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FILE NO. 70-9553
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
APPLICATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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Chevron Corporation Illinova Corporation
575 Market Street 500 South 27th Street
San Francisco, California 94105 Decatur, Illinois 62521-2200
(Commission File No. 1-368-2) (Commission File No. 1-11327)
Chevron U.S.A. Inc. Energy Convergence Holding Company
1301 McKinney 500 South 27th Street
Houston, Texas 77010 Decatur, Illinois 62521-2200
(Name of companies filing this statement and address of
principal executive offices)
--------------------------
None
(Name of top registered holding company parent of each applicant or declarant)
--------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
David R. Stevenson William B. Conway, Jr. Larry F. Altenbaumer
Associate General Counsel Senior Vice President Vice President and Secretary
Chevron Law Department and Chief Legal Officer Energy Convergence Holding
Chevron U.S.A. Inc. Illinova Corporation Company
P.O. Box 3725 500 South 27th Street 500 South 27th Street
Houston, Texas 77253-3725 Decatur, Illinois 62521-2200 Decatur, Illinois 62521-2200
</TABLE>
(Names and addresses of agents for service)
Total Number of pages: ____
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The Commission is also requested to send copies
of any communications in connection with this matter to:
For Illinova and Energy Convergence
For Chevron Corporation and Chevron USA: Holding Company:
James R. Doty, Esq. Robert P. Edwards, Jr. Esq.
Baker Botts L.L.P. John D. McLanahan, Esq.
The Warner Troutman Sanders LLP
1299 Pennsylvania Avenue, N.W. 600 Peachtree Street, N.E.
Washington, D.C. 20004-2400 Suite 5200
Atlanta, Georgia 30308
For Dynegy:
Merrill L. Kramer, P.C.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1333 New Hampshire Ave., N.W.
Suite 400
Washington, D.C. 20036
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The Application previously filed in this proceeding is hereby amended
and restated in its entirety to read as follows:
INTRODUCTION AND REQUEST FOR COMMISSION ACTION
Chevron Corporation ("Chevron Corp."), its wholly-owned subsidiary,
Chevron U.S.A. Inc. ("Chevron USA"),/1/ Energy Convergence Holding Company ("New
Dynegy") and Illinova Corporation ("Illinova" and collectively with Chevron
Corp. and Chevron USA, the "Applicants") hereby file an application for an order
from the United States Securities and Exchange Commission (the "Commission")
authorizing the consummation of the merger transactions described in Item 1.B
below (the "Transaction") pursuant to Sections 9(a)(2) and 10 of the Public
Utility Holding Company Act of 1935 (the "Act").
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION
A. THE PARTICIPANTS
The Transaction involves merging a company with energy-related
operations, exempt operations, and no public-utility company operations (Dynegy
Inc.) with an exempt public-utility holding company (Illinova) which has limited
exempt and energy-related operations. Chevron's role has been to accommodate the
Transaction, which was initiated by Dynegy Inc. and Illinova.
1. CHEVRON CORPORATION
Chevron Corp., a Delaware corporation, manages its investments in, and
provides administrative, financial, and management support to, domestic and
foreign subsidiaries and affiliates that engage in fully-integrated petroleum
and chemical operations in the United States and approximately 90 other
countries./2/ Chevron Corp.'s stock is listed on the New York, Chicago, and
Pacific Exchanges, and it is a reporting company under the Securities Exchange
Act of 1934, as amended.
Neither Chevron Corp. nor Chevron USA currently has any public-utility
company subsidiaries, neither is an affiliate of a public-utility company, and
no part of either company's income is derived from the operations of a public-
utility company as defined by the Act.
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/1/ Except where the context otherwise requires, Chevron Corp. and Chevron USA
are collectively referred to herein as "Chevron."
/2/ Chevron Corp.'s petroleum operations consist of exploring for, developing,
and producing crude oil and natural gas; refining crude oil and finished
petroleum products; marketing crude oil, natural gas, and the many products
derived from petroleum; and transporting crude oil, natural gas, and petroleum
products by pipelines, marine vessels, motor equipment, and railcar. The
chemical operations of Chevron Corp. include the manufacture and marketing of a
wide range of chemicals for industrial uses. Chevron Corp. is currently in the
process of selling its remaining interests in coal mining operations.
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Chevron Corp. owns 100% of Chevron USA, a Pennsylvania corporation,
which conducts operations worldwide through its various divisions. Chevron
USA's principal business activity is in its domestic upstream division that
engages in the business of exploration and production of crude oil, natural gas
liquids, and natural gas in the United States and its domestic downstream
division that engages in the business of refining, marketing and transportation
of gasoline and other refined products in the United States. Chevron USA's net
income for 1998 for United States operations was approximately $1 billion.
Chevron USA owns approximately 29% of the outstanding common and preferred stock
of Dynegy Inc. ("Dynegy"), a leading provider of energy products and services in
North America and the United Kingdom. The vast majority of Chevron Corp.'s
natural gas production, as well as the natural gas liquids extracted from the
gas, are committed to Dynegy under various commercial agreements. In 1998, 73%
of Chevron Corp.'s worldwide sales of natural gas were made to Dynegy.
Additional information regarding Chevron Corp. and its subsidiaries is
set forth in the following documents, each of which is incorporated herein by
reference:
(i) Annual Report on Form 10-K of Chevron Corporation (Commission
File No. 1-368-2) for the fiscal year ended December 31, 1998,
filed on March 31, 1999; and
(ii) Quarterly Report on Form 10-Q of Chevron Corporation
(Commission File No. 1-368-2) for the quarterly period ended
September 30, 1999, filed on November 4, 1999.
2. DYNEGY INC.
Dynegy is actively engaged in the marketing and trading of natural
gas, natural gas liquids, electricity, and coal. It also owns subsidiaries that
develop, own, and operate power generation projects that are exempt from the
Act, including Exempt Wholesale Generators ("EWGs") and companies with interests
in qualifying facilities under the Public Utility Regulatory Policies Act of
1978. Dynegy has no public-utility company operations, subsidiaries or
affiliates.
Dynegy is a Delaware corporation maintaining its principal place of
business in Texas. The company's stock is listed on the New York Stock
Exchange. In addition to Chevron USA, Dynegy has two industrial shareholders:
NOVA Gas Services (U.S.) Inc., a Delaware corporation ("NOVA"), and BG Holdings,
Inc., a Delaware corporation ("BG"), each of which owns approximately 25% of the
outstanding voting stock of Dynegy./3/ Of the remaining outstanding voting stock
of Dynegy, 11% is owned by management and the balance is publicly owned.
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/3/ NOVA is an indirect, wholly-owned subsidiary of NOVA Chemicals Corporation,
a Canadian corporation. BG is an indirect, wholly-owned subsidiary of BG plc, a
British corporation.
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On August 31, 1996, Chevron USA formed a strategic combination with
NGC Corporation ("NGC"), Dynegy's predecessor, whereby substantially all of
Chevron USA's mid-stream natural gas marketing and natural gas processing and
natural gas liquids marketing operations were transferred to NGC's operations in
exchange for stock constituting the shares of Dynegy which Chevron now holds.
Dynegy has the obligation to purchase and the right to market substantially all
of the natural gas and gas liquids produced by Chevron USA, except those
produced in Alaska. In addition, pursuant to other agreements, Dynegy supplies
natural gas and natural gas liquids feedstocks to Chevron's United States
refineries and chemical plants.
