EXHIBIT G-1
Form of Public Notice
Securities and Exchange Commission
(Release No. 35-_________)
Cinergy Corp., a Delaware corporation and registered public utility
holding company ("Cinergy"), at 139 East Fourth Street, Cincinnati, Ohio 45202,
has filed an application-declaration ("Application") with the Commission under
sections 6(a), 7, 9(a) and 10 of the Public Utility Holding Company Act of 1935
(the "Act") and rule 54 thereunder.
As more specifically described below, Cinergy requests authority (1) to
engage in certain energy-related businesses both within and outside the United
States and (2) to adjust the capital stock of wholly-owned subsidiaries, in both
cases without further Commission authorization.
Pending completion of the record, Cinergy requests that the Commission
reserve jurisdiction over the Nonutility Subsidiaries (defined below) engaging
in the business of energy commodity marketing and brokering outside the United
States and Canada. Also pending completion of the record, Cinergy requests that
the Commission reserve jurisdiction over Cinergy's proposal to invest up to $1
billion over a ten-year period in nonutility energy-related assets located
anywhere in the world that are incidental to and used to support such energy
marketing and brokering businesses.
Cinergy asserts that the proposed transactions for which it now seeks
Commission authorization consistent with authority granted to numerous other
registered holding companies in the past two years, and is intended to place
Cinergy on a "level playing field" under the Act with respect to these other
companies relative to the proposed transactions.9
Cinergy commits that it will not seek recovery through higher rates to
its utility subsidiaries' customers for any losses Cinergy may sustain, or any
inadequate returns it may realize, in respect of the proposed transactions.
A. Background: Cinergy & Subsidiaries; 1997 Order
Cinergy registered under the Act in 1994 (see HCAR No. 26146, October
21, 1994). At and for the nine months ended September 30, 2000, Cinergy had
consolidated assets of approximately $10.953 billion and operating revenues of
approximately $5.652 billion.
Cinergy has two direct, wholly-owned utility subsidiaries, The
Cincinnati Gas & Electric Company, an Ohio electric and gas utility ("CG&E"),
and PSI Energy, Inc., an Indiana electric utility ("PSI"). CG&E in turn has four
wholly-owned utility subsidiaries, The Union Light, Heat and Power Company, a
Kentucky electric and gas utility ("ULH&P"), Lawrenceburg Gas Company, an
Indiana gas utility ("Lawrenceburg"), The West Harrison Gas and Electric
Company, an Indiana electric utility ("West Harrison"), and Miami Power
Corporation ("Miami"), an electric utility (solely by virtue of its ownership of
certain transmission assets).10
CG&E and its utility subsidiaries provide retail electric and/or gas
service in the southwestern portion of Ohio and adjacent areas in Kentucky and
Indiana. The area served with electricity, gas or both covers approximately
3,200 square miles and has an estimated population of two million. CG&E
produces, transmits, distributes and sells electricity and sells and/or
transports natural gas in the southwestern portion of Ohio, serving an estimated
population of 1.6 million people in 10 of the state's 88 counties including the
cities of Cincinnati and Middletown. ULH&P transmits, distributes and sells
electricity and sells and transports natural gas in northern Kentucky, serving
an estimated population of 328,000 people in a 500 square-mile area encompassing
six counties and including the cities of Newport and Covington.11 At and for the
nine months ended September 30, 2000, CG&E had consolidated assets of
approximately $5.332 billion and operating revenues of approximately $2.263
billion.
PSI produces, transmits, distributes and sells electricity in north
central, central and southern Indiana, serving an estimated population of 2.2
million people located in 69 of the state's 92 counties including the cities of
Bloomington, Columbus, Kokomo, Lafayette, New Albany and Terre Haute. At and for
the nine months ended September 30, 2000, PSI had consolidated assets of
approximately $4.203 billion and operating revenues of approximately $1.958
billion.
