SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM U-1
APPLICATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
WPS RESOURCES CORPORATION
700 North Adams Street
Green Bay, Wisconsin 54307
(Name of company filing this statement
and address of principal executive offices)
Daniel A. Bollom Michael S. Nolan
President & Chief Executive Officer Foley & Lardner
WPS Resources Corporation 777 East Wisconsin Avenue
700 North Adams Street Milwaukee, Wisconsin 53202
P. O. Box 19001
Green Bay, Wisconsin 54307
(Names and addresses of agents for service)
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EXPLANATORY NOTE
----------------
This Amendment No. 1 to Form U-1 Application of WPS
Resources Corporation (the "Company") amends the Application by
reporting the following developments and filing the following
exhibits relating to the corporate restructuring of Wisconsin
Public Service Corporation.
1. The Agreement and Plan of Share Exchange dated
January 17, 1994, between the Company and Wisconsin Public Service
Corporation (the "Share Exchange Agreement") (Exhibit B-1 to the
Application) was approved by the holders of common stock of
Wisconsin Public Service Corporation at the annual meeting thereof
held on May 5, 1994 by the following vote:
For Against Abstentions Non-Votes Total
- ---------- ------- ----------- --------- ----------
18,474,079 455,449 476,454 4,490,980 23,896,962
2. The Public Service Commission of Wisconsin has
issued an order dated May 31, 1994, approving the formation of a
holding company pursuant to the Share Exchange Agreement. This
Amendment No. 1 files a copy of that order as Exhibit D-2 to the
Application.
3. The United Stated Nuclear Regulatory Commission by
letter dated April 26, 1994, consented to the proposed ownership of
Wisconsin Public Service Corporation by the Company. This
Amendment No. 1 files a copy of that letter as Exhibit D-6 to the
Application.
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Item 6. EXHIBITS AND FINANCIAL STATEMENTS
D-2 Certificate and Order of Public Service Commission of
Wisconsin dated May 31, 1994
D-6 Letter from United States Nuclear Regulatory Commission
dated April 26, 1994
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SIGNATURE
Pursuant to the requirements of the Public Utility
Holding Company Act of 1935, the undersigned company has duly
caused this Amendment to Application to be signed on its behalf by
the undersigned thereunto duly authorized.
Dated: June 2, 1994.
WPS RESOURCES CORPORATION
By /s/ Jelmer G. Swoboda
---------------------------------------
Jelmer G. Swoboda
Senior Vice President
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EXHIBIT D-2
BEFORE THE
PUBLIC SERVICE COMMISSION OF WISCONSIN
Application of Wisconsin Public )
Service Corporation and WPS Resources )
Corporation for a Certificate of ) 9405-YO-100
Approval to Form a Holding Company )
Under S. 196.795, Wis. Stats. )
FINDING OF FACT, CERTIFICATE AND ORDER
Wisconsin Public Service Corporation (WPS) and its wholly-
owned subsidiary, WPS Resources Corporation (Resources), filed an
application to form a holding company under S. 196.795, Stats.,
with the Commission on December 22, 1993. On January 27, 1994,
WPS filed supplemental information in response to a Commission
staff memorandum dated January 21, 1994, regarding the
completeness of the application. By letter of February 28, 1994,
the Commission accepted the supplemented application as complete
under s. 196.795(2)(c), Stats.
WPS is a public utility, as defined in s. 196.01, Stats.,
engaged in the production, transmission, distribution and sale of
electricity to approximately 340,100 customers, and in the
purchase, distribution and sale of natural gas to approximately
184,800 customers in northeastern Wisconsin and adjacent parts of
upper Michigan. Cities that WPS serves with retail electric
energy or natural gas include Green Bay, Oshkosh, Sheboygan,
Wausau, Stevens Point, Marinette and Rhinelander in Wisconsin,
and Menominee in Michigan.
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Docket 9405-YO-100
WPS currently owns several subsidiary corporations including
Resources. Resources is a co-applicant herein, and, after the
proposed restructuring, would become the direct owner of all the
outstanding shares of WPS, Packerland Energy Services, Inc.
(Packerland), and WPS Communications, Inc.
WPS proposes to form this holding company to be able to
address the growing competition in the energy business. There
are a number of energy-business sectors in which public utilities
such as WPS are now, or probably will be, facing competition from
unregulated entities. WPS states that the formation of the
holding company system will facilitate the structuring of
entities which can compete with other unregulated entities for
business which falls outside the scope of regulation but which
are natural adjuncts to the utility business of WPS.
