLP SH_SP 40 81 7.80% 2 0.20% 2425 83 8.00% 2428 3
CWLP SH_P 25 79 8.50% 2 0.20% 1975 82 8.80% 1979 4
CWLP SH_OP 15 1 0.30% 2 0.40% 1008 3 0.60% 1008 0
HEC S_SP1 100 2 0.00% 187 5.60% 1771 188 5.70% 1771 1
HEC S_SP2 75 2 0.10% 187 5.60% 1769 189 5.70% 1769 1
HEC S_SP3 50 2 0.10% 183 5.50% 1757 184 5.60% 1758 1
HEC S_P 30 2 0.10% 189 5.70% 1754 191 5.80% 1755 1
HEC S_OP 20 2 0.10% 189 5.70% 1763 191 5.70% 1763 1
HEC W_SP 25 2 0.10% 134 4.10% 1835 137 4.20% 1836 1
HEC W_P 20 1 0.00% 135 4.10% 1849 136 4.10% 1849 0
HEC W_OP 15 0 0.00% 139 4.20% 1879 139 4.20% 1879 0
HEC SH_SP 40 2 0.10% 137 4.50% 1686 139 4.50% 1687 1
HEC SH_P 25 2 0.10% 137 4.50% 1710 140 4.50% 1711 1
HEC SH_OP 15 0 0.00% 142 4.60% 1728 142 4.60% 1728 0
IP S_SP1 100 277 2.60% 39 0.40% 1854 317 3.00% 1856 2
IP S_SP2 75 278 2.60% 39 0.40% 1849 317 3.00% 1851 2
IP S_SP3 50 276 2.60% 39 0.40% 1874 315 3.00% 1876 2
IP S_P 30 275 2.70% 44 0.40% 1775 319 3.20% 1778 2
IP S_OP 20 438 4.90% 0 0.00% 1936 438 4.90% 1936 0
IP W_SP 25 266 2.30% 61 0.50% 1367 327 2.80% 1369 2
IP W_P 20 17 0.20% 54 0.50% 1494 71 0.60% 1494 0
IP W_OP 15 5 0.00% 0 0.00% 1437 5 0.00% 1437 0
IP SH_SP 40 438 4.00% 42 0.40% 1315 480 4.40% 1318 3
IP SH_P 25 439 4.40% 47 0.50% 1364 486 4.80% 1368 4
IP SH_OP 15 14 0.10% 0 0.00% 1422 14 0.10% 1422 0
SIGE S_SP1 100 1 0.00% 88 4.80% 3934 89 4.90% 3934 0
SIGE S_SP2 75 1 0.00% 88 4.80% 3934 89 4.90% 3934 0
SIGE S_SP3 50 1 0.00% 85 4.70% 3880 86 4.80% 3881 0
SIGE S_P 30 1 0.10% 84 5.10% 3446 85 5.20% 3447 1
SIGE S_OP 20 1 0.00% 84 5.20% 3456 85 5.20% 3456 0
SIGE W_SP 25 1 0.10% 75 4.60% 3484 76 4.70% 3484 1
SIGE W_P 20 0 0.00% 75 4.70% 3568 75 4.70% 3568 0
SIGE W_OP 15 0 0.00% 75 4.60% 3501 75 4.60% 3501 0
SIGE SH_SP 40 1 0.10% 76 4.80% 3352 77 4.90% 3352 0
SIGE SH_P 25 1 0.10% 74 4.90% 3202 75 4.90% 3202 1
SIGE SH_OP 15 0 0.00% 74 4.90% 3228 74 4.90% 3228 0
</TABLE>
Exhibit No. WHH-7
<TABLE>
<CAPTION>
BASE MERGER
AES HHI HHI HHI
Market Period Price MW Mkt Share MW Mkt Share Pre-Merger MW Mkt Share Post-Merger Change
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CILCO S_SP1 100 1210 46.70% 3 0.10% 2525 1213 46.80% 2534 9
CILCO S_SP2 75 1210 46.70% 3 0.10% 2523 1213 46.80% 2532 9
CILCO S_SP3 50 1185 46.20% 3 0.10% 2483 1188 46.30% 2492 10
CILCO S_P 30 1160 45.70% 4 0.10% 2486 1164 45.80% 2498 13
CILCO S_OP 20 1120 45.20% 4 0.10% 2488 1123 45.30% 2501 13
CILCO W_SP 25 1019 42.70% 7 0.30% 2154 1026 42.90% 2178 24
CILCO W_P 20 1019 43.20% 5 0.20% 2253 1024 43.40% 2271 18
CILCO W_OP 15 330 20.20% 7 0.40% 1129 338 20.60% 1146 18
CILCO SH_SP 40 975 41.30% 5 0.20% 2009 980 41.50% 2026 17
CILCO SH_P 25 911 39.90% 7 0.30% 1958 918 40.20% 1982 24
CILCO SH_OP 15 294 18.40% 6 0.40% 1117 300 18.70% 1130 13
IPL S_SP1 100 4 0.10% 2844 52.10% 2954 2848 52.10% 2961 8
IPL S_SP2 75 4 0.10% 2844 52.10% 2954 2848 52.10% 2961 8
IPL S_SP3 50 4 0.10% 2658 50.40% 2799 2662 50.40% 2806 8
IPL S_P 30 5 0.10% 2440 49.60% 2747 2445 49.70% 2756 10
IPL S_OP 20 5 0.10% 2440 49.80% 2761 2446 49.90% 2772 11
IPL W_SP 25 8 0.10% 2450 40.00% 2040 2458 40.20% 2050 10
IPL W_P 20 7 0.10% 2450 40.00% 2021 2457 40.10% 2030 10
IPL W_OP 15 9 0.10% 2450 40.10% 2153 2459 40.20% 2165 12
IPL SH_SP 40 6 0.10% 2382 40.40% 2028 2388 40.50% 2037 9
IPL SH_P 25 7 0.10% 2177 39.20% 2035 2184 39.40% 2045 10
IPL SH_OP 15 8 0.10% 2177 39.40% 2201 2185 39.60% 2212 11
AEP S_SP1 100 196 0.30% 1671 2.60% 1386 1866 2.90% 1388 2
AEP S_SP2 75 196 0.30% 1672 2.60% 1386 1868 2.90% 1388 2
AEP S_SP3 50 81 0.10% 1662 2.60% 1400 1743 2.70% 1401 1
AEP S_P 30 93 0.10% 1761 2.80% 1460 1854 2.90% 1461 1
AEP S_OP 20 204 0.30% 1764 2.90% 1496 1969 3.20% 1498 2
AEP W_SP 25 105 0.20% 2001 3.00% 1381 2106 3.20% 1382 1
AEP W_P 20 157 0.30% 1630 2.60% 1524 1787 2.90% 1526 1
AEP W_OP 15 111 0.20% 1287 2.50% 1947 1398 2.70% 1948 1
AEP SH_SP 40 89 0.20% 1964 3.40% 1332 2053 3.50% 1333 1
AEP SH_P 25 89 0.20% 2053 3.60% 1393 2142 3.80% 1395 1
AEP SH_OP 15 94 0.20% 1337 3.10% 1972 1431 3.30% 1974 1
AMEREN S_SP1 100 452 2.00% 66 0.30% 2067 518 2.30% 2068 1
AMEREN S_SP2 75 452 2.00% 66 0.30% 2029 518 2.30% 2031 1
AMEREN S_SP3 50 452 2.10% 67 0.30% 2005 519 2.40% 2006 1
AMEREN S_P 30 464 2.10% 75 0.30% 2002 539 2.50% 2004 1
AMEREN S_OP 20 492 2.60% 76 0.40% 2351 568 3.00% 2353 2
AMEREN W_SP 25 484 2.00% 79 0.30% 1592 564 2.40% 1593 1
AMEREN W_P 20 273 1.20% 75 0.30% 1618 349 1.50% 1619 1
AMEREN W_OP 15 37 0.20% 0 0.00% 1528 37 0.20% 1528 0
AMEREN SH_SP 40 266 1.10% 56 0.20% 1464 322 1.40% 1465 1
AMEREN SH_P 25 461 2.10% 60 0.30% 1528 521 2.40% 1529 1
AMEREN SH_OP 15 46 0.20% 0 0.00% 1541 46 0.20% 1541 0
CIN S_SP1 100 21 0.10% 968 3.70% 2001 989 3.80% 2002 1
CIN S_SP2 75 21 0.10% 968 3.70% 1989 990 3.80% 1990 1
CIN S_SP3 50 22 0.10% 941 3.70% 1934 963 3.80% 1934 1
CIN S_P 30 33 0.10% 942 4.10% 1839 975 4.20% 1840 1
CIN S_OP 20 14 0.10% 942 4.20% 2003 956 4.30% 2004 1
CIN W_SP 25 36 0.20% 727 3.20% 1903 763 3.30% 1904 1
CIN W_P 20 15 0.10% 727 3.20% 1999 742 3.30% 2000 0
CIN W_OP 15 0 0.00% 0 0.00% 2468 0 0.00% 2468 0
CIN SH_SP 40 30 0.10% 744 3.10% 1846 773 3.20% 1847 1
CIN SH_P 25 38 0.20% 728 3.40% 1804 766 3.60% 1805 1
CIN SH_OP 15 0 0.00% 0 0.00% 2243 0 0.00% 2243 0
COMED S_SP1 100 119 0.50% 13 0.00% 5300 131 0.50% 5300 0
COMED S_SP2 75 119 0.50% 13 0.10% 5244 131 0.50% 5244 0
COMED S_SP3 50 117 0.50% 13 0.10% 5228 130 0.50% 5228 0
COMED S_P 30 115 0.50% 14 0.10% 5154 129 0.50% 5154 0
COMED S_OP 20 126 0.70% 15 0.10% 6694 141 0.80% 6694 0
COMED W_SP 25 110 0.60% 18 0.10% 6415 128 0.70% 6415 0
COMED W_P 20 99 0.50% 18 0.10% 6742 118 0.60% 6742 0
COMED W_OP 15 1 0.00% 11 0.10% 6758 12 0.10% 6758 0
COMED SH_SP 40 107 0.50% 16 0.10% 4755 123 0.50% 4755 0
COMED SH_P 25 105 0.60% 18 0.10% 6172 123 0.70% 6172 0
COMED SH_OP 15 7 0.00% 11 0.10% 6413 18 0.10% 6413 0
CWLP S_SP1 100 101 9.40% 1 0.10% 3043 102 9.50% 3045 1
CWLP S_SP2 75 101 9.40% 1 0.10% 3041 102 9.50% 3043 1
CWLP S_SP3 50 100 9.70% 1 0.10% 2896 101 9.70% 2898 2
CWLP S_P 30 97 9.40% 1 0.10% 2913 99 9.50% 2915 2
CWLP S_OP 20 98 10.60% 1 0.10% 2411 99 10.70% 2414 3
CWLP W_SP 25 85 8.60% 3 0.30% 2075 87 8.80% 2079 4
CWLP W_P 20 67 6.80% 2 0.20% 2108 69 7.00% 2111 3
CWLP W_OP 15 0 0.00% 0 0.00% 1028 0 0.00% 1028 0
CWLP SH_SP 40 81 7.80% 2 0.20% 2425 83 8.00% 2428 3
CWLP SH_P 25 79 8.50% 2 0.20% 1974 82 8.80% 1979 4
CWLP SH_OP 15 1 0.30% 0 0.00% 1014 1 0.30% 1014 0
HEC S_SP1 100 2 0.00% 187 5.60% 1771 188 5.70% 1771 1
HEC S_SP2 75 2 0.10% 187 5.60% 1769 189 5.70% 1769 1
HEC S_SP3 50 2 0.10% 183 5.50% 1757 184 5.60% 1758 1
HEC S_P 30 2 0.10% 189 5.70% 1754 191 5.80% 1755 1
HEC S_OP 20 2 0.10% 189 5.70% 1763 191 5.80% 1764 1
HEC W_SP 25 2 0.10% 134 4.10% 1835 137 4.20% 1835 1
HEC W_P 20 1 0.00% 135 4.10% 1847 136 4.10% 1847 0
HEC W_OP 15 0 0.00% 105 3.20% 1888 105 3.20% 1888 0
HEC SH_SP 40 2 0.10% 137 4.50% 1686 139 4.50% 1687 1
HEC SH_P 25 2 0.10% 137 4.50% 1710 140 4.50% 1710 1
HEC SH_OP 15 0 0.00% 106 3.50% 1734 106 3.50% 1734 0
IP S_SP1 100 277 2.60% 39 0.40% 1854 317 3.00% 1856 2
IP S_SP2 75 278 2.60% 39 0.40% 1849 317 3.00% 1851 2
IP S_SP3 50 276 2.60% 39 0.40% 1874 315 3.00% 1876 2
IP S_P 30 275 2.70% 44 0.40% 1775 319 3.20% 1778 2
IP S_OP 20 438 4.90% 44 0.50% 1935 482 5.40% 1940 5
IP W_SP 25 266 2.30% 61 0.50% 1366 328 2.80% 1369 2
IP W_P 20 17 0.20% 62 0.50% 1493 80 0.70% 1494 0
IP W_OP 15 5 0.00% 0 0.00% 1437 5 0.00% 1437 0
IP SH_SP 40 438 4.00% 42 0.40% 1315 480 4.40% 1318 3
IP SH_P 25 439 4.40% 47 0.50% 1364 486 4.80% 1368 4
IP SH_OP 15 14 0.10% 0 0.00% 1422 14 0.10% 1422 0
SIGE S_SP1 100 1 0.00% 100 5.50% 3931 100 5.50% 3932 0
SIGE S_SP2 75 1 0.00% 100 5.50% 3931 100 5.50% 3931 0
SIGE S_SP3 50 1 0.00% 97 5.40% 3880 97 5.40% 3881 0
SIGE S_P 30 1 0.10% 96 5.90% 3447 97 5.90% 3448 1
SIGE S_OP 20 1 0.00% 96 5.90% 3457 96 5.90% 3457 1
SIGE W_SP 25 1 0.10% 75 4.60% 3484 76 4.70% 3484 1
SIGE W_P 20 0 0.00% 75 4.70% 3568 75 4.70% 3568 0
SIGE W_OP 15 0 0.00% 8 0.50% 3691 8 0.50% 3691 0
SIGE SH_SP 40 1 0.10% 76 4.80% 3352 77 4.90% 3352 0
SIGE SH_P 25 1 0.10% 74 4.90% 3202 75 4.90% 3202 1
SIGE SH_OP 15 0 0.00% 6 0.40% 3429 6 0.40% 3429 0
</TABLE>
Exhibit No. WHH-8
Exhibit No. WHH-8
CASm Transmission Network
CILCO and IPL Interconnections
Summer Peak ATC
[GRAPHICS OMITTED]
Exhibit No. WHH-9
<TABLE>
<CAPTION>
1998
CILCO IPL
Other Party Purchase Sales Notes Purchase Sales Notes
<S> <C> <C> <C> <C> <C> <C>
AEP MWh 800 16,000 26,296 851,886
$ $ 48,000 $ 344,000 $ 906,624 $17,195,226
Ameren MWh 48320 2320 LF (P)
$ $1,776,604 $ 346,998
CIN MWh 35 71 23023 215,181
$ $ 507 $ 77,107 $ 613,775 $5,552,932
City Water, Light and Power 10959 16446
$ $ 319,274 $ 375,827
ComEd MWh 52491 155,301 27,500
$ $1,627,384 $3,038,424 $ 497,206
Hoosier MWh 4,775 281,195
$ $ 90,214 $5,986,836
IMPA MWh 749
$ $ 21,726
IP MWh 10861 27,315
$ $ 255,613 $ 636,205
SIGE MWh 5689 189540
$ $ 201,646 3866890
WABASH MWh 18,316
$ $ 353,521
WPL MWh 1600
$ $ 28,400
WEP MWh 200 694
$ $ 2,950 $ 14,582
</TABLE>
Notes:
Purchase column represents purchases made by CILCO / IPL from other party. Sales
column represents sales made by CILCO / IPL from other party. All transactions
are non-firm (classified as "OS") unless otherwise noted.
Source:
Sales - FERC Form 1, pages 310-311. Purchases - FERC Form 1, pages 326-327.
<TABLE>
<CAPTION>
1999
CILCO IPL
Other Party Purchase Sales Notes Purchase Sales Notes
<S> <C> <C> <C> <C> <C> <C> <C>
AEP MWh 25 835,019
$ $ 800 $15,809,462
Alliant MWh 74 788
$ $ 1,260 $ 23,090
Ameren MWh 127,752 9,505 LF (P)
$ $1,812,806 $ 289,274
CIN 58,580 IF 41,338 147,552
$ $1,341,482 $ 697,377 $3,888,910
City Water, Light and Power MWh 2,027 1,384
$ $ 47,083 $ 32,920
ComEd MWh 141,777 26,065 104
$ $3,042,752 $ 979,747 $ 1,993
Corn Belt MWh 17,842 SF
$ $ 665,688
DPL MWh 3,925 2,608
$ $1,076,623 $ 68,050
Hoosier MWh 1,412 348,876
$ $ 44,977 $7,461,364
IMPA MWh 104,187 28
$ $7,515,712 $ 741
IP MWh 55,517 22,543
$ $1,830,993 $ 619,726
NIPSCO MWh 50
$ $ 1,250
OKGE MWh 100
$ $ 9,850
SIGE MWh 13,621 182,954
$ $ 484,330 $3,639,094
WABASH MWh 1,145 34,711
$ $ 445,610 $ 603,641
WEP MWh 681
$ $ 12,463
</TABLE>
Notes:
Purchase column represents purchases made by CILCO / IPL from other party. Sales
column represents sales made by CILCO / IPL from other party. All transactions
are non-firm (classified as "OS") unless otherwise noted.
Source:
Sales - FERC Form 1, pages 310-311.
Purchases - FERC Form 1, pages 326-327.
Exhibit No. WHH-10
<TABLE>
<CAPTION>
Owner Plant Name Location Control Area Capacity (MW) Primary Fuel
<S> <C> <C> <C> <C> <C>
Central Illnois Light Sterling Avenue Peoria County, IL CILCO 30 NG
Central Illnois Light Indian Trails Pekin, IL CILCO 16 NG
Central Illnois Light Medina Valley Mossville, IL CILCO 36 NG
Total: 82
</TABLE>
Exhibit No. WHH-11
<TABLE>
<CAPTION>
Dispatch
Capacity Price Primary Unit
Plant Name Location Control Area CASm Node MW ($/MW) Fuel Type
AES Endeavor
<S> <C> <C> <C> <C> <C> <C> <C>
AES Thames Montville, CT New England ISO AES_NY 181 $17.09 Coal CT
AES Jennison Bainbridge, NY New York Power Pool AES_NY 71 $23.27 Coal ST
AES Somerset Barker, NY New York Power Pool AES_NY 676 $15.19 Coal ST
AES Westover Johnson City, NY New York Power Pool AES_NY 126 $17.67 Coal ST
AES Greenidge Dresden, NY New York Power Pool AES_NY 161 $16.79 Coal ST
AES_NY Corning, NY New York Power Pool AES_NY 85 $19.81 Coal ST
AES Cayuga Lansing, NY New York Power Pool AES_NY 306 $15.80 Coal ST
AES Kingston Ontario Ontario AES_NY 110 $29.46 Gas CC
AES Connecticut Yankee Haddam, CT New England ISO AES_NY 700 $21.40 NG CC
AES Enterprise
AES Beaver Valley Monaca, PA PJM AES_APS 125 $12.81 Coal ST
AES Warrior Run Cumberland, MD PJM AES_APS 180 $12.81 Coal ST
AES Ironwood Lebanon, PA PJM AES_PJM 720 $23.75 Gas CC
AES Red Oak Sayreville, NJ PJM AES_PJM 830 $23.75 Gas CC
AES Great Plains/AES CILCO
AES Shady Point Poteau, OK Oklahoma Gas & Electric AES_OKGE 320 $11.27 Coal ST
Total (AES - other generation): 4591
E D Edwards3 Central Illinois Light Co. CILCO 361 $15.39 COAL ST
E D Edwards2 Central Illinois Light Co. CILCO 262 $15.84 COAL ST
E D Edwards1 Central Illinois Light Co. CILCO 117 $16.27 COAL ST
Duck Creek1 Central Illinois Light Co. CILCO 366 $18.03 COAL ST
AES Indian Trails Central Illinois Light Co. CILCO 12 $28.36 NG CT
AES Medina Valley Central Illinois Light Co. CILCO 36 $28.36 NG GT
Sterling Avenue1 Central Illinois Light Co. CILCO 15 $39.57 NG GT
Sterling Avenue2 Central Illinois Light Co. CILCO 15 $39.57 NG GT
New Capacity 2001 Central Illinois Light Co. CILCO 26 $59.09 FO2 IC
CILCO Total: 1210
IPALCO
Petersburg4 Indianapolis Power & Light IPL 515 $12.01 COAL ST
PetersburgST1 Indianapolis Power & Light IPL 232 $12.01 COAL ST
PetersburgST2 Indianapolis Power & Light IPL 407 $12.01 COAL ST
PetersburgST3 Indianapolis Power & Light IPL 510 $12.01 COAL ST
Elmer W Stout5 Indianapolis Power & Light IPL 106 $13.85 COAL ST
Elmer W Stout6 Indianapolis Power & Light IPL 106 $13.85 COAL ST
Elmer W Stout7 Indianapolis Power & Light IPL 435 $13.85 COAL ST
H T Pritchard3 Indianapolis Power & Light IPL 43 $14.70 COAL ST
H T Pritchard4 Indianapolis Power & Light IPL 56 $14.70 COAL ST
H T Pritchard5 Indianapolis Power & Light IPL 62 $14.70 COAL ST
H T Pritchard6 Indianapolis Power & Light IPL 99 $14.70 COAL ST
Perry K4 Indianapolis Power & Light IPL 16 $14.86 COAL ST
Perry KHS Indianapolis Power & Light IPL 3 $14.86 COAL ST
Elmer W StoutGT4 Indianapolis Power & Light IPL 82 $33.22 NG GT
Elmer W StoutGT5 Indianapolis Power & Light IPL 82 $33.22 NG GT
Georgetown1 Indianapolis Power & Light IPL 79 $33.22 NG CT
PetersburgIC1 Indianapolis Power & Light IPL 3 $52.43 FO2 IC
PetersburgIC2 Indianapolis Power & Light IPL 3 $52.43 FO2 IC
PetersburgIC3 Indianapolis Power & Light IPL 2 $52.43 FO2 IC
H T PritchardIC1 Indianapolis Power & Light IPL 3 $54.28 FO2 IC
Elmer W StoutGT1 Indianapolis Power & Light IPL 20 $56.65 FO2 GT
Elmer W StoutGT2 Indianapolis Power & Light IPL 20 $56.65 FO2 GT
Elmer W StoutGT3 Indianapolis Power & Light IPL 20 $56.65 FO2 GT
Elmer W Stout3 Indianapolis Power & Light IPL 35 $57.06 FO2 ST
Elmer W Stout4 Indianapolis Power & Light IPL 35 $57.06 FO2 ST
H T Pritchard2 Indianapolis Power & Light IPL 39 $57.28 FO2 ST
H T PritchardST1 Indianapolis Power & Light IPL 39 $57.28 FO2 ST
Elmer W StoutIC1 Indianapolis Power & Light IPL 3 $59.35 FO2 IC
IPL Total: 3055
</TABLE>
Exhibit No. WHH-12
DATA AND METHODOLOGY
Table of Contents
INTRODUCTION............................................................
REGIONS MODELED.........................................................
ESTIMATING SUPPLY RESOURCES FOR EACH NODE...............................
SUPPLY CAPACITY
SUPPLY COST
TRANSMISSION NETWORK....................................................
TRANSMISSION CAPACITY
TRANSMISSION RATES
ALLOCATION OF LIMITED TRANSMISSION
SIMULTANEOUS IMPORT CAPABILITY
LOAD DATA AND TIME PERIODS ANALYZED.....................................
LOAD DATA FOR AVAILABLE ECONOMIC CAPACITY
PERIOD DEFINITIONS BASED ON HOURLY LOAD DATA
PRICE DATA
INTRODUCTION
This appendix describes the data required to conduct the market power
analyses as well as the source and methodology used to collect and input
the necessary data. The delivered price test requires estimating the
generating resources for each of the potential suppliers in the model,
specifying the transmission network that these suppliers can use to reach
the relevant destination market, load in each market and the destination
market price. All of the relevant data used in the analyses is included in
my workpapers.
PA Consulting's Competitive Analysis Screening model ("CASm") was used to
conduct the delivered price test. A complete description of CASm is
provided in Exhibit No. WHH-13. Briefly, CASm is a linear programming model
developed specifically to perform the calculations required in undertaking
the delivered price test. The model includes each potential supplier as a
distinct "node" or area that is connected via a transportation (or "pipes")
representation of the transmission network. Each link in the network has
its own non-simultaneous limit and cost. This limit is the control area to
control area limit. Flow restrictions can also be applied across sets of
links to capture any relevant simultaneous limits.
Potential suppliers are allowed to use all economically and physically
feasible links or paths to reach the destination market. In instances where
more generation meets the economic criterion of the delivered price test
than can actually be delivered on the transmission network, scarce
transmission capacity is allocated based on a proration method described
below.
REGIONS MODELED
The list of utilities (and corresponding abbreviations used in other
exhibits) is included in Exhibit No. WHH-14. Included in the analysis are
utilities from each of the following NERC regions:(1)
o East Central Area Reliability Coordination Agreement ("ECAR")
o Mid-America Interconnected Network ("MAIN")
o Mid-Atlantic Area Council ("MAAC", which is PJM)
o Southeastern Electric Reliability Council ("SERC")
o Southwest Power Pool ("SPP")
o Mid-Continent Area Power Pool ("MAPP")
o NYISO portion of the Northeast Power Coordinating Council ("NPCC")
This list of candidate suppliers does not pre-judge the question of the
geographic scope of the specific destination market, which is determined
via the delivered price test.(2)
---------------
(1) PJM, NYPP regions were aggregated into single areas. AES' generation in
NEPOOL and Ontario Hydro were conservatively included as part of the NYPP
region.
(2) This list was selected in recognition of the Commission's guidance
regarding the number of wheels a potential supplier can realistically
travel and still be considered a player in the destination market. For
example, in FirstEnergy, the Commission limited the number of wheels "a
supplier could reasonably travel to reach the destination market,"
recognizing that "[m]ore distant suppliers would face considerable losses
and transmission costs." 80 FERC paragraph 61,039 at 61,104. In
FirstEnergy, the Commission limited the potential suppliers to those within
four wheels. Ibid. Also, the request for comments on the use of computer
models in merger analysis suggests that "three wheels has been deemed
adequate." Inquiry Concerning the Commission's Policy on the Use of
Computer Models in Merger Analysis, Notice of Request for Written Comments
and Intent to Convene a Technical Conference, Docket No. PL98-6-000, April
16, 1998, page 24. Including a broader geographic region implies adding
additional potential suppliers not controlled by the Applicants; thus,
defining the set of potential suppliers in this manner is conservative.
ESTIMATING SUPPLY RESOURCES FOR EACH NODE
Supply curves, consisting of a price and quantity for each node, are
developed and entered into CASm.(3)
---------------
(3) I analyzed market participants as if the electric utility mergers pending
before the Commission had been approved and mergers consummated.
SUPPLY CAPACITY
The main source for data on generating plant capability, including
non-utility generators ("NUGs"), is the Form EIA-411. I used the
publications dated April 2000 (the most up-to-date data available),
supplemented by earlier editions as necessary. The EIA-411 provides data on
summer and winter capacity, planned retirements and additions and
jointly-owned units. For jointly-owned plants, shares were assigned to each
of the respective owners. Summer ratings were used for the summer and
shoulder periods and winter ratings for the winter period. The data were
adjusted to reflect planned retirements and capacity additions through
2001, as detailed in the EIA-411 forms.
I included those utility and merchant plants that are scheduled to enter
service by 2001. However, I limited these new plants to those that have
passed project, regulatory or financial hurdles (e.g., interconnection
agreements, financing, regulatory approvals or site permits), or which have
started construction. The specific merchant plants included are sho n in
workpapers. Each supplier's generating resources also were adjusted to
reflect long-term capacity purchase and sales.(4) Purchases and sales (of
one year or more duration) were identified from publicly available
information, such as FERC Form 1 and EIA Form 412 filings (or databases
based on these forms), Form EIA-411, individual utility resource plans and
NERC's Electricity Supply and Demand ("ES&D") database. These public data
on purchases and sales, however, are not entirely complete or consistent
across sources.
To the extent a utility has sold capacity under a long-term agreement,
ownership over that resource is assumed to pass to the buyer.(5)
Accordingly, as with jointly-owned units, generation ownership was adjusted
to reflect the transfer of control by assuming that the sale resulted in a
decrease in capacity for the seller and a corresponding increase in
capacity for the buyer. Consistent with guidance provided in Appendix A, it
was assumed that system power sales were comprised of the lowest-cost
supply for the seller unless a more representative price could be
identified.(6) To the extent that long-term sales could be identified
specifically as unit sales, the capacity of the specific generating unit
was adjusted and the variable element of the purchase price attributed to
the sale was the variable cost of the unit. The dispatch price for system
purchases was based on the energy price reported for long-term purchases in
the FERC Form 1 where such purchases could be identified and a variable
cost price determined.(7) The capacity representing firm purchases and sales
and shares of jointly-owned units was "moved" in the model from its actual
physical location to the geographic location of the buyer. This treatment
is consistent with using the public source ATC transmission data that
represent the incremental amount of capacity available for conducting
trades after accounting for base flows on the system. Thus, the methodology
is consistent with the transmission data that was used to reflect available
transmission capacity.
Since the delivered price test is intended to evaluate energy products, the
capacity (in MWs) reported in the Form EIA-411 was de-rated to approximate
the actual availability of the units in each period. That is, it was
assumed that generation capacity would be unavailable during some hours of
the year for either (planned) maintenance or forced (unplanned) outages.
Data reported in the most recent NERC Generating Availability Data System
was used to calculate the "average equivalent availability factor" to
estimate total outages, and the "average equivalent forced outage rate" to
estimate forced outages for fossil and nuclear plants.(8) Scheduled
maintenance was assumed to occur only during the non-peak (shoulder)
seasons and forced outages were assumed to occur uniformly throughout the
year.
This treatment of generating availability is designed to account for the
fact that resource availability changes by season. It is consistent with
how the time periods evaluated were defined (based on similar load hours in
each season, rather than by similar load hours for the entire year), and
with specifying transmission capacity by season, as discussed below.(9)
---------------
(4) This treatment does not include requirements contracts.
(5) utility.
(6) "[T]he lowest running cost units are used to serve native load and other
firm contractual obligations" (Appendix A, p. 11). The lowest-cost supply
that was available year-round (i.e., excluding hydro) was used.
(7) In instances where the purchases could not be matched with FERC Form 1
data, the dispatch price was estimated.
(8) These data were supplemented, where necessary, by data from other public
sources such as NERC and Electric Power Research Institute.
(9) A spreadsheet detailing the capacity and price of the units in the model is
included in a set of workpapers filed with the application.
SUPPLY COST
In calculating the supply curves, supply from each unit was assumed to be
available at any price above its incremental cost (the delivered price test
assumes supply is economic if its cost is up to 105% of the competitive
market price). The incremental cost is calculated by multiplying the fuel
cost for the unit by the unit's efficiency (heat rate) and adding any
additional variable costs that may apply, such as costs for variable
operations and maintenance and costs for environmental controls.(10) Data
were taken from the following sources:
o Heat rates - EIA Form 860, supplemented in a few instances by data from
Form EIA-411. (Note that the most recently available data is from the
1995 Form 860.) IPL does not report any data in the EIA Form 860,
therefore estimates from RDI's PowerDat database were used for the IPL
units reported in PowerDat. In other instances where information is not
available, an estimate is applied based on unit type.
o Fuel costs - Form 423. The estimated dispatch cost is based on spot or
interruptible fuel prices for a twelve month period ending March 2000.
Seasonal estimates were derived from the monthly data and applied to
derive dispatch costs by season. To the extent all fuel purchases in
that period had been made under contract rather than at spot prices, an
incremental price based on reported spot or interruptible prices in the
relevant region was estimated. Fuel prices were escalated to 2001 based
on the forecasts in the EIA Annual Energy Outlook.
o Variable O&M - $1/MWh for gas and oil steam units, $3/MWh for scrubbed
coal-fired units and $2/MWh for other coal-fired units (generic
estimates based on trade and industry sources). Additional VO&M adders
for other unit types are shown in workpapers.
o SO2 adder - $162/ton. The adder was applied to all relevant units
assuming that Phase 2 had been implemented as planned; all units are
assumed to pay an adder based on the SO2 content of the fuel burned.
---------------
(10) For NUGs, the incremental costs were estimated based on the energy price
reported in relevant regulatory filings, if available. Otherwise, NUGs were
assumed to be must-run and the variable costs set to zero. New merchant
capacity included in the analysis was priced assuming a heat rate of 10,000
Btu/kWh for combustion turbines and 7,000 Btu/kWh for combined cycle
plants. Variable O&M was also applied to the new units consistent with the
assumptions for existing units.
TRANSMISSION NETWORK
Appendix A specified that the transmission system be modeled on the basis
of inter-control area ATCs or TTCs using transmission prices based on
transmission providers' maximum non-firm OATT rates except where lower
rates could be clearly documented. This dictated a transportation
representation of the transmission network and the structure of CASm was
designed to conform to Appendix A. This representation remains appropriate
for portions of the United States, where transmission service is generally
provided under each transmission provider's Open Access tariff. Basing
tariffs on OATT rates is increasingly undercut by RTO transmission pricing
arrangements, however, and the Commission has instructed applicants to
account for them.(11) Also, proposed regional transmission organizations that
are not yet operating, such as the Midwest ISO and Alliance RTO, will
reduce pancaking of control area to control area transmission rates by
charging only one rate to travel through or out of their systems. Finally,
some pricing systems, such as MAPP's flow-based method for determining
transmission rates, create a more complex matrix of transmission prices
that is not wholly consistent with a transportation model. Nonetheless,
with some simplification, each of these alternative arrangements can be
modeled in CASm, as described below.
---------------
(11) Merger NOPR, page 29.
TRANSMISSION CAPACITY
Limits were placed on the amount of capacity that could be transferred over
the transmission network by both non-simultaneous control area to control
area limits and simultaneous interface limits. Control area-to-control area
limits are still applicable in most of the regions modeled. In the SPP and
MAPP regions, however, transmission reservations are no longer based solely
on control area to control area limits, but consider the impact of any
particular transfer on key elements of the network (termed "flowgates").
Control area to control area transmission capability was taken primarily
from postings on the Open Access Same-Time Information System or "OASIS."
OASIS reports Total Transmission Capability ("TTC"), firm Available
Transmission Capability ("ATC") and non-firm ATC. Data generally are
provided monthly for a twelve-month period starting with the next month.
Monthly non-firm ATCs postings from the third quarter of 2000 were used in
most instances.(12) Seasonal differences in transmission capability were
captured by using the average of June-August postings to represent a summer
capability; the average of December-February postings to represent a winter
capability; and the average of remaining months to represent a shoulder
capability.(13)
Using an ATC value, as opposed to a TTC value, is appropriate given the
manner in which generating resources were moved to each node to reflect for
jointly-owned units and long-term purchases and sales. Non-firm ATCs are
the appropriate input assumption for transfer capability since Economic
Capacity and Available Economic Capacity are intended to reflect
competition in non-firm energy.(14) I did analyze results using TTCs as a
sensitivity, as discussed in my testimony.
As noted above, the SPP and MAPP regions are now providing the public OASIS
postings for its member companies on the basis of flowgates rather than
posting point-to-point ATCs. Data from June 1999 were used for the SPP
region. For MAPP, some of the individual companies still list control area
to control area limits and for these links, data retrieved during the third
quarter 2000 were available. For the remaining MAPP links, data from the
fourth quarter of 1998 was used.(15)
---------------
(12) The exception is for some interfaces in MAPP and the SPP, as discussed
below.
(13) In instances where two parties post different capability for the same path,
the lower of the reported values was generally used. This assumption was
made on the basis that if a party sought use of a particular path, the
lower of the reported values would be applicable unless the utilities at
both the receipt and delivery points could agree differently.
In addition, third-party postings, i.e., ATCs from one utility to another
utility that it is not directly interconnected with, were not included in
the analyses.
(14) In reality, utilities frequently post the same value for both firm and
non-firm ATCs.
(15) Given that data is generally reported for the next 12 months, this implies
that the fourth quarter 1998 data covered through the winter of 2000.
TRANSMISSION RATES
The Commission's Appendix A guidelines implicitly assume a depiction of the
transmission system wherein control area to control area transactions occur
using each of the relevant control area's Open Access (Order 888) tariffs.
