File No. 70-9319
SECURITIES AND EXCHANGE COMMISSION
450 FIFTH STREET, N.W.
WASHINGTON, D.C. 20549
__________________________________________
AMENDMENT NO. 2 TO
FORM U-1 APPLICATION-DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
____________________________________________
Cinergy Corp.
Cinergy Investments, Inc.
Cinergy Global Resources, 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
Vice President and 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, Jr.
Associate General Counsel Thelen, Reid & Priest LLP
Cinergy Corp. 40 West 57th Street
(address above) New York, New York 10019
The application-declaration in this proceeding, as previously amended, is
hereby amended and restated in its entirety as set forth below.
Item 1. Description of Proposed Transactions
Cinergy Corp. ("Cinergy"), a Delaware corporation and registered
holding company under the Public Utility Holding Company Act of 1935, as
amended (the "Act"), and its direct wholly-owned nonutility subsidiaries,
Cinergy Investments, Inc., a Delaware corporation ("Cinergy Investments"),
and Cinergy Global Resources, Inc., a Delaware corporation ("Cinergy Global
Resources"), propose to establish one or more special-purpose subsidiaries
from time to time through December 31, 2003 ("Authorization Period") to
hold Cinergy's direct or indirect interests in any or all of Cinergy's
existing and future nonutility businesses (excluding certain existing
nonutility interests held by Cinergy's utility subsidiaries). Applicants
also seek authority for various related transactions over the same period.
A. Background
By order dated September 21, 1995 as supplemented by order dated
March 8, 1996, HCAR Nos. 26376 and 26486 (collectively, "Project Parent
Order"), Cinergy and Cinergy Investments were granted authority, from time
to time through December 31, 1999, (i) to acquire directly or indirectly in
one or more transactions the securities of one or more special-purpose
subsidiaries organized to engage directly or indirectly, and exclusively,
in the business of acquiring, owning and holding the securities of, and/or
providing services to, one or more foreign utility companies ("FUCOs") and
exempt wholesale generators ("EWGs" and, together with FUCOs, "Exempt
Projects"), and (ii) to invest in and issue guarantees in respect of such
special-purpose subsidiaries, provided that Cinergy's total investment
therein together with any investments in Exempt Projects did not exceed a
specified ceiling, recently increased to 100% of Cinergy's consolidated
retained earnings (see order dated March 23, 1998 in File No. 70-9011, HCAR
No. 26848 ("100% Order")).
Under the Project Parent Order, then, Cinergy has authority to form
special-purpose subsidiaries to acquire and hold interests in certain
nonutility subsidiaries -EWGs and FUCOs exclusively. The Project Parent
Order predates both the Telecommunications Act of 1996 - including the
provisions thereof amending the Act with respect to "exempt
telecommunications companies" ("ETCs") - and the Commission's adoption of
rule 58 in 1997. By virtue of these developments, any registered holding
company (1) may establish special-purpose subsidiaries without prior
Commission approval to acquire and hold interests (a) exclusively in one or
more ETCs or (b) subject to the aggregate investment limitation prescribed
therein, exclusively in one or more "energy-related companies" within the
meaning of rule 58 under the Act (each a "Rule 58 Company"), but (2) may
not, without prior Commission approval, form special-purpose subsidiaries
to acquire and hold interests in both ETCs and Rule 58 Companies (much less
ETCs, Rule 58 Companies and Exempt Projects) - even though in each case the
underlying nonutility companies may be formed or acquired without prior
Commission authorization and are otherwise entirely or substantially exempt
from Commission regulation.
The primary purpose of this filing is to expand the scope of the
authorization granted in the Project Parent Order so that, among other
things, Cinergy may organize special-purpose subsidiaries not merely to
hold interests in Exempt Projects but also to hold interests in any
combination of Exempt Projects, ETCs, Rule 58 Companies and/or nonutility
subsidiaries formed pursuant to specific prior or future Commission orders
(such as Cinergy Solutions, Inc.). For example, Cinergy Global Resources,
which holds Cinergy's international nonutility businesses, may determine in
a given case, based on business and other considerations, to establish a
special-purpose subsidiary exclusively to acquire and hold securities of
one or more foreign ETCs and FUCOs; likewise, Cinergy Investments, which
holds Cinergy's domestic nonutility businesses, may wish to establish a
special-purpose subsidiary exclusively to acquire and hold securities of
one or more Rule 58 Companies and domestic EWGs. Although in each of these
examples the underlying nonutility businesses are completely or largely
exempt from Commission jurisdiction, formation of a single intermediate
subsidiary exclusively to hold these different types of exempt businesses
requires prior Commission approval.
In more basic terms, the proposed transactions are intended to give
Cinergy greater flexibility in holding and managing its exempt and
authorized nonutility businesses, so that Cinergy may operate these
businesses in the most efficient manner. In that regard, the benefits to
Cinergy from using intermediate subsidiaries to hold its nonutility
businesses - such as optimization of tax and accounting efficiencies and
greater insulation of Cinergy and its utility subsidiaries from potential
direct losses from these investments - apply no less when the intermediate
subsidiary holds securities of a variety of different types of nonutility
companies (ETCs, Rule 58 Companies, Exempt Projects, etc.) than when it
holds securities of a single type./1/
The Commission has granted similar authority to The Southern
Company./2/
B. Overview of Requested Authorization
Specifically, to the extent not otherwise exempt under the Act,
Applicants request authority over the Authorization Period to organize and
hold securities of one or more special-purpose subsidiaries (each an
"Intermediate Parent") to be formed for the exclusive purpose of acquiring,
owning and holding, directly or indirectly (including through one or more
additional Intermediate Parents), securities of or interests in, and/or
providing services to, any or all of Cinergy's existing and future
nonutility associate companies (other than existing nonutility interests
held by Cinergy's utility subsidiaries), consisting of Cinergy's interests
in:
1. existing and future EWGs and FUCOs;/3/
2. special-purpose subsidiaries formed pursuant to the Project
Parent Order prior to the date of the Commission's order in
this proceeding (hereinafter "EWG/FUCO Project Parents");/4/
3. existing and future ETCs;/5/
4. existing and future Rule 58 Companies;/6/ and/or
5. other nonutility companies (i.e., not falling within any of
the preceding categories "1" through "4"), namely, nonutility
companies in which Cinergy (i) holds an interest pursuant to
prior orders of the Commission issued in separate
proceedings,/7/ or (ii) hereafter acquires (or is authorized
to retain/8/) an interest pursuant to one or more (a) orders
of the Commission issued in subsequent proceedings or (b)
exemptions from the requirement of prior Commission approval
subsequently adopted under the Act (collectively, "Authorized
Companies" and, together with the companies included in the
preceding categories "1" through "4," the "Nonutility
Companies").
Authorization is also requested for various transactions ancillary
to the formation of Intermediate Parents, including (i) issuance by Cinergy
of guarantees in respect of obligations of Intermediate Parents and
Nonutility Companies (and certain other system companies), and (ii)
declaration and payment of dividends out of capital or unearned surplus by
Intermediate Parents and Nonutility Companies, all as described below.