This application was filed pursuant to s. 196.795, Stats.,
as created by 1985 Wisconsin Act 79, the Utility Holding Company
Act. That statute provides 120 days for review of such an
application, provides that the Commission shall issue a
certificate of approval unless it finds that the interests of
utility consumers or investors will be materially harmed, and
lists requirements for any terms or conditions the Commission may
impose on such a certificate.
Pursuant to due notice, a hearing was held under s.
196.795(2), Stats., at Madison on May 2, 1994 before Examiner Ann
Pfeifer.
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Docket 9405-YO-100
A notice of appeal rights is attached. The parties for
purposes of review are listed in the attached Appendix A.
Application Granted Subject to Conditions
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WPS, under s. 196.795 Stats., proposes to reorganize so that
its subsidiary WPS Resources will become the parent holding
company, owning all of the stock of WPS, Packerland and WPS
Communications. All current holders of common stock of WPS will
become stockholders of Resources, which may acquire or form other
nonutility subsidiaries in the future. If the proposal is
approved by this Commission and WPS's stockholders, the
reorganization will take place upon receipt of the approvals from
the Federal Energy Regulatory Commission, Nuclear Regulatory
Commission and the Securities and Exchange Commission (SEC).
The Commission is guided by the following principles, which
were incorporated by the legislature in the holding company bill
and endorsed by all of the participants in the drafting of that
legislation:
1. Utility ratepayers shall not be made worse off in any
way by the formation and operations of the holding
company;
2. Utility ratepayers should benefit from the activities
of the holding company, at least indirectly, as
taxpayers and community members;
3. Nonutility operations of the holding company or its
nonutility subsidiaries should not be regulated; and
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Docket 9405-YO-100
4. The formation and operation of the holding company
shall in no way diminish the Public Service
Commission's authority over the utility.
These principles are directly related to the purpose of the
holding company Statute, s. 196.795, Stats., and are identified
in subsections 196.795(4), 196.795(5)(a), 196.795(5)(g),
196.795(5)(j) and 196.795(11)(a).
The legislature, in the holding company bill, specifically
provided that the Commission could impose "terms, limitations or
conditions" which are consistent with and necessary to satisfy
the terms of s. 196.795(5)(b) to (s), Stats., at the time of
approval of the formation of a holding company. The legislature
has clearly given the Commission the discretion to ensure
adequate protection of the ratepayer where such protections are
necessary and are not specifically provided for in the statutes.
The Commission has applied its discretion in this case, but only
where it has been necessary to assure the protection of the
ratepayer and is consistent with the intent and provisions of the
act. (See s. 196.795(e) and (f)), Stats.
In this proceeding, concerns were expressed that further
ratepayer protection was needed beyond the statutory framework in
three areas, financial, cost allocation and accounting, and
system maintenance and improvement. The Commission has applied
the principles set forth above to each of these areas of concern.
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Docket 9405-YO-100
FINDINGS OF FACT
----------------
THE COMMISSION FINDS:
Financial Aspects
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The financial requirements of a public utility differ from
those of unregulated firms in that a utility has an ongoing
obligation to continue to supply adequate service at reasonable
rates. The fundamental requirement to meet this obligation is
continuing financial health. WPS is at this time, by any
standard, a financially healthy utility.
Regulators and utility management have traditionally used
three elements of utility finance to insure that utilities are
able to provide reliable, low cost service into the future.
These elements are:
1. A reasonable and balanced capital structure;
2. A dividend policy based on the utility's needs; and
3. A commitment to fund capital construction needed
to provide reliable and safe service.
These elements are interactive and overlap.
A balanced capital structure refers to the percentages which
common stock, preferred stock and debt constitute of the total
capital invested in the utility. These percentages are balanced
if they are within a reasonable range for financial health and
flexibility. A balanced utility capital structure provides
protection to both the ratepayers and the investors of a public
utility.
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Docket 9405-YO-100
The debt investor or bondholder is protected by a balanced
utility capital structure because it provides adequate interest
coverage and an acceptable level of financial risk. As the
portion of a company's capital structure represented by debt
increases, the financial risk increases. A balanced capital
structure allows variation in the revenue stream without
jeopardizing the interest payments of the bondholders. The
equity investor is protected by a balanced capital structure
because it reduces the risk of default created by variations in
the revenue stream.
Utility ratepayers are protected by a balanced capital
structure because it will enable a utility to attract capital at
reasonable rates to provide necessary utility service. Since the
cost of capital is part of the utility revenue requirement, the
ratepayers will benefit by paying only reasonable returns on
capital. The ratepayer will also benefit from a balanced capital
structure because it allows the utility to take advantage of
cost-saving investment when the opportunity arises.
