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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-1/A
AMENDMENT NO. 1
TO
APPLICATION UNDER SECTION 3(a)(1) OF
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Southern California Water Company
630 East Foothill Boulevard
San Dimas, California 91773
Agent for service:
McClellan Harris III
Southern California Water Company
630 East Foothill Boulevard
San Dimas, California 91773
(909) 394-3600
Copies to:
C. James Levin
Terrence R. Allen
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071
(213) 669-6000
Margaret A. Moore
Cynthia L. Ingersoll
Van Ness Feldman, P.C.
1050 Thomas Jefferson Street, N.W.
Washington, D.C. 20007
(202) 298-1800
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This Amendment No. 1 to Southern California Water Company's Application
under section 3(a)(1) is being filed for the purpose of amending and restating
Item 1, Item 5, and Item 6 as set forth below, filing additional exhibits, and
redesignating Exhibits A and B as Exhibits G and H, respectively.
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION
I. INTRODUCTION
Southern California Water Company, a California corporation ("SCWC" or
the "Company"), is a State-regulated public utility company principally engaged
in providing water service to consumers in 10 California counties. The Company
also operates a small electric utility distribution business serving consumers
in San Bernardino County, California.
SCWC is planning to reorganize into a holding company structure, in
order to facilitate its plans for future growth while protecting the interests
of its ratepayers. So as to permit the new holding company ("NEWCO")(1) to own
SCWC's small electric business through a subsidiary company, SCWC is seeking an
order from the Securities and Exchange Commission ("Commission") granting an
exemption to NEWCO under section 3(a)(1) of the Public Utility Holding Company
Act of 1935 ("PUHCA" or the "Act"), 15 U.S.C. Section 79c(a)(1) (1994), from
all provisions of the Act except section 9(a)(2). As demonstrated below, NEWCO
will meet the formal criteria for an exemption under section 3(a)(1) of the
Act, and the requested exemption will not be detrimental to the public
interest or the interest of investors or consumers.
II. BACKGROUND
A. Description of SCWC
SCWC was organized in 1929 as American States Water Service Company of
California for the purpose of consolidating the ownership of 20 small California
water utility companies. In the ensuing years, the Company has acquired other
California water utility companies and a small electric utility distribution
system. Today, SCWC provides water service to approximately 241,000 consumers in
75 California communities and electric service to approximately 20,500 consumers
in one California community. In 1996, SCWC derived more than 92% of its revenues
(about $139.9 million) from water sales and less than 8% (about $11.5 million)
from electric sales. Approximately 7% of the Company's assets are devoted to its
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(1) NEWCO has not yet been incorporated. SCWC will inform the Commission of
NEWCO's corporate name in its Rule 24 certificate.
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electric business. As described below, the Company is regulated as a public
utility in California.
SCWC has one subsidiary, California Cities Water Company, a California
corporation, which engages in certain unregulated businesses that, in the
aggregate, generated a nominal amount of revenues during the 1996 fiscal year.
SCWC is a registered company under the Securities Exchange Act of 1934 (the
"1934 Act"). The Company is listed on the New York Stock Exchange under the
trading symbol "SCW".
B. Bear Valley Electric System
In 1935, SCWC acquired the Bear Valley Utility Company, a combined
water and electric company. The acquired company's water operations were
terminated in 1989; its electric power business is now operated as SCWC's Bear
Valley Electric District ("Bear Valley"). Bear Valley serves a ski resort
community surrounding Big Bear Lake in San Bernardino County. Most of its
consumers are residential users, approximately two-thirds of whom are weekend or
seasonal customers who reside in the Los Angeles and Orange County areas. Bear
Valley is operated with about 31 employees.
