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File No. 70-9553
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM U-1
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AMENDMENT NO. 4
(POST-EFFECTIVE AMENDMENT NO. 1)
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.
1301 McKinney
Houston, Texas 77010
(Name of companies filing this statement and address of principal executive
offices)
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None
(Name of top registered holding company parent of each applicant or declarant)
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David R. Stevenson William B. Conway, Jr.
Associate General Counsel Senior Vice President and Chief Legal Officer
Chevron Law Department Illinova Corporation
Chevron U.S.A. Inc. 500 South 27th Street
P.O. Box 3725 Decatur, Illinois 62521-2200
Houston, Texas 77253-3725
(Names and addresses of agents for service)
Total Number of pages: 35
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The Commission is also requested to send copies
of any communications in connection with this matter to:
For Chevron and Chevron USA: For Illinova:
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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:
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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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TABLE OF CONTENTS
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INTRODUCTION AND REQUEST FOR ADDITIONAL COMMISSION ACTION..................... 1
Item 1. Description of Proposed Transaction................................... 1
A. The Participants...................................................... 1
1. Chevron Corporation ............................................... 1
2. Dynegy Inc. ....................................................... 3
3. Illinova Corporation .............................................. 4
4. Energy Convergence Holding Company ("New Dynegy") ................. 9
B. The Transaction....................................................... 9
C. Reasons for the Transaction........................................... 12
Item 2. Fees, Commissions and Expenses........................................ 13
Item 3. Applicable Statutory Provisions....................................... 13
A. The Section 3(a)(3) Exemption......................................... 13
B. Chevron Is Only Incidentally A Holding Company, Being Primarily
Engaged In A Business Other Than That Of A Public-Utility Company..... 15
1. The Transaction Satisfies The Plain Language of Section 3(a)(3).... 15
2. There Will Exist A Functional Relationship Between Chevron's
Business And The Public-Utility Operations Of New Dynegy........... 16
C. Chevron Will Not Derive A Material Part Of Its Income from The
Public-Utility Company Subsidiaries Of New Dynegy..................... 20
D. Illinova's Public-Utility Company Operations Satisfy Any Absolute
Size Limitation....................................................... 22
E. Granting The Exemption Is Consistent With The Public Interest And The
Legislative Intent That The Commission Apply Section 3 Of The Act
Flexibly.............................................................. 26
F. Granting The Exemption Is Consistent With Proper Interpretation and
Administration Of The Act Under Section 1(c).......................... 27
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Item 4. Regulatory Approval................................................... 29
Item 5. Procedure............................................................. 30
Item 6. Exhibits and Financial Statements..................................... 30
Item 7. Information as to Environmental Effects............................... 34
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Amendment No. 3 to the Application previously filed in this proceeding
is hereby amended and restated to read as follows:
INTRODUCTION AND REQUEST FOR ADDITIONAL COMMISSION ACTION
Chevron Corporation ("Chevron Corp."), its wholly-owned subsidiary,
Chevron U.S.A. Inc. ("Chevron USA"), n1 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") finding that, upon the consummation of the merger
transactions described in Item 1.B below (the "Transaction"), Chevron Corp. and
Chevron USA shall be exempt from all provisions of the Public Utility Holding
Company Act of 1935 (the "Act") other than Section 9(a)(2), pursuant to Section
3(a)(3) of the Act.
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION
For purposes of the relief requested herein, Applicants provide the
following description of the 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. n2 Chevron Corp.'s stock is listed on the New York, Chicago and
Pacific Stock Exchanges, and it is a reporting company under the Securities
Exchange Act of 1934, as amended.
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n1 Except where the context otherwise requires, Chevron Corp. and Chevron USA
are collectively referred to herein as "Chevron."
n2 Chevron Corp.'s petroleum operations consist of exploring for, developing,
and producing crude oil and natural gas; refining crude oil into 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. had annual revenues in 1998 of over $30 billion, with
average annual revenues over the last three years (1996-1998) of $38.8 billion.
These revenues yielded $1.34 billion net income in 1998, with a three-year
average net income of $2.4 billion.
Chevron Corp.'s largest business segments are its exploration and
production operations and its refining, marketing and transportation operations.
The petroleum activities of the company are widely dispersed geographically,
with upstream and downstream operations in the United States and Canada, and
upstream operations in Nigeria, Angola, Australia, the United Kingdom,
Kazakhstan, Thailand, Indonesia, Norway, Republic of Congo, China and Venezuela.
The company's chemical operations are concentrated in the United States, but
also include manufacturing facilities in France, Japan, Brazil, Singapore and
Mexico. Additionally, chemical manufacturing facilities are under construction
in China and Saudi Arabia.
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 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 transporting 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.
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. n3
Additional information regarding Chevron Corp. and its subsidiaries is
set forth in the following documents, each of which is incorporated herein by
reference:
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n3 Chevron Chemical Company ("Chemical"), a wholly-owned subsidiary of Chevron
USA, is considering the purchase from Entergy Gulf States ("Entergy") of its
Bunch Gully (138 KV) Substation, currently dedicated to supplying the power load
at Chemical's Orange, Texas plant. This purchase would eliminate monthly
added facilities payments and enable Chemical to control the substation
supplying the Orange plant. Entergy would require unrestricted use of the
through bus at no cost, which could result in Chemical's receiving adjustments
to certain fees charged by Entergy to the extent Entergy's use of the bus
increases maintenance costs or limits Chemical's use. As the substation is
integral to the Entergy grid, Entergy is likely to condition the sale to
Chemical on Entergy being able to flow power from time-to-time from one Entergy
transmission line through Chemical's 138 KV substation to a second Entergy
transmission line in order to supply other Entergy customers, without imposition
of any wheeling fee by Chemical. The documents are also likely to include a
"regulatory-out" provision requiring that, should any governmental authority
find the sale not in the public interest, the sale must be reversed or other
arrangements made.
2
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(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, a Delaware corporation, 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 maintains its principal place of business in Houston, 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. n4 Of the remaining outstanding voting stock of Dynegy,
11% is owned by management and the balance is publicly owned.
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
(the "Chevron Combination"). Effective July 1, 1997, NGC acquired Destec Energy,
Inc., an independent power producer. During 1998, NGC changed its name to Dynegy
Inc. Pursuant to agreements entered into as part of the Chevron Combination,
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 refineries and
chemical plants in the United States. n5
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n4 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.
n5 Chevron Corp. also enjoys certain business opportunities and benefits under
an Operating Agreement (the "Caltex Operating Agreement") with Texaco Inc.
("Texaco"), concerning Caltex Petroleum Corporation, a Delaware corporation
("Caltex"), that is a joint venture of Chevron Corp. and Texaco. Dynegy has
entered into a Scope of Business Agreement with Chevron Corp. relating to the
Caltex Operating Agreement, pursuant to which Dynegy and Chevron Corp.
facilitate discussion of Caltex-related commercial opportunities suitable for
exploitation in whole or in part by Dynegy. The Certificate of Incorporation of
Dynegy contains (and the Articles of Incorporation of New Dynegy will contain)
provisions precluding Dynegy from effecting a sale of petroleum products (other
than natural gas) intended for consumption or resale in certain parts of Africa,
most of Asia, Australia and other areas of the Pacific west of the International
Date Line, except pursuant to the process established by the Scope of Business
Agreement or as Chevron may otherwise approve in a shareholder vote.
Registration Statement on Form S-4 under the Securities Act of 1933 of Midstream
Combination Corp. (Registration No. 333-09419) at 25, 53, filed with the
Commission on August 1, 1996.
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Chevron understands that, as is the case with other industry
participants, Dynegy is presently pursuing an integrated wholesale energy
business strategy based on the convergence of energy markets. This strategy
exploits 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
No. 1-11156) for the fiscal year ended December 31, 1998, filed
on March 30, 1999;
(ii) Current Report on Form 8-K of Dynegy Inc. (Commission File
No. 1-11156), filed on June 14, 1999;
(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 on September 7, 1999 (the
"New Dynegy Registration Statement"); and
(iv) Quarterly Report on Form 10-Q of Dynegy Inc. (Commission File
No. 1-11156) for the quarterly period ended September 30, 1999,
filed on November 15, 1999.
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
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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, but resulted in a net
loss of $1.38 billion, largely attributable to a loss sustained by Illinois
Power. 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. n6
Illinova Marketing is an Illinois corporation and a wholly-owned
electric public-utility company subsidiary of Illinois. 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 restructuring of Illinois Power in this fashion. n7 The FERC
authorized these asset transfers and wholesale power sales in two recent orders.
n8 Illinova intends to convert Illinova Marketing to an EWG within the year
following closing of the Transaction.
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
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n6 Illinois Power recently completed the sale to Amergen Energy Company,
L.L.C. of the 930 MW nuclear generating facility located in Clinton, Illinois
(the "Clinton Facility") referred to in Amendment No. 3 to this Application. See
Amendment No. 3 to Application on Form U-1/A under the Public Utility Holding
Company Act of 1935 of Chevron Corporation, Chevron U.S.A. Inc. and Illinova
Corporation (Dec. 23, 1999) at 4.
n7 ICC Docket No. 99-0209 (July 8, 1999).
n8 Illinova Corp., 88 FERC (P) 62,229 (Sept. 10, 1999) (FERC jurisdictional
facilities transfer approval); Illinova Power Marketing, 88 FERC (P) 61,189
(Aug. 24, 1999) (effectiveness of wholesale power contracts).
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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 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." n9
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. It is not a public-utility company under the
Act. n10
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. n11 The legislation adopts a comprehensive approach to creating a
market mechanism to provide electric energy to consumers. The law contains the
following key provisions:
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.
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
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n9 Union Elec. 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).
n10 The other two, active subsidiaries of Illinova 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,
the primary business of which is to account 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.
n11 220 Ill. Comp. Stat. 5/16-101A (West 1999).
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Illinova approved by the ICC n12 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.
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 (or "stranded" costs)
minus statutorily prescribed mitigation factors during the transition
period established by Illinois law. Thus, the rates of Illinois Power
under the rate freeze include fuel, purchased power and transition
cost recovery.
Retail Choice: Since October 1, 1999, the following categories of
retail customers have been 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 were 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.
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
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n12 ICC Docket No. 99-0209 (July 8, 1999).
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pursuant to an ICC review process which must be completed within 90
days and which establishes specific criteria for ICC review.
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 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.
Illinois Power estimates that the regulatory changes initiated by the FERC and
the State of Illinois and Illinois Power's resulting restructuring will reduce
its gross utility plant account from the 1998 level of $6.168 billion n13 to
$2.8 billion in 2000 n14 and its electric revenues from the 1998 level of
$1.781 billion n15 to $1.154 billion in 2000. n16 Over half of the year 2000
revenues will constitute recovery of regulatory transition costs and purchased
power costs. 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.
Additional information regarding Illinova and its subsidiaries,
including Illinois Power, 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 No. 1-11327) and Illinois Power Company (Commission File
No. 1-3004) for the fiscal year ended December 31, 1998, filed
on March 29, 1999;
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n13 See Consolidated Balance Sheets, Annual Report on Form 10-K of Illinova
Corporation and Illinois Power Company for the fiscal year ended December 31,
1998, filed with the Commission on March 29, 1999.
n14 See Projected pro forma Balance Sheet of Illinois Power, 1996-2002
reflecting sale of Clinton Facility, attached hereto as Exhibit L-1.
n15 See Market Shares for Electric Companies in Illinois and Bordering States,
at 2, attached hereto as Exhibit N-6.
n16 See Projected pro forma Net Revenue Statement of Illinois Power, 1996-2002
reflecting sale of Clinton Facility, attached hereto as Exhibit L-2.
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(ii) Current Report on Form 8-K of Illinova Corporation (Commission
File No. 1-11327) and Illinois Power Company (Commission File
No. 1-3004), filed on June 18, 1999;
(iii) New Dynegy Registration Statement; and
(iv) Quarterly Report on Form 10-Q of Illinova Corporation
(Commission File No. 1-11327) and Illinois Power Company
(Commission File No. 1-3004) for the quarterly period ended
September 30, 1999, filed on November 15, 1999.
4. ENERGY CONVERGENCE HOLDING COMPANY ("NEW DYNEGY")
Energy Convergence Holding Company ("New Dynegy") is an Illinois
corporation formed for the purposes of effectuating the Transaction. n17 New
Dynegy currently has no material assets and no public-utility assets,
subsidiaries, or affiliates. Additional information regarding New Dynegy is set
forth in the New Dynegy Registration Statement, which is incorporated herein by
reference.
B. THE TRANSACTION
The Transaction involves a combination of Dynegy and Illinova through
a series of mergers, resulting in the formation of New Dynegy as an Illinois
public-utility holding company. Chevron and Illinova understand that New Dynegy
separately filed, 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. n18 New Dynegy currently has two
wholly-owned subsidiaries, an Illinois corporation n19 and a Delaware
corporation, n20 that will serve as acquisition companies. In the Transaction,
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. As a result, 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 the Transaction by eliminating one tier in the holding company structure.
n21
In the Transaction, each shareholder of Dynegy (except Chevron USA)
will elect to receive either (i) cash in the amount of $16.50 or (ii) 0.69
shares of New Dynegy Class A
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n17 New Dynegy was incorporated in Illinois as Energy Convergence Holding
Company and is a wholly-owned subsidiary of Illinova.
n18 See, e.g., Roanoke Gas Co., Holding Co. Act Release No. 26996 (Apr. 1,
1999).
n19 Energy Convergence Acquisition Corporation.
n20 Dynegy Acquisition Corporation.
n21 The post-merger organizational chart of New Dynegy is attached hereto as
Exhibit E.
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Common Stock n22 for each share of Dynegy common stock. n23 Chevron has agreed
to receive all stock in the Transaction. BG's parent corporation and NOVA have,
directly or indirectly, elected to receive all cash. 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. n24 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's parent corporation 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 Series A Preferred 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's parent corporation 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's parent corporation 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%.
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 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
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n22 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.
n23 Each such Dynegy shareholder will receive cash for any fractional share
regardless of the shareholder's election.
n24 NOVA and BG will each receive New Dynegy Series A Preferred Stock. 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 Illinois in the New Dynegy Registration Statement
filed with the Commission.