Dynegy is pursuing an integrated wholesale energy business strategy
based on the convergence of energy markets. This strategy relies upon the
marketing, trading, and hedging opportunities existing in the natural gas and
power markets, which can be most effectively realized by the control and
optimization of related physical assets. Dynegy treats its gas and power
marketing and power generation businesses as an integrated unit. Dynegy
considers that: (i) ownership or control of merchant generation, or "Btu
Conversion" capacity, when coupled with Dynegy's national wholesale gas and
power marketing operations, creates a wide range of value-creation
opportunities; (ii) Dynegy's wholesale trading and marketing franchise adds
value to its generation assets by providing national market access, market
infrastructure and intelligence, risk management and arbitrage opportunities,
fuel management and procurement expertise and transmission expertise for inputs
(gas) and outputs (power); (iii) generation capacity adds value to Dynegy's
wholesale trading and marketing franchise by providing a source of reliable
power, an enhanced ability to structure innovative new products and services for
customers, and a market for natural gas; and (iv) by aligning its operations
with the power generation base and experience of Illinova, Dynegy expects to
enhance the value of its power generation and power marketing capabilities.
Additional information regarding Dynegy and its subsidiaries is set
forth in the following documents, to which reference is made:
(i) Annual Report on Form 10-K of Dynegy Inc. (Commission File
Number 1-11156) for the fiscal year ended December 31, 1998,
filed on March 30, 1999;
(ii) Quarterly Report on Form 10-Q of Dynegy Inc. (Commission File
Number 1-11156) for the quarterly period ended September 30,
1999, filed on November 15, 1999;
(iii) Current Report on Form 8-K of Dynegy Inc. (Commission File
Number 1-11156), filed on June 14, 1999; and
(iv) Amendment No. 1 to Registration Statement under the Securities
Act of 1933 on Form S-4 of Energy Convergence Holding Company
(Registration No. 333-84965), filed with the Commission on
September 7, 1999 (the "New Dynegy Registration Statement").
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3. ILLINOVA CORPORATION
Illinova Corporation ("Illinova") is a public-utility holding company
exempt from registration under Section 3(a)(1) of the Act. It is incorporated
and maintains its principal place of business in the State of Illinois, and its
common stock is listed on the New York and Chicago Stock Exchanges. Illinova
owns six active subsidiaries: Illinois Power Company, a combination electric and
gas public-utility company ("Illinois Power"), Illinova Generating Company
("Illinova Generating"), Illinova Energy Partners, Inc. ("Illinova Energy"),
Illinova Insurance Company ("Illinova Insurance"), Illinova Power Marketing,
Inc. ("Illinova Marketing"), and Illinova Business Enterprises ("Illinova
Business").
Illinova's revenues for 1998 were $2.43 billion, producing a net loss
of $1.38 billion. Recently, the public-utility income of Illinova derived from
Illinois Power has been negative and is the primary source of Illinova's
consolidated net loss. In 1998, approximately 73% of Illinova's operating
revenues were derived from Illinois Power's sale, transmission and distribution
of electricity, and 12% of Illinova's operating revenues were derived from
Illinois Power's sale and transportation of natural gas. Approximately 15% of
Illinova's operating revenues came from its other, diversified enterprises in
1998.
Illinois Power is an Illinois corporation and Illinova's principal
public-utility company subsidiary. It is engaged in the generation,
transmission, and distribution of electric energy and the sale of electric
energy at wholesale and retail in the state of Illinois. Illinois Power also
owns facilities for the distribution of natural gas and is engaged in the sale
of natural gas at retail. Illinois Power provides traditional utility service
subject to state regulation to approximately 570,000 retail electric and 400,000
retail gas distribution customers located throughout central Illinois, and also
transmits and sells power at wholesale subject to the jurisdiction of the
Federal Energy Regulatory Commission ("FERC"). Illinova's electric utility and
gas utility systems operate on an integrated basis. All of the company's
utility assets are located in the State of Illinois. Illinois Power is
regulated by the Illinois Commerce Commission ("ICC") and the FERC.
Currently, Illinois Power owns a 930 MW nuclear generating facility
located near Clinton, Illinois. Illinova has entered into a definitive
agreement to sell that facility to Ameren Energy Company, L.L.C., subject to
regulatory approval by the Nuclear Regulatory Commission.
Illinova Marketing is an Illinois corporation and a wholly-owned
electric public-utility subsidiary of Illinova. It owns and operates 3,812 MW
of fossil-fired electric power generating capacity located in the State of
Illinois, formerly owned by Illinois Power. This generation will be utilized
predominantly to meet the power requirements of Illinois Power during a
competition transition period established by Illinois law. On July 8, 1999, the
ICC approved the
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restructuring of Illinois Power in this fashion./4/ The FERC authorized these
asset transfers and wholesale power sales in two recent orders./5/
Illinova Generating is Illinova's wholly-owned independent power
subsidiary, and is not a public-utility company under the Act. Illinova
Generating currently owns interests in EWGs and in qualifying facilities located
throughout North America, as well as interests in several generation facilities
located outside of North America. The North American facilities total 821 MW
with an 830 MW plant under construction.
Illinova Generating owns 20% of the stock of Electric Energy
Incorporated ("EEInc"), which the Commission has classified as a public-utility
company for certain purposes under the Act. The revenues and net income of
EEInc are not material to Illinova's total public-utility revenues and income.
EEInc was incorporated in 1950 for the purpose of generating electricity for
sale to the United States government nuclear processing plant near Paducah,
Kentucky. Its principal place of business is in Joppa, Illinois. Approximately
70% of the revenues associated with the Joppa plant are derived from sales to
the United States Department of Energy under a contract that extends until 2005.
Sponsoring utilities, including Illinois Power, purchase power in excess of the
federal government's requirements. The Commission has for many years
recognized this project as sui generis and that EEInc "does not itself sell
electricity to private consumers of the type the Act is designed to protect and
does not have any securities in the hands of public investors."/6/
Illinova Energy is Illinova's wholly-owned subsidiary that engages in
the brokering and marketing of electric power and gas, and the development and
sale of energy-related services to the competitive unregulated energy market
throughout the United States and Canada. Illinova Energy owns interests in
several gas marketing companies./7/ It is not a public-utility company under the
Act.
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/4/ ICC Docket No. 99-0209 (July 8, 1999).
/5/ Illinova Corporation, 88 FERC (P) 62,229 (Sept. 10, 1999) (FERC
jurisdictional facilities transfer approval); Illinova Power Marketing, Inc., 88
FERC (P) 61,189 (Aug. 24, 1999) (effectiveness of wholesale power contracts).
/6/ Union Electric Co., Holding Co. Act Release No. 14615, 40 SEC 1072 (Apr. 2,
1962). See also Illinova Generating Co., SEC No-Action Letter, 1996 WL 679234
(Oct. 22, 1996).
/7/ The other two active subsidiaries are minor and are not public-utility
companies. Illinova Insurance is an insurance company licensed by the State of
Vermont. The primary business of Illinova Insurance is to insure the risks of
the subsidiaries of Illinova and the risks related to or associated with their
business enterprises. Illinova Business is a wholly-owned subsidiary of
Illinova. Illinova Business accounts for miscellaneous energy management
software and hardware sales not regulated by the ICC or FERC and not falling
within the business scope of other Illinova subsidiaries.