Bear Valley has no generating capacity; SCWC purchases all of its
energy and capacity. The Company purchases Bear Valley's capacity primarily from
Southern California Edison Company ("Edison"), and its energy from various
suppliers through the services of ENOVA Energy Management Inc. SCWC owns and
operates 28.7 miles of overhead 34.5 kV transmission lines, 0.6 miles of
underground 34.5 kV transmission, 172.4 pole miles and 38.6 underground cable
miles of 4.16 kV and 2.4 kV distribution lines, and 15 substations with a
combined capacity of approximately 60,754 KVA. Bulk power is delivered to the
Bear Valley distribution system through two radial transmission lines owned by
Edison. The Bear Valley distribution system is not interconnected with any other
transmission facilities.
C. Overview of State Regulation of SCWC
The California Public Utilities Commission ("CPUC") regulates, on a
comprehensive cost-of-service basis, both the water and the electric
distribution business of SCWC. For rate-making purposes, the Company's service
areas are grouped into 16 water districts and one electric district. In addition
to regulating SCWC's rates, accounting practices, purchases and dispositions of
utility properties, and extensions of service, the CPUC has authority over
SCWC's securities issuances and other aspects of its business. In particular,
the CPUC has the authority to review and approve or disapprove any corporate
reorganization
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proposed by SCWC. Currently, SCWC's utility business is confined exclusively to
California.
D. Purpose of the Reorganization
SCWC is exploring opportunities to expand. These opportunities include
participation in a variety of unregulated businesses that are related to its
current activities as a regulated water utility ("Water Related Businesses").
These businesses will take advantage of the knowledge and skill that SCWC's
employees have developed operating the Company's water systems. In particular,
SCWC is interested in operating and maintaining municipal water systems as a
contract operator. The Company is also interested in pursuing opportunities in
the planning and construction of new water systems, the rebuilding or
rehabilitation of old water systems, and the provision of water treatment,
wastewater collection, and wastewater treatment services in California or
elsewhere. All of these Water Related Businesses will be functionally related to
SCWC's present California water utility operations, in that each of these
endeavors will take advantage of the expertise SCWC has developed in designing,
constructing, renovating, operating, managing, and maintaining water utility
systems.(2) SCWC also anticipates that it may seek to acquire or lease regulated
water utility businesses outside of California ("Other Regulated Water
Utilities").
The Company believes that it will be in the best interests of its
California ratepayers for NEWCO to operate the California utility, the Water
Related Businesses, and the Other Regulated Water Utilities through separate
corporate entities. The Company's preferred approach to accomplishing this
objective is to reorganize the Company into a holding company structure
consisting of NEWCO and two or more wholly-owned subsidiaries. One subsidiary
("Regulated Sub") will engage exclusively in regulated utility businesses in
California, while one or more other subsidiaries will engage only in Water
Related Businesses. One or more subsidiaries also may be formed to acquire and
operate Other Regulated Water Utilities. The Company intends that NEWCO's
business activities will be confined within these parameters.
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(2) NEWCO's Water Related Businesses will be similar to the technological,
operational, and management businesses in which registered holding companies are
permitted to engage. See, e.g., American Electric Power Company, SEC PUHCA
Release No. 22468, 1982 SEC LEXIS 1831 (1982); The Southern Company, SEC
Release No. 22132, 1981 SEC LEXIS 1078 (1981). See also Rule 58(b)(1)(vii), 62
Fed. Reg. 7900 (Feb. 20, 1997).
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III. LEGAL ANALYSIS
A. Pertinent Statutory Definitions
Section 2(a)(7) of the Act defines a public-utility holding company as
"any company which directly or indirectly owns, controls, or holds with power to
vote, 10 per centum or more of the outstanding voting securities of a
public-utility company," including an electric utility company. An "electric
utility company" is defined in section 2(a)(3) as any company that owns or
operates facilities used for, among other things, the distribution of electric
energy for sale. Because Regulated Sub will have electric distribution
facilities (albeit small in magnitude relative to its water utility facilities),
it will be an electric utility company.(3) As the owner of all of Regulated
Sub's voting securities, NEWCO will be a public-utility holding company.