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entitled to elect of 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. n25
Under New Dynegy's Articles of Incorporation, Chevron USA will 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. n26 In addition, if all Chevron Directors present at a
meeting vote to do so, they will have the ability under New Dynegy's Bylaws to
prevent New Dynegy from entering into certain transactions, 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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n25 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.
n26 This will include, pursuant to Article 4 of the Articles of Incorporation
of New Dynegy, the preservation of certain ongoing strategic relationships under
the Caltex Operating Agreement, referenced in note 5, supra.
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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 wish to complete 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. n27
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-
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n27 Each of Dynegy and Illinova were advised by and received the written
opinions of their respective financial advisors with respect to certain aspects
of the Transaction. See New Dynegy Registration Statement at 47-68, and
Appendices III, IV and V thereto.
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related operations of New Dynegy will contribute significantly toward lowering
the overall cost of the restructured utility service received by consumers in
Illinois, and that Illinova will achieve improved earnings for investors. n28
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. n29
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
Following the Transaction, Chevron USA will own more than 10% of the
voting securities of New Dynegy, raising the issue of whether Chevron Corp. and
Chevron USA are holding companies within the meaning of Section 2(a)(7) of the
Act absent an appropriate exemption.
Section 3 of the Act provides that the Commission upon application
shall by order exempt any person from the provisions of the Act if such person
meets the requirements for any exemption contained in Sections 3(a)(1) through
3(a)(5) and if the exemption is not detrimental to the public interest or the
interest of investors or consumers. Section 3(a)(3) of the Act is applicable to
Chevron because, following the Transaction, Chevron will be "only incidentally"
a holding company, as it will remain primarily engaged and interested in non-
utility businesses, and will not derive a material part of its income from a
public-utility company. Accordingly, Chevron is entitled to an exemption from
all the provisions of the Act, except Section 9(a)(2), pursuant to Section
3(a)(3).
A. THE SECTION 3(A)(3) EXEMPTION
Following the Transaction, Chevron will be eligible for an exemption
under Section 3(a)(3) of the Act, which provides that the Commission:
shall exempt any holding company, and every subsidiary
company thereof as such, from any provision or provisions
of [the Act], unless and except insofar as it finds the
exemption detrimental
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n28 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.
n29 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.
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to the public interest or the interest of investors and
consumers, if -- . . . (3) such holding company is only
incidentally a holding company, being primarily engaged or
interested in one or more businesses other than the
business of a public-utility company and (A) not deriving,
directly or indirectly, a material part of its income from
any one or more subsidiary companies, the principal
business of which is that of a public-utility
company . . . . n30
Chevron's interest in New Dynegy will fit comfortably within the
exemption provided by Section 3(a)(3). Chevron's minority interest in New Dynegy
will arise solely because Chevron is willing to consent to and facilitate the
merger initiated and sought by Dynegy and Illinova, and not through efforts by
Chevron to engage directly or indirectly in the public-utility business or to
acquire a public-utility company or public utility holding company. Following
the Transaction, Chevron will remain primarily engaged and interested in its
non-utility petroleum and chemical businesses, and will not directly or
indirectly derive a material part of its income from Illinois Power, or any
other public-utility company.
Compelling support for this Application - confirmation that Chevron
fits comfortably and squarely within the category of companies for which
Congress intended Section 3(a)(3) - is found in the Report to the Senate of the
Committee on Interstate Commerce, accompanying the bill that became the Act. n31
In the Senate Report, the Section 3(a)(3) exemption is described as applicable
where:
[T]he company is not essentially in the utility field and
either (A) gets no appreciable income from utilities, or
(B) if it gets an appreciable income from utilities, it
owns all the outstanding securities of those utilities so
that they are not financed by the public but are
essentially departments, rather than subsidiaries, of the
parent company. n32
Chevron's position in New Dynegy will satisfy this test. For these reasons, and
as more fully discussed below, Chevron satisfies the requirements of the
exemption set forth in Section 3(a)(3) of the Act.
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n30 Act (S) 3(a)(3)(A). Subparagraph (B) of Section 3(a)(3) provides that the
materiality test described in subparagraph (A) is not applicable where
"substantially all of the outstanding securities of the subsidiary are owned,
directly or indirectly, by the holding company." See also Aluminum Co. of
America, Holding Co. Act Release No. 1669, 5 SEC 640 (Aug. 8, 1939). In light of
Chevron's minority ownership interest in New Dynegy, subparagraph (B) of Section
3(a)(3) is not applicable.
n31 S. Rep. No. 74-621 (May 13, 1935) [hereinafter the "Senate Report"].
n32 Id. at 24 (emphasis added).
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<PAGE>
B. CHEVRON IS ONLY INCIDENTALLY A HOLDING COMPANY, BEING PRIMARILY ENGAGED AND
INTERESTED IN BUSINESSES OTHER THAN THAT OF A PUBLIC-UTILITY COMPANY.
1. THE TRANSACTION SATISFIES THE PLAIN LANGUAGE OF SECTION 3(a)(3).
Chevron is a fully integrated petroleum company with no public-utility
company subsidiaries and no income derived from the operations of public-utility
companies as defined by the Act. As a result, Chevron presently is "primarily
engaged or interested in one or more businesses other than the business of a
public-utility company" within the meaning of Section 3(a)(3).
Following the Transaction, Chevron will be "only incidentally" a
holding company. Chevron's status as a public-utility holding company will be an
incidental result of an arm's length transaction initiated by third parties,
independent of Chevron. The development of the Transaction shows that the
combination of Dynegy and Illinova is driven by the separate business needs of
the respective constituent companies, acting independently. At the time of
Chevron's original investment in Dynegy, Chevron did not intend or contemplate
the acquisition of an interest in any public-utility or public-utility holding
company. Chevron acquired its interest in Dynegy for the purpose of creating a
long-term alliance with a major energy trading company and to participate
through its equity ownership interest in Dynegy in gas and liquids marketing,
midstream services, and wholesale electric generation. Subsequent to Chevron's
acquisition of its interest, Dynegy determined that its combination with
Illinova will substantially enhance its marketing and trading operations and
give it access to significant resources in important geographic markets. By
allowing Dynegy to proceed with the Transaction, Chevron is facilitating
Dynegy's strategic expansion.
This circumstance has nothing in common with an attempt to acquire a
public-utility company or its holding company. Chevron's post-Transaction
involvement in New Dynegy will focus on monitoring and protecting the value of
its original strategic investment, consisting of a minority ownership interest
proportional to the capital it has contributed. If Chevron were deemed a public-
utility holding company subject to registration as a result of the Transaction,
that could only be an incidental result of a business combination independently
sought by Dynegy and Illinova for reasons unrelated to Chevron's operations, and
not the result of any effort by Chevron to acquire or control a public-utility
company or its holding company. This is precisely the anomalous result Section
3(a)(3) appears designed to prevent.
There is no Commission precedent denying a Section 3(a)(3) exemption
to a strategic shareholder of a holding company whose minority interest arises
solely as an unintended consequence of an arm's length merger transaction
initiated by third parties. Commission precedent denying exemptions under
Section 3(a)(3) appears in the context of efforts by applicants purposefully to
assemble and maintain vast holding company systems with many
15
<PAGE>
majority controlled, public-utility company subsidiaries. n33 This Application
involves no such risk to the public policies of the Act.
Granting the present exemption does not "open the door" closed fifty
years ago in the Commission's early application of the Section 3(a)(3) exemption
to block its use by large companies seeking to participate in the utility
business. In this case, Chevron's minority ownership in New Dynegy arises
through the merger of Dynegy and Illinova, whose public-utility company
activities have long been the subject of effective state regulation. That merger
is a result of the independently developed business purposes of Illinova and
Dynegy. In the context of that merger, although Chevron for its own independent
reasons, (unrelated to ownership of a public-utility), has maintained a
strategic investment in Dynegy, it is only coincidental that Dynegy's
combination with Illinova results in ownership by Chevron of a minority interest
in a newly formed public-utility holding company, New Dynegy. However, Chevron's
maintaining its strategic investment (i) will permit an otherwise beneficial
Transaction to occur, and (ii) as a result of Chevron's functional relationship
with the energy marketing business of Dynegy, will continue to serve the
interests and complement the operations of New Dynegy, including Illinova.
2. THERE WILL EXIST A FUNCTIONAL RELATIONSHIP BETWEEN CHEVRON'S
BUSINESS AND THE PUBLIC-UTILITY OPERATIONS OF NEW DYNEGY.
The Act does not set forth specific factors or circumstances which
define when a company is "only incidentally" a public-utility holding company.
In the years following enactment of the Act, the statutory language was glossed
by the additional requirement that the incidental nature of a company's status
as a holding company be demonstrated in part by the existence of a functional or
operational relationship between a subsidiary's utility operations and the
primary business of the holding company, even though the text of Section 3(a)(3)
does not contain such a requirement. n34 This gloss served to support denial of
exemptions in circumstances in which large multi-state holding company systems
whose operations had never been subjected to effective regulation sought to
avoid regulation under the Act while exploiting affiliate relationships with
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n33 See, e.g., Cities Serv. Co., Holding Co. Release No. 2444, 8 SEC 318 (Dec.
23, 1940); Standard Oil Co., Holding Co. Release No. 3312, 10 SEC 1122 (Feb. 5,
1942). Although some of the Congressional debate cited by the Commission in
these older cases arguably supports a narrow interpretation of Section 3(a)(3),
the Senate Report states that the purpose of the Section 3(a) exemptions was to
"exempt those holding companies which the committee believes ought not to be
covered because of the fact, and to the extent, that they are either intrastate
in character or not essentially holding companies in the utility field." Senate
Report at 6 (emphasis added). This statement of the Committee (as opposed to
that of any individual member from the floor of Congress) supports an
interpretation of Section 3(a)(3) that would reasonably include companies such
as Chevron, which are not "essentially holding companies in the utility field."
n34 The origin of the functional relationship test can be traced to remarks
made by Senator Wheeler which, importantly, were made in reference to a
proposed, but rejected, change in the wording "only incidentally a holding
company" to "only incidentally interested in a public-utility company." 79 Cong.
Rec. 8843-44 (1935). See also Cities Serv., 8 SEC 318; Standard Oil, 10
SEC at 1129. The Commission has never held that the examples used by Senator
Wheeler were exclusive, and in all events, the courts have held that Senator
Wheeler's explanations during the floor debate do not supplant the plain meaning
of the language of the Act. See Pacific Gas & Elec. Co. v. SEC, 127 F.2d 378,
382 (9th Cir. 1942), aff'd per curiam on reh'g, 139 F.2d 298 (9th Cir. 1943),
aff'd per curiam, 324 U.S. 826 (1945) (rejecting argument based upon explanation
articulated during floor debate that was at variance with the Act's plain
meaning).
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public-utilities. Faced with these applications during the first twenty years of
its administration of the Act, the Commission articulated two requirements in
applying Section 3(a)(3) that the unregulated, multi-state systems routinely
failed to meet: (i) that there be a functional relationship between the non-
utility industry and the public-utility company it sought to own, and (ii) that
the public-utility company be small in size in an absolute sense. The Commission
explained the purpose of these conditions was to avoid making "exempt from the
operation of the Act a company which would otherwise be subject thereto, solely
by reason of its hybrid character." n35
The considerations that led the Commission to apply a restrictive
gloss to Section 3(a)(3) in those cases do not apply to this Transaction because
(i) the Illinois Power public-utility system essentially operates in a single
state and is subject to effective state regulation, and (ii) transforming
changes in the industry have rendered an overly restrictive interpretation of
the exemption both unnecessary and retrogressive in light of such state
regulation. In this context, the Commission need only read the statute as
Congress intended to grant this Application. n36
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n35 Standard Oil, 10 SEC at 1129. See also Electric Bond & Share Co., Holding
Co. Act Release No. 11004 33 SEC 21 (Feb. 6, 1952) [hereinafter "EBASCO"].
Standard Oil, Cities Serv., and EBASCO each involved ownership of multiple
public-utility companies formed prior to the Act which were sprawled across
multiple states, some not subject to even minimal state regulation, and others
which, by their nature, could not be the subject of effective regulation. The
Commission characterized Cities Serv. as a case where the record plainly
indicated "an indulgence in practices explicitly condemned by Congress." Cities
Serv., 8 SEC at 336. The Commission noted that for many years, Cities Services
"controlled a far-flung utility empire" with utility operations in twenty states
and Canada. Cities Serv., 8 SEC at 336-37. Moreover, unlike the present case,
Cities Services sought to maintain direct control over the public-utility
operations of its subsidiary.
n36 The Senate Report reveals that Congress consciously chose to structure
Section 3 to provide broad classes of exemptions that would be conferred in a
flexible fashion unless the Commission "finds the exemption detrimental to the
public interest or the interest of investors or consumers." The Senate Report
provides a definitive description of the relationship of the "unless and except"
clause to the specific exemptions available under Section 3(a):
New section 3(a) has been drafted to exempt these holding
companies which the committee believes ought not to be
covered because of the fact, and to the extent, that they
are either intrastate in character or else not essentially
holding companies in the utility field. The Commission is
required to exempt any company which falls into one of the
described classes, unless and except insofar as it
determines that exemption is detrimental to the national
public interest. The exemption when invoked applies to the
company as a holding company and to every subsidiary of
the exempted holding company as a subsidiary of such
company . . . .
It is the duty of the Commission, as to any company which
it finds to fall in one of these five categories, to
exempt such company from any provision or provisions of
Title I to the extent it deems such exemption not
detrimental to the public interest or the interest of
investors or consumers. By thus imposing a mandatory duty
upon the Commission to exempt companies falling within
defined categories except where such exemption is
definitely detrimental to the basic purpose of the
statute, the Committee has felt free to broaden the
exemptions beyond what would be justified if the
exemptions had been made unqualified and self-operative,
and beyond the power of the Commission to correct when
abused or used to circumvent the purpose of the title.