Cinergy has numerous nonutility subsidiaries, including exempt
wholesale generators as defined in section 32 of the Act ("EWGs"), foreign
utility companies as defined in section 33 of the Act ("FUCOs"), exempt
telecommunications companies as defined in section 34 of the Act,
"energy-related companies" as defined in rule 58 under the Act, and other
nonutility subsidiaries whose securities Cinergy has acquired pursuant to
express Commission authorization (see, e.g., HCAR Nos. 26662, Feb. 7, 1997
("1997 Order") & 26984, March 1, 1999).
"Utility Subsidiaries" refers to all of Cinergy's utility subsidiaries
at September 30, 2000, together with any and all utility subsidiaries that
Cinergy acquires thereafter pursuant to Commission authorization; "Nonutility
Subsidiaries" refers to all of Cinergy's nonutility subsidiaries at September
30, 2000, together with any and all nonutility subsidiaries that Cinergy
acquires thereafter pursuant to Commission authorization or as otherwise
permitted under the Act; and "Subsidiaries" refers collectively to Utility
Subsidiaries and Nonutility Subsidiaries.
The 1997 Order permitted Cinergy to establish a nonutility subsidiary,
Cinergy Solutions, Inc. ("Cinergy Solutions"), that would engage in certain
nonutility energy-related businesses, directly or indirectly through
subsidiaries, in the United States and, with respect to certain categories of
those authorized activities, both within and anywhere outside of the United
States. In particular, with respect to the proposed transactions, the Commission
authorized Cinergy Solutions to market to non-affiliates "Energy Management
Services"12 and energy-related "Consulting Services"13 both within and anywhere
outside of the United States. The 1997 Order limited Cinergy to marketing the
authorized energy-related activities, including the Energy Management Services
and Consulting Services, through Cinergy Solutions and subsidiaries thereof. (As
used below, "Energy Management Services" and "Consulting Services" have the
meanings assigned in the 1997 Order.)
B. Requested Authority
1. Energy Management Services & Consulting Services
In the Application, Cinergy requests authority for Nonutility
Subsidiaries to engage in the business of marketing Energy Management Services
and Consulting Services anywhere in the world, without the need for further
Commission authorization. (This authority would supplement, not supersede, the
authority with respect thereto granted in the 1997 Order.)
2. Energy Commodity Brokering & Marketing; Investment Cap for Energy-Related
Assets
Cinergy further requests authority for Nonutility Subsidiaries to
engage in the business of brokering and marketing energy commodities (including
but not limited to electricity, natural gas and other combustible fuels)
anywhere in the world, without the need for further Commission authorization.
The foregoing notwithstanding, pending completion of the record, Cinergy
requests the Commission to reserve jurisdiction over any Nonutility Subsidiary
engaging in such business outside of the United States and Canada.
In addition, Cinergy, on behalf of itself and the Nonutility
Subsidiaries, requests authority to invest up to $1,000,000,000 from time to
time over a ten-year period ("Investment Cap") in energy-related nonutility
assets and the equity securities of companies substantially all of whose
physical assets comprise such assets (collectively, "Energy-Related Assets")
located anywhere in the world that are incidental to and would be used to
support the energy commodity marketing businesses of the Nonutility
Subsidiaries, including, without limitation, natural gas production, gathering,
processing, storage and transportation facilities and equipment, liquid oil
reserves and storage facilities, and associated assets, facilities and
equipment. Energy-Related Assets exclude any assets, facilities or equipment
that would cause the owner or operator thereof to be deemed a "public utility
company" under the Act. Likewise, Energy-Related Assets exclude investments in
or the assets held by exempt wholesale generators and foreign utility companies,
for which Cinergy has separate investment authority.14
Where Cinergy or Nonutility Subsidiaries acquire Energy-Related Assets
from third parties, the consideration therefor would consist of cash or common
stock of Cinergy or other forms of consideration mutually acceptable to the
parties. If the consideration consists in whole or in part of Cinergy common
stock, the market value thereof as determined by the parties under the
applicable transaction agreements will be counted against the Investment Cap.
The principal or stated amount of any other securities used as consideration
will also be applied against the Investment Limitation.
The foregoing notwithstanding, pending completion of the record,
Cinergy requests the Commission to reserve jurisdiction over the proposed
acquisition of Energy-Related Assets pursuant to the Investment Cap.