B. Applicability of Section 3(a)(1) to NEWCO
1. NEWCO Will Meet the Criteria Specified in Section
3(a)(1)
Section 3(a)(1) of the Act authorizes the Commission to grant an
exemption to a holding company where:
such holding company, and every subsidiary company thereof which is a
public-utility company from which such holding company derives,
directly or indirectly, any material part of its income, are
predominantly intrastate in character and carry on their business
substantially in a single State in which such holding company and every
such subsidiary company thereof are organized . . . .
NEWCO and Regulated Sub will be incorporated in California, and Regulated Sub's
utility operations will be confined to California. Thus, NEWCO will, upon
consummation of the contemplated reorganization, satisfy all explicitly
prescribed requirements for an exemption under section 3(a)(1).
2. NEWCO's Exemption Will Pose No Regulatory Concerns
for the Commission
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(3) Regulated Sub's average annual gross sales of electric energy, while only
a fraction of its average annual gross water sales, appears to prevent Regulated
Sub from qualifying for the exclusion from the definition of "electric utility
company" provided by Rule 7(a), 17 C.F.R. Section 250.7(a) (1996). Regulated
Sub's electric sales will be approximately $11.5 million; and Rule 7(a) applies
only to companies with sales of $5 million or less.
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The Company is aware that the Commission has, in rare cases, questioned
the qualifications of a diversified holding company for an exemption under
section 3(a)(1) or 3(a)(2), in light of the "unless and except" clause of
section 3(a).(4) This clause provides that an exemption permitted under one of
the five subparagraphs of section 3 shall be granted "unless and except insofar
as [the Commission] finds the exemption detrimental to the public interest or
the interest of investors or consumers . . . ." Based on this preamble to
section 3(a), the Commission has reserved the right to deny an exemption to an
otherwise qualified holding company, or to terminate an exemption previously
granted under section 3(a)(1) or 3(a)(2), if, as contemplated by section 3(c),
the Commission finds that "circumstances which gave rise to the issuance of
such order [granting exemption] no longer exist." As discussed below, neither
the immediate nor long-range business plans contemplated for NEWCO will be
detrimental to the public interest or the interest of investors or consumers.
In this regard, the Company notes that NEWCO does not represent the
kind of holding company whose operations Congress intended to burden when
enacting PUHCA. PUHCA was enacted in substantial part because the State
governments were perceived to lack sufficient authority to protect American
investors and consumers from the abusive practices of complex public-utility
holding company systems. Such practices, identified in section 1(b) of the Act,
included the issuance of securities based on fictitious or unsound asset values,
excessive leveraging, cross-subsidization of affiliates, pyramiding of voting
control, and the growth and extension of holding companies bearing no relation
to economic management and operation or the integration and coordination of
related operating properties. The reorganization contemplated by SCWC does not
present the potential for any such practices. SCWC's utility business is closely
regulated by the CPUC, which regulation extends to, among other things, the
Company's issuances of securities, rate setting, and acquisitions of other
utility and nonutility companies. Furthermore, the Company is subject to the
disclosure requirements and accounting standards of the Securities Act of 1933
and the 1934 Act.
Indeed, the regulatory climate in which the Company operates is vastly
different today than it was when PUHCA was enacted. The authority of the States
to regulate the corporate activities of public-utility holding companies and
their affiliates is now viewed much more broadly than at the time PUHCA was
enacted. Today, State utility commissions such as the CPUC can effectively
shield
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(4) See Pacific Lighting Corp., 45 S.E.C. 152 (1973); Lykes Bros. Inc., 46
S.E.C. 1196 (1978).
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ratepayers from the consequences of improvident investments by utility holding
companies and prevent improper transactions among affiliates.(5)
NEWCO's corporate structure and its continuing regulation by the CPUC
will assure that NEWCO's formation and intended operations will cause no
regulatory abuses that would be of concern to the Commission. Each of these
mitigating factors is discussed in turn below.
a. Separation of Corporate Functions
In addition to facilitating, from a purely business perspective, the
Company's expansion into non-public utility areas, SCWC's proposed
reorganization will protect its ratepayers by providing a strict separation of
NEWCO's State-regulated utility operations from its other business activities.