Appendix A also instructs applicants to model any applicable discounts that
are systematically available, and to account for regional transmission
organizations as they arise. In implementing transmission rates into the
analysis, regardless of the transmission regime, it has been assumed that
transmission charges would be incurred for the transmission system where
the generator is located and for wheeling the power through intermediate
systems, but not for the destination market. No transmission charge is
included for the transmission system in which the load is located. This has
no impact on the analysis, since including this charge (the transmission
charge included in the bundled rate of the transmission provider in the
area where the customer is located, or the "zonal" or postage stamp charges
in the case of an RTO) would symmetrically raise the delivered cost for
each supply to reach the destination market by the same amount. Thus, the
relative economics would not be impacted.(16) Losses, which are assumed to be
3.0 percent, are assessed for each wheel incurred along the path to deliver
power to the destination market but are not added for the final wheel into
the destination market.
In the regions potentially impacted by this merger, there are significant
regional transmission arrangements that can alter the cost of transmission
(indeed, lowering the costs in each instance), either by providing for
lower rates or by eliminating pancaking of transmission rates. The MISO and
Alliance RTOs, which are assumed to exist in all of the scenarios that I
analyzed, reduces the cost of transmission by eliminating pancaking.
Additionally, SPP and MAPP both have distance sensitive rates available
that allow users to transact under lower transmission costs than control
area to control area pancaked 888 rates. (17) These alternative transmission
tariffs were incorporated into CASm, with some simplifying assumptions
described below.
---------------
(16) Likewise, distinctions between "bundled and unbundled" transactions, which
affect the price paid for the final delivery of power, do not affect the
relative delivered prices of competing supplies.
(17) MAPP has in place a regional tariff that allows parties to transact using
rates based on the impact of each trade on various transmission facilities
throughout the affected network, rather than the traditional contract path
methodology. The MAPP rate structure was implemented in CASm by assuming
that the MAPP utilities scheduled and paid for transmission service along a
contract path basis.
SPP has a regional tariff that provides for distance sensitive rates. The
SPP tariff lists rates between any two eligible members and, like the MAPP
rate, was implemented along a contract path. In CASm, discounts were
applied to specific paths in the SPP and by season based on the historical
discount rates applied since the SPP tariff went into effect.
Order 888 Tariffs
Consistent with Order No. 592, the ceiling rates in Exhibit 8 (Non-Firm
Point-to-Point Transmission Service) of each utility's Order No. 888
filings were used for utilities that are not part of RTO arrangements.(18) In
many instances, utilities report both on-peak and off-peak ceiling rates in
its Order No. 888 filing. If so, then the applicable transmission rate for
the on- and off-peak periods were used. If not, then the filed ceiling rate
was applied for all periods. Ancillary service charges from Exhibits 1
(Scheduling, System Control and Dispatch Service) and 2 (Reactive Supply
and Voltage Control from Generation Sources Service) of Order No. 888
filings were added where applicable to determine the final rates.
---------------
(18) In some cases, individual utility rates also are relevant to the zonal
rates and for computing "through and out" rates within RTOs. In instances
where transmission data were not reported in dollars per MWh, the $/MW
rates were converted to $/MWh rates using the "Appalachian" method. 39 FERC
paragraph 61,296 at 61,965.
Midwest ISO and Alliance RTO
Two rates were derived for each of the RTOs included in the analysis.
First, a weighted average tariff rate was calculated and applied for
transactions that travel "through" and "out" of the RTO and is applied for
all paths from a RTO member to a non-RTO member. This rate is calculated as
the weighted average of all of the RTO members rates using publicly
available data for the weights and tariff data from the individual
company's Order 888 tariffs.(19) The second rate, the "in" and "within"
rate, is applicable for trades into and within the RTO. This rate is based
on the zone where the load is located. As discussed earlier, the final
import rate is not applied in CASm; thus the zonal RTO rates are not used
in the analyses. The applicable RTO rates change depending upon which
utilities are included in each RTO and a full derivation of the applicable
RTO rates is provided in workpapers.
---------------
(19) The RTO rate derivations were based on an illustrative calculation shown in
a MISO filing with FERC, which shows a unified tariff rather than a
calculation based on weighted averages per se. This should differ from the
methodology that I have used only in that the inter-system diversity (about
2 percent) would be taken into account using the methodology shown in the
filing.
ALLOCATION OF LIMITED TRANSMISSION
Appendix A notes that there are various methods for allocating
transmission, and that Applicants should support the method used.(20) There
are two basic approaches to allocating limited transmission capacity:
economic and pro rata. Under an economic allocation, available transmission
is assigned on the basis of the cost of the capacity (energy) competing to
use limited transmission capability. The lowest cost capacity is assumed to
have a priority in using the transmission. Higher cost generation is
excluded, despite its having costs below 105 percent of the destination
market price. In contrast, pro rata methods of allocation treat all
generation that meets the delivered price test equally in allocating scarce
transmission.
The paradigm lying behind the proration required by the Order No. 592
delivered price test (whether economic or pro rata methods are used) can be
likened to a tree, for which the root is the destination market. At the
furthest extremes are small branches, each one of which is connected to a
single larger branch and so on until the trunk and root are reached. There
is no ambiguity concerning the path. Hence, at every node (joining with a
large branch), all of the capacity that can access the limited capacity of
the branch can be calculated; each small branch's capacity is reduced
proportionately to the capacity of the branch. This can be repeated
successively, moving inward to the destination market. Even taking into
account the simplifications required by a "transportation" representation
of transmission, real world transmission systems are more complex. The
"small branch" distant utilities have multiple paths by which a destination
market can be reached. In some cases, paths may first be in a direction
away from the destination market, looping around onto another path to it.
An analysis that takes this important complexity into account is
computationally very difficult. Allocation methods differ partly in terms
of how the problem is simplified in order to make computation tractable.
This is described further in Exhibit No. WHH-13.
The major drawback of using an economic allocation is that it tends to
continually reallocate the same low cost energy, principally hydro and
nuclear energy (and non-dispatchable NUG capacity) over and over to each
destination market in the Economic Capacity measure. This occurs partly
because Appendix A does not take into consideration the opportunity cost of
supplying alternative markets to the destination market being analyzed,(21)
but primarily because each destination market is analyzed separately. This
allows the same low cost supplies to be allocated to each of the
destination markets. While this is not wholly inappropriate, since the
purpose of Appendix A is to measure potentially competing supply to each
destination market, it does mean that the very low cost supplies can travel
far and wide and occupy a highly disproportionate share of available
transmission. This repeated allocation of the same energy is particularly
troublesome given the large area involved in the analysis in the instant
case. This flaw is less severe in the Available Economic Capacity measure,
where the native load obligations absorb each control area's lowest cost
resources.
For purposes of this analysis, I allocated limited transmission capacity
using a "squeeze-down" method, so-named because it seeks to prorate
capacity at each node. I believe it to be the closest approximation to what
the Commission applied in the FirstEnergy merger(22) that is computationally
feasible. Under this method, shares of available transmission are allocated
at each interface, diluting as they get closer to the destination market.
When there is economic supply (i.e., having a delivered cost less than 105
percent of the destination market price) competing to get through a
constrained transmission interface into a control area, the transmission
capability is allocated to the suppliers in proportion to the amount of
economic supply each supplier has outside the interface.
Shares on each transmission path are based on the shares of deliverable
energy at the source node for the particular path being analyzed. The
calculations start at the outside of a network defined with the destination
market as its center and end at the destination market itself. A series of
decision rules are required to accomplished this proration. The purpose of
these decision rules is limited to assigning a unique power flow direction
to each link for any given destination market analysis. Once the links are
given a direction, the complex network can be solved. CASm implements a
series of rules to determine the direction of the path. The first rule (and
the one expected to be applied most frequently) is based on the direction
of the flow under an economic allocation of transmission capacity. Other
options take into consideration the predominant flow on the line based on
desired volume (the amount of economic capacity seeking to reach the
destination market, the number of participants seeking to use a path in a
particular direction and the path direction that points toward the
destination market.
The model proceeds to assign each supplier at each node a share equal to
their maximum supply capability. At each node, "new" suppliers (those
located at the node outside of the next interface) are given a share equal
to their supply capability and the shares of more distant suppliers (those
who have had to pass through interfaces more remote from the destination
market in order to reach the node) are scaled down to match the line
capacity into the node. Ultimately, the shares at the destination market
represent the prorated shares of economic capacity that is economically and
physically feasible.
---------------
(20) Order No. 592, paragraph 31,044 at 30,133. ("In many cases, multiple
suppliers could be subject to the same transmission path limitation to
reach the same destination market and the sum of their economic generation
capacity could exceed the transmission capability available to them. In
these cases, the ATC must be allocated among the potential suppliers for
analytic purposes. There are various methods for accomplishing this
allocation. Applicants should support the method used.")
(21) Indeed, if opportunity costs were taken into account, and one was
considering a regional dispatch, available transmission capacity
appropriately would be allocated on the basis of economics.
(22) Ohio Edison Company, et al., 80 FERC paragraph 61,039 at 61,107. ("When
there was more economic capacity (or available economic capacity) outside
of a transmission interface than the unreserved capability would allow to
be delivered into the destination market, the transmission capability was
allocated to the suppliers in proportion to the amount of economic capacity
each supplier had outside the interface.")
SIMULTANEOUS IMPORT CAPABILITY
In order to determine simultaneous transmission limitations, I utilized
data from various NERC transmission assessment reports. These reports
indicate common limiting facilities for multiple transmission
interconnections into a single market. For those instances where a common
facility limits imports over multiple paths, I assumed that the maximum
import capability was no greater than the maximum of the individual path
limits. This is consistent with the Commission's approach outlined in the
FirstEnergy decision.(23) All of the simultaneous limits applied in the model
are included in my workpapers.
---------------
(23) 80 FERC paragraph 61,039 at 61,104.
LOAD DATA AND TIME PERIODS ANALYZED
The most up-to-date hourly load data filed with the Commission (generally
covering 1999 calendar year) was used for two purposes: (1) as a measure of
native load responsibility for the Available Economic Capacity measure and
(2) to determine the correct seasonal time periods to evaluate (i.e., to
group similar hours).
LOAD DATA FOR AVAILABLE ECONOMIC CAPACITY
For the Available Economic Capacity measure, I generally used hourly load
data from FERC Form 714 for the most recent period available at the time
this analysis was undertaken. For the few utilities that do not file Form
714s (e.g., some cooperatives and municipal utilities) or whose data were
otherwise unavailable, data from the EIA-411 along with a load shape based
on those of similar utilities for which data were available were used.(24)
As noted in my testimony, this analysis did not assume any load loss due to
retail access. Nor did it assume that the divestitures available economic
capacity; rather generation and historic (i.e., pre-divestiture) loads were
matched up.
---------------
(24) The load data were escalated to 2001, based on the projected energy growth
rate reported in the EIA-411 or FERC Form 714. If such data were not
available, a regional growth rate reported for the relevant NERC region was
used.
PERIOD DEFINITIONS BASED ON HOURLY LOAD DATA
Appendix A requires applicants to evaluate the merger's impact on
competition under different system conditions. For example, aggregating
summer peak and shoulder peak conditions may mask important differences in
unit availability and therefore a merger could potentially impact
competition differently in these seasons. Thus, applicants are directed to
evaluate enough sufficiently different conditions to show the merger's
impact across a range of system conditions. On the other hand, the Merger
Guidelines discuss the ability to "sustain" a price increase, and a finding
that a structural test (HHI) that violates the safe harbor for some sub-set
of hours during the year may not be indicative of any market power
problems. Therefore, there is a trade-off between defining enough periods
to capture the merger's impact under different system conditions and
defining periods so narrowly as to make the resulting concentration
statistics irrelevant to an evaluation of whether a price increase could be
sustained. The data and methodology I used are described in my testimony.
PRICE DATA
In order to select the appropriate price bands to analyze, I prepared a
comparison of system lambda and price data in Power Markets Week. These
data are summarized in Exhibit No. WHH-15 and described in my testimony.
Exhibit No. WHH-13
COMPETITIVE ANALYSIS SCREENING MODEL (CASm)
PA Consulting developed the Competitive Analysis Screening model
("CASm_v87") to perform the calculations required in order to conduct a
market power analysis under Appendix A of the FERC Merger Policy Statement
("Order No. 592" or "Appendix A").(1) The delivered price test specified in
Appendix A requires an analysis of market concentration for a large number
of markets under a number of different conditions. CASm facilitates this
process by performing the required calculations.
The primary requirement of Appendix A is to assess potential suppliers to a
market using a "delivered price test". This test involves comparing
variable generation costs plus delivery costs (transmission rates,
transmission losses and ancillary services) to a "market price." If the
delivered cost of generation is less than 105 percent of the market price,
the generation is considered economic. Economic generation is further
limited to the amount that can be delivered into the market, given
transmission capability and constraints.
CASm implements the prescribed delivered price test by determining -- for
each destination market, for each relevant time period, and for each
relevant supply measure -- potential supply to the destination market both
pre- and post-merger. In effect, CASm determines the relevant geographic
market by applying the delivered price test, based on the economics of
production and delivery (transmission rates, transmission losses and
ancillary services), and also based on the physical transmission capacity
available to the competing suppliers on an open access basis. This requires
a delivery route for the energy on the established transmission paths, each
of which has a capability, transmission rate and transmission losses
associated with it. CASm finds the supply that can be delivered to the
destination market consistent with cost minimization and the delivered
price test.
As a formal matter, CASm minimizes the production and transmission costs of
supplying demand in the destination market. Any shortfall in demand is
filled by a hypothetical generator located in the destination market that
can produce an unlimited amount of energy at 105 percent of the market
price. On this basis, any supplier who can profitably supply energy to the
destination market will do so, to the maximum extent that their cost
structure and the transmission system allow. This formulation ensures that
no supplied generation is uneconomic; the hypothetical generator will
undercut all such suppliers.
CASm determines pre- and post-merger market shares and calculates
concentration (as measured by the Herfindahl-Hirschman Index, or HHI) and
the change in HHIs. To undertake these analyses, CASm solves a series of
scenarios involving a network of interconnected suppliers. By limiting
suppliers based on the economics of generation and delivery, or by limiting
the interconnections between those suppliers based on the transmission
capability, each Appendix A analysis can be completed. CASm includes a
simplified depiction of the transmission system, essentially a system of
"pipes" with independent, fixed capacity between and among utilities.
The following sections describe:
1. What data inputs are required to operate CASm
1. How different analyses are undertaken in CASm
2. What outputs CASm produces; and
3. How CASm is implemented.
---------------
(1) CASm was developed by predecessor companies, PHB and PHB-Hagler Bailly, and
has been used in analyzing numerous mergers and power plant acquisitions in
proceedings before the Commission.
INPUT DATA
MARKET PARTICIPANTS
The largest element of the required data for CASm relates to individual
market participants, which generally are utilities with both generating
capacity and load obligations. In addition, some market participants may
have load obligations but no generating capacity (e.g., transmission
dependent utilities, or TDUs) or have generating capacity but no load
obligations (e.g., merchant capacity). CASm regards all distinct market
participants as having the ability to both supply and consume electricity.
The particular circumstances of each analysis will determine the extent to
which each activity is possible.
Nodes
In CASm, a node is a location where electricity is generated or consumed,
or where it may "split" or change direction. All market participants are
defined as having a unique node, and hence unique location in the
transportation network. Total simultaneous import limits can be imposed at
each node to mirror reliability restrictions. Output Capability
Each market participant may have generating ability, which is defined
generically in terms of any number of "tranches" of generation having both
a quantity (MW) and dispatch cost ($/MWh). This output capability and cost
may differ over time, for example because of planned and unplanned outage
rates and fuel prices. CASm has a number of data inputs available for
modifying the underlying physical availability of generating assets to get
the relevant "supply curve" for any given model period. CASm can also cover
generation tranches to account for load obligations at each node (used for
the Available Economic Capacity measure, as discussed below).
Destination Market Prices
For each destination market, a prevailing market price is defined. The
destination market price is used to calculate a threshold price that
potential suppliers must meet to be included in the market for
economic-based analyses (that is, the "delivered price test").
INTERCONNECTIONS
Interconnections represent the network that links market participants
together. These interconnections are represented as a "transportation"
network, where flows are specifically directed.
Lines
A line between two nodes in CASm may represent either a single line, or the
combined effect of a number of lines. Each line has an upper limit on the
flow, and losses may occur on the line. Since capacity on the line may
represent physical limits less firm commitments, limits are allowed to be
different, depending on the direction of the flow. Limits on the
simultaneous flow on combinations of lines can be imposed to simulate the
effect of loopflow or reliability constraints.
SCENARIOS
The final input area for CASm is related to scenario definition. Scenarios
define which parties are considering merging, which load periods are
relevant, and so on. In effect, the scenarios define a number of individual
analyses to be performed, and how they should be compared to each other for
reporting purposes.
ACCOUNTING FOR OWNERSHIP
It is sometimes necessary to merge the results for several nodes, or to
split them, based on ownership changes between scenarios. CASm has a
"report as" function that will merge the results of several nodes into a
single to correctly account for ownership. REQUIRED CALCULATIONS
Appendix A's delivered price test defines two different supply measures to
evaluate:
4. ECONOMIC CAPACITY is the amount of capacity that can reach a market at a
cost (including transmission rates, transmission losses and ancillary
services) no more than 105 percent of the destination market price.
5. AVAILABLE ECONOMIC CAPACITY is the amount of Economic Capacity that is
available after serving native load and other net firm commitments with the
lowest cost units. For every analysis, the following process is undertaken:
First, a Linear Programming (LP) problem is solved. The LP construction is
slightly different, depending on the underlying assumptions of each of the
supply measures. CASm includes two options for allocating scarce
transmission capacity. CASm has a "proration" option, which is called
"squeeze-down". This is discussed in detail below. Another option is an
economic allocation of limited transfer capability. Under this option,
where available supply exceeds the ability of the network to deliver that
capacity to the destination market, the least-cost supply is allocated the
available transmission capacity.(2)
The final step involves calculating what can be delivered to the
destination market, after accounting for line losses. CASm allocates total
system losses amongst suppliers on the basis on how much they injected, and
how far away (how many wheels) they are from the destination market.
---------------
(2) CASm can be modified to apply different proration method when appropriate
for some analyses. ECONOMIC CAPACITY
For the Economic Capacity analysis, CASm solves an LP with the following
form: minimize cost for supplies at the destination market
subject to:
supply cost at destination < system lambda + 5%, for all
suppliers
supply < quantity(3), for each node and tranche
supply + flows in = flows out + "demand", for each node
line flows are adjusted for losses, for all
interconnections
line flows < available limit, for all interconnections
(constrained network only)
sum over lines (flow * simultaneous factor) <=
simultaneous limit, for all limits
sum over nodes (net injection * flowgate factor) <=
flowgate limit, for all limits
The objective is slightly different when transmission capacity is to be
prorated. The objective then becomes:
minimize cost for supplies at the destination market; and
minimize divergence from calculated pro rata "share", for
each supplier
---------------
(3) Available quantity may be modified. See discussion in the Output Capacity
section.
AVAILABLE ECONOMIC CAPACITY
For the Available Economic Capacity analysis, CASm solves an LP with the
following form:
minimize cost for supplies at the destination market
subject to:
supply cost at destination < system lambda + 5%, for all
suppliers
supply < quantity (less native load), for each node and
tranche
supply + flows in = flows out + "demand", for each node
line flows are adjusted for losses, for all
interconnections
line flows < available limit, for all interconnections
(constrained network only)
sum over lines (flow * simultaneous factor) <=
simultaneous limit, for all limits
sum over nodes (net injection * flowgate factor) <=
flowgate limit, for all limits
This is different from the economic capacity analysis only to the extent
that potential suppliers are required to meet their load obligations prior
to participating in the market.
When transmission capacity is to be prorated the objective becomes:
minimize cost for supplies at the destination market; and
minimize divergence from calculated pro rata "share", for each
supplier
OUTPUTS
The primary output from CASm is a report that summarizes the results of
different analyses. For each destination market, load period and FERC
analysis type, CASm reports the following for both pre- and post-merger:
6. Supplied MW
7. Market Share
8. HHIs
This report also shows the change in HHIs post-merger compared to
pre-merger. CASm also produces a transmission report that shows the detail
of each node, and the injections and flows between them. Finally, a summary
of the results for each market is also produced.
"SQUEEZE-DOWN" PRORATION
In the "squeeze-down" proration algorithm, prorated shares on each line are
based on the weighted shares of deliverable energy at the source node for
that line. As discussed below more fully below, weighted shares at the
destination market node are calculated by a recursive algorithm that starts
at the "outside" of the network, calculating shares on each line until it
reaches the "middle". Specifically, where available supply exceeds the
ability of the network to deliver that capacity to the destination market,
suppliers are allocated shares at each node, and hence each outgoing line,
based on the results of an algorithm that considers both supply and
transfer capability at each node. Starting at the "outside" of the network,
CASm calculates a share at each node that is based on a proportion of the
incoming transfer capability (and the share of that capability allocated to
each supplier), and the maximum economic supply available at that node.
When the algorithm reaches the destination market, a total share of the
incoming transfer capability has been determined. This algorithm requires
that all possible paths are simultaneously feasible, which, in turn,
requires that each line be assigned a unique "direction". The steps of the
proration algorithm include:
1. A C++ program enumerates all possible paths
to the destination, the cost of transmission on each path and the maximum
possible flow on the path. A "wheel limit", or maximum number of
point-to-point links, may be imposed on paths.
2. The minimum "entry cost" for each supplier is calculated. This cost is
the injection cost of the cheapest generator that has capacity for possible
delivery to the destination.
3. Paths for which the entry cost plus the transmission cost are higher than
105% of the destination market price are rejected as being uneconomic.
4.To the extent remaining paths are not simultaneously feasible (because,
for example, suppliers can seek to use the paths in both directions), a
series of decision rules for determining the direction of the line are
undertaken (in the following order):
o Instructions can be manually input as to the chosen direction of a line.
o Merger-case decisions should be consistent with base-case decisions.
o The direction of the line as determined in an economic allocation of
available transmission is applied.
o The direction heading toward a destination market, if it is clear, is
chosen.
o The direction that retains the maximum potential volume-weighted flow on
the line (calculated from the paths that depend on this line) is
chosen.
o The direction on which the maximum number of economic paths depend is
chosen. If these other options fail to reach a feasible solution,
manual input will be required.
5. Proration begins at nodes furthest from the destination market (where
only exports, and no imports are being attempted). Suppliers at these nodes
are assigned a "share" equal to their maximum economic supply capability.
6. Proration continues at the next set of nodes, that should consist only of
nodes with inflows from "resolved" nodes from step 5. Suppliers at these
nodes are assigned a "share" equal to their maximum economic supply
capability. Suppliers from the "resolved" nodes have their shares scaled
down to match the transmission capacity into the node.
7. To the extent an iteration of the algorithm does not resolve any
additional nodes and the destination market has not yet been reached (i.e.,
a loop is detected), flow is disallowed from any unresolved node to the
furthest and smallest node affected by a loop.
8. The proration has been completed when the destination market node has
been resolved. At that point, the "shares" at the destination market
represent the prorated shares of deliverable energy.
9. Injections for each supplier are "capped" at the calculated shares, and
these injections are then checked for economic feasibility. While suppliers
need not deliver their energy to the destination in exactly the way that
their share was calculated, the solution is still both economically and
physically feasible. The final solution represents the least-cost method of
delivering these supplies.
CASm IMPLEMENTATION
CASm_v87 has been implemented using GAMS (Generalized Algebraic Modeling
System), release 2.5. GAMS is a programming language which supports both
data manipulation and calls to many mainstream mathematical modeling
systems. The linear programming problems generated by CASm are solved by
BDMLP. The path enumeration program has been written in Microsoft Visual
C++ version 5.
Exhibit No. WHH-14
<TABLE>
<CAPTION>
NERC Supplier Node Control Area
<S> <C> <C> <C> <C>
ECAR AEP Generating Co AEP American Electric Power Co., Inc. u
ECAR AEP Generating Co TDU AEP_TDU American Electric Power Co., Inc. t
ECAR AES Plants in Allegheny Power Systems Control Area AES_APS Allegheny Energy, Inc. m
ECAR American Municipal Power - Ohio AMPO American Electric Power Co., Inc. t
ECAR Allegheny Energy, Inc. APS Allegheny Energy, Inc. u
ECAR Big Rivers Electric Corp. BREC Big Rivers Electric Corp. u
ECAR Big Rivers Electric Corp. TDU BREC_TDU Big Rivers Electric Corp. t
ECAR Cincinnati Gas & Electric CIN Cinergy Services, Inc. u
ECAR Cinergy's Share of Trenton Plant CIN_MER Cinergy Services, Inc. m
ECAR Cincinnati Gas & Electric TDU CIN_TDU Cinergy Services, Inc. t
ECAR Coastal Power Midland Cogeneration Venture COAST_CP Michigan Electric Power Coordination Center m
ECAR CMS Comstock COM_CMS Consumer's Power m
ECAR Consumer's Power Comant CP Michigan Electric Power Coordination Center u
ECAR Detroit Edison Company DECO Michigan Electric Power Coordination Center u
ECAR Duquesne Light DLCO Duquesne Light Co. u
ECAR Dominion Resources Plants in APS DOM_APS Alegheny Energy m
ECAR Dayton Power & Light DPL Dayton Power & Light Co. u
ECAR Dominion Muskingum County Plant DRI_AEP American Electric Power Co., Inc. m
ECAR DTE Energy Georgetown DTE_IPL Indianapolis Power & Light Co. m
ECAR Duke's Madison Plant DUK_AEP American Electric Power Co., Inc. m
ECAR Duke's Share of Trenton Plant DUK_CIN Cinergy Services, Inc. m
ECAR Duke's DeSoto Plant DUK_SOTO Cinergy Services, Inc. m
ECAR Dynegy's BlueGrass Generation DYN_LGE Louisville Gas & Electric m
ECAR East Kentucky Power Coop. EKPC East Kentucky Power Coop, Inc. u
ECAR Enron's Wheatland Plant in Cinergy and IPL ENR_CIN Cinergy and Indianapolis Power & Light Co. m
ECAR First Energy FENER First Energy u
ECAR CMS Gaylord GAY_CMS Consumer's Power m
ECAR Hoosier Energy Coop. HEC Hoosier Energy Rural Electric Coop, Inc. u
ECAR City of Holland HLND Michigan Electric Power Coordination Center t
ECAR Indianapolis Power & Light IPL Indianapolis Power & Light Co. u
ECAR Lansing, City of LANS Michigan Electric Power Coordination Center t
ECAR LG&E Energy Corp. LGE LG&E Energy Corp. u
ECAR Midland Cogeneration Venture MCV_CP Michigan Electric Power Coordination Center m
ECAR Michigan Electric Power Coordination Center
(Consumers Power and Detroit Edison MECS Michigan Electric Power Coordination Center u
ECAR Michigan Electric Power Coordination Center TDU MECS_TDU Michigan Electric Power Coordination Center t
ECAR Northern Indiana Public Service NIPS Northern Indiana Public Service Co. u
ECAR Ohio Valley Electric Corp. OVEC Ohio Valley Electric Corp. u
ECAR CMS Rouge Steel RS_CMS Michigan Electric Power Coordination Center m
ECAR Southern Indiana Gas & Electric SIGE Southern Indiana Gas & Electric Co. u
MAAC AES Plants in PJM AES_PJM PJM-East m
MAAC Pennsylvania, New Jersey, Maryland PJM PJM u
MAIN Wisconsin Power & Light Co ALLIANT_E Alliant East u
MAIN Ameren Corp. AMEREN Ameren Corp. u
MAIN Ameren Corp. TDU AMRN_TDU Ameren Corp. t
MAIN Constellation University Park BGE_COMED Commonwealth Edison Co. m
MAIN Central Illinois Light Co CILCO Central Illinois Light Co. u
MAIN Commonwealth Edison Co. COMED Commonwealth Edison Co. u
MAIN Unicom's Holiday Hills and North Chicago Plants COMED_MER Commonwealth Edison Co. m
MAIN Columbia City Of CWL Columbia Water & Light Dept. u
MAIN Columbia City Of TDU CWL_TDU Columbia Water & Light Dept. t
MAIN Springfield City Of CWLP Springfield Water, Light & Power u
MAIN Duke Audrain Plant DUK_AMRN Ameren Corp. m
MAIN Duke Lee County Plant DUK_COMED Commonwealth Edison Co. m
MAIN Dynegy's Purchase from Minooka Energy Center DYN_COMED Commonwealth Edison Co. m
MAIN Electric Energy, Inc. EEI Electric Energy, Inc. u
MAIN Enron Corp.'s Lincoln Energy Center ENR_COMED Commonwealth Edison Co. m
MAIN El Paso and Coastal Purchases in ComEd EPE_COMED Commonwealth Edison Co. m
MAIN Houston Industries Power Generation HIPG_IP Illinois Power Co. m
MAIN Illinois Municipal Elec Agency IMEA Ameren Corp. t
MAIN Illinois Power Co IP Illinois Power Co. u
MAIN Illinois Power TDU IP_TDU Illinois Power Co. t
MAIN LSP Plant in ComEd LSP_COMED Commonwealth Edison Co. m
MAIN Marquette City Of MARQ Upper Peninsula Power Co. t
MAIN Madison Gas & Electric Co MGE Madison Gas & Electric Co. u
MAIN MidAmerican Energy Co. MIDAM MidAmerican Energy Co. u
MAIN MidAmerican Energy Co. TDU MIDAM_TDU MidAmerican Energy Co. t
MAIN Minnesota Power's Purchase from LSP's Kendall
Cnty Plant MP_COMED Commonwealth Edison Co. m
MAIN Manitowoc Public Utilities MPU Manitowic Public Utilities u
MAIN AmerGen's Clinton Purchase PECO_IP Illinois Power Co. m
MAIN Reliant's McHenry County Plant REL_HEN Commonwealth Edison Co. m
MAIN Southern Illinois Power Coop SIPC Southern Illinois Power Coop u
MAIN Soyland Power Coop Inc SOY Illinois Power Co. t
MAIN Upper Peninsula Power Co UPP Upper Peninsula Power Co. u
MAIN Wisconsin Electric Power Co WEP Wisconsin Electric Power Co. u
MAIN Wisconsin Public Service Corp WPS Wisconsin Public Service Corp. u
MAIN Wisconsin Public Service TDU WPS_TDU Wisconsin Public Service t
MAPP Alliant Energy - West ALLIANT_W Alliant West u
MAPP Alliant Energy - West TDU ALTW_TDU Alliant West t
MAPP Basin Electric Power Cooperative BEPC Basin Electric Power Cooperative u
MAPP Dairyland Power Coop/Coop Power Assn DPC Dairyland Power Coop u
MAPP Dairyland Power Coop TDU DPC_TDU Dairyland Power Coop t
MAPP Lincoln Electric System LES Lincoln Electric System u
MAPP Montana-Dakota Utilities Co MDU Otter Tail Power Co. t
MAPP Municipal Energy Agency of NE MEAN Nebraska Public Power District t
MAPP Minnesota Power, Inc. MP Minnesota Power, Inc. u
MAPP Minnkota Power Coop Inc MPC Minnkota Power Coop Inc u
MAPP Muscatine Power & Water MPW Muscatine Power & Water u
MAPP Nebraska Public Power District NPPD Nebraska Public Power District u
MAPP Nebraska Public Power District TDU NPPD_TDU Nebraska Public Power District t
MAPP Northern States Power Company NSP Northern States Power Co. u
MAPP Northern States Power Company TDU NSP_TDU Northern States Power Co. t
MAPP Northwestern Public Service Co NWPS WAPA Billings East (UM-East) t
MAPP Omaha Public Power District OPPD Omaha Public Power District u
MAPP Omaha Public Power District TDU OPPD_TDU Omaha Public Power District t
MAPP Otter Tail Power Company OTP Otter Tail Power Co. u
MAPP Southern Minnesota Mun P Agny SMMP Southern Minnesota Municipal Power Agency u
MAPP Southern Minnesota Mun P Agny TDU SMMP_TDU Southern Minnesota Municipal Power Agency t
MAPP St. Joseph Light & Power STJO St. Joseph Light & Power Co. u
MAPP United Power Assn UPA United Power Association u
MAPP United Power Assn TDU UPA_TDU United Power Association t
MAPP Western Area Power Administration WAPA WAPA Billings East (UM-East) u
MAPP Western Area Power Administration TDU WAPA_TDU WAPA Billings East (UM-East) t
MAPP Wisconsin Public Power Inc Sys WPPI Wisconsin Electric Power Co. t
NA Reporting Node for CMS CMS NA r
NA AES Reporting Node AES NA r
NA Alliant Energy ALLIANT NA r
NA Aquila Energy Reporting Node AQU NA R
NA Constellation Energy Reporting Node BGE NA R
NA Calpine/Skygen Energy Reporting Node CALPINE NA r
NA Cogentrix Reporting Node COG NA r
NA Carolina Power & Light and Florida Progress CPL NA r
NA Dominion Resources (Reporting Node) DRI NA r
NA Dynegy DYN NA r
NA Enron Corp. ENRON NA r
NA El Paso Energy and Coastal Corp. Reporting Node EPE NA r
NA Exelon Energy (Unicom and PECO Energy) Reporting Node EXELON NA R
NA LS Power LSP NA r
NA NIPSCO and Columbia Energy NISOURCE NA r
NA PG&E Energy Trading, L.P. Reporting Node PGE NA r
NA Reliant Energy Reporting Node RELIANT NA r
NA Tenaska Reporting Node TEN NA r
NA Williams Energy Reporting Node WILL NA r
NA Utilicorp UTILCOR NA r
NPCC AES Plants in New York and New England AES_NY New York Power Pool m
NPCC New York Power Pool NYPP New York Power Pool u
SERC Associated Electric Coop Inc AECI Associated Electric Coop, Inc. u
SERC Associated Electric Coop Inc TDU AECI_TDU Associated Electric Coop, Inc. t
SERC Alabama Electric Coop Inc ALEC Alabama Electric Coop, Inc. u
SERC LS Power's Share of Batesville BATE_LS Tennessee Valley Authority m
SERC Cajun Electric Power Coop Inc CAJN Cajun Electric Power Coop, Inc. u
SERC Carolina Power & Light Co CAPO Carolina Power & Light Co. u
SERC CAPO's Monroe County Plant CAPO_SOCO Southern Company m
SERC Carolina Power & Light Co TDU CAPO_TDU Carolina Power & Light Co. t
SERC CELE's St. Landry Plant CLECO_LAND Entergy Corp. (Entergy Electric System) m
SERC Cogentrix South Haven Plant COG_ENT Entergy Corp. (Entergy Electric System) m
SERC Cogentrix Plants in TVA COG_TVA Tennessee Valley Authority m
SERC Conoco Orange County Plant CONO_ENT Entergy Corp. (Entergy Electric System) m
SERC Coral Energy's Sowega Plant COR_SOCO Southern Company m
SERC Duke Hinds and Attala Energy Plants DUK_ENT Entergy Corp. (Entergy Electric System) m
SERC Duke Power Co DUKE Duke Energy Corp. u
SERC Duke Power Co TDU DUKE_TDU Duke Energy Corp. t
SERC Rockingham Plant DYN_DUKE Duke Energy Corp. m
SERC Dynegy Lake Charles Plant DYN_ENT Entergy Corp. (Entergy Electric System) m
SERC Dynegy's Heard County Plant DYN_SOCO Southern Company m
SERC Enron Plant in SOCO ENR_SOCO Southern Company m
SERC Enron Plants in TVA ENR_TVA Tennessee Valley Authority m
SERC Entergy ENT Entergy Corp. (Entergy Electric System) u
SERC Entergy Arkansas Inc TDU ENT_TDU Entergy Corp. (Entergy Electric System) t
SERC Skygen's Hog Bayou Plant HOG_SOCO Southern Company m
SERC LS Power Batesville plant LSP_TVA Tennessee Valley Authority and Entergy
Electric System
SERC Municipal Electric Authority of Georgia MEAG Southern Company t
SERC Morgan Stanley Smiths Plant MS_SOCO Southern Company m
SERC Old Dominion Electric Power Coop ODEC Virginia Electric & Power Co.