Applicants propose that, upon issuance of the requested order,
certain outstanding orders be superseded, in whole or in part, or
amended./9/
Finally, a small number of Cinergy's nonutility interests are held
by Cinergy's principal utility subsidiaries, The Cincinnati Gas & Electric
Company ("CG&E") and PSI Energy, Inc. ("PSI"). These interests are
excluded from the definition of "Nonutility Companies" set forth above and
therefore Cinergy is not proposing that Intermediate Parents would acquire
and hold securities of these entities. (However, the three CG&E/PSI
nonutility subsidiaries - KO Transmission Company ("KO"), Tri-State
Improvement Company ("Tri-State") and South Construction Company, Inc.
("South Construction") - are within the scope of the provisions of this
application concerning issuance by Cinergy of guarantees and payment of
dividends out of capital or unearned surplus.)
C. Existing Nonutility Subsidiaries of Cinergy
Cinergy is an electric and gas holding company, with five direct
wholly-owned subsidiaries (see exhibit H): (1) PSI, an Indiana corporation
and electric utility company that provides retail electric service in north
central, central and southern Indiana; (2) CG&E, an Ohio corporation and
electric and gas holding company and combination utility that (together
with its utility subsidiaries) provides retail gas and electric service in
the southwestern portion of Ohio and adjacent areas of Indiana and
Kentucky;/10/ (3) Cinergy Services, Inc. ("Cinergy Services"), Cinergy's
service company subsidiary that provides a variety of support services to
Cinergy's utility and nonutility subsidiaries; (4) Cinergy Investments,
formed in 1994 pursuant to the authority granted in the Merger Order
referred to below originally to act as a holding company for substantially
all of Cinergy's nonutility businesses, but which now, as a result of the
1998 nonutility businesses restructuring transaction in connection with
which Cinergy Global Resources was formed, acts as a holding company for
Cinergy's domestic nonutility businesses; and (5) Cinergy Global Resources,
formed in May 1998 to hold all of Cinergy's international nonutility
businesses. As used herein, "Cinergy system" refers to Cinergy and all of
its direct and indirect subsidiaries.
Cinergy was created in 1994 through the merger of CG&E and PSI's
then-parent company, PSI Resources, Inc. ("PSI Resources") each of which
prior to the merger was an exempt holding company. The Commission approved
the Cinergy merger on October 21, 1994 (HCAR No. 26146) ("Merger Order"),
reserving jurisdiction for three years over Cinergy's retention of CG&E's
gas business and the nonutility interests of CG&E and PSI Resources.
Cinergy registered under the Act on October 25, 1994. Cinergy has a
pending application in File No. 70-8427 ("Merger Docket") seeking an order
releasing the jurisdiction reserved in the Merger Order.
Except for certain nonutility subsidiaries held by CG&E and
PSI,/11/ all of Cinergy's nonutility subsidiaries are held by Cinergy
Investments or Cinergy Global Resources.
The following discussion excludes inactive subsidiaries in the
process of dissolution./12/
1. Cinergy Investments and its subsidiaries
Cinergy Investments has 16 direct and indirect subsidiaries:
Cinergy Cadence, Inc. and its subsidiary, Cadence Network LLC; Cinergy
Capital & Trading, Inc. and its subsidiary, CinCap IV, LLC; Cinergy
Communications, Inc.; Cinergy Engineering, Inc.; Cinergy-Ideon, Inc.;
Cinergy Resources, Inc.; Cinergy Solutions, Inc. and its subsidiaries;
Cinergy Supply Network, Inc.; Cinergy Technology, Inc.; and Enertech
Associates, Inc.
a. Cinergy-Cadence, Inc./ Cadence Network LLC
Cinergy-Cadence, Inc. holds Cinergy's one-third equity interest in
Cadence Network LLC, a Delaware limited liability company created in the
third quarter of 1997 in a joint venture of Cinergy, New Century Energies,
Inc. and Florida Progress Corporation. Cadence Network LLC markets energy
management services and products designed to lower energy costs for retail
commercial organizations that operate in multiple locations across the
United States. Both Cinergy-Cadence, Inc. and Cadence Network LLC are rule
58 companies. For further information see Cinergy's quarterly reports on
Form U-9C-3.
b. Cinergy Capital & Trading, Inc. / CinCap IV, Inc.
Cinergy Capital & Trading, Inc. and its wholly-owned subsidiary,
CinCap IV, Inc., are energy commodity marketers. For further information
on these rule 58 companies see Cinergy's quarterly reports on Form U-9C-3.
c. Cinergy Communications, Inc.
Cinergy Communications, Inc. is an ETC.
d. Cinergy Engineering, Inc.
Cinergy Engineering, Inc. markets engineering design and technical
support services in connection with energy-related projects and proposals.
For further information on this Rule 58 Company see Cinergy's quarterly
reports on Form U-9C-3.
e. Cinergy Resources, Inc.
Cinergy Resources, Inc. is also an energy commodity marketer. For
further information on this Rule 58 Company see Cinergy's quarterly reports
on Form U-9C-3.
f. Cinergy Solutions, Inc. and subsidiaries
Cinergy Solutions, Inc. ("Cinergy Solutions") was formed pursuant
to the Commission's order dated February 7, 1997 in File No. 70-8933 (HCAR
No. 26662) ("Cinergy Solutions Order") to market an array of energy-related
products and services and to develop, acquire, own and operate certain
energy-related projects. Cinergy Solutions currently markets certain
energy-related services directly, including a financing program for
Cinergy's utility customers to assist them in purchasing energy-related
products. For more information on the activities undertaken directly by
Cinergy Solutions, see the quarterly reports filed in File No. 70-8933.
Under the terminology set forth in Item 1.B, Cinergy Solutions is an
"Authorized Company."
Cinergy Solutions has four subsidiaries, three of whom are jointly
owned with affiliates of Trigen Energy Corporation ("Trigen"), a thermal
sciences company and owner and operator of district energy systems and
cogeneration facilities throughout North America. The three subsidiaries
jointly-owned with Trigen are Trigen-Cinergy Solutions LLC (formed to do
preliminary work in connection with potential investments in cogeneration
facilities and/or district energy facilities), Trigen-Cinergy Solutions of
Cincinnati LLC (which owns and operates a chilled water system providing
service in Cincinnati, Ohio, as successor by merger to Cinergy Cooling
Corp.) and Trigen-Cinergy Solutions of Illinois L.L.C. (formed to supply
cogeneration and other energy asset management services to an industrial
facility in Illinois). For further information on these three Rule 58
companies, see Cinergy's quarterly reports on Form U-9C-3.
Cinergy Solutions' remaining subsidiary, Cinergy Business
Solutions, Inc., was formed in April 1998 to market certain energy-related
asset management services (not involving cogeneration) to commercial and
industrial customers. Cinergy Business Solutions, Inc. is a Rule 58
Company.
g. Cinergy Supply Network, Inc.
Presently inactive, Cinergy Supply Network, Inc. was formed in
January 1998 to broker transmission and distribution materials and provide
related services to utilities, cooperatives and municipalities and to
market locating services for underground utility facilities. Cinergy
Supply Network, Inc. is a Rule 58 Company.
h. Cinergy Technology, Inc.
