UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM U-1
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APPLICATION OR DECLARATION
under
The Public Utility Holding Company Act of 1935
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WPS Resources Corporation
700 North Adams Street
P.O. Box 19001
Green Bay, WI 54307-9001
(Name of company or companies filing this statement
and addresses of principal executive offices)
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None
(Name of top registered holding company parent of each applicant or
declarant)
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Larry L. Weyers
President and Chief Executive Officer
WPS Resources Corporation
700 North Adams Street
P.O. Box 19001
Green Bay, WI 54307-9001
(Names and addresses of agents for service)
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The Commission is requested to mail signed copies of all orders, notices
and communications to the following:
Michael S. Nolan, Esq.
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, WI 53202-5367
<PAGE>
TABLE OF CONTENTS
Page
ITEM 1. DESCRIPTION OF THE PROPOSED TRANSACTION . . . . . . . . . . . 1
A. Introduction and Request for Commission Action . . . . . . . 1
B. Description of the Parties to the Merger . . . . . . . . . . 2
1. WPSR . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. UPEN . . . . . . . . . . . . . . . . . . . . . . . . . . 6
C. Description of Merger . . . . . . . . . . . . . . . . . . . . 9
D. Management and Operations of WPSR Following the Merger . . . 11
ITEM 2. FEES, COMMISSIONS AND EXPENSES . . . . . . . . . . . . . . . 12
ITEM 3. APPLICABLE STATUTORY PROVISIONS . . . . . . . . . . . . . . . 13
A. Statement of Applicable Provisions . . . . . . . . . . . . . 13
B. The Standards of Section 10 . . . . . . . . . . . . . . . . . 14
1. Section 10(b) . . . . . . . . . . . . . . . . . . . . . 14
a) Section 10(b)(1) Interlocking Relationships or
Concentration of Control . . . . . . . . . . . . . 15
b) Section 10(b)(2) Fairness of Consideration
and Fees . . . . . . . . . . . . . . . . . . . . . 21
c) Section 10(b)(3) Capital Structure and the
General Public Interest . . . . . . . . . . . . . . 24
2. Section 10(c) . . . . . . . . . . . . . . . . . . . . . 26
a) Efficiencies and Economies . . . . . . . . . . . . 26
b) Integrated Public-Utility System . . . . . . . . . 27
3. Section 10(f) . . . . . . . . . . . . . . . . . . . . . 35
C. Continued Exemption of WPSR From Registration . . . . . . . . 35
ITEM 4. REGULATORY APPROVALS . . . . . . . . . . . . . . . . . . . . 36
A. State Regulatory Approval . . . . . . . . . . . . . . . . . . 36
B. Federal Power Act . . . . . . . . . . . . . . . . . . . . . . 36
C. Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ITEM 5. PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS . . . . . . . . . . . . . . 38
A. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . 38
B. Financial Statements . . . . . . . . . . . . . . . . . . . . 40
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS . . . . . . . . . . . 41
ITEM 1. DESCRIPTION OF THE PROPOSED TRANSACTION
A. Introduction and Request for Commission Action
Pursuant to Sections 9(a)(2) and 10 of the Public Utility
Holding Company Act of 1935, as amended (the "Act"),/1 WPS Resources
Corporation ("WPSR"), a Wisconsin corporation and an exempt holding
company under the Act, hereby requests that the Securities and Exchange
Commission (the "Commission") authorize WPSR's acquisition of all of the
issued and outstanding common stock of Upper Peninsula Power Company
("UPPCo"), a Michigan corporation and an electric utility company as
defined by Section 2(a)(3) of the Act, all pursuant to the terms of the
Agreement and Plan of Merger by and between WPSR and Upper Peninsula
Energy Corporation ("UPEN") dated as of July 10, 1997, as amended (the
"Merger Agreement") and which provides for the merger of UPEN into WPSR
("Merger"). UPEN is the registered holder and beneficial owner of all of
the outstanding common stock of UPPCo. Upon consummation of the Merger,
UPPCo will become a direct subsidiary of WPSR.
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1/ 15 U.S.C. Sections 79i and 79j.
Consummation of the Merger is conditioned inter alia on approval
herein requested of the Commission under the Act, approval of the Federal
Energy Regulatory Commission ("FERC") under the Federal Power Act, as
amended ("FPA"), and on the filing of Pre-Merger Notification Report Forms
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
("HSR Act"). It is contemplated that these proceedings can be concluded
and consummation of the Merger will occur on or before December 31, 1998.
The Merger has been approved by the Board of Directors of each
of WPSR and UPEN at meetings held on July 10, 1997. The Merger has also
been approved by the UPEN shareholders at a special meeting held on
January 29, 1998. WPSR's Registration Statement on Form S-4, which
includes a Proxy Statement/Prospectus (the "Registration Statement"), was
filed with the Commission on August 26, 1997; such Registration Statement,
as amended, including the exhibits thereto, is incorporated by reference
as Exhibit C-1 hereto. WPSR and UPEN filed an application with the FERC
on January 23, 1998, requesting approval of the indirect merger of the
jurisdictional facilities of their respective subsidiaries, Wisconsin
Public Service Corporation ("Public Service") and UPPCo and the
disposition and acquisition of the jurisdictional assets of UPPCo to be
effected by virtue of the Merger. WPSR does not presently contemplate a
statutory merger of UPPCo into Public Service but such a merger may be
effected in the future. The application filed with the FERC, including
the exhibits thereto, is incorporated by reference as Exhibit D-1 hereto.
WPSR requests expedited treatment of this application, so that
upon FERC and other regulatory action, WPSR and UPEN will be in a position
to consummate the Merger promptly.
B. Description of the Parties to the Merger
1. WPSR
WPSR, which is organized under the laws of the State of
Wisconsin, is a holding company exempt from regulation by the Commission
under the Act (except for Section 9(a)(2) thereof) pursuant to Section
3(a)(1) by virtue of the order of the Commission dated August 10, 1994.
WPSR is subject to the jurisdiction of the Public Service Commission of
Wisconsin ("Wisconsin Commission") pursuant to the Wisconsin Public
Utility Holding Companies Act ("WPUHCA")./2
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2/ Wis. Stats. Section 196.795.
WPSR's principal subsidiary is Public Service, a regulated
electric and gas utility. Public Service is subject to the regulation of
the Wisconsin Commission as to retail electric, gas and steam rates in
Wisconsin, issuance of securities, construction of new facilities,
transactions with affiliates, levels of short-term debt obligations, and
various other matters. Public Service is also subject to the regulation
of the Michigan Public Service Commission ("Michigan Commission") as to
the various matters associated with retail electric service in Michigan to
the same extent that it is regulated by the Wisconsin Commission as noted
above, except as to construction of certain new facilities, issuance of
securities, levels of short-term debt obligations and advance approval of
transactions with affiliates. Wholesale rates for electric energy sold in
interstate commerce, wheeling rates for energy transmission in interstate
commerce, hydro-electric facilities, and certain other activities of
Public Service are subject to the jurisdiction of the FERC. The operation
of Public Service's Kewaunee nuclear facilities is subject to regulation
by the NRC under the Atomic Energy Act of 1954, as amended. Public
Service serves approximately 374,000 electric retail customers and 218,000
gas retail customers in an 11,000 square mile service territory in
northeastern Wisconsin and the southern portion of the upper peninsula of
Michigan ("Upper Peninsula"). Additionally, Public Service provides
wholesale (full or partial requirements) electric service, either directly
or indirectly, to twelve municipal utilities, three rural electric
cooperatives, and a privately-held utility. Public Service has a total
generating capacity of 1,805,264 KW. In 1997, WPSR's total consolidated
operating revenues were $878,340,000, of which approximately $690,500,000
were derived from Public Service.
Public Service is a member of Wisconsin-Upper Michigan Systems
("WUMS"), a subregion of the Mid-America Interconnected Network ("MAIN").
MAIN is one of the ten regional councils within the National Electric
Reliability Council.
Public Service operates and has a 41.2% ownership interest in
Kewaunee Nuclear Power Plant ("Kewaunee") which operates with a Nuclear
Regulatory Commission ("NRC") license which expires in 2013./3 Public
Service has a 33.12% ownership share of Wisconsin River Power Company
("WRPC") which is a public utility that sells the output of its generating
resources to its owners./4 Public Service also owns: (1) a 31.8% share of
the Columbia Energy Center which is jointly owned with Wisconsin Power &
Light Company ("WP&L"), the operator, and Madison Gas and Electric Company
("MG&E"); (2) a 31.8% share of Edgewater Steam Plant Unit #4 which is
jointly owned with WP&L; and (3) a 68% share in a combustion turbine owned
jointly with Marshfield Electric and Water Department. Attached as
Exhibit E-6 is a complete list of generating facilities in which Public
Service has an ownership interest.
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3/ The other owners of Kewaunee are WP&L (41%) and MG&E (17.8%).
4/ WRPC is owned by Consolidated Water Power Company (33.76%), Public
Service (33.12%) and WP&L (33.12%).
Public Service also has a 26.9% ownership of the voting stock of
Wisconsin Valley Improvement Company which operates a system of dams and
water reservoirs on the Wisconsin River and tributary streams to produce a
uniform stream flow and charges water tolls to benefited power plant
owners. Finally, Public Service has a wholly-owned non-utility
subsidiary, Public Service Leasing, Inc. which was organized in 1994 to
participate in the financing of specific utility projects.
WPSR also owns operating non-utility subsidiaries: WPS Energy
Services, Inc. ("ESI") and WPS Power Development, Inc. ("PDI"). ESI is a
diversified energy company organized to offer electric and gas marketing
services, energy management services, project management, and energy
consulting services to wholesale and retail participants in the non-
regulated energy marketplace. PDI is a company organized to participate
in the development of electric generation and to provide services to the
power generation industry. PDI's services include: acquisition and
investment analysis; project development, engineering, and management
services; and operations and maintenance services. PDI has two wholly-
owned subsidiaries, PDI Stoneman Operations, Inc. and PDI Stoneman, Inc.
PDI Stoneman, Inc. has a 66-2/3% ownership interest in Mid-American Power
LLC which owns the E.J. Stoneman coal-fired plant. Finally, WPSR owns WPS
Visions, Inc. which serves as a business research and development vehicle.
