As filed with the Securities and Exchange Commission on
May 13, 1994
File No. 70-8305
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 (U-1/A)
to
FORM U-1
APPLICATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Illinova Corporation
(formerly IP Holding Company)
500 South 27th Street
Decatur, Illinois 62525-1805
(Name of company filing this statement
and address of principal executive office)
Leah Manning Stetzner
Gary B. Pasek
Illinois Power Company
500 South 27th Street
Decatur, Illinois 62525-1805
R. Todd Vieregg, P.C. Frederic G. Berner, Jr.
Sidley & Austin Nancy Y. Gorman
One First National Plaza Sidley & Austin
Chicago, Illinois 60603 1722 Eye Street, N.W.
(312) 853-7000 Washington, D.C. 20006
(202) 736-8000
(Names and addresses of agents for service)
<PAGE>
Illinova Corporation ("Illinova") (formerly IP
Holding Company), is filing this Amendment No. 2 to its Form
U-1 Application (the "Application") under the Public Utility
Holding Company Act of 1935 (the "1935 Act" or the "Act")
filed with the Securities and Exchange Commission
("Commission") on November 15, 1993, for the purpose of
filing an additional exhibit and advising the Commission
that the Federal Energy Regulatory Commission ("FERC") has
approved the corporate restructuring proposed in the
Application.
* * *
Item 4. REGULATORY APPROVALS.(1)
On November 15, 1993, Illinois Power filed an
application requesting the FERC to approve the proposed
restructuring under Section 203 of the Federal Power Act.
By order dated May 3, 1994, the FERC authorized Illinois
Power to create a holding company structure pursuant to
which Illinois Power will become a wholly-owned subsidiary
of Illinova. A certified copy of the FERC's order is
attached hereto as Exhibit D-2. On November 11, 1993,
Illinois Power requested that the NRC approve the DE JURE
(1) This item amends Item 4 as it appears at p. 32 of the
Application.
1
<PAGE>
transfer of NRC licenses pursuant to Section 184 of the
Atomic Energy Act and 10 C.F.R. Section 50.80. By letter
order dated January 31, 1994, the NRC consented to the
proposed ownership of Illinois Power by Illinova. The NRC
concluded therein that the proposed restructuring "will not
affect the qualifications of [Illinois Power] as a holder of
the Clinton Power Station license" and that the proposed
restructuring "is otherwise consistent with applicable
provisions of law, regulations, and other requirements
issued by the [NRC] pursuant thereto." (Letter order at 3).
A certified copy of the NRC's letter order is attached
hereto as Exhibit D-7.
* * *
Item 6. EXHIBITS AND FINANCIAL STATEMENTS.
This Amendment includes the following supplemental
exhibit:
Exhibit D-2: Order of the FERC approving the proposed
restructuring pursuant to Section 203 of the
Federal Power Act.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Public Utility
Holding Company Act of 1935, Illinova Corporation has duly
caused this Amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
ILLINOVA CORPORATION
(formerly IP Holding Company)
By: /s/ LEAH MANNING STETZNER
Leah Manning Stetzner
Secretary and Treasurer
Dated: May 13, 1994
3
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
CERTIFICATION
I hereby certify that the attached 11 pages are
true and correct copies of a document on file with the
Commission.
May 5, 1994 /s/ARVE L. MILNER
Date Custodian
I hereby certify that the
Custodian, or his designee,
which signature appears above,
is the official custodian of
(S E A L) the records of the Federal
Energy Regulatory Commission
which certification is made
and was such official custodi-
an at the time of executing
the above certification.
/s/LOIS D. CASHELL
Secretary
<PAGE>
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Before Commissioners: Elizabeth Anne Moler, Chair;
Vickey A. Bailey, James J. Hoecker,
William L. Massey,
and Donald F. Santa, Jr.