Cinergy Technology, Inc. ("Cinergy Technology") was formed in 1991
as a subsidiary of PSI Resources under the name PSI Environmental Corp.,
but was inactive until 1995, when its name was changed to Cinergy
Technology and it began pursuing business opportunities in the United
States relating primarily to the commercialization of electrotechnologies.
Cinergy Technology is also a party to several contracts entered
into prior to the Telecommunications Act of 1996 involving the provision of
telecommunications services and products in the Cincinnati area;
negotiations are underway to have these contracts assigned to Cinergy
Communications.
Cinergy has applied to the Commission in the Merger Docket for an
order authorizing Cinergy's retention of Cinergy Technology. When that
approval issues, Cinergy Technology will be an Authorized Company.
i. Enertech Associates, Inc.
Enertech Associates, Inc. ("Enertech") was formed as a subsidiary
of CG&E in 1992 to market utility management consulting services and to
pursue investment opportunities in energy-related areas, including
demand-side management services, consulting, energy and fuel brokering,
engineering services, construction and/or operation of generation,
cogeneration, independent power production facilities, and project
development.
In the fall of 1995, Enertech was named as a defendant in a lawsuit
brought by three of its former employees. In the first quarter of 1998 the
lawsuit was settled and dismissed by the court.
Since commencement of the lawsuit, Enertech has been and continues
to remain inactive. However, given the activities from which it would
derive substantially all its revenues were it to resume its pre-litigation
business operations, Enertech is a Rule 58 Company.
2. Cinergy Global Resources and its subsidiaries
Cinergy Global Resources has 37 direct and indirect subsidiaries.
The direct subsidiaries, all of whom are wholly-owned, are Cinergy Global
Power, Inc., Cinergy UK, Inc., PSI Argentina, Inc. and PSI Energy
Argentina, Inc.
Cinergy Global Resources was formed in May 1998 pursuant to the
authority granted in the Project Parent Order and became the parent company
of its subsidiary companies in the following restructuring transaction
consummated on May 15, 1998./13/ Immediately prior to the restructuring
transaction, Cinergy Global Power and its subsidiaries, Cinergy UK and its
subsidiaries, and PSI Argentina and its subsidiary were all direct or
indirect subsidiaries, as applicable, of Cinergy Investments. Also
immediately prior to the restructuring transaction, PSI Energy Argentina
(including its 1% interest in Edesur, S.A.) was a direct wholly-owned
subsidiary of PSI. On May 15, 1998, Cinergy Investments and PSI declared
special stock dividends to Cinergy of the entities described in the
preceding sentences. Simultaneously therewith, Cinergy made a capital
contribution of the stock in these international companies to the
newly-formed Cinergy Global Resources.
The business purpose of the restructuring was to establish a clear
separation of Cinergy's domestic and international nonutility businesses to
foster improved internal tracking and external marketing of these
businesses. The reorganization also better aligns the legal entities with
Cinergy's functional business units, among which is a separate
international business unit./14/
a. Cinergy Global Power, Inc. and subsidiaries
Cinergy Global Power, Inc. ("CGP") was formed under Delaware law in
1997 to act as an "umbrella" EWG/FUCO Project Parent with respect to
numerous existing, contemplated or potential investments in Exempt
Projects.
CGP holds all the outstanding share capital of Cinergy Global Power
Services Limited, a UK company formed in 1997 (formerly MPI International
Limited) ("CGPS"), that provides project development and administrative
services with respect to Cinergy's existing and contemplated investments in
Exempt Projects. CGPS is an EWG/FUCO Project Parent.
CGP also holds all the outstanding share capital of Midlands
Hydrocarbons (Bangladesh) Limited ("MHB"), a company formed under UK law
that holds gas field exploration and development rights and is engaged in
preliminary power project developmental work in Bangladesh. MHB has a
pending application before the FERC (Docket No. EG98-82-000) requesting
determination of EWG status.
CGP likewise holds all the outstanding share capital of Cinergy
Global Hydrocarbons Pakistan, a Cayman Islands company formed in 1997
(formerly Cinergy MPI I, Inc.), that is investigating a potential Exempt
Project investment in Pakistan. Cinergy Global Hydrocarbons Pakistan is an
EWG/FUCO Project Parent.
CGP also holds all the outstanding share capital of Watercorner
Investments B.V. ("Watercorner"), a Dutch company and an EWG/FUCO Project
Parent. Watercorner in turn owns all the outstanding share capital of MPII
(Zambia) B.V. ("MPII/ Zambia"), a Dutch company and an EWG/FUCO Project
Parent, which in turn owns approximately 40% of Copperbelt Energy
Corporation plc, a Zambian FUCO. Watercorner also owns all the outstanding
share capital of Cedarwood B.V., a Dutch company and an EWG/FUCO Project
Parent, which in turn owns 50% of the equity of both EOS PAX I S.L. and EOS
PAX IIa S.L., each of which is a Spanish FUCO. Finally, Watercorner owns
all the outstanding share capital of Midlands Power International B.V., a
Dutch company and an EWG/FUCO Project Parent, which has five subsidiaries:
Sociedad Construcciones y Representaciones Industriales S.A., a Spanish
FUCO ("Crisa") and four presently inactive EWG/FUCO Project Parents:
Vendresse Limited, an Isle of Man company, Midlands Power I B.V., Midlands
Power Europe B.V. and Midlands Power Asia B.V., each a Dutch company.
Midlands Power International B.V. owns 95% of the share capital of Crisa;
its other four subsidiaries are wholly-owned.
Finally, CGP also holds the outstanding share capital of MPI II,
Inc. through MPI XV, Inc., 14 presently inactive EWG/FUCO Project Parents
incorporated under Cayman Islands law in 1997 to participate in potential
future acquisitions of Exempt Projects.
b. Cinergy UK, Inc. and subsidiaries
Cinergy UK, Inc. ("CUK") was formed in 1996 under Delaware law to
acquire and hold Cinergy's 50% ownership interest in Midlands Electricity
plc, a UK FUCO ("MEB"). CUK holds its interest in MEB through two
intermediate subsidiaries organized under English law and jointly owned on
a 50-50 basis with GPU, Inc.: Avon Energy Partners Holdings and Avon
Energy Partners plc (collectively, "Avon companies"). CUK and the Avon
companies are EWG/FUCO Project Parents.
c. PSI Energy Argentina, Inc./ Edesur, S.A.
PSI Energy Argentina, Inc. holds Cinergy Global Resources' indirect
1% ownership interest in Edesur, S.A., a FUCO that provides electric
distribution service in Buenos Aires, Argentina. PSI Energy Argentina,
Inc. is an 8% shareholder in Distrilec Inversora, S.A., which owns 51% of
the stock of Edesur. The interests in Edesur and Distrilec were originally
acquired by PSI Resources in 1992. See HCAR No. 25570, July 2, 1992.
d. PSI Argentina, Inc. and Costanera Power Corp.