Additional information regarding WPSR and its subsidiaries is
set forth in the following documents, each of which is incorporated herein
by reference:
(i) Restated Articles of Incorporation of WPSR, Exhibit A-1;
(ii) Articles of Incorporation of Public Service, Exhibit A-2;
(iii) Registration Statement on Form S-4 filed on August 26,
1997, as amended, Exhibit C-1;
(iv) Annual Report on Form 10-K for the year ended December 31,
1996, Exhibit G-1;
(v) Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997, and September 30, 1997, Exhibit G-3;
(vi) Current Reports on Form 8-K dated March 10, 1997, June 7,
1997, and October 20, 1997, Exhibit G-5;
(vii) Commission Order dated August 10, 1994, granting WPSR
an exemption under Section 3(a)(1), Release No. 35-26101, Exhibit H-1; and
(viii) Form U-3A-2 of Public Service for calendar year 1996,
filed on February 27, 1997, Commission File Number 69-35, Exhibit H-2.
2. UPEN
UPEN, which is organized under the laws of the State of
Michigan, is a holding company exempt from regulation by the Commission
under the Act (except for Section 9(a)(2) thereof) pursuant to Section
3(a)(1). UPEN's principal subsidiary, UPPCo, is an electric utility
engaged in the generation, purchase, transmission, distribution and sale
of electric energy in the Upper Peninsula. UPPCo is subject to the
regulation of the Michigan Commission as to retail electric service and
rates and various other matters. Wholesale rates for electric energy sold
in interstate commerce, wheeling rates for energy transmission in
interstate commerce, hydroelectric facilities, and certain other
activities of UPPCo are subject to the jurisdiction of the FERC.
UPPCo owns 103 MW of generating capacity that is connected to
its integrated system, including 55 MW of combustion turbine generating
capacity, 30 MW of hydroelectric generating capacity, and 18 MW of
capacity in the natural gas/coal-fired J. H. Warden generating plant which
is available but has not been operated since 1994 because of high running
costs. UPPCo's annual peak load for its integrated system in 1996 was 137
MW and an additional 8 MW for the City of Iron River and surrounding area.
Attached as Exhibit E-2 is a list of the generating facilities in which
UPPCo has an ownership interest.
UPPCo had a contract to purchase from Wisconsin Electric Power
Company ("Wisconsin Electric") 65 MW of firm power that expired on
December 31, 1997. UPPCo also had a contract to purchase from Northern
States Power Company ("NSP") 35 MW of non-firm power that expired on
December 31, 1997. UPPCo makes other non-firm purchases from electric
utilities in the region as well as power marketers.
Beginning January 1, 1998, UPPCo has a contract with
Commonwealth Edison Company ("Commonwealth Edison") to purchase 55 MW of
firm power for one year. For 1998, UPPCo also has 55 MW of capacity which
it obtains under the UPPCo-Wisconsin Electric Generation Capacity Exchange
Agreement. After 1998, UPPCo has the right to obtain an additional 10 MW
of capacity under this contract. Also beginning on January 1, 1998, UPPCo
has a contract with Public Service to purchase partial requirements
interruptible power under the W-2 tariff which is on file with the FERC.
These contracts will provide the bulk of UPPCo's requirements through the
end of 1998.
UPPCo's electric service territory lies entirely within the
Upper Peninsula. UPPCo's customer mix is comprised of approximately
43,000 residential accounts, approximately 5,000 small commercial and
industrial accounts, and eight large commercial and industrial accounts
for an approximate total of 48,000 customers. UPPCo currently also has
nine purchasers of wholesale power.
UPPCo owns and operates approximately 3,214 miles of
transmission and distribution lines. The western end of UPPCo's
transmission system is interconnected with Wisconsin Electric, and the
eastern end of UPPCo's transmission system is interconnected with Edison
Sault Electric Company ("Edison Sault")./5 Like Public Service, UPPCo is
a member of WUMS.
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5/ For reliability purposes, the interconnection between UPPCo and
Edison Sault is normally open, and typically would be used by Edison
Sault only in the event of a localized interruption of service. The
connection exists solely as a means to help maintain system
reliability in emergency situations and was not designed as an
interconnection through which scheduled bulk power transfers occur.
UPPCo is party to three joint use of transmission agreements
with other utilities having facilities in the Upper Peninsula. The oldest
of these is a Joint Use of Transmission Agreement between UPPCo and
Wisconsin Electric dated December 8, 1987./6 More recently, UPPCo has
entered into (1) a joint use of transmission agreement among itself,
Edison Sault, Wisconsin Electric and Cloverland Electric Cooperative, and
(2) the Western Joint Use of Transmission Agreement with Wisconsin
Electric, dated June 1, 1995. These agreements provide each party with
reciprocal rights to use certain transmission facilities of the other
parties to the agreement.
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6/ By letter dated December 30, 1997, Wisconsin Electric gave UPPCo
notice that this agreement is to be canceled as of December 31, 1998.
UPEN has two other subsidiaries in addition to UPPCo: Upper
Peninsula Building Development Company, which owns the corporate
headquarters building and leases it to UPPCo, and PENVEST, Inc., which
explores investment opportunities in telecommunications, engineering
services, and other non-regulated businesses.
Additional information regarding UPEN and its subsidiaries is
set forth in the following documents, each of which is incorporated herein
by reference:
(i) Articles of Incorporation of UPEN, Exhibit A-3;
(ii) Articles of Incorporation of UPPCo, Exhibit A-4;
(iii) Annual Report on Form 10-K for the year ended
December 31, 1996, Exhibit G-2;
(iv) Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997, and September 30, 1997, Exhibit G-4;
(v) Current Report on Form 8-K dated July 18, 1997, Exhibit G-
6; and
(vi) Form U-3A-2 for calendar year 1996, filed on February 27,
1997, Commission File Number 69-355, Exhibit H-3.
C. Description of Merger
On July 10, 1997, WPSR and UPEN entered into the Merger
Agreement./7 Such Merger Agreement is filed herewith and incorporated by
reference as Exhibit B-1. The Merger Agreement contemplates that UPEN
will be merged with and into WPSR. The separate corporate existence of
UPEN will cease, and WPSR will be the surviving corporation.
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7/ For a discussion of the events leading up to the execution of the
Merger Agreement, see Exhibit C-1, pp. 23-27, which is incorporated
herein by reference.
Under the Merger Agreement, each outstanding share of UPEN
Common Stock (other than UPEN Common Stock owned by UPEN or WPSR or any of
their respective subsidiaries) will, upon consummation of the Merger, be
converted (subject to cash payment for fractional shares of WPSR Common
Stock) into the right to receive 0.9 of a share of WPSR Common Stock. The
total value of the stock consideration to be issued in exchange for all of
UPEN's Common Stock could be approximately $62,060,000 to $90,934,000.
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8/ These figures were derived from the 52-week low and high prices of
WPSR Common Stock as traded on the New York Stock Exchange and
reported in The Wall Street Journal, January 16, 1998.
The Board of Directors of each party has approved the Merger
Agreement. The shareholders of UPEN have also approved the Merger.
Approval of the Merger by the shareholders of WPSR is not required. The
Merger is subject to customary closing conditions. Consummation of the
Merger is also subject to receipt of regulatory approvals including the
approval of the Commission herein requested, approval of the FERC, and
filing of the requisite notifications under the HSR Act and the expiration
of applicable waiting periods thereunder. UPEN has agreed to certain
undertakings and limitations regarding the conduct of its business prior
to the closing of the Merger.
The Merger is designed to qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986,
as amended. No gain or loss would be recognized by WPSR, UPEN, or the
shareholders of UPEN or WPSR (except for gain or loss attributable to cash
received in lieu of fractional shares of WPSR's Common Stock) for federal
income tax purposes as a result of the consummation of the Merger. The
Merger will be treated as a "pooling of interests" for accounting and
financial reporting purposes.
The Merger Agreement may be terminated in certain circumstances,
whether before or after approval and adoption of the Merger Agreement by
the shareholders of UPEN, including, but not limited to, the following:
by mutual written consent of WPSR and UPEN and by either party if the
Merger is not consummated by December 31, 1998 (which date may under
certain circumstances be extended to June 30, 1999). The Merger Agreement
provides for a termination fee to be paid by one party to the other in
certain circumstances, which fee ranges from $3,000,000 to $6,000,000
depending on the circumstances and date of the termination.
D. Management and Operations of WPSR Following the Merger
Upon completion of the Merger, UPPCo will become a subsidiary of
WPSR, which will own all of the issued and outstanding common stock of
UPPCo.
WPSR contemplates that UPPCo and Public Service will continue to
operate as separate corporations. An advisory board will be appointed to
assist the Board of Directors of UPPCo with the transition of UPPCo into
the WPSR holding company system as contemplated by the Merger Agreement.
During the three-year period following the consummation of the
Merger, to the extent reasonably practicable and consistent with past
practices, WPSR will cause supplies and services for UPPCo to be purchased
from vendors located in the service area of UPPCo so long as the prices
and fees are reasonable and the quality is comparable to alternative
vendors. Also, during the five-year period following the consummation of
the Merger, WPSR will provide, or cause its subsidiaries to provide,
charitable contributions and community support within the service area of
UPPCo at a level at least comparable to pre-merger contributions and
support.
Although Public Service and UPPCo currently maintain independent
control areas, Public Service provides a range of system control,
dispatch, and customer call services to UPPCo under contracts executed in
1996. Public Service also supplies a limited amount of electric energy to
UPPCo in the form of regulating service which follows the moment-to-moment
and hourly changes in UPPCo's system load. Following the Merger, some or
all of these services will continue because Public Service and UPPCo will
continue to operate their separate control areas in much the same manner
as before the Merger. The parties expect, however, that, as affiliates,
they will be able to coordinate more closely their system planning and
operation than in the past.
Following the Merger, WPSR's Board of Directors, which will
remain classified into three classes, will be increased by one member who
will be designated by the UPEN Board of Directors, subject to acceptance
by the WPSR Board of Directors.
Clarence R. Fisher has entered into an employment agreement with
UPPCo for a term of three years commencing on the effective time of the
Merger and ending on the third anniversary of the effective time, and
thereafter, UPPCo will employ Mr. Fisher as a consultant for a period of
two years.
ITEM 2. FEES, COMMISSIONS AND EXPENSES
The fees, commissions and expenses paid or incurred or to be
paid or incurred, directly or indirectly, in connection with the Merger,
including the solicitation of proxies, registration of securities of WPSR
under the Securities Act of 1933, and other related matters, are estimated
as follows:
Commission filing fee for the
Registration Statement on Form S-4
(the "Registration Statement" . . . . . . . . . . . . . $22,527
Accountant's fees . . . . . . . . . . . . . . . . . . . 163,300
Legal fees and expenses . . . . . . . . . . . . . . 1,451,773
HSR Act filing fee . . . . . . . . . . . . . . . . . . 45,000
Investment bankers' fees and expenses . . . . . . . . 1,650,000
Consulting fees related to human resource
issues, public relations, regulatory support,
and other matters relating to the Merger . . . . . . . 267,245
Other . . . . . . . . . . . . . . . . . . . . . . . . . 169,653
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TOTAL . . . . . . . . . . . . . . . . . . . . . . . $3,724,498
ITEM 3. APPLICABLE STATUTORY PROVISIONS
A. Statement of Applicable Provisions
Sections 9(a)(2), 10(b), (c) and (f) of the Act and the
Commission's rules thereunder are or may be directly or indirectly
applicable to the Merger.