Illinois Power Company ) Docket No. EC94-3-000
ORDER GRANTING AUTHORIZATION FOR PROPOSED
CORPORATE RESTRUCTURING AND CLARIFYING JURISDICTION
OVER INDIRECT MERGERS OF PUBLIC UTILITIES OWNED
BY PUBLIC UTILITY HOLDING COMPANIES
(Issued May 3, 1994)
INTRODUCTION
This order authorizes Illinois Power Company (Illinois
Power) to create a holding company, IP Holding Company (IP
Holding), of which Illinois Power will become a wholly-owned
subsidiary. We also take this opportunity to clarify our
jurisdiction under section 203 of the Federal Power Act
(FPA). While this Commission does not have jurisdiction
over public utility holding company mergers or
consolidations,(1) we conclude that, ordinarily, when public
utility holding companies merge, an indirect merger
involving their public utility subsidiaries also takes
place, and that our approval under section 203 is required
for the indirect merger of the public utilities.
Accordingly, in this order we establish and announce a
rebuttable presumption that an indirect merger of the public
utility subsidiaries occurs simultaneously with the merger
of the holding company parents. Therefore, prior to public
utility holding companies merging, their public utility
subsidiaries must either rebut the presumption or obtain our
approval under section 203 of the FPA. If applicants can
show us that there will not be an indirect merger or
consolidation of the facilities of the public utility
subsidiaries, our jurisdiction will not apply until such
(1) Although mergers and consolidations differ in the mechanics of
the combination (mergers involve one company acquiring the other,
while consolidations entail forming a new entity), BLACK'S LAW
DICTIONARY, at 309 (Revised Sixth Ed. 1990), for ease of presentation,
we will refer to both types of combinations as mergers.
<PAGE>
Docket No. EC94-3-000 2
time as the public utility subsidiaries themselves seek to
merge or consolidate.
BACKGROUND
On November 15, 1993, Illinois Power submitted an
application pursuant to section 203 of the Federal Power Act
for authority to effect a "disposition of facilities" that
would be deemed to occur as a result of a proposed corporate
restructuring.(2) Illinois Power states that the proposed
restructuring would be accomplished through the creation of
a holding company, IP Holding, of which Illinois Power would
become a subsidiary.
Illinois Power states that the proposed restructuring
is intended to permit the establishment of non-utility
businesses that can take advantage of new business
opportunities on a timely basis without the need for prior
regulatory approvals, to increase financial flexibility, to
enhance managerial accountability for separate business
activities, and to insulate utility ratepayers and security
holders from the risks of non-utility projects. Illinois
Power states that the proposed restructuring will not affect
its jurisdictional facilities, rates or services.
The proposed restructuring would be accomplished as
follows:
1. Illinois Power has formed a subsidiary, IP Holding,
under Illinois law.
2. IP Holding, in turn, has formed a subsidiary, IP
Merging Corporation (IP Merging), also an Illinois
corporation.
3. Following all necessary approvals, IP Merging will
merge with and into Illinois Power. In the merger, all
outstanding shares of Illinois Power common stock will be
converted on a share-for-share basis into IP Holding common
stock by operation of law, and IP Holding will become the
owner of all outstanding shares of Illinois Power common
stock.(3) Illinois Power
(2) In support of its application Illinois Power presents
information as required by section 33.2 of the Commission's regulations.
(3) IP Holding has filed an application with the Securities and
Exchange Commission (SEC) for authority to acquire Illinois Power's
common stock, pursuant to sections 9(a) (2) and 10 of the Public
Utility Holding Company Act of 1935 (PUHCA).
<PAGE>
Docket No. EC94-3-000 3
common stock will thereafter cease to be listed and traded
on the stock market, and the common shares of IP Holding
will be listed and traded instead.
Notice of the application was published in the Federal
Register,(4) with comments due on or before December 8,
1993. None was filed.
DISCUSSION
A. THE APPLICATION
The Commission has held that the transfer of a public
utility's common stock from its existing shareholders to a
holding company constitutes a transfer of the "ownership and
control" of the utility's jurisdictional facilities and is
thus a "disposition of facilities" subject to Commission
review and approval under section 203 of the Federal Power
Act. SEE CENTRAL VERMONT PUBLIC SERVICE CORP., 39 FERC
Paragraph 61,295 (1987) (CENTRAL VERMONT). Because Illinois
Power's proposed restructuring would entail the transfer of
the ownership of its common stock from existing shareholders
to IP Holding, the restructuring is subject to the
requirements of section 203.
