File No. 70-9803
SECURITIES AND EXCHANGE COMMISSION
450 FIFTH STREET
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO FORM U-1 APPLICATION-DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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Cinergy Corp.
139 East Fourth Street
Cincinnati, Ohio 45202
(Name of company filing this statement
and address of principal executive offices)
Cinergy Corp.
(Name of top registered holding company)
Wendy L. Aumiller/Assistant Treasurer
Cinergy Corp.
139 E. 4th Str., 24AT2
Cincinnati, Ohio 45202
(Name and address of agent for service)
<PAGE>
Please direct communications to:
George Dwight II/ Senior Counsel
Cinergy Corp.
(mailing address above)
513-287-2643 (ph)
513-287-3810 (f)
[email protected]
William C. Weeden William T. Baker, Jr.
Skadden Arps Slate Meagher & Flom Thelen Reid & Priest LLP
1400 New York Avenue, N.W. 40 West 57th Street
Washington, D.C. 20005 New York, New York 10019
202-371-7877 (ph) 212-603-2106 (ph)
202-371-7012 (f) 212-603-2001 (f)
[email protected] [email protected]
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The application-declaration in this proceeding as previously filed is hereby
restated in its entirety as follows:
Item 1. Description of Proposed Transactions
A. Introduction
Cinergy Corp. ("Cinergy"), a Delaware corporation and registered holding
company under the Public Utility Holding Company Act of 1935, as amended (the
"Act"), requests authority (1) to engage in certain energy-related businesses
both within and outside the United States and (2) to adjust the capital stock or
other equity securities of its subsidiaries, in both cases without further
Commission authorization, as more specifically described below.
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. Finally, Cinergy requests that the
Commission reserve jurisdiction over any proposed adjustments to capital
securities of subsidiaries that are not wholly-owned by Cinergy.
The authority now requested is consistent with authority routinely granted
to many other registered holding companies in the past two years, and is
intended to place Cinergy on a level playing field under the Act relative to
these matters.
Cinergy 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.
B. Background -- Cinergy & Subsidiaries; Commission Orders
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. Enclosed herewith is an organizational chart for
Cinergy's holding company system at September 30, 2000.
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 three
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"), and Miami Power Corporation ("Miami"), an electric
utility (solely by virtue of its ownership of certain transmission assets).1
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.2 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).
As used in this application, "Utility Subsidiaries" refers to all of
Cinergy's utility subsidiaries at the date hereof, together with any and all
utility subsidiaries that Cinergy acquires in the future pursuant to Commission
authorization; "Nonutility Subsidiaries" refers to all of Cinergy's nonutility
subsidiaries at the date hereof, together with any and all nonutility
subsidiaries that Cinergy acquires in the future pursuant to Commission
authorization or as otherwise permitted under the Act; and "Subsidiaries" refers
collectively to Utility Subsidiaries and Nonutility Subsidiaries.
The 1997 Order, which was issued just prior to adoption of rule 58,
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. More specifically, as
pertinent to this application, the Commission authorized Cinergy Solutions to
market to non-affiliates "Energy Management Services"3 and energy-related
"Consulting Services"4 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 herein, "Energy
Management Services" and "Consulting Services" have the meanings assigned in the
1997 Order.)
Since the 1997 Order, the Commission adopted rule 58, and by order has
permitted numerous other registered holding company systems (1) not only to
market energy management services and consulting services (substantially
identical to the Energy Management Services and Consulting Services) outside the
United States anywhere in the world, (2) but also to engage in energy commodity
marketing and brokering outside the United States, limited to Canada. Moreover,
these orders generally afford the registered holding company systems the
flexibility to engage in these businesses not merely by means of a particular
existing or proposed nonutility subsidiary, but rather through any and all
existing or future nonutility subsidiaries, as the registered holding company
deems necessary or appropriate.5 In connection with the authority granted in the
foregoing orders to engage in the energy commodity brokering and marketing
business, the Commission in certain of those orders has expressly permitted the
registered holding companies to invest up to a specified limit, over a
multi-year period, in nonutility energy-related assets (or companies holding
those assets) incidental to the energy commodity marketing business.6 In
addition, since the 1997 Order, the Commission has afforded numerous registered
holding companies the flexibility to adjust the capital stock of wholly-owned
subsidiaries, on a blanket basis without the need for further Commission
authorization.7
C. Requested Authority
1. Energy Management Services & Consulting Services
Cinergy now 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.8
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 reference to the applicable provisions in
the 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 Securities of Subsidiaries
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 stock or other equity securities (such as common or preferred stock
or limited liability company membership interests) of Subsidiaries. For example,
a proposed sale of capital stock 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. And Cinergy may determine to increase or reduce the total number
of shares of capital securities it holds in a Subsidiary, while maintaining its
percentage ownership therein.9
To accommodate these and similar adjustments to capitalization intended to
enhance Cinergy's business flexibility and efficiency, Cinergy therefore also
requests authority, on behalf of itself and any such Subsidiary, to change the
terms of, or otherwise adjust, any Subsidiary's authorized capital stock or
other equity securities 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.