PSI Argentina, Inc. and its wholly-owned subsidiary Costanera Power
Corp. were formed in 1992 to acquire and hold PSI Resources' interest in
Central Costanera, S.A., an Argentine electric generation company. See
HCAR No. 25674, November 13, 1992. Both of these entities were certified
as EWGs but later decertified following the sale to a non-affiliate of
their interest in Central Costanera in the fall of 1995. These companies
remain in existence to acquire and hold potential additional Exempt Project
investments that Cinergy may make in Argentina or elsewhere in South
America.
D. Proposed Transactions
The following lists the specific transactions for which
authorization is sought herein. In each case authorization is sought to
engage in these transactions from time to time through the Authorization
Period.
1. Formation of Intermediate Parents/ Acquisition of
Nonutility Companies/ Provision of Services by
Intermediate Parents
As discussed earlier, the Project Parent Order grants Cinergy and
Cinergy Investments authority through December 31, 1999 to, among other
things, form and invest in EWG/FUCO Project Parents, i.e., special-purpose
subsidiaries organized to engage exclusively in the business of acquiring
and holding the securities of, and/or providing services to, EWGs and
FUCOs. Applicants request that the Commission rescind the Project Parent
Order upon entry of the Commission's order in this proceeding granting the
transactions proposed herein.
Specifically, to the extent not otherwise exempt under the Act,
Applicants request authority, from time to time through the Authorization
Period, (1) to organize, own and hold the securities of one or more
Intermediate Parents and (2) for Intermediate Parents to acquire the
securities of Nonutility Companies. Intermediate Parents will be formed
for the exclusive purpose of acquiring, owning and holding, directly or
indirectly (including through one or more additional Intermediate Parents),
securities of or interests in, and/or providing services to, any
combination of Nonutility Companies.
Any such services would include project development and
administrative services and other support services./15/ Without further
Commission approval, Intermediate Parents will not provide services to (a)
any other Intermediate Parent or Nonutility Company where the ultimate
purchaser of the service is a domestic public utility subsidiary of Cinergy
or (b) any associate companies other than Intermediate Parents and
Nonutility Companies. Cinergy Services will continue to provide services
to Intermediate Parents and Nonutility Companies pursuant to the Cinergy
system nonutility service agreement./16/ Intermediate Parents will provide
services to other Intermediate Parents or Nonutility Companies on an
as-needed basis as authorized by appropriate personnel of the company
requesting the services. To the extent not exempt under rule 90(d)(1) or
otherwise under the Act, Applicants request an exemption pursuant to
section 13(b) from the "at cost" requirements of rules 90 and 91 for the
provision of services by Intermediate Parents to other Intermediate Parents
or Nonutility Companies at fair market value, where the Intermediate Parent
or Nonutility Company receiving such services is:
1. a FUCO or an EWG (or an EWG/FUCO Project Parent) that
derives no part of its income, directly or indirectly, from the
United States;
2. an EWG that sells electricity at market-based rates which have
been approved by the FERC or the appropriate state public
utility commission, provided that the purchaser is not an
affiliated utility company, including PSI and CG&E and CG&E's
utility subsidiaries;
3. a "qualifying facility" ("QF") under the Public Utility
Regulatory Policies Act of 1978 ("PURPA") that sells
electricity exclusively at rates negotiated at arm's length to
one or more industrial or commercial customers purchasing such
electricity for their own use and not for resale, or to a
utility company (other than an affiliated utility company,
including PSI and CG&E and CG&E's utility subsidiaries) at the
purchaser's "avoided cost" determined in accordance with
regulations under PURPA; or
4. an EWG or a QF that sells electricity at rates based upon its
cost of service as approved by the FERC or any state public
utility commission having jurisdiction, provided that the
purchaser of such electricity is not an affiliated utility
company, including PSI and CG&E and CG&E's utility subsidiaries.
Intermediate Parents may be wholly- or partly-owned direct or
indirect subsidiaries of Cinergy, Cinergy Investments or Cinergy Global
Resources. Initial capitalization by Applicants of Intermediate Parents
will involve (1) purchases of shares of capital stock, partnership
interests, limited liability company member interests, trust certificates
or other forms of equity interests; (2) capital contributions or open
account advances without interest; and/or (3) debt financing.
Cinergy will obtain funds for initial and subsequent investments in
Intermediate Parents from available internal sources or from external
sources involving sales of short-term notes and commercial paper or
additional shares of Cinergy common stock pursuant to the Commission's
order dated January 20, 1998 in File No. 70-9071 (HCAR No. 26819) ("January
1998 Order")./17/ Cinergy Investments and Cinergy Global Resources will
obtain funds for initial and subsequent investments in Intermediate Parents
from available cash, capital contributions or loans from Cinergy, or
external borrowings or sales of capital stock.
To the extent that Applicants provide funds to Intermediate Parents
which in turn are applied to (1) investments in Exempt Projects or rule 58
companies, the amount of such funds will be included in Cinergy's
"aggregate investment" therein, as calculated in accordance with rule 53 or
rule 58, as applicable; or (2) investments in Authorized Companies, such
investments will conform to applicable rules under the Act (including rules
52 and 45(b)(4)) and applicable terms and conditions of any relevant
Commission orders./18/
Finally, to the extent not exempt under rule 43(b) or otherwise
under the Act, Applicants request authority on behalf of themselves and
Intermediate Parents and Nonutility Companies to sell to and purchase from
each other (but to or from no other associate companies) securities or
other interests in the businesses of Intermediate Parents and Nonutility
Companies.
2. Issuance by Cinergy of guarantees
Under prior Commission orders, Cinergy is currently authorized to
issue guarantees on behalf of certain system companies, subject to
different ceilings on the total amount of guarantees that Cinergy can
issue. As explained below, one ceiling applies to guarantees of Exempt
Projects and EWG/FUCO Project Parents; another to guarantees of rule 58
subsidiaries and certain other Cinergy subsidiaries; and still another to
guarantees of Cinergy Solutions and its subsidiaries. In addition, the
guarantee authority in the prior orders expires at varying dates.
Applicants propose to centralize and consolidate the existing
guarantee authority and to substitute a single ceiling limiting the maximum
amount of guarantees in place of the three different ceilings that now
apply. The requested authorization would also expand the roster of Cinergy
system companies on whose behalf Cinergy can issue guarantees, throughout
the Authorization Period, to include (among other system companies)
Intermediate Parents and Nonutility Companies.
a. Existing Cinergy guarantee authority
Under the Project Parent Order as amended by the 100% Order,
Cinergy can issue guarantees on behalf of obligations of Exempt Projects
and EWG/FUCO Project Parents from time to time through December 31, 1999,
provided that Cinergy's "aggregate investment" as determined pursuant to
rule 53 does not exceed 100% of Cinergy's consolidated retained earnings
("100% Limitation").