Section 9(a)(2) makes it unlawful, without approval of the
Commission under Section 10, "for any person . . . to acquire, directly or
indirectly, any security of any public-utility company, if such person is
an affiliate . . . of such company and of any other public-utility or
holding company, or will by virtue of such acquisition become such an
affiliate." Under the definition set forth in Section 2(a)(11)(A), an
"affiliate" of a specified company means "any persons that directly or
indirectly owns, controls, or holds with power to vote, 5 per centum or
more of the outstanding voting securities of such specified company," and
"any company 5 per centum or more of whose outstanding voting securities
are owned, controlled, or held with power to vote, directly or indirectly,
by such specified company . . . ."
WPSR must obtain the approval of the Commission for the Merger
under Sections 9(a)(2) and 10 of the Act because (a) WPSR currently owns
more than five percent of the voting securities of Public Service, (b)
WPSR will directly acquire more than five percent of the voting securities
of UPPCo, a public utility company as defined in Section 2(a)(5) of the
Act, and (c) UPPCo will become an "affiliate" of WPSR as a result of the
Merger. The statutory standards to be considered by the Commission in
evaluating the Merger are set forth in Sections 10(b), 10(c) and 10(f) of
the Act.
As set forth more fully below, the Merger complies with all of
the applicable provisions of Section 10 of the Act and should be approved
by the Commission./9 Thus:
- the consideration to be paid in the Merger is fair and reasonable;
- the Merger will not create detrimental interlocking relations or
concentration of control;
- the Merger will not result in an unduly complicated capital structure
for the WPSR system;
- the Merger is in the public interest and the interests of investors
and consumers;
- the Merger tends toward the economical and efficient development of
an integrated electric utility system; and
- the Merger will comply with all applicable state laws.
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9/ While Section 10(c) requires that an acquisition be consistent with
the provisions of Sections 8 and 11, those sections by their terms
are applicable only to registered holding companies.
B. The Standards of Section 10
1. Section 10(b)
Section 10(b) provides that, if the requirements of Section
10(f) are satisfied, the Commission shall approve an acquisition under
Section 9(a) unless:
(a) such acquisition will tend towards interlocking
relations or the concentration of control of public-utility
companies, of a kind or to an extent detrimental to the public
interest or the interest of investors or consumers;
(b) in case of the acquisition of securities or utility
assets, the consideration, including all fees, commissions, and
other remuneration, to whomsoever paid, to be given, directly or
indirectly, in connection with such acquisition is not
reasonable or does not bear a fair relation to the sums invested
in or the earning capacity of the utility assets to be acquired
or the utility assets underlying the securities to be acquired;
or
(c) such acquisition will unduly complicate the capital
structure of the holding-company system of the applicant or will
be detrimental to the public interest or the interest of
investors or consumers or the proper functioning of such
holding-company system.
a) Section 10(b)(1) -- Interlocking Relationships or
Concentration of Control
The Commission may not approve a Merger under Section 10(b)(1)
if:
such acquisition will tend towards interlocking relations or the
concentration of control of public-utility companies, of a kind
or to an extent detrimental to the public interest or the
interest of investors or consumers.
(1) Interlocking Relationships
By its nature, any Merger results in new links between
previously unrelated companies. However, these links are not the types of
interlocking relationships targeted by Section 10(b)(1), which was
primarily aimed at preventing business combinations unrelated to operating
synergies.
Following the Merger, the Merger Agreement provides for WPSR's
Board of Directors to include a member designated by the UPEN Board of
Directors and subject to approval by the WPSR Board of Directors. Also
following the Merger, the Board of Directors of Public Service and UPPCo
will have common members and may be composed entirely of the same
individuals. The Merger Agreement also provides that WPSR will cause an
Advisory Board to be appointed to assist the Board of Directors of UPPCo
in connection with the transition in the management of UPPCo's operations
contemplated by the Merger Agreement. Five persons serving as outside
directors of UPEN will be offered the opportunity to serve on the Advisory
Board. Forging these relationships will permit the integration of UPPCo
into the WPSR system, will be in the public interest and the interest of
investors and consumers, and will be beneficial to the protected interests
under the Act and thus are not prohibited by Section 10(b)(1). In similar
situations, the Commission has recognized that common directors among
companies in a coordinated system are permissible and that an integrated
public utility holding company system presupposes, in the interest of
efficiencies and economies, the existence of interlocking officers and
directors.
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10/ See, e.g., Northeast Util., 50 S.E.C. 427 (1990); CIPSCO, Inc., 47
S.E.C. 174 (1990); American Natural Gas Co., 36 S.E.C. 387 (1955).
(2) Concentration of Control
Section 10(b)(1) is designed to prevent utility acquisitions
that result in an undue concentration of economic power. Section 10(b)(1)
is intended to avoid "an excess of concentration and bigness" while
preserving the "opportunities for economies of scale, the elimination of
duplicate facilities and activities, the sharing of production capacity
and reserves and generally more efficient operations" afforded by the
coordination of local utilities into an integrated system./11 In applying
Section 10(b)(1) to utility acquisitions, the Commission must determine
whether the acquisition will create "the type of structures and
combinations at which the Act was specifically directed."/12
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11/ American Elec. Power Co., 46 S.E.C. 1299, 1309 (1978).
12/ Vermont Yankee Nuclear Corp., 43 S.E.C. 693, 700 (1968), rev'd on
other grounds, 413 F. 2d 1052 (D.C. Cir. 1969).
As discussed below, the Merger will not create a "huge, complex,
and irrational system" of a type at which the Act is directed, but rather
will afford the opportunity to achieve economies of scale and efficiencies
which are expected to benefit investors and consumers./13 Further,
Section 10(b)(1) must be construed in light of the policy stated in
Section 1(b)(4) of the Act, where Congress, in its statement of abuses and
conditions which adversely affect the public interest, condemned "the
growth and extension of holding companies [that] bear no relation to
economy of management and operation or the integration and coordination of
related operating properties."
------------
13/ American Elec. Power Co., 46 S.E.C. 1299, 1308 (1978).
Thus, Section 10(b)(1) enables the Commission to "exercise its
best judgment as to the maximum size of a holding company in a particular
area, considering the state of the art and the area or region
affected."/14 Against this background, the Commission reaches its
determination whether to prohibit the expansion of a system under Section
10(b)(1) "on the basis of all circumstances, not on the basis of size
alone. /15"
------------
14/ Entergy Corp., 51 S.E.C. 869, 876, citing Centerior Energy Corp., 35
S.E.C. Docket 769 and American Elec. Power Co., 46 S.E.C. 1299.
15/ See, e.g., Northeast Util., 50 S.E.C. at 443-45; Sierra Pacific
Resources, 40 S.E.C. Docket 103, 107 (Jan. 28, 1988); Centerior
Energy Corp., 35 S.E.C. Docket at 771.
The factors to be considered are (a) the size of the combined
system, considering the state of the art and the area affected; (b) the
efficiencies and economies that can be achieved through the integration
and coordination of utility operations; and (c) the competitive effects of
the acquisition.
(a) Size
As of December 31, 1997, WPSR had total consolidated operating
revenues of $878,340,000 and total consolidated assets of $1,299,602,000.
As of December 31, 1997, Public Service served 374,567 electric retail
customers and 218,299 gas retail customers.
As of December 31, 1997, UPEN had total operating revenues of
$60,104,000, and at December 31, 1997, UPEN had total assets of
$136,844,000. As of December 31, 1997, UPPCo served 48,185 electric
customers.
If the Merger had been consummated on December 31, 1997, WPSR
would have pro forma combined assets of approximately $1,435,804,000.
Combined pro forma operating revenues of WPSR and UPEN would total
approximately $938,444,000 for the year ending December 31, 1997. WPSR,
through Public Service and UPPCo, would serve approximately 418,000
electric retail customers and continue to serve 218,000 gas retail
customers. Thus, by no means would WPSR become excessively large. By
comparison, the Commission has approved a number of mergers and
acquisition involving significantly larger operating utilities./16 In
addition, Public Service would not exceed the scope or scale of other
utility companies either in Wisconsin or nationwide./17
-----------
16/ See, e.g., TUC Holding Co., 65 S.E.C. Docket 301 (August 1, 1997)
(acquisition of Texas Utilities Company and ENSERCH Corp. combined
assets at time of acquisition of approximately $419.6 billion); Ameren
Corp., 66 S.E.C. Docket 485 (Dec. 30, 1997) (combination of Union
Electric Co. and Central Illinois Public Service Co.; combined assets
at time of acquisition of approximately $8.9 billion); Entergy Corp.,
51 S.E.C. 869 (acquisition of Gulf States; combined assets at time of
acquisition in excess of $21 billion); Northeast Util., 50 S.E.C. 427
(acquisition of Public Service Company of New Hampshire; combined
assets at time of acquisition of approximately $9 billion); Southern
Co., 40 S.E.C. Docket 350 (Feb. 12, 1988) (acquisition of Savannah
Electric and Power Company to create a system with assets of $20
billion); Centerior Energy Corp., 35 S.E.C. Docket 769 (combination
of Cleveland Electric Illuminating and Toledo Edison; combined assets
at time of acquisition of approximately $9.1 billion).
17/ Id.
(b) Efficiencies and Economies
The Commission favors assessing the size of the resulting system
with reference to the efficiencies and economies that can be achieved
through the integration and coordination of utility operations. As the
Commission stated in American Electric Power Company, although the framers
of the Act were concerned about "the evils of bigness, they were also
aware that the combination of isolated local utilities into an integrated
system afforded opportunities for economies of scale, the elimination of
duplicate facilities and activities, the sharing of production capacity
and reserves and generally more efficient operations . . . [and] [t]hey
wished to preserve these opportunities . . . ." 46 SEC at 1309.
More recent pronouncements of the Commission confirm the use of
this approach. Thus, in Centerior Energy Corp., 49 S.E.C. 472 (1986), the
Commission stated flatly that a "determination of whether to prohibit
enlargement of a system by acquisition is to be made on the basis of all
the circumstances, not on the basis of size alone."/18 In addition, in the
1995 Report, the Division recommended that the Commission approach its
analysis on merger and acquisition transactions in a flexible manner with
emphasis on whether the transaction creates an entity subject to effective
regulation and is beneficial for shareholders and customers as opposed to
focusing on rigid, mechanical tests./19
-------------
18/ See also Entergy Corp., 51 S.E.C. 869 (1993).