This structure will facilitate State regulation of NEWCO's utility operations
and enhance the CPUC's ability to assure that there is no cross-subsidization of
business costs. It will also help to insulate Regulated Sub from the risks of
other businesses to be operated under the holding company system. Moreover, as a
result of the reorganization, management will be more accountable to
shareholders, in that management will have specific responsibilities for each
business function.
b. Regulation by the California Commission
Comprehensive regulation of SCWC, and then of Regulated Sub's relations
with NEWCO, by the CPUC should ameliorate any concerns that the Commission may
have concerning NEWCO's diversified activities or concerning the ownership of
both water and electric utility operations by Regulated Sub. The reorganization
will have to be reviewed and approved by the CPUC before it can proceed.
Following the reorganization, the CPUC will oversee on a comprehensive basis the
activities of Regulated Sub, including its dealings with NEWCO and other NEWCO
subsidiaries.
In 1995, the California legislature amended section 854 of the Public
Utilities ("PU") Code to make it clear that the formation of a public-utility
holding company
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(5) Accordingly, there are a number of legislative initiatives under way to
repeal the Act in substantial part and transfer authority to review corporate
books and records to the Federal Energy Regulatory Commission and the States.
Pending congressional action on these repeal initiatives, the Commission has
liberalized its application of the Act. For example, the Commission has allowed
registered systems broader latitude to engage in unregulated activities outside
of their service territories. See Exemption of Acquisition by Registered
Public-Utility Holding Companies of Securities of Nonutility Companies Engaged
in Certain Energy-Related and Gas-Related Activities; Exemption of Capital
Contributions and Advances to Such Companies, 62 Fed. Reg. 7900 (Feb. 20, 1997).
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requires the prior approval of the CPUC. In addition, the legislature set out in
section 854 certain findings that the CPUC must make, and certain criteria it
must consider, before permitting a merger, acquisition, or reorganization that
involves an electric, gas, or telephone utility with gross annual revenues
exceeding $500 million.(6) For reorganizations involving smaller utilities such
as SCWC, the CPUC imposes two fundamental requirements: (1) there must be a
valid business purpose for the reorganization, and (2) the reorganization and
future operations must be conducted "pursuant to conditions that will be
adequate to protect the public interest." In re Roseville Telephone Company,
1996 Cal. PUC LEXIS 811 at *10 (1996). Accordingly, as the CPUC has itself
observed, "[t]he recent history of utility reorganizations into holding
companies has been a history of conditions." In re San Diego Gas & Electric
Company, 1995 Cal. PUC LEXIS 931 at *15 (1995).
In framing the conditions it imposes upon a reorganization, the CPUC
attempts to "strike the balance that will allow easing our oversight of
competitive and unregulated enterprises of affiliates while retaining our
ability effectively to regulate utility operations." Id. at *16. In so doing,
the CPUC is mindful of "the long history of the holding company form of
organization leading up to the passage of [PUHCA]." Id. at *10. Consequently,
the CPUC has focused heavily on the issue of affiliate transactions, and
normally sets pricing standards for such transactions in its orders approving
the formation of a holding company.(7) The CPUC also requires that the new
holding company give priority to the capital needs of its utility subsidiaries,
and that each utility maintain a balanced capital structure.(8)
The PU Code assures the CPUC access to the books and records of the
affiliates of California utilities, as well as to the books and records of the
utilities themselves, to the extent necessary to monitor affiliate transactions.
Section 314(b) of the PU Code provides that the CPUC may inspect the accounts,
books, papers, and documents of any business that is a subsidiary or affiliate
of an electric, gas, or telephone utility with respect to any affiliate
transaction that "might adversely affect the interests of the ratepayers" of the
utility. In addition, section 587 requires electric, gas, and telephone
utilities to file annual reports on
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(6) The full text of section 854 is set forth in the attached Exhibit G,
along with other pertinent sections of the PU Code.
(7) In the San Diego order, for example, the CPUC accepted the utility's
proposal that all non-tariffed services provided by the new utility subsidiary
to any affiliate would be priced at the higher of market or fully loaded costs
with a 5% markup. San Diego order at *34-35.
