File No. 070-09179
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
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, Wisconsin 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, Wisconsin 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, Wisconsin 53202-5367
<PAGE>
1. Applicant hereby amends Item 1.B.1 of its application by
the addition of the following statements:
i. Wisconsin Public Service Corporation ("Public Service") and
Wisconsin River Power Company ("WRPC") are the only public
utility subsidiaries of WPS Resources Corporation ("WPSR").
ii. WRPC sells the output of its generating resources to its
owners at cost. WRPC is licensed by the Federal Energy
Regulatory Commission ("FERC") and is not subject to the
jurisdiction of the Public Service Commission of Wisconsin.
iii. Mid-American Power LLC is an exempt wholesale generator as
defined in Section 32(a) of the Public Utility Holding
Company Act of 1935, as amended.
iv. WPS Visions, Inc. serves as a business research and
development vehicle for WPSR.
2. Applicant hereby amends Item 1.B.2 of its application by
the addition of the following statement:
Upper Peninsula Power Company ("UPPCo") is the only public
utility subsidiary of Upper Peninsula Energy Corporation
("UPEN").
3. Applicant hereby amends Item 1.C of its application as
follows:
Delete the following statement:
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 $90,934,000.1/
__________
1/ 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.
Replace with the following statement:
The total value of the stock consideration to be
issued in exchange for all of UPEN's Common Stock
could be approximately $72,681,000 to $90,934,000.2/
__________
2/ 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, August 18, 1998.
4. Applicant hereby amends Item 2 of its application by
deleting the section in its entirety and replacing it with the following:
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
to be as follows:
Commission filing fee for the
Registration Statement on Form S-4
(the "Registration Statement")..................................$22,527
Accountant's fees...............................................165,000
Legal fees and expenses.......................................1,658,099
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........................277,119
Other...........................................................291,456
TOTAL........................................................$4,109,201
5. Applicant hereby amends Item 3.B.1.b)(2) of its application
as follows:
Delete the following statement:
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.
Replace with the following statement:
As set forth in Item 2 of this Application, WPSR and
UPEN together expect to incur a combined total of
approximately $4.1 million in fees, commissions and
expenses in connection with the Merger.
6. Applicant hereby amends Item 3.B.2.b) of its application by
deleting the section in its entirety and replacing it with the following:
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 Securities and
Exchange Commission ("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:
(i) the utility assets of the system are physically
interconnected or capable of physical
interconnection;
(ii) the utility assets, under normal conditions, may be
economically operated as a single interconnected and
coordinated system;
(iii) the system must be confined in its operations to
a single area or region; and
(iv) 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.3/
__________
3/ 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."4/ The
Merger satisfies all four of these requirements.
__________
4/ 1995 Report at 71.
i) Physically Interconnected or Capable of Physical
Interconnection
WPSR's system will meet the requirements of Section 2(a)(29)(A)
in that the service territories of Public Service and UPPCo "are
physically interconnected or capable of physical interconnection."5/ The
transmission facilities of UPPCo and Public Service are only sixty miles
apart and are operationally interconnected through transmission lines
owned by Wisconsin Electric Power Company ("Wisconsin Electric"). These
transmission lines (consisting of three 138 KV lines between the Plains
substation in Michigan (on the north) and the Stiles substation in
Wisconsin (on the south)) are known as the Wisconsin-Upper Peninsula
("WUP") interface and, according to Wisconsin Electric, have transfer
capability from south to north of approximately 200 megawatts ("MW") and
from north to south of approximately 330 MW. As a result of contracts
entered into between UPPCo and Wisconsin Electric, a contractual path
between Public Service and UPPCo exists on the WUP interface.
__________
5/ The service systems of Public Service and UPPCo are separated by a
portion of the service system of Wisconsin Electric Power Company.