19/ 1995 Report at 73-74.
By virtue of the Merger, both Public Service and UPPCo will
achieve cost savings, primarily from the consolidation of administrative,
engineering and accounting functions, other support services and the joint
utilization of various Public Service advanced technologies. These
savings are expected to amount to approximately $56 million, net of the
costs of achieving those savings but excluding the transaction costs,
during the ten years following consummation of the Merger.
Beyond these Merger-related projected cost savings, WPSR
believes that the Merger will, over time, result in lower aggregate rates
for the UPPCo customers. Public Service has present operations in the
Upper Peninsula which are approximately 2% of the total Public Service
electric operations and consist of retail and three small, transmission-
dependent wholesale customers. The area served by Public Service in
Michigan is similar demographically and geographically to the UPPCo
service territory. Public Service's present Michigan rates are the lowest
of the 21 Michigan Commission jurisdictional utilities. Based on this
track record, it is anticipated that Public Service, over time, will be
able to lower the UPPCo rates. Thus, this Merger should provide benefits
to customers that could not be obtained absent the Merger.
(c) Competitive Effects
Section 10(b)(1) also requires the Commission to consider
possible anticompetitive effects of a proposed combination./20 As the
Commission noted in Northeast Utilities, 47 S.E.C. Docket 1270 (1990),
the "antitrust ramifications of an acquisition must be considered in
light of the fact that the public utilities are regulated monopolies and
that federal and state administrative agencies regulate the rates charged
to customers." UPEN and WPSR will file Notification and Report Forms with
the Department of Justice and the Federal Trade Commission, pursuant to
the HSR Act describing the effects of the Merger on competition in the
relevant market.
------------
20/ See Entergy Corp., supra, at 2041, citing Municipal Electric Ass'n of
Mass. v. SEC, 413 F. 2d 1052, 1056-1058 (D.C. Cir. 1969).
In addition, the competitive impact of the Merger will be fully
considered by the FERC. WPSR and UPEN have filed an application with the
FERC requesting approval of the Merger. In preparing the application,
WPSR retained Dr. Mark W. Frankena, Senior Vice President of Economics
Incorporated, to evaluate the competitive impacts of the Merger. Dr.
Frankena reached the following conclusion, "The Merger of WPSR and UPEN
raises no competitive concerns." The application filed by UPEN and WPSR
with the FERC is incorporated herein as Exhibit D-1. The Commission may
appropriately rely upon the FERC with respect to such matters./21
-------------
21/ Entergy Corp., supra, at 2042, citing City of Holyoke Gas & Elec.
Dep't v. SEC, 972 F.2d 358, 363-64, quoting Wisconsin's Environmental
Decade, Inc. v. SEC, 882 F.2d 523, 527 (D.C. Cir. 1989).
For these reasons, the Merger will not "tend toward interlocking
relations or the concentration of control" of public-utility companies, of
a kind or to the extent detrimental to the public interest or the
interests of investors or customers within the meaning of Section
10(b)(1).
b) Section 10(b)(2) -- Fairness of Consideration and Fees
The Commission may not approve a Merger under Section 10(b)(2)
if:
the consideration, including all fees, commissions and
other remuneration, to whomsoever paid, to be given,
directly or indirectly, in connection with the
acquisition is not reasonable or does not bear a fair
relation to the sums invested in or the earning
capacity . . . of the utility assets underlying the
securities to be acquired.
(1) Fairness of Consideration
In its determination as to whether or not consideration for an
acquisition meets the fair and reasonable test of Section 10(b)(2), the
Commission has considered whether the price was decided as the result of
arms-length negotiations/22 and whether each party's Board of Directors
has approved the purchase price./23 The Commission also considers the
opinions of investment bankers and the earnings, dividends, and book and
market value of the shares of the company to be acquired./24
-----------
22/ American Natural Gas Co., 43 S.E.C. 203 (1966).
23/ Consolidated Natural Gas Co., 45 S.E.C. Docket 672, 674 (Feb. 14,
1990).
24/ Northeast Util., 42 S.E.C. 963 (1966).
Upon consummation of the Merger, each share of UPEN Common Stock
will be converted into 0.9 shares of WPSR Common Stock, subject to
adjustment for cash payments in lieu of fractional shares (the "Conversion
Ratio"). This Conversion Ratio was the product of extensive and vigorous
arms-length negotiations between WPSR and UPEN, preceded by months of due
diligence, analysis and evaluation of the assets, liabilities and business
prospects of each of the companies. The Conversion Ratio was approved by
the respective Boards of each of WPSR and UPEN after extensive
presentations and deliberations, and approved by the shareholders of UPEN.
In addition, Wasserstein Perella & Co., Inc. has reviewed
extensive information concerning the companies and analyzed the Conversion
Ratio. Wasserstein Perella & Co., Inc. rendered the opinion that the
Conversion Ratio provided for pursuant to the Merger Agreement was fair to
the holders of UPEN common stock from a financial point of view.
Wasserstein Perella & Co., Inc.'s opinion is incorporated herein by
reference as Appendix B to Exhibit C-1.
In light of this opinion and an analysis of all relevant
factors, including the benefits expected to be realized as a result of the
Merger, WPSR believes that the Conversion Ratio falls within the range of
reasonableness, and the consideration for the Merger bears a fair relation
to the sums invested in, and the earning capacity of, the utility assets
underlying the common stock of UPEN.
(2) Reasonableness of Fees
WPSR believes that the overall fees, commissions and expenses
incurred and to be incurred in connection with the Merger are reasonable
and fair in light of the size and complexity of the Merger relative to
other transactions and the anticipated benefits of the Merger to the
public, investors and consumers. They are also consistent with recent
precedent. For these reasons, WPSR believes that these fees meet the
standards of Section 10(b)(2).
As set forth in Item 2 of this Application, WPSR and UPEN
together expect to incur a combined total of approximately $3.7 million in
fees, commissions and expenses in connection with the Merger.
By contrast, the Cincinnati Gas and Electric Company and PSI
Resources, Inc. together incurred $47.1 million in fees, commissions and
expenses in connection with their combination into CINergy Corp.;
Northeast Utilities alone incurred $46.5 million in fees and expenses in
connection with its acquisition of Public Service Company of New
Hampshire; Entergy alone incurred $38 million in fees in connection with
its acquisition of Gulf States Utilities; and New Century Energies
incurred more than $23 million in connection with its formation and the
combination of Southwestern Public Service Company and Public Service
Company of Colorado-all of which amounts were approved as reasonable by
the Commission./25
-----------
25/ See CINergy Corp., 57 S.E.C. Docket 2353 (1994); Northeast
Utilities, 51 S.E.C. Docket 934 (June 3, 1992); Entergy
Corporation, 51 S.E.C. 869 (1993); New Century Energies,
65 S.E.C. Docket 277 (1997).
With respect to financial advisory fees, UPEN and WPSR believe
that the fees payable to their respective financial advisors are fair and
reasonable for similar reasons.
c) Section 10(b)(3) -- Capital Structure and the General
Public Interest
Section 10(b)(3) requires the Commission to determine whether
the Merger:
will unduly complicate the capital structure of the
holding-company system of the applicant or will be
detrimental to the public interest or the interest of
investors or consumers or the proper functioning of
such holding-company system.
(1) No Undue Complication of Capital Structure
The Merger has been designed to achieve the business combination
of WPSR and UPEN by the simplest means possible. With regard to capital
structure, these means involve the exchange of UPEN Common Stock for WPSR
Common Stock, while leaving all other elements of the existing capital
structure in place. Following the Merger, the only issued and outstanding
securities of WPSR will be voting common stock./26 WPSR believes this
capital structure is not unduly complicated, but rather maintains, to the
greatest extent possible, the simplicity of the capital structure of each
constituent entity.
-----------
26/ The pro forma common equity to total capitalization ratio is 62%.
The Commission has approved applications for acquisitions in
which the capital structure of the holding company was substantially
similar to that contemplated by the Merger, in that these acquisitions
involved exchanges of common stock only, no other equity securities at the
holding company level, and maintenance of the existing capital structure,
including outstanding preferred stock, of the constituent companies./27
-------------
27/ CINergy Corp., 57 S.E.C. Docket 2353.
For these reasons, the Company believes that the Merger will not
unduly complicate the capital structure.
(2) No Detriment to the Public Interest or
Proper Functioning of the Holding Company
System
As discussed earlier, WPSR believes that the Merger will
affirmatively serve the public interest and enhance the proper functioning
of the combined enterprise. See Item 3.B.2.
Moreover, as noted by the Commission in Entergy Corporation,
51 S.E.C. 869 (1993), "concerns with respect to investors' interests have
been largely addressed by developments in the federal securities laws and
the securities market themselves." WPSR will continue to be a reporting
company subject to the continuous disclosure requirements of the 1934 Act
following the completion of the Merger. The various reports filed by
UPEN/28 and WPSR under that Act provide readily available information
concerning the companies and the Merger. Furthermore, the consummation of
the Merger is subject to obtaining the approval of FERC under section 203
of the FPA which requires a finding by FERC that the Merger be "consistent
with the public interest." For these reasons, WPSR believes that the Merger
will be in the public interest and the interest of investors and consumers,
and will not be detrimental to the proper functioning of the resulting
holding company system.
------------
28/ UPEN will cease to exist after the Merger.
2. Section 10(c)
Section 10(c)(2) of the Act provides that, notwithstanding the
provisions of Section 10(b), the Commission shall not approve:
acquisition of securities or utility assets of a
public-utility or holding company unless the
Commission finds that such acquisition will serve the
public interest by tending towards the economical and
the efficient development of an integrated public-
utility system . . . ./29
------------
29/ Section 10(c)(1) provides that the Commission shall not approve "an
acquisition of securities or utility assets, or of any other interest,
which is unlawful under the provisions of Section 8 or is detrimental
to the carrying out of the provisions of Section 11." By their terms,
Sections 8 and 11 only apply to registered holding companies and are
therefore inapplicable to WPSR or UPEN, since neither is a registered
holding company. Since it is contemplated that WPSR will remain an
unregistered exempt holding company after completion of the Merger,
this Section is not applicable.
Because the Merger is expected to result in cost savings and
synergies, it will tend toward the economical and efficient development of
an integrated public-utility system, thereby serving the public interest,
as required by Section 10(c)(2) of the Act.
a) Efficiencies and Economies
The Merger will produce economies and efficiencies more than
sufficient to satisfy the standards of Section 10(c)(2) of the Act.