The Commission is obligated to approve a proposed
"disposition of facilities" under section 203 if it would be
"consistent with the public interest."(5) In making such a
determination, the Commission considers, INTER ALIA: (1) the
effect on utility operating costs and rate levels: (2) the
contemplated accounting treatment; (3) the reasonableness of
the purchase price; (4) the possibility of coercion; (5) the
effect on competition; and (6) the impact on the
effectiveness of regulation. COMMONWEALTH EDISON CO., 36
FPC 927, 936-42 (1966), AFF'D SUB NOM. UTILITY USERS LEAGUE
V. FPC, 394 F.2d 16 (7th Cir.), CERT. DENIED, 393 U.S. 953
(1968).
The Commission finds that Illinois Power's proposed
restructuring will be compatible with each of the relevant
factors. First, the proposed restructuring will have no
effect on either Illinois Power's operating costs or its
(4) 58 Fed. Reg. 62,649 (1993).
(5) An applicant need not show that a positive benefit to the publid
will result. SEE Pacific Power & Light Company v. PFC, 111 F.2d 1014,
1016-17 (9th Cir. 1940).
<PAGE>
Docket No. EC94-3-000 4
rate levels. The Applicant does not request a rate increase
as part of its filing. Any future changes in Illinois
Power's wholesale rates would be subject to Commission
review and approval under section 205 of the FPA.
Second, the contemplated accounting treatment will be
appropriate. The merger of Illinois Power and IP Merging
will be accounted for on a "pooling of interests" basis
under generally accepted accounting principles. Illinois
Power's books and records will continue to be maintained in
accordance with the Commission's Uniform System of Accounts.
Third, the proposed restructuring entails no "purchase
price." The proposed restructuring involves the conversion
of each share of Illinois Power common stock into a share of
IP Holding common stock. Therefore, the proportion of each
shareholder's ownership will be unchanged.
Fourth, because the proposed reorganization only
involves Illinois Power and its affiliates, there is no
possibility of coercion.
Fifth, because no facilities will be combined with
those of any other public utility, the proposed
restructuring will not have an adverse effect on
competition.
Sixth, the proposed restructuring will not impair
effective regulation of Illinois Power. Illinois Power's
services, rates and facilities will be unaffected by the
restructuring and will continue to be regulated by the
Illinois Commerce Commission and by this Commission.
B. CLARIFICATION OF JURISDICTION OVER INDIRECT MERGERS
OF PUBLIC UTILITIES OWNED BY PUBLIC UTILITY HOLDING
COMPANIES
While there is no current proposal to merge IP Holding
with another public utility holding company, it is possible
that in the future such a merger may take place.(6) In our
view, most mergers of public utility holding companies will
simultaneously involve an indirect merger of the public
utility subsidiaries of such holding companies.
Accordingly, we take this opportunity to announce a
(6) With the recent and projected increase of competition in the
electric utility industry, mergers may become an increasingly popular
tool for utilities seeking to achieve greater efficiency and become
more competitive. Our decision today is necessary to ensure the
continued adequacy of our merger policies in protecting the public
interest.
<PAGE>
Docket No. EC94-3-000 5
clarification of our jurisdiction when there is a merger of
public utility holding companies. To assure that the public
interest is protected when public utility holding companies
merge, we will establish a rebuttable presumption that an
indirect merger of jurisdictional facilities of the public
utility subsidiaries occurs at the time the holding company
parents merge. Prior to the public utility holding
companies merging, their public utility subsidiaries must
file under section 203 of the FPA either sufficient
information to rebut the presumption, or for Commission
approval of the indirect merger of the public utilities.
The public utilities may rebut the presumption by
showing that after the merger of the holding companies, the
public utility subsidiaries will still effectively compete
with each other. If they make such a showing, jurisdiction
under 203 will not attach until such time as the public
utilities themselves seek to combine.