Further, Cinergy requests that the Commission reserve jurisdiction over any such
action in the case of any Subsidiary that is not a wholly-owned Subsidiary of
Cinergy, pending completion of the record.
Item 2. Fees, Commissions and Expenses
Cinergy estimates total fees and expenses in connection with the proposed
transactions of not more than $20,000, consisting chiefly of outside counsel
fees and expenses.
Item 3. Applicable Statutory Provisions
Sections 6(a), 7, 9(a), 10 and 12(c) of the Act and rules 42 and 54
thereunder 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 a 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
if paragraphs (a), (b) and (c) of Rule 53 are satisfied.
Cinergy 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 EWGs and 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). Therefore, 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, 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's interests in EWGs and FUCOs have made
consistent and significant contributions to Cinergy's consolidated retained
earnings. 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.
Cinergy satisfies all of the other conditions of paragraphs (a) and (b) of
Rule 53. With reference to Rule 53(a)(2), Cinergy maintains books and records in
conformity with, and otherwise adheres to, the requirements thereof. With
reference to Rule 53(a)(3), no more than 2% of the employees of Cinergy's
domestic public utility companies render services, at any one time, directly or
indirectly, to EWGs or FUCOs in which Cinergy directly or indirectly holds an
interest. With reference to Rule 53(a)(4), Cinergy will concurrently provide a
copy of this application to each regulator referred to therein, and will
otherwise comply with the requirements thereof concerning the furnishing of
information. With reference to Rule 53(b), none of the circumstances enumerated
in subparagraphs (1), (2) and (3) thereunder have occurred. Finally, Rule 53(c)
by its terms is inapplicable since the proposed transactions do not involve the
issue or sale of a security to finance the acquisition of an EWG or FUCO.
Item 4. Regulatory Approval
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.
Item 5. Procedure
Cinergy requests that the Commission issue an order as soon as practicable
after the expiration of the applicable public notice period granting and
permitting this Application-Declaration to become effective.
Cinergy waives a recommended decision by a hearing officer or other
responsible officer of the Commission; consents that the Staff of the Division
of Investment Management may assist in the preparation of the Commission's
order; and requests that there be no waiting period between the issuance of the
Commission's order and its effectiveness.
Pursuant to rule 24 under the Act, within 60 days after the end of each
calendar quarter (commencing with the first full calendar quarter following the
Commission's order herein), Cinergy proposes to file a quarterly certificate
with the Commission, providing summary information for the preceding calendar
quarter regarding the activities conducted pursuant to the authority requested
in Item 1.C.
Item 6. Exhibits and Financial Statements
(a) Exhibits
A-1 Certificate of incorporation of Cinergy (filed as an exhibit to and
hereby incorporated by reference from Cinergy's 1993 Form 10-K)
A-2 By-laws of Cinergy as amended on April 27, 2000 (filed as an exhibit to
and hereby incorporated by reference from Cinergy's March 31, 2000 Form 10-Q)
B Not applicable
C Not applicable
D Not applicable
E Not applicable
F-1 Preliminary opinion of counsel (previously filed)
G-1 Revised form of Federal Register notice
H Organizational chart as of September 30, 2000 (previously filed)
(b) Financial Statements
FS-1 Cinergy Corp. consolidated financial statements dated September 30,
2000 (incorporated by reference from Cinergy's September 30 Quarterly Report on
Form 10-Q in File No. 1-11377)
FS-2 Cinergy Corp. financial statements dated September 30, 2000
(previously filed)
NOTE: Since the proposed transactions will have no impact on Cinergy's
stand-alone or consolidated capitalization, the above financial statements have
been prepared solely per books.
Item 7. Information as to Environmental Effects
(a) The Commission's action in this matter will not constitute any 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.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the undersigned company has duly caused this amended Form U-1 to be signed
on its behalf by the officer indicated below.
Dated: January 11, 2001
Cinergy Corp.
By: /s/ Wendy L. Aumiller
Assistant Treasurer