Although some of the anticipated economies and efficiencies will be fully
realizable only in the longer term, they are properly considered in
determining whether the standards of Section 10(c)(2) have been met./30
Some potential benefits cannot be precisely estimated, nevertheless they
too are entitled to be considered. "[S]pecific dollar forecasts of future
savings are not necessarily required; a demonstrated potential for
economies will suffice even when these are not precisely quantifiable."/31
-----------
30/ See American Electric Power Co., 46 S.E.C. 1299, 1320-21 (1978).
31/ Centerior Energy Corp., 49 S.E.C. 472 (1986).
UPEN and WPSR have estimated the net nominal dollar value of
synergies from the Merger to be approximately $56 million./32 This cost
savings comes primarily from the consolidation of administrative,
engineering and accounting functions, other support services and the joint
utilization of various Public Service advanced technologies.
---------
32/ Merger synergies are stated in nominal dollars over ten years
following the completion of the Merger and are net of the costs of
achieving those savings but excluding the transaction costs.
b) Integrated Public-Utility System
As applied to electric utility companies, the term "integrated
public-utility system" is defined in Section 2(a)(29)(A) of the Act as:
a system consisting of one or more units of generating
plants and/or transmission lines and/or distributing
facilities, whose utility assets, whether owned by one
or more electric utility companies, are physically
interconnected or capable of physical interconnection
and which under normal conditions may be economically
operated as a single interconnected and coordinated
system confined in its operations to a single area or
region, in one or more States, not so large as to
impair (considering the state of the art and the area
or region affected) the advantages of localized
management, efficient operation, and the effectiveness
of regulation.
On the basis of this statutory definition, the Commission has
established four standards that must be met before the Commission will
find that an integrated electric system will result from a proposed
acquisition of securities:
(1) the utility assets of the system are
physically interconnected or capable of
physical interconnection;
(2) the utility assets, under normal
conditions, may be economically
operated as a single interconnected and
coordinated system;
(3) the system must be confined in its
operations to a single area or region; and
(4) the system must not be so large as to impair
(considering the state of the art and the
area or region affected) the advantages of
localized management, efficient operation,
and the effectiveness of regulation.33/
-----------
33/ Environmental Action, Inc. v. SEC, 895 F.2d 1255, 1263 (9th Cir
1990) (citing In re Electric Energy, Inc., et al., 38 SEC 658, 668
(1958).
In the 1995 Report, the Division recommended that the Commission
"respond realistically to the changes in the utility industry and
interpret more flexibly each piece of the integration requirement."/34
The Merger satisfies all four of these requirements.
-----------
34/ 1995 Report at 71.
First, WPSR's system will meet the requirements of Section
2(a)(29)(A) in that the service territories of Public Service and UPPCo
"are capable of physical interconnection" because their transmission
systems are only sixty miles apart and they are operationally
interconnected through existing transmission lines owned by Wisconsin
Electric to which UPPCo and Public Service have access pursuant to open
access transmission tariffs./35 For most of 1998, UPPCo has reserved 15
MW of firm monthly transmission capacity on the Wisconsin-Upper Peninsula
interface which is the transmission interface that is internal to the
Wisconsin Electric system between eastern Wisconsin and the Upper
Peninsula. Wisconsin Electric has also agreed to maintain 45 MW of this
interface available at all times for use by third parties as a condition
of approval of its proposed merger with ESELCO./36 Public Service and
UPPCo will make use of these 45 MW for interconnected and coordinated
operations. Thus, during non-peak periods, 45 MW of capacity in this
interconnection can be available to UPPCo and Public Service for
integrated and coordinated operations.
-----------
35/ The Wisconsin Electric facilities that separate the transmission
systems of Public Service and UPPCo are the same transmission
facilities that tie eastern Wisconsin to the Upper Peninsula.
Presently, the transfer capability from Wisconsin to the Upper
Peninsula is limited to approximately 200 MW; the transfer capability
from the Upper Peninsula to Wisconsin is approximately 330 MW.
36/ Application of Wisconsin Energy Corporation and ESELCO, FERC Docket
No. EC98-8-000 at 11.
Given the limits of its generating resources, as discussed above
in Item 1.B.2, UPPCo is not a significant seller of capacity or energy.
It is important to note that the existing transmission link between UPPCo
and Public Service, through the Wisconsin Electric transmission system,
has been sufficient to accommodate the partial requirements interruptible
power sold to UPPCo by Public Service under a W-2 tariff. The
circumstance of UPPCo, after the merger, will not be materially different
in terms of electric isolation than is the circumstance of various parts
of the existing Public Service native load service territory. /37
-----------
37/ Having physical interconnection of the utility assets in the existing
constrained environment in Wisconsin does not necessarily insure that
the utility assets will not be isolated from the integrated utility
system. For instance, under certain circumstances, facilities owned
by Public Service are isolated from the rest of the Public Service
system because the transmission lines are so congested that electric
flows may not reach the facility. This is similar to but greater
than the isolation of UPPCo, which will actually be assured of 45 MWs
of "interconnectedness" around the clock.
Like UPPCo, Public Service also is a net purchaser of
electricity. Public Service has agreements to purchase electricity from,
among other wholesale suppliers, NSP and Commonwealth Edison. Neither
UPPCo nor Public Service is likely to have excess generation available to
sell to the other during periods when the transmission interface is
constrained. Furthermore, the electric constraint posed by the
interconnection would have the same effect in the potential movement of
power between UPPCo and Public Service, regardless of whether it is owned
by Wisconsin Electric or Public Service. The existing transmission access
that UPPCo and Public Service have is sufficient to meet their needs for
coordination.
Also, Public Service and UPPCo, who have been active
participants in the development of an independent system operator ("ISO"),
will voluntarily join an ISO once one is formed that is acceptable to the
FERC, meets the needs of their customers, and covers a sufficiently broad
region of the upper Midwest, including one or more of the major interfaces
required to import capacity and energy into Wisconsin and the Upper
Peninsula. This should alleviate any concerns regarding the utilities'
ability to be physically interconnected.
Although a majority of the service systems of Public Service and
UPPCo are not contiguous, they are in close proximity. See Exhibit E-1.
UPPCo is, in fact, closer in proximity to Public Service than to any
Michigan utility in the lower portion of Michigan because the Upper
Peninsula is physically contiguous to Wisconsin and not the lower portion
of Michigan. Because UPPCo's service territory is in close proximity to
Public Service's territory, UPPCo will more likely achieve economies
through a merger with a Wisconsin utility, Public Service, than any
Michigan utility. Public Service and UPPCo are thus, in the words of the
definition, "so located and related that substantial economies may be
effectuated by being operated as a single coordinated system."
Second, Public Service and UPPCo may be operated economically as
a single interconnected and coordinated system. In fact, even before the
Merger Agreement was signed by WPSR and UPEN, their utility subsidiaries,
Public Service and UPPCo, were coordinating their efforts and working
together to the benefit of both utilities. Over the years, Public Service
and UPPCo have entered into a number of contractual agreements. In March
1994, UPPCo and Public Service entered into a Coordination Sales Tariff
pursuant to which UPPCo had agreed to purchase, on a tariff basis, certain
power and energy from Public Service, including negotiated capacity and
energy, general purpose energy and emergency energy. In 1996, UPPCo and
Public Service entered the following agreements: (a) System Capacity and
Energy Exchange Agreement pursuant to which Public Service provides
regulating services to UPPCo; (b) Trouble Orders and Call Out Service
Agreement pursuant to which Public Service provides to UPPCo after hours
call handling and service crew dispatch services; (c) System Control
Agreement pursuant to which Public Service provides generation and
transmission dispatch services to UPPCo; (d) Customer Call Center
Agreement pursuant to which Public Service agrees to share Public
Service's customer call center systems and services with UPPCo; (e)
Electric Service Agreement pursuant to which Public Service agrees to
purchase certain power and energy from UPPCo, including negotiated
capacity and energy, general purpose energy and emergency energy; and (f)
Partial Requirements Service Agreement pursuant to which UPPCo agrees,
beginning on January 1, 1998, to purchase from Public Service, on a tariff
basis, part of its energy requirements (replacing the System Capacity and
Energy Exchange Agreement described above). In addition, in 1996, UPPCo
and ESI entered into an Electric Service Agreement pursuant to which UPPCo
agrees to purchase certain power and energy from ESI, including negotiated
capacity and energy, general purpose and emergency energy.
In addition to existing contractual relationships between Public
Service and UPPCo, they have entered into a Coordination and Allocation
Agreement ("Coordination Agreement") which establishes the basic
contractual framework pursuant to which Public Service and UPPCo will
coordinate their activities and allocate certain costs and revenues
between themselves. The Coordination Agreement which was filed as part of
the application filed with the FERC, Exhibit D-1, is herein incorporated
by reference.
Also, with UPPCo and Public Service being net purchasers of
electricity, they can coordinate and adjust their purchases from third
parties based on each utility's needs and the economics associated with
the dispatch of power plants as compared to "takes" under power purchase
agreements. The combined power purchase demands of UPPCo and Public
Service should have considerably more market leverage than UPPCo's degree
of market leverage. Also, coordinated joint purchasing coupled with the
partial requirements service from Public Service to UPPCo allows for fully
coordinated power purchase and plant dispatch operations of Public Service
and UPPCo, up to the constraints posed by available transmission capacity.
Third, this single integrated system will operate in a single
area or region, the area delineated on Exhibit E-1, covering portions of
Wisconsin and Michigan. WPSR already has operations in both Wisconsin and
the Upper Peninsula where UPEN is located. In the 1995 Report, the
Division has stated that the evaluation of the "single area or region"
portion of the integration requirement "should be made . . . in light of
the effect of technological advances on the ability to transmit electric
energy economically over longer distances, and other developments in the
industry, such as brokers and marketers, that affect the concept of
geographic integration."/38 The 1995 Report also recommends primacy be
given to "demonstrated economies and efficiencies to satisfy the
integration requirements."/39 As set forth in Item 3.B.1.a)(2)(b), the
Merger will result in economies and efficiencies for the utilities and, in
turn, their customers.
------------
38/ 1995 Report at 72-74.
39/ 1995 Report at 73.
Fourth, the system is not so large as to impair the advantages
of localized management, efficient operations, and the effectiveness of
regulation. The combined service territories of Public Service and UPPCo
will be in the eastern part of Wisconsin and a portion of the Upper
Peninsula. They will serve a total of only 422,000 electric retail
customers and 218,000 gas retail customers. UPPCo, being in a
geographically isolated area of the Upper Peninsula, is bordered by
Wisconsin Electric and Edison Sault./40 Public Service is the next
closest utility to UPPCo. Other than Wisconsin Electric, Public Service
is the only logical candidate offering potential for integrated
operations. In fact, Public Service and UPPCo's transmission systems are
only separated by sixty miles.
------------
40/ If the merger between Wisconsin Energy Corp. and ESELCO is
consummated, UPPCo will be bordered on both sides by Wisconsin
Electric.
