File No. 70-_____
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________________
FORM U-1 DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
____________________________________________
Cinergy Corp.
Cinergy Investments, Inc.
139 East Fourth Street
Cincinnati, Ohio 45202
(Name of companies filing this statement
and addresses of principal executive offices)
Cinergy Corp.
(Name of top registered holding company parent)
William L. Sheafer
Treasurer
Cinergy Corp.
(address above)
(Name and address of agent of service)
Applicants request that the Commission send copies of all notices, orders
and communications in connection herewith to:
Jerome A. Vennemann William T. Baker
Associate General Counsel Reid & Priest LLP
Cinergy Corp. 40 West 57th
(address above) New York, New York 10019
Item 1. Description of Proposed Transactions
A. Background
Pursuant to certain prior orders of the Commission, Cinergy Corp.
("Cinergy"), a registered holding company under the Public Utility Holding
Company Act of 1935, as amended ("Act"), is authorized through December 31,
1999 (1) to apply proceeds from issuances of short-term notes and shares of
common stock to acquisitions of interests in exempt wholesale generators
("EWGs") and foreign utility companies ("FUCOs" and, together with EWGs,
"Exempt Projects"), as defined in sections 32 and 33 of the Act, provided
that Cinergy's "aggregate investment" does not exceed 50% of "consolidated
retained earnings" as defined in rule 53(a)(1) under the Act; and (2)
together with Cinergy Investments, Inc., Cinergy's wholly-owned nonutility
subholding company ("Investments"), to form one or more direct or indirect
special purpose subsidiaries ("Project Parents") to acquire and own or
operate Exempt Projects on behalf of Cinergy./1/
Rule 46 under the Act prohibits subsidiaries of registered holding
companies (but not Exempt Projects) from declaring or paying dividends out
of capital or unearned surplus.
B. Requested Authorization
Applicants herein seek authorization for Investments and on behalf of
certain existing Project Parents - namely, those Project Parents
(collectively, the "Midlands Project Parents") formed in connection with
Cinergy's 1996 acquisition of a 50% ownership interest in Midlands
Electricity plc, a U.K. regional electricity company and a FUCO
("Midlands"), in a joint venture with GPU, Inc./2/ - and all future Project
Parents formed after the date hereof (together with the Midlands Project
Parents, "Applicable Project Parents") to declare and pay dividends to
their parent companies from time to time through December 31, 2002 out of
capital or unearned surplus to the extent permitted under applicable
corporate law, provided, further, that Investments would pay any such
dividend only to the extent that the dividend is based upon (i) a
corresponding dividend or dividends out of capital or unearned surplus by
an Applicable Project Parent that is a direct subsidiary of Investments or
(ii) otherwise is based upon Investments' direct or indirect ownership of
an Exempt Project.
Applicants expect that situations will arise where Investments itself
or one or more Applicable Project Parents will have unrestricted cash
available for distribution in excess of current and retained earnings.
Consequently, in these situations the declaration and payment of a dividend
would have to be charged, in whole or in part, to capital or unearned
surplus.
One such situation could result if Cinergy were to acquire all of the
capital stock of an Exempt Project indirectly through Investments and an
Applicable Project Parent subsidiary of Investments, and following the
acquisition the Exempt Project incurred borrowings some or all of the
proceeds of which were distributed to the Applicable Project Parent, its
immediate parent company, as a reduction in the amount invested in such
Exempt Project (i.e., return of capital). Assuming it had no earnings, the
Applicable Project Parent could not, without prior Commission approval,
distribute such cash to Investments, its immediate parent, for ultimate
distribution to Cinergy.
In that same example, if the Applicable Project Parent were to sell a
portion of its equity in the Exempt Project to a third party for cash, the
Applicable Project Parent would again have substantial unrestricted cash
available for upstream distribution, but (assuming no profit on the stock
sale) would not have available current earnings and therefore could not,
without prior Commission approval, declare and pay a dividend to
Investments out of such cash proceeds.