Senate Report at 5-6, 24 (emphasis added). The flexibility built into Section 3
exemplifies the Commission's precept that the Act "creates a system of pervasive
and continuing economic regulation that must in some measure at least be
refashioned from time to time to keep pace with changing economic and regulatory
climates." Union Elec., Holding Co. Act Release No. 18368, 45 SEC 489, n.52
(Apr. 10, 1974).
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Indeed, the intrastate size and scope of the Illinois Power system reflects
decades of effective regulation, not an absence of regulation. The Illinois
Power system is protected by law from abusive affiliate relationships, and
Chevron is seeking neither to obtain nor to maintain any such relationship with
that system.
It is especially relevant to this analysis that the Act does not
preclude reliance upon other factors, such as those present here, to demonstrate
the "incidental" nature of a company's holding company status. n37 The
Commission has consistently recognized that it must at times refashion the
standards it employs in administering the Act in order to keep pace with the
changing economic and regulatory climate of the public-utility industry. n38 In
this regard, the Commission may articulate alternatives to, or amplify upon, the
functional relationship test in recognition of the ongoing convergence of the
electricity and natural gas industries.
For example, in a 1983 no-action letter, the Staff indicated that the
Section 3(a)(3) exemption would apply to the acquisition of a majority interest
in an electric power generating station by an engineering and construction
contractor as part of a proposed settlement of litigation against the
contractor. n39 There, ownership of a nuclear power plant could not be said to
be functionally related to the business of an engineering firm, at least not in
the sense of the earlier Commission interpretations of functional relationship.
In a subsequent no-action letter, the Staff indicated that the Section 3(a)(3)
exemption would apply to the acquisition of a propane-air gas pipeline system by
a company that was primarily engaged in the distribution of fuels by truck, the
sale of propane appliances and equipment, and the sale, repair, and leasing of
forklift trucks. n40 In both of these cases, the ownership of the public-utility
company by the exempt holding company was through acquisition and was not a
natural incident of the holding company's existing operations. Further, the
utility operations were completely distinct from the holding company's existing
operations and did not lend any operational or functional efficiencies to the
primary business of the holding company.
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n37 In circumstances where the Commission has developed a test for applying a
provision of the Act, such as a "functional relationship" test, the Commission
may approve an application upon either satisfaction of that test or upon a
demonstration that the application falls within the plain meaning of the statute
and is otherwise consistent with the policies of the Act. Southern
Communications Serv., Holding Co. Release No. 26211 (Dec. 30, 1994) (approving
formation of telecommunications subsidiary based upon the plain meaning of the
applicable provision of the Act and, in the alternative, based upon application
of the "functional relationship" test for approving diversification proposals);
see also The Regulation of Public-Utility Holding Companies, Division of
Investment Management, United States Securities and Exchange Commission (June
1995) at 86-87 [hereinafter the "1995 Staff Report"]. Under this approach, the
interpretation of the Act is not limited by decisions rendered early in its
administration.
n38 See, e.g., Union Elec., 45 SEC at 503 & n.52.
n39 Haliburton Co., SEC No-Action Letter, 1983 Fed. Sec. L. Rep. (CCH) (P)
77,518 at 78,669 (Aug. 1, 1983).
n40 Synergy Group Inc., SEC No-Action Letter, 1987 WL 108660 (Oct. 30, 1987).
The Commission has recognized that a similar relationship satisfied the
requirements of the Section 3(a)(3) exemption in the case where the utility
activity was the distribution of propane through underground pipelines and the
principal business of the enterprise was the distribution of propane in portable
containers, a business that shares no operational relationship to the pipeline
operations of the utility. National Distillers & Chemical Corp., Holding Co. Act
Release No. 22837, 27 SEC Docket 95 (Jan. 27, 1983).
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It is respectfully submitted that the facts and circumstances of the
present case enable the Commission to articulate non-exclusive, definitional
indicia that Chevron is "only incidentally a holding Company," consistent with
the language and intent of the Section 3(a)(3) exemption. In this instance, the
indicia of the functional relationship of Chevron, the Section 3(a)(3) exempt
entity, to Illinois Power, the public-utility company, and its holding company,
New Dynegy, do not consist of typical "up stream" benefits to Chevron. Rather,
the indicia of the functional relationship are "downstream," in that the
functional relationships of Chevron, a worldwide energy company, to Dynegy (and,
post-merger, to New Dynegy), will confer benefits on New Dynegy and indirect
benefits on Illinois Power, while continuing to serve the legitimate business
interests of Chevron. These indicia are:
(i) Chevron is a strategic, long-term investor in Dynegy - thus, although
Chevron will continue to be primarily engaged and interested in one
or more energy-related businesses other than the business of a
public-utility holding company (and as such, Chevron has no interest
in acquiring, managing and operating the public-utility operations of
Illinova), Chevron's continuing strategic investment in New Dynegy
enhances the liquidity of the holding company system and supports the
financial integrity of the Illinova companies;
(ii) The interests of Chevron in the exempt public-utility holding company
(New Dynegy) are not commercially involved with or dependent upon the
exempt company's public-utility business, and are based instead on
other strategic interests, specifically the energy-related aspects of
New Dynegy's business, such as energy marketing;
(iii) There are synergistic post-merger benefits of the continuing
strategic investment that flow downstream directly to the energy-
related group of which the public-utility is a member. For example,
Chevron's commercial arrangements with Dynegy provide a substantial
portion of natural gas and natural gas liquids marketed by Dynegy.
Such arrangements assure New Dynegy's access to an adequate supply of
and ability to provide natural gas and other fuels for the public-
utility's power generation business;
(iv) The investment was not made and will not be maintained for the
purpose of enabling the strategic investor (Chevron) to engage in
non-arm's-length, related-party transactions with the public-utility
company, or for the purpose of enabling the investor to finance the
operations of its non-utility operations. However, the strategic
relationship of Chevron to New Dynegy will contribute positively to
the financial integrity and independence of New Dynegy, including the
regulated public-utility subsidiary of New Dynegy; and
(v) Chevron will maintain an operational, functional relationship
consistent with its incidental holding company status because its
natural gas products will continue to be sold to the energy-related
business of New Dynegy, and New Dynegy will continue to market gas
purchased from Chevron and other gas sellers.
19
<PAGE>
Granting this Application does not open the door to the indiscriminate
acquisition of public-utility holding company systems. Chevron's minority
interest in New Dynegy is distinguishable from the situation where a company
which is not primarily engaged in the energy business and with no functional
relationship to the public-utility holding company, proposes to acquire a
significant interest in a public-utility holding company, with the expectation
of deriving significant return on investment from the utility operation.
The Commission's broad definitional powers permit it to interpret the
"only incidentally a holding company" requirement in a manner that encompasses
the nature of Chevron's indirect interest in Illinois Power. It is respectfully
submitted that the above articulation of the functional relationship test is
consistent with the purposes of the Act, including the protection of investors,
and satisfies the statutory requirement that Chevron be "only incidentally a
holding company."
C. CHEVRON WILL NOT DERIVE A MATERIAL PART OF ITS INCOME FROM THE PUBLIC-
UTILITY COMPANY SUBSIDIARIES OF NEW DYNEGY.
The other requirement of Section 3(a)(3) - that Chevron will not
derive a material part of its income from the public-utility operations of New
Dynegy (principally those of Illinois Power) - is fully satisfied here. Even
though Illinova's revenues and assets are small in relation to Chevron's, they
are inconsequential when considered on the basis of Chevron's 28% indirect
interest in New Dynegy. Chevron's 28% equity interest in New Dynegy corresponds
to (i) public-utility revenues representing less than 2% of Chevron's revenues,
and (ii) utility operating income representing less than 1% of Chevron's
operating income and less than 1.5% of Chevron's net income.
Set forth below is a comparison (Chart A) and percentage computation
(Chart B) of the respective total revenues, operating income, net income and
assets of Chevron and Illinova's utility operations, in each case based on the
most recent available data (the fiscal year ending December 31, 1998):
20
<PAGE>
Chart A
<TABLE>
<CAPTION>
- ---------------------------------------------- ------------------------------------------------------
Chevron Illinova Utility Operations
- ---------------------------------------------- ------------------------------------------------------
<S> <C>
(a) Total Revenue $30.557 billion (e) Utility Operating Revenue $2.069 billion
- -------------------------------------------------------------------------------------------------------
(b) Operating Income $2.239 billion (f) Utility Operating Income $0.070 billion
- -------------------------------------------------------------------------------------------------------
(c) Net Income $1.339 billion (g) Net Utility Income ($1.356) billion
- -------------------------------------------------------------------------------------------------------
(d) Total Assets $36.540 billion (h) Total Utility Assets $6.168 billion
- -------------------------------------------------------------------------------------------------------
</TABLE>
Chart B
<TABLE>
<CAPTION>
Utility Revenue (e) Utility Operating Income (f) Net Utility Income (g) Total Utility Assets (g) n41
as a percentage of as a percentage of as a percentage of as a percentage of
Chevron Total Revenue(a) Chevron Operating Income (b) Chevron Net Income (c) Chevron Total Assets (c)
and
Chevron Net Income (c)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Income: 3.1%
6.8% 0% 16.9%
Net Income: 5.2%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
As noted in the 1995 Staff Report, the Commission has generally found
that the contribution of less than 10% to the total income of the holding
company to be immaterial. n42
Immediately following the Transaction, Chevron's equity ownership in
New Dynegy will be 28%. When computed on the basis of an assumed Chevron 28%
ownership interest in New Dynegy, Chevron's status under Section 3(a)(3) is even
more compelling.
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n41 Prior to any reclassification of Illinois Power generation assets as an
EWG and prior to disposition of the Clinton Faciltiy. See Item 3.D infra.
n42 1995 Staff Report at 113-14. Compare Columbian Carbon Co., 1 SEC 633
(Aug. 5, 1936) (finding public-utility company operations constituting 3.2% of
revenues of the holding company to be immaterial), and Milliken & Co., Holding
Co. Release No. 23509, 31 SEC Docket 1070 (Dec. 3, 1984) (finding utility
operations constituting approximately 3.4% of the holding company's gross sales
to be immaterial), with Cities Serv., 8 SEC 318 (finding public-utility company
operations accounting for 47.3% of the holding company's assets, 32.6% of its
aggregate gross revenues, and 11.04% of its total cash income to be material).
21
<PAGE>
Chart C shows the utility operations of Illinova expressed as the portion
attributable to Chevron on equity consolidation, based upon Chevron's equity
ownership level in New Dynegy:
Chart C
- -------
<TABLE>
<CAPTION>
Chevron's Portion of Illinova Utility Illinova Utility Revenue, Income and
Equity Ownership of Revenue, Income and Assets Assets as a percentage based on
New Dynegy Attributable to Chevron on Equity equity of Chevron's Revenue,
Consolidation Principles Income and Assets
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Utility Revenue: $0.579 billion 1.9%
28% Utility Operating Income: $0.020 billion 0.90%
Utility Assets: $1.727 billion 4.7%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Thus, based on attribution to Chevron of an indirect interest of 28% in the
public-utility company operations of Illinois Power following consummation of
the Transaction, Chevron may be deemed to derive only 1.9% of its total
revenues, less than 1% of its operating income, and less than 1.5% of its net
income directly or indirectly from the total utility revenues and utility
operating income of Illinois Power.
D. ILLINOVA'S PUBLIC-UTILITY COMPANY OPERATIONS SATISFY ANY ABSOLUTE SIZE
LIMITATION.
The Commission has also, at times, required that the subsidiary's
public-utility company operations be subject to an absolute size test. As
discussed above, Cities Service involved a mammoth multi-state system with 89
public-utility company subsidiaries controlled by the holding company that
presented all of the evils the Act was intended to address. n43 Similarly, the
Commission's decision in Standard Oil addressed a system with four public-
utility company subsidiaries located in three states, which was at least "the
third largest [gas utility system] in the United States." n44 Given Standard
Oil's size, the Commission stated that, even had there been a functional
relationship between Standard Oil's business and the utilities, it would not
have approved of the exemption. The "small size requirement" has been confined
to cases involving huge systems that evolved without regulation, were not
subject to effective regulation, and were trying to avoid registration even
though their operations were the plain targets of the Act.
Unlike other Section 3(a)(3) applicants denied the exemption by the
Commission, Illinova's public-utility company operations are confined to one
area, and are not far-flung among
- ------------
n43 Cities Serv., 8 SEC 318.
n44 Standard Oil, 10 SEC at 1128.
22
<PAGE>
several different regions. n45 Illinova's public-utility company operations are
entirely located in Illinois and are wholly subject to the jurisdiction of a
single public service commission. Illinois Power's size is a function of
regulation, not an indication of the absence of effective regulation.
The transfer of Illinois Power's generation to Illinova Marketing
(which will become an EWG within one year of the closing of the Transaction) has
had a dramatic effect upon Illinois Power's investment in public-utility assets
and the character of its revenues. Illinois Power's rate base has been reduced
by approximately 50%. Although Illinois Power's customer base is expected to
remain stable, this merely reflects a power delivery service obligation imposed
by regulation. Customers will be free, however, to purchase electric energy from
their supplier of choice.