The Commission's past decisions on "localized management" show
that the Merger fully preserves the advantages of localized management.
In these cases, the Commission has evaluated localized management in terms
of: (i) responsiveness to local needs, see American Electric Power Co.,
46 SEC 1299 (1978) (advantages of localized management evaluated in terms
of whether an enlarged system could be "responsive to local needs"),
General Public Utilities Corp., 37 SEC 28, 36 (1956) (localized management
evaluated in terms of "local problems and matters involving relations with
consumers"); (ii) the preservation of corporate identities, see Northeast
Utilities, 51 S.E.C. Docket 504 (1990) (utilities "will be maintained as
separate New Hampshire corporations . . . [t]herefore the advantages of
localized management will be preserved"); Columbia Gas System, Inc.,
40 S.E.C. Docket 654 (1988) (benefits of local management maintained where
the utility to be added would be a separate subsidiary); and (iii) the
ease of communications, see American Electric Power Co., 46 SEC 1299
(1978) (distance of corporate headquarters from local management was a
"less important factor in determining what is in the public interest"
given the "present-day ease of communications and transportation").
The Merger satisfies all of these factors. UPPCo and Public
Service will continue to operate through numerous regional offices with
local service personnel and line crews available to respond to customers'
needs. Moreover, WPSR has undertaken to continue UPEN's commitments for
community support within the service areas of UPPCo. After the Merger,
UPPCo and Public Service will maintain their current headquarters while
WPSR will maintain the system headquarters. Although the location of the
corporate headquarters of WPSR will add distance from people who are
served by UPPCo, this distance is, as noted by the Commission in the
American Electric Power case, a relatively unimportant factor given the
present ease of transportation and communications and the retention of
UPPCo headquarters at its present location in the Upper Peninsula. Thus,
the Merger will preserve all the benefits of localized management of UPPCo
and Public Service.
As described earlier in Item 3.B.1.a)(1)(b), the system will
facilitate efficient operation. Finally, the Merger will not impair the
effectiveness of state regulation. UPPCo and Public Service will continue
their separate existence as before, and their utility operations will
remain subject to the same regulatory authorities by which they are
presently regulated, namely the Wisconsin Commission and the Michigan
Commission. In fact, the staff of each state commission has agreed that
the Merger will not impair their ability to regulate Public Service and
UPPCo. Letters from the commission staff are incorporated herein by
reference as Exhibits APP-3 and APP-4 to Exhibit D-1. Additionally, the
contracts between Public Service and UPPCo will be subject to approval and
control as affiliate transactions by the Wisconsin Commission.
3. Section 10(f)
Section 10(f) provides that:
The Commission shall not approve any acquisition as to
which an application is made under this section unless it
appears to the satisfaction of the Commission that
such State laws as may apply in respect of such
acquisition have been complied with, except where the
Commission finds that compliance with such State laws
would be detrimental to the carrying out of the
provisions of section 11.
As described below in Item 4.A, the Merger does not require approval under
either Michigan or Wisconsin law. Thus, all legal requirements under state
law will have been complied with for the Merger to be consummated as
required by the Merger Agreement.
C. Continued Exemption of WPSR From Registration
As previously noted, WPSR and UPEN are both currently exempt
from regulation under the Act, except for Section 9(a)(2). As indicated
above, UPEN will be merged into WPSR, and UPPCo will become a direct
subsidiary of WPSR. Since UPEN will not contribute any material part of
WPSR's income, WPSR will remain an exempt holding company pursuant to Rule
2. Therefore, WPSR, the surviving holding company, will file a claim for
continued exemption from regulation under the Act, except for Section
9(a)(2), on Form U-3A-2, pursuant to Rule 2 of the Commission's rules and
regulations./41
-------------
41/ 17 C.F.R. Section 250.2.
ITEM 4. REGULATORY APPROVALS
A. State Regulatory Approval
The Merger, as structured, does not require approval from either
the Wisconsin Commission or Michigan Commission. In fact, WPSR informed
both state commissions of the Merger and its belief that the Merger did
not require approval from either commission. The staff of the Wisconsin
Commission agreed that the Merger, as structured, did not implicate
Sections 196.01(5), 196.795, or 196.80, Wis. Stats. The Wisconsin
Commission staff letter is incorporated herein by reference as Exhibit
APP-3 to Exhibit D-1. The Michigan Commission did not disagree with
WPSR's belief that the Merger did not need approval of the Michigan
Commission. The Michigan Commission staff letter is incorporated herein
by reference as Exhibit APP-4 to Exhibit D-1.
B. Federal Power Act.
Section 203 of the FPA, as amended, provides that no public
utility shall sell or otherwise dispose of its FERC-jurisdictional
facilities or, directly or indirectly, merge or consolidate such
facilities with those of any other person or acquire any security of any
other public utility without first having obtained authorization from the
FERC. Under Section 203, FERC will approve a merger if it finds the
merger "consistent with the public interest." In reviewing a merger, FERC
evaluates: (i) whether the merger will adversely affect competition, (ii)
whether the merger will adversely affect rates, and (iii) whether the
merger will impair the effectiveness of regulation. On January 23, 1998,
an application was filed with the FERC for approval of the Merger. A copy
of the FERC filing is filed as Exhibit D-1 hereto.
C. Antitrust.
The HSR Act and the rules and regulations promulgated thereunder
provide that certain transactions (including those contemplated by the
Merger) may not be consummated until certain information has been
submitted to the Antitrust Division of the Department of Justice and the
FTC and specified HSR Act waiting period requirements have been satisfied.
WPSR and UPEN will submit Notification and Report Forms and all required
information to the Antitrust Division and the FTC and the Merger will not
be consummated unless the applicable waiting period has expired or has
been terminated.
The expiration or earlier termination of the HSR Act waiting
period would not preclude the Antitrust Division or the FTC from
challenging the Merger on antitrust grounds. Neither WPSR nor UPEN
believes that the Merger will violate federal antitrust laws. If the
Merger is not completed within twelve months after the expiration or
earlier termination of the initial HSR Act waiting period, WPSR and UPEN
would be required to submit new information to the Antitrust division and
the FTC, and a new HSR Act waiting period would have to expire or be
earlier terminated before the Merger could be completed.
Except as set forth above, no other state or local regulatory
body or agency and no other Federal commission or agency has jurisdiction
over the Merger proposed herein.
ITEM 5. PROCEDURE
The Commission is respectfully requested to issue and publish
not later than March 2, 1998, the requisite notice under Rule 23 with
respect to the filing of this application, such notice to specify a date
not later than April 1, 1998 by which comments may be entered and a date
not later than April 6, 1998 as the date after which an order of the
Commission granting and permitting this Application to become effective
may be entered by the Commission.
It is submitted that a recommended decision by a hearing or
other responsible office of the Commission is not needed for approval of
the proposed Merger. The Division of Investment Management may assist in
the preparation of the Commission's decision. There should be no waiting
period between the issuance of the Commission's order and the date on
which it is to become effective.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
A. Exhibits
A-1 Restated Articles of Incorporation of WPSR as filed on February 28,
1994, (filed as Exhibit B to Amendment No. 1 to WPSR's Registration
Statement on Form S-4, Reg. No. 33-52199 and incorporated herein by
reference).
A-2 Articles of Incorporation of Public Service (filed as Exhibit 3A to
Form 10-K for the year ended December 31, 1989, and Amendment to
Articles of Incorporation dated June 9, 1993, filed as Exhibit 3 to
Form 8-K filed June 10, 1993, and incorporated herein by
reference).
A-3 Articles of Incorporation of UPEN (filed as Exhibit 3(i) to
Registration Statement, File No. 33-24066 and incorporated herein
by reference).
A-4 Articles of Incorporation of UPPCo (filed as Exhibit 3.1(a) to Form
10-K, File No. 0-17427 and incorporated herein by reference).
B-1 Agreement and Plan of Merger (Merger Agreement) (filed as Appendix
A to Proxy Statement/Prospectus contained in WPSR's Registration
Statement No. 333-34401 on Form S-4 and incorporated herein by
reference).
C-1 Registration Statement of WPSR on Form S-4 (as amended) (filed as
Registration Statement No. 34-34401 and incorporated herein by
reference).
D-1 Application filed with the FERC requesting approval of the Merger.
E-1 Map of service areas and transmission systems of UPPCo and Public
Service (Exhibit I to Exhibit D-1 hereto).
E-2 List of generating facilities in which Public Service has an
ownership interest (Exhibit APP-11 to Exhibit D-1 hereto).
E-3 List of generating facilities in which UPPCo has an ownership
interest (Exhibit APP-12 to Exhibit D-1 hereto).
E-4 UPEN corporate chart (Exhibit 2 to Exhibit D-1 hereto).
E-5 WPSR corporate chart (Exhibit 2 to Exhibit D-1 hereto).
E-6 Post-merger corporate chart (Exhibit 2 to Exhibit D-1 hereto).
F-1 Preliminary Opinion of Counsel (to be filed by Amendment)
F-2 Past-tense Opinion of Counsel (to be filed by Amendment)
G-1 Annual Report of WPSR on Form 10-K for the year ended December 31,
1996 (File No. 1-11337 and incorporated herein by reference).
G-2 Annual Report of UPEN on Form 10-K for the year ended December 31,
1996 (File No. 017427 and incorporated herein by reference).
G-3 Quarterly Reports of WPSR on Form 10-Q for the quarters ended March
31, 1997, June 30, 1997, and September 30, 1997 (File No. 1-11337
and incorporated herein by reference).
G-4 Quarterly Reports of UPEN on Form 10-Q for the quarters ended March
31, 1997, June 30, 1997, and September 30, 1997 (File No. 0-17427
and incorporated herein by reference).
G-5 Current Reports of WPSR on Form 8-K dated March 10, 1997, June 7,
1997, and October 20, 1997 (File No. 1-11337 and incorporated
herein by reference).
G-6 Current Report of UPEN on Form 8-K dated July 18, 1997 (File No. 0-
17427 and incorporated herein by reference).
H-1 Commission Order dated August 10, 1994, granting WPSR an exemption
under Section 3(a)(1), Release No. 35-26101.
H-2 Form U-3A-2 of Public Service for 1996, filed on February 27, 1997
(File No. 69-35 and incorporated herein by reference).
H-3 Form U-3A-2 of UPPCo for 1996, filed on February 27, 1997 (File No.
69-355 and incorporated herein by reference).
I-1 Opinion of Wasserstein Perella & Co., Inc. (filed as Appendix B to
Proxy Statement/Prospectus contained in WPSR's Registration
Statement No. 333-34401 on Form S-4 and incorporated herein by
reference).