Under the May 1997 Order, Cinergy is authorized to guarantee,
through December 31, 2002, obligations of (a) certain existing Cinergy
system companies (i.e., Cinergy Services, KO, Tri-State, Cinergy Resources,
Cinergy Capital & Trading, Cinergy Technology and Enertech Associates) and
(b) rule 58 companies in which Cinergy or any of its subsidiaries
thereafter acquires an interest. Initially, these guarantees were subject
to a $1 billion cap (in addition to the aggregate investment provisions of
rule 58, where applicable), which also covered short-term debt and
commercial paper issued by Cinergy. Under the terms of the January 1998
Order, the cap was raised to $2 billion, covering these guarantees, Cinergy
short-term debt and commercial paper as well as up to $400 million of
Cinergy debentures if and when authorized by the Commission./19/
Finally, the Cinergy Solutions Order authorized Cinergy to
guarantee debt and other obligations of Cinergy Solutions and its
subsidiaries from time to time through December 31, 2001 in a maximum
principal amount at any time outstanding not to exceed $250 million.
b. Proposed Cinergy guarantee authority
To the extent not otherwise exempt under the Act, Cinergy requests
authority from time to time through the Authorization Period to guarantee
the debt or other securities or obligations of (i) any and all existing and
future Intermediate Parents (including Cinergy Investments and Cinergy
Global Resources) and Nonutility Companies (excluding Nth Power Fund), and
(ii) Cinergy Services and the existing nonutility subsidiaries of CG&E and
PSI - KO, Tri-State and South Construction. The terms and conditions of
any guarantees would be established at arm's length based upon market
conditions.
Any guarantees issued by Cinergy over the Authorization Period
would not exceed at any time outstanding $1,000,000,000 in aggregate
principal amount ("$1 Billion Guarantee Cap"), provided further that (1)
any guarantees of Exempt Projects would also be subject to the 100%
Limitation, and (2) any guarantees of rule 58 companies would also be
subject to the aggregate investment limitation of rule 58.
In connection with the proposed guarantee authority, Applicants
request that the Commission's order in this proceeding:
1. supersede the Project Parent Order in its
entirety;
2. supersede the May 1997 Order and the Cinergy
Solutions Order in part, i.e., solely to the extent
these orders authorize Cinergy to issue guarantees on
behalf of the respective system companies specified
therein; and
3. amend the terms of the January 1998 Order solely
to exclude the applicable Cinergy guarantees covered by
that order (i.e., any guarantees issued on behalf of
Cinergy Services, KO, Tri-State, Cinergy Resources,
Cinergy Capital & Trading, Cinergy Technology, Enertech
Associates together with future rule 58 companies) from
the scope of the $2 Billion Debt Cap prescribed
by that order. Henceforth, those guarantees would be
covered by the $1 Billion Guarantee Cap, and the $2 Billion
Debt Cap would be limited to Cinergy short-term
notes, commercial paper and debentures.
3. Dividends out of capital or unearned surplus
Cinergy has existing authority for certain of its nonutility
subsidiaries to declare and pay dividends out of capital or
unearned surplus through December 31, 2002.
Cinergy proposes to expand the scope of the existing
Commission authorization to include Intermediate Parents and
Nonutility Companies (as well as the nonutility subsidiaries of
CG&E and PSI) and to extend the period covered to the end of the
Authorization Period.
The proposed new authority would replace the current
authority commencing on the effective date of the Commission's
order in this proceeding.
a. Existing authority
By order dated May 22, 1997 (HCAR No. 26719), the Commission
authorized certain Cinergy nonutility subsidiaries - Cinergy
Investments, the EWG/FUCO Project Parents established in 1996 to
acquire and hold Cinergy's interest in MEB (CUK and the Avon
companies) and all future EWG/FUCO Project Parents - to pay
dividends out of capital or unearned surplus to their respective
parent companies through December 31, 2002 to the extent
permitted under applicable corporate law and contractual
restrictions. Cinergy Investments was authorized to pay
dividends out of capital only to the extent that the dividend is
based on (a) a corresponding dividend paid to Cinergy Investments
out of capital or unearned surplus by an applicable EWG/FUCO
Project Parent that is a direct subsidiary of Cinergy
Investments, or (b) Cinergy Investments' direct or indirect
ownership of an Exempt Project.
b. Proposed authority
To the extent not otherwise exempt under the Act, Applicants
request authorization for all of Cinergy's existing and future nonutility
subsidiaries - namely, Cinergy Investments, Cinergy Global Resources, any
and all existing and future Intermediate Parents and Nonutility Companies
(other than Nth Power Fund), and the existing nonutility subsidiaries of
CG&E and PSI (KO, Tri-State and South Construction) - to declare and pay
dividends out of capital or unearned surplus to their respective parent
companies from time to time through the Authorization Period, where
permitted under applicable corporate law and agreements with lenders or
other third parties, and where such dividend will not be detrimental to the
financial integrity or working capital of any company in the Cinergy
system.
Item 2. Fees, Commissions and Expenses
Applicants estimate that the fees, commissions and expenses
that have been or will be incurred, directly or indirectly, by
them or their associate companies in connection with the proposed
transactions will not exceed approximately $17,000, including
fees and expenses of Thelen, Reid & Priest of approximately
$5,000.
Item 3. Applicable Statutory Provisions
Applicants believe that sections 6(a), 7, 9(a), 10, 12(b),
12(c), 13, 32, 33 and 34 of the Act and rules 43, 45, 46, 53, 54,
58, 83, 87 and 90 are or may be applicable to the proposed
transactions.
Rule 54 provides that 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 FUCO, or other
transactions by such registered holding company or its subsidiaries other
than with respect to EWGs or FUCOs, the Commission shall not consider the
effect of the capitalization or earnings of any subsidiary which is an EWG
or a FUCO upon the registered holding company system if the conditions of
rule 53(a), (b) and (c) are satisfied.
Cinergy currently does not meet the conditions of rule 53(a). At
December 31, 1998, Cinergy's "aggregate investment," as defined in rule
53(a)(1), in EWGs and FUCOs (including related project parents) was
approximately $619 million. This amount equals approximately 65% of
Cinergy's "consolidated retained earnings," also as defined in rule
53(a)(1) (approximately $949 million), which exceeds the 50% "safe harbor"
limitation contained in rule 53(a). By order dated March 23, 1998 (HCAR
No. 26848) ("100% Order"), the Commission authorized Cinergy to
increase its total investments in EWGs and FUCOs to 100% of
consolidated retained earnings. Accordingly, although Cinergy's
aggregate investment exceeds the 50% safe harbor, that circumstance is
expressly permitted under the 100% Order.
At September 30, 1997, the most recent period for which
financial statement information was evaluated in the 100% Order,
Cinergy's consolidated capitalization consisted of 44.1% equity
and 55.9% debt; at such date, Cinergy's pro forma consolidated
capitalization, taking into account the entire amount of non-recourse debt
allocable to Cinergy's ownership interest in EWGs and FUCOs (i.e., $949
million) was 38.2% equity and 61.8% debt. As shown in Exhibit I-2 filed
herewith, Cinergy's consolidated capitalization at December 31, 1998
consisted of 42% equity and 58% debt; also as shown in Exhibit I-2,
even if the entire amount of then-outstanding non-recourse debt of EWGs and
FUCOs allocable to Cinergy's ownership interest therein were consolidated
(i.e., $1.2 billion), equity would still comprise 35.5% of the overall
capital structure./20/ The proposed transactions would have an immaterial
impact on Cinergy's capitalization.