While a high proportion of common equity in a utility
capital structure decreases financial risk and provides higher
interest coverage, it also generates an increased cost of capital
to the ratepayer. Thus, a balanced capital structure is one
which contains the proper ranges of debt and equity so as to
minimize financial risk without increasing the cost of capital
to unreasonable levels.
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A balanced capital structure, in addition to affecting risk
and cost, also helps provide critical financial flexibility. The
flexibility associated with a balanced capital structure enables
the utility to issue various types of securities under any
conditions. This allows the utility to take advantage of cost-
saving opportunities when they arise. The potential for cost
reduction by proper investment on the part of the utility is much
greater than the cost savings that could accrue by changing the
mix of debt and equity in the utility capital structure.
Therefore, maintaining flexibility with a balanced capital
structure is very important.
In order to maintain a balanced capital structure which
addresses the utility's needs for capital in a responsible way,
it is necessary to establish a utility dividend policy based on
the utility's interests rather than on the interests of any other
---------
entity, such as the holding company. A dividend policy which
addresses the utility's needs must be based on current investment
needs and on a projection of the future investment which is
necessary for full provision of adequate utility service.
The underlying requirement for a dividend policy adopted by
a utility which is a subsidiary of a holding company should be no
different from a policy adopted by a utility which is not part of
a holding company. The dividend policy for the utility should be
formulated by the board of directors of the utility, not the
holding company. A reasonable dividend policy for WPS should be
geared to attracting and maintaining investors, to maintaining a
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Docket 9405-YO-100
reasonable utility capital structure, and to credit quality,
insuring the availability of funds for utility capital
requirements.
This order will require the dividend policy for the utility
to be set by the directors of the utility based on their
responsibilities, pursuant to s. 182.0135, Stats., as to what
dividend policy would be most beneficial to the utility in
achieving the goals mentioned above.
Financial health is based, among other things, on adequate
return on equity, which is a cost borne by the ratepayers. In
order for WPS to obtain and maintain its current high financial
ratings, the Commission has required ratepayers to support
attractive returns on utility common stock equity and has allowed
this utility to maintain common equity ratios higher than the
industry average. Inasmuch as the ratepayers have paid for this
ongoing financial strength, it is imperative that the financial
flexibility and low borrowing costs that are associated with it
continue to be used for the ratepayers, benefit.
The primary and proper use of funds generated by this
utility is to fund utility capital and operating requirements.
Internally generated funds, after normal dividend payments,
should ordinarily be used for utility capital requirements, as
long as a balanced capital structure is maintained. There may be
periods where the funds generated internally would have to be
removed from the utility to balance the capital structure.
However, the essential principle is that these determinations
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Docket 9405-YO-100
will he made from the utility's standpoint, rather than from the
holding company's, and should be aimed at insuring the utility's
financial health and its ability to provide safe and reliable
service at reasonable cost.
In order to effectively monitor the financial parameters of
a balanced capital structure, appropriate dividend policy and the
priority given to utility capital requirements, the Commission
needs to analyze both short-term and long-term financial issues
in a regulatory strategic planning context. Therefore, in rate
cases, security issuance cases and in the Advance Plan
proceedings, WPS will be required to submit 10-year forecasts of
key financial variables.
Capital Structure Conditions
- ----------------------------
The appropriate balanced capital structure for WPS has been
determined in a previous case. In docket 6690-UR-108 the
Commission reiterated that the appropriate target common equity
range for WPS is 47 to 52 percent. In that order the Commission
described the then current 54.05 percent common equity as a
tolerable short-term exception to the financial capital structure
guidelines. The revenue requirement was based on the 54.05
percent financial capital structure.
The appropriateness of future conditions on capital
structure and/or dividend policy will continue to be examined and
reviewed in rate cases and in other cases and investigations
before this Commission.
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Dividend Restriction
- --------------------
The Commission has adopted a dividend restriction for other
utilities that are now part of holding company systems. The
dividend restriction is intended to maintain the utility's
ongoing level of financial strength, since ratepayers have paid
for that level of strength and should receive the associated
benefit of flexibility and lower borrowing costs. A dividend
restriction also protects competitors and is consistent with s.
196.795 (5)(p), Stats. Without a dividend restriction, a
nonutility subsidiary could potentially receive transfers of
equity from the utility and obtain better credit terms than its
competitors.
This Commission's dividend restrictions have been based on
the common stock equity levels used in the determination of
revenue requirement. The orders have limited the payment of
larger-than-normal dividends to earnings above the authorized
return. They do not allow a lump sum transfer of equity to the
nonutility ventures without a corresponding review of the
utility's revenue requirement. As described earlier, the common
stock equity level in the Commission's last determination of
revenue requirement was 54.05 percent on a financial capital
structure basis.