(Virginia Power) t
SERC Oglethorpe Power Corp OPC Southern Company t
SERC Oglethorpe Power Corp's Sewell County and Smarr Plants OPC_SOCO Southern Company m
SERC Tenaska Frontier Plant (Grimes County, TX) PECO_ENT Entergy Corp. (Entergy Electric System) m
SERC Tenaska's Heard County Plant PECO_SOCO Tennessee Valley Authority m
SERC South Carolina Electric & Gas Co. SCEG South Carolina Electric & Gas Co. u
SERC South Carolina Public Service Authority SCPSA South Carolina Public Service Authority u
SERC South Carolina Public Service Authority TDU SCPSA_TDU South Carolina Public Service Authority t
SERC Southeastern Power Administration SEPA Southeastern Power Administration u
SERC Skygen's Pine Bluff Plant SKY_ENT Entergy Corp. (Entergy Electric System) m
SERC South Mississippi El Pwr Assn SMEPA South Mississippi Electric Power Association u
SERC Southern Company SOCO Southern Company u
SERC Southern Company TDU SOCO_TDU Southern Company t
SERC Tractebel Red Hills TRAC_TVA Tennessee Valley Authority m
SERC Tennessee Valley Authority TVA Tennessee Valley Authority u
SERC Virginia Electric & Power Co VP Virginia Electric & Power Co. (Virginia
Power) u
SERC Cleco Evangeline Plant WILL_ENT Entergy Corp. (Entergy Electric System) m
SPP AES Shady Point Plant AES_OKGE Oklahoma Gas & Electric Co. m
SPP Aquila's Cass County Plant AQU_MPS Missouri Public Service m
SPP Independence City of CIMO Independence Power & Light Dept. u
SPP CLECO Corporation CLECO Cleco Corp. u
SPP Cogentrix Green County Energy Project COG_GREEN Oklahoma Gas & Electric m
SPP CSW Energy's Eastex Cogen CSW_MER Central & South West SPP m
SPP Central & South West SPP CSW_SPP Central & South West SPP u
SPP Central & South West SPP TDU CSW_TDU Central & South West SPP t
SPP Duke Power's Share of St. Francis Plant DUK_AECI Associated Electric Coop, Inc. m
SPP Duke McCain Plant DUK_OKGE Oklahoma Gas & Electric Co. m
SPP Empire District Electric Co EDE Empire District Electric Co. u
SPP Grand River Dam Authority GRRD Grand River Dam Authority u
SPP Golden Spread Electric Coop GSEC Southwestern Public Service Co. t
SPP Kansas City City of KACY Kansas City Board of Public Utilities u
SPP KAMO Electric Coop Inc KAMO Grand River Dam Authority t
SPP Kansas City Power & Light Co KCPL Kansas City Power & Light Co. u
SPP Lafayette City of LAFA Lafayette Utilities System u
SPP Louisiana Energy & Power Auth LEPA Louisiana Energy & Power Authority u
SPP OKEOK's Logan County Plant LOGAN Oklahoma Gas & Electric Co. m
SPP LS Power's Share of Mustang Station LSP_SWPS Southwestern Public Service Co. m
SPP Midwest Energy Inc MIDW MidWest Energy, Inc. u
SPP UtiliCorp United Inc (MPS) MPS Missouri Public Service Co. u
SPP Oklahoma Gas & Electric Co OKGE Oklahoma Gas & Electric Co. u
SPP Oklahoma Municipal Power Auth OMPA Central & South West SPP t
SPP PANDA's Coweta Plant PANDA Oklahoma Gas & Electric Co. m
SPP Conoco Orange County Plant (PG&E purchase) PGE_ENT Entergy Corp. (Entergy Electric System) m
SPP Sunflower Electric Power Corp SEC Sunflower Electric Power Corp., Inc. u
SPP Sikeston City of SIKE Southwestern Power Administration t
SPP Springfield City of SPRM Southwestern Power Administration t
SPP Southwestern Power Administration SWEPA Southwestern Power Administration u
SPP Southwestern Public Service Co SWPS Southwestern Public Service Co. u
SPP Western Farmers Elec Coop Inc WEFA Western Farmers Electric Coop u
SPP UtiliCorp United (West Plains Energy) WEPL West Plains Energy u
SPP Western Resources WR Western Resources u
</TABLE>
Exhibit No. WHH-15
<TABLE>
<CAPTION>
Area Around IPL
System Lambda Data - FERC 714 Power Markets Week Data
AEP CIN IPL SIGE HEC Into Destination
Lambda Lambda Lambda Lambda Lambda Northern Market Price
Period (1999) (1999) (1999) (1999) (1999) Into Cynergy ECAR Analyzed
<S> <C> <C> <C> <C> <C> <C> <C> <C>
S_SP1 $ 19 $ 24 $ 41 $ 44 $ 1,912 $ 140 $ 109 $ 100
S_SP2 $ 16 $ 26 $ 25 $ 39 $ 316 $ 140 $ 109 $ 75
S_SP3 $ 15 $ 17 $ 15 $ 30 $ 112 $ 140 $ 109 $ 50
S_P $ 13 $ 14 $ 12 $ 20 $ 67 $ 140 $ 109 $ 30
S_OP $ 12 $ 14 $ 11 $ 18 $ 30 na $ 15 $ 20
W_SP $ 14 $ 14 $ 14 $ 20 $ 23 $ 20 $ 22 $ 25
W_P $ 13 $ 13 $ 12 $ 14 $ 22 $ 20 $ 22 $ 20
W_OP $ 20 $ 13 $ 10 $ 13 $ 17 na $ 15 $ 15
SH_SP $ 14 $ 15 $ 17 $ 20 $ 41 $ 22 $ 23 $ 40
SH_P $ 14 $ 13 $ 12 $ 16 $ 26 $ 22 $ 23 $ 25
SH_OP $ 12 $ 13 $ 10 $ 14 $ 18 na $ 14 $ 15
</TABLE>
<TABLE>
<CAPTION>
Area Around CILCO
System Lambda Data - FERC 714 Power Markets Week Data
Ameren CILCO ComEd CWLP Destination
Lambda Lambda Lambda Lambda Into Main Into Main Market Price
Period (1999) (1999) (1999) (1999) Into ComEd (Southern) (Northern) Analyzed
<S> <C> <C> <C> <C> <C> <C> <C> <C>
S_SP1 $ 1,745 $ 14 $ 52 $ 61 $ 168 $ 130 $ 105 $ 100
S_SP2 $ 323 $ 13 $ 38 $ 43 $ 168 $ 130 $ 105 $ 75
S_SP3 $ 97 $ 13 $ 24 $ 23 $ 168 $ 130 $ 105 $ 50
S_P $ 64 $ 13 $ 13 $ 16 $ 168 $ 130 $ 105 $ 30
S_OP $ 28 $ 12 $ 12 $ 14 na na na $ 20
W_SP $ 38 $ 14 $ 22 $ 16 $ 21 $ 22 $ 26 $ 25
W_P $ 21 $ 13 $ 13 $ 14 $ 21 $ 22 $ 26 $ 20
W_OP $ 17 $ 13 $ 10 $ 13 na na na $ 15
SH_SP $ 41 $ 14 $ 20 $ 16 $ 22 $ 23 $ 24 $ 40
SH_P $ 27 $ 13 $ 16 $ 13 $ 22 $ 23 $ 24 $ 25
SH_OP $ 17 $ 13 $ 10 $ 12 na na na $ 15
</TABLE>
Sources:
System lambda data from 1999 FERC Form 714 filings. Hours aggregated based on
IPL's load. Power Markets Week data is for CY1999 ("Index price"). For some
regions, PMW reports both a peak and off-peak value, in others just a peak
value. NA refers to regions where PMW reports only a peak price.
Note: Illinois Power is not shown since they did not file lambda data in 1999.
See http://www.ferc.fed.us/electric/f714/1999list.htm
Exhibit No. WHH-16
<TABLE>
<CAPTION>
BASE MERGER
AES HHI HHI HHI
Market Period Price MW Mkt Share MW Mkt Share Pre-Merger MW Mkt Share Post-Merger Change
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CILCO S_SP1 100 1210 46.70% 3 0.10% 2525 1213 46.80% 2534 9
CILCO S_SP2 75 1210 44.70% 2 0.10% 2406 1212 44.80% 2414 8
CILCO S_SP3 50 1185 46.10% 3 0.10% 2483 1188 46.30% 2492 10
CILCO S_P 30 1160 43.70% 3 0.10% 2325 1163 43.80% 2334 10
CILCO S_OP 20 1120 44.80% 4 0.20% 2409 1124 44.90% 2423 15
CILCO W_SP 25 1019 40.50% 6 0.20% 2120 1025 40.80% 2139 19
CILCO W_P 20 1019 40.50% 6 0.20% 2136 1025 40.80% 2155 19
CILCO W_OP 15 331 18.20% 7 0.40% 1286 338 18.60% 1300 15
CILCO SH_SP 40 975 39.40% 4 0.20% 1955 980 39.60% 1969 14
CILCO SH_P 25 911 37.80% 6 0.20% 1940 917 38.10% 1959 19
CILCO SH_OP 15 294 16.50% 8 0.40% 1227 302 16.90% 1241 14
IPL S_SP1 100 4 0.10% 2844 52.10% 2955 2848 52.10% 2962 7
IPL S_SP2 75 4 0.10% 2844 52.10% 2955 2848 52.10% 2962 7
IPL S_SP3 50 4 0.10% 2658 50.40% 2800 2662 50.40% 2807 7
IPL S_P 30 5 0.10% 2440 49.60% 2747 2445 49.70% 2756 9
IPL S_OP 20 5 0.10% 2440 49.60% 2745 2445 49.70% 2754 10
IPL W_SP 25 8 0.10% 2450 40.00% 2073 2458 40.10% 2083 11
IPL W_P 20 8 0.10% 2450 40.00% 2033 2458 40.10% 2044 10
IPL W_OP 15 6 0.10% 2450 40.00% 2069 2456 40.10% 2077 8
IPL SH_SP 40 6 0.10% 2382 40.40% 2022 2389 40.50% 2030 9
IPL SH_P 25 8 0.10% 2177 39.20% 2027 2186 39.40% 2039 12
IPL SH_OP 15 5 0.10% 2177 39.20% 2052 2183 39.30% 2060 8
AEP S_SP1 100 83 0.10% 1842 2.70% 1318 1924 2.80% 1319 1
AEP S_SP2 75 83 0.10% 1844 2.70% 1318 1927 2.80% 1319 1
AEP S_SP3 50 84 0.10% 1836 2.70% 1320 1919 2.80% 1320 1
AEP S_P 30 97 0.10% 1977 2.90% 1358 2074 3.10% 1359 1
AEP S_OP 20 187 0.30% 1778 2.90% 1483 1964 3.20% 1485 2
AEP W_SP 25 100 0.10% 1993 3.00% 1339 2093 3.10% 1340 1
AEP W_P 20 105 0.20% 1994 3.00% 1351 2099 3.10% 1351 1
AEP W_OP 15 108 0.20% 2011 3.30% 1442 2118 3.50% 1443 1
AEP SH_SP 40 87 0.20% 1940 3.40% 1330 2027 3.50% 1331 1
AEP SH_P 25 103 0.20% 2091 3.60% 1354 2194 3.80% 1356 1
AEP SH_OP 15 89 0.20% 1815 3.40% 1389 1904 3.50% 1390 1
AMEREN S_SP1 100 451 2.10% 29 0.10% 2270 480 2.30% 2271 1
AMEREN S_SP2 75 451 2.10% 30 0.10% 2230 480 2.30% 2231 1
AMEREN S_SP3 50 451 2.20% 30 0.10% 2202 481 2.30% 2202 1
AMEREN S_P 30 451 2.20% 33 0.20% 2175 484 2.40% 2176 1
AMEREN S_OP 20 475 2.60% 30 0.20% 2524 505 2.80% 2525 1
AMEREN W_SP 25 472 1.90% 80 0.30% 1504 551 2.30% 1505 1
AMEREN W_P 20 492 2.00% 80 0.30% 1474 572 2.30% 1475 1
AMEREN W_OP 15 47 0.20% 85 0.40% 1292 132 0.60% 1293 0
AMEREN SH_SP 40 268 1.10% 59 0.30% 1463 327 1.40% 1464 1
AMEREN SH_P 25 322 1.40% 66 0.30% 1456 388 1.70% 1457 1
AMEREN SH_OP 15 52 0.20% 75 0.40% 1280 126 0.60% 1280 0
CIN S_SP1 100 21 0.10% 968 3.70% 2001 989 3.80% 2001 1
CIN S_SP2 75 21 0.10% 968 3.70% 1989 990 3.80% 1990 1
CIN S_SP3 50 22 0.10% 941 3.70% 1932 963 3.80% 1933 1
CIN S_P 30 24 0.10% 943 4.10% 1838 967 4.20% 1838 1
CIN S_OP 20 31 0.10% 943 4.10% 1852 974 4.20% 1853 1
CIN W_SP 25 30 0.10% 728 3.10% 1867 758 3.30% 1868 1
CIN W_P 20 31 0.10% 727 3.10% 1871 759 3.30% 1872 1
CIN W_OP 15 19 0.10% 731 3.20% 1913 749 3.30% 1913 1
CIN SH_SP 40 26 0.10% 744 3.10% 1843 770 3.20% 1843 1
CIN SH_P 25 35 0.20% 727 3.30% 1774 763 3.50% 1775 1
CIN SH_OP 15 18 0.10% 732 3.40% 1809 750 3.50% 1810 1
COMED S_SP1 100 119 0.50% 13 0.00% 5300 131 0.50% 5300 0
COMED S_SP2 75 119 0.50% 13 0.00% 5244 131 0.50% 5244 0
COMED S_SP3 50 117 0.50% 12 0.00% 5227 130 0.50% 5227 0
COMED S_P 30 116 0.50% 14 0.10% 5153 130 0.50% 5153 0
COMED S_OP 20 191 1.00% 15 0.10% 6696 206 1.10% 6696 0
COMED W_SP 25 110 0.60% 20 0.10% 6414 130 0.70% 6414 0
COMED W_P 20 110 0.60% 21 0.10% 6740 131 0.70% 6740 0
COMED W_OP 15 2 0.00% 25 0.10% 6755 27 0.10% 6755 0
COMED SH_SP 40 108 0.50% 16 0.10% 4754 124 0.50% 4754 0
COMED SH_P 25 105 0.60% 23 0.10% 6177 128 0.70% 6177 0
COMED SH_OP 15 2 0.00% 21 0.10% 6419 24 0.10% 6419 0
CWLP S_SP1 100 101 9.40% 1 0.10% 3038 102 9.50% 3040 1
CWLP S_SP2 75 101 9.40% 1 0.10% 3036 102 9.50% 3038 1
CWLP S_SP3 50 100 9.70% 1 0.10% 2892 101 9.80% 2893 2
CWLP S_P 30 99 9.60% 1 0.10% 2883 100 9.70% 2885 2
CWLP S_OP 20 109 11.80% 1 0.10% 2413 110 11.90% 2416 3
CWLP W_SP 25 85 8.60% 3 0.30% 2059 88 8.80% 2063 4
CWLP W_P 20 85 8.60% 3 0.30% 2060 88 8.80% 2064 4
CWLP W_OP 15 0 0.10% 3 0.60% 1023 4 0.70% 1023 0
CWLP SH_SP 40 137 13.00% 2 0.10% 2485 138 13.20% 2488 4
CWLP SH_P 25 80 8.50% 2 0.20% 1951 82 8.70% 1955 4
CWLP SH_OP 15 0 0.10% 3 0.50% 1015 3 0.60% 1015 0
HEC S_SP1 100 2 0.10% 189 5.70% 1788 191 5.80% 1788 1
HEC S_SP2 75 2 0.10% 189 5.70% 1785 191 5.80% 1786 1
HEC S_SP3 50 2 0.10% 185 5.60% 1772 187 5.60% 1772 1
HEC S_P 30 3 0.10% 192 5.80% 1766 194 5.90% 1767 1
HEC S_OP 20 3 0.10% 192 5.80% 1770 195 5.90% 1771 1
HEC W_SP 25 3 0.10% 134 4.10% 1840 137 4.20% 1840 1
HEC W_P 20 3 0.10% 134 4.10% 1842 137 4.20% 1842 1
HEC W_OP 15 1 0.00% 138 4.20% 1856 139 4.20% 1856 0
HEC SH_SP 40 2 0.10% 139 4.50% 1713 141 4.60% 1713 1
HEC SH_P 25 3 0.10% 140 4.60% 1727 143 4.70% 1728 1
HEC SH_OP 15 1 0.00% 144 4.70% 1720 145 4.70% 1720 0
IP S_SP1 100 435 4.00% 38 0.40% 1838 473 4.40% 1841 3
IP S_SP2 75 435 4.10% 38 0.40% 1866 474 4.50% 1869 3
IP S_SP3 50 436 4.10% 38 0.40% 1889 474 4.50% 1892 3
IP S_P 30 435 4.20% 42 0.40% 1703 478 4.70% 1707 4
IP S_OP 20 437 4.70% 44 0.50% 1742 481 5.10% 1746 4
IP W_SP 25 266 2.20% 69 0.60% 1323 335 2.80% 1326 3
IP W_P 20 267 2.20% 69 0.60% 1339 336 2.80% 1342 3
IP W_OP 15 6 0.00% 74 0.60% 1330 80 0.70% 1330 0
IP SH_SP 40 256 2.30% 47 0.40% 1237 303 2.70% 1239 2
IP SH_P 25 252 2.40% 55 0.50% 1295 308 2.90% 1297 3
IP SH_OP 15 4 0.00% 52 0.50% 1305 56 0.50% 1305 0
SIGE S_SP1 100 1 0.00% 88 4.80% 3937 89 4.90% 3937 0
SIGE S_SP2 75 1 0.00% 88 4.80% 3936 89 4.90% 3937 0
SIGE S_SP3 50 1 0.00% 85 4.70% 3893 86 4.80% 3893 0
SIGE S_P 30 1 0.10% 84 5.10% 3461 85 5.20% 3462 1
SIGE S_OP 20 1 0.10% 84 5.10% 3446 85 5.20% 3447 1
SIGE W_SP 25 1 0.10% 75 4.60% 3470 76 4.70% 3471 1
SIGE W_P 20 1 0.10% 75 4.60% 3467 76 4.70% 3468 1
SIGE W_OP 15 0 0.00% 75 4.60% 3470 75 4.60% 3470 0
SIGE SH_SP 40 1 0.10% 76 4.80% 3365 77 4.90% 3365 0
SIGE SH_P 25 1 0.10% 74 4.90% 3211 75 4.90% 3212 1
SIGE SH_OP 15 0 0.00% 74 4.90% 3207 74 4.90% 3207 0
</TABLE>
Exhibit No. WHH-17
<TABLE>
<CAPTION>
BASE MERGER
AES IPL HHI AES HHI HHI
Market Period Price MW Mkt Share MW Mkt Share Pre-Merger MW Mkt Share Post-Merger Change
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CILCO S_SP1 100 1110 41.10% 2 0.10% 2138 1112 41.10% 2145 7
CILCO S_SP2 75 1110 41.10% 2 0.10% 2134 1112 41.10% 2141 7
CILCO S_SP3 50 1085 40.50% 2 0.10% 2099 1088 40.60% 2106 7
CILCO S_P 30 1060 40.00% 3 0.10% 2070 1063 40.10% 2079 9
CILCO S_OP 20 1020 40.40% 0 0.00% 2229 1020 40.40% 2229 0
CILCO W_SP 25 1019 40.40% 6 0.30% 2116 1026 40.60% 2136 20
CILCO W_P 20 1020 40.50% 0 0.00% 2177 1020 40.50% 2177 0
CILCO W_OP 15 331 19.00% 0 0.00% 1446 331 19.00% 1446 0
CILCO SH_SP 40 975 39.50% 5 0.20% 1978 980 39.70% 1994 16
CILCO SH_P 25 911 39.30% 6 0.30% 2084 917 39.60% 2104 20
CILCO SH_OP 15 294 18.30% 0 0.00% 1509 294 18.30% 1509 0
IPL S_SP1 100 5 0.10% 2794 54.50% 3164 2799 54.60% 3174 10
IPL S_SP2 75 5 0.10% 2794 54.50% 3163 2799 54.60% 3174 10
IPL S_SP3 50 5 0.10% 2608 52.80% 2997 2613 52.90% 3007 11
IPL S_P 30 6 0.10% 2390 52.20% 2938 2397 52.30% 2952 14
IPL S_OP 20 5 0.10% 2390 52.20% 2946 2396 52.30% 2958 12
IPL W_SP 25 8 0.10% 2400 39.40% 1989 2408 39.50% 2000 11
IPL W_P 20 5 0.10% 2400 39.40% 2040 2405 39.50% 2047 7
IPL W_OP 15 0 0.00% 2400 40.50% 2201 2400 40.50% 2201 0
IPL SH_SP 40 11 0.20% 2332 37.80% 1898 2343 38.00% 1911 13
IPL SH_P 25 9 0.20% 2127 36.60% 1846 2136 36.70% 1857 11
IPL SH_OP 15 0 0.00% 2127 37.70% 1998 2127 37.70% 1998 0
AEP S_SP1 100 138 0.20% 1953 2.70% 1162 2092 2.90% 1163 1
AEP S_SP2 75 139 0.20% 1957 2.70% 1163 2097 2.90% 1164 1
AEP S_SP3 50 145 0.20% 1947 2.70% 1166 2093 2.90% 1167 1
AEP S_P 30 174 0.20% 2095 2.90% 1226 2269 3.20% 1227 1
AEP S_OP 20 110 0.20% 1837 2.80% 1316 1947 3.00% 1317 1
AEP W_SP 25 101 0.20% 1984 3.10% 1389 2086 3.20% 1390 1
AEP W_P 20 152 0.20% 1628 2.60% 1455 1780 2.90% 1456 1
AEP W_OP 15 99 0.20% 0 0.00% 1945 99 0.20% 1945 0
AEP SH_SP 40 126 0.20% 2006 3.40% 1276 2132 3.60% 1277 1
AEP SH_P 25 106 0.20% 2052 3.60% 1293 2158 3.70% 1294 1
AEP SH_OP 15 102 0.20% 0 0.00% 1883 102 0.20% 1883 0
AMEREN S_SP1 100 354 1.60% 51 0.20% 1939 405 1.90% 1939 1
AMEREN S_SP2 75 354 1.70% 51 0.20% 1900 405 1.90% 1901 1
AMEREN S_SP3 50 354 1.70% 51 0.20% 1876 405 1.90% 1877 1
AMEREN S_P 30 363 1.70% 55 0.30% 1894 418 2.00% 1895 1
AMEREN S_OP 20 322 1.70% 57 0.30% 2080 379 2.00% 2081 1
AMEREN W_SP 25 281 1.20% 90 0.40% 1409 371 1.50% 1409 1
AMEREN W_P 20 228 1.00% 0 0.00% 1501 228 1.00% 1501 0
AMEREN W_OP 15 53 0.20% 0 0.00% 1386 53 0.20% 1386 0
AMEREN SH_SP 40 320 1.40% 82 0.40% 1361 403 1.80% 1362 1
AMEREN SH_P 25 324 1.50% 87 0.40% 1408 412 1.90% 1409 1
AMEREN SH_OP 15 36 0.20% 0 0.00% 1351 36 0.20% 1351 0
CIN S_SP1 100 26 0.10% 1063 4.10% 1864 1089 4.20% 1864 1
CIN S_SP2 75 26 0.10% 1063 4.10% 1852 1089 4.20% 1853 1
CIN S_SP3 50 27 0.10% 1036 4.10% 1794 1063 4.20% 1795 1
CIN S_P 30 31 0.10% 967 4.00% 1751 999 4.20% 1752 1
CIN S_OP 20 12 0.10% 967 4.20% 1872 979 4.20% 1873 0
CIN W_SP 25 30 0.10% 756 3.20% 1842 786 3.30% 1843 1
CIN W_P 20 22 0.10% 757 3.30% 1924 779 3.40% 1924 1
CIN W_OP 15 1 0.00% 0 0.00% 2356 1 0.00% 2356 0
CIN SH_SP 40 32 0.10% 728 3.00% 1682 760 3.20% 1683 1
CIN SH_P 25 36 0.20% 708 3.10% 1695 743 3.30% 1696 1
CIN SH_OP 15 0 0.00% 0 0.00% 2161 0 0.00% 2161 0
COMED S_SP1 100 106 0.40% 12 0.10% 6003 118 0.50% 6003 0
COMED S_SP2 75 105 0.40% 13 0.10% 5951 118 0.50% 5951 0
COMED S_SP3 50 104 0.40% 13 0.10% 5936 117 0.50% 5936 0
COMED S_P 30 103 0.40% 14 0.10% 5868 117 0.50% 5868 0
COMED S_OP 20 111 0.60% 14 0.10% 6717 126 0.70% 6717 0
COMED W_SP 25 105 0.50% 20 0.10% 6338 124 0.60% 6338 0
COMED W_P 20 115 0.60% 17 0.10% 6653 131 0.70% 6653 0
COMED W_OP 15 2 0.00% 0 0.00% 6667 2 0.00% 6667 0
COMED SH_SP 40 183 0.80% 19 0.10% 5491 202 0.90% 5491 0
COMED SH_P 25 101 0.60% 22 0.10% 6322 123 0.70% 6322 0
COMED SH_OP 15 1 0.00% 0 0.00% 6565 1 0.00% 6565 0
CWLP S_SP1 100 92 8.20% 1 0.10% 2769 93 8.30% 2770 1
CWLP S_SP2 75 92 8.20% 1 0.10% 2767 93 8.30% 2768 1
CWLP S_SP3 50 91 8.30% 1 0.10% 2632 92 8.40% 2633 1
CWLP S_P 30 88 8.10% 1 0.10% 2642 90 8.20% 2643 2
CWLP S_OP 20 89 9.10% 1 0.10% 2195 90 9.20% 2197 2
CWLP W_SP 25 82 8.20% 3 0.30% 2048 84 8.50% 2052 4
CWLP W_P 20 64 6.40% 0 0.00% 2050 64 6.40% 2050 0
CWLP W_OP 15 0 0.00% 0 0.00% 961 0 0.00% 961 0
CWLP SH_SP 40 82 7.60% 2 0.20% 2340 84 7.90% 2343 3
CWLP SH_P 25 80 8.30% 3 0.30% 1893 82 8.60% 1897 4
CWLP SH_OP 15 2 0.30% 0 0.00% 965 2 0.30% 965 0
HEC S_SP1 100 2 0.10% 198 5.80% 1719 200 5.90% 1719 1
HEC S_SP2 75 2 0.10% 198 5.80% 1717 200 5.90% 1717 1
HEC S_SP3 50 2 0.10% 194 5.70% 1705 196 5.80% 1705 1
HEC S_P 30 3 0.10% 199 5.90% 1708 202 5.90% 1709 1
HEC S_OP 20 3 0.10% 199 5.90% 1719 202 5.90% 1720 1
HEC W_SP 25 2 0.10% 145 4.20% 1762 147 4.30% 1762 1
HEC W_P 20 2 0.10% 144 4.30% 1816 146 4.30% 1817 0
HEC W_OP 15 0 0.00% 0 0.00% 1897 0 0.00% 1897 0
HEC SH_SP 40 3 0.10% 140 4.30% 1539 143 4.40% 1540 1
HEC SH_P 25 3 0.10% 138 4.20% 1566 141 4.30% 1566 1
HEC SH_OP 15 0 0.00% 0 0.00% 1726 0 0.00% 1726 0
IP S_SP1 100 435 3.90% 46 0.40% 1621 482 4.30% 1624 3
IP S_SP2 75 435 3.90% 47 0.40% 1616 482 4.30% 1619 3
IP S_SP3 50 435 3.90% 47 0.40% 1634 482 4.30% 1638 3
IP S_P 30 438 4.20% 0 0.00% 1584 438 4.20% 1584 0
IP S_OP 20 440 4.70% 0 0.00% 1920 440 4.70% 1920 0
IP W_SP 25 254 2.20% 66 0.60% 1473 320 2.70% 1476 2
IP W_P 20 229 2.00% 0 0.00% 1565 229 2.00% 1565 0
IP W_OP 15 3 0.00% 0 0.00% 1527 3 0.00% 1527 0
IP SH_SP 40 257 2.30% 52 0.50% 1348 309 2.70% 1350 2
IP SH_P 25 253 2.40% 55 0.50% 1452 309 3.00% 1455 3
IP SH_OP 15 3 0.00% 0 0.00% 1527 3 0.00% 1527 0
SIGE S_SP1 100 1 0.00% 105 5.70% 4020 105 5.70% 4021 0
SIGE S_SP2 75 1 0.00% 105 5.70% 4020 105 5.70% 4020 0
SIGE S_SP3 50 1 0.00% 101 5.50% 3977 102 5.60% 3978 1
SIGE S_P 30 1 0.10% 101 6.10% 3557 102 6.10% 3557 1
SIGE S_OP 20 1 0.10% 101 6.20% 3697 102 6.20% 3697 1
SIGE W_SP 25 1 0.10% 75 4.50% 3552 76 4.60% 3553 1
SIGE W_P 20 0 0.00% 75 4.60% 3667 75 4.60% 3667 0
SIGE W_OP 15 0 0.00% 0 0.00% 3752 0 0.00% 3752 0
SIGE SH_SP 40 1 0.10% 72 4.50% 3409 73 4.50% 3409 1
SIGE SH_P 25 2 0.10% 70 4.50% 3255 71 4.60% 3256 1
SIGE SH_OP 15 0 0.00% 0 0.00% 3494 0 0.00% 3494 0
</TABLE>
Exhibit No. WHH-18
<TABLE>
<CAPTION>
AES (CILCO) and Indianapolis Power and Light (IPL) Market
Assumes Only Applicants' Direct Interconnections Are Included In Market
2001
<S> <C> <C>
AES (CILCO) 1,210
IPL 3,055
Total: AES (CILCO) and IPL 4,265
First-Tier Interconnections
Via AES(CILCO)
AMEREN 11,810
ComEd 20,968
CWLP 610
Dynergy (IP) 4,539
Sub-Total: AES (CILCO) First-Tier 37,927
Via IPL
AEP 24,498
CIN 11,135
SIGE 1,222
HOOSIER 1,244
Sub-Total: IPL First-Tier 38,099
Total Installed Capacity in Market 80,291
Applicants' Share of Total Installed Capacity
Pre-Merger
AES (CILCO) 1.5%
IPL 3.8%
Post-Merger
Post-Merger Market Share 5.3%
Post-Merger HHI Change 11
Sources:
CASm database.
Excludes Merchant capacity and IMPA and Wabash capacity.
</TABLE>
Exhibit No. WHH-19
<TABLE>
<CAPTION>
CILCO
2001 2002 2003
<S> <C> <C> <C>
(1) Demand 1,285 1,285 1,285
(2) Interruptible Load included in Peak Demand -90 -90 -90
(3) Firm Purchase (from Ameren) -100 -100 -100
(4) Adjusted Demand 1,095 1,095 1,095
Generation:
(5) Capacity 1,210 1,210 1,210
(6) Sales 0 0 0
(7) Net Capacity Resources 1,210 1,210 1,210
(8) Reserve Margin 15% 15% 15%
(9) Capacity Required to meet Reserve Requirements 1,259 1,259 1,259
(10) Uncommitted Capacity -49 -49 -49
</TABLE>
Source:
(1), (2), and (3) CILCO
(4) = (1) + (2) + (3)
(5) CILCO
(6) CILCO
(7) = (5) + (6)
(8) Assumption
(9) = [1+(8)]*(4)
(10) = (7)-(9)
Note: CILCO assumes reserve margin of 15-17%.
CILCO assumes lost load from Illinois restructuring is equal to planned growth
during 2001-2003 timeframe.
<TABLE>
<CAPTION>
IPL
2001 2002 2003
<S> <C> <C> <C>
(1) Net Internal Demand 2,965 3,015 3,064
Generation:
(2) Capacity 3,055 3,055 3,055
(3) Purchases 50 0 0
(4) Sales 0 0 0
(5) Net Capacity Resources 3,105 3,055 3,055
(6) Reserve Margin 12% 12% 12%
(7) Capacity Required to meet Reserve Requirements 3,321 3,377 3,432
(8) Uncommitted Capacity -216 -322 -377
</TABLE>
Source:
(1), (2), (3), (4) IPL
(5) = (2)+(3)-(4)
(6) Assumption
(7) = [1+(6)]*(1)
(8) = (5) - (7)
Note:
IPL has a 50 MW contract for summer 2001 only.
ATTACHMENT 2: AES AFFILIATES AND SUBSIDIARIES
I. AES'S DOMESTIC MERCHANT GENERATING INTERESTS
The AES Corporation ("AES") currently owns, or is in the
process of acquiring, interests in approximately 10,200 MW of electric
generation in the United States and its territories. Listed below are the
domestic facilities in which AES owns an interest:
(1) AES indirectly owns a 100 percent interest in the 320 MW
coal-fired Shady Point generating facility ("Shady Point")
located in the State of Oklahoma. The entire capacity of Shady
Point is committed to Oklahoma Gas & Electric Company pursuant
to a long-term contract that expires in 2007. The Shady Point
facility is a qualifying facility ("QF") under section 210 of
the Public Utility Regulatory Policies Act, 16 U.S.C. section
824a-3 (1994).(1)
(2) AES indirectly owns a 100 percent interest in the 125 MW
coal-fired Beaver Valley generating facility ("Beaver Valley")
located in the Commonwealth of Pennsylvania. The entire output
of Beaver Valley is committed to West Penn Power Company
pursuant to a long term contract that expires December 31,
2016. The Beaver Valley facility is a QF.(2)
(3) AES indirectly owns a 100 percent interest in the 720 MW
gas-fired Ironwood generating facility ("Ironwood") to be
constructed and operated in the Commonwealth of Pennsylvania.
Ironwood is expected to be operational in the second quarter of
2001. Once operational, the entire output of Ironwood will be
committed to Williams Energy Marketing and Trading Company, a
subsidiary of Williams Companies, Inc., pursuant to a 20 year
long-term contract. AES Ironwood LLC, the owner of the Ironwood
facility, is an exempt wholesale generator ("EWG").(3)
(4) AES indirectly owns a 100 percent interest in the 180 MW
coal-fired Warrior Run generating facility ("Warrior Run")
located in the State of Maryland. The entire capacity of
Warrior Run is committed to the Potomac Edison Power Company
pursuant to long-term contract that expires February 10, 2030.
The Warrior Run facility is a QF.(4)
(5) AES indirectly owns a 100 percent interest in the 143 MW
coke-fired Deepwater generating facility ("Deepwater") located
in the State of Texas. Deepwater is committed to TXU Electric
Company ("TXU") under a power purchase agreement that gives TXU
dispatch rights for 140 MW of Deepwater's capacity through the
end of 2001. The Deepwater facility is a QF.(5)
(6) AES indirectly owns a 100 percent interest in the 181 MW Thames
generating facility ("Thames") located in the State of
Connecticut. The entire output of Thames is committed to
Connecticut Light & Power Company pursuant to a long-term
contract that expires March 5, 2015. The Thames facility is a
QF.(6)
(7) AES indirectly own 100 percent of the Alamitos (2,083 MW),
Huntington Beach (563 MW), and Redondo Beach (1,310 MW)
generating facilities for an aggregate generating capacity of
approximately 3,956 MW located in the State of California
(collectively, the "Southland" facilities). The entire output
of the Southland facilities is committed to Williams Energy
Services Company pursuant to a long-term contract that expires
May 31, 2018. The Commission has granted AES Southland
authority to make wholesale power sales at market-based rates.(7)
(8) AES indirectly owns a 100 percent interest in the 120 MW
Placerita generating facility ("Placerita") located in the
State of California. The output of the Placerita facilities
presently is sold on a daily basis in to the California market.
AES Placerita, Inc. has received market-based rate
authorization.(11)
(9) AES indirectly owns a 100 percent interest in the 180 MW Hawaii
generating facility ("Hawaii") located in the State of Hawaii.
The entire output of the Hawaii facility is committed to Hawaii
Electric Company pursuant to a long-term contract that expires
in 2021. The Hawaii facility is a QF.(12)
(10) AES indirectly owns a 100 percent interest in six coal-fired
generating facilities - Somerset (675 MW), Cayga (306 MW),
Westover (126 MW), Greenidge (161 MW), Hinkling (85 MW) and
Jennison (71 MW) - with an aggregate generating capacity of
approximately 1,424 MW located in the State of New York ("AES
NY Facilities").(13) The Commission has granted AES NY, LLC
authority to make wholesale power sales at market-based
rates.(14)
(11) AES indirectly owns a 100 percent interest in the 454 MW
coal-fired Puerto Rico generating facility ("Puerto Rico")
located in the Territory of Puerto Rico. The entire output
produced by the Puerto Rico facility is committed to The Puerto
Rico Electric Power Authority pursuant to a 25 year long term
contract signed in 1994. The Puerto Rico facility is a QF.(15)
(12) AES indirectly owns a 100 percent interest in the 832 MW
gas-fired Red Oak generating facility ("Red Oak") which is to
be constructed and operated in the State of New Jersey. The
entire output of Red Oak will be committed under a long-term
contract that expires in 2022. The facility is expected to
become operational in 2002.(16)
(13) AES owns, through its subsidiary AES Kingston ULC, a 50 percent
interest in The Kingston Cogen Limited Partnership ("Kingston
Cogen LP"). The remaining 50 percent of Kingston Cogen LP is
owned 25 percent by Pacific Kingston Energy, Inc. and 25
percent by PanCanadian Petroleum Limited. Kingston Cogen LP
owns a 110 MW gas-fired combined-cycle cogeneration facility
located in Loyalist Township, Ontario. The entire output of the
Kingston facility is committed to Ontario Electricity Financial
Corporation through January 31, 2017.
