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Exhibit G-1
Revised 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), 10 and12(c) of the Public Utility Holding Company Act of
1935 (the "Act") and rules 42 and 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 or other equity securities of its
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. Finally, Cinergy requests that the
Commission reserve jurisdiction over any proposed adjustments to capital
securities of subsidiaries that are not wholly-owned by Cinergy.
Cinergy asserts that the proposed authority is 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.10
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 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).11
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.12 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 existing utility
subsidiaries, 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 existing nonutility subsidiaries,
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 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"13 and energy-related "Consulting Services"14 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.15
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
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 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.16
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.
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 A fourth utility subsidiary of CG&E, The West Harrison Gas and Electric
Company, an Indiana electric utility, was acquired by and merged into PSI,
effective January 2, 2001, in a transaction approved by the Indiana Utility
Regulatory Commission and 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. 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 Entergy Corp., HCAR No. 27333, Jan. 5, 2001 (authority to invest $1.2
billion); American Electric Power Company, Inc., et al., HCAR No. 27313, Dec.
21, 2000 (authority to invest $2 billion); Progress Energy, supra (authority to
invest $500 million); Energy East, supra (authority to invest $500 million);
Interstate, supra (authority to invest $125 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 For example, Cinergy holds all the outstanding common stock (approximately 90
million shares) of CG&E. Pursuant to the authority requested herein, Cinergy
could increase or reduce the specific number of shares of CG&E's common stock
that it holds, while maintaining CG&E as a wholly-owned subsidiary.
10 See, e.g., 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.
11 Cinergy states that a fourth utility subsidiary of CG&E, The West Harrison
Gas and Electric Company, an Indiana electric utility, was acquired by and
merged into PSI, effective January 2, 2001, in a transaction approved by the
Indiana Utility Regulatory Commission and exempt from Commission jurisdiction
pursuant to rules 43 and 44 and section 9(b)(1).
12 Lawrenceburg sells and transports natural gas to approximately 20,000 people
in a 60 square-mile area in southeastern Indiana. Miami owns a 138 kV
transmission line running from the Miami Fort Power Station in Ohio to a point
near Madison, Indiana.
13 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.
14 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.
15 See HCAR No. 27190, June 23, 2000.
16 For example, Cinergy holds all the outstanding common stock (approximately 90
million shares) of CG&E. Pursuant to the authority requested herein, Cinergy
could increase or reduce the specific number of shares of CG&E's common stock
that it holds, while maintaining CG&E as a wholly-owned subsidiary.