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On December 16, 1997, the State of Illinois enacted the Electric
Service Customer Choice and Rate Relief Law of 1997, which introduces retail
competition and customer choice to electricity consumers in the State of
Illinois./8/ The legislation adopts a comprehensive approach to creating a
market mechanism to provide electric energy to consumers. The law contains the
following key provisions:
Rate Decreases: The law provides Illinois Power's residential
customers a 15% decrease in base electric rates beginning August 15,
1998, and an additional 5% decrease beginning May 1, 2002.
Rate Freeze: The law freezes rates for bundled electric service
through January 1, 2005 (with the exception of the mandatory rate
decreases discussed above), unless the utility's earned rate of return
on common equity falls below the 30-year Treasury bond rate for two
consecutive years. This rate freeze generally forces public-utilities
to absorb fuel and purchased power cost increases. It also provides a
vehicle for the recovery of transition costs (frequently called
"stranded" costs) minus statutorily prescribed mitigation factors
during the transition period established by Illinois law. Thus the
revenues of Illinois Power under the rate freeze include fuel,
purchased power, and transition cost recovery.
Retail Choice: Beginning October 1, 1999, the following categories of
retail customers were eligible to choose their electricity supplier:
(i) customers with a demand greater than 4 MW at a single site; (ii)
customers under common ownership with ten or more sites in a service
area which aggregate to at least 9.5 MW in demand; and (iii) customers
comprising one-third of the remaining non-residential load. The rest
of the non-residential customer group will be eligible for direct
access by December 31, 2000. All residential customers will have
direct access by May 2002. For Illinois Power, this means that non-
residential customers representing 53% of its total current retail
electric sales volume will be eligible to select an alternate
generation service supplier on October 1, 1999 (subject to pre-
existing contract term requirements). All non-residential customers,
representing 73% of Illinois Power's total current electric sales
volume, will be eligible to select an alternate generation service
supplier at year-end 2000 (subject to pre-existing contract term
requirements).
Delivery Service: Illinois Power is obligated to provide delivery
service to customers eligible for direct access under tariffs approved
by the ICC. The ICC also regulates the services provided by public
utilities to alternative retail electric suppliers.
ICC Oversight of Transmission And Distribution Reliability: The ICC
must adopt regulations on transmission and distribution reliability.
In addition, Illinois utilities must form or join an independent
system operator.
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/8/ 220 Ill. Comp. Stat. 5/16-101A (West 1999).
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Sale or Transfer of Electric Utility Assets: During the transition
period (1998-2004), electric utilities can sell or transfer assets to
affiliated or unaffiliated entities pursuant to an ICC review process
which must be completed within 90 days and which establishes specific
criteria for ICC review.
Functional Separation / Code of Conduct: The ICC is required to adopt
standards of conduct for electric utilities and is promulgating rules
for the functional separation of generation services and delivery
services. The restructuring of Illinova approved in ICC Docket No.
99-0209 (July 8, 1999) to separate power generation from power
delivery was designed to be consistent, and is consistent, with the
new Illinois and FERC policies requiring separation of these
functions.
Affiliate Relationships: The ICC is required to, and has, adopted
rules governing the relationships between electric utilities and their
affiliates, and ensuring non-discrimination in any services provided
by the electric utility to its affiliates and to alternative retail
electric suppliers.
Recent federal and state regulatory initiatives have the following
implications for Illinois Power and Illinova:
. Illinois Power is required to maintain transmission interconnections
with numerous major regional electric utilities and power supply
regions and provide open access wholesale transmission service.
. Illinois Power is ceding operational control of its transmission
system to a regional Independent System Operator.
. Illinois Power is required to implement open access transmission on
its distribution system to facilitate energy competition for retail
electric customers and to provide nondiscriminatory delivery service
to its retail customers.
. Illinois Power is required to implement retail rate reductions and
to maintain a retail rate freeze.
As a result of state and federal restructuring of energy markets, the
ability of Illinova to compete effectively has become essential to its success
as a business enterprise and to its ability to attract capital at a reasonable
cost. As shown in Section 1.C below, effectuating the Transaction will bring a
number of financial, managerial, and operating benefits to its system.
Additional information regarding Illinova and its subsidiaries, is set
forth in the following documents, each of which is incorporated herein by
reference:
(i) Annual Report on Form 10-K of Illinova Corporation (Commission
File Number 1-11327) and Illinois Power Company (Commission
File Number 1-3004) for the fiscal year ended December 31,
1998, filed on March 29, 1999;
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(ii) Quarterly Report on Form 10-Q of Illinova Corporation
(Commission File Number 1-11327) and Illinois Power Company
(Commission File Number 1-3004) for the quarterly period ended
September 30, 1999, filed on November 15, 1999;
(iii) Current Report on Form 8-K of Illinova Corporation (Commission
File Number 1-11327) and Illinois Power Company (Commission
File Number 1-3004), filed on June 18, 1999; and
(iv) New Dynegy Registration Statement.
4. ENERGY CONVERGENCE HOLDING COMPANY ("NEW DYNEGY")
New Dynegy is an Illinois corporation formed for the purposes of
effectuating the Transaction. Its Certificate of Incorporation is included in
Exhibit A to this Application. New Dynegy currently has no material assets and
no public-utility assets, subsidiaries, or affiliates.
B. THE TRANSACTION
The Transaction involves a combination of Dynegy and Illinova through
a series of mergers, resulting in the formation of a new public-utility holding
company ("New Dynegy") incorporated in the State of Illinois./9/ New Dynegy will
separately file, under Rule 2 of the Commission's regulations, notification of
its status as a holding company exempt under Section 3(a)(1) of the Act on the
same grounds as presently claimed by Illinova./10/ New Dynegy will initially
have two wholly-owned subsidiaries, an Illinois corporation/11/ and a Delaware
corporation,/12/ that will serve as acquisition companies. Illinova will be
merged with the Illinois acquisition company with Illinova surviving the merger,
and Dynegy will be merged with the Delaware acquisition company with Dynegy
surviving the merger. Upon completion of the Transaction, Illinova and Dynegy
will be wholly-owned subsidiaries of New Dynegy. The parties intend to simplify
the New Dynegy holding company structure after effectuating the Transaction by
eliminating Illinova as a tier in the holding company structure.
In the Transaction, each shareholder of Dynegy (except Chevron USA) will
elect to receive either (1) cash in the amount of $16.50 or (2) .69 shares
of New Dynegy Class A
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/9/ New Dynegy is incorporated in Illinois as Energy Convergence Holding
Company and is a wholly-owned subsidiary of Illinova.
/10/ See e.g., Roanoke Gas Co., Holding Co. Act Release No. 26996 (Apr. 1,
1999).
/11/ Energy Convergence Acquisition Corporation.
/12/ Dynegy Acquisition Corporation.
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Common Stock/13/ for each share of Dynegy common stock. Each such Dynegy
shareholder will receive cash for any fractional share regardless of the
shareholder's election./14/ However, only approximately 40% of the shares of
Dynegy common stock will be exchangeable for cash, and the remaining shares of
Dynegy will be exchangeable for shares of New Dynegy Common Stock or Series A
Preferred Stock./15/ This will result in conversion of a maximum of
approximately 67.6 million shares of Dynegy common stock into cash. The amount
of cash available will be insufficient to satisfy completely cash elections, and
the cash will be prorated among shareholders electing to receive cash. For each
100 shares of Dynegy common stock for which Dynegy shareholders elect to receive
cash, they will receive cash consideration with respect to no less than 63
shares of Dynegy common stock and no more than 84 shares of Dynegy common stock.
The consideration for the balance of the Dynegy common stock will be New Dynegy
Class A Common Stock. Each share of Illinova common stock will be exchangeable
for one share of New Dynegy Class A Common Stock. As a result, slightly more
than one-half of New Dynegy's voting stock will be held by former Dynegy
shareholders.