For other Wisconsin utilities that are part of holding
company systems, the Commission has defined a normal utility
dividend as the dividend level forecast in the last rate case.
As the Commission is no longer holding annual rate cases, a new
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Docket 9405-YO-100
definition of normal utility dividend should be adopted. The
10-year log-linear forecasted growth rate for dividends in the
Commission's standard electric company portfolio ranges from 1.8
to 9.1 percent. The Commission concludes that, in this case, a 9
percent growth rate is a reasonable maximum normal dividend
payment growth rate. A normal dividend will be no more than 109
percent of the previous year's dividend. For example, the 1993
dividend was $1.76 per share. For the 1994 dividend to be a
normal utility dividend, it could be no more than $1.92 per share.
The issuance of this order does not preclude WPS from
requesting an update of the dividend restrictions established in
this proceeding. The dividend restriction adopted by the
Commission is an interim restriction and WPS may seek Commission
authorization to reduce the prescribed equity level between rate
cases. The dividend restriction may be modified by future order
of the Commission.
Asset Limitation
- ----------------
During the initial post-formation period, a cautious
approach is reasonable. Therefore, after the formation of the
holding company, a 25 percent limit on the assets of WPS to be
used for the asset limitation purpose of s. 196.795(5)(p),
Stats., is reasonable initially. To the extent that the
nonutility activity is small relative to the utility, it will
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Docket 9405-YO-100
have less impact on the utility's credit. This percentage may be reviewed in
subsequent proceedings.
Provision of Information about Nonutility Activities
- ----------------------------------------------------
Nonutility subsidiaries that experience financial difficulty
can affect the utility's cost of capital or ability to raise
capital. The Commission needs to be informed about the nature of
any significant nonutility activities and the amount and terms of
the debt that is used to finance such nonutility activities. If
a nonutility affiliate does not meet the terms of its credit
agreement, the utility could be subject to increased risk and its
cost of capital could be affected.
The Commission may require that WPS notify the Commission of
any credit obligations for nonutility affiliates or its holding
company parent which exceed two percent of utility assets, and
make these contracts available for review by the Commission
staff. The Commission may further require that WPS provide, on
an as-requested basis, interest coverages achieved and year-end
capital structures for nonutility affiliates and its holding
company parent. The Commission may also accept other data that
provide a comparable level of information.
Access to Records
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Effective regulation of public utilities is dependent upon
this Commission's ability to obtain and evaluate information.
Section 196.795(5)(b), Stats., provides that the Commission has
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Docket 9405-YO-100
full access to any book, record, document or other information
relating to a holding company system to the extent that such
information is relevant to the performance of the Commission's
statutory duties. Because the Commission performs these
statutory duties through the work of its staff, appropriate staff
members must have access to all applicable records of the holding
company and nonutility affiliates.
Full access to the records of the holding company and
nonutility affiliates is required for any document which staff
determines is relevant to fulfill the Commission's statutory
duties. This applies to issuance of utility securities,
proceedings for changes in utility rates, affiliated transaction
reviews, holding company audits, and the monitoring of nonutility
affiliates to insure against unfair competitive practices based
on utility affiliation. If the applicant objects to staff
information requests, the applicant has the burden of showing
that any requested record or document is not relevant to the
Commission's oversight function, or that such record should be
considered confidential and protected.
Form of Records
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Section 196.795(5)(b), Stats., provides that the Commission
may require a holding company to keep any record or document
which is necessary for the Commission to perform its duties under
this section and which is consistent with generally accepted
accounting and record keeping practices of the particular type of
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Docket 9405-YO-100
business involved, subject to the "Protection of Business
Information" section, s. 196.795(9), Stats. Due to the
differences in the types of diversification activities which
utilities can engage in, it would be unreasonable to require a
single form of accounting records which would meet the needs of
each activity as well as the accounting and reporting
requirements for consolidated companies for the purposes of the
SEC.
The concern about the form of records is for a clear and
concise audit trail for those costs associated with affiliated
transactions. The form of records proposed by WPS in its
application appears reasonable and should meet staff's needs in
reviewing the utility's cost allocations and affiliated
transactions.
In order to ensure that there is a clear and concise audit
trail which meets the needs of staff, new nonutility affiliates
should submit for staff's review the specific procedures to be
followed to account for affiliated transactions. Failure to
provide a clear and concise audit trail will prevent staff from
properly reviewing the reasonableness of affiliated transactions
and will result in the Commission's denying compensation for
these transactions.
Any costs charged to a utility affiliate by the holding
company or nonutility affiliate for which the Commission has
insufficient information to determine propriety will not be
reflected in utility rates.