(8) See, e.g., San Diego at *25, 72; Roseville at *47-48.
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affiliate transactions; and section 797 requires the CPUC to audit periodically
"all significant transactions" with utility affiliates.(9)
The CPUC has implemented sections 587 and 797 in part by adopting
detailed regulations governing the reporting of affiliate transactions by all
electric, gas, and telephone utilities. See In re Reporting Requirements for
Electric, Gas, and Telephone Utilities Regarding Their Affiliate Transactions,
48 CPUC2d 163 (1993), 1993 Cal. PUC LEXIS 80 ("Affiliate Transactions
Rule").(10) The Affiliate Transactions Rule requires each such utility to file
an annual report that describes its organizational structure, its accounting
procedures and conventions, all affiliate contracts involving the provision of
goods or services valued at more than $5,000, and any internal audits that were
conducted. In addition, the report must include data in table format on all
affiliate transactions during the reporting period, other than the provision of
tariffed utility services. The utility must also report the guarantee of any
debt obligation of an affiliate and any employee transfer to an affiliate. Each
report must include the quarterly and annual financial statements of the holding
company, including consolidating work papers of the holding company and its
subsidiaries, and must disclose the utility's proportionate share of the holding
company's (1) total assets, (2) total operating revenues, (3) operating and
maintenance expenses, and (4) number of employees.
The foregoing provisions of State law and the comprehensive regulatory
oversight by the CPUC provide sufficient safeguards to assure that the
contemplated reorganization will not be detrimental to the public interest or
the interests of investors or consumers. As noted above, the reorganization
itself will not proceed unless expressly permitted by the CPUC. Furthermore,
once the reorganization is accomplished, the CPUC will regulate the activities
of Regulated Sub within the holding company system in a comprehensive fashion.
IV. REQUEST FOR RELIEF
For the reasons stated above, the Company requests an order granting
NEWCO an exemption under section 3(a)(1) of the Act, pursuant to which NEWCO and
each of its subsidiaries will be exempt from all provisions of the Act, except
section 9(a)(2).
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(9) Full-text copies of sections 314, 587, and 797 are included in
Exhibit G hereto.
(10)A copy of the Affiliate Transactions Rule, as amended in 1993, is
reproduced in Exhibit H hereto.
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ITEM 5. PROCEDURE
SCWC requests action on this application within 40 days of this filing.
SCWC agrees that the Division of Investment Management may assist in the
preparation of the Commission's decision. SCWC does not anticipate that a
recommendation from a hearing officer or any other responsible officer of the
Commission outside the Division of Investment Management will be necessary, and
requests that the Commission not refer the application to a hearing officer or
other officer of the Commission. SCWC requests that there not be a 30 day
waiting period between the issuance of the Commission's order and the date on
which it is to become effective, so that SCWC may proceed immediately with the
reorganization.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
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No. DESCRIPTION METHOD OF FILING
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<S> <C> <C>
A-1 Articles of Incorporation To be filed with Rule 24
of NEWCO certificate
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A-2 Bylaws of NEWCO To be filed with Rule 24
certificate
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A-3 Articles of Incorporation To be filed with Rule 24
of Regulated Sub certificate
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A-4 Bylaws of Regulated Sub To be filed with Rule 24
certificate
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B-1 Plan of Reorganization Filed herewith
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C-1 Registration Statement To be filed with Rule 24
for NEWCO on Form S-4 certificate
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D-1 Application to CPUC for To be filed with Rule 24
approval of reorganization certificate
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D-2 Order of CPUC approving To be filed with Rule 24
reorganization certificate
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E Maps Not applicable
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F-1 Preliminary opinion of Filed herewith
counsel
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F-2 "Past-tense" opinion of To be filed with Rule 24
counsel certificate
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</TABLE>
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<TABLE>
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
G Excerpts from the Filed with original Form
California Public Utilities U-1 as Exhibit A, hereby
Code redesignated as Exhibit G
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H California Public Utilities Filed with the original
Commission Rules Form U-1 as Exhibit B,
Governing the Reporting hereby redesignated as
of Transactions by Exhibit H
Electric, Gas, and
Telephone Utilities with
Their Affiliates
- --------------------------------------------------------------------------------------------------------
</TABLE>
This application does not require Commission action under section 6, 7,
9, 10, or 12 of the Act, because SCWC is not seeking approval of a transaction.