Although BG and NOVA have elected to receive all cash, the 40% limit
on the cash portion of the merger consideration results in their receiving at
least some portion of their consideration in the form of Series A Preferred
Stock. The amount of stock that BG and NOVA will receive is dependent upon the
number of shares held by the public shareholders that are tendered for cash. To
facilitate the Transaction and assist NOVA and BG in liquidating their
investment in Dynegy, Chevron USA has agreed to purchase from New Dynegy
additional shares of New Dynegy's Class B Common Stock for an aggregate purchase
price of between $200 and $240 million. To the extent that BG and NOVA would
otherwise receive less than 75% cash in exchange for shares of Dynegy common
stock, Chevron USA has agreed to increase its investment, up to a maximum of
$240 million. As a result of these repurchase transactions, Chevron USA's
ownership interest in New Dynegy upon completion of the Transaction will be
approximately 28%. Chevron Corp. and Chevron USA will seek relief from the
registration requirements of the Act pursuant to Section 3(a)(3) of the Act.
Pursuant to an amendment to New Dynegy's Articles of Incorporation
(which has been filed with the State of Illinois) and a related shareholder
agreement among Dynegy, New
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/13/ The New Dynegy Common Stock consists of Class A Common Stock and Class B
Common Stock. As used herein, the term "Common Stock" refers to the New Dynegy
Class A and Class B Common Stock collectively.
/14/ Chevron has agreed to receive all stock in the Transaction. BG and NOVA
have, directly or indirectly, elected to receive all cash.
/15/ NOVA and BG, as well as the management and the public shareholders of
Dynegy will receive New Dynegy Class A Common Stock that will be registered
under the Securities Act of 1933, as amended (the "Securities Act"), and listed
on the New York Stock Exchange. Chevron USA will receive only Class B Common
Stock and will own no Class A Common Stock unless and until its Class B Common
Stock is converted in accordance with the New Dynegy Articles of Incorporation.
The issuance of Class B Common Stock to Chevron USA will be a transaction exempt
from registration under the Securities Act and the New Dynegy Class B Common
stock is otherwise subject to the federal securities laws. The terms of all of
the issuances of New Dynegy securities in the Transaction have been disclosed to
the public and to the shareholders of Dynegy and Illinova in the New Dynegy
Registration Statement filed with the Commission.
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Dynegy, Illinova, and Chevron USA dated June 14, 1999 (the "Shareholder
Agreement"), so long as Chevron USA owns at least 15% of New Dynegy Common
Stock, Chevron USA shall be entitled to elect three of the fourteen members of
the New Dynegy Board of Directors as Chevron USA's representatives (the "Chevron
Directors") through voting its Class B Common Stock. Because the holders of
Class A Common Stock vote as a separate class for the other eleven directors,
Chevron USA has no voice in the selection of such directors and will have no
representative on New Dynegy's Nominating Committee, which will propose such
directors for election by the holders of Class A Stock. When Chevron USA ceases
to own at least 15% of New Dynegy Common Stock, its New Dynegy Class B Common
Stock will automatically convert to New Dynegy Class A Common Stock and Chevron
USA will no longer have an exclusive right to elect three members of New
Dynegy's Board of Directors./16/
Under New Dynegy's Articles of Incorporation, Chevron USA shall not be
entitled to any more than three representatives on New Dynegy's Board as long as
it does not own more than 40% of the outstanding shares of New Dynegy. The
Shareholder Agreement provides that Chevron USA may not seek to acquire more
than 40% of the outstanding Common Stock of New Dynegy within one year after the
closing of the Transaction unless a third party seeks to acquire more than 15%
of such Common Stock. Thereafter, Chevron USA may only acquire more than 40% of
New Dynegy's Common Stock if it offers to acquire all of the outstanding voting
securities of New Dynegy. Any such offer by Chevron USA is subject to a
detailed process which gives the New Dynegy Board the ability to solicit
competing offers and obligates Chevron USA to sell its stake in the event it is
not the winning bidder. In consideration of the consequences to New Dynegy of a
sale by Chevron USA of its significant equity position, the Shareholder
Agreement also imposes restrictions on sales by Chevron USA of its shares in New
Dynegy.
To protect its strategic investment in New Dynegy, Chevron has
negotiated for certain provisions in the Articles of Incorporation of New
Dynegy. The Articles of Incorporation of New Dynegy carry forward and contain
provisions in Illinova's current articles of incorporation whereby, consistent
with Illinois corporate law and practice, a two-thirds vote will be required to
approve certain major transactions, including mergers, consolidations, sales of
assets, and liquidation. In addition, if all Chevron Directors present at a
meeting vote to do so, they will have the authority under New Dynegy's Bylaws to
"block" New Dynegy from entering into taking certain actions, so long as Chevron
USA owns New Dynegy Class B Common Stock, including (i) a sale of all or
substantially all of the liquids business or the gas marketing business of New
Dynegy so long as Chevron USA's long-term sale contracts with New Dynegy remain
in effect, and (ii) mergers, acquisitions, and other business combinations,
sales of businesses or assets, and major transactions, including joint ventures,
in which such transactions are valued over $1 billion or one-quarter of New
Dynegy's market capitalization, whichever is greater.
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/16/ The Articles of Incorporation of New Dynegy contain provisions for
cumulative voting by holders of the Class A Common Stock, generally, and
therefore Chevron USA might, even with less than 15% of New Dynegy Common Stock,
elect one or more members of New Dynegy's Board of Directors, but will have no
right to have its designees put forward as nominees and could not in such event
reasonably expect to elect more than three of the fourteen directors.
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While these are customary minority-protection rights, Chevron's
exercise of these rights is limited by other provisions. Under the Shareholder
Agreement, if Chevron USA exercises such rights twice within a 24-month period
or three times during any time period, either at the Board of Directors level or
on the shareholder level (other than to block changes to the constituent
instruments of New Dynegy which would materially affect such rights), New Dynegy
will have certain rights to purchase Chevron USA's shares or require Chevron USA
either to sell its shares of New Dynegy to a third party or to give up any
future blocking rights.
All requisite corporate and shareholder approvals for the Transaction have
been obtained. Specifically, the Illinova Board of Directors approved the
Transaction on June 13, 1999, the Dynegy Board of Directors approved the
Transaction on June 14, 1999, and the shareholders of Illinova and Dynegy
approved the Transaction on October 11, 1999.
C. REASONS FOR THE TRANSACTION
Applicants are seeking authority for the Transaction in order to
enhance the efficiency of their operations consistent with applicable state and
federal law, and particularly state and federal regulatory changes implementing
competitive power generation and energy services and nondiscriminatory power
delivery services on an open access basis.
Illinova seeks this business combination with Dynegy and to conduct
its public-utility operations as described herein in order to achieve a number
of financial, managerial and operating benefits that will position Illinova and
Illinois Power to compete in the increasingly competitive wholesale and retail
energy markets that have developed as a result of state and federal regulatory
change. In these restructured markets, Illinova expects that customers, whether
wholesale or retail, will purchase generated electricity separately from
transportation (transmission and distribution) services. In the case of
electricity, recently enacted Illinois legislation provides that customers will
have a choice in selecting their electricity provider, regardless of the
geographic proximity of the source of physical generation to the customer. It
is likely that the retail natural gas service market will soon function in a
similar manner.