In the short term, Illinois Power expects its revenues to decline
somewhat and then to remain relatively stable as a result of the Illinois
statutory rate reductions and rate freezes designed to protect consumers and to
provide an opportunity to recover substantial transition costs. The composition
of such Illinois Power revenues, however, will also change: the revenues
received under the fixed rate structure must recover regulatory transition costs
and purchased power costs constituting approximately 50% of revenues. Illinois
Power's revenues will, therefore, make a reduced contribution to net-earnings,
as shown on its projected pro forma 2000-2004 Income Statement. n46
Exhibits N and L specifically address the issue of size. The
comparisons on Exhibit N are on an equivalent actual basis using the most recent
available electric and gas utility data, including power generation,
transmission and distribution. n47 Illinova's electric utility revenues
(including bundled generation, transmission and distribution service) are
compared to the other regional electric utilities. In other words, Exhibit N
makes no downward adjustment to Illinova's electric revenue or assets based on
the severing of generation from power delivery or the expected EWG status of the
fossil-fired generation owned by Illinova. n48
- ------------
n45 In contrast, in Standard Oil, the applicant's public-utility operations
encompassed substantial portions of three states, and in Cities Serv. the
applicant had a "far-flung" utility empire with eighty-nine public utility
subsidiaries operating in numerous states and Canada.
n46 See Illinois Power Company pro forma Net Revenues Statement, 1996 to
2002, attached hereto as Exhibit L-2.
n47 The page enumeration of Exhibit N corresponds to the corresponding pages
of the data presented in Exhibit K to the application under the Act filed by AES
Corporation. See Amendment No. 2 to Application on Form U-1/A under the Public
Utility Holding Company Act of 1935 of AES Corporation (Mar. 5, 1999) (the "AES
Application). The AES Application was approved in AES Corp., Holding Co. Act
Release No. 27063, 70 SEC Docket 972 (Aug. 20, 1999). Applicants are presenting
updated data from the same data source as was presented in the AES Application.
n48 Exhibit N also makes no adjustment to account for the now completed sale
of the Clinton Facility by Illinois Power to a non-affiliate. The data also does
not reflect the sale of Commonwealth Edison's fossil generation. The purchaser,
Mission Energy, is a large generator of power utilizing exempt generation assets
and is affiliated with a large utility system. Despite the divestiture,
Commonwealth Edison will continue to be a large utility system, significantly
larger than Illinois Power, due to its retention of a large base of nuclear
power generation, its power delivery system and a large customer base. No
adjustment is made for the two pending mergers involving Northern States Power
(with New Century) and Commonwealth Edison (with PECO). These
23
<PAGE>
The region that includes the State of Illinois and bordering states is
the most pertinent for the purpose of the analysis of size. In enacting retail
open access, the State of Illinois relied upon legislative findings that
"[c]ompetitive forces are affecting the market of electricity as a result of
recent federal regulatory and statutory changes and the activities of other
states." n49 The Illinois scheme of retail access harnesses the competition
created by the availability of transmission service on an open access basis to
protect consumers and reward investors. Illinova is interconnected and provides
transmission service to numerous regional utilities that provide transmission
service and compete with Illinois Power, in addition to facilitating the entry
of other competitors. n50
Exhibit N-6 shows the revenue ranking and share of cumulative revenue
of investor-owned electric utility companies for Illinois and bordering states.
As shown therein, Illinova's electric utility revenue is a small percentage
(4.6%) of the region studied and is lower than the same percentage for three
registered holding companies (American Electric Power: 18.2%, Cinergy: 12.9%,
Ameren: 8.2%) and two exempt holding companies (Unicom: 18.4%, NSP: 6.8%). In
short, 64.4% of the regional electric revenue is received by investor-owned
electric utilities with greater revenues than Illinova. n51
As Exhibit N-6 demonstrates, Illinois Power's regional asset ranking
is consistent with its revenue ranking. Illinova represents only a small
percentage (6.4%) of regional electric utility assets. Exhibit N-6 also
illustrates that Illinois Power's electric power customer base is small (3.2%).
Moreover, as shown by Exhibit N-7, the same is also true for Illinois Power's
natural gas service revenues (3.9%), assets (4.4%), and customers (3.3%) on a
regional basis.
Comparing the combined utility operations of Illinova with the
combined utility operations of regional companies does not alter these
conclusions. Exhibit N-9 demonstrates that Illinova's utility revenue (4.5%),
asset (6.1%) and customer (3.2%) shares are small in comparison with those of
other regional companies. On a national basis, too, Illinova is small, as
- ------------
pending mergers, and the pending American Electric Power Company merger (with
CSW), confirm the evolution of power supply by being dominated by large regional
multi-state systems, as opposed to small single-state utilities such as Illinois
Power.
n49 220 Ill. Comp. Stat. 5/15-101A(b) (1997 Cum. Supp.).
n50 Illinois Power has implemented open transmission access in accordance
with FERC Order 888 and has joined a regional Independent System Operator.
Illinois Power maintains substantial transmission interconnections with major
regional electric utilities, including the TVA, American Electric Power, Ameren,
Cinergy, and Commonwealth Edison, all of which are significantly larger than
Illinois Power. Open access transmission also makes regional energy resources
available to all wholesale and retail open access customers connected to the
Illinois Power system. Regional electric competition and open access for
electricity also bring competition to bear on natural gas service. This results
from the substitution of electric energy for gas. Large gas consumers already
have access to competitive supply as a result of FERC Order 636.
n51 This analysis excludes the Tennessee Valley Authority ("TVA") and other
public power agencies and cooperatives. TVA is larger in all relevant respects
than any of the investor-owned utilities in the Illinova region, and has
exchange power relationships with Illinois Power, American Electric Power,
Ameren, and Cinergy, all of which compete in the Illinova region. TVA was not a
significant source of power during the early years of the administration of the
Act.
24
<PAGE>
is shown by Exhibit N-10. For example, Exhibit N-10 shows that Illinova
represents 0.9% of the national revenue of electric companies.
Of utilities with operations based in Illinois, two utilities, Unicom
and Ameren, are significantly larger than Illinova in terms of revenue rank,
asset size, and number of customers. Those two utilities represent the clear
majority of the revenues, assets and customers of utility operations in
Illinois. Illinova's percentage shares of revenues (13.5%), assets (15.6%), and
customers (10.2%) are significantly smaller than those previously found in
Section 3(a)(3) cases to be "too large."
As shown by Exhibit L, current and historical financial and operating
data overstate the size of Illinova's public utility operations following
restructuring. Exhibit L is an analysis prepared by Illinova of its natural gas
distribution and electric power delivery (transmission and distribution) public-
utility operations. Exhibit L contains information regarding the public-utility
operations of Illinois Power excluding the power generation to be divested by
Illinois Power. Exhibit L-1 presents adjusted historic and projected pro forma
balance sheet entries. It demonstrates the reduction in the utility plant of
Illinova resulting from restructuring. For example, Illinova's utility plant
(net of depreciation and excluding capitalized nuclear fuel leases) for 1998 was
$4.455 billion. Exhibit L-1 shows that the net utility plant for the natural gas
and power delivery segments of Illinois Power in 1998 would have been $1.643 and
is projected to be $1.586 billion in 2000. The asset base of Illinova's public-
utility operations will be halved by the process of restructuring.
Exhibit L-2 further shows that the character of Illinova's public-
utility revenues will change and exemplifies how current and historical data
overstate the size of the public-utility operations to be retained by Illinova.
Illinois Power's rates are frozen and must include purchased power costs and
transition cost recovery. In 2000, Illinois Power's estimated purchased power
costs will equal $601 million - approximately half its total revenues - revenues
that include pass-through recovery of purchased gas costs of $195 million.
Illinois Power estimates that it will recover $55 million in transition costs
within its frozen retail electric rates in 2000 and more in subsequent years.
The size of the transmission and distribution business that will remain within
Illinois Power is overstated by these revenues, because the regulatory system
uses those services to recover transition costs, similar to tax collection.
Exhibit L-2 shows that the projected public-utility revenues for Illinova net of
transition charges and purchased power are projected to be approximately $600
million. Turning to Exhibit N-9, regional firms with public-utility revenues in
excess of $600 million are responsible for in excess of 90% of the public-
utility revenues in the region.
The pervasive regulation and service obligations imposed by Illinois
law upon the delivery function retained by Illinois Power and the rigorous
competition introduced to electric power generation and energy supply by the
FERC and Illinois law have dealt effectively with the concerns over arbitrary
and monopolistic behavior that were raised by the sprawling and ineffectively
regulated systems dealt with in EBASCO, Standard Oil, and Cities Serv.
25
<PAGE>
Illinois Power's retained public-utility system is small in any
relevant sense today, and, in any event, its size is not a proxy for economic
power or threat to the public interest. n52 To the extent size analysis plays
any legitimate role in considering the availability of an exemption under
Section 3(a)(3), Illinova does not have the type of public-utility company
market share or widespread public-utility company operations that have prompted
the Commission to deny Section 3(a)(3) exemptions in the past. Instead,
Illinova's public-utility company operations are localized, are regulated in a
thorough and comprehensive fashion, and constitute only a small share of a large
and growing regional marketplace. Indeed, the relative size data further suggest
that the notion of an "absolute size test," as a regulatory gloss, may serve no
meaningful regulatory purpose in an era of effective state regulation and
industry-wide consolidation.
The Commission has both the authority and the duty to continue to
adjust its interpretations (and regulatory tests) under the statutes it
administers to reflect the changing environment of utility operations, structure
and state regulation. It is respectfully submitted that the Commission has ample
tools with which to deal with that environment within the plain meaning of
Section 3(a)(3), and that the size of a utility may, at best, be a secondary
factor in making a determination under the exemption.
E. GRANTING THE EXEMPTION IS CONSISTENT WITH THE PUBLIC INTEREST AND THE
LEGISLATIVE INTENT THAT THE COMMISSION APPLY SECTION 3 OF THE ACT FLEXIBLY.
Once the Commission has found that a holding company is only
incidentally a holding company in accordance with Section 3(a)(3), the Act
provides that the Commission shall exempt the holding company from the Act
"unless and except insofar as it finds the exemption detrimental to the public
interest or the interest of investors and consumers." The legislative history of
Section 3 of the Act, and in particular the legislative history of the "unless
and except" clause, demonstrates that Congress expected the Commission to apply
Section 3 of the Act in a flexible fashion in light of contemporary
circumstances. n53 The Commission also has stated that the broad and flexible
language of the "unless and except" clause should be read "in a way that makes
- ------------
n52 The Commission has recognized the enhanced jurisdiction, authority and
effectiveness of state commissions. Statement of the U.S. Securities and
Exchange Commission Concerning Proposals To Repeal The Public Utility Holding
Company Act of 1935 (June 2, 1982) 585, 590-91 [hereinafter "Statement of the
SEC Concerning PUHCA Repeal"]. See also AES Corp., 70 SEC Docket at 55-59 &
n.23. (recognizing effectiveness of the ICC). The size and scope of Illinois
Power's operations are the result of years of effective state and federal
regulation and do not represent either private commercial power or the ability
to evade regulation. Of course, regulation itself can increase the size of a
public-utility company by requiring that service be widely available without
discrimination and at low cost. For this reason, courts have long held that the
size of effectively regulated public service corporations alone does not
indicate the existence of private market power. See Cost Management Serv. v.
Washington Natural Gas Co., 99 F.3d 937, 950-51 (4th Cir. 1998); Rebel Oil Co.
v. Atlantic Richfields, 51 F.3d 1421, 1439 (9th Cir. 1995); Southern Pacific
Communication Co. v. AT&T, 740 F.2d 980, 1000 (D.C. Cir. 1989), cert. denied,
105 S. Ct. 1539 (1985); MCI Communication Corp. v. AT&T, 708 F.2d 1081, 1107
(7th Cir.), cert. denied, 464 U.S. 891 (1983); Mid-Texas Communication Serv. v.
AT&T, 615 F.2d 1372, 1384-89 (5th Cir.), cert. denied, 449 U.S. 912 (1980);
Almeder Mall, Inc. v. Houston Indus., 615 F.2d 343, 354 (5th Cir), cert. denied,
449 U.S. 870 (1980).
n53 Senate Report at 5-6, 24; Union Elec., 45 SEC at n.52
26
<PAGE>
economic and social sense in the light of contemporary realities." n54 In recent
proceedings, the Commission has determined that one of the contemporary
realities to consider in deciding whether an exemption would be contrary to the
public interest is "the protection afforded to investors, consumers, and the
public by the existence of vigorous state regulation." n55
The Transaction will not result in any reduction in the oversight
exercised by the ICC and FERC. Moreover, all of Illinois Power's public-utility
activities will continue to take place in a single state. Thus, in this
instance, as in prior proceedings where the Commission declined to apply the
"unless and except" clause, the grant of an exemption from the Act would not
result in a regulatory gap and, therefore, would not be detrimental to the
public interest. Rather, the resulting holding company structure will serve the
public interest and the interest of investors and consumers by producing a
number of economies and efficiencies, similar to those upon which the Commission
has in the past looked favorably. n56
Further, the interest that Chevron will hold in Illinova arises as a
result of dramatic transitions in the industry, including the convergence of
natural gas and electricity. This convergence has been recognized as consistent
with the public interest by the Commission and will not signal the potential for
evasion of the Act. The Illinova public-utility operations will complement and
enhance Dynegy's current exempt utility company operations. The operations which
Dynegy is contributing to New Dynegy will be significant in enabling the company
to provide efficient and competitive utility service, and their value is
enhanced through association with a public-utility company with power generating
assets and experience.
F. GRANTING THE EXEMPTION IS CONSISTENT WITH PROPER INTERPRETATION AND
ADMINISTRATION OF THE ACT UNDER SECTION 1(C).
Section 1(c) of the Act requires the Commission to interpret and
administer the Act in order to eliminate the five evils enumerated in Section
1(b)(1)-(5) of the Act. n57 As demonstrated below, the Transaction threatens
none of these evils.
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
- ------------
n54 Union Elec., 45 SEC 489, 1974 WL 11418 at *13.
n55 WPL Holdings, Inc., Holding Co. Act Release No. 24590 (Feb. 26, 1988).
n56 See, e.g., Illinova Corp., Holding Co. Act Release No. 26054 (May 18,
1994) (granting exemption requested in connection with a proposed merger based
on an application that claimed that the new structure would create efficiencies
and economies such as allowing the resulting companies to respond to competitive
opportunities in the electric power industry and increasing the financial
flexibility of the resulting companies).
n57 These evils are: (1) the absence of specific 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.
27
<PAGE>
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. . . ." n58
The State of Illinois, through the ICC, closely regulates the
capitalization of public-utilities n59 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. n60 Furthermore, the securities of
Illinova, Dynegy, and Chevron, 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.