J-1 Proposed Form of Notice
B. Financial Statements
FS-1 Unaudited Pro Forma Combined Balance Sheet as of December 31, 1997.
FS-2 Unaudited Pro Forma Combined Statements of Income as of December
31, 1997.
FS-3 Unaudited Pro Forma Combined Statements of Income for its last
three fiscal years (Exhibit C-1 hereto).
FS-4 WPSR Consolidated Balance Sheet as of December 31, 1996 (see Annual
Report of WPSR on Form 10-K for the year ended December 31, 1996
(Exhibit F-1 hereto)).
FS-5 WPSR Consolidated Statements of Income for its last three fiscal
years (see Annual Report of WPSR on Form 10-K for the year ended
December 31, 1996 (Exhibit F-1 hereto)).
FS-6 UPEN Consolidated Statements of Income for the years ended December
31, 1996, 1995 and 1994 (Exhibit C-1 hereto).
FS-7 UPEN Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 (Exhibit C-1 hereto).
FS-8 UPEN Consolidated Balance Sheets for the years ended December 31,
1996 and 1995 (Exhibit C-1 hereto).
FS-9 UPEN Unaudited Consolidated Statements of Income for the nine
months ended September 30, 1997 and 1996 (Exhibit C-1 hereto).
FS-10 UPEN Unaudited Statements of Cash Flows for the nine months ended
September 30, 1997 and 1996 (Exhibit C-1 hereto).
FS-11 UPEN Unaudited Consolidated Balance Sheets for the nine months
ended September 30, 1997 (Exhibit C-1 hereto).
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
The Merger neither involves "major federal actions" nor
"significantly affects the quality of the human environment" as those
terms are used in Section (2)(C) of the National Environmental Policy Act,
42 U.S.C. Section 4332. The only federal actions related to the Merger
pertain to the Commission's declaration of the effectiveness of the Joint
Registration Statement, the approvals and actions described under Item 4
and Commission approval of this Application. Consummation of the Merger
will not result in changes in the operations of UPPCo or Public Service
that would have any impact on the environment. No federal agency is
preparing an environmental impact statement with respect to this matter.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the undersigned company has duly caused this
Application to be signed on its behalf by the undersigned thereunto duly
authorized.
WPS Resources Corporation
By: /s/ Patrick D. Schrickel
Patrick D. Schrickel,
Executive Vice President
Date: February 25, 1998
<PAGE>
Index of Exhibits
EXHIBIT DESCRIPTION TRANSMISSION METHOD
Method Exhibit
of Filing Number Description
By Reference A-1 Restated Articles of Incorporation of
WPSR as filed on February 28, 1994 (filed
as Exhibit B to Amendment No. 1 to WPSR's
Registration Statement on Form S-4, Reg.
No. 33-52199 and incorporated herein by
reference).
By Reference A-2 Articles of Incorporation of Public
Service (filed as Exhibit 3A to Form 10-K
for the year ended December 31, 1989, and
Amendment to Articles of Incorporation
dated June 9, 1993, filed as Exhibit 3 to
Form 8-K filed June 10, 1993, and
incorporated herein by reference).
By Reference A-3 Articles of Incorporation of UPPCo (filed
as Exhibit 3(i) to Registration
Statement, File No. 33-24066 and
incorporated herein by reference).
By Reference A-4 Articles of Incorporation of UPPCo (filed
as Exhibit 3.1(a) to Form 10-K, File No.
0-17427 and incorporated herein by
reference).
By Reference B-1 Agreement and Plan Merger (Merger
Agreement) (filed as Appendix A to Proxy
Statement/Prospectus contained in WPSR's
Registration Statement No. 333-34401 on
Form S-4 and incorporated herein by
reference).
By Reference C-1 Registration Statement of WPSR on Form S-
4 (as amended) (filed as Registration
Statement No. 34-34401 and incorporated
herein by reference).
D-1 Application filed with the FERC
requesting approval of the Merger (to
be filed by Amendment)
E-1 Map of service areas and transmission
systems of UPPCo and Public Service
(Exhibit I to Exhibit D-1 hereto to be
filed by Amendment).
E-2 List of generating facilities in which
Public Service has an ownership interest
(Exhibit APP-11 to Exhibit D-1 hereto to be
filed by Amendment).
E-3 List of generating facilities in which
UPPCo has an ownership interest (Exhibit
APP-12 to Exhibit D-1 hereto to be
filed by Amendment).
E-4 UPEN corporate chart (Exhibit 2 to
Exhibit D-1 hereto to be
filed by Amendment).
E-5 WPSR corporate chart (Exhibit 2 to
Exhibit D-1 hereto to be
filed by Amendment).
E-6 Post-merger corporate chart (Exhibit 2 to
Exhibit D-1 hereto to be
filed by Amendment).
F-1 Preliminary Opinion of Counsel (to be
filed by Amendment)
F-2 Past-tense Opinion of Counsel (to be
filed by Amendment)
By Reference G-1 Annual Report of WPSR on Form 10-K for
the year ended December 31, 1996 (File
No. 1-11337 and incorporated herein by
reference).
By Reference G-2 Annual Report of UPEN on Form 10-K for
the year ended December 31, 1996 (File
No. 0-17427 and incorporated herein by
reference).
By Reference G-3 Quarterly Reports of WPSR on Form 10-Q
for the quarters ended March 31, 1997,
June 30, 1997, and September 30, 1997
(File No. 1-1137 and incorporated herein
by reference).
By Reference G-4 Quarterly Reports of UPEN on Form 10-Q
for the quarters ended March 31, 1997,
June 30, 1997, and September 30, 1997
(File No. 0-17427 and incorporated herein
by reference).
By Reference G-5 Current Reports of WPSR on Form 8-K dated
March 10, 1997, June 7, 1997, and October
20, 1997 (File No. 1-1137 and
incorporated herein by reference.)
By Reference G-6 Current Report of UPEN on Form 8-K dated
July 18, 1997 (File No. 0-17427 and
incorporated herein by reference.)
By Reference H-1 Commission Order dated August 10, 1994,
granting WPSR an exemption under Section
3(a)(1), Release No. 35-26101.
By Reference H-2 Form U-3A-2 of Public Service for 1996,
filed on February 27, 1997 (File No. 69-
35 and incorporated herein by reference).
By Reference H-3 Form U-3A-2 of UPPCo for 1996, filed on
February 27, 1997 (File No. 69-355 and
incorporated herein by reference).
By Reference I-1 Opinion of Wasserstein Perella & Co.,
Inc. (filed as Appendix B to Proxy
Statement/Prospectus contained in WPSR's
Registration Statement No. 333-34401 on
Form S-4 and incorporated herein by
reference).
Filed J-1 Proposed Form of Notice.
Electronically
Herewith
Filed FS-1 Unaudited Pro Forma Combined Balance
Electronically Sheet as of December 31, 1997.
Herewith
Filed FS-2 Unaudited Pro Forma Combined Statements
Electronically of Income as of December 31, 1997.
Herewith
By Reference FS-3 Unaudited Pro Forma Combined Statements
of Income for its last three fiscal years
(Exhibit C-1 hereto).
By Reference FS-4 WPSR Consolidated Balance Sheet as of
December 31, 1996 (see Annual Report of
WPSR on Form 10-K for the year ended
December 31, 1996 (Exhibit F-1 hereto)).
By Reference FS-5 WPSR Consolidated Statements of Income
for its last three fiscal years (see
Annual Report of WPSR on Form 10-K for
the year ended December 31, 1996 (Exhibit
F-1 hereto)).
By Reference FS-6 UPEN Consolidated Statements of Income
for the years ended December 31, 1996,
1995 and 1994 (Exhibit C-1 hereto).
By Reference FS-7 UPEN Consolidated Statement of Cash Flows
for the years ended December 31, 1996,
1995 and 1994 (Exhibit C-1 hereto).
By Reference FS-8 UPEN Consolidated Balance Sheets for the
years ended December 31, 1996 and 1995
(Exhibit C-1 hereto).
By Reference FS-9 UPEN Unaudited Consolidated Statements of
Income for the nine months ended
September 30, 1997 and 1996 (Exhibit C-1
hereto).
By Reference FS-10 UPEN Unaudited Statement of Cash Flows
for the nine months ended September 30,
1997 and 1996 (Exhibit C-1 hereto).
By Reference FS-11 UPEN Unaudited Consolidated Balance
Sheets for the nine months ended
September 30, 1997 (Exhibit C-1 hereto).
EXHIBIT J-1
UNITED STATES OF AMERICA
before the
SECURITIES AND EXCHANGE COMMISSION
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Release No.
_____________, 1998
)
In the Matter of )
)
WPS Resources Corporation )
700 North Adams Street )
P. O. Box 19001 )
Green Bay, Wisconsin 54307 )
)
(70- ) )
)
)
NOTICE OF PROPOSED ACQUISITION OF
ELECTRIC UTILITY COMPANY
NOTICE IS HEREBY GIVEN that WPS Resources Corporation (the "Company"), a
Wisconsin corporation, has filed with this Commission an application
pursuant to the Public Utility Holding Company Act of 1935 (the "Act"),
designating Section 9(a)(2) and Section 10 of the Act as applicable to the
proposed transaction. The application requests an order of the Commission
authorizing the Company's acquisition of all of the issued and outstanding
common stock of Upper Peninsula Power Company ("UPPCo"), a Michigan
corporation and an electric utility company as defined by Section 2(a)(3)
of the Act.
The acquisition by the Company of the common stock of UPPCo will
be effected pursuant to the terms of the Agreement and Plan of Merger by
and between the Company and Upper Peninsula Energy Corporation ("UPEN")
dated as of July 10, 1997, as amended (the "Merger Agreement") which
provides for the merger of UPEN into the Company (the "Merger"). UPEN is
the registered holder and beneficial owner of all of the outstanding
common stock of UPPCo. Upon consummation of the Merger, UPPCo will become
a direct subsidiary of the Company.
The Merger has been approved by the Board of Directors of the
Company and of UPEN and by the shareholders of UPEN. The Merger does not
require the approval of the shareholders of the Company. Consummation of
the Merger is conditioned inter alia on the approval of this Commission
under the Act which is the subject of this notice, approval of the Federal
Energy Regulatory Commission under the Federal Power Act and on the filing
of Pre-Merger Notification Report Forms under the Hart-Scott-Rodino
Antitrust Improvement Act of 1976.
The Company currently owns all of the outstanding common stock
of Wisconsin Public Service Corporation ("WPSC") and is the indirect owner
of 33.1% of the outstanding shares of capital stock of Wisconsin River
Power Company ("WRPC"), each of which is a public utility company as
defined by Section 2(a)(5) of the Act.