Even in circumstances where a Project Parent has sufficient earnings,
and therefore may declare and pay a dividend to its immediate parent
(whether another Project Parent or Investments), the immediate parent may
have negative retained earnings, even after receipt of the dividend, due to
losses from other operations. In this instance, cash would be trapped at
an intermediate subsidiary level where there is no current need for it.
Any dividend actually declared and paid by Investments or any Project
Parent out of capital or unearned surplus pursuant to the authority
requested herein will conform to applicable law of the respective company's
jurisdiction of organization and applicable covenant restrictions in loan
or other financing agreements.
The ability of the Applicable Project Parents and Investments to use
distributable cash to pay dividends ultimately to Cinergy will benefit the
Cinergy system by enabling Cinergy to apply such amounts to the reduction
or refinancing of outstanding bank borrowings and to fund operations of
other Cinergy subsidiaries. In addition, since the Applicable Project
Parents are or will be engaged in activities exclusively dedicated to
owning or operating Exempt Projects as permitted under existing Commission
orders, and since the authority requested herein for Investments to declare
and pay dividends out of capital or unearned surplus is expressly tied to
and restricted by Investments' direct or indirect ownership of Exempt
Projects, the payment of dividends by these Cinergy direct and indirect
subsidiaries out of capital or unearned surplus will not adversely affect
the financial integrity of the Cinergy system or jeopardize the working
capital of Cinergy's domestic public utility company subsidiaries within
the contemplation of section 12(c) of the Act.
The Commission has recently issued orders authorizing the payment of
dividends out of capital or unearned surplus under circumstances
substantially similar to those proposed herein. See GPU International,
Inc., et al., Release No. 35-26678, February 28, 1997; The Southern
Company, et al., Release No. 35-26543, July 17, 1996.
C. Rule 54 Analysis
Under Rule 54, in determining whether to approve the issue or sale of
a security by a registered holding company for purposes other than the
acquisition of an EWG or a FUCO other transactions by such registered
holding company or its subsidiaries other than with respect to EWGs and
FUCOs, the Commission shall not consider the effect of the capitalization
or earnings of any subsidiary which is an EWG or a FUCO if the conditions
in Rule 53(a), (b) and (c) are satisfied.
As set forth below, all applicable conditions of Rule 53(a) are and,
upon consummation of the proposed transactions, will be satisfied, and none
of the conditions specified in Rule 53(b) exists or, as a result of the
proposed transactions, will exist.
Rule 53(a)(1): At December 31, 1996, Cinergy had invested, directly
or indirectly, an aggregate of approximately $487 million in EWGs and
FUCOs. The average of the consolidated retained earnings of Cinergy
reported on Form 10-K or Form 10-Q, as applicable, for the four consecutive
quarters ended December 31, 1996 was $990 million. Accordingly, based on
Cinergy's "consolidated retained earnings" at December 31, 1996, and taking
into account EWG /FUCO investments as of that date, the current Rule 53
aggregate investment limitation is approximately $8 million (i.e., 50% of
"consolidated retained earnings" - $495 million - minus "aggregate
investment" at December 31, 1996 - $487 million).
Rule 53(a)(2): Cinergy maintains books and records enabling it to
identify investments in and earnings from each EWG and FUCO in which it
directly or indirectly holds an interest. At present, Cinergy does not
hold any interest in a domestic EWG; Rule 53(a)(2)(i) is therefore
inapplicable.
In accordance with Rule 53(a)(2)(ii), the books and records and
financial statements of each foreign EWG and FUCO which is a "majority-owned
subsidiary company" of Cinergy are kept in conformity with and
prepared according to U.S. generally accepted accounting principles
("GAAP"). Cinergy will provide the Commission access to such books and
records and financial statements, or copies thereof, in English, as the
Commission may request.