As a condition of approval of Wisconsin Electric's merger with
ESELCO, which was consummated in May 1998, Wisconsin Electric agreed to
maintain 45 MW of the WUP interface for use by third parties at all
times.6/ On May 26, 1998, Wisconsin Electric and Edison Sault Electric
Company filed a Joint Open Access Tariff with FERC.7/ Subsequently, UPPCo
reserved, pursuant to this Open Access Tariff, 30 MW of firm capacity on
the WUP interface commencing June 1, 1998 and continuing to January 1,
2008 for power transmissions by Public Service to UPPCo, and the request
for transmission service was granted by Wisconsin Electric. Pursuant to
the terms of the Wisconsin Electric-ESELCO Joint Open Access Tariff, UPPCo
will have a priority right to continue the transmission service on and
after January 1, 2008. A Service Agreement for Firm Point-to-Point
Transmission Service has been entered into by Wisconsin Electric and UPPCo
which allows UPPCo to receive 30 MW of transmission service until midnight
December 31, 2007 and has been filed with FERC.8/ As a consequence of
these reservations and agreement, UPPCo has a contractual right to 30 MW
of firm (nonrecallable) capacity on the WUP interface which connects the
UPPCo and Public Service transmission systems and enables Public Service
to transmit capacity and energy from its system to UPPCo. Energy
deliveries from Public Service to UPPCo under this service agreement have
commenced. UPPCo has reserved an additional 14-15 MW of firm capacity
(varying with the time of year) on the WUP interface to November 1, 2007
(with a priority right to continue transmission thereafter) for energy
currently transmitted from another Wisconsin utility. Based on these
contractual arrangements, Public Service's and UPPCo's systems meet the
first requirement in that they are clearly physically interconnected
through Wisconsin Electric's transmission system.
__________
6/ Wisconsin Energy Corporation, Inc. and ESELCO, Inc., 83 FERC paragraph
61,069, pp. 61, 358-59 (1998).
7/ FERC Docket No. ER 98-3114-000.
8/ FERC Docket No. ER 98-3345-000.
ii) Single Interconnected and Coordinated System
Currently the electric properties of Public Service and the
electric properties of UPPCo both constitute separate integrated electric
systems within the meaning of Section 2(a)(29)(A) of the Act. In each
such system, "the generation and/or flow of current within the system may
be centrally controlled and allocated as need or economy directs." Unitil
Corp., 51 S.E.C. Docket 562 (1992). The gas properties of Public Service
constitute an integrated gas system within the meaning of Section
2(a)(29)(B). Each of the electric systems would continue to be centrally
controlled by Public Service until such time as the joint dispatch of the
two systems becomes economically justified. Prior to that time, WPSR
would achieve a high degree of coordination in the operation of the two
systems.
Following the Merger, Public Service will economically dispatch
its resources to serve the needs of the Public Service system south of the
WUP interface and, to a limited extent, as described below to provide
"load following" service to the UPPCo system. With respect to the UPPCo
system, Public Service will provide system control, transmission and
generation dispatch and related services to UPPCo from the same Green Bay,
Wisconsin, control center from which the Public Service generation system
is dispatched. The UPPCo system is, and will continue to be, coordinated
on an hour to hour and minute to minute basis, accessing at all times the
most economic source of energy available to UPPCo, including those energy
resources available from Public Service and only as constrained by the
availability of those resources and the WUP interface. Those sources
consist of: (i) 10 MW (15 MW in 1999) of firm power from Public Service
and 55 MW of firm power from Commonwealth Edison which is delivered in
Wisconsin to Wisconsin Electric under a displacement arrangement pursuant
to which Wisconsin Electric delivers comparable energy from Wisconsin
Electric's Presque Isle Power Plant to UPPCo in Michigan; (ii)
approximately 45 MW of interruptible and load following energy from Public
Service over the WUP interface pursuant to a Partial Requirements Service
Agreement dated July 5, 1996; (iii) 14-15 MW of firm power to the Iron
River area of UPPCo's system from Wisconsin Power and Light Company; and
(iv) energy generated by UPPCo's hydro and combustion generation
facilities. To the extent that energy is supplied by Public Service
either pursuant to the power displacement arrangement or by direct sales
to UPPCo, such power will be provided from the most economic source
available to Public Service. Public Service will be able to respond to
any failure of other UPPCo energy resources to meet UPPCo's additional
energy requirements up to approximately 45 MW subject to the constraints
of the WUP interface.
There has been and will continue to be significant coordination
between the UPPCo and Public Service systems. 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. Public Service and UPPCo have also filed a Joint Open
Transmission Tariff with the FERC pursuant to which zonal transmission
rates will be charged for use of the combined systems based on delivery
location.9/ Finally, following the Merger, engineering, accounting, tax,
human resources, information technology services and other administrative
services for the two systems will be integrated. Also as stated in the
WPSR Application to the FERC, WPSR and UPPCo "expect . . . that, as
affiliates, they will be able to coordinate more closely their system
planning and operations than in the past."10/
__________
9/ FERC Docket No. ER 98-1561-000.
10/ FERC Application at page 19.