Illinova believes Dynegy will complement the utility operations of
Illinois Power and allow Illinova to combine its small energy trading operations
with the larger trading and marketing operations of Dynegy. A broader slate of
energy products and an effective marketing organization will permit Illinova to
remain competitive both for customers and for capital needed for exempt
operations and public-utility company operations. Maintaining a viable energy
business affiliated with Illinova's public-utility company operations will help
assure that consumers receive reliable service at competitive, market-driven
prices. The Transaction will result in an infusion of equity capital and the
formation by the merged firm of a robust energy generation and marketing
business. This development, occurring in the wake of Illinova's quasi-
reorganization, will enable Illinova to maintain competitive viability and the
ability to attract capital at a reasonable cost. Illinova believes that as a
result of the Transaction, the energy-related operations of New Dynegy will
contribute significantly toward lowering the overall cost of
11
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the restructured utility service received by consumers in Illinois, and that
Illinova will achieve improved earnings for investors./17/
Dynegy believes that the Transaction will advance its strategic plan
through the addition of strategically located generation assets, which will
enable Dynegy to enhance its position as one of the nation's leading energy
merchants. Dynegy believes that a marketing enterprise such as Dynegy can
achieve a greatly enhanced value through a combination with a traditional
public-utility system that possesses a substantial installed base of generation
and substantial management experience with the ownership and operation of power
generation./18/
ITEM 2. FEES, COMMISSIONS, AND EXPENSES
The fees, commissions, and expenses to be paid or incurred, directly
or indirectly by all parties, in connection with the Transaction are estimated
to total approximately $46 million, including investment bankers' fees of
approximately $29 million.
ITEM 3. APPLICABLE STATUTORY PROVISIONS
Applicants seek approval to effectuate the Transaction and to conduct
their public utility operations in the fashion stated herein pursuant to
Sections 9(a)(2) and 10 of the Act, subject to the requisite approvals of the
FERC and ICC.
Various Commission decisions have stated that a single stock
acquisition that results in an interest in a holding company with multiple
public-utility company subsidiaries requires approval under Section 9(a)(2)./19/
Assuming that a single stock acquisition by entities not currently affiliated
with any public-utility companies that results in multiple affiliations solely
with subsidiary companies ordinarily would trigger Section 9(a)(2), approval
should be granted based upon satisfaction of all of the requirements of Section
10 of the Act.
The discussion above amply demonstrates that the Transaction is
consistent with the public interest. The Applicants are undertaking a
transaction that is consistent with integrated public-utility operations and
state and federal regulatory initiatives and requirements pertaining to those
operations. The Transaction is designed to achieve a number of operational,
financial and
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/17/ An expanded discussion of Illinova's reasons for entering into the
Transaction is set forth in the New Dynegy Registration Statement at
pages 39-41.
/18/ An expanded discussion of Dynegy's reasons for entering into the
Transaction is set forth in the New Dynegy Registration Statement at
pages 37-39.
/19/ See Coral Petroleum, Holding Co. Act Release No. 21632 at n.9 (June 19,
1980). An alternative construction of the last clause of Section 9(a)(2) would
require the acquiring company to be affiliated with one public-utility or
holding company prior to a single acquisition resulting in an additional
affiliation.
12
<PAGE>
management benefits pertaining to those operations. Accordingly, the Transaction
satisfies the standards articulated by the Commission for approval under
Sections 9(a)(2) and 10 of the Act./20/
This Application and the referenced filings with the Commission fully
disclose the terms and conditions of the Transaction. The Transaction has been
approved by the shareholders of Illinova and Dynegy. There is no basis for the
Commission to make any of the negative findings under Section 10(b) of the Act.
No concentration of control of public-utility companies will result. No public-
utility companies are involved in the Transaction other than the integrated
system that exists today under Illinova's ownership. The parties have been
advised by professional investment advisors that the consideration is fair and
deem the consideration to be fair./21/ The fees and commissions bear a fair
value to the sums invested and the earning capabilities of the utility assets
and are reasonable for a transaction of this size and difficulty to execute.
Finally, the resulting capital structure is not unduly complex but instead
results from the legal requirements associated with a merger of this nature. In
particular, the issuance of a second class of Common Stock, the Class B Common
Stock exclusively issued to Chevron USA, is responsive to the role of Chevron
USA as a strategic investor, as are the related provisions of the Shareholder
Agreement that define and limit the voting rights retained by Chevron USA. The
Transaction does not affect the mortgage debt of Illinois Power, which continues
to be secured by liens on its physical property, or the rights of the holders of
that debt or of other debt issued by Illinois Power. The Transaction also does
not affect the rights of the holders of debt issued by Dynegy. The Transaction
structure and terms are fully disclosed through public filings to the investing
public, the FERC, the Commission, and the State of Illinois.
Pursuant to the authority sought herein, all of the public-utility
company assets owned or controlled by New Dynegy will remain in Illinois and
subject to pervasive and effective state and federal regulation. The State of
Illinois regulates public-utilities through comprehensive legislation and
authority delegated to the ICC, principally through the Illinois Public
Utilities Act, originally enacted in 1913 and reenacted several times hence./22/
Both the retail electric power service and natural gas service of Illinois Power
fall within ICC regulatory jurisdiction./23/ The ICC is charged with the
"general supervision" of public-utilities./24/ Illinois law imposes extensive
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/20/ Roanoke Gas Co., Holding Co. Act Release No. 26996 (Apr. 1, 1999); BEC
Energy, Holding Co. Act Release No. 26874 (May 15, 1998); WPL Holdings, Inc.,
Holding Co. Act Release No. 35377 (Sept. 18, 1991).
/21/ Lehman Brothers advised Dynegy in an opinion dated June 14, 1999, contained
in the New Dynegy Registration Statement. Berenson Minella & Company advised
Illinova. Its June 13, 1999 opinion is also included in the New Dynegy
Registration Statement. The New Dynegy Registration Statement includes an
extensive discussion of the grounds for these respective opinions.
/22/ 220 Ill. Comp. Stat. 5/1-101 1999) et seq.; see also, e.g., Alton Water Co.
v. Illinois Commerce Comm'n, 279 F. 869 (7th Cir. 1922) (acknowledging
legislative delegation to ICC); AES Corp., Holding Co. Act Release No. 27063 at
n.23 & Section III (Aug. 20, 1999) (discussing authority of ICC over public
utilities).
/23/ 220 Ill. Comp. Stat. 5/3-105 a,c.
/24/ 220 Ill. Comp. Stat. 5/4-101.
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<PAGE>
accounting and reporting requirements upon public-utilities/25/ The ICC has
jurisdiction over the capitalization of public-utilities and the use of
financing proceeds./26/ Unlike some states, the State of Illinois has delegated
express authority to the ICC to regulate inter-corporate relations, including
transactions between public-utilities such as Illinois Power and its affiliated
interests./27/ Unlike many state public service commissions, the ICC has the
express authority to regulate public-utility dividend payments where the public-
utility's capital is or otherwise would be impaired or where earned surplus is
insufficient./28/ Unlike many states, the ICC must approve coordination
agreements among utilities, the acquisition of public-utility assets by public-
utilities, the disposition of public-utility assets of a tangible and intangible
nature, mergers or consolidations of public-utilities, utility acquisitions of
the securities of public-utilities, guarantees, advances of funds, and certain
sales of real property having a sale price or annual consideration greater than
$5,000,000./29/ Illinois law requires nondiscriminatory access to power delivery
systems if and when such access is provided to affiliates that make energy sales
at market-based prices./30/ Illinois law regulates extensions of public-utility
systems and generating plant additions pursuant to a system of issuing,
reviewing, and amending certificates of public convenience and necessity./31/
Unlike many states, Illinois law expressly addresses diversification by public-
utilities in order to prevent cross-subsidy inconsistent with the public
interest and to avoid impairment of public-utility service./32/ Illinois law
vests the ICC with comprehensive regulatory authority over the rates, terms, and
conditions of service provided by electric and gas public-utilities./33/
Following passage of the Energy Policy Act of 1992, the FERC has
encouraged and required open access transmission service. In compliance with
FERC requirements, Illinois Power has an open access transmission tariff in
place that functionally separates, or "unbundles," transmission service from
power generation sales. As a result of the presence of competition in wholesale
power markets, the absence of barriers to entry, and Illinova's commitment to
FERC Codes of Conduct that prevent affiliate abuses and cross-subsidy, the FERC
has authorized
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/25/ 220 Ill. Comp. Stat. 5/5-101-109.