(14) On October 27, 2000, AES Mohave, LLC, an indirect subsidiary of
AES, received Commission authorization to acquire a combined 70
percent interest in the 1,106 MW coal-fired Mohave generating
station ("Mohave") located in Laughlin, Nevada.(17) On
September 28, 2000, AES Mohave, LLC filed an application with
the Commission requesting authorization to sell wholesale power
from Mohave at market-based rates. That application is pending
in Docket No. ER00-3783-000.
(15) AES owns a 100 percent interest in AES Londonderry LLC, a 720
MW natural gas-fired combined cycle power plant currently under
construction in Londonderry, New Hampshire. The Plant is
expected to be operational in June of 2002 and is an EWG.
II. AES'S POWER MARKETING ACTIVITIES
AES owns interests in several power marketers, as described
below:
(1) AES owns a 100 percent interest in AES Power, Inc., which is not
currently marketing electric energy.
(2) AES owns a 100 percent interest in QST Energy Trading, Inc.
("QST"), a power marketer authorized to sell wholesale power at
market-based rates.(18) QST is no longer operational.
(3) AES owns a 100 percent interest in New Energy Ventures, and
indirectly owns a 100 percent interest in NEV East, L.L.C., NEV
California, L.L.C. and NEV Midwest, L.L.C.(19) AES also owns a
100 percent membership interest in New Energy Partners, L.L.C.,
a power marketer authorized to sell wholesale power at
market-based rates.(20)
---------------
Footnotes:
(1) AES Shady Point, Inc., 39 FERC paragraph 62,162 (1987).
(2) BV Partners, 33 FERC paragraph 62,074 (1985).
(3) AES Ironwood LLC, 86 FERC paragraph 62,247 (1999).
(4) AES WR Ltd. Partnership, 69 FERC paragraph 62,082 (1994).
(5) The AES Corp., 59 FERC paragraph 62,148 (1992).
(6) AES Thames, Inc., 34 FERC paragraph 62,079 (1986).
(7) See AES Huntington Beach, 83 FERC paragraph 61,100 (1998) (order granting
wholesale market rate authority); AES Redondo Beach, 83 FERC paragraph
61,358 (1998) (order granting authority to engage in sales of ancillary
services at market rates).
(11) AES Placerita, Inc., 89 FERC paragraph 61,202 (1999).
(12) AES Barbers Point, Inc., 45 FERC paragraph 62,002 (1988).
(13) AES recently purchased the AES NY Facilities from New York State Electric &
Gas Corporation. New York State Elec. & Gas Corp., 86 FERC paragraph 62,079
(1999). The Hinkling and Jennison facilities have just recently been placed
in long-term cold standby mode.
(14) See AES NY LLC, 86 FERC paragraph 61,002 (1999); AES 2 LLC, Docket No.
ER99-2284, Delegated Letter Order (Apr. 23, 1999). AES has also formed
several EWG's to maintain and operate these facilities. AES Jennison LLC,
86 FERC paragraph 62,147 (1999), AES Hickling LLC, 86 FERC paragraph 62,148
(1999); AES Westover LLC, 86 FERC paragraph 62,149 (1999); AES Somerset
LLC, 86 FERC paragraph 62,150 (1999); AES Greenidge LLC, 86 FERC paragraph
62,151 (1999).
(15) AES Puerto Rico, LP, 75 FERC paragraph 62,051 (1996).
(16) AES Red Oak, LLC, 89 FERC paragraph 62,094 (1999).
(17) See Southern California Edison Co., 93 FERC paragraph 62,066 (2000)
(authorizing AES Mohave, LLC's acquisition of 70 percent ownership interest
in Mohave facility).
(18) QST Energy Trading Inc., 74 FERC paragraph 61,282 (1996).
(19) See NEV, L.L.C. 81 FERC paragraph 61,186 (1997) (authorizing AES's
acquisition of New Energy Ventures).
(20) See Rockingham Power et al., 86 FERC paragraph 61,337 (1999) (authorizing
New Energy Partners, L.L.C. to sell wholesale power at market-based rates).
Attachment 3
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
The AES Corporation ) Docket No. EC01- ___ - 000
IPALCO Enterprises, Inc. )
NOTICE OF FILING
Take notice that on November 14, 2000, The AES
Corporation ("AES") and IPALCO Enterprises, Inc. ("AES") (collectively,
"Applicants") filed with the Federal Energy Regulatory Commission an
application pursuant to section 203 of the Federal Power Act requesting
authorization for AES to acquire IPALCO. Applicants request that the
Commission approve the application by February 15, 2001.
Applicants state that copies of this filing have been
served on the Indiana Utility Regulatory Commission and the Illinois
Commerce Commission.
Any person desiring to be heard or to protest such filing
should file a motion to intervene or protest with the Federal Energy
Regulatory Commission, 888 First Street, N.E., Washington, D.C. 20426, in
accordance with Rules 211 and 214 of the Commission's Rules of Practice and
Procedure (18 C.F.R. 385.211 and 385.214). All such motions and protests
should be filed on or before __________. Protests will be considered by the
Commission to determine the appropriate action to be taken, but will not
serve to make protestants parties to the proceedings. Any person wishing to
become a party must file a motion to intervene. Copies of this filing are
on file with the Commission and are available for public inspection. This
filing may also be viewed on the Internet at
http://www.ferc.fed.us/online/rims.htm (Call 202-208-2222 for assistance).
David P. Boergers
Secretary
EXHIBIT B
THE AES CORPORATION
AES, a Delaware corporation, is a public utility holding
company exempt from registration under the Public Utility Holding Company
Act of 1935 ("PUHCA") by reason of section 3(a)(5) thereof 15 U.S.C. section
79c(a)(5) (1994).(1)
No ownership or control is exercised by or over AES as to
any bank, trust company, banking association, or firm that is authorized by
law to underwrite or participate in the marketing of securities of a public
utility, or any company supplying electric equipment to such party. AES
does not have any trustees who are directors of commercial banks or of
companies that are authorized to underwrite or participate in the marketing
of securities.
There is no intercorporate relationship between AES and
IPALCO, or their affiliates. AES and its affiliates have no officers or
directors in common with IPALCO or its affiliates.
---------------
(1) See The AES Corp., HCAR No. 35-27063 (1999).
EXHIBIT B
STATEMENT OF MEASURE OF CONTROL OR OWNERSHIP
Indianapolis Power & Light Company is wholly owned by IPALCO
Enterprises, Inc. an exempt holding company.
The Board of Directors for Utilities of the Department of
Public Utilities of the City of Indianapolis, Indiana is the trustee of a
public charitable trust, d/b/a Citizens Coke & Gas Utility.
Exhibit H
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF SHARE EXCHANGE
DATED AS OF JULY 15, 2000
BETWEEN
THE AES CORPORATION
AND
IPALCO ENTERPRISES, INC.
----------------------------------------------------------------------------
TABLE OF CONTENTS
ARTICLE I
THE EXCHANGE...............................................................2
Section 1.1 The Exchange............................................2
Section 1.2 Closing.................................................2
Section 1.3 Effective Time..........................................2
Section 1.4 Effects.................................................2
Section 1.5 Articles of Incorporation and By-laws...................3
Section 1.6 Directors...............................................3
ARTICLE II
EFFECT ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES.........................3
Section 2.1 Effect on Capital Stock.................................3
Section 2.2 Per Share Amount Adjustments............................4
Section 2.3 Exchange of Certificates................................5
Section 2.4 Stock Option Plans......................................7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY..............................9
Section 3.1 Organization, Standing and Power........................9
Section 3.2 Capital Structure......................................11
Section 3.3 Authority; Execution and Delivery; Enforceability......12
Section 3.4 No Conflicts; Consents.................................13
Section 3.5 SEC Documents..........................................15
Section 3.6 Absence of Certain Changes or Events...................15
Section 3.7 Absence of Undisclosed Liabilities.....................16
Section 3.8 Litigation.............................................16
Section 3.9 Compliance with Applicable Laws........................16
Section 3.10 Company Rights Agreement...............................17
Section 3.11 Taxes..................................................17
Section 3.12 Employee Matters; ERISA................................20
Section 3.13 Environmental Matters..................................27
Section 3.14 Title to Real Property.................................30
Section 3.15 Assets Other than Real Property Interests..............30
Section 3.16 Intellectual Property..................................31
Section 3.17 Transactions with Affiliates...........................31
Section 3.18 Brokers; Schedule of Fees and Expenses.................32
Section 3.19 Opinion of Financial Advisor...........................32
Section 3.20 Capacity to Serve Peak Demand..........................32
Section 3.21 Accounting Matters.....................................32
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT..................................32
Section 4.1 Organization, Standing and Power.......................33
Section 4.2 Certificate of Incorporation and By-laws...............33
Section 4.3 Capital Structure......................................33
Section 4.4 Authority; Execution and Delivery; Enforceability......34
Section 4.5 SEC Documents..........................................34
Section 4.6 No Conflicts; Consents.................................35
Section 4.7 Compliance with Applicable Laws........................36
Section 4.8 Absence of Undisclosed Liabilities.....................36
Section 4.9 Stockholder Approval...................................37
Section 4.10 Litigation.............................................37
Section 4.11 Absence of Certain Changes or Events...................37
Section 4.12 Brokers................................................37
Section 4.13 Ownership of Company Common Stock......................37
Section 4.14 Regulatory Status......................................37
Section 4.15 Tax-Free Reorganization................................38
Section 4.16 Accounting Matters.....................................38
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS.................................38
Section 5.1 Conduct of Business....................................38
Section 5.2 No Solicitations.......................................45
Section 5.3 Conduct of Business by Parent..........................48
ARTICLE VI
ADDITIONAL AGREEMENTS.....................................................48
Section 6.1 Preparation of Joint Registration/Proxy Statement;
Shareholders Meeting...................................50
Section 6.2 Access to Information; Confidentiality.................50
Section 6.3 Reasonable Efforts; Notification; Filings..............50
Section 6.4 Employee Benefit Plans.................................53
Section 6.5 Directors' and Officers' Indemnification and
Insurance..............................................54
Section 6.6 Expenses...............................................56
Section 6.7 Public Announcements...................................56
Section 6.8 Transfer Taxes.........................................56
Section 6.9 Restructuring..........................................56
Section 6.10 Rights Agreement; Consequences if Rights Triggered.....56
Section 6.11 Conduct of Business of Parent..........................57
Section 6.12 Certain Employee Matters; Headquarters.................57
Section 6.13 Charitable Giving......................................57
Section 6.14 Asset Sale.............................................57
Section 6.15 Tax Treatment..........................................58
Section 6.16 Regional Transmission Organization.....................58
Section 6.17 Pooling-of-Interest....................................58
Section 6.18 Affiliate Letters......................................58
ARTICLE VII
CONDITIONS PRECEDENT......................................................59
Section 7.1 Conditions to Each Party's Obligation to Effect
the Exchange...........................................59
Section 7.2 Conditions to Obligation of Parent.....................60
Section 7.3 Conditions to Obligation of the Company................62
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER.........................................63
Section 8.1 Termination............................................63
Section 8.2 Effect of Termination..................................66
Section 8.3 Expenses and Fees......................................66
Section 8.4 Amendment..............................................66
Section 8.5 Extension; Waiver......................................67
Section 8.6 Procedure for Termination, Amendment, Extension or
Waiver.................................................67
ARTICLE IX
GENERAL PROVISIONS........................................................67
Section 9.1 Nonsurvival of Representations and Warranties..........67
Section 9.2 Notices................................................67
Section 9.3 Definitions............................................69
Section 9.4 Interpretation.........................................69
Section 9.5 Severability...........................................70
Section 9.6 Counterparts...........................................70
Section 9.7 Entire Agreement; No Third-Party Beneficiaries.........70
Section 9.8 Governing Law..........................................70
Section 9.9 Assignment.............................................71
Section 9.10 Enforcement............................................70
Section 9.11 Further Assurances.....................................71
Exhibits
Exhibit A . . . . Form of Tax Opinion Representation Letter of Parent
Exhibit B . . . . Form of Tax Opinion Representation Letter of the Company
Exhibit C . . . . Form of Indiana Certification
Exhibit D . . . . Form of Affiliate Letters
AGREEMENT AND PLAN OF SHARE EXCHANGE
AGREEMENT AND PLAN OF SHARE EXCHANGE, dated as of
July 15, 2000, by and between The AES Corporation, a Delaware corporation
("Parent"), and IPALCO Enterprises, Inc., an Indiana corporation (the
"Company").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Parent and the
Company have approved the acquisition of the Company by Parent on the terms
and subject to the conditions set forth in this Agreement;
WHEREAS, the respective Boards of Directors of Parent and the
Company have approved the mandatory share exchange (the "Exchange") whereby
all of the issued and outstanding shares of Common Stock, no par value, of
the Company ("Company Common Stock") shall be acquired by Parent in
exchange for shares of validly issued, fully paid and nonassessable common
stock, par value $0.01 per share, of Parent ("Parent Common Stock") on the
terms and subject to the conditions set forth in this Agreement;
WHEREAS, for accounting purposes, it is intended that the
transactions contemplated hereby be accounted for as a pooling-of-interests
under United States generally accepted accounting principles ("GAAP") and
the rules and regulations of the Securities and Exchange Commission
("SEC");
WHEREAS, for United States federal income tax purposes, it is
intended that the transactions contemplated hereby qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and that this Agreement shall be,
and is hereby, adopted as a plan of reorganization for purposes of Section
368 of the Code; and
WHEREAS, Parent and the Company desire to make certain
representations, warranties, covenants and agreements in connection with
the Exchange and also to prescribe various conditions to the Exchange.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein the
parties hereto agree as follows:
ARTICLE I
THE EXCHANGE
Section 1.1 The Exchange. On the terms and subject to the
conditions set forth in this Agreement, and in accordance with the Business
Corporation Law of the State of Indiana (the "BCL"), at the Effective Time
(as defined in Section 1.3), (i) Parent and the Company shall effect the
Exchange, and (ii) the Company shall become a wholly owned Subsidiary of
Parent.
Section 1.2 Closing. The closing (the "Closing") of the
Exchange shall take place at the offices of Skadden, Arps, Slate, Meagher &
Flom LLP, 1440 New York Avenue, N.W., Washington, D.C. 20005 at 10:00 a.m.,
local time, on or prior to the fifth business day following the
satisfaction (or, to the extent permitted by Law (as defined in Section
3.4), waiver by all parties) of the conditions set forth in Section 7.1,
or, if on such day any condition set forth in Section 7.2 or 7.3 has not
been satisfied (or, to the extent permitted by Law, waived by the party or
parties entitled to the benefits thereof), as soon as practicable after all
the conditions set forth in Article VII have been satisfied (or, to the
extent permitted by Law, waived by the parties entitled to the benefits
thereof), or at such other place, time and date as shall be agreed in
writing between Parent and the Company. The date on which the Closing
occurs is referred to in this Agreement as the "Closing Date."
Section 1.3 Effective Time. Prior to the Closing, Parent and
the Company shall prepare and, on the Closing Date or as soon as
practicable thereafter, shall file with the Secretary of State of the State
of Indiana, the articles of share exchange or other appropriate documents
(in any such case, the "Articles of Share Exchange") executed in accordance
with the relevant provisions of the BCL and shall make all other filings or
recordings required under the BCL. The Exchange shall become effective at
such time as the Articles of Share Exchange are duly filed with the
Secretary of State of the State of Indiana, or at such other time as Parent
and the Company shall agree and specify in the Articles of Share Exchange
(the time the Exchange becomes effective being the "Effective Time").
Section 1.4 Effects.
(a) The Exchange shall have the effects set forth in Section
23-1-40-6 of the BCL.
(b) The parties hereto acknowledge and agree that the
consummation of the Exchange and no other event in connection with this
Agreement constitutes "an acquisition of control" or a "change in control."
Section 1.5 Articles of Incorporation and By-laws. The Articles
of Incorporation and By-laws of the Company as in effect immediately prior
to the Effective Time shall continue to be the Articles of Incorporation
and By-laws of the Company until thereafter changed or amended as provided
therein or by applicable Law.
Section 1.6 Directors. All of the directors of the Company as
of immediately prior to the Effective Time shall resign effective as of the
Effective Time and Parent shall thereafter have the right to appoint
directors in accordance with the BCL.
ARTICLE II
EFFECT ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
Section 2.1 Effect on Capital Stock. At the Effective Time, by
virtue of the Exchange and without any action on the part of the holder of
any shares of Company Common Stock:
(a) Cancellation of Treasury Stock. Each share of Company
Common Stock that is owned immediately prior to the Effective Time by the
Company or Parent shall automatically be canceled and retired and shall
cease to exist, and no cash or other consideration shall be delivered or
deliverable in exchange therefor.
(b) Exchange of Company Common Stock. Subject to Section
2.1(a), each issued share of Company Common Stock outstanding immediately
prior to the Effective Time shall be exchanged for such number (the
"Exchange Ratio") of shares of Parent Common Stock calculated as follows:
(i) if the Average Trading Price (as defined below) of a
share of Parent Common Stock is greater than or equal to $31.50, the
Exchange Ratio shall equal a quotient (rounded to the third decimal
place) determined by dividing (x) $25.00 (the "Per Share Amount"),
subject to adjustment in accordance with Section 2.2 (as adjusted,
the "Adjusted Per Share Amount"), by (y) the Average Trading Price of
a share of Parent Common Stock; and
(ii) if the Average Trading Price of a share of Parent
Common Stock is less than $31.50, the Exchange Ratio shall equal a
quotient (rounded to the third decimal place) determined by dividing
(x) the Per Share Amount or Adjusted Per Share Amount, as applicable,
by (y) $31.50.
"Average Trading Price" shall be equal to the average of the daily
closing prices per share of Parent Common Stock on the New York Stock
Exchange ("NYSE") Composite Transactions Reporting System, as reported in
The Wall Street Journal, for the twenty trading days ending on the date
immediately prior to the fifth full NYSE trading day immediately preceding
the Closing Date.
The Exchange Ratio shall be subject to appropriate adjustment in the
event of any stock split, stock dividend or recapitalization after the date
of this Agreement applicable to shares of Parent Common Stock or Company
Common Stock. The number of shares of Parent Common Stock issuable by
Parent upon consummation of the Exchange in accordance with this Article
II, together with any cash payable in lieu of fractional shares in
accordance with Section 2.3(h), is referred to collectively as the
"Exchange Consideration."
(c) Parent shall acquire and become the sole holder and owner
of each issued and outstanding share of Company Common Stock so exchanged.
Section 2.2 Per Share Amount Adjustments.
(a) In the event the Closing occurs after the Trigger Date (as
defined below), then the Per Share Amount shall be increased by an amount
equal to $0.00411 per share per day from the date after the Trigger Date
through the earliest of (but not including) (x) the Closing Date and (y)
the Termination Date (as defined in Section 8.1(b)(i)). In addition, on the
Trigger Date, if the Closing has not yet occurred, the Per Share Amount
shall be increased, on a one-time basis, by an amount equal to $0.15 per
share.
(b) For purposes of this Agreement, the "Trigger Date" shall be
the latest of (x) March 31, 2001, (y) the date which is 30 days after the
Indiana Certification (as defined in Section 6.3(a)) has been issued and
(z) the date on which all the conditions set forth in Section 7.1 and in
Sections 7.2(c), 7.2(d), 7.2(h), and clauses (i), (ii) and (iii) of Section
7.2(i) have been satisfied or waived by Parent and the conditions set forth
in Sections 7.2(a) and 7.2(b) would have been satisfied if the Closing had
occurred on such date. Notwithstanding the foregoing the Trigger Date shall
not occur in the event the condition set forth in Section 7.1(d) is not
satisfied until following the satisfaction of the condition set forth in
Section 7.2(e). For purposes of determining the Trigger Date, the Company
shall deliver, as promptly as reasonably practicable, a certificate of an
executive officer of the Company setting forth the date of the proposed
Trigger Date. In the event Parent disagrees with the date set forth in such
certificate, Parent shall notify the Company in writing within five
business days of receipt of such certificate, specifying the reason for the
nature of such disagreement. The parties agree to negotiate in good faith
to promptly resolve any differences with respect to the date of the Trigger
Date as set forth in the certificate of the Company's executive officer.
Section 2.3 Exchange of Certificates.
(a) Exchange Agent. Prior to the Effective Time, Parent shall
select a bank or trust company, which shall be reasonably satisfactory to
the Company, to act as exchange agent (the "Exchange Agent") for exchange
in accordance with this Article II of the Exchange Consideration upon
surrender of certificates representing Company Common Stock. Immediately
prior to or at the Effective Time, Parent shall deposit with the Exchange
Agent, for the benefit of the holders of shares of Company Common Stock,
for exchange in accordance with this Article II, (i) certificates
representing the shares of Parent Common Stock issuable upon consummation
of the Exchange and (ii) cash funds estimated to be sufficient to make
payment for any fractional shares pursuant to Section 2.3(h) (such shares
of Parent Common Stock and cash funds together being hereinafter referred
to as the "Exchange Fund").
(b) Exchange Procedure. As soon as reasonably practicable after
the Effective Time, the Exchange Agent shall mail to each holder of record
of a certificate or certificates (the "Certificates") that immediately
prior to the Effective Time represented outstanding shares of Company
Common Stock whose shares were exchanged for the Exchange Consideration
pursuant to Section 2.1, (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
Parent may reasonably specify) and (ii) instructions for use in effecting
the surrender of the Certificates in exchange for the Exchange
Consideration. Upon surrender of a Certificate for cancellation to the
Exchange Agent, together with such letter of transmittal, duly executed,
and such other documents as may reasonably be required by the Exchange
Agent, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate or certificates representing that whole
number of shares of Parent Common Stock which such holder has the right to
receive pursuant to the provisions of this Article II, and the Certificate
so surrendered shall forthwith be canceled. In the event of a transfer of
ownership of Company Common Stock that is not registered in the transfer
records of the Company, exchange may be made to a person other than the
person in whose name the Certificate so surrendered is registered, if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and shall be accompanied by evidence satisfactory to the Exchange
Agent that any transfer or other Taxes (as defined in Section 3.11(a))
required by reason of such payment in a name other than that of the
registered holder of such Certificate or instrument either has been paid or
is not payable. Until surrendered as contemplated by this Section 2.3, each
Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the Exchange
Consideration.
(c) No Further Ownership Rights in Company Common Stock. The
Exchange Consideration delivered in accordance with the terms of this
Article II upon exchange of any shares of Company Common Stock shall be
deemed to have been delivered in full satisfaction of all rights pertaining
to such shares of Company Common Stock, subject, however, to the Company's
obligation to pay any dividends or make any other distributions with a
record date prior to the Effective Time that may have been declared or made
by the Company on such shares of Company Common Stock in accordance with
the terms of this Agreement or prior to the date of this Agreement and
which remain unpaid at the Effective Time. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers on the stock transfer books of the Company of
shares of Company Common Stock that were outstanding immediately prior to
the Effective Time. If, after the Effective Time, any certificates formerly
representing shares of Company Common Stock are presented to the Company or
the Exchange Agent for any reason, they shall be canceled and exchanged as
provided in this Article II.
(d) Termination of Exchange Fund. Promptly after the date which
is six months after the Effective Time, the Exchange Agent shall deliver to
Parent certificates, cash and other documents in its possession relating to
the transactions contemplated hereby, and the Exchange Agent's duties shall
terminate, and any holder of Company Common Stock who has not theretofore
complied with this Article II shall thereafter look only to the Company
(subject to applicable abandoned property, escheat and similar laws) for
payment of its claim for the Exchange Consideration but only as general
creditors thereof.
(e) No Liability. None of Parent, the Company or the Exchange
Agent shall be liable to any person in respect of any shares or funds
delivered to a public official pursuant to any applicable abandoned
property, escheat or similar Law.
(f) Investment of Exchange Fund. The Exchange Agent shall
invest any cash included in the Exchange Fund, as directed by Parent, on a
daily basis. Any interest and other income resulting from such investments
shall be paid to Parent.
(g) Withholding Rights. Parent, the Company and the Exchange
Agent shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of shares of
Company Common Stock such amounts as Parent, the Company or the Exchange
Agent is required to deduct and withhold with respect to the making of such
payment under the Code or any provision of state, local or foreign Tax law.
To the extent that amounts are so withheld and paid over to the appropriate
Taxing Authority by Parent, the Company or the Exchange Agent, such
withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of Company Common Stock in
respect of which such deduction and withholding was made by Parent, the
Company or the Exchange Agent.
(h) No Fractional Shares. No fractional shares of Parent Common
Stock will be issued to holders of Company Common Stock upon surrender of
shares of Company Common Stock in exchange for the Exchange Consideration
and any such fractional share interests shall not entitle the owner thereof
to vote or to any other rights of a holder of Company Common Stock. In lieu
thereof, Parent shall pay to such holders otherwise entitled to a
fractional share cash in an amount equal to the product of such fraction
and the Average Trading Price. For purposes of this Section 2.3(h), all
fractional shares to which a single record holder would be entitled shall
be aggregated.
Section 2.4 Stock Option Plans.
(a) Immediately prior to the Effective Time, the Company shall
have adopted such resolutions, taken such actions and obtained any
necessary consents (including the consent of individual option holders, if
necessary) as may be required to provide that each option to acquire shares
of Company Common Stock (the "Company Stock Options") shall be assumed by
Parent as of the Effective Time and shall thereafter be deemed to
constitute an option to acquire, on the same terms and conditions as were
applicable under such Company Stock Option immediately prior to the
Effective Time, the number (rounded to the nearest whole number) of shares
of Parent Common Stock determined by multiplying the number of shares of
Company Common Stock subject to such Company Stock Option immediately prior
to the Effective Time by the Exchange Ratio, at a price per share (rounded
to the nearest whole cent) equal to the exercise price per share of Company
Common Stock otherwise purchasable pursuant to such Company Stock Option
divided by the Exchange Ratio; provided, however, that with respect to any
Company Stock Option that is an incentive stock option within the meaning
of the Code, such substitution shall be effected in accordance with Section
424(a) of the Code.
(b) The Company and, to the extent applicable, Parent shall
take all actions necessary (including obtaining the consent of individual
award holders, if necessary) to provide that (i) each award or account
(including each share of restricted or performance stock granted under the
Company Option Plans, stock equivalents and stock units, but excluding
Company Stock Options) outstanding as of the date of this Agreement (a
"Company Stock Award") that has been established, made or granted under any
employee incentive or benefit plans, programs or arrangements and
non-employee director plans maintained by the Company on or prior to the
date hereof which provide for grants of equity-based awards or equity-based
accounts shall be amended or converted into a similar instrument of and
assumed by Parent as of the Effective Time in accordance with its terms and
conditions as in effect immediately prior to the Effective Time, in each
case with such adjustments to the terms and conditions of such Company
Stock Awards as are appropriate to preserve the value inherent in such
Company Stock Awards with no detrimental effects on the holders thereof,
and (ii) any holder of a Company Stock Award may elect to authorize the
Company to retain a number of shares of Company Common Stock from such
grant having an aggregate fair market value equal to any withholding taxes
applicable to the vesting of such grant, in lieu of the payment of such
amount in cash.
(c) Except as otherwise agreed to by the parties, (i) the
Company shall take all actions necessary to provide that the provisions in
any other plan, program or arrangement providing for the issuance or grant
by the Company or any of its Subsidiaries of any interest in respect of the
capital stock of the Company or any of its Subsidiaries shall be deleted,
and (ii) the Company shall ensure that following the Effective Time no
holder of Company Stock Options or any participant in the Company Option
Plans or any other such plan, program or arrangement providing for the
issuance or grant by the Company or any of its Subsidiaries of any interest
in respect of the capital stock of the Company or any of its Subsidiaries
shall have any right thereunder to acquire any equity securities of the
Company or any Subsidiary thereof unless otherwise agreed by Parent and
such holder or participant.
(d) Parent shall take all actions necessary to reserve for
issuance, from and after the Effective Time, a sufficient number of shares
of Parent Common Stock for delivery pursuant to the terms set forth in this
Section 2.4. On or before the Effective Time, Parent shall cause to be
filed with the SEC a registration statement on an appropriate form or a
post-effective amendment to a previously filed registration statement under
the Securities Act of 1933, as amended (the "Securities Act"), with respect
to shares of Parent Common Stock subject to options and other equity-based
awards issued pursuant to this Section 2.4, and shall use reasonable
efforts to maintain the current status of the prospectus contained therein,
as well as to comply with any applicable state securities or "blue sky"
laws, for so long as such options or other equity-based awards remain
outstanding.
(e) By adopting or approving this Agreement, the Board of
Directors of the Company (the "Company Board") shall be deemed to have
approved and authorized, and the shareholders of the Company shall be
deemed to have approved and ratified, each and every amendment to any of
the Company Option Plans, Company Stock Options or Company Stock Awards as
the officers of the Company may deem necessary or appropriate to give
effect to the provisions of Sections 2.4(a) and 2.4(b).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent that except as
set forth in the Company SEC Documents (as defined in Section 3.5) filed
and publicly available prior to the date of this Agreement and except as
set forth in the disclosure schedule delivered by the Company to Parent
concurrent with the execution of this Agreement (the "Company Disclosure
Schedule"):
Section 3.1 Organization, Standing and Power.
(a) Each of the Company, each Subsidiary of the Company (a
"Company Subsidiary") and each Company Joint Venture (as defined in Section
9.3) is a corporation or other entity duly organized, validly existing and,
if applicable, in good standing under the laws of the jurisdiction in which
it is incorporated or organized and has full corporate power and authority
and has been duly authorized by all necessary approvals and orders,
including possessing all governmental franchises, licenses, permits,
authorizations and approvals necessary to enable it to own, operate, lease
or otherwise hold its properties and assets and to conduct its businesses
as presently conducted, other than such franchises, licenses, permits,
authorizations and approvals the lack of which, individually or in the
aggregate, have not had and would not have a Company Material Adverse
Effect (as defined below). The term "Company Material Adverse Effect" means
an event, change, cause or effect which is materially adverse to the
business, operations, properties, assets, liabilities, prospects, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries, taken as a whole or of the consummation of the transactions
contemplated hereby. The Company and each Company Subsidiary is duly
qualified and, if applicable, in good standing, to do business in each
jurisdiction where the nature of its business or their ownership or leasing
of its assets and properties make such qualification necessary, other than
the failure to so qualify and be in good standing, which together with all
other such failures, has not had and would not have a Company Material
Adverse Effect. The Company has made available to Parent true and complete
copies of the articles of incorporation of the Company, as amended to the
date of this Agreement (as so amended, the "Company Charter"), and the
By-laws of the Company, as amended to the date of this Agreement (as so
amended, the "Company Bylaws"), and the comparable charter and
organizational documents of each Company Subsidiary, in each case as
amended through the date of this Agreement.
(b) Section 3.1(b) of the Company Disclosure Schedule sets
forth a list of all the Company Subsidiaries and the Company Joint
Ventures, as of the date of this Agreement, including the name of each such
entity, a brief description of the principal line or lines of business
conducted by each such entity and the interest of the Company and the
Company Subsidiaries therein and the authorized, issued and outstanding
capital stock of each of the Company Subsidiaries. The Company is a
"holding company" (as defined in the Public Utility Holding Company Act of
1935, as amended ("PUHCA")) exempt from all provisions (other than Section
9(a)(2)) of PUHCA, pursuant to Section 3(a)(1) of PUHCA in accordance with
Rule 2 under PUHCA. The Company is not a "public utility company" within
the meaning of Section 2(a)(5) of PUHCA. With the exception of Entity I, no
Company Subsidiary or Company Joint Venture is a "holding company" or a
"public utility company" within the meaning of Sections 2(a)(7) and 2(a)(5)
of PUHCA, respectively, nor, except with respect to their relationship with
the Company, are any of such entities an "affiliate" or a "subsidiary
company" of a holding company within the meaning of Sections 2(a)(11) and
2(a)(8) of PUHCA, respectively. All of the issued and outstanding shares of
capital stock of each Company Subsidiary are validly issued, fully paid,
nonassessable and free of preemptive rights and to the extent owned,
directly or indirectly, by the Company, are owned free and clear of any
liens, claims, encumbrances, security interests, charges and options of any
nature whatsoever ("Liens"), and there are no outstanding subscriptions,
options, calls, contracts, voting trusts, proxies or other pledges,
security interests, commitments, understandings, restrictions,
arrangements, rights or warrants (including any right of conversion or
exchange under any outstanding security, instrument or other agreement),
obligating the Company or any Company Subsidiary to issue, deliver or sell,
pledge, grant a security interest on or encumber, or cause to be issued,
delivered or sold, pledged or encumbered or a security interest to be
granted on, shares of capital stock of any Company Subsidiary or obligating
the Company or any Company Subsidiary to grant, extend or enter into any
such agreement or commitment.
Section 3.2 Capital Structure.
(a) The authorized capital stock of the Company consists solely
of 290,000,000 shares of Company Common Stock, no par value, and no shares
of preferred stock. As of the date of this Agreement, 85,722,469 shares of
Company Common Stock were issued and outstanding, 31,056,356 shares were
held in the treasury of the Company, and the only shares reserved for
issuance as of such date consisted of 120,000,000 shares which were
reserved for issuance under the Rights Agreement dated as of June 28, 1998,
by and between the Company and First Chicago Trust Company of New York, as
Rights Agent (the "Company Rights Agreement"), pursuant to which the
Company has issued 116,778,825 rights (the "Company Rights") to purchase
116,778,825 shares of Company Common Stock; 2,785,952 shares which were
reserved or held for issuance under the Company's 1997 Stock Option Plan;
636,000 shares which were reserved or held for issuance under the Company's
1991 Directors' Stock Option Plan; 584,528 shares which were reserved or
held for issuance under the Company's 1990 Stock Option Plan; 1,477,500
shares which were reserved or held for issuance under the Company's 1999
Stock Incentive Plan; and 2,456,141 shares which were reserved or held for
issuance under the Company's Long-Term Performance and Restricted Stock
Incentive Plan (such plans, the "Company Option Plans"). The total number
of shares of Company Common Stock subject to outstanding options granted
under any Company Option Plan (whether or not the option is exercisable)
equals 4,360,980, with a weighted average exercise of $15.83 per share.
Except as set forth above, as of the date of this Agreement, no shares of
capital stock or other voting securities of the Company were issued,
reserved for issuance or outstanding. All outstanding shares of Company
Common Stock are, and all such shares that may be issued prior to the
Effective Time will be when issued, duly authorized, validly issued, fully
paid and nonassessable and not subject to or issued in violation of any
purchase option, call option, right of first refusal, preemptive right,
subscription right or any similar right under any provision of the BCL, the
Company Charter, the Company By-laws or any Contract (as defined in Section
3.4) to which the Company is a party or otherwise bound. There are not
issued or outstanding bonds, debentures, notes or other indebtedness of the
Company having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which holders of
Company Common Stock may vote ("Voting Company Debt"). Except as set forth
above and in the Company Benefit Plans (as defined in Section 3.12(a)), as
of the date of this Agreement, there are not issued or outstanding options,
calls, voting trusts, proxies, warrants, rights, convertible or
exchangeable securities, "phantom" stock rights, stock appreciation rights,
stock-based performance units, commitments, Contracts, other pledges,
security interests, encumbrances, arrangements or undertakings of any kind
to which the Company or any Company Subsidiary is a party or by which any
of them is bound (i) obligating the Company or any Company Subsidiary to
issue, deliver or sell, pledge, grant a security interest on or encumber or
cause to be issued, delivered or sold, pledged or encumbered or a security
interest to be granted on shares of capital stock or other equity interests
in, or any security convertible or exercisable for or exchangeable into any
capital stock of or other equity interest in, the Company or of any Company
Subsidiary or any Voting Company Debt or (ii) obligating the Company or any
Company Subsidiary to issue, grant, extend or enter into any such option,
warrant, call, right, security, commitment, Contract, arrangement or
undertaking. As of the date of this Agreement, there are not any
outstanding contractual obligations of the Company or any Company
Subsidiary to repurchase, redeem or otherwise acquire any shares of capital
stock of the Company or any Company Subsidiary or to make any investment in
(in the form of a loan, capital contribution or otherwise) or purchase any
equity interest or make contributions to, or otherwise fund the operations,
expenses or capital of, any Company Subsidiary or any other person.
(b) Indebtedness. Section 3.2(b) of the Company Disclosure
Schedule sets forth a true and complete statement of the borrowing limit as
of June 30, 2000 under all loan agreements (including indentures) of the
Company and its Subsidiaries existing on June 30, 2000, and Section 3.2(b)
of the Company Disclosure Schedule sets forth a true and complete statement
of the total indebtedness of the Company and its Subsidiaries outstanding
on June 30, 2000 under such agreements.
Section 3.3 Authority; Execution and Delivery; Enforceability.