3. Adjustments to Capital Stock of Wholly-Owned Subsidiaries
Cinergy states that a variety of circumstances may arise in which
Cinergy deems it prudent or otherwise desirable, for tax efficiency or other
reasons, to make adjustments to the capital securities (such as common or
preferred stock) of Subsidiaries. For example, the proposed sale of capital
securities could exceed the then authorized capital stock of a Subsidiary. It
may become desirable to convert a Subsidiary's par value capital stock to no par
value stock. Likewise, Cinergy may determine to convert the form of a
Subsidiary, from a corporation to a limited liability company or other
authorized form of legal entity, or vice versa. Cinergy may determine to have a
Subsidiary effect a reverse stock split, to reduce franchise taxes or for other
reasons.
To accommodate these and similar adjustments to capitalization intended
to enhance Cinergy's business flexibility and efficiency, Cinergy also requests
authority to change the terms of, or otherwise adjust, any wholly owned
Subsidiary's authorized capital stock as Cinergy deems appropriate or necessary,
without the need for further Commission authorization. The foregoing
notwithstanding, (1) any such action in respect of any Subsidiary would comply
with any requirements, if any, applicable by Commission order or otherwise under
the Act in respect of the terms and conditions of any such capital securities,
and (2) any such action in respect of a Utility Subsidiary would be subject to,
and would only be taken upon the receipt of, any necessary approvals by the
state commission in the state or states where the Utility Subsidiary is
organized and doing business.
C. Rule 54
Cinergy states that it currently does not meet the conditions of Rule
53(a). As of September 30, 2000, Cinergy's "aggregate investment," as defined in
Rule 53(a)(1), in exempt wholesale generators ("EWGs") and foreign utility
companies ("FUCOs") was approximately $751,983,000. This amount is equal to
approximately 67% of Cinergy's average "consolidated retained earnings," also as
defined in Rule 53(a)(1), for the four quarters ended September 30, 2000, of
approximately $1,122,511,250, which exceeds the 50% "safe harbor" limitation
contained in the rule.
By order dated March 23, 1998 (HCAR No. 26848) ("1998 Order"), the
Commission authorized Cinergy to increase its aggregate investment in EWGs and
FUCOs to an amount equal to 100% of Cinergy's average "consolidated retained
earnings." By order dated June 23, 2000 (HCAR No. 27190) ("2000 Order"), the
Commission granted Cinergy additional authorization to invest in EWGs and FUCOs
beyond that granted in the 1998 Order -- specifically, $1,000,000,000 in
addition to Cinergy's aggregate investment at the date of such order
(approximately $731,000,000). Although Cinergy's aggregate investment at
September 30, 2000 exceeds the 50% "safe harbor" limitation, this investment is
below the limitation authorized by the 1998 and 2000 Orders.
With respect to capitalization, Cinergy asserts that there has been no
material adverse impact on Cinergy's consolidated capitalization resulting from
Cinergy's investments in EWGs and FUCOs. As of September 30, 1997, the most
recent period for which financial statement information was evaluated in the
1998 Order, Cinergy's consolidated capitalization consisted of 44.1% equity and
55.9% debt. As of September 30, 2000, Cinergy's consolidated capitalization
consisted of 42.2% equity and 57.8% debt. These ratios are within acceptable
ranges, as further reflected by the fact that at September 30, 2000 Cinergy's
senior unsecured debt was rated "investment grade" by all the major rating
agencies. The proposed transactions will have no impact on Cinergy's
consolidated capitalization.
With respect to earnings, Cinergy states that its interests in EWGs and
FUCOs have made consistent and significant contributions to Cinergy's
consolidated retained earnings, as reflected in the quarterly certificates filed
by Cinergy in Docket No. 70-9011. Although Cinergy's consolidated earnings for
the year ended December 31, 1997 were negatively affected by Cinergy's 50%
ownership interest in Midlands Electricity plc ("Midlands"), a FUCO, this was
solely as a result of the imposition by the United Kingdom of a one-time,
non-recurring windfall tax. Significantly, this tax did not affect earnings from
ongoing operations, and therefore would not have any negative impact on earnings
in future periods. In July 1999, Cinergy sold all of its ownership in Midlands,
realizing a substantial profit.