/26/ 220 Ill. Comp. Stat. 5/6-101-108.
/27/ 220 Ill. Comp. Stat. 5/7-101, 16-121.
/28/ 220 Ill. Comp. Stat. 5/7-103.
/29/ 220 Ill. Comp. Stat. 5/7-102, 7-204.
/30/ 220 Ill. Comp. Stat. 5/7-108.
/31/ 220 Ill. Comp. Stat. 5/8-406-407.
/32/ 220 Ill. Comp. Stat. 5/7-106, 205-206.
/33/ 220 Ill. Comp. Stat. 5/8-101 et seq.; 220 Ill. Comp. Stat. 5/9-101 et seq.
14
<PAGE>
Illinois Power and its affiliated power marketer to sell power at wholesale at
rates set by market forces./34/
Illinois Power has joined eight other regional public-utilities in
ceding operational control of their transmission systems to a regional
Independent System Operator; the Midwest Independent Transmission System
Operator (the "Midwest ISO"). The other participants in the Midwest ISO are the
following: Ameren Power Services Company; Southern Illinois Power Cooperative;
Commonwealth Edison Company; Central Illinois Light Company; Electric Energy,
Inc.; City of Springfield, Illinois; Western Illinois Power Cooperative; and
Soyland Power Corporation./35/
Federal regulation and restructuring greatly amplifies the effect of
state-sponsored utility restructuring of Illinova. Centrally located and
abutting several major interstate public-utility systems, Illinois Power has
long been subject to electric power transmission interconnection regulation by
the Federal Power Commission and FERC./36 As a result of transmission access and
the operational integration and interconnection of Illinois Power's power
delivery system to many major public-utility systems,/37/ retail sales of
electricity in Illinois will be subject to active competition by many power
marketers, including many major interstate public-utility systems./38/
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/34/ Illinova Power Marketing, Inc., 79 FERC (P) 61,016 (1997); Illinova Power
Marketing, Inc., 73 FERC (P) 61,371 (1995).
/35/ See Exhibit D.1, at 5-6.
/36/ The authority to compel interconnections was included in Section 202(b) of
the Federal Power Act as enacted in 1935. 16 U.S.C. 824a(b).
/37/ Illinois Power is interconnected to the utilities located within four major
regions of the North American Electric Reliability Council. Illinois Power is a
member of the Mid-American Interconnected Network ("MAIN"). Illinois Power's
Transmission system is interconnected to the following members of MAIN: Ameren
Power Services; Central Illinois Lighting Co.; Cinergy Services, Inc.;
Commonwealth Edison Company, Hoosier Energy; Louisville Gas & Electric Company;
Wabash Valley; and Wisconsin Electric Power Company.
Illinois Power is also interconnected to the East Central Area Reliability
Coordination subregion through interconnections it maintains with Louisville Gas
& Electric Company and American Electric Power Company. Illinois Power is also
interconnected to the Mid-continent Area Power Pool through its transmission
interconnection with MidAmerican Energy Company. Finally, Illinois Power is
interconnected to the public-utilities located in the Southeastern Electric
Reliability Council through its transmission interconnection with the Tennessee
Valley Authority.
/38/ Within this context, FERC has already approved as consistent with the
public interest the merger of two large independent power companies (AES and
CalEnergy) with exempt projects with Illinois public utilities. Central Illinois
Light Co., 87 FERC (P) 61,293 (1999); Mid-America Energy Co., 85 FERC (P) 61,354
(1998).
15
<PAGE>
The Transaction threatens none of the evils enumerated in Section
1(b)(1)-(5) of the Act./39/ With respect to the first concern of the Act, the
absence of accurate investor information and the problem of "overcapitalization"
of public-utility systems without sufficient state regulation, the Commission
has found that concerns "with respect to investors have been largely addressed
by developments in the federal securities laws and in the securities markets
themselves. . . ."/40/
The State of Illinois, through the ICC, closely regulates the
capitalization of public-utilities/41/ and has the express authority to restrict
dividend payments if the public-utility's capital is or would become impaired or
if its earned surplus is insufficient./42/ Furthermore, the securities of
Illinova, Dynegy, and Chevron Corp., as well as the bonds and preferred stock of
Illinois Power are all publicly traded. Accordingly, the Transaction presents
none of the problems, risks, or evils identified by Section 1(b)(1) of the Act.
Second, the structure poses no risk of abusive affiliate transactions
and facilitates regulatory oversight of the relationship between power delivery
service and competitive power generation and energy services. The State of
Illinois has comprehensive oversight of affiliate transactions./43/ In addition,
FERC requirements associated with market-based wholesale rate transactions are
applicable to the Transaction./44/ The Commission has recognized that a
"comprehensive state system," such as that in effect in Illinois,/45/ "is fully
able to protect the
- ---------------------
/39/ These evils are: (1) the absence of investor information and the issuance
of "overcapitalized" public-utility securities without sufficient state
regulation; (2) abusive and excessive consumer charges to fund affiliate
transactions; (3) the obstruction of state regulation of public-utilities and
their subsidiaries and the exercise of control over subsidiaries through
disproportionately small investment; (4) holding company growth out of
proportion with management and operation, or integration and coordination of
related operating properties; and (5) the lack of economy of management,
efficiency or adequacy of services in the public-utility industry, or the lack
of effective public regulation thereof.
/40/ Southern Co., Holding Co. Act Release No. 25639 (Sept. 23, 1992).
/41/ 220 Ill. Comp. Stat. 5/6-101-108.
/42/ 220 Ill. Comp. Stat. 5/7-103.
/43/ 220 Ill. Comp. Stat. 5/7-101, 16-121.
/44/ FERC has erected comprehensive protections against cross-subsidies by
requiring adherence to a "code of conduct" governing transactions between the
franchise-owning public utility and its unregulated marketing affiliates. These
code of conduct requirements have specifically been applied to Illinova. See
Illinova Power Marketing, Inc., 79 FERC (P) 61,010 (Feb. 1997) and cases cited
therein.
/45/ AES Corp., Holding Co. Act Release No. 27063 at 58 (Aug. 20, 1999). The
comprehensive scope of regulation under the laws of the State of Illinois is
also acknowledged in the "Survey of State Regulation of Public Utility Holding
Companies," published as Appendix A to The Regulation of Public-Utility Holding
Companies, Division of Investment Management, United States Securities and
Exchange Commission (June 1995).