(a) The Company has all requisite corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery by the Company of this
Agreement and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of the Company, subject to receipt of the Company
Shareholder Approval (as defined in Section 3.3(c)). The Company has duly
executed and delivered this Agreement and this Agreement constitutes its
legal, valid and binding obligation, enforceable against it in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar Laws affecting the
enforcement of creditors' rights generally and by general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(b) The Company Board, at a meeting duly called and held, duly
and unanimously adopted resolutions (i) approving this Agreement and the
Exchange, (ii) determining that the terms of the Exchange are fair to and
in the best interests of the shareholders of the Company and (iii)
recommending that the Company's shareholders adopt this Agreement. The
Company has taken all necessary actions so that neither the supermajority
voting provisions of Article X of the Company Charter nor the provisions of
Chapter 42 and Chapter 43 of the BCL will, before the termination of this
Agreement, apply to this Agreement or the Exchange.
(c) The only vote of holders of any class or series of Company
Common Stock necessary to approve and adopt this Agreement and the Exchange
is the adoption of this Agreement by the holders of a majority of the
outstanding Company Common Stock (the "Company Shareholder Approval"). The
shareholders of the Company are not entitled to dissenters' or appraisal
rights under applicable Law.
Section 3.4 No Conflicts; Consents.
(a) The execution and delivery by the Company of this Agreement
do not, and the consummation of the Exchange and compliance with the terms
hereof and the consummation of the other transactions contemplated hereby
will not, conflict with, or result in any violation of, or breach of any
provisions of, or constitute a default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation
or acceleration of any obligation or to loss of a material benefit under,
or result in the creation of any Lien upon any of the properties or assets
of the Company or any Company Subsidiary or the imposition of any other
penalty or fee or result in any obligation by the Company or any Company
Subsidiary to pay money to, or guarantee the performance or obligations of,
any person, including in connection with obtaining the Company Required
Consents (as defined below) under, any provision of (i) the Company
Charter, the Company By-laws or the comparable charter or organizational
documents of any Company Subsidiary, (ii) subject to obtaining the third
party consents set forth in Section 3.4 of the Company Disclosure Schedule
for the Exchange and other transactions contemplated hereby (the "Company
Required Consents"), any contract, lease, license, indenture or deed of
trust, note, mortgage, bond, agreement of any kind, permit, concession,
franchise or other instrument (a "Contract") to which the Company, any
Company Subsidiary or Company Joint Venture is a party or by which any of
their respective properties or assets is bound, or (iii) subject to the
filings and other matters referred to in Section 3.4(b), and subject to
obtaining the Company Shareholder Approval, any judgment, order, decree,
injunction, writ, permit or license of any court, federal, state, local or
foreign governmental or regulatory body ("Judgment") or statute, law,
ordinance, rule or regulation ("Law") existing on the date of this
Agreement applicable to the Company or any Company Subsidiary or their
respective properties or assets, other than, in the case of clauses (ii)
and (iii) above, any such items that have not had and would not in the
aggregate have a Company Material Adverse Effect.
(b) Assuming the accuracy of the representation of Parent
contained in Section 4.14, and assuming compliance by Parent with its
agreement contained in Section 6.9, no consent, approval, license, permit,
order or authorization ("Consent") of, or registration, declaration or
filing with, or permit from, any federal, state, local or foreign
government or any court of competent jurisdiction, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign (a "Governmental Entity") is required to be obtained or made by or
with respect to the Company or any Company Subsidiary in connection with
the execution, delivery and performance of this Agreement or the
consummation of the Exchange and the transactions contemplated hereby,
other than (i) compliance with and filings under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (ii) the
filing with the SEC of (A) a proxy or information statement relating to the
adoption of this Agreement by the Company's shareholders (together with
amendments thereof and supplements thereto, the "Proxy Statement"), and (B)
such reports under Section 13 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as may be required in connection with this
Agreement and the Exchange, (iii) the filing of the Articles of Share
Exchange with the Secretary of State of the State of Indiana and
appropriate documents with the relevant authorities of the other
jurisdictions in which the Company is qualified to do business, (iv) the
approval of the Federal Energy Regulatory Commission (the "FERC") under
Section 203 and any directly related section of or regulation under, the
Federal Power Act (the "Power Act") for the sale or disposition of
jurisdictional facilities of the Company, or an order under the Power Act
disclaiming jurisdiction over the Exchange, (v) the filing with the Federal
Communications Commission (the "FCC") of the applications required under
Section 310(d) of the Communications Act of 1934, as amended, and approval
by the FCC thereof, (vi) such filings as may be required in connection with
the Taxes described in Section 6.8, (vii) filings under any applicable
state takeover Law and (viii) such other items (A) required solely by
reason of the participation of Parent (as opposed to any third party) in
the Exchange or (B) that, individually or in the aggregate, would not
prevent the consummation of the transactions contemplated hereby and that,
individually or in the aggregate, would not have a Company Material Adverse
Effect.
Section 3.5 SEC Documents. The filings required to be made by
the Company and the Company Subsidiaries under the Securities Act and the
Exchange Act, as the case may be, have been filed and complied, as of their
respective dates, in all material respects with all applicable requirements
of the Securities Act or the Exchange Act, as the case may be, and the
rules and regulations thereunder. The Company has made available to Parent
a true and complete copy of each report, schedule, registration statement
and definitive proxy statement and all amendments thereto filed with the
SEC by the Company or the Company Subsidiaries (or their predecessors)
pursuant to the requirements of the Securities Act or the Exchange Act
since January 1, 1998 (as such documents have since the time of their
filing been amended, the "Company SEC Documents"). As of its respective
date, each Company SEC Document complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be,
and did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading. The audited consolidated financial
statements of the Company and the unaudited interim financial statements
included in the Company SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto, were prepared in
accordance with GAAP applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and fairly
presented the consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
Section 3.6 Absence of Certain Changes or Events. From December
31, 1999 to the date of this Agreement, the Company has conducted its
business only in the ordinary course consistent with past practice, and
during such period (i) there has not been any event, change, effect or
development that, individually or in the aggregate, has had or would have a
Company Material Adverse Effect, (ii) there has not been any material
election with respect to Taxes by the Company or any of the Company
Subsidiaries or any settlement or compromise of any material Tax liability
or refund of the Company or any of the Company Subsidiaries, and (iii)
there has not been any material change in accounting methods, principles or
practices by the Company or any of the Company Subsidiaries, except insofar
as may have been required by a change in GAAP or SEC accounting regulations
or guidelines or applicable Law.
Section 3.7 Absence of Undisclosed Liabilities. Except for
liabilities, obligations or contingencies which would not, in the
aggregate, have a Company Material Adverse Effect, or which are accrued or
reserved against in the consolidated financial statements of the Company or
reflected in the notes thereto for the year ended December 31, 1999, or the
quarter ended March 31, 2000, or which were incurred after December 31,
1999 in the ordinary course of business, neither the Company nor any
Company Subsidiary, nor, to the knowledge of Company, any Company Joint
Venture, has any liabilities or obligations (whether absolute, accrued,
contingent or otherwise and including margin loans) which are material to
the Company and the Company Subsidiaries taken as a whole.
Section 3.8 Litigation. As of the date of this Agreement, there
is no suit, claim, action, investigation or proceeding pending, or to the
knowledge of the Company threatened, from any governmental authority,
including any regulatory body or commission, against the Company or any
Company Subsidiary that, individually or in the aggregate, has had or would
have a Company Material Adverse Effect, nor is there any Judgment of any
governmental authority or any arbitrator outstanding against the Company or
any Company Subsidiary that has had or would have a Company Material
Adverse Effect.
Section 3.9 Compliance with Applicable Laws. Neither the
Company nor any of the Company Subsidiaries is in violation of, or to the
knowledge of the Company under investigation with respect to any violation
of, or has been given written notice of or been formally charged with any
violation of, any law, statute, order, rule, regulation, ordinance or
judgment, permit, license, concession or franchise of any Governmental
Entity, including PUHCA, the Power Act and applicable state, municipal,
local and other laws, including franchise and public utility laws and
regulations, and all documents, exhibits, amendments and supplements
pertaining thereto have been filed by the Company and the Company
Subsidiaries with the SEC, the FERC and the appropriate Indiana or other
appropriate Governmental Entities, except for violations or failures to
comply with Environmental Laws (which are the subject of Section 3.13) or
with respect to Taxes (which are the subject of Section 3.11) and except
for violations and failures to file which individually or in the aggregate
have not had and would not have a Company Material Adverse Effect. The
Company and each of the Company Subsidiaries is not in breach or violation
of or in default in the performance or observance of any term or provision
of, and no event has occurred which, with lapse of time or action by a
third party, could result in a default by the Company or the Company
Subsidiary under (i) the Company Charter, the Company By-laws or other
organizational documents or (ii) any contract, commitment, agreement,
indenture, mortgage, loan agreement, note, lease, bond, license, approval
or other instrument to which it is a party or by which the Company or the
Company Subsidiary is bound or to which any of its property is subject,
except, in the case of clause (ii) above, for violations, breaches or
defaults which individually or in the aggregate have not had and would not
have a Company Material Adverse Effect.
Section 3.10 Company Rights Agreement. The Company and the
Company Board have taken all action necessary to (i) render the Company
Rights Agreement inapplicable to this Agreement and the Exchange and (ii)
ensure that (A) neither Parent nor any of its affiliates or associates is
or will become an "Acquiring Person" (as defined in the Company Rights
Agreement) by reason of this Agreement or the Exchange, (B) a "Distribution
Date" (as defined in the Company Rights Agreement) shall not occur by
reason of this Agreement or the Exchange, and (C) all outstanding Company
Rights shall be canceled upon the Effective Time.
Section 3.11 Taxes.
(a) For purposes of this Agreement: (i) "Taxes" (including,
with correlative meaning, the word "Tax") shall include any and all (x)
federal, state, county, local, foreign or other taxes, charges, imposts,
rates, fees, levies or other assessments, including, all net income, gross
income, sales and use, ad valorem, transfer, gains, profits, excise,
franchise, real and personal property, gross receipt, capital stock,
production, business and occupation, disability, employment, payroll,
license, estimated, stamp, custom duties, severance, withholding or other
taxes, fees, assessments or charges of any kind whatsoever, together with
any interest and penalties (civil or criminal) on or additions to any such
taxes, (y) liability for the payment of any of the amounts of the type
described in clause (x) as a result of being a member of an affiliated,
consolidated, combined or unitary group, and (z) liability for the payment
of any amounts as a result of being a party to any Tax sharing agreement or
as a result of any express or implied obligation to indemnify any other
person with respect to the payment of any amounts of the types described in
clause (x) or (y), (ii) "Taxing Authority" means any Governmental Entity or
any subdivision, agency, court, commission, instrumentality or official
thereof or any quasi-governmental body having jurisdiction over the
assessment, determination, collection, imposition or administration of any
Tax (including the Internal Revenue Service (the "IRS")) and (iii) "Tax
Return" means any return, report, information return, schedule,
certificate, statement or other document (including any related or
supporting information) required to be filed with or supplied to, or, where
none is required to be filed with or supplied to a Taxing Authority, the
statement or other document issued by, a Taxing Authority in connection
with any Tax (including any combined, consolidated or unitary returns for
any group of entities that includes the Company or any Company Subsidiary).
(b) Filing of Timely Tax Returns. The Company and each of the
Company Subsidiaries have timely filed (or there has been timely filed on
their behalf) all Tax Returns required to be filed by or on behalf of each
of them under applicable law and all such Tax Returns were and are in all
material respects true, complete and correct, except to the extent that any
failure to file or any inaccuracies in any filed Tax Returns, individually
or in the aggregate, have not had and would not have a Company Material
Adverse Effect.
(c) Payment of Taxes. The Company and each of the Company
Subsidiaries have, within the time and in the manner prescribed by law,
paid or adequately reserved for all Taxes that are due and payable from
them, except to the extent that any failure to pay or reserve, individually
or in the aggregate, has not had and would not have a Company Material
Adverse Effect.
(d) Tax Reserves. The accrual for Taxes on the most recent
Company SEC Documents reflects an adequate reserve in accordance with GAAP
for all Taxes payable by the Company and the Company Subsidiaries for all
Tax periods (and portions thereof) accrued on or before the date of such
financial statements except to the extent that any failure to have an
adequate reserve, individually or in the aggregate, has not had and would
not have a Company Material Adverse Effect.
(e) Tax Liens. There are no Tax liens upon the assets,
properties or business of the Company or any of the Company Subsidiaries
except liens for Taxes not yet due or being contested in good faith through
appropriate proceedings and for which adequate reserves have been
established in the Company SEC Documents or liens for Taxes that,
individually or in the aggregate, have not had and would not have a Company
Material Adverse Effect.
(f) Withholding Taxes. The Company and each of the Company
Subsidiaries have complied in all material respects with the provisions of
the Code and all other applicable laws relating to the payment and
withholding of Taxes, including, the withholding and reporting requirements
under Code Sections 1441 through 1464, 3401 through 3406 and 6041 through
6049, as well as similar provisions under any other laws, and have, within
the time and in the manner prescribed by law, withheld from employee wages
and paid over to the proper Taxing Authorities all amounts required, except
to the extent that a failure to comply, withhold or pay, individually or in
the aggregate, has not had and would not have a Company Material Adverse
Effect.
(g) Extensions of Time for Filing Tax Returns. Neither the
Company nor any of the Company Subsidiaries has requested any extension of
time within which to file any Tax Return, which Tax Return has not since
been timely filed unless such extension has not expired.
(h) Waivers of Statute of Limitations. Neither the Company nor
any of the Company Subsidiaries has executed any outstanding waivers or
comparable consents regarding the application of the statute of limitations
with respect to any Taxes or Tax Returns, except for waivers or comparable
consents for any Taxes or Tax Returns that, individually or in the
aggregate, have not had and would not have a Company Material Adverse
Effect.
(i) Expiration of Statute of Limitations. The statutes of
limitations for the assessment of all Taxes with respect to all Tax Returns
of the Company and the Company Subsidiaries for all Tax periods have
expired. To the knowledge of the Company, no deficiency for any Taxes has
been proposed, asserted or assessed against the Company or any of the
Company Subsidiaries that has not been resolved and paid in full, except
for any deficiency that, individually or in the aggregate, has not had and
would not have a Company Material Adverse Effect.
(j) Audit, Administrative and Court Proceedings. No audits or
other proceedings by any Taxing Authority are presently pending, or to the
knowledge of the Company, have been threatened with regard to any Taxes or
Tax Returns of the Company or any of the Company Subsidiaries that are not
adequately reserved for except to the extent that any audits or other
proceedings, individually or in the aggregate, have not had and would not
have a Company Material Adverse Effect.
(k) Consolidated Tax Returns. Neither the Company nor any of
the Company Subsidiaries has ever been a member of an affiliated group of
corporations (within the meaning of Code Section 1504(a)) filing
consolidated Tax Returns, other than the affiliated group of which the
Company is the common parent.
(l) Code Section 355. Neither the Company nor any of the
Company Subsidiaries has constituted either a "distributing corporation" or
a "controlled corporation" in a distribution of stock outside of the
affiliated group of which the Company is the common parent qualifying or
intended to qualify for tax-free treatment under Section 355(a) of the Code
(A) in the two years prior to the date of this Agreement or (B) in a
distribution that could otherwise constitute part of a "plan" or "series of
related transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the Exchange.
(m) Availability of Tax Returns. Upon request the Company has
made available to Parent complete and accurate copies of (i) all Tax
Returns for open years, and any amendments thereto, filed by or on behalf
of the Company or any of the Company Subsidiaries, (ii) all audit reports
or written proposed adjustments (whether formal or informal) received from
any Taxing Authority relating to any Tax Return filed by or on behalf of
the Company or any of the Company Subsidiaries, and (iii) any Tax ruling or
request for a Tax ruling applicable to the Company or any of the Company
Subsidiaries entered into by the Company or any of the Company
Subsidiaries.
(n) Tax Treatment. As of the date of this Agreement, neither
the Company nor any of the Company Subsidiaries knows of any fact that is
reasonably likely to prevent the Exchange, if consummated as of the date of
this Agreement, from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
Section 3.12 Employee Matters; ERISA.
(a) Section 3.12(a) of the Company Disclosure Schedule contains
a true and complete list of each deferred compensation and each bonus or
other incentive compensation, stock purchase, stock option and other equity
compensation plan, program, agreement or arrangement; each severance or
termination pay, medical, surgical, hospitalization, life insurance and
other "welfare" plan, fund or program (within the meaning of Section 3(1)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")); each profit-sharing, stock bonus or other "pension" plan, fund
or program (within the meaning of Section 3(2) of ERISA); each employment,
termination or severance agreement; and each other employee benefit plan,
fund, program, agreement or arrangement, in each case, that is sponsored,
maintained or contributed to or required to be contributed to by the
Company or a Company Subsidiary or by any trade or business, whether or not
incorporated (an "ERISA Affiliate"), that together with the Company or a
Company Subsidiary would be deemed a "single employer" within the meaning
of Section 4001(b) of ERISA, or to which the Company or a Company
Subsidiary or an ERISA Affiliate is party, whether written or oral, for the
benefit of any employee or former employee of the Company or any Company
Subsidiary (the "Company Benefit Plans"). Section 3.12(a) of the Company
Disclosure Schedule identifies each of the Plans of the Company or any
Company Subsidiary or any ERISA Affiliate (a "Title IV Plan") that is
subject to Section 302 or Title IV of ERISA or Section 412 of the Code.
Neither the Company, any Company Subsidiary nor any ERISA Affiliate has any
commitment or formal plan, whether legally binding or not, to create any
additional employee benefit plan or modify or change any existing Company
Benefit Plan that would affect any employee or former employee of the
Company or any Company Subsidiary.
(b) With respect to each Company Benefit Plan, the Company has
heretofore delivered or made available to Parent true and complete copies
of each of the following documents:
(i) a copy of the Company Benefit Plan and any
amendments thereto (or if the Company Benefit Plan is not a written
plan, a description thereof);
(ii) a copy of the two most recent annual reports and
actuarial reports, if required under ERISA, and the most recent
report prepared with respect thereto in accordance with Statement of
Financial Accounting Standards No. 87;
(iii) a copy of the most recent Summary Plan Description
required under ERISA with respect thereto;
(iv) if the Company Benefit Plan is funded through a
trust or any third party funding vehicle, a copy of the trust or
other funding agreement and the latest financial statements thereof;
and
(v) the most recent determination letter received from
the IRS with respect to each Company Benefit Plan intended to qualify
under Section 401 of the Code.
(c) No material liability under Title IV or Section 302 of
ERISA has been incurred by the Company, a Company Subsidiary or any ERISA
Affiliate that has not been satisfied in full, and to the knowledge of the
Company no condition exists that presents a material risk to the Company, a
Company Subsidiary or any ERISA Affiliate of incurring any such liability,
other than liability for premiums due the Pension Benefit Guaranty
Corporation ("PBGC") (which premiums have been paid when due). Insofar as
the representation made in this Section 3.12(c) applies to Sections 4064,
4069 or 4204 of Title IV of ERISA, it is made with respect to any employee
benefit plan, program, agreement or arrangement subject to Title IV of
ERISA to which the Company, a Company Subsidiary or any ERISA Affiliate
made, or was required to make, contributions during the eight-year period
ending on the last day of the most recent plan year ended prior to the
Effective Time.
(d) The PBGC has not instituted proceedings to terminate any
Title IV Plan and to the knowledge of the Company no condition exists that
presents a material risk that such proceedings will be instituted.
(e) With respect to each Title IV Plan, the present value of
accrued benefits under such plan, based upon the actuarial assumptions used
for funding purposes in the most recent actuarial report prepared by such
plan's actuary with respect to such plan did not exceed, as of its latest
valuation date, the then current value of the assets of such plan allocable
to such accrued benefits.
(f) No Title IV Plan or any trust established thereunder has
incurred any "accumulated funding deficiency" (as defined in Section 302 of
ERISA and Section 412 of the Code), whether or not waived, as of the last
day of the most recent fiscal year of each Title IV Plan ended prior to the
Effective Time.
(g) All contributions required to be made with respect to any
Company Benefit Plan on or prior to the Closing Date have been timely made
or are reflected on the balance sheet of the Company. There has been no
amendment to, written interpretation of or announcement (whether or not
written) by the Company, any Company Subsidiary, or any ERISA Affiliate
relating to, or change in employee participation or coverage under, any
Company Benefit Plan that would increase materially the expense of
maintaining such Company Benefit Plan above the level or expense incurred
in respect thereof for the most recent fiscal year ended prior to the date
hereof.
(h) No Title IV Plan is a "multiemployer pension plan," as
defined in Section 3(37) of ERISA, nor is any Title IV Plan a plan
described in Section 4063(a) of ERISA. If any Title IV Plan is a
"multiemployer pension plan," except as it has not had and would not have a
Company Material Adverse Effect, (i) neither the Company, a Company
Subsidiary nor any ERISA Affiliate has made or suffered a "complete
withdrawal" or a "partial withdrawal," as such terms are respectively
defined in Sections 4203 and 4205 of ERISA (or any liability resulting
therefrom has been satisfied in full), (ii) no event has occurred that
presents a material risk of a partial withdrawal, (iii) neither the
Company, a Company Subsidiary nor any ERISA Affiliate has any contingent
liability under Section 4204 of ERISA, and (iv) no circumstances exist that
present a material risk that any such plan will go into reorganization. If
any Title IV Plan is a "multiemployer pension plan," the aggregate
withdrawal liability of the Company, the Company Subsidiaries and their
ERISA Affiliates, computed as if a complete withdrawal by the Company, the
Company Subsidiaries and the ERISA Affiliates had occurred under each such
Plan on the date hereof, would not cause a Company Material Adverse Effect.
(i) Neither the Company or any Company Subsidiary, any ERISA
Affiliate, any Company Benefit Plan, any trust created thereunder, nor any
trustee or administrator thereof has engaged in a transaction in connection
with which the Company or any Company Subsidiary, any Company Benefit Plan,
any such trust, or any trustee or administrator thereof, or any party
dealing with any Company Benefit Plan or any such trust would be subject to
either a material civil penalty assessed pursuant to Section 409 or 502(i)
of ERISA or a material tax imposed pursuant to Section 4975 or 4976 of the
Code.
(j) Each Company Benefit Plan has been operated and
administered in all material respects in accordance with its terms and
applicable law, including ERISA and the Code, other than any noncompliance
that has not had and would not have a Company Material Adverse Effect.
(k) Each Company Benefit Plan intended to be "qualified" within
the meaning of Section 401(a) of the Code has received a determination
letter from the IRS to the effect that it is so qualified and the trusts
maintained thereunder are exempt from taxation under Section 501(a) of the
Code. Each Company Benefit Plan intended to satisfy the requirements of
Section 501(c)(9) has satisfied such requirements.
(l) No Company Benefit Plan provides medical, surgical,
hospitalization, death or similar benefits (whether or not insured) for
employees or former employees of the Company or any Company Subsidiary for
periods extending beyond their retirement or other termination of service,
other than (i) coverage mandated by applicable law, (ii) death benefits
under any "pension plan," or (iii) benefits the full cost of which is borne
by the current or former employee (or his beneficiary). No condition exists
that would prevent the Company, any Company Subsidiary or any ERISA
Affiliate from amending or terminating any Company Benefit Plan providing
health or medical benefits in respect of any active employee of the Company
or any Company Subsidiary other than limitations imposed under the terms of
collective bargaining agreements.
(m) No amounts payable under the Company Benefit Plans will
fail to be deductible for federal income tax purposes by virtue of Section
162(a)(1), 162(m) or 280G of the Code.
(n) (i) (A) Section 3.12(n) of the Company Disclosure Schedule
sets forth the estimated maximum sum of the change in control payments and
entitlements (including accelerated vesting of the Company Stock Options or
other equity-based awards and increased benefits which are summarized)
which any employee, former employee, or other person who is party to a
Termination Benefits Agreement with the Company and its Subsidiaries, may
be entitled to receive now or in the future (including upon termination of
such person's employment) in connection with the Exchange or any of the
other transactions contemplated by this Agreement (whether alone or in
combination with some other event) based on the assumptions specified
therein; and (B) Section 3.12(n) of the Company Disclosure Schedule sets
forth, in the aggregate with respect to current or former employees or
officers of the Company, any Company Subsidiary or any ERISA Affiliate, the
estimated maximum sum of severance pay, unemployment compensation or any
other payment, acceleration in the time of payment or vesting, or increase
in the amount of compensation to which any such employees or officers will
become entitled upon the announcement or consummation of the transactions
contemplated by this Agreement, either alone or in combination with some
other event (other than the Company's involuntary termination of an
employee's employment after the Closing);
(ii) No payment (including any cash payment or
accelerated vesting of the Company Stock Options or other equity-based
awards) which would reasonably be expected to constitute "excess parachute
payments" within the meaning of Section 280G of the Code will be payable in
connection with the Exchange or the other transactions contemplated by this
Agreement (whether alone or in combination with some other event) to any
employee, former employee or other person who is or was providing services
to the Company or any of the Company Subsidiaries;
(iii) Neither the Company nor any of the Company
Subsidiaries is a party to any consulting contract with any person who
prior to entering into such contract was a director or officer of the
Company or any of the Company Subsidiaries or any similar material plan,
agreement, arrangement or understanding;
(iv) There have occurred no events since January 1, 1999,
that have had (or are reasonably expected to have in the future) a material
adverse effect on the funded status of the Employees' Retirement Plan of
Entity I;
(v) Section 3.12(n) of the Company Disclosure Schedule
sets forth the maximum amount of benefits that will become payable under
the Company's Unfunded Deferred Compensation Plan for Officers and
Directors by reason of the Exchange, or any of the other transactions
contemplated by this Agreement (whether alone or in combination with some
other event); and
(vi) Section 3.12(n) of the Company Disclosure Schedule
sets forth the maximum amount which represents the excess of (x) the total
amount of payments that would be due as of the date of this Agreement under
Section 4.01 of the Company's Supplemental Retirement Plan and Trust
Agreement for a Select Group of Management Employees assuming all
participants in such plan terminated employment as of the date of this
Agreement and elected immediate payment, in the form of a lump-sum
distribution (if the participant is eligible thereof) as of the date of
this Agreement over (y) the assets held as of the date of this Agreement in
the trust fund established under such plan, and the aggregate amount of any
Tax Distribution (as defined in such plan) that would be payable under
Section 4.03 of such plan if a contribution of $4,600,000 were made to such
plan as of the date of this Agreement (and allocated so as to fund benefits
under the plan on the basis described in the foregoing clause (n)(vii)(x))
would not exceed $8,100,000.
(o) (i) There has been no material failure of a Company Benefit
Plan that is a group health plan (as defined in Section 5000(b)(1) of the
Code) to meet the requirements of Section 4980B(f) of the Code with respect
to a qualified beneficiary (as defined in Section 4980B(g) of the Code).
Neither the Company nor any Company Subsidiary or ERISA Affiliate has
contributed to a nonconforming group health plan (as defined in Section
5000(c) of the Code). Neither the Company nor any Company Subsidiary or
ERISA Affiliate has incurred a tax under Section 5000(e) of the Code which
is or could become a liability of the Company or a Company Subsidiary;
(ii) The Company will not be required after the Closing to
make any contribution to the IPALCO Enterprises, Inc. Voluntary Employees
Beneficiary Association;
(iii) After the Closing, the Company will have no
obligation (other than any it first establishes after the Closing or that
may be mandated pursuant to Part 6 of Subtitle B of Title I of ERISA) to
provide medical, surgical, hospitalization, death or similar benefits
(whether or not insured) for employees or former employees of the Company
or any Company Subsidiary for periods extending beyond their retirement or
other termination of service in excess of such benefits that can be funded
with assets held from time to time in the IPALCO Enterprises, Inc.
Voluntary Employees Beneficiary Association; and
(iv) The Company believes, after consultation with its
independent accountants and actuaries, that there is no material financial
statement effect with respect to the IPALCO Enterprises, Inc. Voluntary
Employees Beneficiary Association resulting from the attainment of the
Company Shareholder Approval beyond the contribution of $7.5 million within
thirty days of obtaining the Company Shareholder Approval.
(p) To the knowledge of the Company, there are no pending,
threatened or anticipated claims by or on behalf of or against any Company
Benefit Plan, by any employee or beneficiary covered under any such Company
Benefit Plan, or otherwise involving any such Company Benefit Plan (other
than routine claims for benefits).
(q) Labor Agreements. As of the date of this Agreement, neither
the Company nor any of the Company Subsidiaries is a party to or bound by
any collective bargaining agreement or other labor agreement with any union
or labor organization, or work rules or practices agreed to with any labor
organization or employee association applicable to employees of the Company
or any of the Company Subsidiaries. To the knowledge of the Company, as of
the date of this Agreement, there is no current union representation
question involving employees of the Company or any of the Company
Subsidiaries, nor does the Company know of any activity or proceeding of
any labor organization (or representative thereof) or employee group to
organize any such employees. There is no (i) grievance pending or, to the
knowledge of the Company, threatened, arising out of any collective
bargaining agreement or other grievance procedure, unfair labor practice,
employment discrimination or other investigation, charge or complaint
against the Company or any of the Company Subsidiaries, which has or would
have a Company Material Adverse Effect, (ii) strike, dispute, slowdown,
work stoppage or lockout pending, or, to the knowledge of the Company,
threatened, against or involving the Company or any of the Company
Subsidiaries which has or would have a Company Material Adverse Effect and
during the past five years there has not been any such action, (iii) as of
the date of this Agreement, proceeding, claim, suit, action or governmental
investigation pending or, to the knowledge of the Company, threatened, in
respect of which any director, officer, employee or agent of the Company or
any of the Company Subsidiaries is or may be entitled to claim
indemnification from the Company pursuant to the Company Charter or the
Company By-laws (or such other organizational documents) or as provided in
the Indemnification Agreements listed in Section 3.12(q) of the Company
Disclosure Schedule. The Company and the Company Subsidiaries have complied
in all material respects with all laws relating to the employment of labor,
including any provisions thereof relating to wages, hours, collective
bargaining and the payment of social security and similar Taxes, and no
person has, to the knowledge of the Company, asserted that the Company or
any of the Company Subsidiaries is liable in any material amount for any
arrears of wages or any Taxes or penalties for failure to comply with any
of the foregoing, other than any noncompliance that has not had and would
not have a Company Material Adverse Effect. Since the enactment of the
Worker Adjustment and Retraining Notification Act (the "WARN Act"), neither
the Company nor any of the Company Subsidiaries has effectuated, without
complying with the applicable requirements of the WARN Act, (a) a "plant
closing" (as defined in the WARN Act) affecting any site of employment or
one or more facilities or operating units within any site of employment or
facility of the Company or any of the Company Subsidiaries; or (b) a "mass
layoff" (as defined in the WARN Act) affecting any site of employment or
facility of the Company or any of the Company Subsidiaries; nor has the
Company or any of the Company Subsidiaries been affected by any transaction
or engaged in layoffs or employment terminations sufficient in number to
trigger application of any similar state, local or foreign law or
regulation without complying with the applicable requirements of such law
or regulation. From the date of the most recent audited financial
statements included in the Company SEC Documents to the date of this
Agreement, there has not been any adoption or amendment in any material
respect by the Company or any Company Subsidiary of any collective
bargaining agreement or any Company Benefit Plan.
Section 3.13 Environmental Matters.
(a) The Company and each Company Subsidiary is and has been in
compliance with all applicable Environmental Laws (as defined below) except
where the failure to be in such compliance, individually or in the
aggregate, would not have a Company Material Adverse Effect. Neither the
Company nor any Company Subsidiary has received any written communication
from any person or Governmental Entity that alleges that the Company or any
Company Subsidiary is not or has not been in compliance with applicable
Environmental Laws, except for communications with respect to such matters
which, if adversely determined against the Company or any Company
Subsidiary, individually or in the aggregate, have not had and would not
have a Company Material Adverse Effect.
(b) The Company and each Company Subsidiary have obtained all
permits and other governmental authorizations (collectively, the
"Environmental Permits") necessary under applicable Environmental Laws for
the construction of its facilities and the conduct of its operations as
currently conducted, as applicable, and all such Environmental Permits are
in good standing or, where applicable, a renewal application has been
timely filed and is pending agency approval, and the Company and each
Company Subsidiary are in compliance with all terms and conditions of the
Environmental Permits except where the failure to be in such compliance,
individually or in the aggregate, would not have a Company Material Adverse
Effect.
(c) There is no Environmental Claim (as defined below) pending,
or, to the knowledge of the Company, threatened:
(i) against the Company or any Company Subsidiary;
(ii) to the knowledge of the Company, against any person
or entity whose liability for any such Environmental Claim the
Company or any Company Subsidiary has retained or assumed either
contractually or by operation of law; or
(iii) against any real or personal property or operations
which the Company or any Company Subsidiary owns, leases or manages,
in whole or in part;
in each case, except for such Environmental Claims that,
individually or in the aggregate, would not have a Company Material Adverse
Effect.
(d) To the knowledge of the Company, there have not been any
Releases (as defined below) of any Hazardous Material (as defined below)
that would be reasonably likely to form the basis of any Environmental
Claim against the Company or any Company Subsidiary, or against any person
whose liability for any Environmental Claim the Company or any Company
Subsidiary has retained or assumed by contract or by operation of law in
each case, except for such Releases that, individually or in the aggregate,
would not have a Company Material Adverse Effect.
(e) Neither the Company nor any of the Company Subsidiaries has
entered into any agreements with any non-governmental persons requiring the
Company or any Company Subsidiary to indemnify, reimburse or provide
contribution to such other person for any matter related to Environmental
Laws, Hazardous Materials, or the environment, except for such matters that
(i) have been fully resolved and where the Company or any Company
Subsidiary has no further monetary or non-monetary obligation or (ii) the
enforcement of which, individually or in the aggregate, would not have a
Company Material Adverse Effect.
(f) To the knowledge of the Company, compliance with all
applicable Environmental Laws (including proposed regulations) will not
require the Company or any Company Subsidiary to incur material
expenditures beyond that currently budgeted in the five Company fiscal
years beginning with January 1, 2000 (as disclosed in Section 3.13(f) or
Section 5.1 of the Company Disclosure Schedule), including the costs of
pollution control equipment required or reasonably contemplated to be
required in the future.
(g) From January 1, 1997, to the date of this Agreement, the
Company and the Company Subsidiaries have not received any written requests
for information pursuant to Section 114(a) of the federal Clean Air Act or
any state analogue to the federal Clean Air Act, from any Governmental
Entity with respect to the Company's or any Company Subsidiary's compliance
with the new source review requirements under the federal Clean Air Act,
any state analogue to the federal Clean Air Act, or any regulations
promulgated thereunder.
(h) In this Agreement:
"Environmental Claims" means any and all administrative, regulatory
or judicial actions, suits, demand letters, directives, claims, liens,
investigations or written notices by any person or entity (including any
Governmental Entity) alleging potential liability (including potential
responsibility for or liability for enforcement, investigatory costs,
cleanup costs, spent fuel or waste disposal costs, decommissioning costs,
governmental response costs, removal costs, remediation costs, natural
resources damages, property damages, personal injuries or civil or criminal
penalties) arising out of, based on or resulting from (A) the presence,
Release or threatened Release into the environment of any Hazardous
Materials at any location or (B) circumstances forming the basis of any
violation or alleged violation of any Environmental Law or (C) any and all
claims by any third party seeking damages, contribution, indemnification,
cost recovery, compensation or injunctive relief resulting from the
presence or Release of any Hazardous Materials.
"Environmental Laws" means all federal, state and local laws,
principles of common laws, rules, regulations, ordinances, orders and
directives, relating to pollution or protection of the environment
(including indoor or ambient air, surface water, groundwater, land surface
or subsurface strata) or protection of human health as it relates to the
environment, including laws and regulations relating to Releases or
threatened Releases of Hazardous Materials, or otherwise relating to the
manufacture, processing, generation, use, treatment, storage, disposal,
transport or handling of Hazardous Materials.
"Hazardous Materials" means any petroleum or petroleum products,
radioactive materials, asbestos, polychlorinated biphenyls, and any other
chemical, material, substance or waste, regulated under any applicable
Environmental Law.
"Release" means any release, spill, emission, leaking, injection,
deposit, disposal, discharge, dispersal or leaching or migration into or
through the environment.
Section 3.14 Title to Real Property. Section 3.14 of the
Company Disclosure Schedule lists all real property owned or leased by the
Company or the Company Subsidiaries as of the date of this Agreement, with
a book value in excess of $2,000,000. Except as has not had and would not
have a Company Material Adverse Effect, the Company and each Company
Subsidiary: (i) owns and has good, valid and marketable title in fee simple
to the real property owned by such party, free and clear of Liens, except
for (A) minor imperfections of title, easements and rights of way, none of
which, individually or in the aggregate, materially detracts from the value
of or materially impairs the use of the affected property or materially
impairs the operations of the Company or any Company Subsidiary, (B) Liens
for current Taxes not yet due and payable and (C) Liens disclosed on the
Company Disclosure Schedule ((A), (B) and (C) are collectively referred to
as "Permitted Company Liens"); (ii) is in peaceful and undisturbed
possession of the space and/or estate under each lease under which it is a
tenant, and there are no material defaults by it as tenant thereunder; and
(iii) has good and valid rights of ingress and egress to and from all the
real property owned or leased by such party from and to the public street
systems for all usual street, road and utility purposes. The failure to
hold any easements or rights of way will not have a Company Material
Adverse Effect.