1. THE THREE STEP PROCESS
Section 203(a) of the FPA provides that:
No public utility shall sell, lease or otherwise
dispose of the whole of its facilities subject to the
jurisdiction of the Commission, or any part thereof of
a value in excess of $50,000, or by any means
whatsoever, directly or indirectly, merge or
consolidate such facilities or any part thereof with
those of any other person . . . without first having
secured an order of the Commission authorizing it to do
so.
The provision applies to any public utility, which
section 201(e) of the FPA defines as "any person [with
certain exceptions specified in section 201(e) which are not
relevant here] who owns or operates facilities" for the sale
of electric energy at wholesale or the transmission of
electric energy in interstate commerce. Public utility
holding companies, in contrast to public utilities, do not
normally own such facilities.(7) Therefore, we have no
jurisdiction over public utility holding companies that are
not also public utilities and thus have no jurisdiction over
most mergers of holding companies.
In recent years, however, some public utilities have
followed a three-step process to reorganize. In "step one,"
(7) Certain public utility holding companies, however, are also
public utilities. E.G. Cincinnati Gas and Electric Company.
<PAGE>
Docket No. EC94-3-000 6
a public utility forms a company and transfers ownership of
all of the utility's stock to a newly created company, which
becomes the parent holding company of the public utility.(8)
In "step two," the public utility holding company merges
with another public utility holding company. In "step
three," the public utilities under the control of the single
public utility holding company formally merge their
facilities.
CENTRAL VERMONT AND MISSOURI BASIN MUNICIPAL POWER
AGENCY V. MIDWEST ENERGY COMPANY AND IOWA RESOURCES, INC.,
53 FERC Paragraph 61,368 (1990), REH'G DENIED, 55 FERC
Paragraph 61,464 (1991) (MISSOURI BASIN) describe our
jurisdiction (or lack thereof) at each of the three steps.
In CENTRAL VERMONT, the Commission found jurisdiction under
section 203 when a public utility establishes a holding
company, because the shareholders of the public utility
transfer ownership and control over jurisdictional
facilities in the course of the transaction. In MISSOURI
BASIN, the Commission found that the merger of two public
utility holding companies was subject to the SEC's
jurisdiction, but not to our jurisdiction. The Commission
determined that neither of the holding companies in MISSOURI
BASIN owned or operated FERC-jurisdictional facilities, and
therefore neither holding company was a public utility under
the FPA when the merger was consummated. Thus, the
Commission found, the merger did not fall within the
Commission's jurisdiction under section 203. The Commission
stated that if, in the future, the public utility
subsidiaries should merge -- a "step three" transaction --
Commission approval would be required.(9) The Commission
later approved the merger of the affiliated public
utilities.(10)
(8) Illinois Power seeks Commission authorization of a "step one"
transaction in this docket.
(9) 53 FERC at 62,298-99.
(10) Iowa Public Service Company, Iowa Power, Inc., and Midwest Power
Systems, 60 FERC Paragraph 61,048 (1992). The Commission has generally
approved mergers between affiliated public utilities. SEE, E.G.,
Wisconsin Electric Power Company, 59 FPC 1196 (1977) ("while technically
a merger, this action is more in the nature of an intrasystem
consolidation and does not present the potential evils which are
inherent in the merger of two non-affiliated systems"); Delmarva Power &
Light Company, 5 FERC Paragraph 61,201 (1978) ("the transaction would
only simplify the corporate structure by merging these subsidiaries
into the parent"); Union Electric Company, 25 FERC Paragraph 61,394 (1983),
(continued...)
<PAGE>
Docket No. EC94-3-000 7
2. REASONS FOR CLARIFICATION
a. THE PRESUMPTION
Our decision to adopt a presumption of indirect merger
and to require the public utility subsidiaries to rebut the
presumption by showing that after merger of their parents
they will continue to compete with each other, is informed
by the Supreme Court's decision in COPPERWELD CORP. V.
INDEPENDENCE TUBE CORP. (COPPERWELD), 467 U.S. 752 (1984).
The Court held that section 1 of the Sherman Antitrust Act,
which outlaws conspiracies or combinations in restraint of
trade, regards as one company a parent and subsidiary that
maintain separate operations. The two cannot conspire
because they do not compete in the economic sense.