Finally, Cinergy states that it satisfies all of the other conditions
of paragraphs (a) and (b) of Rule 53.
Cinergy states that the proposed transactions are not subject to the
jurisdiction of any state or federal commission other than this Commission,
except possibly in respect of applicable state commissions in the case of
proposed adjustments to capital stock of Utility Subsidiaries, depending on the
terms of the proposed adjustment.
Cinergy estimates total fees and expenses in connection with the
proposed transactions of not more than $20,000.
For the Commission, by the Division of Investment Management, pursuant
to delegated authority.
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1. West Harrison is in the process of being acquired by and merged into PSI in a
transaction exempt from Commission jurisdiction pursuant to rules 43 and 44 and
section 9(b)(1).
2. Lawrenceburg sells and transports natural gas to approximately 20,000 people
in a 60 square-mile area in southeastern Indiana. West Harrison sells
electricity over a 3-square mile area with a population of approximately 1,000
in West Harrison, Indiana and bordering rural areas. Miami owns a 138 kV
transmission line running from the Miami Fort Power Station in Ohio to a point
near Madison, Indiana.
3. The 1997 Order defined Energy Management Services as comprising-- (1)
identification (through energy audits or otherwise) of energy and other resource
(water, labor, maintenance, materials, etc.) cost reduction or efficiency
opportunities; (2) design of facility and process modifications or enhancements
to realize such opportunities; (3) management, or direct construction and
installation, of energy conservation or efficiency equipment; (4) training of
client personnel in the operation of equipment; (5) maintenance of energy
systems; (6) design, management or direct construction and installation of new
and retrofit heating, ventilating, and air conditioning (`HVAC'), electrical and
power systems, motors, pumps, lighting, water and plumbing systems, and related
structures, to realize energy and other resource efficiency goals or to
otherwise meet a customer's energy-related needs; (7) system commissioning
(i.e., monitoring the operation of an installed system to ensure that it meets
design specifications); (8) reporting of system results; (9) design of energy
conservation programs; (10) implementation of energy conservation programs; (11)
provision of conditioned power services (i.e., services designed to prevent,
control or mitigate adverse effects of power disturbances on a customer's
electrical system to ensure the level of power quality required by the customer,
particularly with respect to sensitive electronic equipment); and (12) other
similar or related activities.
4. Consulting Services were defined in the 1997 Order as comprising-- technical
and consulting services involving technology assessments, power factor
correction and harmonics mitigation analysis, commercialization of
electro-technologies, meter reading and repair, rate schedule analysis and
design, environmental services, engineering services, billing services including
conjunctive billing, summary billing for customers with multiple locations and
bill auditing, risk management services, communications systems, information
systems/data processing, system planning, strategic planning, finance,
feasibility studies, and other similar or related services.
5. See Progress Energy, Inc., et al., HCAR No. 27297, Dec. 12, 2000 ("Progress
Energy"); NiSource, Inc., et al., HCAR No. 27265, Nov. 1, 2000 ("NiSource");
Energy East Corp., et al., HCAR No. 27228, Sep. 12, 2000 ("Energy East");
Interstate Energy Corporation, et al., HCAR No. 27069, Aug. 26, 1999
("Interstate"); American Electric Power Co., et al., HCAR No. 27062, Aug. 19,
1999; Ameren Corporation, et al., HCAR No. 27053, July 23, 1999; Southern
Energy, Inc., HCAR No. 27020, May 13, 1999.
6. See Progress Energy, supra (authority to invest $500 million); Energy East,
supra (authority to invest $500 million); Interstate, supra (authority to invest
$125 million); American Electric Power Company, Inc., et al., HCAR No. 26933,
Nov. 2, 1998 (authority to invest $800 million); SEI Holdings, Inc., HCAR No.