Section 3.15 Assets Other than Real Property Interests. Other
than as would not have a Company Material Adverse Effect, the Company or a
Company Subsidiary has good and valid title to all material assets
reflected on the most recent balance sheet included in the Company SEC
Reports (the "Balance Sheet") or thereafter acquired, except those sold or
otherwise disposed of for fair value since the date of the Balance Sheet in
the ordinary course of business consistent with past practice and not in
violation of this Agreement, in each case free and clear of all mortgages,
liens, security interests or encumbrances of any kind except (i)
mechanics', carriers', workmen's, repairmen's or other like liens arising
or incurred in the ordinary course of business, liens arising under
original purchase price conditional sales contracts and equipment leases
with third parties entered into in the ordinary course of business and that
may thereafter be paid without penalty, (ii) mortgages, liens, security
interests and encumbrances which secure debt that is reflected as a
liability on the Balance Sheet and the existence of which is indicated in
the notes thereto, and (iii) other imperfections of title or encumbrances,
if any, which do not, individually or in the aggregate, materially impair
the continued use and operation of the assets to which they relate in the
business of the Company and each of the Company Subsidiaries as presently
conducted or which, individually or in the aggregate, would not have a
Company Material Adverse Effect. Each item of material tangible personal
property of the Company and the Company Subsidiaries is in all material
respects in good working order and is adequate and sufficient for the
Company's current use, ordinary wear and tear excepted and except for any
failures which, individually or in the aggregate, would not have a Company
Material Adverse Effect. All leased personal property of the Company and
its Subsidiaries is in the condition required of such property by the terms
of the lease applicable thereto during the term of the lease and upon the
expiration thereof, except for any failures which, individually or in the
aggregate, would not have a Company Material Adverse Effect.
Section 3.16 Intellectual Property. The Company and each of the
Company Subsidiaries own, or possess licenses or other valid rights to use,
all patents, patent rights, trademarks, trademark rights, trade names,
trade name rights, copyrights, service marks, service mark rights, trade
secrets, applications to register, and registrations for, the foregoing
trademarks, service marks, know-how and other proprietary rights and
information (collectively, "Intellectual Property") necessary in connection
with the business of the Company and the Company Subsidiaries as currently
conducted, except where the failure to possess such rights or licenses or
valid rights to use would not have a Company Material Adverse Effect. The
conduct of the business of the Company and each of the Company Subsidiaries
as currently conducted does not infringe upon any Intellectual Property of
any third party except where such infringement would not result in a
Company Material Adverse Effect, and no person is infringing upon any
Intellectual Property of the Company or any Company Subsidiary except where
such infringement would not have a Company Material Adverse Effect.
Section 3.17 Transactions with Affiliates. Other than contracts
with respect to the provision of steam or electricity which have been
approved by the IURC (as defined in Section 6.3), Section 3.17 of the
Company Disclosure Schedule lists, as of the date of this Agreement, all
the agreements, contracts or other arrangements between the Company and any
Company Subsidiary, on the one hand, and any affiliate (other than the
Company or such Company Subsidiary), on the other hand, the amount of which
exceeds $60,000 annually, or in the aggregate. Each such agreement or
arrangement was negotiated on an arms-length basis and is no less favorable
to the Company or such Company Subsidiary than the Company or such Company
Subsidiary could have obtained from an unaffiliated third party.
Section 3.18 Brokers; Schedule of Fees and Expenses. No broker,
investment banker, financial advisor or other person, other than UBS
Warburg LLC and Goldman, Sachs & Co., the fees and expenses of which will
be paid by the Company, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on
behalf of the Company. The estimated fees to be paid pursuant to this
Section 3.18 are set forth in Section 3.18 of the Company Disclosure
Schedule.
Section 3.19 Opinion of Financial Advisor. The Company has
received the opinion of UBS Warburg LLC, dated the date of this Agreement,
to the effect that, as of such date, the consideration to be received in
the Exchange by the holders of Company Common Stock is fair from a
financial point of view, a signed copy of which opinion has been delivered
to Parent promptly following the execution of this Agreement.
Section 3.20 Capacity to Serve Peak Demand. Section 3.20 of the
Company Disclosure Schedule sets forth a schedule of the purchase power
contracts or commitments entered by the Company prior to the date of this
Agreement for the summer of the year 2000. The Company believes, as of the
date of this Agreement, that these contracts, commitments and its own
generation capacity are adequate to meet its expected peak demand for such
period.
Section 3.21 Accounting Matters. As of the date of this
Agreement, the Company, after consultation with its independent public
accountants, believes that no conditions exist that would preclude the
Company from being a party to a transaction accounted for as a
pooling-of-interests for accounting purposes in accordance with GAAP and
applicable SEC regulations, including the transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company that, except as
set forth in the Parent SEC Documents (as defined in Section 4.5) and
except as set forth in the disclosure schedule delivered by Parent to the
Company concurrent with the execution of this Agreement (the "Parent
Disclosure Schedule"):
Section 4.1 Organization, Standing and Power. Parent is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated or organized and has all requisite
power and authority and possesses all governmental franchises, licenses,
permits, authorizations and approvals necessary to enable it to own, lease
or otherwise hold its properties and assets and to conduct its businesses
as presently conducted, other than such franchises, licenses, permits,
authorizations and approvals the lack of which, individually or in the
aggregate, has not had and would not have a Parent Material Adverse Effect.
The term "Parent Material Adverse Effect" means an event, change, cause or
effect which is materially adverse to the business, operations, properties,
assets, liabilities, prospects, condition (financial or otherwise) or
results of operations of Parent or the ability of Parent to consummate the
Exchange and the transactions contemplated hereby.
Section 4.2 Certificate of Incorporation and By-laws. The
copies of Parent's Certificate of Incorporation (the "Parent Charter") and
By-laws (the "Parent By-laws") that are referenced as exhibits to Parent's
Form 10-K for the year ended December 31, 1999, are complete and correct
copies thereof. The Parent Charter and the Parent By-laws are in full
force and effect.
Section 4.3 Capital Structure. The authorized capital stock of
Parent consists of (a) 1,200,000,000 shares of Parent Common Stock par
value one cent and (b) 50,000,000 shares of preferred stock with no par
value, none of which is outstanding. As of July 12, 2000, (i) 453,725,231
shares of Parent Common Stock were issued and outstanding, (ii) no shares
of Parent Common Stock were held in the treasury of Parent, and (iii)
1,200,000 shares of Parent Common Stock were reserved for issuance under
Parent's various option and benefit plans. Except as set forth above, as of
the date of this Agreement, no shares of capital stock or other voting
securities of Parent were issued, reserved for issuance or outstanding. All
outstanding shares of Parent Common Stock are, and all such shares that may
be issued prior to the Effective Time and that will be issued in connection
with payment of the Exchange Consideration will be when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
or issued in violation of any purchase option, call option, right of first
refusal, preemptive right, subscription right or any similar right under
any provision of the General Corporation Law of the State of Delaware, the
Parent Charter, the Parent By-laws or any Contract to which Parent is a
party or otherwise bound. There are no issued or outstanding bonds,
debentures, notes or other indebtedness of Parent having the right to vote
(or convertible into, or exchangeable for, securities having the right to
vote) on any matters on which holders of Parent Common Stock may vote
("Voting Parent Debt"). Except as set forth above and in the Parent benefit
plans, as of the date of this Agreement, there are not issued or
outstanding options, calls, voting trusts, proxies, warrants, rights,
convertible or exchangeable securities, "phantom" stock rights, stock
appreciation rights, stock-based performance units, commitments, Contracts,
other pledges, security interests, encumbrances, arrangements or
undertakings of any kind to which Parent is a party or by which any of them
is bound (i) obligating Parent to issue, deliver or sell, pledge, grant a
security interest on or encumber or cause to be issued, delivered or sold,
pledged or encumbered or a security interest to be granted on shares of
capital stock or other equity interests in, or any security convertible or
exercisable for or exchangeable into any capital stock of or other equity
interest in Parent or any Voting Parent Debt or (ii) obligating Parent to
issue, grant, extend or enter into any such option, warrant, call, right,
security, commitment, Contract, arrangement or undertaking. As of the date
of this Agreement, there are not any contractual obligations of Parent to
repurchase, redeem or otherwise acquire any shares of capital stock of
Parent or to make any investment (in the form of a loan, capital
contribution or otherwise) in any other person.
Section 4.4 Authority; Execution and Delivery; Enforceability.
Parent has all requisite corporate power and authority to execute and
deliver this Agreement and to consummate the Exchange. The execution and
delivery by Parent of this Agreement and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Parent. Parent has adopted this Agreement.
Parent has duly executed and delivered this Agreement, and assuming the due
authorization and delivery thereof by the Company, this Agreement
constitutes its legal, valid and binding obligation, enforceable against it
in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium, or other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
Section 4.5 SEC Documents. The filings required to be made by
Parent under the Securities Act and the Exchange Act, as the case may be,
have been filed and complied, as of their respective dates, in all material
respects with all applicable requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations thereunder.
Parent has made available to the Company a true and complete copy of each
report, schedule, registration statement and definitive proxy statement and
all amendments thereto filed with the SEC by Parent pursuant to the
requirements of the Securities Act or the Exchange Act since January 1,
1998 (as such documents have since the time of their filing been amended,
the "Parent SEC Documents"). As of its respective date, each Parent SEC
Document complied in all material respects with its requirements, and did
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The audited consolidated financial statements of
Parent and the unaudited interim financial statements included in the
Parent SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules, and regulations
of the SEC with respect thereto, have been prepared in accordance with GAAP
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present the consolidated
financial position of Parent and its consolidated Subsidiaries as of the
dates thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
Section 4.6 No Conflicts; Consents.
(a) The execution and delivery by Parent of this Agreement does
not, and the consummation of the Exchange and compliance with the terms
hereof will not, conflict with, or result in any violation of or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or to
loss of a material benefit under, or result in the creation of any Lien
upon any of the properties or assets of Parent or any of its Subsidiaries
under, any provision of (i) the charter or organizational documents of
Parent or any of its Subsidiaries, (ii) subject to obtaining the third
party consents (the "Parent Required Consents") set forth in Section 4.6(a)
of the Parent Disclosure Schedule, any Contract to which Parent or any of
its Subsidiaries is a party or by which any of their respective properties
or assets is bound, or (iii) subject to the filings and other matters
referred to in Section 4.6(b), any Judgment or Law existing on the date
hereof applicable to Parent or any of its Subsidiaries or their respective
properties or assets, other than, in the case of clauses (ii) and (iii)
above, any such items that, individually or in the aggregate, have not had
and would not have a Parent Material Adverse Effect.
(b) No Consent of, or registration, declaration or filing with,
any Governmental Entity is required to be obtained or made by or with
respect to Parent or any of its Subsidiaries in connection with the
execution, delivery and performance of this Agreement or the consummation
of the Exchange, other than (i) compliance with and filings by Parent under
the HSR Act, (ii) the filing with the SEC of such reports under Section 13
of the Exchange Act as may be required in connection with this Agreement
and the Exchange, (iii) the filing of the Articles of Share Exchange with
the Secretary of State of the State of Indiana, (iv) the approval of the
FERC under Section 203 and any directly related section of or regulation
under the Power Act for the sale or disposition of jurisdictional
facilities of the Company, or an order under the Power Act disclaiming
jurisdiction over the Exchange, (v) the approval by the SEC pursuant to
Section 9(a)(2) of PUHCA, (vi) the filing with the FCC of the applications
required under Section 310(d) of the Communications Act of 1934, as
amended, and approval by the FCC thereof, (vii) such filings as may be
required in connection with the taxes described in Section 6.8, (viii)
filings under any applicable state takeover Law, (ix) the filing of the
Joint Registration/Proxy Statement (as defined below) with the SEC on Form
S-4, (x) the listing of Parent Common Stock with the NYSE, (xi) the filing
of a registration statement with the SEC as contemplated by Section 2.4(d),
(xii) compliance with state blue sky laws, and (xiii) such other items (A)
required solely by reason of the participation of the Company (as opposed
to any third party) in the Exchange or (B) that, individually or in the
aggregate, would not prevent the consummation of the transactions hereby
and have not had and would not have a Parent Material Adverse Effect.
Section 4.7 Compliance with Applicable Laws. Parent is not in
violation of, or to its knowledge, under investigation with respect to any
violation of, or has been given written notice of or been formally charged
with any violation of, any law, statute, order, rule, regulation, ordinance
or judgment, permit, license, concession or franchise of any Governmental
Entity, except for violations which individually or in the aggregate have
not had and would not have a Parent Material Adverse Effect. Parent is not
in breach or violation of or in default in the performance or observance of
any term or provision of, and no event has occurred which, with lapse of
time or action by a third party, could result in a default by Parent under
(i) the Parent Charter or the Parent By-laws or (ii) any contract,
commitment, agreement, indenture, mortgage, loan agreement, note, lease,
bond, license, approval or other instrument to which it is a party or by
which Parent is bound or to which any of its property is subject, except,
in the case of clause (ii) above, for violations, breaches or defaults
which individually or in the aggregate have not had and would not have a
Parent Material Adverse Effect.
Section 4.8 Absence of Undisclosed Liabilities. Except for
liabilities, obligations or contingencies which would not, in the
aggregate, have a Parent Material Adverse Effect, or which are accrued or
reserved against in the consolidated financial statements of Parent or
reflected in the notes thereto for the year ended December 31, 1999, or the
quarter ended March 31, 2000, or which were incurred after December 31,
1999 in the ordinary course of business, Parent has no liabilities or
obligations (whether absolute, accrued, contingent or otherwise and
including margin loans) which are material to Parent and its Subsidiaries
taken as a whole.
Section 4.9 Stockholder Approval. As long as Parent is not
required to issue 20% or more of the number of shares of Parent Common
Stock outstanding as of the Effective Time in connection with the Exchange,
the issuance of shares of Parent Common Stock in connection with the
Exchange does not, and the transactions contemplated hereby do not, require
approval by the stockholders of Parent.
Section 4.10 Litigation. As of the date of this Agreement,
there is no suit, action or proceeding pending or, to the knowledge of
Parent, threatened against Parent, any of its Subsidiaries or any of their
affiliated entities that, individually or in the aggregate, has had or
would have a Parent Material Adverse Effect, nor is there any Judgment
outstanding against Parent, any of its Subsidiaries or any of their
affiliated entities that has had or would have a Parent Material Adverse
Effect.
Section 4.11 Absence of Certain Changes or Events. From
December 31, 1999 to the date of this Agreement, Parent has conducted its
business only in the ordinary course consistent with past practice, and
during such period (i) there has not been any event, change, effect or
development that, individually or in the aggregate, has had or would have a
Parent Material Adverse Effect, (ii) there has not been any material
election with respect to Taxes by Parent or any settlement or compromise of
any material Tax liability or refund of Parent, and (iii) there has not
been any material change in accounting methods, principles or practices by
Parent, except insofar as may have been required by a change in GAAP or SEC
accounting regulations or guidelines or applicable law.
Section 4.12 Brokers. No broker, investment banker, financial
advisor or other person, other than Lehman Brothers Inc., is entitled to
any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the Exchange based upon arrangements made by
or on behalf of Parent.
Section 4.13 Ownership of Company Common Stock. As of the date
of this Agreement, none of Parent or any of Parent's Subsidiaries or other
affiliates, either individually or as part of a group for purposes of Rule
13d-3 under the Exchange Act, beneficially owns such number of shares of
Company Common Stock so as to constitute an "interested shareholder" within
the meaning of Section 23-1-43-10 for purposes of Section 23-1-43-18 under
the BCL or Art. 10 of the Company Charter. Parent is not an "Acquiring
Person" within the meaning of the Company Rights Plan.
Section 4.14 Regulatory Status. Neither Parent nor any
"subsidiary company" or "affiliate" (as such terms are defined in PUHCA) of
Parent is a "public utility company" within the meaning of PUHCA, other
than, as of the date of this Agreement, Entity C.
Section 4.15 Tax-Free Reorganization. As of the date of this
Agreement, Parent knows of no fact that is reasonably likely to prevent the
Exchange, if consummated as of the date of this Agreement, from qualifying
as a reorganization within the meaning of Section 368(a) of the Code.
Section 4.16 Accounting Matters. As of the date of this
Agreement, Parent, after consultation with its independent public
accountants, believes that no conditions exist that would preclude Parent
from being a party to a transaction accounted for as a pooling-of-interests
for accounting purposes in accordance with GAAP and applicable SEC
regulations including the transactions contemplated hereby.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 5.1 Conduct of Business.
(a) Conduct of Business by the Company. Except for matters set
forth in the Company Disclosure Schedule or otherwise contemplated by this
Agreement, from the date of this Agreement to the Effective Time or earlier
termination of this Agreement the Company shall, and shall cause each
Company Subsidiary to, conduct its business in the usual, regular and
ordinary course in substantially the same manner as previously conducted
and use all reasonable efforts to preserve intact, its current business
organization, maintain or renew or cause to be renewed the current rates
and rate schedules, keep available the services of its current officers and
employees and keep its relationships with customers, suppliers, licensors,
licensees, distributors and others having business dealings with them,
including regulators, to the end that its goodwill and ongoing business
shall be unimpaired at the Effective Time. In addition, and without
limiting the generality of the foregoing, except for matters set forth in
Section 5.1(a) of the Company Disclosure Schedule, or as otherwise required
by Law (including Environmental Law) and in such event by giving prior
notice to Parent, or otherwise contemplated by this Agreement, from the
date of this Agreement to the Effective Time, the Company shall not, and
shall not permit any Company Subsidiary to, do any of the following without
the prior written consent of Parent:
(i) (A) declare, set aside or pay any dividends on, or
make any other distributions in respect of, any of its capital stock,
other than (1) dividends and distributions by a direct or indirect
wholly owned Subsidiary of the Company to its parent, (2) regular
quarterly cash dividends of not more than $0.163 on the Company
Common Stock, with usual declaration, record and payment dates and in
accordance with the Company's past dividend policy, and (3) dividends
and distributions declared and paid by partially owned Subsidiaries,
(B) split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock, or (C)
purchase, redeem or otherwise acquire any shares of capital stock of
the Company or any Company Subsidiary or any other securities thereof
or any rights, warrants or options to acquire any such shares or
other securities except for open market purchases under the Company's
Power Invest Dividend Reinvestment and Direct Stock Purchase Plan or
the Employees' Thrift Plan of the Company;
(ii) issue, deliver, sell or grant (A) any shares of its
capital stock, (B) any Voting Company Debt or other voting
securities, (C) any securities convertible into or exchangeable for,
or any options, warrants or rights to acquire, any such shares,
Voting Company Debt, voting securities or convertible or exchangeable
securities or (D) any "phantom" stock, "phantom" stock rights, stock
appreciation rights or stock-based performance units, other than (1)
the issuance of Company Common Stock (and associated Company Rights)
upon the exercise of Company Stock Options outstanding on the date of
this Agreement and in accordance with their present terms, (2) the
issuance of up to an additional 30,000 Company Stock Options at an
exercise price no less than the fair market value of the Company
Common Stock as of the date of the grant and pursuant to the Company
Option Plans existing as of the date of this Agreement and in
accordance with their present terms and in the ordinary course of the
Company's business consistent with its past practice, and the
issuance of Company Common Stock (and associated Company Rights) upon
the exercise of such Company Stock Options, and (3) the issuance of
Company Common Stock upon the exercise of Company Rights;
(iii) amend the articles of incorporation, by-laws or
other comparable charter or organizational documents of the Company
or Entity I;
(iv) acquire, publicly propose to acquire, or agree to
acquire (A) by merging or consolidating with, or by purchasing a
substantial equity interest in or portion of the assets of, or by any
other manner, any business or any corporation, partnership, joint
venture, association or other business organization or division
thereof, or (B) any assets that are material, individually or in the
aggregate, to the Company and the Company Subsidiaries, taken as a
whole, except purchases of inventory in the ordinary course of
business consistent with past practice, which in any case has a fair
market value of less than $10,000,000 and except for capital
expenditures if such capital expenditures would be permitted under
Section 5.1(a)(ix) or Section 6.3(f);
(v) (A) grant to any officer, director or employee of the
Company or any Company Subsidiary any increases in compensation,
except in the ordinary course of business consistent with prior
practice, that do not, individually or in the aggregate for all
officers, directors and employees, exceed $3,000,000 per annum,
excluding any increases consistent with the terms of existing
collective bargaining agreements and the Company Benefit Plans, (B)
grant to any officer or director of the Company or any Company
Subsidiary any increase in severance or termination pay, except to
the extent required under any agreement in effect as of the date of
the most recent audited financial statements included in the Company
SEC Documents, (C) enter into or amend any severance or termination
agreement with any officer or director of the Company or Company
Subsidiary, (D) establish, adopt, enter into or amend in any material
respect any collective bargaining agreement or Company Benefit Plan
or (E) take any action to accelerate any rights or benefits, or make
any material determinations not in the ordinary course of business
consistent with prior practice, under any collective bargaining
agreement or Company Benefit Plan, in any such case except for such
new contracts, adoptions, amendments, terminations or increases that,
in the aggregate, do not result in a material increase in benefits or
compensation expense to the Company and its Subsidiaries, taken as a
whole;
(vi) make any change in accounting methods, principles or
practices materially affecting the reported consolidated assets,
liabilities or results of operations of the Company, except insofar
as may have been required by a change in GAAP or by order of a
competent regulatory authority;
(vii) sell, lease (as lessor), license or otherwise
dispose of or subject to any Lien any properties or assets of the
Company or the Company Subsidiaries, except for (A) excess or
obsolete assets sold or otherwise disposed in the ordinary course of
business consistent with past practice with a fair market value of
not more than $100,000 per transaction (not to exceed $5,000,000 in
the aggregate) in sales price and indebtedness assumed by the
acquiring party and its affiliates, or (B) other sales or
dispositions at fair market value of not more than $2,000,000 per
transaction (not to exceed $8,000,000 in the aggregate) in sales
price, and (C) except as set forth in Section 6.14;
(viii) incur any indebtedness for borrowed money or
guarantee any such indebtedness of another person, issue or sell any
debt securities or warrants or other rights to acquire any debt
securities of the Company or any Company Subsidiary, guarantee any
debt securities of another person, enter into any "keep well" or
other agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic
effect of any of the foregoing, except for (A) drawings under credit
lines existing at the date of this Agreement, or renewals or
replacements thereof that do not increase the maximum available
borrowings thereunder, (B) obligations evidenced by debt securities
issued by a Company Subsidiary for the purpose of financing
investments or capital expenditures permitted under this Agreement or
refinancing existing indebtedness or preferred stock obligations of
such Company Subsidiary on terms no less favorable to such Company
Subsidiary, or (C) any incurrences in an aggregate principal amount
not exceeding $20,000,000 outstanding at any time;
(ix) make or agree to make any capital expenditure or
expenditures that, in the aggregate, are in excess of 110% of the
currently contemplated capital expenditures as provided in Section
5.1(a)(ix) of the Company Disclosure Schedule; provided, however,
that any additional capital expenditure in excess of $10,000,000
shall not be commenced or committed without prior consultation with
Parent; provided, further, that, notwithstanding the foregoing, the
Company shall not make, without the consent of Parent, which consent
shall not be unreasonably withheld, any capital expenditures related
to (i) the compliance obligations of the Company or any of its
Subsidiaries related to NOx emissions (subject to Section 6.3(f)) or
(ii) the refurbishment of the Petersburg turbine generating station;
provided, further, that, notwithstanding the foregoing, the Company
may make any emergency capital expenditure or expenditures it deems
necessary in its reasonable judgment to restore or maintain the
provision of energy to firm wholesale and retail customers;
(x) enter into a collective bargaining agreement or other
labor agreement with any union or labor organization, or work rules
or practices agreed to with any labor organization or employee
association applicable to employees of the Company or any of the
Company Subsidiaries; or
(xi) authorize any of, or commit or agree to take any of,
the foregoing actions.
(a) Tax Matters. The Company shall, and shall cause each of the
Company Subsidiaries to (i)(A) promptly notify Parent upon the earlier of
(x) receipt of notice of any suit, claim, action, investigation, proceeding
or audit (collectively, "Actions") pending against or with respect to the
Company or any Company Subsidiary in respect of any material Tax (which is
material at the time of such notice) and (y) any such Action becoming
material to the Company and the Company Subsidiaries and (B) not settle or
compromise any such material Action without Parent's consent; (ii) not make
any material Tax election without Parent's consent; (iii) provide Parent
with draft consolidated federal income Tax Returns at least ten days before
such Tax Returns are due; and (iv) not make any material change in tax
accounting methods, principles or practices except insofar as may have been
required by a change in GAAP or SEC accounting regulations or guidelines or
applicable law. The Company shall not, and shall not permit any Company
Subsidiary to, enter into, amend or modify any Tax sharing agreement.
(b) Transactions with Affiliates. The Company shall not, and
shall cause the Company Subsidiaries not to, enter into any agreement or
arrangement with any of their respective affiliates (other than
intra-company agreements) other than such agreements and arrangements as
are entered into in the usual, ordinary and regular course of business and
which have been negotiated on an arms'-length basis and are no less
favorable to the Company or a Company Subsidiary than the Company or such
Company Subsidiary would have obtained from an unaffiliated third party,
and provided that the Company shall have notified Parent in writing prior
to entering into any such affiliate transaction with respect to
transactions where the amount involved exceeds $60,000 (other than power
sale and distributions to customers in the ordinary course of the Company's
business).
(c) Rate Matters. The Company shall, and shall cause the
Company Subsidiaries to, discuss with Parent any changes and proposed
changes in its or the Company Subsidiaries' rates or charges (including
those with respect to fuel adjustment charges), standards of service or
accounting from those in effect on the date hereof and consult with Parent
prior to making any filing (or any amendment thereto), or effecting any
agreement, commitment, arrangement or consent, whether written or oral,
formal or informal, with respect thereto; provided, however, that in no
event shall the Company be obligated to discuss or consult with Parent with
respect to any of the foregoing if, in the opinion of the Company's outside
counsel, to do so would be inconsistent with applicable Law. Except as
provided in Section 5.1(d) of the Company Disclosure Schedule, the Company
shall not, and shall cause the Company Subsidiaries not to, make any filing
to change its rates on file with the FERC or any applicable state utility
commission, except as may be required by applicable law, that would have a
Company Material Adverse Effect.
(d) Contracts. Except as set forth in Section 5.1(e) of the
Company Disclosure Schedule, the Company shall not, and the Company shall
not permit any Company Subsidiary to (i) enter into, modify, amend,
terminate or renew any contract or agreement to which the Company or any
Company Subsidiary is a party (or waive, release or assign any material
rights or claims therein) if such contract or contracts are material to the
Company and the Company Subsidiaries taken as a whole or if the term of
such new contract or agreement, or the existing contract following and as a
result of such amendment, modification or renewal, is or would exceed
twenty-four months, or (ii) enter into, modify, amend or renew any contract
or agreement to which the Company or any Company Subsidiary is a party (or
waive, release or assign any material rights or claims therein) if the
dollar amount of such new contract or agreement, or the existing contract
or agreement following and as a result of such amendment, modification or
renewal is or would be in excess of $10,000,000, except, in the case of
clauses (i) and (ii) above, for (A) contracts entered into in the ordinary
course of business consistent with past practice if such contracts relate
to the sale of energy to firm wholesale and retail customers, the sale of
transmission capacity, or the purchase of limestone, coal, gas or oil, (B)
contracts for acquisitions if such contracts would be permitted under
Section 5.1(a)(iv), contracts for sales, leases or dispositions if such
contracts would be permitted under Section 5.1(a)(vii), contracts for
incurrences of indebtedness if such incurrences would be permitted under
Section 5.1(a)(viii), contracts for capital expenditures if such contracts
would be permitted under Section 5.1(a)(ix) or Section 6.3(f) and contracts
to buy or sell energy, energy futures or forward contracts or energy
transportation futures or forward contracts, or options on any of the
foregoing, if such contracts would be permitted under Section 5.1(m), and
(C) contracts required by Law.
(e) Insurance. The Company shall, and shall cause each Company
Subsidiary to, self-insure in accordance with customary industry practices
or maintain with financially responsible insurance companies insurance in
such amounts and against such risks and losses as are customary in all
material respects for companies engaged in the electric and gas utility
industry and employing such methods of generating electric power and fuel
sources similar to the methods employed and fuels used by the Company or
the Company Subsidiaries.
(f) Permits. The Company shall, and shall cause each Company
Subsidiary to, use reasonable best efforts to maintain in effect all
existing governmental permits which are material to the operations of the
Company or any of the Company Subsidiaries.
(g) Discharge of Liabilities. The Company shall not, and the
Company shall not permit any Company Subsidiary to, pay, discharge, settle,
compromise or satisfy any claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise) material to the
Company and the Company Subsidiaries, taken as a whole, other than any such
payment, discharge, settlement, compromise or satisfaction (i) of the
applicable claim, liability or obligation in accordance with its terms or,
(ii) in the ordinary course of business consistent with past practice
(which includes the payment of final and unappealable judgments), of
liabilities reflected or reserved against in, or contemplated by, the most
recent consolidated financial statements or the notes thereto of the
Company SEC Documents filed prior to the date hereof, or incurred in the
ordinary course of business consistent with past practice.
(h) Staffing. Except as set forth in Sections 5.1(i) and 5.1(l)
of the Company Disclosure Schedule, the Company shall not, and shall not
permit any the Company Subsidiary to, make any increase in staffing levels
over those in effect on the date hereof other than increases in staffing
levels such that the aggregate number of employees of Entity I is no
greater than 1900 and the aggregate number of employees of the Company and
the Company Subsidiaries (other than Entity I) is no greater than 100.
(i) Tax-Exempt Status. The Company shall not, nor shall the
Company permit any Company Subsidiary to, take any action that, to the
knowledge of the Company would likely jeopardize the qualification of any
material amount of the Company's outstanding revenue bonds which qualify as
of the date of this Agreement under Section 142(a) of the Code as "exempt
facility bonds" or as tax-exempt industrial development bonds under Section
103(b)(4) of the Internal Revenue Code of 1954, as amended, prior to the
Tax Reform Act of 1986.
(j) WARN Act. The Company shall not take any action that would
give rise to a claim under the WARN Act or any similar state law or
regulation because of a "plant closing" or "mass layoff" (each as defined
in the WARN Act).
(k) New Lines of Business. Except as disclosed in Section
5.1(l) of the Company Disclosure Schedule, the Company shall not, nor shall
the Company permit any Company Subsidiary to, enter into a new line of
business or make any change in the line of business in which it engages as
of the date of this Agreement, except that the Company may establish a new
wholly owned Subsidiary to take over the operation and maintenance of a
steam plant, as disclosed on Section 5.1(l) of the Company Disclosure
Schedule, but shall not in connection therewith hire any personnel.
(l) Hedging. Except as set forth in Section 5.1(m) of the
Company Disclosure Schedule, the Company shall not, and shall not permit
any Company Subsidiary to, buy or sell any energy futures or forward
contracts or energy transportation futures or forward contracts, or options
on any of the foregoing, other than as incidental to the business of
generating, purchasing and selling energy to firm wholesale and retail
customers and other than sales of transmission capacity as required by law.
(m) Other Actions. The Company and Parent shall not, and shall
not permit any of their respective Subsidiaries to, take any action that
would, or that would reasonably be expected to, result in (i) any of the
representations and warranties of such party set forth in this Agreement
that is qualified as to materiality becoming untrue, (ii) any of such
representations and warranties that is not so qualified becoming untrue in
any material respect, or (iii) except as otherwise permitted by Section
5.2, any condition to the Exchange set forth in Article VII not being
satisfied.
Section 5.2 No Solicitations.
(a) From and after the date hereof, (i) the Company will not,
and will not authorize or permit any of its Representatives to, directly or
indirectly, solicit, initiate or encourage (including by way of furnishing
information) or take any other action knowingly to facilitate any inquiries
or the making of any proposal which constitutes or may reasonably be
expected to lead to an Acquisition Proposal (as defined in Section 5.2(b))
from any person, or engage in any discussion or negotiations relating
thereto and (ii) neither the Company Board nor any committee thereof shall
(A) withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to Parent, the approval or recommendation by the Company
Board or such committee of the Exchange or this Agreement, (B) approve or
recommend, or propose publicly to approve or recommend, any Acquisition
Proposal, or (C) cause the Company or any Company Subsidiary to enter into
any letter of intent, agreement in principle, acquisition agreement or
other similar agreement (each, an "Acquisition Agreement") related to any
Acquisition Proposal; provided, however, that the Company may, at any time
prior to receipt of the Company Shareholders' Approval (the "Company
Applicable Period"), (i) in response to an Acquisition Proposal which was
not solicited by it or its Representatives and which did not otherwise
result from a breach of this Section 5.2, if the Company Board reasonably
believes in good faith, after consultation with its financial advisors,
that an Acquisition Proposal could reasonably lead to a transaction meeting
the requirements of a Superior Proposal (as defined in Section 5.2(b)), and
subject to providing Parent with prior written notice of its decision to
take such action (the "Company Notice") and compliance with Section 5.2(c),
(1) furnish information with respect to the Company and the Company
Subsidiaries to any person making such Acquisition Proposal (pursuant to a
customary confidentiality agreement) and (2) participate in discussions or
negotiations regarding such Acquisition Proposal, (ii) comply with Rule
14e-2 promulgated under the Exchange Act with regard to a tender or
exchange offer (provided that, except in connection with a termination of
this Agreement pursuant to clause (iii) of this proviso, neither the
Company nor the Company Board nor any committee thereof shall withdraw or
modify, or propose publicly to withdraw or modify, its position with
respect to this Agreement or the Exchange or approve or recommend, or
propose publicly to approve or recommend, an Acquisition Proposal), and/or
(iii) in the event that during the Company Applicable Period the Company
Board reasonably believes in good faith, after consultation with its
financial advisors and outside counsel, that it has received an Acquisition
Proposal that constitutes a Superior Proposal, by action of the Company
Board (subject to this sentence and Section 8.1(d)(ii)), the Company may
terminate this Agreement (and, following the exercise of such termination
right, the Company Board may withdraw or modify in any adverse manner its
approval or recommendation of this Agreement or the Exchange, and approve
or recommend any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
the Company or any such Company Subsidiary, other than the transactions
contemplated by this Agreement), but only at a time that is during the
Company Applicable Period and is after the third business day following
Parent's receipt of written notice advising Parent that the Company Board
is prepared to accept a Superior Proposal, specifying the material terms
and conditions of such Superior Proposal and identifying the person making
such Superior Proposal. The Company shall immediately cease and terminate
any existing solicitation, initiation, encouragement, activity, discussion
or negotiation with any persons conducted heretofore by the Company or its
Representatives with respect to any of the foregoing.
(b) As used herein, (i) "Acquisition Proposal" shall mean any
inquiry, proposal or offer from any person relating to any direct or
indirect acquisition or purchase of a business (a "Material Business") that
constitutes 15% or more of the net revenues, net income or the assets
(including equity securities) of the Company and the Company Subsidiaries,
taken as a whole, or 15% or more of any class of voting securities of the
Company or any Company Subsidiary owning, operating or controlling a
Material Business, any tender offer or exchange offer that if consummated
would result in any person beneficially owning 15% or more of any class of
voting securities of the Company or any such Company Subsidiary, or any
merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving the Company or any such
Company Subsidiary, other than the transactions contemplated by this
Agreement; provided, however, that no transaction permitted pursuant to
Section 5.1(a)(vii) or a transaction contemplated in Section 6.14 shall be
deemed an Acquisition Proposal for any purpose, (ii) a "Superior Proposal"
shall mean any proposal made by a third party to acquire, directly or
indirectly, including pursuant to a tender offer, exchange offer, merger,
consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction, more than 50% of the combined voting
power of the shares of the Company Common Stock then outstanding or all or
substantially all the assets of the Company which the Company Board
determines in its good faith judgment, after consultation with its
financial advisors and outside counsel, to be clearly and materially more
favorable to the Company's shareholders (taking into account any changes to
the financial terms of this Agreement proposed by Parent in response to
such proposal and all financial and commercial considerations, including
relevant regulatory and other aspects of the proposal and the third party
making such proposal and the conditions and the prospects for completion of
such proposal, and any changes to this Agreement proposed by Parent in
response to such proposal) than the Exchange and the other transactions
contemplated by this Agreement, and (iii) "Representative" shall mean any
officer, director, employee, financial advisor, investment banker,
attorney, accountant, agent, consultant or other representative of the
Company or Company Subsidiaries.