Therefore, there are no financial statements included with this application.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned company has duly caused this statement to be signed on
its behalf by the undersigned thereunto duly authorized.
SOUTHERN CALIFORNIA WATER COMPANY
Date: April 16, 1997 By: /s/ McClellan Harris III
McClellan Harris III
Vice President and Treasurer
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Filings Under the Public Utility Holding Company Act of
1935, as amended ("Act")
SECURITIES AND EXCHANGE COMMISSION
Release No. 35-_______
April __, 1997
Notice is hereby given that the following filing(s) has/have been made with
the Commission pursuant to provisions of the Act and rules promulgated
thereunder. All interested persons are referred to the application(s) and/or
declaration(s) for complete statements of the proposed transaction(s) summarized
below. The application(s) and/or declaration(s) and any amendments thereto
is/are available for public inspection through the Commission's Office of Public
Reference.
Interested persons wishing to comment or request a hearing on the
application(s) and/or declaration(s) should submit their views in writing by
__________ ___, 1997, to the Secretary, Securities and Exchange Commission,
Washington, D.C. 20549, and serve a copy on the relevant applicant(s) and/or
declarant(s) at the address(es) specified below. Proof of service (by affidavit
or, in case of an attorney at law, by certificate) should be filed with the
request. Any request for hearing shall 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
the matter. After said date, the application(s) and/or declaration(s), as filed
or as amended, may be granted and/or permitted to become effective.
Southern California Water Company (70-9013 )
On April 16, 1997, Southern California Water Company ("SCWC"), 630 East
Foothill Boulevard, San Dimas, California 91773, an electric utility company not
currently subject to the Act, filed an amendment to its application-declaration
under section 3(a)(1) on behalf of its future holding company ("NEWCO"). SCWC
requests an order granting NEWCO and each of its subsidiaries an exemption from
all provisions of the Act, except Section 9(a)(2) thereof.
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EXHIBIT B-1
TO FORM U-1 (AS AMENDED) OF
SOUTHERN CALIFORNIA WATER COMPANY
Plan of Reorganization
PROPOSED RESTRUCTURING
Southern California Water Company ("SCWC") proposes to reorganize into
a holding company structure. Under such a structure, SCWC will be a separate
subsidiary of a newly-formed parent holding company ("ParentCo"), with the
present holders of all of the SCWC Common Shares becoming holders of all of
ParentCo's Common Shares. As part of the restructuring, SCWC will also transfer
to ParentCo all of the capital stock of its sole subsidiary, Cal Cities Water
Company ("Cal Cities"), currently owned by SCWC, with Cal Cities thereby
becoming a wholly-owned subsidiary of ParentCo. Finally, it is intended that one
or more additional wholly-owned subsidiaries of ParentCo will be formed.
IMPLEMENTATION OF RESTRUCTURING
The restructuring will be effected through a reverse triangular merger,
which is widely used in corporate restructurings. Prior to such merger, SCWC
will cause ParentCo and an additional company ("MergeCo") to be incorporated
under California law, with SCWC owning all of the outstanding stock of ParentCo,
and ParentCo owning all of the outstanding stock of MergeCo. Neither ParentCo
nor MergeCo will conduct any business or own any assets prior to the merger. In
the merger, MergeCo will be merged with and into SCWC, with SCWC to be the
surviving corporation. Pursuant to the merger, all of the outstanding SCWC
Common Shares will be converted into new ParentCo Common Shares on a
share-for-share basis. It is presently expected that the holders of all of the
issued and outstanding SCWC Preferred Shares prior to the merger will continue
to hold such shares in SCWC after the merger and will not receive any shares of
the capital stock of ParentCo. Alternatively, however, SCWC may also cause such
shares to be exchanged in the merger for like shares of ParentCo.