With respect to earnings, the 100% Order stated that Cinergy
did not report a full-year operating loss attributable to its
investments in EWGs and FUCOs for any year 1992 through 1996.
That order also stated that Midlands Electricity plc
("Midlands"), a FUCO in the United kingdom in which Cinergy has
an ownership interest, recorded a one-time extraordinary charge
in the third quarter of 1997 as a result of a windfall profits
tax imposed by the authorities in the United Kingdom, of which
$109 million was allocable to Cinergy. However, the 100% Order
noted that Midland's credit ratings by Standard and Poor's
remained unchanged following the charge. Since the date of the
100% Order, Cinergy's investments in EWGs and FUCOs have
continued to make a positive contribution to Cinergy's
earnings./21/
With respect to the remaining conditions of rule 54,
Cinergy has complied and will continue to comply with the record-keeping
requirements of rule 53(a)(2), the limitation under rule 53(a)(3) on the
use of operating company personnel in rendering services to EWGs and FUCOs,
and the requirements of rule 53(a)(4) concerning submission of specified
filings under the Act to retail rate regulatory agencies. In addition,
none of the conditions in rule 53(b) has occurred.
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 as
soon as practicable the requisite notice under Rule 23 with
respect to the filing of this application, and that the
Commission issue an order granting the authority requested herein
as soon as practicable after expiration of the public notice
period.
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.
Cinergy proposes to provide the Commission, on a quarterly
basis within 60 days after the end of each calendar quarter
(commencing with the first full quarter following the
Commission's order herein), a report pursuant to Rule 24, which
shall include the following (except to the extent any of the
following duplicates information required to be furnished to the
Commission by Cinergy pursuant to the terms of outstanding orders
not affected by this proceeding or other quarterly reporting
requirements whether or not pursuant to Commission orders - e.g.,
Form U-9C-3):
1. A balance sheet and income statement for each Intermediate
Parent for the three, six or nine month period then ended;
2. Amounts invested by each Intermediate Parent and
Nonutility Company in Intermediate Parents and Nonutility
Companies during the quarter, broken down by category (i.e.,
Exempt Projects, ETCs, Rule 58 Companies and any other nonutility
businesses that Cinergy is permitted or authorized under the Act
to invest in from time to time);
3. Information concerning the nature and extent of services
provided by Intermediate Parents during the quarter, identifying
the customer company, the service and the charge, and stating
whether the charge was computed at cost, market or pursuant to
another method, which shall be specified;
4. Information concerning the formation and capitalization
of any new Intermediate Parents and/or Nonutility Companies
during the quarter;
5. Information concerning any loans made by Cinergy, Intermediate
Parents or Nonutility Companies to Intermediate Parents or
Nonutility Companies during the quarter that are not exempt under
Rule 52(b) and the issuance of any securities that are not exempt
under Rule 52(b) by Intermediate Parents or Nonutility Companies
during the quarter; and
6. Information concerning the completion of any consolidation or
reorganization of Cinergy's ownership interests in Intermediate
Parents and/or Nonutility Companies, including the identity of
the companies involved and their lines of business and
corporate structures both before and after the consolidation or
reorganization.
Item 6. Exhibits and Financial Statements
(a) Exhibits:
A Constituent instruments of future
Intermediate Parents and Nonutility Companies (to be filed as
exhibits to Cinergy's Annual Reports on Form U-5S)
B Not applicable
C Not applicable
D Not applicable
E Not applicable
F-1 Preliminary opinion of counsel (filed
herewith)
G-1 Revised form of Federal Register notice
(filed with Amendment No. 1)
H Cinergy system corporate chart as of June 1,
1998 (filed with original application-declaration)
I-2 Pro Forma Capitalization at December 31, 1998 (filed
herewith)
(b) Financial Statements:
FS-1 Cinergy Consolidated Financial Statements,
dated March 31, 1998 (filed with original application-declaration)
FS-2 Cinergy Financial Statements, dated March 31,
1998 (filed with original application-declaration)
FS-3 Cinergy Investments Consolidated Financial
Statements, dated March 31, 1998 (filed with original
application-declaration pursuant to rule 104(b) under request for
confidential treatment)
FS-4 Cinergy Consolidated Financial Data Schedule
(filed with original application-declaration)
FS-5 Cinergy Financial Data Schedule (filed with
original application-declaration)
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: February 26, 1999
CINERGY CORP.
By: /s/William L. Sheafer
Vice President and Treasurer
CINERGY INVESTMENTS, INC.
By: /s/William L. Sheafer
Vice President and Treasurer
CINERGY GLOBAL RESOURCES, INC.
By: /s/William L. Sheafer
Vice President and Treasurer
ENDNOTES
/1/ The practical value of using intermediate subsidiaries to
hold nonutility businesses was expressly taken into account by
the Commission in adopting rule 58, which provides that an
"energy-related company" is any company that, directly or
indirectly through one or more affiliates, derives or will derive
substantially all of their revenues from the enumerated
qualifying activities. As the Commission noted:
Use of an intermediate subsidiary could further
insulate the holding company and its other
subsidiaries, including utility subsidiaries, from any
direct losses that could occur with respect to rule 58
investments. At the same time, this measure would
offer greater flexibility in the structuring of these
investments. Accordingly, the rule, as adopted, is
modified to incorporate the concept of indirect
investment in energy-related companies through project
parents. (footnote omitted)
HCAR No. 26667, February 14, 1997 (text accompanying note 41).
/2/ See The Southern Company, et al., HCAR Nos. 26738, July 2,
1997, 26543, July 17, 1996, and 26468, February 2, 1996.
/3/ As of June 1, 1998 Cinergy had interests in six FUCOs -
Edesur, S.A., an Argentine FUCO; Midlands Electricity plc, a UK
FUCO; Copperbelt Energy Corporation plc, a Zambian FUCO; EOS PAX
I S.L. and EOS PAX IIa S.L., each a Spanish FUCO; and Sociedad
Construcciones y Representaciones Industriales S.A., a Spanish
FUCO - and one EWG, Midlands Hydrocarbons (Bangladesh) Limited,
as to which an application for determination of EWG status is
pending (Docket No. EG98-82-000) before the Federal Energy
Regulatory Commission ("FERC"). See the chart filed herewith as
exhibit H diagramming the ownership structure for Cinergy and all
of its direct and indirect subsidiaries as of June 1, 1998.
/4/ As of June 1, 1998 Cinergy was the ultimate parent company
of the following EWG/FUCO Project Parents (see exhibit H):
Cinergy Global Resources, Cinergy Global Power, Inc., Cinergy
Global Power Services Limited, Cinergy Global Hydrocarbons
Pakistan, Cinergy MPI II through XV, Inc. (i.e., 14 separate
companies), Watercorner Investments B.V., MPII (Zambia) B.V.,
Cedarwood B.V., Midlands Power International B.V., Vendresse
Limited, Midlands Power I B.V., Midlands Power Europe B.V.,
Midlands Power Asia B.V., Cinergy UK, Inc., Avon Energy Partners
Holdings, Avon Energy Partners plc, PSI Argentina, Inc.,
Costanera Power Corp. and PSI Energy Argentina, Inc.