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Docket 9405-YO-100
Shared Officers, Directors and Employees
- ----------------------------------------
Three concerns have traditionally been expressed about
shared officers, directors and employees in a holding company
system. One is a concern that the success of nonutility
affiliates will be placed ahead of utility services by
management. There is the potential for utility officers and
employees to pay more attention to the new ventures and to divert
managerial and technical talent to new ventures. A second
concern is that the greater the number of overlapping officers,
the greater the potential for cross-subsidy. The third concern
is that new affiliates may lack the technological, managerial or
competitive experience, as well as experience in analyzing new
markets and market behavior, making investment in new nonutility
areas more risky.
Section 196.795(5)(f), Stats., prohibits material
subsidization between utilities and nonutility affiliates.
Section 196.795(5)(r), Stats., requires the public utility
affiliate to minimize the use of utility employees by nonutility
affiliates. Therefore, the sharing of officers and employees by
and between the utility and nonutility affiliates should be
minimized or eliminated where possible.
For 1994, approximately 50 equivalent hours are estimated
for the officers for nonutility activities with an additional 70
hours for their support staff. There will also be some time
allocated to nonutility and holding company activities by the
accounting staff and tax department. As required by
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Docket 9405-YO-100
s. 196.765(5)(r), Stats., WPS is attempting to minimize the use of
utility employees by the nonutility affiliates.
The board of directors for the holding company and the
utility will have identical members. Because these board members
will have a fiduciary duty to both the utility and the holding
company, the potential conflict of interest is cause for concern.
The applicants indicated that, although the board members and
certain officers will be shared initially, the applicants will
consider separation as the nonutility segments of the holding
company become more significant. There is no current plan to
minimize the sharing of board members. For these reasons, the
Commission will require that WPS submit after three years a plan
outlining the ways in which it intends to achieve maximum
possible separation of officers, directors and employees, as well
as a plan for the staffing of Resources.
Reporting Requirements
- ----------------------
Section 196.795, Stats., contains a number of conditions or
restrictions to be placed on holding companies. For Commission
staff to be able to review and monitor the holding company system
for compliance with these conditions, the Commission has
determined that the following reporting requirements for holding
companies are reasonable and necessary:
1. Upon completion of the formation of the holding company:
a. The holding company should submit the accounting
entries recording that formation in journal entry
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Docket 9405-YO-100
form with adequate explanation and supporting
documentation.
b. The applicant should submit the accounting for the
transfer of any assets from the utility to the
holding company or nonutility affiliates. This
should include any entries to eliminate any
"Advances" to Resources or the nonutility
affiliates currently recorded.
2. In addition to the utility's current annual report to
the PSCW, the holding company should submit an annual
report to the PSCW including the following items:
a. A copy of the annual report to the stockholders;
b. An explanation and description of all affiliates,
the relationships to each other and to the
utility, and the type of business each is involved
in;
c. The assets of utility, holding company and
nonutility affiliates and the percentage of
diversified activities;
d. An identification of all assets or information
transferred from the utility affiliate to the
holding company or nonutility affiliates, both
from utility and below-the-line nonutility
operations;
e. The names of officers and directors of Resources,
WPS and each nonutility affiliate, their
positions, and the percentage of time each
allocates to nonutility activities;
f. A summary of dividends paid by WPS to Resources
which provides the total dollar amount of
dividends, the date paid, and the dividend paid
per share;
g. The audited financial statements of all nonutility
affiliates (including Resources) and any other
financial or operating reports which are required
by other agencies, such as the Securities and
Exchange Commission.
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Docket 9405-YO-100
Two copies of the annual filing by the holding company
should be provided, one for the permanent file and one for use by
the holding company audit team.
Affiliated Interest Requirements
- --------------------------------
The proposed affiliated interest agreement between Resources
and WPS filed in connection with the holding company formation
was amended as a result of discussions with staff. This
agreement will be considered by the Commission in docket
6690-AU-101.
The Commission determined that the following reporting
requirements related to affiliated interest transactions are
appropriate.
a. A summary and explanation of any transactions between
the utility affiliates and the holding company or
nonutility affiliates, with the basis for valuation
including market price study updates;
b. A list of allocation factors used, dollar amounts
involved and an explanation of how allocation factors
are computed, why that method is appropriate, and why
allocation is required;
c. A summary of all fees and costs related to
diversification transactions and any necessary
corporate restructuring.
Environmental Review
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This action is classified as a Type IV action according to
PSC 2.90(4), Wis. Ad. Code. No special circumstances have been
brought to the Commissions's attention which would disturb this
presumption. It consequently requires neither an environmental
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Docket 9405-YO-100
impact statement under s. 1.11, Stats., nor an environmental
assessment.