16
<PAGE>
financial integrity of the public utility operating within its jurisdiction to
assure that neither utility revenues (other than reasonable and proper
dividends), utility assets, or utility credit are used for non-utility purposes
except in accordance with prescribed guidelines or following review and approval
by state regulators. The states also appear to have adequate authority to
regulate transactions between the utility and its affiliates to prevent the type
of overreaching that characterized so many holding company systems prior to
1935."/46/ Thus, there is no risk of abusive affiliate transactions between the
involved entities following the Transaction.
Third, the structure of the Transaction poses no risk of obstruction
of state regulation of public-utility company subsidiaries and the exertion of
control over such subsidiaries through disproportionately small investment. As
shown above, the State of Illinois has a comprehensive regulatory apparatus in
place that is not affected by the Transaction. The public-utility assets of the
three public-utility subsidiaries of New Dynegy, Illinois Power, EEInc, and
Illinova Marketing, are all located in the State of Illinois. Their operations
are subject to comprehensive ICC jurisdiction and to FERC regulation of
wholesale electric power service and electric power transmission service.
Fourth, the structure poses no risk of holding company growth that
"bears no relation to economy of management and operation or the integration and
coordination of related operating properties." The properties of Illinova's
public-utility subsidiaries are not affected by the Transaction. They will
continue to operate as a coordinated and integrated system, consistent with
Section 10(c) of the Act.
Finally, Section 1(b)(5) of the Act addresses the situation where "in
any other respect there is a lack of economy of management and operation of
public-utility companies or lack of efficiency and adequacy of service rendered
by such companies, or lack of effective regulation, or lack of economies of
raising capital." The Transaction enables Illinova to obtain the capital assets
needed to conduct an efficient energy marketing business essential to modern
utility service and does not threaten any adverse effects upon public-utility
operations.
With respect to Section 10 of the Act, the public-utility system of
Illinova will continue to be integrated and its integrated operation will be
enhanced by the immediate injection of substantial equity capital by Chevron and
by the prospect of improved management, improved operations and a lower cost of
capital due to merging a successful energy-related and exempt generation
business into the holding company. WPL Holdings/47/ held that achieving an
improved ability to attract capital is a sufficient enhancement of an integrated
system to warrant approval under Section 10 of the Act. The strengthening of
Illinova is particularly responsive to the market
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/46/ Statement of the U.S. Securities and Exchange Commission Concerning
Proposals to Repeal The Public Utility Holding Company Act of 1935 (June 2,
1982) 590-91 [hereinafter "Statement of SEC Regarding PUHCA Repeal"]. In
reaching its conclusion that state regulation was adequate to the task of
preventing affiliate abuse, the Commission specifically referenced Natural Gas
Pipeline Co. v. Slattery, 302 U.S. 300 (1937), affirming the Illinois regulatory
system's oversight over affiliate transactions. See Statement of SEC Regarding
PUHCA Repeal at 585.
/47/ WPL Holdings, Inc., Holding Co. Act Release No. 25377 (Sept. 18, 1991).
17
<PAGE>
structure adopted by the State of Illinois. The State of Illinois has enacted a
legislative scheme that depends upon the efficient operation of market forces to
assure abundant and low cost energy, and electric utility service in particular.
The market structure created by Illinois law depends on the performance of the
new energy suppliers identified by the Commission in Consolidated Natural Gas
Co.:
[F]undamental changes in the energy industry are leading to an
increasingly competitive and integrated market, in which marketers
deal in interchangeable units of energy expressed in British thermal
unit values, rather than natural gas or electricity. To retain and
attract wholesale and industrial customers, utilities need to provide
competitively priced power and related customer services . . . . It
appears that the restructuring of the electricity industry now
underway will dramatically affect all United States energy markets as
a result of growing interdependence of natural gas transmission and
electric generation; and the interchangeability of different forms of
energy, particularly gas and electricity./48/
The combination of Dynegy with Illinova will allow Illinova to
participate vigorously in competitive energy markets that the Commission has
recognized as essential to efficient utility service and as part of the future
of the industry. Accordingly, the Transaction satisfies the standards
articulated by the Commission for approval under Section 9(a)(2) and Section 10
of the Act./49/
ITEM 4. REGULATORY APPROVAL
The Transaction has been reviewed and approved by the FERC under the
Federal Power Act ("FPA"). On July 23, 1999, Dynegy and Illinova filed a joint
application with the FERC requesting that it approve the Transaction under
Section 203 of the FPA. Under Section 203, FERC approves mergers if it finds
that they are "consistent with the public interest." In reviewing a merger, the
FERC generally evaluates whether the merger will (i) adversely affect
competition; (ii) adversely affect rates to captive wholesale customers; or
(iii) impair the effectiveness of regulation. Following the Transaction, the
FERC will have continuing jurisdiction over New Dynegy's power marketing
business and over Illinois Power and Illinova Marketing with respect to, inter
alia, rates, terms, and conditions for wholesale sales and transmission
transactions (including those with affiliates), and continuing jurisdiction over
the disposition and consolidation of utility assets and interlocking
directorates. On November 10, 1999, the FERC approved the merger in FERC Docket
No. EC99-99-000.
- ----------------
/48/ Consolidated Natural Gas Co., Holding Co. Act Release No. 26512 (Apr. 30,
1996).
/49/ Roanoke Gas Co., Holding Co. Act Release No. 26996 (Apr. 1, 1999); BEC
Energy, Holding Co. Act Release No. 26874 (May 15, 1998); WPL Holdings, Holding
Co. Act Release No. 35377 (Sept. 18, 1991).
18
<PAGE>
Illinois Power is currently subject to the jurisdiction of the ICC.
Illinois Power filed notice of the Transaction as it affects Illinois Power's
electric system on August 13, 1999 with the ICC, along with a voluntary
application with the ICC for approval of the Transaction with respect to the
change of control over Illinois Power's gas utility. The required approval was
obtained on November 23, 1999 in ICC docket 99-0419. Following the Transaction,
the ICC will retain its applicable authority over the rates, services provided
by, and dividends of the public-utility subsidiaries of Illinova, their
transactions with affiliates, and FERC will exercise jurisdiction over wholesale
electric power sales and electric power transmission service in interstate
commerce.
Chevron Corp., Dynegy, and Illinova have each made the necessary
filings with the Department of Justice and the Federal Trade Commission under
the Hart Scott-Rodino Antitrust Improvements Act of 1976. On August 24, 1999,
the Federal Trade Commission informed each of the parties that early termination
of the waiting periods under such filings has been granted.