/5/ As of June 1, 1998 Cinergy had one ETC subsidiary, Cinergy
Communications, Inc. Cinergy had also formed a prospective ETC,
Cinergy-Ideon, Inc., which will shortly file an application for
determination of ETC status with the Federal Communications
Commission.
/6/ As of June 1, 1998 Cinergy had interests in the following
Rule 58 Companies: Cinergy-Cadence, Inc., and its subsidiary,
Cadence Network LLC; Cinergy Capital & Trading, Inc. and its
wholly-owned subsidiary, CinCap IV, LLC; Cinergy Engineering,
Inc.; Cinergy Resources, Inc.; the subsidiary companies of
Cinergy Solutions, Inc. (namely, Trigen-Cinergy Solutions LLC,
Trigen-Cinergy Solutions of Cincinnati LLC, Trigen-Cinergy
Solutions of Illinois L.L.C. and Cinergy Business Solutions,
Inc.); Cinergy Supply Network, Inc. and Enertech Associates, Inc.
/7/ There are three existing Authorized Companies: Cinergy
Investments (see HCAR No. 26146, October 21, 1994); Cinergy
Solutions, Inc. (see HCAR No. 26662, February 7, 1997); and Nth
Power Technologies Fund I, L.P. ("Nth Power Fund"), in which
Cinergy holds a minority limited partnership interest (see HCAR
No. 26562, August 28, 1996) ("Nth Power Fund Order"). Nth Power
Fund is not an affiliate or subsidiary company of Cinergy; see
HCAR No. 26562.
In 1996, pursuant to HCAR No. 26474 (February 20, 1996), Cinergy
formed Cinergy Cooling Corp. as a wholly-owned subsidiary of
Cinergy Investments to engage in the district energy business in
downtown Cincinnati. In August 1997, in connection with a joint
venture with Trigen Energy Corporation, Cinergy Cooling Corp. was
merged out of existence, into a Rule 58 Company, Trigen-Cinergy
Solutions of Cincinnati LLC, which is owned by affiliates of the
joint venture parties.
/8/ Cinergy has a pending application in File No. 70-8427
requesting authorization to permanently retain various nonutility
interests (together with Cinergy's gas utility properties) over
which the Commission reserved jurisdiction for three years in the
Commission's 1994 order authorizing the Cinergy merger (HCAR No.
26146, October 21, 1994).
/9/ Specifically, Applicants propose that, upon issuance of the
order requested herein, the Project Parent Order and Commission
order dated May 22, 1997 (HCAR No. 26719) (authorizing Cinergy
Investments and certain other Cinergy nonutility subsidiaries to
pay dividends out of capital surplus to their respective parent
companies through December 31, 2002) be superseded in their
entirety.
Applicants also request that Commission orders dated February 7,
1997 (HCAR No. 26662) (authorizing the formation of Cinergy
Solutions, Inc. and related transactions) and May 30, 1997 (HCAR
No. 26723) (authorizing Cinergy to issue guarantees on behalf of
Cinergy Services, Inc., certain Cinergy nonutility subsidiaries,
and future Rule 58 Companies in which Cinergy or its subsidiaries
acquires an interest) ("May 1997 Order") be superseded in part by
the requested order, i.e., to the extent that these prior orders
relate to guarantees issued by Cinergy.
Finally, Applicants propose that the requested order amend the
terms of Commission order dated January 20, 1998 (HCAR No. 26819)
(authorizing Cinergy to issue short-term notes and commercial
paper in an aggregate principal amount not to exceed $2 billion,
when added to the principal amount of certain other outstanding
securities, including guarantees issued pursuant to the May 1997
Order ("$2 Billion Debt Cap")), solely to the extent of excluding
the principal amount of guarantees issued pursuant to the May
1997 Order from the coverage of the $2 Billion Debt Cap.
Henceforth, those guarantees would be covered by the $1 billion
cap applicable solely to guarantees as proposed below, and the $2
Billion Debt Cap would be limited to Cinergy short-term notes,
commercial paper and debentures.
/10/ CG&E's utility subsidiaries are The Union Light, Heat and
Power Company ("ULH&P"), Lawrenceburg Gas Company
("Lawrenceburg"), The West Harrison Gas and Electric Company
("West Harrison") and Miami Power Corporation ("Miami Power").
/11/ Specifically, CG&E holds all the outstanding common stock
of Tri-State and KO, and PSI holds all the outstanding common
stock of South Construction. Tri-State and South Construction
hold real estate in support of the utility businesses of CG&E and
PSI, respectively. KO owns an interest in interstate gas
pipeline facilities located in Kentucky and is regulated by the
FERC under the Natural Gas Act. CG&E and PSI also own small
limited partnership interests in a number of local funds or
entities, none of which are affiliates of CG&E or PSI. For more
detailed information regarding the nonutility holdings of CG&E
and PSI, see Cinergy's post-effective amendments in the Merger
Docket.
/12/ Inactive companies being dissolved are PSI Power Resource
Development, Inc., PSI Sunnyside, Inc., PSI T & D International,
Inc., PSI Yacyreta, Inc. and Cinergy International, Inc.
/13/ The restructuring transaction was consummated without
additional Commission approval pursuant to (1) the authority
granted in the Project Parent Order and Commission order dated
May 22, 1997 (HCAR No. 26719) (authorizing Cinergy Investments
and certain other Cinergy nonutility subsidiaries to declare and
dividends out of capital surplus) and (2) rule 45 under the Act.
/14/ That allocation of domestic and international nonutility
businesses between Cinergy Investments and Cinergy Global
Resources may not necessarily continue in every respect. For
example, it is possible that in the future one or more domestic
EWGs in which the Cinergy system acquires an interest (currently
Cinergy has no domestic EWGs) may be held by Cinergy Global
Resources, directly or indirectly.
/15/ Project developmental services are anticipated to include
such services as research and due diligence with respect to
potential projects and transactions, preparation of bid
documents, investment proposals, customer proposals and the like,
preliminary engineering, construction, licensing and operational
studies and analyses, acquisitions of options, and other legal,
accounting, marketing, engineering, financial and similar
services relating to acquisitions of project investments and
consummating transactions with customers. Administrative and
other support services include without limitation overall
strategic planning, operations and maintenance, environmental,
information systems, engineering and construction, risk
management, marketing, finance, legal, accounting, employment and
tax.
/16/ See Merger Order, supra (approving original nonutility
service agreement); Cinergy Solutions Order, supra (approving
amendment to nonutility service agreement).