The State of Illinois has comprehensive oversight of affiliate transactions such
as those that could occur between Chevron and Illinois Power. n61 The Commission
has recognized that a "comprehensive state system," such as that in effect in
Illinois, n62 "is fully able to protect the 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." n63 In addition,
FERC regulations associated with market-based wholesale rate transactions will
operate to further guard against affiliate abuse following the Transaction. n64
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 effective state regulation of public-utility company subsidiaries or of the
exertion of control over such subsidiaries through disproportionately small
investment. The State of Illinois has a
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n58 Southern Co., Holding Co. Act Release No. 25639 (Sept. 23, 1992).
n59 220 Ill. Comp. Stat. 5/6-101-108 (West 1999).
n60 220 Ill. Comp. Stat. 5/7-103.
n61 220 Ill. Comp. Stat. 5/7-101, 16-121.
n62 AES Corp., 70 SEC Docket 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 1995 Staff Report.
n63 Statement of the SEC Concerning PUHCA Repeal at 590-91. 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.
n64 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 apply to Illinois Power and its affiliates. See
Illinova Power Marketing, 79 FERC (P) 61,010 (Feb. 1997) and cases cited
therein.
28
<PAGE>
comprehensive regulatory apparatus in place that is not affected by the
Transaction. n65 And here, Chevron's minority voting stock interest in New
Dynegy is proportional to its equity investment in New Dynegy.
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 operating companies are not affected by the Transaction.
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 with respect to
public-utility operations.
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 evaluates whether the merger will (i) adversely affect competition; (ii)
adversely affect rates to captive wholesale customers; or (iii) impair the
effectiveness of regulation. The FERC found the merger would have none of these
effects and approved the Transaction on November 10, 1999. n66 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.
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. n67 Following the Transaction, the ICC will
retain its applicable authority over the retail rates, services provided by, and
dividends of the public-utility subsidiaries of Illinova, and their transactions
with affiliates.
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n65 See 220 Ill. Comp. Stat. 5/1-101 et seq.; AES Corp., 70 SEC Docket at
n.23 & Section III (discussing authority of ICC over public-utilities).
n66 FERC Docket No. EC99-99-000, attached hereto as Exhibit D-1.
n67 ICC Docket No. 99-0419, attached hereto as Exhibit D-2.
29
<PAGE>
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.
On December 27, 1999, the Commission issued its Order under Section
9(a)(2) of the Act authorizing the Transaction. n68
ITEM 5. PROCEDURE
The Applicants respectfully request that the Commission issue its
order as soon as possible declaring that Chevron Corp. and Chevron USA are
exempt holding companies under Section 3(a)(3) of the Act.
The Applicants hereby (i) waive a recommended decision by a hearing
officer or any other responsible officer of the Commission; (ii) agree that the
Division of Investment Management may assist in the preparation of the decision
of the Commission; and (iii) request that the Commission order that the
exemption requested by this Application be effective immediately upon
consummation of the Transaction.
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/A 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 herein by reference)
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/A 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
herein by reference)
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 Inc.
(Commission File No. 1-11156), filed June 14, 1999 and incorporated
by reference herein)
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n68 Order Authorizing the Acquisition of Common Stock of a Public Utility
Holding Company, Holding Co. Act Release No. 27122 (Dec. 27, 1999), attached
hereto as Exhibit D-3.
30
<PAGE>
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 Inc.
(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 Inc. (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 10.6 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-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 Inc.
(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 Inc.
(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
Inc. (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 Inc. (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 Inc. (Commission File No. 1-11156), filed June 14, 1999 and
incorporated by reference herein)
Exhibit C: Intentionally omitted, not applicable
31
<PAGE>
Exhibit D: Applications and Orders of Certain Commissions listed in Item 4
D-1: Order Approving Merger, FERC Docket No. EC99-99-000, 89 FERC (P)
61,163 (Nov. 10, 1999)
D-2: Illinois Commerce Commission Order, ICC Docket No. 99-0419 (Nov.
23, 1999)
D-3: Order Authorizing the Acquisition of Common Stock of a Public
Utility Holding Company, Holding Co. Act Release No. 27122 (Dec. 27,
1999)
Exhibit E: Organizational Chart of New Dynegy
Exhibit F: Intentionally omitted, not applicable
Exhibit G: Financial Data Schedules
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 Inc. (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 Energy Convergence Holding Company
(Registration No. 333-84965) (previously filed with the
Commission on September 7, 1999 and incorporated by reference
herein)
Exhibit J: Intentionally omitted
32
<PAGE>
Exhibit L: Historic and Projected Illinois Power Public Utility Operations
Excluding Generation To Be Divested By Illinois Power
L-1: Illinois Power Company Balance Sheet Excluding Electric Power
Generation
L-2: Illinois Power Company Net Revenues Excluding Electric Power
Generation
Exhibit M: Intentionally omitted
Exhibit N: Size Analysis With Updated Energy Information Agency Data
N-6: Market Shares for Electric Companies in Illinois and Bordering
States
N-7: Market Shares for Gas Companies in Illinois and Bordering States
N-8: Market Shares for Combined Gas and Electric Companies in Illinois
and Bordering States
N-9: Market Shares for Utilities in Illinois and Bordering States
N-10: Market Shares for Electric Companies in the United States
N-11: Market Shares for Gas Companies in the United States
N-12: Market Shares for Combined Gas and Electric Companies in the
United States
N-13: Market Shares for Utility Companies in the United States
N-14: Market Shares for Electric Companies in Illinois
N-15: Market Shares for Gas Companies in Illinois
N-16: Market Shares for Combined Gas and Electric Companies in Illinois
N-17: Market Shares for Utilities in Illinois
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 No. 1-368-2) for the fiscal year ended December 31,
1998, filed on March 31, 1999; (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; (iii) Annual Report on Form 10-K
of Illinova Corporation (Commission File No. 1-11327) and Illinois Power Company
(Commission File No. 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
Corporation (Commission File
33
<PAGE>
No. 1-11327) and Illinois Power Company (Commission File No. 1-3004) for the
quarterly period ended September 30, 1999, filed on November 15, 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 No. 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.
34
<PAGE>
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned companies have duly caused this amendment to be signed
on their behalf by the undersigned thereunto duly authorized.
Date: January 27, 2000
CHEVRON CORPORATION ILLINOVA CORPORATION
By: /s/ George L. Kirkland By: /s/ Larry F. Altenbaumer
------------------------ --------------------------
George L. Kirkland Larry F. Altenbaumer
Vice-President President
CHEVRON U.S.A. INC.
By: /s/ George L. Kirkland
------------------------
George L. Kirkland
Executive Vice-President
35
<PAGE>
Illinova Corporation and, Dynegy Inc., Docket No. EC99-99-000
ORDER APPROVING MERGER
(Issued November 10, 1999)
Before Commissioners: James J. Hoecker, Chairman; Vicky A. Bailey,
William L. Massey, Linda Breathitt, and Curt Hebert, Jr.
I. Introduction
On July 23, 1999, as completed on September 13, 1999, Illinova Corporation
(Illinova), an Illinois corporation, and Dynegy, Inc. (Dynegy) (collectively,
Applicants), filed a joint application under Section 203 of the Federal Power
Act (FPA) n1 requesting Commission approval of a series of transactions
(collectively, the Proposed Merger) culminating with Energy Convergence Holding
Company (Newco) acquiring Illinova and Dynegy and their respective public
utility subsidiaries. We will approve the Proposed Merger as consistent with the
public interest.
II. Background
A. The Parties to the Merger
1. Illinova Corporation and Relevant Subsidiaries
Illinova is an Illinois corporation and a public utility holding company
exempt from registration under section 3(a)(1) of the Public Utility Holding
Company Act of 1935 (PUHCA). n2 According to the application, Illinova
does not directly own, operate, or control any facilities used for the
generation, transmission, and distribution of electric energy and power in
interstate commerce. Illinova wholly owns three public utility subsidiaries,
each of which is described below.
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n1 16 U.S.C. (S) 824b (1994).
n2 15 U.S.C. (S) 79c(a)(1) (1994).
<PAGE>
a. Illinois Power Company
Illinois Power Company (Illinois Power) is an electric and natural gas public
utility operating company that owns electric generation, n3 transmission, and
distribution facilities and natural gas distribution facilities located in
Illinois. Illinois Power provides retail electric service to approximately
570,000 customers and retail natural gas service to 400,000 customers located
throughout portions of northern, central, and southern Illinois. Illinois
Power's retail operations are subject to the jurisdiction of the Illinois
Commerce Commission (Illinois Commission). Applicants state that Illinois Power
has no natural gas facilities subject to the Commission's jurisdiction
under the Natural Gas Act (NGA).
Currently, Illinois Power wholly owns eight fossil-fired generating facilities
located throughout Illinois with an aggregate capacity of approximately 3,812
megawatts (MW). Illinois Power also owns a 50 percent interest in three
combustion turbines with a combined net capacity of 5.25 MW located in
Bloomington, Illinois. n4 In addition to its fossil generation, Illinois Power
wholly owns a 930 MW nuclear generation facility located near Clinton, Illinois
(Clinton Nuclear Unit). n5 Finally, Illinois Power owns approximately 2,829
miles of transmission facilities with ratings from 69 to 345 kilovolts.
b. Illinova Generating Company
Illinova Generating Company (Illinova Generating) indirectly owns equity
interests in a number of generation facilities and marketing companies located
in North America, Europe, Latin America, and Asia. In addition, Illinova
Generating wholly owns North American Energy Services Company, a company which
supplies operations, maintenance, and support services to the independent power
generation industry.
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n3 By an order dated December 26, 1995, the Commission granted Illinois Power
authorization to transact wholesale sales of electric energy at market-based
rates. See Illinois Power Co., 73 FERC P61,371 (1995).
n4 On June 29, 1999, in Docket No. EC99-90-000, Illinois Power, Illinova Power
Marketing, Inc. (Illinova Marketing), and Illinova jointly requested Commission
authorization pursuant to Section 203 of the FPA for Illinois Power to divest
all of its fossil-fired generation assets by transferring those assets to
Illinova Marketing, a newly-formed subsidiary of Illinova that will generate and
market electric energy at wholesale. Applicants state that at the outset,
Illinova Marketing's primary responsibility will be to continue to meet the
electric supply needs of Illinois Power's customers through a proposed long-term
purchase power agreement (PPA). Illinova Marketing filed the PPA in Docket No.
ER99-3208-000. The Commission subsequently approved the proposed divestiture and
accepted the PPA by letter orders dated September 10, 1999, and August 24, 1999,
respectively. See Illinois Power Co., 88 FERC P62,229 (1999); Illinova Power
Marketing, Inc., 88 FERC P61,129 (1999).
n5 On August 9, 1999, in Docket No. EC99-104-000, Illinois Power and AmerGen
Energy Company, L.L.C. (AmerGen Energy) filed a joint application under Section
203 of the FPA requesting Commission authorization for the sale by Illinois
Power of jurisdictional facilities associated with its 930 MW Clinton nuclear
power station to AmerGen Energy. That application will be addressed by the
Commission in a separate order.
<PAGE>
c. Illinova Energy Partners, Inc.
Illinova Energy Partners, Inc. (Illinova Energy) is engaged in the brokering
and marketing of electric energy and power, n6 natural gas, and other energy
commodities. Illinova Energy owns a 100 percent interest in Energy Dynamics
Inc., a natural gas marketer that serves large-volume commercial and industrial
natural gas users located in the Chicago area. Illinova Energy also owns a 50
percent interest in Tenaska Marketing Ventures, which focuses on natural gas
marketing in the Midwestern United States, as well as a 51 percent interest in
EMC Gas Transmission Company, a retail gas marketer operating in Michigan.
2. Dynegy, Inc., and Relevant Subsidiaries
Dynegy, a Delaware corporation, is a holding company that, through
subsidiaries, is primarily engaged in the wholesale marketing of natural gas,
electricity, coal, natural gas liquids (NGLs), crude oil, liquid petroleum gas
(LPG), and related energy services. Dynegy also owns interest in a number of
power generation facilities. Dynegy is principally owned by three entities: BG
Holdings, Inc. (BG Holdings), Chevron U.S.A., Inc. (Chevron), and NOVA Gas
Services (U.S.), Inc. (NOVA), which each own approximately 26 percent of
Dynegy's issued and outstanding stock. In addition, Chevron owns approximately
eight million shares of Dynegy preferred stock. Ten percent of Dynegy's common
stock is held by senior management, and the remaining shares are publicly traded
on the New York Stock Exchange (NYSE).
a. Wholesale Gas and Power
Dynegy wholly owns three energy marketing subsidiaries: (1) Dynegy Marketing
and Trade, which is engaged in the marketing and trading of natural gas, coal,
NGLs, crude oil, and petroleum liquid and gas, and which also controls the
domestic marketing of natural gas for certain Chevron subsidiaries; (2) Electric
Clearinghouse, Inc. (Electric Clearinghouse), which is engaged in the marketing
of electric energy and power n7 and other energy commodities at wholesale
throughout North America; and (3) Dynegy Power Services, Inc. (Dynegy Power),
which is engaged in the brokering and marketing of electric energy, n8 natural
gas, and other energy commodities at wholesale and retail throughout North
America.
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n6 By an order dated May 18, 1995, the Commission granted Illinova Energy
authorization to transact wholesale sales of electric energy at market-based
rates. See Illinois Power Co., 71 FERC P61,172 (1995).
n7 By an unpublished Letter Order dated April 7, 1994, in Docket No. ER94-968-
000, the Commission granted Electric Clearinghouse authorization to transact
wholesale sales of electric energy at market-based rates. On June 21, 1999, in
Docket No. ER99-3322-000, Electric Clearinghouse and Illinois Power jointly
filed amendments to their respective market-based rate tariffs for the purpose
of allowing them to sell energy and power to one another as affiliates, as well
as a proposed Code of Conduct in order to account for their post-merger
affiliate relationship. The Commission accepted the filing in Docket No. ER99-
3322-000 by an unpublished Letter Order dated September 10, 1999.
n8 By an unpublished Letter Order dated January 20, 1995, in Docket No. ER94-
1612-000, the Commission granted Dynegy Power authorization to transact
wholesale sales of electric energy and power at market-based rates. Applicants
indicate that Dynegy Power is engaged almost exclusively in power marketing
activities in Texas and California, and neither sells nor markets power to
Illinois Power or its affiliates. Applicants also state that Dynegy Power
commits not to engage in any power marketing transactions with the Illinova
parties. Application at 9, n.15.