(c) The Company shall promptly advise Parent orally and in
writing of the receipt of any Acquisition Proposal or Superior Proposal and
of the receipt of any inquiry with respect to or which the Company
reasonably believes could lead to any Acquisition Proposal or Superior
Proposal. The Company shall promptly advise Parent orally and in writing of
the identity of the person making any such Acquisition Proposal or Superior
Proposal or inquiry and of the material terms of any such Acquisition
Proposal or Superior Proposal and of any material changes thereto.
Section 5.3 Conduct of Business by Parent. Except for matters
set forth in the Parent Disclosure Schedule or otherwise contemplated by
this Agreement, from the date of this Agreement to the Effective Time or
earlier termination of this Agreement, Parent shall conduct its business in
the usual, regular and ordinary course in substantially the same manner as
previously conducted and use all reasonable efforts to preserve intact, its
current business organization, keep available the services of its current
officers and employees and keep its relationships with customers,
suppliers, licensors, licensees, distributors and others having business
dealings with them, including regulators, to the end that its goodwill and
ongoing business shall be unimpaired at the Effective Time. In addition,
and without limiting the generality of the foregoing, except for matters
set forth in Section 5.3 of the Parent Disclosure Schedule, or as otherwise
required by Law (including Environmental Law), or otherwise contemplated by
this Agreement, from the date of this Agreement to the Effective Time,
Parent shall not do any of the following:
(i) declare, set aside or pay any dividends on, or make
any other distributions in respect of, any of its capital stock; or
(ii) amend the Parent Charter or the Parent By-laws in a
manner that adversely would affect the rights of the holders of
Parent Common Stock.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Preparation of Joint Registration/Proxy Statement;
Shareholders Meeting.
(a) As soon as possible after the date of this Agreement, (i) the
Company shall prepare and file with the SEC the Proxy Statement and (ii)
Parent shall prepare and file with the SEC a registration statement on Form
S-4 (together with all amendments thereto, the "Registration Statement") in
which the Proxy Statement shall be included as a prospectus (the
"Prospectus"), in connection with the registration under the Securities Act
of shares of Parent Common Stock to be issued in the Exchange. The parties
shall cooperate and consult with each other in the preparation of the Proxy
Statement and the Prospectus (together, the "Joint Registration/Proxy
Statement"). Parent shall have the lead drafting role with respect to the
preparation of the Joint Registration/Proxy Statement. Each of the Company
and Parent shall use its reasonable best efforts to respond as promptly as
practicable to any comments of the SEC with respect thereto. Each party
shall notify the other promptly of the receipt of any comments from the SEC
or its staff and of any request by the SEC or its staff for amendments or
supplements to the Joint Registration/Proxy Statement or for additional
information and shall supply the other with copies of all correspondence
between such party or any of its representatives, on the one hand, and the
SEC or its staff, on the other hand, with respect to the Joint
Registration/Proxy Statement. If at any time prior to the Effective Time,
there shall occur any event with respect to Parent or the Company that
should be set forth in an amendment or supplement to the Joint
Registration/Proxy Statement, Parent or the Company, as the case may be,
shall promptly notify the other, and Parent and the Company shall cooperate
in preparing and mailing to the Company's shareholders such an amendment or
supplement. The Company shall not mail any Joint Registration/Proxy
Statement, or any amendment or supplement thereto, to which Parent
reasonably objects. The Company shall, as soon as practicable after the
date of this Agreement, (i) distribute to its shareholders the Joint
Registration/Proxy Statement as promptly as practicable after filing with
the SEC in accordance with applicable federal and state law and with the
Company Charter and the Company By-laws; (ii) duly call, give notice of,
convene and hold a meeting of its shareholders (the "Company Shareholders
Meeting") for the purpose of seeking the Company Shareholder Approval;
(iii) subject to compliance with Section 5.2, recommend to its shareholders
the approval of the Exchange, this Agreement and the transactions
contemplated hereby, and (iv) cooperate and consult with Parent with
respect to each of the foregoing matters. Each of the parties shall use its
respective best efforts to take such steps as are necessary to hold the
Company Shareholders Meeting within ninety days of the date of this
Agreement. Without limiting the generality of the foregoing, the Company
agrees that its obligations pursuant to this Section 6.1 shall not be
affected by the commencement, public proposal, public disclosure or
communication to the Company of any Acquisition Proposal.
(b) Each of the parties hereto shall furnish all information
concerning itself which is required as customary for inclusion in the Joint
Registration/Proxy Statement. The information provided by any party for use
in the Joint Registration/Proxy Statement shall be true and correct in all
material respects without omission of any material fact which is required
to make such information not false or misleading. The Joint
Registration/Proxy Statement will comply as to form in all material
respects with the requirements of the Exchange Act and the rules and
regulations thereunder, except that as of the date the Joint
Registration/Proxy Statement is declared effective, no representation,
covenant or agreement is made by any party with respect to information
supplied by the other party for inclusion in the Joint Registration/Proxy
Statement.
Section 6.2 Access to Information; Confidentiality. Each party
shall, and shall cause each of its Subsidiaries to, afford to the other
party, and, at the other party's request, to the other party's officers,
directors, employees, accountants, counsel, financial advisors and other
representatives, (i) reasonable access during normal business hours during
the period prior to the Effective Time to all its respective properties
(including access to its facilities, office space and information system),
books, contracts, commitments, personnel and records, budgets, forecasts
and other information (including, but not limited to Tax Returns) and,
during such period, each party shall, and shall cause each of its
Subsidiaries to, except as prohibited by law, furnish promptly to the other
party (a) a copy of each report, schedule, registration statement and other
document filed by it during such period pursuant to the requirements of
federal or state securities laws, or filed with or sent to the SEC, the
FERC, the public utility commission of any state, (ii) reasonable access to
all information concerning the Company, the Company Subsidiaries,
directors, officers and shareholders, properties, facilities or operations
owned, operated or otherwise controlled by the Company, (iii) such
additional information relating to Taxes as either party shall from time to
time reasonably request (or, where applicable, to cooperate with Parent in
collecting such information), including, with respect to the Company,
information relating to (a) Tax basis of the stock of the Company
Subsidiaries, (b) earnings and profits, (c) material Tax elections, (d) net
operating loss carryovers and Tax credit carryovers, (e) intercompany
transactions, (f) reconciliation of book and Tax items, (g) the rollout of
any deferred Tax items, (h) ongoing audits (including copies of any IRS
4564 or other similar information document requests), and (i) the Tax years
for which examinations have been completed, are being conducted, and have
not yet been initiated and (iv) with respect to the Company, reasonable
office space and equipment at the Company's headquarters for the purposes
of designing a transition plan in conjunction with the Company's
Representatives. All information exchanged pursuant to this Section 6.2
shall be subject to the confidentiality agreements dated April 24, 2000,
and July 5, 2000, between the Company and Parent (together the
"Confidentiality Agreement").
Section 6.3 Reasonable Efforts; Notification; Filings.
(a) Upon the terms and subject to the conditions set forth in
this Agreement, unless and to the extent permitted by Section 5.2, the
Company Board approves or recommends a Superior Proposal, each of the
parties shall use all commercially reasonable efforts to take, or cause to
be taken, all actions, and to do, or cause to be done, and to assist and
cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Exchange including (i) the obtaining of all necessary
actions or nonactions, waivers, consents and approvals from Governmental
Entities and the making of all necessary registrations and filings,
including filings with Governmental Entities (including complying with the
filing and approval requirements of the FERC, the SEC Exemption Order, the
SEC Approval Order and the certification from the Indiana Utility
Regulatory Commission (the "IURC") addressed to the SEC pursuant to Section
33(a)(2) of PUHCA (the "Indiana Certification") substantially in the form
as attached as Exhibit C hereto or in a form otherwise reasonably
satisfactory to Parent), and the taking of all reasonable steps as may be
necessary to obtain the Company Required Consents, the Parent Required
Consents and an approval or waiver from, or to avoid an action or
proceeding by, any Governmental Entity and that may be necessary to
consummate the transactions contemplated hereby, (ii) the obtaining of all
necessary consents, approvals or waivers from third parties, (iii) the
defending of any lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
Exchange, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed, and
(iv) the execution and delivery of any additional instruments necessary to
consummate the Exchange and to fully carry out the purposes of this
Agreement.
(b) Each party hereto shall file or cause to be filed with the
Federal Trade Commission and the Department of Justice any notifications
required to be filed under the HSR Act, and the rules and regulations
promulgated thereunder with respect to the transactions contemplated
hereby.
(c) Parent and the Company will use commercially reasonable
efforts to coordinate such filings and any responses thereto, to make such
filings promptly and to respond promptly to any requests for additional
information made by either of such agencies. Parent and the Company agree
that they will consult with each other with respect to the obtaining of all
such necessary or advisable permits, consents, approvals and authorizations
of Governmental Entities; provided, however, that it is agreed that (x) the
Company shall have primary responsibility for the preparation and filing of
any applications with or notifications to applicable Indiana regulatory
authorities and (y) Parent shall have primary responsibility for the
preparation and filing of any applications with or notifications to
applicable state regulatory authorities for states other than Indiana and
applicable federal regulatory authorities for approval of the Exchange.
Each of Parent and the Company shall have the right to review and approve
in advance drafts of all such necessary applications, notices, petitions,
filings and other documents made or prepared in connection with the
transactions contemplated by this Agreement, which approval shall not be
unreasonably withheld or delayed. In connection with and without limiting
the foregoing, the Company and the Company Board shall (i) take all action
necessary to ensure that no state takeover statute or similar statute or
regulation is or becomes applicable to the Exchange or this Agreement and
(ii) if any state takeover statute or similar statute or regulation becomes
applicable to this Agreement, take all action necessary to ensure that the
Exchange may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise to minimize the effect of such
statute or regulation on the Exchange. Nothing in this Agreement shall be
deemed to require any party to waive any substantial rights or agree to any
substantial limitation on its operations or to dispose of any significant
asset or collection of assets. Notwithstanding the foregoing, the Company
and its Representatives shall not be prohibited under this Section 6.3 from
taking any action permitted by Section 5.2.
(d) The Company shall give prompt notice to Parent, and Parent
shall give prompt notice to the Company, of (i) any representation or
warranty made by it contained in this Agreement that is qualified as to
materiality becoming untrue or inaccurate in any respect or any such
representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect, (ii) the failure by it to comply with
or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement, and (iii) any
change or event which, individually or in the aggregate, has had or would
have a Company Material Adverse Effect; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the
parties under this Agreement.
(e) Parent agrees that, prior to the Closing, Parent shall not,
and shall cause its Subsidiaries not to, acquire significant electric
generation assets of clearly sufficient magnitude in the relevant market,
for purposes of FERC's analysis of the Exchange, so as to directly and
significantly impair the ability of the parties to obtain the Required
Approval (as defined in Section 7.1(d)).
(f) Parent and the Company shall use their reasonable best
efforts to develop jointly by no later than October 15, 2000, a plan for
the Company to comply with emission limits that may be imposed as a result
of the United States Environmental Protection Agency's NOx SIP Call, which
plan may include capital expenditure outlays in addition to those
contemplated by this Agreement and the Company Disclosure Schedule. The
Company may make any such capital expenditures in accordance with such
plan.
Section 6.4 Employee Benefit Plans.
(a) Parent shall cause individuals who were employed by the
Company or any Company Subsidiary immediately before the Effective Time and
who continue employment with the Company or such Company Subsidiary after
the Effective Time ("Covered Employees") to be provided employee benefits
that are substantially equivalent in the aggregate, at Parent's discretion,
to either (i) those provided under the Company Benefit Plans immediately
before the Effective Time, or (ii) those provided by Parent or its
Subsidiaries to their similarly situated employees from time to time;
provided, however, that nothing contained herein shall be construed as
requiring Parent or the Company after the Closing to continue any specific
plan or as preventing Parent or the Company after the Closing from
establishing and, if necessary, seeking shareholder approval to establish,
any other benefit plans in respect of all or any Covered Employee or any
other employee, or amending the Company Benefit Plans. After the Closing,
Parent does not intend to offer compensation plans to officers of the
Company and its Subsidiaries that are comparable to those historically
available to such persons.
(b) Parent shall credit, or cause to be credited, to the
Covered Employees all service with the Company and/or its Subsidiaries (and
all service credited to such Covered Employees by the Company and/or its
Subsidiaries or under the Company Benefit Plans) for all purposes, under
any and all benefit plans, programs or arrangements in which the Covered
Employees may participate or from which the Covered Employees may receive
benefits from and after the Effective Time, to the same extent as if
rendered to Parent, the Company or any of their Subsidiaries, provided that
no such service credited shall require the Company and/or its Subsidiaries
to provide for duplication of benefits. Parent shall cause to be waived any
waiting period or pre-existing condition limitation under its (or, after
the Closing, the Company's or their Subsidiaries') welfare plans that might
otherwise apply to any Covered Employee (to the extent that such Covered
Employee was not affected by the waiting period or pre-existing condition
limitation under the applicable Company Benefit Plans as of the Effective
Time). Parent agrees to recognize, or cause to be recognized, the dollar
amount of all expenses incurred by the Covered Employees during the
calendar year in which the Effective Time occurs for purposes of satisfying
such calendar year deductibles and co-payments limitations under the
Company Benefit Plans and/or any relevant benefit plans, programs or
arrangements of Parent, the Company or their Subsidiaries.
(c) From and after the Effective Time, Parent shall and shall
cause the Company to honor, in accordance with its express terms, each then
existing employment, change of control, severance and termination agreement
between the Company or any of its Subsidiaries and an officer, director or
employee of such Company or Subsidiary.
Section 6.5 Directors' and Officers' Indemnification and
Insurance.
(a) From and after the Effective Time, Parent and the Company
shall indemnify, defend and hold harmless each person who is now, or has
been at any time prior to the date hereof or who becomes prior to the
Effective Time, a director or officer of the Company or any of its
Subsidiaries (the "Indemnified Parties") against all losses, claims,
damages, costs and expenses (including reasonable attorneys' fees),
liabilities, judgments and, subject to the proviso of this sentence,
settlement amounts that are paid or incurred in connection with any claim,
action, suit, proceeding or investigation (whether civil, criminal,
administrative or investigative and whether asserted or claimed prior to,
at or after the Effective Time) that is (i) based on, or arises out of, the
fact that such Indemnified Party is or was a director or officer of the
Company or any of its Subsidiaries, and (ii) based on, or arising out of,
or pertaining to this Agreement or the transactions contemplated hereby, in
each case to the fullest extent a corporation is permitted under applicable
law to indemnify its own directors or officers, as the case may be
("Indemnified Liabilities"); provided, however, that neither Parent nor the
Company shall be liable for any settlement of any claim effected without
its written consent. Without limiting the foregoing, in the event that any
such claim, action, suit, proceeding or investigation is brought against
any Indemnified Party (whether arising prior to or after the Effective
Time), (w) the Company following the Effective Time will pay expenses of
the final disposition of any such claim, action, suit, proceeding or
investigation to each Indemnified Party to the full extent permitted by
applicable law promptly after statements therefor are received and
otherwise advance to such Indemnified Party upon request reimbursement of
documented expenses reasonably incurred, in either case to the extent not
prohibited by the BCL; provided, however, that the person to whom expenses
are advanced provides any undertaking required by applicable law to repay
such advance if it is ultimately determined that such person is not
entitled to indemnification; (x) the Indemnified Parties shall retain
counsel reasonably satisfactory to the Company; (y) the Company following
the Effective Time shall pay all reasonable fees and expenses of such
counsel for the Indemnified Parties (subject to the final sentence of this
paragraph) promptly as statements therefor are received; and (z) the
Company following the Effective Time shall use all commercially reasonable
efforts to assist in the defense of any such matter. In the event of any
dispute as to whether an Indemnified Party's conduct complies with the
standards set forth under the BCL and the Company Charter or Company
By-laws, a determination shall be made by independent counsel mutually
acceptable to the Company following the Effective Time and the Indemnified
Party (the "Independent Counsel"); provided, however, that the Company
following the Effective Time shall not be liable for any settlement
effected without its written consent (which consent shall not be
unreasonably withheld). The Indemnified Parties as a group seeking
indemnification with respect to the same or a substantially related matter
may retain only one law firm with respect to such matter except to the
extent that under applicable standards of professional conduct, such
counsel would have conflict representing such Indemnified Party and any
other Indemnified Party or Indemnified Parties.
(b) Except to the extent required by Law, the Company following
the Effective Time shall not take any action so as to amend, modify, limit
or repeal the provisions for indemnification of Indemnified Parties
contained in the certificates or articles of incorporation or by-laws (or
other comparable charter documents) of the Company following the Effective
Time and its Subsidiaries (which as of the Effective Time shall be no more
favorable to such individuals than those maintained by the Company and its
Subsidiaries on the date hereof) in such a manner as would adversely affect
the rights of any Indemnified Party to be indemnified by such corporations
in respect of their serving in such capacities prior to the Effective Time.
The Company following the Effective Time shall honor all of its
indemnification obligations existing as of the Effective Time.
(c) For a period of six years after the Effective Time, the
Company shall cause to be maintained in effect policies of directors' and
officers' liability insurance maintained by the Company as of the date of
this Agreement; provided, however, that the Company may substitute therefor
policies of at least the same coverage containing terms that are no less
advantageous with respect to matters occurring prior to or at the Effective
Time to the extent such liability insurance can be maintained annually at a
cost to the Company not greater than 300% for annual premiums for such
directors' and officers' liability insurance, which existing premium costs
are set forth in Section 6.5(c) of the Company Disclosure Schedule;
provided, further, that if such insurance cannot be so maintained or
obtained at such cost, the Company shall maintain or obtain as much of such
insurance as can be so maintained or obtained at a cost equal to 300% of
the current annual premiums of Company for its directors' and officers'
liability insurance.
(d) The provisions of this Section are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and each
party entitled to insurance coverage under Section 6.5(c), respectively,
and his or her heirs and legal representatives, and shall be in addition
to, and shall not impair, any other rights an Indemnified Party may have
under the Company Charter or the comparable organization documents of the
Company or any of its Subsidiaries, under the BCL or otherwise.
Section 6.6 Expenses. Except as provided in Article VIII, all
fees and expenses incurred in connection with the Exchange shall be paid by
the party incurring such fees or expenses, whether or not the Exchange is
consummated.
Section 6.7 Public Announcements. Parent and the Company shall
consult with each other before issuing, and provide each other the
opportunity to review and comment upon, any press release or other public
statements with respect to the Exchange and shall not issue any such press
release or make any such public statement prior to such consultation,
except as may be required by applicable Law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange.
Section 6.8 Transfer Taxes. Subject to Section 2.3(b), all
stock transfer, real estate transfer, documentary, stamp, recording and
other similar Taxes (including interest, penalties and additions to any
such Taxes) ("Transfer Taxes") incurred in connection with the Exchange
shall be paid by the Company, and the Company shall cooperate with Parent
in preparing, executing and filing any Tax Returns with respect to such
Transfer Taxes. In no case will Parent pay directly or indirectly any
Transfer Tax incurred in connection with the Exchange.
Section 6.9 Restructuring. Parent shall file an application
with the SEC which commits Parent, if required by a regulatory order of the
SEC, to enter into an agreement with a third party within three years of
the Effective Time to divest its ownership interest in the PUHCA
jurisdictional business of Entity C or comply with such other conditions as
may be imposed by the SEC; provided, however, that Parent shall not be
required to comply with any such condition that Parent reasonably believes
would have a Company Material Adverse Effect or an adverse effect on Parent
which is material in the context of the transactions contemplated hereby.
Section 6.10 Rights Agreement; Consequences if Rights
Triggered. The Company Board shall take all action requested in writing by
Parent in order to render the Company Rights inapplicable to the Exchange.
Except as approved in writing by Parent, the Company Board shall not (i)
amend the Company Rights Agreement, (ii) redeem the Company Rights or (iii)
take any action with respect to, or make any determination under, the
Company Rights Agreement, except for any of the foregoing actions which the
Company Board, after consultation with outside counsel, determines in good
faith is required for the Company Board to comply with its fiduciary duties
imposed by law. If any Distribution Date, Share Acquisition Date or
Triggering Event occurs under the Company Rights Agreement at any time
during the period from the date of this Agreement to the Effective Time,
the Company and Parent shall make such adjustment to the Exchange
Consideration as the Company and Parent shall mutually agree so as to
preserve the economic benefits that the Company and Parent each reasonably
expected on the date of this Agreement to receive as a result of the
consummation of the Exchange.
Section 6.11 Conduct of Business of Parent. Except as may be
required by applicable law or as contemplated by Section 6.9, Parent and
any Subsidiary of Parent shall not engage in any activities (including
allowing or causing a change in the equity or other ownership of Parent)
which would cause a change in Parent's or any equity owner's or affiliate's
status under PUHCA or that would impair the ability of the Company, Parent,
any Subsidiary of Parent or any equity owner or affiliate of Parent to
claim any exemption under PUHCA or subject Parent, any Subsidiary of Parent
or any equity owner or affiliate of Parent to regulation under PUHCA (other
than Section 9(a)(2) or as an exempt holding company under PUHCA) following
the Exchange or acquire such voting securities in a "public utility
company" as defined under Section 2(a)(5) of PUHCA so as to become an
affiliate of such public utility company within the meaning of Section
2(a)(11) of PUHCA.
Section 6.12 Certain Employee Matters; Headquarters.
(a) After the Closing, Parent will make available to employees
of the Company employment opportunities within the domestic and
international Parent group substantially equivalent to opportunities as are
made available to other employees of Parent and its Subsidiaries.
(b) After the Closing, the Company shall, and shall cause
Entity I to, maintain for a period of at least three years following the
Effective Time (i) its corporate headquarters in Indianapolis, Indiana,
(ii) the name of Entity I and (iii) local decision-making authority.
Section 6.13 Charitable Giving. After the Closing, Parent shall
cause the Company to maintain a commitment to local social responsibility,
community involvement and charitable giving at its current levels in
accordance with its current practices.
Section 6.14 Asset Sale. The Company shall use commercially
reasonable efforts to take all actions necessary, including obtaining the
required regulatory approvals, to sell (i) Cleveland District Cooling
Corporation, Cleveland Thermal Energy Corporation, Mid America Energy
Resources and Indianapolis Campus Energy, or the assets of each, each a
direct or indirect Subsidiary of Mid America Capital Resources, and (ii)
the steam generating and steam distribution assets of Entity I, prior to
the Effective Time on terms and conditions reasonably acceptable to Parent.
The terms and conditions of the Asset Sales Agreements, dated as of March
21, 2000, between the Company and Citizens Gas & Coke Utility are
acceptable to Parent.
Section 6.15 Tax Treatment. Parent and the Company intend that
the Exchange will qualify as a reorganization within the meaning of Section
368(a) of the Code. Parent and the Company shall each use reasonable
efforts to cause the Exchange to qualify, and shall not knowingly take
actions or cause actions to be taken that could reasonably be expected to
prevent the Exchange from qualifying as a reorganization within the meaning
of Section 368(a) of the Code.
Section 6.16 Regional Transmission Organization. The Company
shall not, and shall cause its Subsidiaries not to, join any regional
transmission organization unless required by applicable law, otherwise
consented to by Parent or necessary to avoid a Company Material Adverse
Effect.
Section 6.17 Pooling-of-Interest. The Company shall use its
reasonable best efforts, and shall cause each of its Subsidiaries to use
its reasonable best efforts, to take such actions as may be necessary to
permit the parties to account for the Exchange, and shall not permit any of
its Subsidiaries to take any actions that would, or would be reasonably
likely to, prevent the parties from accounting for the Exchange, as a
pooling-of-interests in accordance with GAAP and applicable SEC
regulations. This section shall be null and void in the event (i) Parent
determines to not seek such accounting treatment for the Exchange or (ii)
Parent determines that such accounting treatment is not available, and, in
either event Parent shall promptly notify the Company.
Section 6.18 Affiliate Letters. Each party shall identify in a
letter to the other all persons who are, as of the Closing Date,
"affiliates" of such party as such term is used in Rule 145 under the
Securities Act. Each party shall use reasonable best efforts to cause its
respective affiliates to deliver to the other party on or prior to the
Closing Date a written agreement substantially in the form attached as
Exhibit D.
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions to Each Party's Obligation to Effect the
Exchange. The respective obligation of each party to effect the Exchange is
subject to the satisfaction or waiver on or prior to the Closing Date of
the following conditions:
(a) Shareholder Approval. The Company shall have obtained the
Company Shareholder Approval.
(b) Antitrust. The waiting period (and any extension thereof)
applicable to the Exchange under the HSR Act shall have been terminated or
shall have expired. Any consents, approvals and filings under any foreign
antitrust Law, the absence of which would prohibit the consummation of
Exchange, shall have been obtained or made.
(c) No Injunctions or Restraints. No judgment, decree, statute,
law, ordinance, rule, regulation, temporary restraining order, preliminary
or permanent injunctions or other order enacted, entered, promulgated,
enforced or issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Exchange shall
be in effect; provided, however, that prior to asserting this condition,
subject to Section 6.3, each of the parties shall have used all reasonable
efforts to prevent the entry of any such injunction or other order and to
appeal as promptly as possible any such judgment that may be entered.
(d) FERC Approval. A Final Order of the FERC under the Power
Act approving the disposition by the Company of facilities subject to the
jurisdiction of the FERC (the "Required Approval") shall have been
obtained. Parent shall reasonably believe that such Required Approval would
not have a Company Material Adverse Effect or an adverse effect on Parent
which is material in the context of the transactions contemplated hereby;
provided, however, that neither of the following shall be deemed to have a
Company Material Adverse Effect or an adverse effect on Parent which is
material in the context of the transactions contemplated hereby: (i) any
condition that affects the rates, terms or conditions of existing or future
power sales transactions between Entity I or Parent or any Subsidiary of
Parent (including Entity C), or which imposes a code of conduct on Entity I
or Parent or any Subsidiary of Parent (including Entity C) similar to that
imposed by FERC on regulated public utilities and their power marketer
affiliates, or (ii) a condition that requires Entity I or Parent or any
Subsidiary of Parent (including Entity C) to join a regional transmission
organization. A "Final Order" means an action by the relevant Governmental
Entity that has not been reversed, stayed, enjoined, set aside, annulled or
suspended, with respect to which any waiting period prescribed by
applicable law before the transactions contemplated hereby may be
consummated has expired or been terminated, and as to which all conditions
to the consummation of such transactions prescribed by applicable law,
regulation or order have been satisfied.
(e) Consents and Approvals. All consents, approvals and
authorizations shall have been obtained from all Governmental Entities
except for the approvals and authorizations contemplated by Sections
7.1(d), 7.2(e) and 7.2(i), except where the failure to obtain any such
consents, approvals and authorizations would not cause a Company Material
Adverse Effect or an adverse effect on Parent which is material in the
context of the transactions contemplated hereby.
(f) Registration Statement. The Registration Statement shall
have become effective in accordance with the provisions of the Securities
Act, and no stop order suspending such effectiveness shall have been issued
and remain in effect.
(g) Listing of Shares. The shares of Parent Common Stock
issuable pursuant to Article II shall have been approved for listing on the
NYSE upon official notice of issuance.
Section 7.2 Conditions to Obligation of Parent. The obligation
of Parent to effect the Exchange is further subject to the following
conditions:
(a) Representations and Warranties. The representations and
warranties of the Company in this Agreement that are qualified as to
materiality shall be true and correct and those not so qualified shall be
true and correct in all material respects, as of the date of this Agreement
and as of the Closing Date as though made on the Closing Date, except to
the extent such representations and warranties expressly relate to an
earlier date (in which case such representations and warranties qualified
as to materiality shall be true and correct, and those not so qualified
shall be true and correct in all material respects, on and as of such
earlier date). Parent shall have received a certificate signed on behalf of
the Company by the chief executive officer and the chief financial officer
of the Company to such effect.
(b) Performance of Obligations of the Company. The Company
shall have performed in all material respects all obligations required to
be performed by it under this Agreement at or prior to the Closing Date.
(c) Absence of a Company Material Adverse Effect. Except as
disclosed in Section 7.2(c) of the Company Disclosure Schedule, since the
date of this Agreement there shall not have been any event, change, effect
or development that, individually or in the aggregate, has had or would
reasonably be expected to have a Company Material Adverse Effect.
(d) Company Required Consents. The Company Required Consents
shall have been obtained.
(e) PUHCA Exemption, Section 9(a)(2) Approval. The SEC shall
have issued an order (i) granting Parent an exemption from registration as
a holding company under PUHCA pursuant to Section 3(a)(5) of PUHCA (the
"SEC Exemption Order"), and (ii) approving the Exchange under Section
9(a)(2) of PUHCA (the "SEC Approval Order"), and each such order shall be
in full force and effect on the Closing Date. Parent shall be reasonably
satisfied that neither the SEC Exemption Order nor the SEC Approval Order
shall have a Company Material Adverse Effect or an adverse effect on Parent
which is material in the context of the transactions contemplated hereby.
(f) Closing Certificates. Parent shall have received a
certificate signed by an executive officer of the Company, dated the
Closing Date, to the effect that, to the best of such officer's knowledge,
the conditions set forth in Sections 7.2(a), (b), (c), (d), (h) and (i)
have been satisfied.
(g) Parent Required Consents. The Parent Required Consents
shall have been obtained.
(h) Trigger of the Company Rights. No event has occurred or
could occur pursuant to this Agreement or otherwise that would result in
the triggering of any right or entitlement of the Company shareholders
under the Company Rights Agreement, including a "flip-in" or "flip-over" or
similar event commonly described in such rights plans which, in the
reasonable judgment of Parent, would have or be reasonably likely to result
in a Company Material Adverse Effect or materially change the number of
outstanding equity securities of the Company, and the Company Rights shall
not have become nonredeemable by the Company Board.
(i) Indiana Utility Regulatory Commission. (i) The IURC shall
have issued the Indiana Certification, (ii) any order of, approval by or
result of any filing, hearing, proceeding, investigation or notice with, or
required by the IURC, or any other Indiana state authority, does not have a
Regulatory Adverse Effect (as defined below), (iii) no hearing, proceeding
or investigation shall have been conducted or shall be currently pending
before the IURC, or any other Indiana state authority, that was initiated
by the IURC, or any other Indiana state authority, the outcome of which is
reasonably likely to result in a Regulatory Adverse Effect, and (iv) no
hearing, proceeding or investigation shall have been conducted or shall be
currently pending before the IURC, or any other Indiana state authority,
which was initiated by a party other than the IURC, or any other Indiana
state authority, and the outcome of which is reasonably likely to result in
a Regulatory Adverse Effect. For purposes of this Agreement, a "Regulatory
Adverse Effect" shall mean an effect that is reasonably likely to have a
Company Material Adverse Effect or an adverse effect on Parent which is
material in the context of the transactions contemplated hereby.
(j) Tax Opinion. Parent shall have received an opinion of
Skadden, Arps, Slate, Meagher & Flom LLP, special tax counsel to Parent,
dated as of the Closing Date, and in form and substance reasonably
satisfactory to Parent to the effect that the Exchange will qualify as a
reorganization within the meaning of Section 368(a) of the Code. The
issuance of such opinion shall be conditioned upon the receipt by such
special tax counsel of customary representation letters dated as of the
Closing Date from each of Parent and the Company, in each case, in
substantially the form and substance attached hereto as Exhibit A and
Exhibit B and in form and substance reasonably satisfactory to such
counsel, which letters shall not have been modified or withdrawn. The
opinion referred to in this Section 7.2(j) shall not be waivable after
receipt of the Company Shareholder Approval referred to in Section 7.1(a),
unless further shareholder approval is obtained with appropriate
disclosure.
(k) Director Resignations. Parent shall have received duly
executed resignation letters from each of the directors of the Company in
accordance with Section 1.6.
Section 7.3 Conditions to Obligation of the Company. The
obligation of the Company to effect the Exchange is further subject to the
following conditions:
(a) Representations and Warranties. The representations and
warranties of Parent in this Agreement that are qualified as to materiality
shall be true and correct and those not so qualified shall be true and
correct in all material respects, as of the date of this Agreement and as
of the Closing Date as though made on the Closing Date, except to the
extent such representations and warranties expressly relate to an earlier
date (in which case such representations and warranties qualified as to
materiality shall be true and correct, and those not so qualified shall be
true and correct in all material respects, on and as of such earlier date).
The Company shall have received a certificate on behalf of Parent executed
by its chief executive officer to such effect.
(b) Performance of Obligations of Parent. Parent shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and the Company
shall have received a certificate signed on behalf of Parent executed by
its chief executive officer to such effect.
(c) Closing Certificates. The Company shall have received a
certificate signed by an executive officer of Parent, dated the Closing
Date, to the effect that, to the best of such officer's knowledge, the
conditions set forth in Section 7.3(a) and Section 7.3(b) have been
satisfied.
(d) Tax Opinion. The Company shall have received an opinion of
Cravath, Swaine & Moore, special tax counsel to the Company, dated as of
the Closing Date, and in form and substance reasonably satisfactory to the
Company to the effect that the Exchange will qualify as a reorganization
within the meaning of Section 368(a) of the Code. The issuance of such
opinion shall be conditioned upon the receipt by such special tax counsel
of customary representation letters dated as of the Closing Date from each
of Parent and the Company, in each case, in substantially the form and
substance attached hereto as Exhibit A and Exhibit B and in form and
substance reasonably satisfactory to such counsel, which letters shall not
have been modified or withdrawn. The opinion referred to in this Section
7.3(d) shall not be waivable after receipt of the Company Shareholder
Approval referred to in Section 7.1(a), unless further shareholder approval
is obtained with appropriate disclosure.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination. This Agreement may be terminated at any
time prior to the Effective Time, whether before or after receipt of
Company Shareholder Approval:
(a) without payment of a termination fee by mutual written consent
of Parent and the Company;
(b) by either Parent or the Company:
(i) if the Exchange is not consummated by the fifteen-
month anniversary of the date of this Agreement (the "Termination
Date") without payment of a termination fee; provided, however that
the Termination Date shall automatically be extended for three
additional months if any of the conditions set forth in Section
7.1(d), 7.1(e), 7.2(e) or 7.2(i) have not been satisfied; and
provided, further, that the failure to consummate the Exchange shall
not be the result of a breach of this Agreement by the party seeking
to terminate this Agreement;
(ii) if, upon a vote at a duly held meeting to obtain the
Company Shareholder Approval, the Company Shareholder Approval is not
obtained. In the event this Agreement is terminated pursuant to this
Section 8.1(b)(ii) and if an Acquisition Proposal has been publicly
proposed during the Company Applicable Period and at or within twelve
months of the date of the Company Shareholders Meeting, the Company
enters into any agreement with respect to such Acquisition Proposal
then, within ten business days after the execution of such agreement,
the Company shall immediately pay in cash to Parent by wire transfer
of same day funds a termination fee in an amount equal to $60 million
(the "Acquisition Termination Fee"). In addition, the Company shall
reimburse Parent of up to $10 million in reasonable fees and expenses
incurred by Parent in connection with the transactions contemplated
hereby from June 22, 2000, which fees and expenses shall be
documented and which documentation shall be provided to the Company
(the "Parent Expenses"); and
(iii) if any court of competent jurisdiction or other
competent Governmental Entity shall have issued an order, which has
the effect as supported by the written opinion of outside counsel, of
making illegal or otherwise restricting, preventing or prohibiting
the Exchange and such order shall have become final and
nonappealable.
(c) by Parent under any of the following circumstances:
(i) by written notice to the Company, if (x) there shall
have been a material breach of this Agreement by the Company or (y)
there shall have been a wilful breach of this Agreement by the
Company and such breaches, described in clauses (x) and (y) hereof
shall not have been remedied within thirty days after receipt by the
Company of notice in writing from Parent, specifying the nature of
such breach and requesting that it be remedied; provided, however,
that the Company shall not be entitled to expend more than $10
million to cure any and all such breaches without the prior written
approval of Parent or (z) if the Company Board (or any committee
thereof) (A) shall have withdrawn or modified in a manner adverse to
Parent its approval or recommendation of this Agreement and the
transactions contemplated hereby or its recommendation to its
shareholders regarding the approval of this Agreement, (B) shall fail
to reaffirm such approval or recommendation upon the request of
Parent within five full business days of receipt of written request
to do so by Parent, (C) shall approve or recommend any Acquisition
Proposal or (D) shall resolve to take any of the actions specified in
clauses (A), (B) or (C). In the event this Agreement is terminated
pursuant to clause (x) of this Section 8.1(c)(i), the Company shall
reimburse the Parent Expenses. In the event this Agreement is
terminated pursuant to clause (z) of this Section 8.1(c)(i), the
Company shall pay Parent a termination fee in an amount equal to $60
million, plus reimbursement of the Parent Expenses. All such payments
referred to above shall be made in cash by wire transfer of same day
funds within ten business days of such termination notice.