COPPERWELD holds that even if companies maintain separate
corporate form, if they pursue a common economic interest,
they no longer compete.
The Court explained:
A parent and its wholly owned subsidiary
have a complete unity of interest.
Their objectives are common, not
disparate; their general corporate
actions are guided or determined not by
two separate corporate consciousness,
but one. They are not unlike a multiple
team of horses drawing a vehicle under
the control of a single driver. With or
without a formal "agreement," the
subsidiary acts for the benefit of the
parent, its sole shareholder. If a
parent and a subsidiary do "agree" to a
course of action, there is no sudden
joining of economic resources that had
previously served different interests,
(10) (...continued)
REH'G DENIED, 26 FERC Paragraph 61,184 (1984) ("the nature of the
proposed transaction is essentially a consolidation of operating
utilities presently under one ownership rather than the acquisition of
any additional electric or gas utility"); and Kentucky Utilities
Company and Old Dominion Power Company, 56 FERC Paragraph 61,184 (1991)
("because Kentucky Utilities already wholly owned Old Dominion and, in
effect, controls the use of Old Dominion's system, the merger will not
alter Kentucky Utilities' control").
<PAGE>
Docket No. EC94-3-000 8
and there is no justification for
Section 1 scrutiny.
* * *
[i]n reality a parent and a wholly owned
subsidiary ALWAYS have a "unity of
purpose or a common design" . . . .
whether or not the parent keeps a tight
rein over the subsidiary; the parent may
assert full control at any moment if the
subsidiary fails to act in the parent's
best interest.
467 U.S. at 771-72 (emphasis in original; footnote deleted).
The courts have applied COPPERWELD to electric
utilities and their affiliates. In CITY OF MOUNT PLEASANT,
IOWA V. ASSOCIATED ELECTRIC CO-OP, 838 F.2d 268, 274-77 (8th
Cir. 1988), for example, which involved municipal and
cooperative utilities, the Eight Circuit held:
Even though [affiliates] may quarrel
among themselves on how to divide the
spoils of their economic power, it
cannot be reasonably said that they are
independent sources of that power.
Their power depends, and has always
depended, on the cooperation among
themselves. They are interdependent,
not dependent.
838 F.2d at 277 (emphasis deleted).
While COPPERWELD applies to the Sherman Act, the
rationale of the decision suggests that the common interest
between members of an enterprise affects their standing as
competitors for FPA purposes as well. While this Commission
has no responsibility to enforce the antitrust laws,(11) it
must weigh competitive considerations in its merger
analyses.(12)
(11) Northern Natural Gas Co. v. FPC, 399 F.2d 953, 960 (D.C. Cir. 1968),
citing California v. FPC, 369 U.S. 482, 490 (1962).
(12) SEE E.G., Northeast Utilities Service Co. 56 FERC Paragraph 61,369
at 61,998-62,011 (1991), ORDER ON REH'G, 58 FERC Paragraph 61,070,
FURTHER ORDER ON REH'G, 59 FERC Paragraph 61,042 (1992), REMANDED ON
OTHER GROUNDS, 939 F.2d 937 (1st Cir. 1993) (NU).
<PAGE>
Docket No. EC94-3-000 9
Moreover, while CITY OF MOUNT PLEASANT involved
municipal utilities suing an electric co-op (none of which
were subject to our section 203 jurisdiction), at least one
court has applied COPPERWELD to a jurisdictional public
utility. ROSEMONT COGENERATION JOINT VENTURE V. NORTHERN
STATES POWER, 91-1 Trade Cases (CCH) Paragraph 69,351 at
65,408 (D MN 1991).
The above case law supports our conclusion that when
public utility holding companies merge, their public utility
subsidiaries likely retain no real corporate independence.
Rather, decision-making for the public utility subsidiaries
appears to rest with the new holding company. The voting
stock of the public utilities belongs to the shareholders of
the new holding company; the new holding company board of
directors presumably sets or can set corporate policy for
all subsidiaries; and management of the public utility
subsidiaries presumably gains access to proprietary
financial and corporate information of the entire system of
the new holding company. For us to assume that a merger of
the public utilities occurs only when the new parent
proposes to combine its subsidiaries may, in most instances,
elevate corporate form over economic substance.