CONCLUSION OF LAW
THE COMMISSION CONCLUDES:
That it has the authority under s. 196.795, s. 196.395 and
s. 196.52(8), Stats., to issue the following certificate and
order and that the following certificate and order should issue:
CERTIFICATE
THE COMMISSION CERTIFIES:
That it approves the formation of a holding company by
applicants WPS and Resources, subject to the following stated
conditions, which are consistent with and necessary to satisfy the
requirements of subsections 196.795(5)(b) through (s), Stats.
ORDER
THE COMMISSION THEREFORE ORDERS:
1. That no affiliated interest transactions may occur after
formation of the holding company and prior to approval of an
affiliated interest agreement. All affiliated interest
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Docket 9405-YO-100
arrangements between the utility and nonutility affiliates shall
be covered by one "master" affiliated interest agreement. All of
the conditions of this agreement shall apply to all nonutility
subsidiaries unless those conditions are specifically amended in
a separate agreement.
2. That the members of the board of directors of WPS shall
set the dividend policy based solely of the capital needs and
financial health of that utility without regard to the need for
capital on the part of Resources or the nonutility affiliates in
the holding company system.
3. That WPS shall continue to submit 10-year financial
forecasts in rate cases and other appropriate proceedings.
4. That WPS is subject to an interim dividend restriction
under which it cannot pay dividends greater than normal utility
dividends if its common stock equity level is either at
54 percent on a financial capital structure basis, or would fall
below 54 percent with the payment of the dividend. A normal
utility dividend will not exceed 109 percent of the previous
year's dividend. This interim dividend restriction is subject to
revision by subsequent Commission orders which include a review
of utility's revenue requirement.
5. That the sum of the assets of all nonutility affiliates
in the WPS Resources holding company system may not exceed
25 percent of the assets of WPS.
6. That Resources and WPS shall provide full access to any
book, record, document or other information of the holding
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Docket 9405-YO-100
company and nonutility affiliates which the Commission staff
believes is relevant to fulfill the Commission's statutory
duties. The burden shall be on Resources and WPS to make
objections to the Commission and to persuade the Commission that
such information is not relevant to the Commission's statutory
duties or that it should be protected under s. 196.795(9).
7. That WPS and Resources shall submit for staff's review
the specific procedures to be followed by each new nonutility
affiliate to account for affiliated transactions.
8. That WPS shall, after a three-year period, submit a plan
describing how it will achieve maximum possible separation of
officers, directors and employees, as well as plans for the
staffing of Resources. Further, Resources shall submit staffing
plans for new ventures when formed or purchased.
9. That upon completion of the formation of the holding
company, Resources and WPS shall submit:
a. The accounting entries recording that formation in
journal entry form with adequate explanation and
supporting documentation, and;
b. The accounting entries for the transfer of any assets
from the utility to the holding company or nonutility
affiliates. This should include any entries to
eliminate any "Advances" to Resources or the nonutility
affiliates currently recorded.
10. That Resources should submit two copies of an annual
report to the PSCW including the following items:
a. A copy of the annual report to the stockholders;
b. An explanation and description of all affiliates, the
relationships to each other and to the utility, and the
type of business each is involved in;
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Docket 9405-YO-100
c. The assets of utility, holding company and nonutility
affiliates and the percent of diversified activities
constitute of the total assets of the utility as
specified in s. 196.795(5)(p), Stats.;
d. An identification of all assets or information
transferred from the utility affiliate to the holding
company or nonutility affiliates, both from utility and
below-the-line nonutility operations;
e. A summary and explanation of any transactions between
the utility affiliates and the holding company or
nonutility affiliates, with the basis for valuation
including market price study updates;
f. A list of allocation factors used, dollar amounts
involved and an explanation of how allocation factors are
computed, why that method is appropriate, and why
allocation is required;
g. The names of officers and directors of Resources, WPS
and each nonutility affiliate, their positions, and the
percentage of time each allocates to nonutility
activities;
h. A summary of dividends paid by WPS to Resources which
provides the total dollar amount of dividends, the date
paid, and the dividend paid per share;
i. The audited financial statements of all nonutility
affiliates (including Resources) and any other
financial or operating reports which are required by
other agencies, such as the Securities and Exchange
Commission;
j. All fees and costs incurred by WPS, or allocated or
assigned to WPS, related to diversification
transactions and any necessary corporate restructuring.
11. That WPS shall notify the Commission of any credit
obligations for nonutility affiliates or Resources which exceed
two percent of utility assets, and make copies of applicable
contracts available for review by Commission staff.