(d) by the Company under any of the following circumstances:
(i) by written notice to Parent, if (x) there shall have
been any material breach of this Agreement by Parent or (y) there
shall have been a wilful breach of this Agreement by Parent and such
breaches described in clauses (x) and (y) hereof shall not have been
remedied within thirty days after receipt by Parent of notice in
writing from the Company, specifying the nature of such breach and
requesting that it be remedied. In the event this Agreement is
terminated pursuant to clause (x) of this Section 8.1(d)(i), Parent
shall reimburse the Company up to $10 million in reasonable fees and
expenses incurred by the Company in connection with the transactions
contemplated hereby from June 22, 2000, which fees and expenses shall
be documented and which documentation shall be provided to Parent
(the "Company Expenses");
(ii) in accordance with clause (iii) of the proviso to
the first sentence of Section 5.2(a), by written notice to Parent;
provided that, in order for the termination of this Agreement
pursuant to this subparagraph (ii) to be deemed effective, the
Company shall have complied with all provisions of Section 5.2. In
the event this Agreement is terminated pursuant to this Section
8.1(d)(ii), the Company shall pay Parent within ten days in cash by
wire transfer of same day funds a termination fee in an amount equal
to the Acquisition Termination Fee. In addition, the Company shall
reimburse Parent the Parent Expenses; and
(iii) by written notice to Parent, if the Average Trading
Price of a share of Parent Common Stock as determined in accordance
with Section 2.1(b) multiplied by the Exchange Ratio results in an
amount which is less than $21.00.
Section 8.2 Effect of Termination. In the event of termination
of this Agreement by either the Company or Parent as provided in Section
8.1, this Agreement shall forthwith become void and have no effect, without
any liability or obligation on the part of Parent or the Company, other
than Section 5.2, the last sentence of Section 6.2, Section 8.1, this
Section 8.2, Section 8.3 and Article IX which provisions shall survive such
termination; provided, however, that nothing herein shall relieve any party
from liability for a wilful breach of its representations, warranties or
covenants set forth in this Agreement (including liability of the Company
if this Agreement is terminated by Parent under Section 8.1(c)(i)(y) and
liability of Parent if this Agreement is terminated by the Company under
Section 8.1(d)(i)(y)).
Section 8.3 Expenses and Fees. Notwithstanding anything to the
contrary contained in this Agreement, if one party fails to promptly pay to
the other any fee or expense due under Article VIII, in addition to any
amounts paid or payable pursuant to such Section, the party shall pay the
costs and expenses (including legal fees and expenses) in connection with
any action, including the filing of any lawsuit or other legal action,
taken to collect payment, together with interest on the amount of any
unpaid fee at the publicly announced prime rate of Citibank, N.A. from the
date such fee was required to be paid.
Section 8.4 Amendment. This Agreement may be amended by the
Board of Directors of the parties at any time before or after receipt of
the Company Shareholder Approval; provided, however, that after receipt of
the Company Shareholder Approval, there shall be made no amendment that by
Law requires further approval by the shareholders of the Company or Parent,
without further approval of such shareholders. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties.
Section 8.5 Extension; Waiver. At any time prior to the
Effective Time, the parties may (a) extend the time for the performance of
any of the obligations or other acts of the other parties, (b) waive any
inaccuracies in the representations and warranties contained in this
Agreement or in any document delivered pursuant to this Agreement or (c)
subject to the proviso of Section 8.4, waive compliance with any of the
agreements or conditions contained in this Agreement. Any agreement on the
part of a party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party. The
failure of any party to this Agreement to assert any of its rights under
this Agreement or otherwise shall not constitute a waiver of such rights.
Section 8.6 Procedure for Termination, Amendment, Extension or
Waiver. A termination of this Agreement pursuant to Section 8.1, an
amendment of this Agreement pursuant to Section 8.4 or an extension or
waiver pursuant to Section 8.5 shall, in order to be effective, require in
the case of Parent or the Company, action by its Board of Directors or the
duly authorized designee of its Board of Directors.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Nonsurvival of Representations and Warranties. None
of the representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time, except as otherwise provided in this Agreement. Section 1.4(b) shall
survive the Effective Time.
Section 9.2 Notices. All notices, requests, claims, demands and
other communications under this Agreement shall be in writing and shall be
deemed given upon receipt by the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to Parent, to
The AES Corporation
1001 N. 19th Street
20th Floor
Arlington, VA 22209
Attention: Paul D. Stinson
Vice President
Telephone: 603-253-8048
Facsimile: 603-387-6043
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, DC 20005
Attention: Ronald C. Barusch, Esq.
Pankaj K. Sinha, Esq.
Telephone: 202-371-7000
Facsimile: 202-393-5760
(b) if to the Company, to
IPALCO Enterprises, Inc.
One Monument Circle
Indianapolis, IN 46204
Attention: Bryan G. Tabler, Esq.
Vice President, Secretary and General Counsel
Telephone: 317-261-5134
Facsimile: 317-261-8288
with a copy to:
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019
Attention: Richard Hall, Esq.
Telephone: 212-474-1000
Facsimile: 212-474-3700
Section 9.3 Definitions. For purposes of this Agreement:
An "Affiliate" of any person means another person that directly
or indirectly, through one or more intermediaries, controls, is controlled
by, or is under common control with, such first person.
"Entity C" shall mean Central Illinois Light Company, an
indirect Subsidiary of Parent.
"Entity I" shall mean Indianapolis Power & Light Company, a
direct Subsidiary of the Company.
A "Person" means any individual, firm, corporation,
partnership, company, limited liability company, trust, joint venture,
association, Governmental Entity or other entity.
A "Subsidiary" of any person means another person, an amount of
the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its Board
of Directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interests of which) is owned directly
or indirectly by such first person.
A "Joint Venture" of any person shall mean any corporation or
other entity (including partnerships and other business associations and
joint ventures) in which such person directly or indirectly owns an equity
interest that is less than a majority of any class of the outstanding
voting securities or equity of any such entity, other than equity interests
held for passive investment purposes which are less than 5% of any class of
the outstanding voting securities or equity of any such entity, and the
term "Company Joint Venture" shall mean a Joint Venture of the Company.
Section 9.4 Interpretation. When a reference is made in this
Agreement to a Section, such reference shall be to a Section of this
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. Whenever
the words "include," "includes" or "including" are used in this Agreement,
they shall be deemed to be followed by the words "without limitation."
Section 9.5 Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any
rule or Law, or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good
faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
Section 9.6 Counterparts. This Agreement may be executed in one
or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have
been signed by each of the parties and delivered to the other parties.
Section 9.7 Entire Agreement; No Third-Party Beneficiaries.
This Agreement, taken together with the Company Disclosure Schedule and the
Parent Disclosure Schedule, constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the Exchange, other than the Confidentiality
Agreement, and, except for the provisions of Article II, Section 6.4(c) and
Section 6.5, is not intended to, and shall not, confer upon any person
other than the parties any rights, claims or remedies.
Section 9.8 Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of New York,
regardless of the laws that might otherwise govern under applicable
principles of conflicts of laws thereof and except to the extent the
provisions of this Agreement (including the documents or instruments
referred to herein) are expressly governed by or derive their authority
from the BCL.
Section 9.9 Assignment. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by any of the parties
without the prior written consent of the other parties, except that Parent
may assign, in its sole discretion, any of or all its rights, interests and
obligations under this Agreement to any direct or indirect wholly owned
Subsidiary of Parent, but no such assignment shall relieve Parent of any of
its obligations under this Agreement. Any purported assignment without such
consent shall be void. Subject to the preceding sentences, this Agreement
will be binding upon, inure to the benefit of, and be enforceable by, the
parties and their respective successors and assigns.
Section 9.10 Enforcement. Each of the parties agrees that
irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms
or were otherwise breached. It is accordingly agreed that the parties shall
be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions of this
Agreement in any New York state court or any federal court in the state of
New York, this being in addition to any other remedy to which they are
entitled at law or at equity. In addition, each of the parties hereto (a)
consents to submit itself to the personal jurisdiction of any federal court
located in the State of New York or any New York State court in the County
of New York in the event any dispute arises out of this Agreement or the
Exchange, (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such
court, (c) agrees that it will not bring any action relating to this
Agreement or the Exchange in any court other than any New York state court
or any federal court sitting in the State of New York or any New York State
court sitting in the County of New York, and (d) waives any right to trial
by jury with respect to any action related to or arising out of this
Agreement or the Exchange.
Section 9.11 Further Assurances. Each party will execute such
further documents and instruments and take such further actions as may
reasonably be requested by any other party in order to consummate the
Exchange in accordance with the terms hereof.
IN WITNESS WHEREOF, Parent and the Company have duly executed
this Agreement, all as of the date first written above.
The AES Corporation
By: /s/ Paul Stinson
---------------------------------
Name: Paul D. Stinson
Title: Vice President
IPALCO Enterprises, Inc.
By: /s/ John R. Hodowal
---------------------------------
Name: John R. Hodowal
Title: Chairman of the Board
EXHIBIT A
[Letterhead of Parent]
[Closing Date]
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, D.C. 20005-2111
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
Ladies and Gentlemen:
In connection with the opinions to be delivered pursuant
to Sections 7.2(j) and 7.3(d) of the Agreement and Plan of Share Exchange
(the "Exchange Agreement"), dated as of July 15, 2000, among The AES
Corporation, a Delaware corporation ("Parent"), and IPALCO Enterprises,
Inc., an Indiana corporation (the "Company"), whereby all the issued and
outstanding shares of common stock of the Company will be acquired by
Parent in exchange for shares of common stock of the Parent (the
"Exchange"), and in connection with the filing with the Securities and
Exchange Commission (the "SEC") of the registration statement on Form S-4
(the "Registration Statement"), which includes the Joint Proxy Statement of
Parent and the Company, each as amended or supplemented through the date
hereof, the undersigned certifies and represents on behalf of the Parent,
after due inquiry and investigation, as follows (any capitalized term used
but not defined herein having the meaning given to such term in the
Exchange Agreement):
1. The facts, representations and covenants relating to
the Exchange and related transactions as described in the Exchange
Agreement, Registration Statement and the other documents described in the
Registration Statement (including all exhibits and attachments thereto)
are, insofar as such facts pertain to the Parent, true, correct and
complete in all material respects. The Exchange will be consummated in
accordance with the Exchange Agreement.
2. The formula set forth in the Exchange Agreement
pursuant to which each issued and outstanding share of Company Common Stock
will be converted into fully paid and nonassessable shares of Parent Common
Stock is the result of arm's length bargaining.
3. The fair market value of the Parent Common Stock
received by the shareholders of the Company will be, at the Effective Time,
approximately equal to the fair market value of the Company Common Stock
surrendered in the Exchange.
4. In the Exchange, all of the Company Common Stock will
be exchanged solely for Parent Common Stock (except for cash paid in lieu
of fractional shares of Parent Common Stock). The Company has no class of
stock outstanding other than the Company Common Stock. No shares or other
securities of the Company will be issued to the shareholders of the Company
pursuant to the Exchange. For purposes of this representation, any share of
the Company Common Stock redeemed or exchanged in the Exchange for cash or
other property originating, directly or indirectly, with the Parent or any
of its subsidiaries will not be considered as exchanged solely for Parent
Common Stock. Further, no liabilities of the Company or any shareholder of
the Company will be assumed by the Parent in the Exchange, nor will any of
the Company Common Stock acquired by Parent in the Exchange be subject to
any liabilities.
5. Following the Exchange, Parent has no plan or
intention to sell, transfer or dispose of any stock of the Company or to
cause the Company to issue additional shares of its stock that would in
either case result in Parent failing to own after the Exchange, directly or
indirectly, at least 80 percent of the total combined voting power of all
classes of Company stock entitled to vote and at least 80 percent of the
total number of shares of all other classes of Company stock.
6. If cash payments are made to holders of Company Common
Stock in lieu of fractional shares of Parent Common Stock that would
otherwise be issued to such holders in the Exchange, such payments will be
made for the purpose of saving Parent the expense and inconvenience of
issuing and transferring fractional shares of Parent Common Stock, and will
not represent separately bargained for consideration. The total cash
consideration that will be paid in the Exchange to holders of Company
Common Stock in lieu of fractional shares of Parent Common Stock will not
exceed one percent of the total consideration that will be issued in the
Exchange to shareholders of Company in exchange for their shares of Company
Stock.
7. (i) To the knowledge of Parent, neither the Company
nor any corporation related to the Company (as defined in Treasury
Regulation Section 1.368- 1(e)) has purchased, exchanged, redeemed, or
otherwise acquired or has any plan or intention to purchase, exchange,
redeem, or otherwise acquire any Company stock in contemplation of the
Exchange, or otherwise as part of a plan of which the Exchange is a part.
(ii) Neither Parent nor any corporation related to
Parent (as defined in Treasury Regulation Section 1.368-1(e)) has any plan
or intent to purchase, exchange, redeem, or otherwise acquire any of the
Parent stock issued in the Exchange, either directly or through any
transaction, agreement or arrangement with any other person (excluding any
fractional shares of the Parent Common Stock exchanged for cash in the
Exchange). To the knowledge of Parent, neither the Company nor any
corporation related to the Company (as defined in Treasury Regulation
Section 1.368- 1(e)) has any plan or intention to purchase, exchange,
redeem, or otherwise acquire any of the Parent stock issued in the
Exchange, either directly or through any transaction, agreement or
arrangement with any other person. For purposes of this representation
letter, a person is considered to own or acquire stock owned or acquired
(as the case may be) by a partnership in which such person is a partner in
proportion to such person's interest in the partnership.
8. The Company has not made, and does not have any plan
or intention to make, any distributions prior to, in contemplation of or
otherwise in connection with, the Exchange (other than dividends made in
the ordinary course of business).
9. Parent has no plan or intention to, following the
Exchange, liquidate the Company, merge the Company with or into another
corporation in which the Company is not the survivor, sell or otherwise
dispose of shares of the Company, cause the Company to distribute to Parent
or any of its subsidiaries any assets of the Company or the proceeds of any
borrowings incurred by the Company, or cause the Company to sell or
otherwise dispose of any of its assets, except for dispositions made in the
ordinary course of business transfers of assets permitted under Section
368(a)(2)(C) of the Code or Treasury Regulation Section 1.368-1(d) or
1.368-2(k), and the sale of Cleveland District Cooling Corporation,
Cleveland Thermal Energy Corporation, Mid America Energy Resources and
Indianapolis Campus Energy, or the assets of each, for an amount of cash or
other consideration with a fair market value equal to that of the assets
sold in exchange therefor.
10. Parent will pay its expenses, if any, incurred in
connection with the Exchange. Parent has not paid (directly or indirectly)
or agreed to assume any expense or other liability, whether fixed or
contingent, of the Company or any of its subsidiaries or any holder of
Company Stock.
11. The Company shall pay all transfer taxes attributable
to the Exchange out of the Company's own funds (and not out of funds
provided, directly or indirectly, by Parent).
12. Except as specifically set forth in Section 3.2 of
the Exchange Agreement, immediately prior to the time of the Exchange, the
Company will not have outstanding any warrants, options, convertible
securities or any other type of right pursuant to which any person could
acquire Company stock. Simultaneously with the Exchange, all outstanding
warrants, options, convertible securities, and related stock appreciation
rights, if any, to purchase or acquire a share of Company stock granted
under employee incentive or benefits plans, programs or arrangements and
non- employee director plans presently maintained by the Company, together
with all other outstanding awards granted under such plans, will be
canceled or converted into similar instruments of Parent. Immediately
following the Exchange, the only class of Company stock outstanding will be
the Company Common Stock held by Parent.
13. Following the Exchange, Parent intends to cause the
Company to continue its "historic business" or to use a significant portion
of its "historic business assets" in a business (as such terms are defined
in Treasury Regulation Section 1.368- 1(d)). To the knowledge of Parent,
the Company has not sold, transferred, or otherwise disposed of any of its
assets so as to prevent the Parent or members of its "qualified group" from
continuing the "historic business" of the Company or using a significant
portion of the Company's "historic business assets" in a business after the
Exchange (within the meaning of such terms in Treasury Regulation section
1.368-1(d)).
14. Parent is not an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
15. The Parent will not take, and will not cause Company
to take, any position on any Federal, state or local income or franchise
tax return, or take any other tax reporting position, that is inconsistent
with the treatment of the Exchange as a reorganization within the meaning
of Section 368(a) of the Code, unless otherwise required by a
"determination" (as defined in Section 1313(a)(1) of the Code) or by
applicable state or local tax law (and then only to the extent required by
such applicable state or local tax law).
16. None of the compensation received (or to be received)
by any stockholder-employee or stockholder-independent contractor of the
Company is (or will be) separate consideration for, or is (or will be)
allocable to, any of such person's Company Common Stock surrendered in the
Exchange. None of the Parent Stock that will be received by any
stockholder-employee or stockholder-independent contractor of the Company
in the Exchange represents separately bargained-for consideration which is
allocable to any employment agreement or arrangement. The compensation paid
to any stockholder-employee or stockholder-independent contractor pursuant
to any agreement entered into in connection with the Exchange will be for
services actually rendered, will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services or covenants, and
will be determined independent of the determination of the consideration to
be paid for the Company Common Stock.
17. There is no intercorporate indebtedness existing
between Parent (or any of its subsidiaries) and the Company (or any of its
subsidiaries) that was issued, acquired or will be settled at a discount.
18. Parent is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the
Code.
19. Neither Parent nor any person related to the Parent
(within the meaning of Treasury Regulation section 1.368-1(e)(3)) owns,
directly or indirectly, nor have they owned during the past five years,
directly or indirectly, any shares of the stock of the Company.
20. Parent shall satisfy the information reporting
requirements of Treasury Regulation section 1.368-3 with respect to the
Exchange.
21. Parent Common Stock entitles the holder to vote for
the board of directors of Parent.
22. The Exchange Agreement, the Registration Statement
and the other documents described in the Registration Statement (including
all exhibits and attachments thereto) represents the entire understanding
between the Parent and the Company regarding the Exchange, and there are no
other written or oral agreements between the Parent and the Company
regarding the Exchange.
23. The Exchange is being undertaken for purposes of
enhancing the business of the Company and for other good and valid business
purposes of the Company.
24. On the date of the Exchange, the fair market value of
the assets of the Company will exceed the sum of its liabilities, plus the
amount of liabilities, if any, to which such assets are subject.
25. No holders of Company stock have appraisal or
dissenters' rights with respect to the Exchange under any applicable law.
26. The undersigned is authorized to make all the
representations set forth herein on behalf of Parent.
The undersigned acknowledges that (i) the opinions to be
delivered pursuant to Sections 7.2(j) and 7.3(d) of the Exchange Agreement
will be based on the accuracy and completeness of the representations set
forth herein and on the accuracy and completeness of the representations
and warranties and the satisfaction of the covenants and obligations
contained in the Exchange Agreement and the various other documents related
thereto, and (ii) such opinions will be subject to certain limitations and
qualifications including that it may not be relied upon if any such
representations or warranties are not accurate and complete or if any of
such covenants or obligations are not satisfied in all material respects.
Parent understands that Skadden, Arps, Slate, Meagher & Flom LLP and
Cravath, Swaine & Moore have not undertaken to independently verify the
facts providing the basis of this letter nor have they been asked to do so.
The undersigned acknowledges that such opinions will not
address any tax consequences of the Exchange or any action taken in
connection therewith except as expressly set forth in such opinions.
Very truly yours,
The AES Corporation
By:
-------------------------
Name:
Title:
EXHIBIT B
[Letterhead of Company]
[Closing Date]
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, D.C. 20005-2111
Ladies and Gentlemen:
In connection with the opinions to be delivered pursuant to
Sections 7.2(j) and 7.3(d) of the Agreement and Plan of Share Exchange (the
"Exchange Agreement"), dated as of July 15, 2000, among The AES
Corporation, a Delaware corporation ("Parent"), and IPALCO Enterprises,
Inc., an Indiana corporation (the "Company"), whereby all the issued and
outstanding shares of common stock of the Company will be acquired by
Parent in exchange for shares of common stock of the Parent (the
"Exchange"), and in connection with the filing with the Securities and
Exchange Commission (the "SEC") of the registration statement on Form S-4
(the "Registration Statement"), which includes the Joint Proxy Statement of
Parent and the Company, each as amended or supplemented through the date
hereof, the undersigned certifies and represents on behalf of the Company,
after due inquiry and investigation, as follows (any capitalized term used
but not defined herein having the meaning given to such term in the
Exchange Agreement):
1. The facts, representations, and covenants relating to the
Exchange and related transactions as described in the Exchange Agreement,
Registration Statement and the other documents described in the
Registration Statement (including all exhibits and attachments thereto)
are, insofar as such facts pertain to the Company, true, correct and
complete in all material respects. The Exchange will be consummated in
accordance with the Exchange Agreement.
2. The formula set forth in the Exchange Agreement pursuant to
which each issued and outstanding share of Company Common Stock will be
converted into fully paid and nonassessable shares of Parent Common Stock,
is the result of arm's length bargaining.
3. The fair market value of the Parent Common Stock received by
the shareholders of the Company will be, at the Effective Time,
approximately equal to the fair market value of the Company Common Stock
surrendered in the Exchange.
4. In the Exchange, all of the Company Common Stock will be
exchanged solely for Parent Common Stock (except for cash paid in lieu of
fractional shares of Parent Common Stock). The Company has no class of
stock outstanding other than the Company Common Stock. No shares or other
securities of the Company will be issued to the shareholders of the Company
pursuant to the Exchange. For purposes of this representation, any share of
the Company Common Stock redeemed or exchanged in the Exchange for cash or
other property originating, directly or indirectly, with the Parent or any
of its subsidiaries will not be considered as exchanged solely for Parent
Common Stock. Further, no liabilities of the Company or any shareholder of
the Company will be assumed by the Parent in the Exchange, nor will any of
the Company Common Stock acquired by Parent in the Exchange be subject to
any liabilities.
5. Following the Exchange, the Company has no plan or intention
to issue additional shares of its stock that would result in Parent failing
to own after the Exchange, directly or indirectly, at least 80 percent of
the total combined voting power of all classes of Company stock entitled to
vote and at least 80 percent of the total number of shares of all other
classes of Company stock. To the best knowledge of the Company, Parent has
no plan or intention to sell, transfer or dispose of any stock of the
Company or to cause the Company to issue additional shares of its stock
that would in either case result in Parent failing to own after the
Exchange, directly or indirectly, at least 80 percent of the total combined
voting power of all classes of Company stock entitled to vote and at least
80 percent of the total number of shares of all other classes of Company
stock.
6. If cash payments are made to holders of Company Common Stock
in lieu of fractional shares of Parent Common Stock that would otherwise be
issued to such holders in the Exchange, such payments will be made for the
purpose of saving Parent the expense and inconvenience of issuing and
transferring fractional shares of Parent Common Stock, and will not
represent separately bargained for consideration. The total cash
consideration that will be paid in the Exchange to holders of Company
Common Stock in lieu of fractional shares of Parent Common Stock will not
exceed one percent of the total consideration that will be issued in the
Exchange to shareholders of Company in exchange for their shares of Company
Stock.
7. (i) Neither the Company nor any corporation related to the
Company (as defined in Treasury Regulation Section 1.368-1(e)) has
purchased, exchanged, redeemed, or otherwise acquired or has any plan or
intention to purchase, exchange, redeem, or otherwise acquire any Company
stock in contemplation of the Exchange, or otherwise as part of a plan of
which the Exchange is a part.
(ii) The Company is not aware of any plan or intention on
the part of Parent or any corporation related to Parent (as defined in
Treasury Regulation Section 1.368-1(e)) to purchase, exchange, redeem, or
otherwise acquire any of the Parent stock issued in the Exchange, either
directly or through any transaction, agreement or arrangement with any
other person (excluding any fractional shares of the Parent Common Stock
exchanged for cash in the Exchange). The Company has no plan or intention,
nor is the Company aware of any plan or intention on the part of any person
related to the Company (as defined in Treasury Regulation Section
1.368-1(e)) to acquire or redeem any of the Parent stock issued in the
Exchange, either directly or through any transaction, agreement or
arrangement with any other person. For purposes of this representation
letter, a person is considered to own or acquire stock owned or acquired
(as the case may be) by a partnership in which such person is a partner in
proportion to such person's interest in the partnership.
8. The Company has not made, and does not have any plan or
intention to make, any distributions prior to, in contemplation of or
otherwise in connection with, the Exchange (other than dividends made in
the ordinary course of business).
9. The Company is not aware of any plan or intention on the
part of Parent to, following the Exchange, liquidate the Company, merge the
Company with or into another corporation in which the Company is not the
survivor, sell or otherwise dispose of shares of the Company, cause the
Company to distribute to Parent or any of its subsidiaries any assets of
the Company or the proceeds of any borrowings incurred by the Company or
cause the Company to sell or otherwise dispose of any of its assets, except
for dispositions made in the ordinary course of business, transfers of
assets permitted under Section 368(a)(2)(C) of the Code or Treasury
Regulation Section 1.368-1(d) or 1.368-2(k), and the sale of Cleveland
District Cooling Corporation, Cleveland Thermal Energy Corporation, Mid
America Energy Resources and Indianapolis Campus Energy, or the assets of
each, for an amount of cash or other consideration with a fair market value
equal to that of the assets sold in exchange therefor.
10. Except as specifically contemplated under Section 6.8 of
the Exchange Agreement, the Company and its shareholders will pay their
respective expenses, if any, incurred in connection with the Exchange. The
Company has neither paid (directly or indirectly) nor agreed to assume any
expense or other liability, whether fixed or contingent, incurred or to be
incurred by any holder of Company Stock in connection with or as part of
the Exchange or any related transactions.
11. The Company shall pay all Transfer Taxes attributable to
the Exchange out of the Company's own funds (and not out of funds provided,
directly or indirectly, by Parent).
12. Except as specifically set forth in Section 3.2 of the
Exchange Agreement, immediately prior to the time of the Exchange, the
Company will not have outstanding any warrants, options, convertible
securities or any other type of right pursuant to which any person could
acquire Company stock. Simultaneously with the Exchange, all outstanding
warrants, options, convertible securities, and related stock appreciation
rights, if any, to purchase or acquire a share of Company stock granted
under employee incentive or benefits plans, programs or arrangements and
non-employee director plans presently maintained by the Company, together
with all other outstanding awards granted under such plans, will be
canceled or converted into similar instruments of Parent. Immediately
following the Exchange, the only class of Company stock outstanding will be
the Company Common Stock held by Parent.
13. No assets of the Company have been sold, transferred or
otherwise disposed of which would prevent Parent or members of its
"qualified group" from continuing the "historic business" of the Company or
from using a significant portion of the "historic business assets" of the
Company in a business following the Exchange (as such terms are defined in
Treasury Regulation section 1.368-1(d)).
14. The Company is not an investment Company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
15. The Company will not take, and, to the knowledge of the
Company, there is no plan or intention by stockholders of Company to take,
any position on any Federal, state or local income or franchise tax return,
or take any other tax reporting position, that is inconsistent with the
treatment of the Exchange as a reorganization within the meaning of Section
368(a) of the Code, unless otherwise required by a "determination" (as
defined in Section 1313(a)(1) of the Code) or by applicable state or local
tax law (and then only to the extent required by such applicable state or
local tax law).
16. None of the compensation received (or to be received) by
any stockholder-employee or stockholder-independent contractor of the
Company is (or will be) separate consideration for, or is (or will be)
allocable to, any of such person's Company Common Stock surrendered in the
Exchange. None of the Parent Stock that will be received by any
stockholder-employee or stockholder-independent contractor of the Company
in the Exchange represents separately bargained for consideration which is
allocable to any employment agreement or arrangement. The compensation paid
to any stockholder-employee or stockholder-independent contractor pursuant
to any agreement entered into in connection with the Exchange will be for
services actually rendered, will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services or covenants, and
will be determined independent of the determination of the consideration to
be paid for the Company Common Stock.
17. There is no intercorporate indebtedness existing between
Parent (or any of its subsidiaries) and the Company (or any of its
subsidiaries) that was issued, acquired or will be settled at a discount.
18. The Company is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the
Code.
19. To the knowledge of the Company, neither Parent nor any
person related to the Parent (within the meaning of Treasury Regulation section
1.368-1(e)(3)) owns, directly or indirectly, nor have they owned during the
past five years, directly or indirectly, any shares of the stock of the
Company.
20. The Company will satisfy the information reporting
requirements of Treasury Regulation section 1.368-3 with respect to the
Exchange.
21. The Exchange Agreement, the Registration Statement and the
other documents described in the Registration Statement (including all
exhibits and attachments thereto) represents the entire understanding
between the Parent and the Company regarding the Exchange, and there are no
other written or oral agreements between the Parent and the Company
regarding the Exchange.
22. The Exchange is being undertaken for purposes of enhancing
the business of the Company and for other good and valid business purposes
of the Company.
23. On the date of the Exchange, the fair market value of the
assets of the Company will exceed the sum of its liabilities, plus the
amount of liabilities, if any, to which such assets are subject.
24. No holders of Company stock have appraisal or dissenters'
rights with respect to the Exchange under any applicable law.
25. The undersigned is authorized to make all the
representations set forth herein on behalf of the Company.
The undersigned acknowledges that (i) the opinions to be
delivered pursuant to Sections 7.2(j) and 7.3(d) of the Exchange Agreement
will be based on the accuracy and completeness of the representations set
forth herein and on the accuracy and completeness of the representations
and warranties and the satisfaction of the covenants and obligations
contained in the Exchange Agreement and the various other documents related
thereto, and (ii) such opinions will be subject to certain limitations and
qualifications including that it may not be relied upon if any such
representations or warranties are not accurate and complete or if any of
such covenants or obligations are not satisfied in all material respects.
The Company understands that Cravath, Swaine & Moore and Skadden, Arps,
Slate, Meagher & Flom LLP have not undertaken to independently verify the
facts providing the basis of this letter nor have they been asked to do so.
The undersigned acknowledges that such opinions will not
address any tax consequences of the Exchange or any action taken in
connection therewith except as expressly set forth in such opinions.
Very truly yours,
IPALCO Enterprises, Inc.
By: ________________________
Name:
Title:
EXHIBIT C
__________, 2000
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Ladies and Gentlemen:
We are writing with respect to Indianapolis Power & Light
Company, its parent, IPALCO Enterprises, Inc., and the pending transaction
involving IPALCO Enterprises, Inc. and The AES Corporation.
We have been advised that The AES Corporation, through
its subsidiaries (other than IPALCO Enterprises, Inc. and its
subsidiaries), affiliates, or through other entities, currently holds, and
intends to continue to hold and acquire ownership interests 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 Indiana Utility Regulatory Commission hereby
certifies to you that it has the authority and resources to protect
ratepayers subject to its jurisdiction and that it intends to exercise that
authority.
Sincerely,
William D. McCarty
Chairman
EXHIBIT D-1
Form of Parent Affiliate Letter
Dear Sirs:
The undersigned refers to the Agreement and Plan of Share
Exchange (the "Share Exchange Agreement") dated as of July 15, 2000,
between The AES Corporation, a Delaware corporation, and IPALCO
Enterprises, Inc., an Indiana corporation. Capitalized terms used but not
defined in this letter have the meanings given to such terms in the Share
Exchange Agreement.
The undersigned, a holder of shares of Parent Common
Stock, acknowledges that the undersigned may be deemed an "affiliate" of
Parent within the meaning of Rule 145 ("Rule 145") promulgated under the
Securities Act or Accounting Series Releases 130 and 135, as amended, of
the SEC (the "Releases"), although nothing contained herein should be
construed as an admission of such fact.
The undersigned hereby represents to and covenants with
Parent that the undersigned will not, from the date hereof, reduce its risk
(within the meaning of the Releases) with respect to any Parent Common
Stock held by it until after such time as a report (the "Report") including
results covering at least 30 days of combined operations of the Company and
Parent has been published by Parent. Parent will publish the Report as
promptly as practicable following the Share Exchange and in any event
within 30 days following the end of the first full calendar month following
the Share Exchange.
The undersigned acknowledges that (i) the undersigned has
carefully read this letter and understands the requirements hereof and the
limitations imposed upon the distribution, sale, transfer or other
disposition of Parent Common Stock and (ii) the receipt by Parent of this
letter is an inducement and a condition to Parent's obligations to
consummate the Share Exchange.
Very truly yours,
Dated:
EXHIBIT D-2
Form of Company Affiliate Letter
Dear Sirs:
The undersigned refers to the Agreement and Plan of Share
Exchange (the "Share Exchange Agreement") dated as of July 15, 2000, among
The AES Corporation, a Delaware corporation, and IPALCO Enterprises, Inc.,
an Indiana corporation. Capitalized terms used but not defined in this
letter have the meanings given to such terms in the Share Exchange
Agreement.
The undersigned, a holder of shares of Company Common
Stock, is entitled to receive in connection with the Share Exchange shares
of Parent Common Stock. The undersigned acknowledges that the undersigned
may be deemed an "affiliate" of the Company within the meaning of Rule 145
("Rule 145") promulgated under the Securities Act or Accounting Series
Releases 130 and 135, as amended, of the SEC (the "Releases"), although
nothing contained herein should be construed as an admission of such fact.
If in fact the undersigned were an affiliate under the
Securities Act, the undersigned's ability to sell, assign or transfer the
Parent Common Stock received by the undersigned in exchange for any shares
of Company Common Stock pursuant to the Share Exchange may be restricted
unless such transaction is registered under the Securities Act or an
exemption from such registration is available. The undersigned (i)
understands that such exemptions are limited and (ii) has obtained advice
of counsel as to the nature and conditions of such exemptions, including
information with respect to the applicability to the sale of such
securities of Rules 144 and 145(d) promulgated under the Securities Act.
The undersigned hereby represents to and covenants with
Parent that the undersigned will not sell, assign or transfer any of the
Parent Common Stock received by the undersigned in exchange for shares of
Company Common Stock pursuant to the Share Exchange except (i) pursuant to
an effective registration statement under the Securities Act or (ii) in a
transaction that, in the opinion of counsel (the reasonable fees of which
counsel will be paid by Parent) or as described in a "no-action" or
interpretive letter from the Staff of the SEC, is not required to be
registered under the Securities Act.
The undersigned further represents to and covenants with
Parent that (i) the undersigned will not, between the date hereof and the
Closing Date, reduce its risk (within the meaning of the Releases) with
respect to any shares of Company Common Stock held by it and (ii) the
undersigned will not reduce its risk (within the meaning of the Releases)
with respect to, any Parent Common Stock received by it in the Share
Exchange until after such time as a report (the "Report") including results
covering at least 30 days of combined operations of the Company and Parent
have been published by Parent. Parent will publish the Report as promptly
as practicable following the Share Exchange and in any event within 30 days
following the end of the first full calendar month following the Share
Exchange.
In the event of a sale or other disposition by the
undersigned pursuant to Rule 145 of Parent Common Stock received by the
undersigned in the Share Exchange, the undersigned will supply Parent with
evidence of compliance with such Rule, in the form of a letter in the form
of Annex I hereto and the opinion of counsel or no-action letter referred
to above. The undersigned understands that Parent may instruct its transfer
agent to withhold the transfer of any Parent Common Stock disposed of by
the undersigned, but that upon receipt of such evidence of compliance the
transfer agent shall effectuate the transfer of the Parent Common Stock
sold as indicated in the letter.
The undersigned acknowledges and agrees that appropriate
legends will be placed on certificates representing Parent Common Stock
received by the undersigned in the Share Exchange or held by a transferee
thereof, which legends will be removed by delivery of substitute
certificates upon receipt of an opinion in form and substance reasonably
satisfactory to Parent from counsel (the reasonable fees of which counsel
will be paid by Parent) to the effect that such legends are no longer
required for purposes of the Securities Act.
The undersigned acknowledges that (i) the undersigned has
carefully read this letter and understands the requirements hereof and the
limitations imposed upon the distribution, sale, transfer or other
disposition of Parent Common Stock and (ii) the receipt by Parent of this
letter is an inducement and a condition to Parent's obligations to
consummate the Share Exchange.
Very truly yours,
Dated:
ANNEX I
TO EXHIBIT D
The AES Corporation
On , the undersigned sold the securities of The AES
Corporation ("Parent") described below in the space provided for that
purpose (the "Securities"). The Securities were received by the undersigned
in connection with the Share Exchange between Parent and the Company .
Based upon the most recent report or statement filed by
Parent with the Securities and Exchange Commission, the Securities sold by
the undersigned were within the prescribed limitations set forth in Rule
144(e) promulgated under the Securities Act of 1933, as amended (the
"Securities Act").
The undersigned hereby represents that the Securities
were sold in "brokers' transactions" within the meaning of Section 4(4) of
the Securities Act or in transactions directly with a "market maker" as
that term is defined in Section 3(a)(38) of the Securities Exchange Act of
1934, as amended. The undersigned further represents that the undersigned
has not solicited or arranged for the solicitation of orders to buy the
Securities, and that the undersigned has not made any payment in connection
with the offer or sale of the Securities to any person other than to the
broker who executed the order in respect of such sale.
Very truly yours,
Dated:
[Space to be provided for description of securities.]
Exhibit I
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