In accordance with Rule 53(a)(2)(iii), for each foreign EWG and FUCO
in which Cinergy directly or indirectly owns 50% or less of the voting
securities, Cinergy will proceed in good faith, to the extent reasonable
under the circumstances, to cause each such entity's books and records to
be kept in conformity with, and the financial statements of each such
entity to be prepared according to, GAAP. If such books and records are
maintained, or such financial statements are prepared, according to a
comprehensive body of accounting principles other than GAAP, Cinergy will,
upon request of the Commission, describe and quantify each material
variation from GAAP in the accounting principles, practices and methods
used to maintain such books and records and each material variation from
GAAP in the balance sheet line items and net income reported in such
financial statements, as the case may be. In addition, Cinergy will
proceed in good faith, to the extent reasonable under the circumstances, to
cause access by the Commission to such books and records and financial
statements, or copies thereof, in English, as the Commission may request,
and in any event will make available to the Commission any such books and
records that are available to Cinergy.
Rule 53(a)(3): No more than 2% of the employees of Cinergy's
operating utility subsidiaries will, at any one time, directly or
indirectly, render services to EWGs and FUCOs.
Rule 53(a)(4): Cinergy will simultaneously submit a copy of this
statement and of any Rule 24 certificate hereunder, as well as a copy of
Cinergy's Form U5S and Exhibits H and I thereto, to each public utility
commission having jurisdiction over the retail rates of any Cinergy utility
subsidiary.
Rule 53(b): The provisions of Rule 53(a) are not made inapplicable to
the authorization herein requested by reason of the provisions of Rule
53(b).
Rule 53(b)(1): Neither Cinergy nor any subsidiary thereof is the
subject of any pending bankruptcy or similar proceeding.
Rule 53(b)(2): Cinergy's average consolidated retained earnings for
the four quarters ended December 31, 1996 are $990 million, versus $926
million for the four quarters ended December 31, 1995, a difference of
approximately $64 million (representing an increase of 6.9%).
Rule 53(b)(3): For the twelve months ended December 31, 1996, Cinergy
did not report operating losses attributable to its direct and indirect
investments in EWGs and FUCOs aggregating in excess of 5% of consolidated
retained earnings.
Item 2. Fees, Commissions and Expenses
The fees, commissions and expenses ("Fees") to be incurred, directly
or indirectly, by Applicants or any associate companies thereof in
connection with the proposed transactions are estimated as follows:
Miscellaneous $5,000
Fees of Reid & Priest $3,000
TOTAL $8,000
Item 3. Applicable Statutory Provisions
Applicants consider that sections 12(c) and rules 46 and 54 are
applicable to the proposed transactions.
Item 4. Regulatory Approval
No state or federal regulatory agency other than the Commission under
the Act has jurisdiction over the proposed transactions.
Item 5. Procedure
Applicants request that the Commission issue and publish by not later
than April 4, 1997 the requisite notice under Rule 23 with respect to the
filing of this Declaration. Applicants further request that such notice
specify a date not later than April 25, 1997 as the date after which the
Commission may issue an order permitting this Declaration to become
effective, and that the Commission issue such order as soon as practicable
thereafter.
Applicants waive a recommended decision by a hearing officer or other
responsible officer of the Commission; consent that the Staff of the
Division of Investment Management may assist in the preparation of the
Commission's order; and request that there be no waiting period between the
issuance of the Commission's order and its effectiveness.
Item 6. Exhibits and Financial Statements
(a) Exhibits:
F Preliminary opinion of counsel (to be filed by amendment)
G Form of Federal Register notice
(b) Financial Statements:
FS-1 Cinergy Consolidated Financial Statements, dated December
31, 1996 (to be filed by amendment)
FS-2 Cinergy Financial Statements, dated December 31, 1996 (to be
filed by amendment)
FS-3 Investments Consolidated Financial Statements, dated
December 31, 1996 (to be filed by amendment)
FS-4 Cinergy Consolidated Financial Data Schedule (to be included
as part of electronic submission only)
FS-5 Cinergy Financial Data Schedule (to be included as part of
electronic submission only)
FS-6 Investments Consolidated Financial Data Schedule (to be
included as part of electronic submission only)
Item 7. Information as to Environmental Effects
(a) The Commission's action in this matter will not constitute major
federal action significantly affecting the quality of the human
environment.