12. On an as-requested basis, interest coverages achieved
and year-end capital structures for nonutility affiliates and
Resources shall be made available to the Commission staff at a
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Docket 9405-YO-100
convenient location. In lieu of this requirement, the Commission
will accept other data that it finds will provide a comparable
level of information.
Dated at Madison, Wisconsin, May 31, 1994
---------------------------------
By the Commission.
/s/ Lynda L. Dorr
---------------------------------
Lynda L. Dorr
Secretary to the Commission
LLD:DCB:s:\elec\order\6690-YO.100
See attached Notice of Appeal Rights.
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<PAGE>
Docket 9405-YO-100
Notice of Appeal Rights
-----------------------
Notice is hereby given that a person
aggrieved by the foregoing decision has the
right to file a petition for judicial review
as provided in s. 227.53, Stats. The
petition must be filed within 30 days after
the date of mailing of this decision. That
date is shown on the first page. If there is
no date on the first page, the date of
mailing is shown immediately above the
signature line. The Public Service
Commission of Wisconsin must be named as
respondent in the petition for judicial
review.
Notice is further given that, it the
foregoing decision is an order following a
proceeding which is a contested case as
defined in s. 227.01(3), Stats., a person
aggrieved by the order has the further right
to file one petition for rehearing as
provided in s. 227.49, Stats. The petition
must be filed within 20 days of the date of
mailing of this decision.
If this decision is an order after rehearing,
a person aggrieved who wishes to appeal must
seek judicial review rather than rehearing.
A second petition for rehearing is not an
option.
This general notice is for the purpose of
ensuring compliance with s. 227.48(2),
Stats., and does not constitute a conclusion
or admission that any particular party or
person is necessarily aggrieved or that any
particular decision or order is final or
judicially reviewable.
Rev. 4/22/91
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<PAGE>
Docket 9405-YO-100
APPENDIX A
In order to comply with s. 227.47, Stats., the following
parties who appeared before the agency are considered parties for
purposes of review under s. 227.53, Stats.
WISCONSIN PUBLIC SERVICE CORPORATION
by
Mr. Bradley Jackson, Attorney
Foley and Lardner
One South Pinckney Street, 7th Floor
Madison, WI 53703
WISCONSIN POWER AND LIGHT COMPANY
by
Ms. Barbara J. Swan, Attorney
222 West Washington Avenue
P.O. Box 192
Madison, WI 53701-0192
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<PAGE>
EXHIBIT D-6
(NRC Logo) UNITED STATES
NUCLEAR REGULATORY COMMISSION
WASHINGTON, D.C. 20555-0001
April 26, 1994
Docket No. 50-305
Mr. C. A. Schrock
Manager - Nuclear Engineering
Wisconsin Public Service Corporation
Post Office Box 19002
Green Bay, Wisconsin 54037-9002
Dear Mr. Schrock:
SUBJECT: CORPORATE RESTRUCTURING OF WISCONSIN PUBLIC SERVICE CORPORATION
(TAC NO. 88804)
By letter dated February 11, 1994, you informed the NRC that Wisconsin Public
Service Corporation (WPSC) was in the process of implementing a corporate
restructuring, pursuant to which all of the outstanding shares of WPSC will be
exchanged for outstanding common stock of WPS Resources Corporation (WPS
Resources). WPS Resources, currently a wholly-owned subsidiary of WPSC, will
become the parent holding company of WPSC after the share exchange. Under the
restructuring, which is expected to be approved at the annual shareholders
meeting on May 5, 1994, WPSC will continue to be a co-owner and the operator
of Kewaunee and no transfer of any licenses or interests in Kewaunee will be
effected. You stated in the Proxy Statement included with your letter that
the proposed restructuring will provide substantial benefit to the Company and
its shareholders by providing flexibility for the Company to deal with
increased competition, facilitating initiatives into new areas of business,
and providing additional flexibility for financing.
The staff has reviewed the information contained in your letter to ascertain
that the proposed action:
(1) will not reduce funds available to WPSC to carry out activities
under its Operating License;
(2) will not adversely affect the management of WPSC utility
operations; Kewaunee is a 104b plant; and
(3) will not result in WPSC becoming owned, controlled, or dominated
by an alien, a foreign corporation, or a foreign government.
Based on its review, the staff has made the following findings in each of the
three areas defined above:
(1) Available Funds
Your letter states that the proposed restructuring will have no impact
on the funds available to WPSC to carry out its activities under its
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operating licenses. Following the restructuring, WPSC will remain
subject to the jurisdiction of the Public Service Commission of
Wisconsin and the Michigan Public Service Commission with respect to,
among other things, its retail rates. There will be no change in WPSC's
sources of funds for operating its utility facilities including
operating costs and eventual decommissioning costs of Kewaunee. That
source is the utility revenues derived from the rates charged to its
ratepayers.