<PAGE>
Furthermore, Dynegy, through intermediate subsidiaries, indirectly owns
interests in 24 generating facilities (totaling 5,732 MW) of which all are
either qualifying facilities (QFs) or Exempt Wholesale Generators (EWGs) located
throughout North America (primarily in Texas and California) and interests in
six generating facilities (totaling 2,684 MW) to be constructed in Arizona,
Louisiana, Georgia, Kentucky and North Carolina. n9 Applicants state that in
several instances, Dynegy's combined ownership interest with other public
utility owners in certain qualifying QFs may exceed 50 percent.
Applicants also state that prior to closing of the Proposed Merger, Dynegy will
take such action with regard to these QFs as is necessary to continue to comply
with the requirements of the Commission's regulations implementing the Public
Utility Regulatory Policies Act of 1978 or the Energy Policy Act of 1992.
b. Natural Gas, NGLs, and Crude Oil Assets
Dynegy owns either direct or indirect interests in the following: (1) natural
gas gathering and processing facilities located in Kansas, Oklahoma, Texas,
Louisiana, Arkansas, Wyoming and offshore Louisiana in the Gulf of Mexico, as
well as the province of Alberta, Canada; n10 (2) intrastate natural gas
transportation facilities located in Kansas and Oklahoma; (3) an open access
natural gas transportation facility primarily located in Oklahoma; (4) an open
access natural gas transportation facility primarily located at offshore
Louisiana in the Gulf of Mexico; (5) crude oil transportation facilities
located in Oklahoma and Texas; (6) a dual-phase crude oil and NGL transportation
facility located in Louisiana; (7) NGL transportation facilities located in
Louisiana, Texas, Utah, and Wyoming; (8) an LPG transportation facility
primarily located in Texas; (9) NGL fractionation (processing) plants located in
Texas and Louisiana; (10) NGL storage and terminal facilities located in
Louisiana, Texas, Mississippi, Kentucky, and Florida; and (11) lessee rights to
a coal gasification plant located in Indiana.
B. Description of the Proposed Merger
The Proposed Merger will be implemented in accordance with an Agreement and
Plan of Merger dated June 14, 1999 (Plan of Merger). n11 The Proposed Merger
will take place through a series of transactions culminating with Newco's
acquisition of the entire equity interest in Illinova and Dynegy and their
respective public utility subsidiaries. In connection with the Proposed
Merger, Illinova has created Newco as an Illinois corporation. Newco, in turn,
has formed two wholly-owned subsidiaries, Energy Convergence Acquisition Company
(Energy Acquisition), an Illinois corporation, and Dynegy Acquisition Company
(Dynegy Acquisition), a Delaware corporation.
The Proposed Merger will be accomplished by two concurrent mergers. In the
first merger, Energy Acquisition will be merged with and into Illinova, with
Illinova as the surviving corporation (Illinova Merger). Each outstanding share
of Illinova common stock will be converted into one share of Newco Class A
common stock. Concurrent, with the
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n9 Application at Attachment 2.
n10 According to the application, Dynegy's processing facilities are not
subject to the Commission's jurisdiction under the NGA.
n11 Application at Exhibit H.
<PAGE>
Illinova Merger, Dynegy Acquisition will be merged with and into Dynegy, with
Dynegy as the surviving corporation (Dynegy Merger). As noted below, with the
exception of BG Holdings, Chevron, and NOVA, each outstanding share of Dynegy
common stock will be converted into either $16.50 in cash (subject to a cap on
the total cash that may be received in the aggregate by Dynegy
shareholders) or 0.69 shares of Newco Class A common stock (with fractional
shares to be cashed out). At the effective time of the Proposed Merger, Energy
Acquisition and Dynegy Acquisition will cease to exist as corporate entities.
Upon consummation of the Proposed Merger, Newco will continue its existence as
a corporation under Illinois Law n12 and will directly own all of the issued and
outstanding capital stock of Illinova and directly and indirectly own all of the
issued and outstanding capital stock of Dynegy. Accordingly, Illinova and Dynegy
will be wholly-owned subsidiaries of Newco. Illinova and Dynegy will continue to
own all of their pre-merger assets and be liable for all of their respective
liabilities. Illinova's debt and Dynegy's debt will remain the obligation of
Illinova and Dynegy, respectively.
Newco and British Gas Atlantic Holdings BV (BG Atlantic), a Netherlands
corporation and direct corporate parent of BG Holdings, have entered
into a Stock Purchase Agreement (BG Stock Purchase Agreement) pursuant to which
Newco will purchase 100 percent of the issued and outstanding shares of BG
Holdings from BG Atlantic in exchange for a combination of cash and Series A
Convertible Preferred Stock (Preferred Stock). Under the BG Stock Purchase
Agreement, BG Atlantic will receive the same amount in a combination of cash and
Preferred Stock in consideration for the capital stock of BG Holdings as BG
Holdings would have received in the Proposed Merger by virtue of its ownership
shares of Dynegy common stock. Upon the consummation of the Proposed Merger, and
depending on actual stockholder elections, BG Atlantic will own a 3.5 percent to
5 percent equity interest in Newco.
Newco and Chevron have entered into a Subscription Agreement pursuant to which
Chevron will purchase a minimum of $200 million and a maximum of $240 million of
Newco Class B common stock (Class B Shares) concurrent with the closing of the
Proposed Merger (Equity Investment). Additionally, pursuant to the Plan of
Merger, Chevron will receive Newco Class B Shares in the Dynegy Merger (rather
than Class A common stock) in exchange for Chevron's equity interest in
Dynegy common and preferred stock. By virtue of its acquisition of Class B
Shares in the Proposed Merger and the Equity Investment, Chevron will own a 28
percent to 29 percent equity interest in Newco. n13
Pursuant to the terms of the Plan of Merger, NOVA will receive in the Dynegy
Merger a combination of cash and Preferred Stock in exchange for its entire
equity interest in Dynegy common stock. Upon consummation of the Proposed
Merger, and depending on actual stockholder elections, NOVA will own a 3.5
percent to 5 percent equity interest in Newco.
The remainder of Newco Class A common stock will be owned, in part, by Newco
management, and the remaining shares not owned by Newco management will be
publicly traded on the NYSE.
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n12 According to the application, Newco will be renamed Dynegy Inc. upon
consummation of the Proposed Merger.
n13 According to the application, Chevron will have certain minority
shareholder protection rights with respect to Newco, including the right to
appoint three members to the Newco Board of Directors.
<PAGE>
III. Notice of Filing and Interventions
Notice of the Applicants' filing was published in the Federal Register, n14
with motions to intervene and protests due on or before September 21, 1999. The
Illinois Municipal Electric Agency filed a timely motion to intervene in support
of the merger. MidAmerican Energy Company, Natural Gas Pipeline Company of
America, and Chevron U.S.A., Inc. each filed a timely motion to intervene
raising no substantive issues.
IV. Discussion
A. Procedural Matters
Pursuant to Rule 214 of the Commission's Rules of Practice and Procedure, 18
C.F.R. (S) 385.214 (1999), the timely, unopposed motions to intervene of the
Illinois Municipal Electric Agency, MidAmerican Energy Company, Natural Gas
Pipeline Company of America, and Chevron U.S.A., Inc. serve to make them parties
to this proceeding.
B. Standard of Review
Section 203(a) of the FPA provides, in relevant part, as follows:
No public utility shall sell, lease, or otherwise dispose of the whole
of its facilities subject to the jurisdiction of the Commission, or any
part thereof of a value in excess of $50,000, or by any means
whatsoever, directly or indirectly, merge or consolidate such facilities
or any part thereof with those of any other person, or purchase,
acquire, or take any security of any other public utility, without first
having secured an order of the Commission authorizing it to do so.
16 U.S.C. (S) 824b(a) (1994). Under Section 203(a), the Commission must approve
a proposed merger if it finds that the merger "will be consistent with the
public interest." Id.
In 1996, the Commission issued its Merger Policy Statement updating and
clarifying its procedures, criteria and policies applicable to public utility
mergers. n15 The Merger Policy Statement provides that the Commission will
generally take account of three factors in analyzing proposed mergers: (a) the
effect on competition; (b) the effect on rates; and (c) the effect on
regulation.
For the reasons discussed below, we find that Applicants' proposed merger, as
conditioned below, is consistent with the public interest. Accordingly, we will
approve the merger without further investigation.
C. Effect on Competition
1. Applicants' Analysis
Applicants evaluate the horizontal and vertical competitive implications of
the Proposed Merger. In regard to horizontal effects, Applicants identify non-
firm energy and short-term capacity as the relevant product and use, among
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n14 64 Fed. Reg. 49,936 (1999).
n15 See Inquiry Concerning the Commission's Merger Policy Under the Federal
Power Act: Policy Statement, Order No. 592, 61 Fed. Reg. 68,595 (1996), FERC
P 31,044 at 30,117-18 (1996), order on reconsideration, Order No. 592-A, 62 Fed.
Reg. 33,341 (1997), 79 FERC P61,321 (1997) (Merger Policy Statement).
<PAGE>
other measures, economic capacity as a proxy for a suppliers' ability to
participate in the relevant product market. In their analysis of economic
capacity, Applicants identify and define seven relevant geographic
("destination") markets using the approach described by Appendix A of the Merger
Policy Statement. n16 Applicants' results show that pre- to post-merger
increases in concentration in several highly concentrated relevant markets are
negligible (e.g., 1,836 to 5,352 HHI with increases of 6 HHI or less). The
results are higher in the moderately concentrated post-merger Illinois Power
market (1,154 to 1,558 HHI with increases less than 45) and the highly
concentrated LG&E markets (2,108 to 2,503 HHI with increases less than
23). n17 However, in no relevant market do pre- to post-merger increases in
concentration exceed acceptable thresholds. Applicants conclude from their
analysis that the Proposed Merger raises no market power concerns related to the
horizontal aspects of consolidating generation.
Applicants maintain that there are no vertical competitive concerns as to
whether the merged company could use gas transportation facilities they own
and/or control to raise their generation rivals' costs or to create
entry barriers. Applicants explain that Dynegy holds some firm transportation
rights on pipelines into the Midwest and its subsidiary Kansas Gas Supply
serves, on an interruptible basis, two of Western Resources' generation plants
(totaling 821 MW). n18 According to Applicants, these two plants are
geographically remote (i.e., two wheels away) from the Illinois Power market and
the full needs of the plants are met from an interstate pipeline connected to
Western Resources. Therefore, Applicants state that "Western Resources
generation is not competitively significant in the areas where Illinois Power
generation is competitively significant." n19 Moreover, Applicants state that
the upstream delivered gas market is "workably competitive" because there are a
large number of interstate long-haul pipelines serving the Midwest markets and
that potential entrants can locate new power plants that could be served by any
of the region's pipelines. n20
Stating that they have de minimis generation capacity in the downstream
electricity market, the Applicants perform an abbreviated downstream market
analysis to evaluate the vertical aspects of the Proposed Merger. Based on this
limited analysis, Applicants conclude that the Proposed Merger raises no
competitive concerns resulting from the vertical aspects of the consolidation.
2. Discussion
We find that the Proposed Merger poses no competitive concerns arising from
the horizontal or vertical aspects of the consolidation. No intervenor protests
or argues otherwise. We note that, as indicated by Applicants' analysis, the
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n16 The seven markets are American Electric Power, CINergy, Commonwealth
Edison, Duke Power, Illinois Power, Louisville Gas & Electric and the Tennessee
Valley Authority.
n17 Applicants evaluate pre- to post-merger increases in market concentration
under a number of different time periods and market prices. The time periods are
summer peak, off-peak and super peak; winter peak and off-peak; and shoulder
peak and off-peak. Market prices (taken from Power Markets Week) range from $28
in summer off-peak to $60 in summer super-peak.
n18 Illinois Power delivers gas to competing generation totaling one MW in its
own service territory. Application, Attachment 3 at 24.
n19 Application, Attachment 3 at 28.
n20 Application, Attachment 3 at 27.
<PAGE>
combination of Illinova's and Dynegy's ownership and/or control of generation
does not increase concentration in the reasonably defined relevant markets so as
to raise significant horizontal competitive concerns.
In regard to vertical competitive issues, for a merger to adversely affect
competition in downstream electricity markets, the merged firm must have the
incentive and ability to affect prices or output in upstream delivered
gas and downstream electricity markets (e.g., by raising rivals' costs) and
those markets must be conducive to the exercise of market power. n21 We note
that in this particular case, the data contained in the application indicates
two considerations that ameliorate any competitive concern. First, there is
insufficient "overlap" between relevant upstream delivered gas and downstream
electricity markets (i.e., in which gas transportation facilities owned or
controlled by the merged company serve competing generators) to raise
significant competitive concerns. Second, the Proposed Merger does not enhance
the merged company's incentive (i.e., it would not be profitable) to raise its
rivals' costs because it has a relatively small share of the relevant downstream
electricity markets. Given the particular facts and circumstances presented
here, therefore, the Commission believes that the Proposed Merger raises no
significant vertical competitive concerns.
D. Effect of the Merger on Rates
The Merger Policy Statement explains our concern that there be adequate
ratepayer protection from adverse rate effects as a result of a merger. It
describes various commitments that may be acceptable means of protecting
ratepayers, such as hold harmless provisions, open seasons for wholesale
customers, rate freezes, and rate reductions. n22
According to the application, the Proposed Merger will have no adverse effect
on rates. With respect to wholesale generation rates, Applicants state that all
wholesale sales service provided by Dynegy's public utility subsidiaries and all
wholesale sales service provided by Illinova's public utility subsidiaries
(other than those specifically addressed below) consist of sales at negotiated
rates made pursuant to Commission-approved market-based rate tariffs. Applicants
also state that any rates for wholesale sales made through affiliates that own
qualifying facilities will not be adversely affected by the Proposed Merger
because Applicants have no ability to amend the rate terms of the governing
contracts.