The Company has its principal executive office at 700 North
Adams Street, P. O. Box 19001, Green Bay, Wisconsin, 54307. WPSC is
subject to regulation by the Public Service Commission of Wisconsin as to
retail rates, service rules, accounts, issuance of securities, certain
additions and extensions to facilities and in other respects. WPSC and
UPPCo are subject to regulation by the Michigan Public Service Commission
as to retail rates, issuance of securities and in other respects. WPSC
and UPPCo are also subject to the jurisdiction of the Federal Energy
Regulatory Commission ("FERC") under the Federal Power Act as to wholesale
rates, certain electric utility facilities, accounts and in other
respects. Certain of WPSC's natural gas facilities and operations may
also be subject to the jurisdiction of the FERC under the Natural Gas Act.
The application and any amendments thereto are available for
public inspection through the Commission's Office of Public Reference.
Interested persons wishing to comment or request a hearing should submit
their views in writing by ____________, 1998, to the Secretary, Securities
and Exchange Commission, Washington, D.C. 20549, and serve a copy on the
Company at the address specified above. Proof of service (by affidavit
or, in case of attorney at law, by certificate) should be filed with the
request. any request for a hearing must identify specifically the issues
of fact or law that are disputed. A person who so requests will be
notified of any hearing, if ordered, and will receive a copy of any notice
or order issued in this matter. After said date, the application, as
filed or as it may be amended, may be authorized.
For the Commission, by the Division of Investment Management
pursuant to delegated authority.
Jonathan G. Katz
Secretary
Exhibit FS-1
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
YEAR ENDED DECEMBER 31, 1997
(in thousands)
WPS UPEN
As As Pro Forma Pro Forma
Reported Reported Adjustments Combined
ASSETS
Utility Plant
Electric $1,506,470 $178,943 $1,685,413
Gas 251,603 0 251,603
--------- -------- ---------- ---------
Total 1,758,073 178,943 1,937,016
Less - Accumulated
depreciation and
decommissioning 1,032,149 80,993 1,113,142
--------- -------- ---------- ---------
Total 725,924 97,950 0 823,874
Nuclear
decommissioning
trusts 134,108 0 134,108
Construction in
progress 7,266 4,510 11,776
Nuclear fuel, less
accumulated
amortization 19,062 0 19,062
--------- --------- --------- ---------
Net utility plant 886,360 102,460 0 988,820
========= ========= ========= =========
Current assets
Cash and
equivalents 6,424 2,071 8,495
Customer and other
receivables, net
of reserves 87,709 8,391 96,100
Accrued utility
revenues 30,750 0 30,750
Fossil fuel, at
average cost 10,336 286 10,622
Gas in storage, at
average cost 22,080 0 22,080
Materials and
supplies, at
average cost 18,793 1,968 20,761
Prepayments and
other (Note 4) 20,499 4,788 (642) 24,645
--------- --------- --------- ---------
Total current
assets 196,591 17,504 (642) 213,453
========= ========= ========= =========
Regulatory assets 78,544 1,305 79,849
Net nonutility and
nonregulated plant 19,194 11,387 30,581
Investments and
other assets 118,913 4,188 123,101
--------- --------- --------- ---------
Total $1,299,602 $136,844 ($642) $1,435,804
========= ========= ========= =========
See accompanying notes to Unaudited Pro Forma Combined Financial
Statements.
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
YEAR ENDED DECEMBER 31, 1997
(in thousands)
WPS UPEN
As As Pro Forma Pro Forma
Reported Reported Adjustments Combined
CAPITALIZATION AND
LIABILITIES
Capitalization
Common stock equity
(Note 2) $477,823 $40,941 (1,100) $517,664
Preferred stock of
subsidiary 51,200 445 51,645
Long-term debt 304,008 43,007 347,015
--------- --------- --------- ----------
Total capitalization 833,031 84,393 (1,100) 916,324
========= ========= ========= ==========
Current liabilities
Notes payable 10,000 9,760 19,760
Commercial paper 20,706 0 20,706
Accounts payable 85,651 4,096 1,100 90,847
Accrued taxes 3,514 6,600 10,114
Accrued interest 7,801 910 8,711
Other 9,536 2,879 12,415
--------- --------- --------- ----------
Total current
liabilities 137,208 24,245 1,100 162,553
========= ========= ========= ==========
Long-term liabilities
and deferred credits
Accumulated deferred
income taxes
(Note 4) 125,804 6,035 (642) 131,197
Accumulated deferred
investment tax
credits 26,901 2,560 29,461
Regulatory liabilities 50,279 6,208 56,487
Environmental
remediation
liabilities 40,215 656 40,871
Other long-term
liabilities 86,164 12,747 98,911
--------- --------- --------- ----------
Total long-term
liabilities and
deferred credits 329,363 28,206 (642) 356,927
========= ========= ========= ==========
Total $1,299,602 $136,844 ($642)$1,435,804
========= ========= ========= ==========
See accompanying notes to Unaudited Pro Forma Combined Financial
Statements.
<PAGE>
WPS RESOURCES CORPORATION
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
1. The pro forma combined financial statements reflect the conversion of
each share of UPEN Common Stock (no par value) outstanding into 0.90
shares of WPS Common Stock ($1.00 par value), as provided in the
Merger Agreement. The pro forma combined statements of income are
presented as if the companies had combined at January 1, 1997. The
pro forma combined balance sheet is presented as if the companies had
combined at December 31, 1997.
2. Estimated cost savings and the cost to achieve such savings have not
been reflected in the pro forma combined financial statements.
Transaction costs are currently estimated to be approximately
$3,700,000 (including fees for financial advisors, attorneys,
accountants, consultants, filings, and printing). Estimated
transaction costs to be incurred after December 31, 1997, have been
reflected in the pro forma balance sheet at December 31, 1997
reducing common stock equity by $1,100,000.
3. Intercompany transactions (including purchased and exchange power
transactions) between WPS and UPEN during the periods presented were
included in the determination of regulated rates and were not
material. Accordingly, no pro forma adjustments were made to
eliminate such transactions.
4. Accounting principles have been consistently applied in the financial
statement presentations for WPS and UPEN with one exception. UPEN
does not include unbilled electric revenues in its calculation of
total revenues. WPS accrues unbilled revenues. The impact of this
difference in accounting principles does not have a material impact
on the unaudited pro forma combined financial statements as
presented, and accordingly, no adjustments have been made to conform
accounting principles. A pro forma adjustment has been made to
conform the presentation of current deferred income taxes in the pro
forma combined balance sheet into one net amount. A pro forma
adjustment has been made to conform the presentation of income taxes
in the pro forma combined statements of income. Other minor
reclassifications have been made to the balance sheet and statements
of income of UPEN to align with the financial statement presentation
of WPS.
Exhibit FS-2
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1997
(in thousands, except per share amounts)
WPS UPEN
As As Pro Forma Pro Forma
Reported Reported Adjustments Combined
Operating revenues
Electric utility
revenues $479,388 $55,952 $535,340
Gas utility
revenues 211,090 0 211,090
Non-regulated
energy and other 187,862 4,152 192,014
-------- ------- -------- --------
Total operating
revenues 878,340 60,104 0 938,444
======== ======= ======== ========
Operating expenses
Electric production
fuels 107,538 0 107,538
Purchased power 45,876 21,128 67,004
Gas purchased for
resale 147,755 0 147,755
Non-regulated
energy cost of
sales 182,863 0 182,863
Other operating
expenses 148,569 17,413 165,982
Maintenance 41,661 2,664 44,325
Depreciation and
decommissioning 77,541 5,900 83,441
Federal income tax
(Note 4) 0 1,620 (1,620) 0
Taxes other than
income 26,448 4,927 31,375
-------- -------- -------- --------
Total operating
expenses 778,251 53,652 (1,620) 830,283
======== ======== ======== ========
Operating income 100,089 6,452 1,620 108,161
-------- -------- -------- --------
Other income
Allowance for
equity funds used
during
construction 129 25 154
Other, net 11,511 225 11,736
-------- ------- --------- ---------
Total other
income 11,640 250 0 11,890
======== ======= ========= =========
Income before
interest expense 111,729 6,702 1,620 120,051
-------- ------- --------- ---------
Interest on long-
term debt 22,331 3,942 26,273
Other interest 4,172 738 4,910
Allowance for
borrowed funds
used during
construction (100) (67) (167)
-------- -------- --------- --------
Total interest
expense 26,403 4,613 0 31,016
======== ======== ========= =========
Income before income
taxes 85,326 2,089 1,620 89,035
Income taxes (Note
4) 29,270 0 1,620 30,890
Minority interest (797) 0 (797)
Preferred stock
dividends of
subsidiary 3,111 22 3,133
-------- -------- -------- --------
Net income 53,742 2,067 0 55,809
======== ======== ======== ========
Average shares of
common stock (Note
1) 23,873 2,960 (296) 26,537
Basic and diluted
earnings per
average share of
common stock $ 2.25 $ 0.70 $ 2.10
See accompanying notes to Unaudited Pro Forma Combined Financial
Statements.
<PAGE>
WPS RESOURCES CORPORATION
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
1. The pro forma combined financial statements reflect the conversion of
each share of UPEN Common Stock (no par value) outstanding into 0.90
shares of WPS Common Stock ($1.00 par value), as provided in the
Merger Agreement. The pro forma combined statements of income are
presented as if the companies had combined at January 1, 1997. The
pro forma combined balance sheet is presented as if the companies had
combined at December 31, 1997.
2. Estimated cost savings and the cost to achieve such savings have not
been reflected in the pro forma combined financial statements.
Transaction costs are currently estimated to be approximately
$3,700,000 (including fees for financial advisors, attorneys,
accountants, consultants, filings, and printing). Estimated
transaction costs to be incurred after December 31, 1997, have been
reflected in the pro forma balance sheet at December 31, 1997
reducing common stock equity by $1,100,000.
3. Intercompany transactions (including purchased and exchange power
transactions) between WPS and UPEN during the periods presented were
included in the determination of regulated rates and were not
material. Accordingly, no pro forma adjustments were made to
eliminate such transactions.
4. Accounting principles have been consistently applied in the financial
statement presentations for WPS and UPEN with one exception. UPEN
does not include unbilled electric revenues in its calculation of
total revenues. WPS accrues unbilled revenues. The impact of this
difference in accounting principles does not have a material impact
on the unaudited pro forma combined financial statements as
presented, and accordingly, no adjustments have been made to conform
accounting principles. A pro forma adjustment has been made to
conform the presentation of current deferred income taxes in the pro
forma combined balance sheet into one net amount. A pro forma
adjustment has been made to conform the presentation of income taxes
in the pro forma combined statements of income. Other minor
reclassifications have been made to the balance sheet and statements
of income of UPEN to align with the financial statement presentation
of WPS.