(b) No other federal agency has prepared or is preparing an
environmental impact statement with regard to the proposed transactions.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the undersigned companies
have duly caused this statement to be signed on their behalf by the
undersigned thereunto duly authorized.
Dated: March 18, 1997
CINERGY CORP.
By: /s/ William L. Sheafer
Treasurer
CINERGY INVESTMENTS, INC.
By: /s/ William L. Sheafer
Treasurer
Endnotes
/1/ See especially Release No. 35-26486, March 8, 1996 (authorizing, inter
alia, formation of Project Parents (referred to therein as "Special Purpose
Subsidiaries")); Release No. 35-26488, March 12, 1996 (authorizing, inter
alia, application of proceeds of sales of short-term notes to investments
in Exempt Projects); Release No. 35-26477, February 23, 1996 (authorizing,
inter alia, application of proceeds of sales of shares of common stock to
investments in Exempt Projects). Cinergy has pending before the Commission
an application-declaration docketed in File No. 70-9011 requesting an
exemption from rule 53(a) to permit Cinergy to increase its aggregate
investment in Exempt Projects to 100% of consolidated retained earnings.
The Commission authorized the formation of Investments as an intermediate
holding company over Cinergy system nonutility companies in the
Commission's order authorizing the Cinergy merger (Release No. 35-26146,
October 21, 1994).
/2/ The Midlands Project Parents are (1) Cinergy UK, Inc., a wholly-owned
subsidiary of Investments; (2) Avon Energy Partners Holdings, a U.K.
unlimited liability company ("Avon Holdings"), in which Cinergy UK and a
subsidiary of GPU have respective 50% ownership interests; and (3) Avon
Energy Partners plc ("Avon Energy"), the actual owner of Midlands and a
wholly-owned subsidiary of Avon Holdings. For more information with
respect to Avon Energy's acquisition of Midlands, reference is made to the
application-declaration in File No. 70-9011 and to the Notification of
Foreign Utility Company Status on Form U-57 filed by Cinergy on behalf of
Midlands on July 2, 1996.
<PAGE>
Exhibit G
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35- _____________)
Cinergy Corp., a registered holding company ("Cinergy"), and Cinergy
Investments, Inc., its subsidiary nonutility holding company
("Investments"), both at 139 East Fourth Street, Cincinnati Ohio 45202,
have filed a declaration under section 12(c) of the Act and rules 46 and 54
thereunder.
Pursuant to certain prior orders of the Commission (Release Nos. 35-26486,
March 8, 1996; 35-26488, March 12, 1996; and 35-26477, February 23,
1996), Cinergy is authorized through December 31, 1999 (1) to apply
proceeds from issuances of short-term notes and shares of common stock to
acquisitions of interests in exempt wholesale generators ("EWGs") and
foreign utility companies ("FUCOs" and, together with EWGs, "Exempt
Projects"), as defined in sections 32 and 33 of the Act, provided that
Cinergy's "aggregate investment" does not exceed 50% of "consolidated
retained earnings" as defined in rule 53(a)(1) under the Act; and (2)
together with Investments, to form one or more direct or indirect special
purpose subsidiaries ("Project Parents") to acquire and own or operate
Exempt Projects on behalf of Cinergy.
Applicants now seek authorization for Investments and on behalf of
certain existing Project Parents - namely, those Project Parents
(collectively, the "Midlands Project Parents") formed in connection with
Cinergy's 1996 acquisition of a 50% ownership interest in Midlands
Electricity plc, a U.K. regional electricity company and a FUCO
("Midlands"), in a joint venture with GPU, Inc. and all future Project
Parents formed after the date of the declaration/1/ (together with the
Midlands Project Parents, "Applicable Project Parents") to declare and pay
dividends to their parent companies from time to time through December 31,
2002 out of capital or unearned surplus to the extent permitted under
applicable corporate law. The foregoing notwithstanding, Investments
would pay any such dividend only to the extent that the dividend is based
upon (i) a corresponding dividend or dividends out of capital or unearned
surplus by an Applicable Project Parent that is a direct subsidiary of
Investments or (ii) otherwise is based upon Investments' direct or indirect
ownership of an Exempt Project.