Furthermore, Applicants assert that there will be no adverse impacts from the
Proposed Merger on Illinois Power's wholesale customers. In support, Applicants
indicate that Illinois Power currently does not provide traditional requirements
service to any wholesale customer and it has no active wholesale rate schedules
that contain wholesale fuel adjustment clauses. Applicants also indicate that
Illinois Power provides non-market-based wholesale sales services to only two
wholesale customers, n23 both of which Applicants commit that Illinois Power
will hold harmless by agreeing not to pass merger-related costs through the
respective agreements. n24
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n21 San Diego Gas & Electric Company and Enova Energy, Inc., 79 FERC P61,372
at p. 62,561 (1997), reh'g denied, 83 FERC P61,199 (1998).
n22 Merger Policy Statement, FERC Statutes and Regulations at pp. 30,123-24.
n23 That service is provided to (1) Illinois Municipal Electric Agency (IMEC)
under a pre-Order No. 888 Coordination and Interchange Contract between Illinois
Power and IMEC (Illinois Power Rate Schedule FERC No.
<PAGE>
Finally, with respect to wholesale transmission rates, Applicants note that
Dynegy does not own any transmission facilities other than those incident to its
generation facilities and thus does not provide wholesale transmission service.
Applicants also note that Illinois Power's transmission rates will be subject to
review by the Commission since Illinois Power is a participant in the Midwest
Independent Transmission System Operator (Midwest ISO) and since the Commission
has, among other things, accepted the Midwest ISO's system-wide transmission
tariff for filing and set certain features of that tariff for hearing. n25 In
any event, Applicants commit that Illinois Power will hold its wholesale
transmission customers harmless from any adverse rate effects resulting from the
Proposed Merger and will not seek to pass through any merger-related costs in
its jurisdictional transmission rates for a period of five years commencing on
the closing date of the Proposed Merger. n26
Intervenors raise no rate or ratepayer protection issues.
Upon consideration of the above, we conclude that the Proposed Merger will not
adversely affect rates.
E. Effect on Regulation
As explained in the Merger Policy Statement, the Commission's primary concern
with the effect on regulation of a proposed merger involves possible changes in
the Commission's jurisdiction when a registered holding company is formed, thus
invoking the jurisdiction of the Securities and Exchange Commission (SEC). We
are also concerned with the effect on state regulation where a state does not
have authority to act on a merger and the state raises concerns about the effect
of the merger on regulation. n27
According to the application, the Proposed Merger will have no adverse effect
on regulation. With respect to Federal regulation, Applicants contend that upon
consummation of the Proposed Merger, Illinois Power will continue to be
subject to Commission jurisdiction under the FPA and that the Proposed Merger
will not result in the creation of a registered holding company. n28 With
respect to state regulation, Applicants observe that upon consummation of the
Proposed Merger, Illinois Power will continue to be subject to the jurisdiction
of the Illinois Commission with respect to the retail rates charged by Illinois
Power either as a provider of electricity, as a provider of electric delivery
services for unbundled retail electricity sales, and/or as a provider of natural
gas sales and distribution service.
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122) and (2) Ameren Corporation under a Boundary Line Agreement between Illinois
Power and Union Electric Company (Illinois Power Rate Schedule FERC No. 88).
n24 Application at 33-34.
n25 Midwest Independent Transmission System Operator, Inc., 84 FERC P61,231
(1998).
n26 Application at 37.
n27 Merger Policy Statement, FERC Stats. & Regulations. at pp. 30,124-25.
<PAGE>
No intervenor raises any concerns regarding Federal or state regulation.
Upon consideration of the above, we conclude that the Proposed Merger will not
adversely affect regulation.
F. Accounting Issues
Applicants state that the Proposed Merger will take place at the holding
company level, with no effect on account balances and financial statements of
the jurisdictional utility, Illinois Power. For this reason, Applicants request
a waiver of the requirement to file their accounting for the merger. Based on
Applicants' assertion that Illinois Power's account balances and financial
statements will not be affected by the merger and the understanding that
Illinois Power will continue to maintain its accounts in accordance with the
Commission's Uniform System of Accounts, we will grant the waiver of the
requirement to file accounting related to the merger.
The Commission orders:
(A) Applicants' proposed merger is hereby approved subject to the commitments
discussed in the body of this order.
(B) The request for waiver of the requirement to file accounting related to
the merger is hereby granted.
(C) The foregoing authorization is without prejudice to the authority of the
Commission or any other regulatory body with respect to rates,
services, accounts, valuation, estimates or determinations of cost, or any other
matter whatsoever now pending or which may come before the Commission.
(D) Nothing in this order shall be construed to imply acquiescence in any
estimate or determination of cost or any valuation of property claimed or
asserted.
(E) The Commission retains authority under section 203(b) of the FPA to issue
supplemental orders as appropriate.
(F) Applicants shall notify the Commission that the merger has occurred within
10 days of the date the merger is consummated.
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n28 In support of the latter contention, Applicants state that Newco will be
formed as an Illinois corporation and will obtain an exemption from registration
as a public utility holding company under section 3(a)(1) of PUHCA. Applicants
also state that at a point in time subsequent to the Proposed Merger, Illinova's
corporate existence will be extinguished and Illinois Power will become a
direct, wholly-owned subsidiary of Newco.
<PAGE>
STATE OF ILLINOIS
ILLINOIS COMMERCE COMMISSION
ILLINOIS POWER COMPANY :
:
APPLICATION PURSUANT TO SECTIONS 7-204 AND 7-101 : 99-0419
OF THE PUBLIC UTILITIES ACT FOR APPROVAL OF A :
REORGANIZATION OF THE GAS UTILITY :
ORDER
By the Commission:
I. PROCEDURAL HISTORY
On August 13, 1999, Illinois Power Company ("IP" or "Company") filed an
application with the Illinois Commerce Commission ("Commission"), pursuant to
Section 7-204 of the Public Utilities Act ("Act") (220 ILCS 5/7-204), seeking an
expedited order approving a reorganization with respect to IP's gas utility
business, and an order pursuant to Section 7-101 of the Act (220 ILCS 5/7-101)
for approval of an Interim Service and Facilities Agreement between IP and its
affiliated interests, and for other related relief. The reorganization results
from a transaction by which Dynegy, Inc. ("Dynegy") will acquire control of
Illinova Corporation ("Illinova"), the parent of IP. IP is a combination gas
and electric utility providing retail gas and electric service to customers in
Illinois.
Local Union No. 51, International Brotherhood of Electrical Workers,
AFL-CIO ("Local No. 51, IBEW") filed a petition to intervene. That petition was
granted by the Hearing Examiner. Local Union No. 51, IBEW, however, did not
participate in this proceeding. No other petitions to intervene were received.
Pursuant to proper legal notice, status hearings were held in this matter
on September 3 and 30, 1999, and an evidentiary hearing was held on October 18,
1999, at the Commission's offices in Springfield, Illinois. Appearances were
entered by counsel on behalf of IP and Commission Staff. At the hearing on
October 18, 1999, IP submitted the testimony of Larry F. Altenbaumer, IP's
Senior Vice President and Chief Financial Officer; John U. Clarke, Dynegy's
Senior Vice President and Chief Financial Officer; Robert A. Schultz, IP's Vice
President - Finance; and Cynthia G. Steward, IP's Controller. Mr. Thomas Q.
Smith, an Accounting Supervisor in the Accounting Department of the Financial
Analysis Division of the Commission, submitted testimony on behalf of Staff. At
the conclusion of the hearing on October 18, 1999, the record was marked "Heard
and Taken." IP and Staff waived the filing of initial and reply briefs and the
service of a Hearing Examiner's proposed order.
<PAGE>
99-0419
II. DESCRIPTION OF THE PROPOSED REORGANIZATION
IP's Petition states that on June 14, 1999, Illinova entered into a Plan of
Merger with Energy Convergence Holding Company, Energy Convergence Acquisition
Company, Dynegy Acquisition Company, and Dynegy Inc. The proposed merger will
involve the merger of Energy Convergence Acquisition Company, an Illinois
corporation, all of whose common stock is owned by Energy Convergence Holding
Company, an Illinois corporation, with and into Illinova, with the result that
all of the common stock of Illinova will be owned by Energy Convergence Holding
Company. Concurrent with this transaction, Dynegy Acquisition Company, a
Delaware corporation, all of whose common stock is owned by Energy Convergence
Holding Company, will be merged with and into Dynegy Inc., a Delaware
corporation, with the result that all of the common stock of Dynegy Inc. will be
owned by Energy Convergence Holding Company. As a result of these mergers,
Illinova and Dynegy will continue to exist, but rather than being independent,
publicly traded companies will instead be subsidiaries of Energy Convergence
Holding Company. Further, Energy Convergence Holding Company will be renamed
Dynegy Inc., and the current Dynegy will be renamed. Following this
reorganization, a second reorganization is contemplated in which Illinova is
merged into Energy Convergence Holding Company. After the second
reorganization, Illinova will cease to exist, and the new Dynegy will become the
owner of all of the common stock of IP. It is not certain at this time when
that second reorganization will occur. These transactions are referred to
throughout this Order as the "Reorganization" or the "Merger." The Merger is
expected to close no earlier than December 31, 1999, and no later than the end
of the first quarter 2000.
Dynegy's Senior Vice President and Chief Financial Officer, Mr. Clarke,
testified that although Illinova and Dynegy view this transaction as a merger of
equals, the Merger will be accounted for as a purchase of Illinova by Dynegy.
The board of directors of the new holding company will be comprised equally of
seven members from Illinova's current board and seven members from Dynegy's
current board. Chuck Watson, Dynegy's current Chief Executive Officer, will be
the Chairman of the Board and Charles Bayless, Illinova's current Chairman,
President, and Chief Executive Officer, will be a non-executive member of the
Board. Mr. Altenbaumer will serve as President of IP and will be directly
involved in the strategic management of IP after the Merger.
Mr. Altenbaumer explained that the new company will consist of eight
functional operation divisions, including Marketing, Trading, Generation
Operations, Midstream Services, Dynegy Energy Services, Commercial Power, IP,
and U.K./Europe. He explained the reasons for the proposed Merger. He stated
that the proposed Merger is the next step in the evolution of Illinova into a
multi-regional, diversified energy services company. The Board of Directors and
Senior Management of Illinova and IP concluded that the Illinova family of
companies needed to enlarge its financial and skill base in order to remain a
viable competitor in the energy markets. He stated that
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99-0419
Dynegy has a strong management team that will provide IP knowledge and expertise
it does not now have. In addition, the increased size provided by the Merger
brings financial strength and scale to Illinova and IP. He testified that the
Merger will provide Illinova access to the extensive experience of Dynegy in the
energy markets in the United States and around the world, and thus will bring
added national and international connections to the Illinois economy in the U.S.
and global markets. IP believes that the combination of these two companies will
create a balanced and strong company that will enhance IP's ability to provide
service to both large and small natural gas customers. Mr. Altenbaumer concluded
that the Merger will maximize the value of both Illinova's and Dynegy's assets
and strengths while at the same time maintaining and enhancing IP's ability to
meet its regulated service obligations.
Mr. Clarke described the reasons for the proposed Merger from Dynegy's
perspective. A primary reason for Dynegy entering into the Merger was its
desire to obtain a presence in the Midwest power market. Illinova has
strategically positioned generating facilities as well as a developing national
energy services business. In addition, both companies are leading independent
power developers and producers. IP's retail distribution expertise, coupled
with Dynegy's natural gas marketing expertise, provides a broad spectrum of
value opportunities. He testified that the combined company will be a national
leader in the rapidly changing energy industry and will be well positioned to
capitalize on opportunities created by energy convergence. Mr. Clarke stated
that the combination of Illinova and Dynegy will result in a highly diversified
but strategically focused energy company. The combined company will have the
scale, scope, and skills to compete effectively in the emerging national energy
marketplace and will benefit from advantages not available to either of the
Merger partners on a stand-alone basis. He stated that both of the merging
companies believe the Merger will result in greater value to their customers and
shareholders while creating the size and scale necessary to be successful in a
restructured energy market.
III. DESCRIPTION OF DYNEGY
Mr. Altenbaumer testified that Dynegy is a major North American marketer of
natural gas, natural gas liquids, crude oil, coal, electricity, liquid petroleum
gas, and related services. It also engages in natural gas gathering, processing
and transportation, and electric power generation. Its corporate headquarters
is located in Houston, Texas. In 1998, Dynegy was ranked fourth nationally for
wholesale power marketing and trading, based on volume. It was ranked fifth for
gas marketing during the same period. Mr. Altenbaumer stated that Dynegy does
not own any incumbent local gas distribution facilities. However, Dynegy or its
affiliates sells natural gas in the unregulated retail markets throughout the
country, including in Illinois. With regard to Illinois, Dynegy Marketing and
Trade and NICOR Energy L.L.C., in which Dynegy owns a 50% interest, both sell
gas at retail in Illinois to end use customers. Sales to end use customers in
IP's retail gas service territory by these companies account for less than 2% of
the throughput on IP's system.
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99-0419
Mr. Clarke described Dynegy's Marketing and Trade business unit. Dynegy
owns a direct 100-percent interest in Dynegy Marketing and Trade, Electric
Clearinghouse, Inc. ("ECI") and Dynegy Power Services, Inc. ("Dynegy Power").
Dynegy Marketing is engaged in the marketing and trading of natural gas, coal,
natural gas liquids, crude oil, and liquid petroleum gas. As part of its
operations, Dynegy Marketing controls the domestic marketing of natural gas for
certain subsidiaries of Chevron Corporation. ECI is engaged in the marketing of
electric energy and power and other energy commodities at wholesale and retail
throughout North America. Dynegy Power is engaged in the brokering and
marketing of electric energy, natural gas, and other energy commodities at
wholesale and retail throughout North America. In addition to its ownership
interests in the energy marketers described above, Dynegy, through intermediate
subsidiaries, indirectly owns interests in several generating facilities located
throughout North America.
Mr. Clarke also described Dynegy's natural gas liquids business. Operating
primarily through Dynegy Mid-Stream Services, L.P., a wholly-owned subsidiary,
Dynegy engages in the gathering and processing of natural gas and the
transportation, fractionalization, and storage of natural gas liquids. Mr.