In connection with the restructuring, it is contemplated that SCWC will
transfer to ParentCo its ownership interests in its sole subsidiary, Cal Cities,
thereby making Cal Cities a wholly-owned subsidiary of ParentCo.
<PAGE> 14
EXHIBIT F-1
TO FORM U-1 (AS AMENDED) OF
SOUTHERN CALIFORNIA WATER COMPANY
[O'Melveny & Myers LLP Letterhead]
April
1st
1 9 9 7
814,675-407
LA1-739998.V2
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Re: Form U-1 Application Filed by Southern California
Water Company of March 6, 1997
Ladies and Gentlemen:
We have been requested by Southern California Water Company
("SCWC") to provide you with our legal opinion with respect to California law as
it applies to the matters referred to in paragraph F of Instructions to Exhibits
of Form U-1 under the Public Utility Holding Company Act of 1935 (the "Act")
with respect to the application filed under the Act on Form U-1 by SCWC as
Appendix II to its application for an order under Section 3(a)(1) of the Act.
As such counsel, we have examined, among other things, copies
identified or certified to our satisfaction as being true copies of the
following documents:
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A. Restated Articles of Incorporation of SCWC as
presently in effect.
B. SCWC's Bylaws as presently in effect.
C. Evidence as to the good standing of SCWC under the
laws of the State of California.
D. The Form U-1 filed by SCWC ("Form U-1").
SCWC has advised us and we are assuming that the transaction
with respect to which Form U-1 was filed, to the extent pertinent to this
opinion, is as described in this paragraph. SCWC is a California corporation.
SCWC plans the formation of a holding company ("Newco") to be incorporated in
California. Newco is to have as its subsidiary SCWC, which would continue to
operate its regulated utility businesses exclusively in California, as well as
an additional wholly-owned subsidiary ("Unregulated Sub"), which would engage in
various unregulated businesses related to SCWC's core water utility business. An
additional wholly-owned subsidiary of Newco ("Out-of-State Water Sub") may be
formed for the purpose of acquiring and owning non-California water utility
operations.
Based upon the foregoing, and subject to SCWC taking certain
proceedings in connection with its participation in the foregoing transaction as
contemplated by us, it is our opinion that, in the event the proposed
transaction is consummated as described above:
1. All laws of the State of California
applicable to the proposed transaction will
have been complied with.
2. SCWC is and Newco will be duly incorporated
and validly existing under the laws of the
State of California.
3. Insofar as the laws of the State of
California are concerned, Newco will legally
acquire all of the securities of each of
SCWC, Regulated Sub and Out-of-State Water
Sub that Newco is required to acquire in
connection with the transaction.
4. The stock of SCWC, Regulated Sub and
Out-of-State Water Sub to be acquired by
Newco, as well as the stock of Newco to be
issued in connection with the proposed
transaction, will in each case be validly
issued, fully paid and non-assessable, and
the holders thereof will be entitled to the
rights and privileges appertaining thereto
set forth in the charter or other documents
defining such rights and privileges.
5. Insofar as the laws of the State of
California are concerned, the consummation
of the proposed transaction will not violate
the legal rights of the holders of any
stock of SCWC, or the rights of the holders
of any
<PAGE> 16
securities issued by any "associate
company" of SCWC as defined in the Act.
Our opinion expressed in paragraph 5 above is limited to our
knowledge of the matters set forth in the Restated Articles of Incorporation and
Bylaws of SCWC, each as presently in effect, and to the applicable laws of the
State of California.
We express no opinion concerning (i) federal securities laws
or regulations or such laws or regulations of any state other than California,
(ii) federal or state antitrust, unfair competition or trade practice laws or
regulations, (iii) pension and employee benefit laws and regulations, or (iv)
compliance with fiduciary requirements.
We hereby consent to the use of this opinion as an exhibit to
Form U-1.
Respectfully submitted,
/s/ O'Melveny & Myers LLP