26581, Sep. 26, 1996 (authority to invest $300 million).
7. See, e.g., Progress Energy, supra; Scottish Power plc, et al., HCAR No.
27290, Dec. 6, 2000; PowerGen plc, et al., HCAR No. 27291, Dec. 6, 2000; KeySpan
Corporation, et al., HCAR No. 27272, Nov. 8, 2000; Exelon Corporation, et al.,
HCAR No. 27266, Nov. 2, 2000; NiSource, supra; Energy East, supra; The National
Grid Group plc, HCAR No. 27154, March 15, 2000; SCANA Corporation, et al., HCAR
No. 27135, Feb. 14, 2000.
8. See HCAR No. 27190, June 23, 2000.
9. See Progress Energy, Inc., et al., HCAR No. 27297, Dec. 12, 2000; Scottish
Power plc, et al., HCAR No. 27290, Dec. 6, 2000; PowerGen plc, et al., HCAR No.
27291, Dec. 6, 2000; KeySpan Corporation, et al., HCAR No. 27272, Nov. 8, 2000;
Exelon Corporation, et al., HCAR No. 27266, Nov. 2, 2000; NiSource, Inc., et
al., HCAR No. 27265, Nov. 1, 2000; Energy East Corp., et al., HCAR No. 27228,
Sep. 12, 2000; The National Grid Group plc, HCAR No. 27154, March 15, 2000;
SCANA Corporation, et al., HCAR No. 27135, Feb. 14, 2000; Interstate Energy
Corporation, et al., HCAR No. 27069, Aug. 26, 1999; American Electric Power Co.,
et al., HCAR No. 27062, Aug. 19, 1999; Ameren Corporation, et al., HCAR No.
27053, July 23, 1999; Southern Energy, Inc., HCAR No. 27020, May 13, 1999.
10. Cinergy states that West Harrison is in the process of being acquired by and
merged into PSI in a transaction exempt from Commission jurisdiction pursuant to
rules 43 and 44 and section 9(b)(1).
11. Lawrenceburg sells and transports natural gas to approximately 20,000 people
in a 60 square-mile area in southeastern Indiana. West Harrison sells
electricity over a 3-square mile area with a population of approximately 1,000
in West Harrison, Indiana and bordering rural areas. Miami owns a 138 kV
transmission line running from the Miami Fort Power Station in Ohio to a point
near Madison, Indiana.
12. The 1997 Order defined Energy Management Services as comprising-- (1)
identification (through energy audits or otherwise) of energy and other resource
(water, labor, maintenance, materials, etc.) cost reduction or efficiency
opportunities; (2) design of facility and process modifications or enhancements
to realize such opportunities; (3) management, or direct construction and
installation, of energy conservation or efficiency equipment; (4) training of
client personnel in the operation of equipment; (5) maintenance of energy
systems; (6) design, management or direct construction and installation of new
and retrofit heating, ventilating, and air conditioning (`HVAC'), electrical and
power systems, motors, pumps, lighting, water and plumbing systems, and related
structures, to realize energy and other resource efficiency goals or to
otherwise meet a customer's energy-related needs; (7) system commissioning
(i.e., monitoring the operation of an installed system to ensure that it meets
design specifications); (8) reporting of system results; (9) design of energy
conservation programs; (10) implementation of energy conservation programs; (11)
provision of conditioned power services (i.e., services designed to prevent,
control or mitigate adverse effects of power disturbances on a customer's
electrical system to ensure the level of power quality required by the customer,
particularly with respect to sensitive electronic equipment); and (12) other
similar or related activities.
13. Consulting Services were defined in the 1997 Order as comprising-- technical
and consulting services involving technology assessments, power factor
correction and harmonics mitigation analysis, commercialization of
electro-technologies, meter reading and repair, rate schedule analysis and
design, environmental services, engineering services, billing services including
conjunctive billing, summary billing for customers with multiple locations and
bill auditing, risk management services, communications systems, information
systems/data processing, system planning, strategic planning, finance,
feasibility studies, and other similar or related services.
14. See HCAR No. 27190, June 23, 2000.