ITEM 5. PROCEDURE
The Applicants hereby (i) waive a recommended decision by a hearing
officer or any other responsible officer of the Commission; and (ii) agree that
the Division of Investment Management may assist in the preparation of the
decision of the Commission.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
Exhibits
Exhibit A: Constituent Instruments
A.1: Articles of Incorporation of New Dynegy (previously filed with
the Commission as Exhibit A.1 to Amendment No. 2 to Application
on Form U-1 of Chevron Corporation (Commission File No. 1-368-2),
Illinova Corporation (Commission File No. 1-11327), and Chevron
U.S.A. Inc, filed on November 19, 1999 and incorporated by
reference herein)
A.2: Attachment to Articles of Incorporation of New Dynegy (previously
filed with the Commission as Exhibit A. 2 to Amendment No. 2 to
Application on Form U-1 of Chevron Corporation (Commission File
No. 1-368-2), Illinova Corporation (Commission File No. 1-11327),
and Chevron U.S.A. Inc, filed on November 19, 1999 and
incorporated by reference herein)
A.3: By-laws of New Dynegy (previously filed with the Commission as
Exhibit 99.1 to Current Report on Form 8-K of Dynegy (Commission
File No. 1-11156), filed June 14, 1999 and incorporated by
reference herein)
Exhibit B: Transaction Documents
B.1: Agreement and Plan of Merger (previously filed with the
Commission as Exhibit 2.1 to Current Report on Form 8-K of Dynegy
(Commission File No. 1-11156), filed June 14, 1999 and
incorporated by reference herein)
B.2: Subscription Agreement between Chevron USA and New Dynegy
(previously filed with the Commission as Exhibit 10.1 to Current
Report on Form 8-K of Dynegy (Commission File No. 1-11156), filed
June 14, 1999 and incorporated by reference herein)
B.3: Shareholder Agreement among New Dynegy, Illinova, Dynegy, and
Chevron USA (previously filed with the Commission as Exhibit
19
<PAGE>
10.6 to Current Report on Form 8-K of Dynegy (Commission
File No. 1-11156), filed June 14, 1999 and incorporated by
reference herein)
B.4: Stock Purchase Agreement between New Dynegy and British Gas
Atlantic Holdings BV (previously filed with the Commission as
Exhibit 10.2 to Current Report on Form 8-K of Dynegy (Commission
File No. 1-11156), filed June 14, 1999 and incorporated by
reference herein)
B.5: Registration Rights Agreement among New Dynegy, British Gas
Atlantic Holdings BV, and NOVA (previously filed with the
Commission as Exhibit 10.7 to Current Report on Form 8-K of
Dynegy (Commission File No. 1-11156), filed June 14, 1999 and
incorporated by reference herein)
B.6: Registration Rights Agreement between New Dynegy and Chevron USA
(previously filed with the Commission as Exhibit 10.8 to Current
Report on Form 8-K of Dynegy Inc. (Commission File No. 1-11156),
filed June 14, 1999 and incorporated by reference herein)
B.7: Voting Agreement between Illinova and BG (previously filed with
the Commission as Exhibit 10.3 to Current Report on Form 8-K of
Dynegy (Commission File No. 1-11156), filed June 14, 1999 and
incorporated by reference herein)
B.8: Voting Agreement between Illinova and Chevron USA (previously
filed with the Commission as Exhibit 10.5 to Current Report on
Form 8-K of Dynegy (Commission File No. 1-11156), filed June 14,
1999 and incorporated by reference herein)
B.9: Voting Agreement between Illinova and NOVA (previously filed with
the Commission as Exhibit 20.4 to Current Report on Form 8-K of
Dynegy (Commission File No. 1-11156), filed June 14, 1999 and
incorporated by reference herein)
Exhibit C: Intentionally omitted, not applicable
Exhibit D: Applications and Orders of Certain Commissions listed in Item 4
D.1: Joint Application of Illinova and Dynegy for Approval of Merger
and Request for Expedited Consideration, FERC Docket
No. EC99-99-000 (July 23, 1999)
D.2: Application of Illinois Power for Expedited Approval of a
Reorganization of the Gas Utility and Approval of an Interim
Services and Facilities Agreement, ICC Docket No. 99-0419,
(Aug. 12, 1999)
Exhibit E: Organizational Chart of New Dynegy
Exhibit F: Intentionally omitted, not applicable
Exhibit G: Financial Data Schedules
20
<PAGE>
G.1: Annual Report on Form 10-K of Chevron Corporation (Commission
File No. 1-368-2) for the fiscal year ended December 31, 1998
(previously filed with the Commission on March 31, 1999 and
incorporated by reference herein)
G.2: Quarterly Report on Form 10-Q of Chevron Corporation (Commission
File No. 1-368-2) for the quarterly period ended September 30,
1999 (previously filed with the Commission on November 4, 1999
and incorporated by reference herein)
G.3: Annual Report on Form 10-K of Illinova Corporation (Commission
File Number 1-11327) and Illinois Power Company (Commission File
Number 1-3004) for the fiscal year ended December 31, 1998
(previously filed with the Commission on March 29, 1999 and
incorporated by reference herein)
G.4: Quarterly Report on Form 10-Q of Illinova Corporation (Commission
File Number 1-11327) and Illinois Power Company (Commission File
Number 1-3004) for the quarterly period ended September 30, 1999
(previously filed with the Commission on November 15, 1999 and
incorporated by reference herein)
Exhibit H: Joint Press Release of Dynegy and Illinova (previously filed with
the Commission as Exhibit 99.2 to Current Report on Form 8-K of
Dynegy (Commission File No. 1-11156), filed June 14, 1999 and
incorporated by reference herein)
Exhibit I: Amendment No. 1 to Registration Statement under the Securities Act
of 1933 on Form S-4 of New Dynegy (Registration No. 333-84965)
(previously filed with the Commission on September 7, 1999 and
incorporated by reference herein)
Exhibit J: Intentionally omitted
Financial Statements
1. Statement of Applicants.
Reference is made to the following documents, each of which is
incorporated by reference herein: (i) Annual Report on Form 10-K of Chevron
Corporation (Commission File Number 1-368-2) for the fiscal year ended December
31, 1998, filed on March 31, 1999; (ii) Amendment No. 1 to Quarterly Report on
Form 10-Q of Chevron Corporation (Commission File Number 1-368-2) for the
quarterly period ended June 30, 1999, filed on August 5, 1999; (iii) Annual
Report on Form 10-K of Illinova Corporation (Commission File Number 1-11327) and
Illinois Power Company (Commission File Number 1-3004) for the fiscal year ended
December 31, 1998 filed on March 29, 1999; and (iv) Quarterly Report on
Form 10-Q of Illinova
21
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Corporation (Commission File Number 1-11327) and Illinois Power Company
(Commission File Number 1-3004) for the quarterly period ended June 30, 1999,
filed on August 16, 1999.
2. Statements of Top Registered Holding Company.
None.
3. Statements of Company Whose Securities Are Being Acquired or Sold.
Reference is made to the following documents, each of which is
incorporated by reference herein: (i) Annual Report on Form 10-K of Dynegy Inc.
(Commission File Number 1-11156) for the fiscal year ended December 31, 1998,
filed on March 30, 1999; (ii) Quarterly Report on Form 10-Q of Dynegy Inc.
(Commission File Number 1-11156) for the quarterly period ended September 30,
1999, filed on November 15, 1999; and (iii) Amendment No. 1 to Registration
Statement under the Securities Act of 1933 on Form S-4 of Energy Convergence
Holding Company (Registration No. 333- 84965), filed with the Commission on
September 7, 1999.
4. Statement of Changes.
None.
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
The Transaction, a corporate merger, neither involves a "major federal
action" nor "significantly affects the quality of the human environment," as
those terms are used in Section 102(2)(c) of the National Environmental Policy
Act. Consummation of the Transaction will not result in changes in the
operations of the parties that would have any impact on the environment. No
federal agency is preparing an Environmental Impact Statement with respect to
this matter.
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SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned companies have duly caused this statement to be signed
on their behalf by the undersigned thereunto duly authorized.
Date: ____________________
CHEVRON CORPORATION ILLINOVA CORPORATION
By: By:
------------------------------ ------------------------------
Peter J. Robertson Larry F. Altenbaumer
Vice-President Senior Vice President,
Chief Financial Officer
Treasurer, and Controller
ENERGY CONVERGENCE HOLDING
CHEVRON U.S.A. INC. COMPANY
By: By:
------------------------------ ------------------------------
Peter J. Robertson Larry F. Altenbaumer
Executive Vice-President Vice President and Secretary
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