The letter further states that capital costs, including capital
improvements or additions to Kewaunee would continue to be financed
through a combination of internally generated funds derived from
revenues received from the ratepayers and security issues. Long-term
debt securities and any preferred stock would continue to be issued by
WPSC as they are at present.
In reviewing WPSC's financial qualifications, the staff raised concerns,
with the potential transfer of assets from WPSC to its new parent
company or other non-licensed organization. To resolve these concerns
which were discussed with your staff in several telephone conversations,
you committed, in a letter dated April 11, 1994, to inform the NRC in
advance whenever WPSC plans to transfer significant assets from itself
to it's parent or non-NRC licensed sibling companies. Specifically, your
April 11, 1994, letter states that WPSC shall inform the Director of NRR
sixty days prior to a transfer (excluding grants of security interests
or liens) from WPSC to WPS Resources, its renamed successor, or any
other entity of facilities for the production, transmission or
distribution of electric energy having a depreciated book value
exceeding one percent (I%) of WPSC's consolidated net utility plant, as
recorded on WPSC's books of account.
Based on the above discussion, the staff finds that there will be no
change in the amount of revenues, the source of funds, or WPSC's ability
to obtain the funds necessary to operate the Kewaunee Nuclear Power
Plant as a result of the proposed restructuring.
(2) Management of WPSC utility operations
Your letter states that no WPSC nuclear management positions will be
altered by the proposed restructuring. The Senior Vice President,
Nuclear Power, will retain responsibility for nuclear operations and
will have no assigned WPS Resources responsibilities. WPS Resources
officer responsibilities will be administrative and financial in nature
and will have no direct effect on the management of nuclear operations.
Your letter states further, that the reporting channels for the senior
management of Kewaunee will remain as stated in the Operational Quality
Assurance Program Description for the Kewaunee Nuclear Power Plant. The
Senior Vice President, Nuclear Power, will continue to report to the
President and Chief Executive Officer of WPSC.
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<PAGE>
Based on the continuity of management described above, the staff finds
that the proposed restructuring will not adversely affect the management
of WPSC utility operations.
(3) Foreign Ownership, Control, or Domination
Your letter states that when the restructuring is effective, WPS
Resources, a Wisconsin corporation, will become the sole holder of
WPSC's common stock and the current holders of WPSC's common stock will
become holders of the common stock of WPS Resources on a share-for-share
basis. Therefore, immediately following the restructuring, the common
stock of WPS Resources will be owned by the previous holders of WPSC's
common stock in the same proportions in which they held WPSC's common
stock. Based on the information available to WPSC as of December 31,
1993, shares of WPSC's common stock held by foreign accounts represent
less than 1% of the total outstanding shares of WPSC.
Based on the above discussion, the staff finds that the proposed
restructuring will not result in WPSC being owned, controlled, or
dominated by foreign interests.
Based on the above determinations, the staff concludes:
(1) that the proposed action will not affect the qualifications of WPSC
as a holder of the Kewaunee Nuclear Power Plant license; and
(2) that the proposed action is otherwise consistent with the applicable
provisions of the law, regulations, and other requirements issued by
the Commission pursuant thereto.
Accordingly, the Commission hereby consents to the proposed ownership of
Wisconsin Public Service Corporation by WPS Resources Corporation.
Sincerely,
Jack W. Roe, Director
Division of Reactor Projects - III/IV
Office of Nuclear Reactor Regulation
cc: See next page
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<PAGE>
Wisconsin Public Service Corporation Kewaunee Nuclear Power Plant
cc:
Foley & Lardner
Attention: Mr. Bradley D. Jackson
One South Pinckney Street
P. 0. Box 1497
Madison, Wisconsin 53701-1497
Chairman
Town of Carlton
Route I
Kewaunee, Wisconsin 54216
Mr. Harold Reckelberg, Chairman
Kewaunee County Board
Kewaunee County Courthouse
Kewaunee, Wisconsin 54216
Chairman
Public Service Commission of
Wisconsin
Hill Farms State Office Building
Madison, Wisconsin 53702
Attorney General
114 East, State Capitol
Madison, Wisconsin 53702
U. S. Nuclear Regulatory Commission
Resident Inspectors Office
Route #I, Box 999
Kewaunee, Wisconsin 54216
Regional Administrator - Region III
U. S. Nuclear Regulatory Commission
801 Warrenville Road
Lisle, Illinois 60532-4531
Mr. Robert S. Cullen
Chief Engineer
Wisconsin Public Service Commission
P. 0. Box 7854
Madison, Wisconsin 53707
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