As another example of coordinated efforts, UPPCo and Public
Service, being net purchasers of electricity, 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 coordinated power purchase and plant dispatch
operations of Public Service and UPPCo, up to the constraints posed by
available transmission capacity.
Finally, although the service territories 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.
Although a high degree of coordination would be achieved in
post-Merger operations of the two systems, until such time as joint
dispatch becomes economically justified, the two systems will not be
jointly dispatched as a single system (i.e., with all energy resources of
the two systems being generally dispatched throughout the areas served by
the two systems, irrespective of the source of such energy). For this
reason, WPSR does not argue that the normal operation of the systems, so
long as the constraints of the WUP interface continue, satisfies the
coordination requirements of Section 2(a)(29)(A) of the Act.
Nevertheless, WPSR does submit that consistent with the Commission's
decision in TUC Holding Company, 65 S.E.C. Docket 301 (1997), WPSR can
acquire and retain UPPCo as an additional system and can also retain its
existing integrated gas system.
In TUC Holding Company, the Commission determined that a holding
company had made the requisite showing under Section 10(c)(2) of the Act
although the combined utility assets of the holding company following the
acquisition would not together constitute a single integrated public-
utility system. Relevant to the Commission's determination in TUC Holding
Company was that, following the acquisition, (i) each of the holding
company's separate systems would remain an integrated system; (ii) there
would be de facto integration of the combined utility properties with both
systems operated on a coordinated basis in the same area; and (iii) the
holding company would be exempt from registration under Section 3 of the
Act. In addition, the acquisition would provide benefits to at least one
integrated system and did not appear to give rise to any of the abuses,
such as scattered utility properties, inefficient operations, lack of
local management or evasion of state regulation that Section 11(b)(1) and
the Act generally were intended to address.
All of the essential elements that formed the basis for the TUC
Holding Company order are present in the Merger. Both the UPPCo and
Public Service systems will remain fully integrated systems following the
Merger. Also, there will be de facto integration of the combined utility
properties of Public Service and UPPCo, with both systems being operated
on a highly coordinated basis, as previously described. Moreover, the
systems are in close proximity and physically interconnected by facilities
over which the utilities hold a firm contractual path. See Exhibit E-1.
Consequently, the Merger will not result in scattered utility properties,
inefficient operations or lack of local management. Following the Merger,
WPSR, which is currently exempt from registration under the Act, except
for Section 9(a)(2), will file a claim for continued exemption from
registration pursuant to Section 3(a)(1) of the Act. The Merger will
produce substantial economies, efficiencies and benefits as described in
Item 3.B.2.a) of this Application. Each of the utility systems will
remain subject to regulation by the Public Service Commission of Wisconsin
in the case of Public Service and by the Michigan Public Service
Commission in the case of both utilities to the same extent as they are
currently regulated by such agencies.
iii) Operate in a Single Area or Region
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."11/ The 1995 Report also recommends primacy be
given to "demonstrated economies and efficiencies to satisfy the
integration requirements."12/ 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.
__________
11/ 1995 Report at 72-74.
12/ 1995 Report at 73.
iv) Localized Management, Efficient Operations and
Effective Regulation
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.13/ 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.
__________
13/ 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 S.E.C. 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 S.E.C. 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
S.E.C. 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 American
Electric Power, 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.
7. Applicant hereby amends Item No. 6, Exhibits and Financial
Statements, of its application by filing the following:
A. Exhibits
Method Exhibit
of Filing Number Description
By Reference G-1 Annual Report on Form 10-K for the year ended
December 31, 1996, and Annual Report on Form 10-K
for the year ended December 31, 1997.
By Reference G-2 Annual Report on Form 10-K for the year ended
December 31, 1996, and Annual Report on Form 10-K
for the year ended December 31, 1997.
By Reference G-3 Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997, June 30, 1997, September 30,
1997, March 31, 1998, and June 30, 1998.
By Reference G-4 Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997, June 30, 1997, September 30,
1997, and March 31, 1998.
By Reference G-5 Current Reports on Form 8-K dated March 10, 1997,
June 7, 1997, October 20, 1997, February 25, 1998,
June 10, 1998, July 2, 1998, and July 27, 1998.
By Reference G-6 Current Reports on Form 8-K dated July 18, 1997,
October 7, 1997, and April 16, 1998.
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SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company
Act of 1935, the undersigned company has duly caused this Amendment to
Application to be signed on its behalf by the undersigned thereunto duly
authorized.
WPS Resources Corporation
By: /s/ Patrick D. Schrickel
Patrick D. Schrickel,
Executive Vice President
Date: September 22, 1998