Applicants anticipate situations will arise where Investments itself
or one or more Applicable Project Parents will have unrestricted cash
available for distribution in excess of current and retained earnings.
Consequently, in these situations the declaration and payment of a dividend
would have to be charged, in whole or in part, to capital or unearned
surplus.
According to the declaration, one such situation could result if
Cinergy were to acquire all of the capital stock of an Exempt Project
indirectly through Investments and an Applicable Project Parent subsidiary
of Investments, and following the acquisition the Exempt Project incurred
borrowings some or all of the proceeds of which were distributed to the
Applicable Project Parent, its immediate parent company, as a reduction in
the amount invested in such Exempt Project (i.e., return of capital).
Assuming it had no earnings, the Applicable Project Parent could not,
without prior Commission approval, distribute such cash to Investments, its
immediate parent, for ultimate distribution to Cinergy.
Likewise, according to Applicants, if the Applicable Project Parent
were to sell a portion of its equity in the Exempt Project to a third party
for cash, the Applicable Project Parent would again have substantial
unrestricted cash available for upstream distribution, but (assuming no
profit on the stock sale) would not have available current earnings and
therefore could not, without prior Commission approval, declare and pay a
dividend to Investments out of such cash proceeds.
Applicants also assert that even in circumstances where a Project
Parent has sufficient earnings, and therefore may declare and pay a
dividend to its immediate parent (whether another Project Parent or
Investments), the immediate parent may have negative retained earnings,
even after receipt of the dividend, due to losses from other operations.
In this instance, according to Applicants, cash would be trapped at an
intermediate subsidiary level where there is no current need for it.
Applicants state that any dividend actually declared and paid by
Investments or any Project Parent out of capital or unearned surplus
pursuant to the requested authority will conform to applicable law of the
respective company's jurisdiction of organization and applicable covenant
restrictions in loan or other financing agreements.
Applicants maintain that the ability of the Applicable Project Parents
and Investments to use distributable cash to pay dividends ultimately to
Cinergy will benefit the Cinergy system by enabling Cinergy to apply such
amounts to the reduction or refinancing of outstanding bank borrowings and
to fund operations of other Cinergy subsidiaries. In addition, Applicants
state that since the Applicable Project Parents are or will be engaged in
activities exclusively dedicated to owning or operating Exempt Projects as
permitted under existing Commission orders, and since the authority
requested for Investments to declare and pay dividends out of capital or
unearned surplus is expressly tied to and restricted by Investments' direct
or indirect ownership of Exempt Projects, the payment of dividends by these
Cinergy direct and indirect subsidiaries out of capital or unearned surplus
will not adversely affect the financial integrity of the Cinergy system or
jeopardize the working capital of Cinergy's domestic public utility company
subsidiaries within the contemplation of section 12(c) of the Act.
Applicants assert that the Commission recently issued orders GPU
International, Inc., et al., Release No. 35-26678, February 28, 1997; The
Southern Company, et al., Release No. 35-26543, July 17, 1996 authorizing
the payment of dividends out of capital or unearned surplus under
circumstances substantially similar to those proposed in the instant
declaration.
Applicants estimate approximate fees and expenses in connection with
the proposed transactions of $8,000, and assert that no state or federal
regulatory agency, other than the Commission, has jurisdiction over the
proposed transactions.
Applicants assert that rule 54 is satisfied in connection with the
proposed transactions. Applicants report that Cinergy's aggregate
investment within the meaning of rule 53(a) was approximately $487 million
at December 31, 1996.
For the Commission, by the Division of Investment Management, pursuant
to delegated authority.
ENDNOTES
/1/ Applicants note that Cinergy has pending before the Commission an
application-declaration in File No. 70-9011 requesting an exemption from
rule 53(a) to permit Cinergy to increase its aggregate investment in Exempt
Projects to 100% of consolidated retained earnings.