/17/ The January 1998 Order authorizes Cinergy to issue and sell
from time to time through December 31, 2002, subject to certain
terms and conditions, (1) short-term notes and commercial paper -
together with (a) any guarantees issued by Cinergy pursuant to
authorization granted in File No. 70-9015 (HCAR No. 26723, May
30, 1997) ("May 1997 Order") and (b) any debentures issued by
Cinergy (together with Cinergy short-term notes and commercial
paper, "Cinergy Debt Securities") pursuant to authorization being
sought in File No. 70-8993 (HCAR No. 26714, May 2, 1997 (notice))
- - in an aggregate principal amount not to exceed $2 billion ("$2
Billion Debt Cap"); and (2) up to 30 million additional shares of
Cinergy common stock, plus certain other shares of Cinergy common
stock (totaling approximately 867,000) authorized, but not
issued, under a prior Commission order.
/18/ See, e.g., Cinergy Solutions Order, supra (providing that
Cinergy Solutions would be initially capitalized with nominal
consideration and that thereafter, through December 31, 2001,
Cinergy and Cinergy Investments "[did] not expect" to invest more
than $100 million in Cinergy Solutions and its subsidiaries in
transactions exempt from prior Commission approval under rules 52
and 45(b)(4)); Nth Power Fund Order, supra (permitting Cinergy to
invest up to $10 million in Nth Power Fund through December 31,
2002).
/19/ By order dated August 21, 1998 (HCAR No. 26909), the
Commission authorized Cinergy to issue up to $400 million
principal amount of debentures, subject to various terms and
conditions.
/20/ As indicated in the text, the debt component of Cinergy's
consolidated capitalization has increased by a minor extent in
the period September 30, 1997 to December 31, 1998 (55.9% to 58%).
That relative increase reflects, first, redemptions of
outstanding preferred stock issued by the utility subsidiaries
and the consequent relative diminution in preferred stock as a
component of consolidated capital structure (from 3% to 1.5%).
It also reflects more debt outstanding by Cinergy and its
consolidated subsidiaries. In that regard the Commission
authorized Cinergy to increase its outstanding debt from $1
billion to $2 billion by order dated January 20, 1998 (HCAR No.
26819). Of course, the debt/equity ratio at December 31, 1998 is
well within Commission standards enunciated in prior cases.
/21/ See quarterly rule 24 certificates filed in File No. 70-9011.
EXHIBIT F-1
February 26, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Cinergy Corp. et al./ File No. 70-9319
Ladies and Gentlemen:
I am Associate General Counsel of Cinergy Corp. ("Cinergy"),
a Delaware corporation and registered holding company under the
Public Utility Holding Company Act of 1935, as amended (the
"Act") and am furnishing this opinion as an exhibit to the
Application-Declaration on Form U-1 in the above file, as amended
by Amendments Nos. 1 and 2 (the latter being filed concurrently
herewith) (as so amended, the "Application"). The Application
was filed by Cinergy and its two direct, wholly-owned nonutility
subsidiaries, Cinergy Investments, Inc. and Cinergy Global
Resources, Inc. (collectively, "Applicants"). Capitalized terms
used herein without separate definition have the respective
meanings assigned thereto in the Application.
In the Application, Cinergy and the other Applicants propose
from time to time through December 31, 2003 (i) to establish one
or more special-purpose subsidiaries (each an "Intermediate
Parent") to hold Cinergy's direct or indirect interests in any or
all of Cinergy's existing and future nonutility businesses
(excluding certain existing nonutility interests held by
Cinergy's utility subsidiaries) (each a "Nonutility Company"),
and (ii) to engage in various related transactions over the same
period. In connection with this opinion, I have reviewed the
Application and such documents, agreements, instruments and/or
other materials as I have deemed necessary or appropriate in
order to render this opinion.
I am a member of the Bar of the State of Ohio and do not
purport to be an expert on the laws of any other jurisdiction. I
have examined the Delaware General Corporation Law ("DGCL") to
the extent necessary to express the opinions set forth herein.
The opinions expressed below are limited solely to matters
governed by the laws of the State of Ohio and the DGCL. This
opinion does not address the potential applicability to the
proposed transactions of any state securities or Blue Sky laws.
Based upon and subject to the foregoing, and assuming that
the proposed transactions are carried out in accordance with (i)
the Application (including as it may be further amended) and the
Commission's order(s) to be issued with respect thereto and (ii)
all other requisite approvals and authorizations, corporate or
otherwise, I am of the opinion that:
a. All state laws applicable to the proposed transactions will
have been complied with.
b. Each Intermediate Parent and Nonutility Company will be or
is duly organized and validly existing.
c. Any equity security issued by any Intermediate Parent or
Nonutility Company pursuant to the transactions proposed
in the Application, when properly issued, delivered and
paid for, will be validly issued, fully paid and
nonassessable, and any associate company to whom any such
equity security is issued will be entitled to the rights
and privileges appertaining thereto set forth in the
relevant organizational instruments.
d. Any debt security issued by any Intermediate Parent or
Nonutility Company to any associate company thereof
pursuant to the transactions proposed in the Application
will be a valid and binding obligation of the issuer in
accordance with its terms, except to the extent such
enforceability may be limited (i) by applicable
bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of
creditors' rights generally or (ii) by applicable
principles of equity (regardless of whether such
enforceability is sought in a proceeding at law or in
equity).
e. Each Applicant will legally acquire any equity or debt
securities or assets of any business of any Intermediate
Parent or Nonutility Company, in each case as proposed in
the Application.
f. The consummation of the proposed transactions will not
violate the legal rights of the holders of any securities
issued by any Applicant or any associate company thereof.
I hereby consent to the use of this opinion in connection
with the Application.
Very truly yours,
/s/Jerome A. Vennemann
Associate General Counsel
Exhibit I-2
File No. 70-9319
CINERGY CORP. CONSOLIDATED
CAPITALIZATION ACTUAL
DECEMBER 31, 1998
$ Millions Percentage
Common Stock Equity
Common stock $ 2
Paid-in capital 1,595
Retained earnings 945
Accumulated other comprehensive income (loss) (1)
Total common stock equity 2,541 40.5%
Cumulative Preferred Stock of Subsidiaries
Not subject to mandatory redemption 93 1.5%
Debt
Long-term debt 2,554
Long-term debt due within one year 136
Notes payable and other short-term
obligations 954
Total debt 3,644 58.0%
Total capitalization $ 6,278 100.0%
The following table sets forth Cinergy's pro forma
capitalization, assuming that the entire amount of non-recourse
debt applicable to EWGs and FUCOs which is attributable to
Cinergy's ownership interest ($1.2 billion) is consolidated. It
should be noted that such consolidation is inconsistent with the
requirements of GAAP, and is being provided to the staff of the
Securities and Exchange Commission solely at its request.
CINERGY CORP. CONSOLIDATED CAPITALIZATION
PRO FORMA
DECEMBER 31, 1998
$ Millions Percentage
Common Stock Equity
Common stock $ 2
Paid-in capital 1,595
Retained earnings 945
Accumulated other comprehensive income (loss) (1)
Total common stock equity 2,541 34.2 %
Cumulative Preferred Stock of Subsidiaries
Not subject to mandatory redemption 93 1.3 %
Debt
Long-term debt 3,513
Long-term debt due within one year 138
Notes payable and other short-term
obligations 1,151
Total debt 4,802 64.5 %
Total capitalization $ 7,436 100.0 %