We therefore will presume, subject to rebuttal, that
mergers between public utility holding companies also
accomplish an indirect merger of their public utility
subsidiaries. If the public utilities can rebut the
presumption, we will find that jurisdiction will not attach
until such time as the public utility subsidiaries formally
merge or consolidate their facilities. If the public
utilities cannot rebut the presumption, section 203 approval
of the indirect merger of the public utilities will be
required.(13)
b. REBUTTING THE PRESUMPTION
The Eighth Circuit in CITY OF MOUNT PLEASANT left open
the possibility for courts to consider affiliates as
separate enterprises for antitrust purposes. In granting
summary judgment to the co-op, the panel held:
The record bears out the defendants'
claim that the cooperative organization
(13) Section 203 requires approval PRIOR to a merger. Therefore, the
public utilities must file under section 203 evidence to rebut the
presumption that an indirect merger of public utilities will occur when
the holding companies merge, and/or alternatively an application for
approval under section 203.
<PAGE>
Docket No. EC94-3-000 10
is a single enterprise pursuing a common
goal -- the provision of low-cost
electricity . . . . The burden [falls]
therefore on the City to show specific
facts which present a triable issue as
to whether any of the defendants has
pursued interests diverse from those of
the cooperative itself. By "diverse" we
mean interests that show that any two of
the defendants are, or have been, actual
or potential competitors, . . . or at
the very least, interests which are
sufficiently divergent so that a
reasonable juror could conclude that the
entities have not always worked together
for a common cause. In the language of
COPPERWELD, the City must show facts
that could lead a reasonable juror to
find the coordination between any two
defendants to be a "joining of two
independent sources of economic power
previously pursuing separate interests."
838 F.2d at 276 (citations omitted).
Informed by the analysis in COPPERWELD and CITY OF
MOUNT PLEASANT, we will require section 203 applicants, in
order to rebut the presumption, to show that the new holding
company will not interfere with the independence of the
public utility subsidiaries, and will allow them to operate
and compete with each other in the same manner as before the
merger of the holding companies. In order to rebut the
presumption of an indirect merger, the public utilities must
show: (1) that they will continue to exercise independent
decision-making authority; (2) that their proprietary,
financial and corporate information will not be available to
each other, either directly or indirectly; and (3) that they
will compete on price and service in the same markets to the
same extent they have competed in the page.(14)
(14) We do not believe there can be competition between public utilities
if they do not exercise independent decision-making or if they share
information. Accordingly, elements (1) and (2) must be met. However,
the fact that (1) and (2) are met in and of themselves is not sufficient
to show that the affiliates will compete. Applicants therefore must
submit additional evidence that they will compete with each other. For
example, one indicia of competition would be that they will separately
participate in competitive solicitations.
<PAGE>
Docket No. EC94-3-000 11
THE COMMISSION ORDERS:
(A) The disposition of the jurisdictional facilities
of Illinois Power in the above-described corporate
restructuring is hereby authorized subject to the following
conditions:
(1) The proposed transaction is authorized upon the
terms and conditions and for the purposes set forth in the
application;
(2) The Commission retains authority under section
203(b) of the Federal Power Act to issue supplemental orders
as appropriate;
(3) The foregoing authorization is without prejudice
to the authority of this Commission or any other regulatory
body with respect to rates, service, accounts, valuation,
estimates, determinations of cost, or any other matter
whatsoever now pending or which may come before this
Commission;
(4) Nothing in this order shall be construed to imply
acquiescence in any estimate or determination of cost or any
valuation of property claimed or asserted; and
(B) In the event IP Holding should seek to merge with
another public utility holding company, the public utilities
will be required to file under section 203 of the FPA
evidence to rebut a presumption that such a merger would not
also result in an indirect merger of the public utility
subsidiaries, or alternatively for approval of an indirect
merger of the public utilities.
By the Commission.
(S E A L)
/s/Lois D. Cashell
Lois D. Cashell,
Secretary