Clarke testified that Dynegy also markets natural gas, natural gas liquids, and
crude oil through its affiliated marketers, including Dynegy Marketing and
Trade. Dynegy also has ownership interests in and operates natural gas
processing facilities located in the states of Oklahoma, Utah, Texas, Louisiana,
New Mexico, and Arkansas. Dynegy also owns and operates two natural gas
processing facilities located in Alberta, Canada. These facilities are used to
refine raw natural gas into marketable pipeline quality natural gas by
extracting various natural gas liquids, and consist of both field plants, which
aggregate volumes from multiple producing wells, and straddle plants, which are
situated on mainline natural gas pipelines. Dynegy also owns and operates
various gathering systems and interstate and intrastate pipelines that transport
natural gas, crude oil, and liquids. Through subsidiaries, Dynegy owns
interests in three natural gas fractionalization facilities located in the
states of Texas and Louisiana. These facilities are used to separate the
commingled stream of liquid hydrocarbons removed from the natural gas stream at
natural gas processing plants into marketable component products. Incident to
its natural gas liquids transportation operations, Dynegy also has ownership
interests in and operates product storage and terminal facilities located in the
states of Louisiana, Texas, Mississippi, Kentucky, and Florida.
Mr. Clarke testified that Dynegy's issued and outstanding common stock is
principally owned by three entities: British Gas plc ("BG"), Chevron Corporation
("Chevron") and NOVA Chemicals Corp. ("NOVA"), which each own approximately 26%
of the issued and outstanding common stock of Dynegy. Ten percent of the common
stock of Dynegy is held by senior management, and the remaining shares are
publicly traded. After the Merger, it is expected that the issued and
outstanding common stock of the new Dynegy will be owned as follows: 28% by
Chevron, 5% by Dynegy senior management and 60% by the public (which includes
current Illinova shareholders). BG
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99-0419
and NOVA will each retain less than a 5% interest in the Dynegy in the form of
Series A Convertible Preferred Stock.
IV. APPLICABLE LAW
The action of the Commission in this proceeding is governed by Section
7-204 of the Act relating to the approval of reorganizations. Under Section
7-204, the term "reorganization" is defined as "any transaction which,
regardless of the means by which it is accomplished, results in a change in the
ownership of a majority of the voting capital stock of an Illinois public
utility; or the ownership or control of any entity which owns or controls a
majority of the voting capital stock of a public utility . . . ." This section
further provides that the "Commission shall not approve any proposed
reorganization if the Commission finds, after notice and hearing, that the
reorganization will adversely affect the utility's ability to perform its duties
under this Act."
In reviewing the proposed reorganization, the Commission is required by
Section 7-204 to find that:
(1) the proposed reorganization will not diminish the utility's ability to
provide adequate, reliable, efficient, safe, and least-cost public
utility service;
(2) the proposed reorganization will not result in the unjustified
subsidization of non-utility activities by the utility or its
customers;
(3) costs and facilities are fairly and reasonably allocated between
utility and non-utility activities in such a manner that the
Commission may identify those costs and facilities which are properly
included by the utility for ratemaking purposes;
(4) the proposed reorganization will not significantly impair the
utility's ability to raise necessary capital on reasonable terms or to
maintain a reasonable capital structure;
(5) the utility will remain subject to all applicable laws, regulations,
rules, decisions, and policies governing the regulation of Illinois
public utilities;
(6) the proposed reorganization is not likely to have a significant
adverse effect on competition in those markets over which the
Commission has jurisdiction; and
(7) the proposed reorganization is not likely to result in any adverse
rate impacts on retail customers.
Section 7-204(c) provides that the Commission shall not approve a
reorganization without ruling on:
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99-0419
(i) the allocation of any savings resulting from the proposed
reorganization; and
(ii) whether the companies should be allowed to recover any costs incurred
in accomplishing the proposed reorganization and, if so, the amount of
costs eligible for recovery and how the costs will be allocated.
Section 7-204(f) provides that "in approving any proposed reorganization
pursuant to this Section the Commission may impose such terms, conditions or
requirements as, in its judgment, are necessary to protect the interests of the
public utility and its customers."
Mr. Smith, Case Manager for Staff, testified that Staff had no objection to
the proposed reorganization since IP satisfied the requirements of Section 7-204
and, therefore, Staff does not oppose the granting of the application.
V. REQUEST FOR EXPEDITED TREATMENT
In its application initiating this docket, IP requested that the Commission
expedite its consideration of the proposed Reorganization and issue an order in
this docket by December 31, 1999. In support of its request, IP pointed out
that the proposed Merger is substantially similar to two reorganizations
recently considered and approved by the Commission, Central Illinois Light
Company with AES Corporation (Docket 98-0882) and MidAmerican Energy Company
with CalEnergy Company (Docket 98-0853), each of which involved the merger of a
traditional utility company with an independent power producer/power marketer.
Each was approved on a procedural schedule substantially shorter than that
allowed under Section 7-204. Thus, IP sought Commission review and approval of
its application on the same expedited basis as the Commission's proceedings with
regard to the MidAmerican and CILCO transactions, such that an order would be
issued no later than the end of 1999.
In supplemental testimony filed by Mr. Altenbaumer, the Commission was
informed that the Securities and Exchange Commission ("SEC") elected to forego
review of Illinova's preliminary S-4 registration/proxy statement. Subject to
minor amendments, this is the document that will be mailed to shareholders to
announce the special shareholders' meeting and to solicit their votes for
approval of the Merger. This decision by the SEC allowed IP to move up the
date of the shareholder meeting for approval of the Merger to October 11, 1999.
The waiting period for the Hart-Scott-Rodino Antitrust Improvements Act filing
was also ended early, on August 24, 1999, meaning the Company is free to proceed
with the merger under that law. Federal Energy Regulatory Commission ("FERC")
approvals are expected in November 1999.
Mr. Altenbaumer also described related approvals that are necessary in
order for the Merger to take place. In particular, closing of the sale of the
Clinton Power Station ("Clinton") is a condition of the Merger. Therefore, all
regulatory approvals required for the Clinton sale are required prior to
completion of the Merger. Approval of the Clinton
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99-0419
sale is expected by early October 1999 from the Federal Trade Commission and the
U.S. Department of Justice under the Hart-Scott-Rodino Anti-trust Improvement
Act. FERC approval is expected the first week of November 1999. An Internal
Revenue Service ruling regarding tax issues surrounding the sale of Clinton is
expected the second week of November 1999. The Nuclear Regulatory Commission is
expected to approve the Clinton sale the last week in November. The Commission
approved IP's 16-111(g) filing concerning the sale of Clinton on October 26,
1999.
It was Mr. Altenbaumer's expectation that all regulatory approvals, other
than the approval of the Commission herein, would be obtained by the end of
November. Illinova's and Dynegy's shareholders were scheduled to meet to
approve the Merger at shareholder meetings on October 11, 1999. Consequently,
given the quick pace at which it has been able to obtain regulatory clearances
and approvals, IP now expects the Merger to close by December 31, 1999. Closing
on this date is also convenient from an accounting perspective, since it is the
actual year end.
VI. SECTION 7-204 CRITERIA
A. IP's ability to provide adequate, reliable, efficient, safe, and
least-cost public utility service.
Mr. Altenbaumer stated that the Merger will enhance IP's ability to serve
its customers by enabling IP to address customers' total energy needs. In
addition, the Merger will make IP a more experienced, innovative, and
competitive company. This should result in the provision of more diverse and
reliable services. IP's current efforts to support economic development in
Illinois will continue after the merger.
Mr. Altenbaumer testified that the Merger will not have an adverse impact
upon IP's ability to provide adequate, reliable, efficient, safe, and least-cost
gas utility service in Illinois. IP will remain as a separate corporation, and
there will be no change in IP's assets or gas operations as a result of the
Merger. Any work force reductions are not expected to affect gas utility
operating personnel. The Merger will not adversely affect IP's ability to
perform its duties related to its regulated gas operations under the Act.
Therefore, in accordance with Section 7-204(b)(1) of the Act, the Merger will
not have an adverse impact upon IP's ability to provide adequate, reliable,
efficient, safe, and least-cost gas utility service in Illinois. In fact, if
anything, the Merger will enhance IP's ability to provide adequate, reliable,
efficient, safe, and least-cost gas utility service in Illinois, by providing a
stronger financial base and access to a broader base of skills and experience in
the energy markets.
Mr. Clarke confirmed that there will be no change in the manner in which IP
provides retail gas service in Illinois after the Merger. IP's assets, gas
operations, and capital structure will remain the same after the Merger. The
Company's corporate headquarters will remain in Decatur after the Merger as
well. IP will continue to contribute to the community after the Merger in the
manner and to the extent that it does today. If there is any impact of the
Merger on IP, it will be an increase in the
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quality and type of services IP provides to its retail natural gas customers as
a result of the stronger financial base and increased base of skills and
experience available to IP.
Staff witness Smith concluded that the proposed Merger will not adversely
affect IP's ability to provide adequate, reliable, efficient, safe, and least-
cost public utility service.
B. UNJUSTIFIED SUBSIDIZATION OF NON-UTILITY ACTIVITIES BY IP OR ITS
CUSTOMERS.
Both Mr. Altenbaumer and Ms. Steward, IP's Controller, testified that the
proposed Merger would not result in the unjustified subsidization of non-utility
activities by IP's gas utility or its retail gas customers. The only direct
effect of the Merger on IP will be a change in the ownership of the common stock
of IP's parent corporation (Illinova) and, ultimately, a change in the ownership
of IP's common stock.
IP has in place policies and procedures that comply with regulatory
requirements related to non-utility activities of IP and to transactions between
IP and its affiliated interests. Those policies and procedures will continue to
be followed by the merged companies after the Merger, unless different
procedures are approved by the Commission in Docket 99-0114, the proceeding in
which a proposed new Services and Facilities Agreement among IP and its
affiliates is being considered by the Commission. These existing policies and
procedures, which have been established or approved by the Commission, are
intended to prevent, among other things, unjustified subsidization of non-
utility or affiliated interest activities by IP's gas utility operations or its
retail gas customers. Thus, the proposed merger will not result in the
unjustified subsidization of non-utility or affiliated interest activities by
IP's gas utility operations or IP's retail gas customers, consistent with the
requirement of Section 7-204(b)(2).
Mr. Altenbaumer also explained that IP's accounting policies or procedures
will not change as a result of the Merger. IP will continue to utilize its
existing accounting policies and procedures related to its regulated gas utility
operations after the Merger, and will continue to use the FERC and ICC Uniform
Systems of Accounts.
Staff witness Smith concluded that the proposed Merger will not result in
the unjustified subsidization of non-utility activities by IP's gas utility or
its retail gas customers.
C. FAIR AND REASONABLE ALLOCATION OF COSTS AND FACILITIES BETWEEN IP'S
ILLINOIS GAS UTILITY OPERATIONS AND NON-UTILITY ACTIVITIES.
Ms. Steward testified that there will be no change in the method of
charging employee time or any other expense to gas utility operations, electric
utility operations, non-utility activities, or affiliates as a result of the
Merger. IP employees are required to charge their time to the corporate
business entity or activity receiving the benefit of their services. Monthly
reports are produced showing the time and related costs which have been charged
to affiliates, and invoices are generated based on these reports.
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There will be no change in these procedures after the Merger except to the
extent allowed by the Commission in its forthcoming order in Docket 99-0114.
Ms. Steward described the process through which corporate personnel and
expenses are allocated between the gas and electric utility businesses. As
described in IP's 1998 ILCC Form 21, expenses are allocated, when possible,
directly to the utility that caused the expense to be incurred. Common costs
(expenses attributable to both the electric and gas utilities) are allocated
based on certain ratios, such as number of customers, revenues, or revenues plus
expenses. This allocation process will not change after the Merger.
Ms. Steward testified that costs and facilities will be fairly and
reasonably allocated between regulated gas utility operations and non-utility
activities in such a manner that the Commission may identify those costs and
facilities which are properly included for gas utility ratemaking purposes. IP
has in place existing policies and procedures which comply with Commission
requirements related to non-gas utility activities and to affiliate
transactions. These policies and procedures assure that costs and facilities
are fairly allocated. They will be adopted by the merged company. Thus, the
requirements of Section 7-204(b)(3) of the Act will be met.
In addition, Ms. Steward explained that IP is currently in compliance with
the Commission's rules for "Accounting for Non-Public Utility Business of Gas
Utilities" (Part 506). IP performed an internal audit which determined that IP
is operating in compliance with Part 506. IP submitted a report to the
Commission on December 1, 1998 reporting the results of that audit, a copy of
which was submitted in this Docket as IP Exhibit 4.1. Ms. Steward further
stated that the merged companies will continue to comply with applicable
Commission rules regarding affiliate transactions and relationships.
Staff witness Smith concluded that a fair and reasonable allocation of
costs and facilities will occur after the Merger between IP's Illinois gas
utility operations and non-utility activities.
D. IMPAIRMENT OF THE ABILITY OF IP'S GAS UTILITY OPERATIONS TO RAISE
NECESSARY CAPITAL ON REASONABLE TERMS OR TO MAINTAIN A REASONABLE
CAPITAL STRUCTURE.
Mr. Altenbaumer testified that the Merger will have a positive effect on
the long term financial strength of IP as a result of being a part of a larger
global entity and as a result of access to the additional skills and experience
that will be provided by the merger. This will better position IP to compete in
the energy markets. Mr. Schultz, IP's Vice President - Finance, provided
additional information concerning the financial impacts of the Merger. He
stated that the proposed Merger will not impair IP's ability to raise capital on
reasonable terms, and will not impair IP's ability to maintain a reasonable
capital structure. Those conclusions are based upon two facts, (1) IP's balance
sheet and capitalization will not be changed by the proposed Merger, and (2)
IP's financial ratios will not be changed as a result of the proposed Merger.
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Mr. Schultz explained that IP will raise capital after the Merger in the
same way it does today: through the issuance of short-term debt or bank lines of
credit, and, with the Commission's approval, through the issuance of long-term
debt. IP also raises capital through the issuance of preferred stock and will
have the same ability to borrow and to issue preferred stock after the proposed
Merger is complete. The overall financial strength of the utility is the
primary factor, and is related to the utility's current and expected capital
structure, interest and preferred dividend coverages, and business risk. The
financial strength is normally reflected through ratings by agencies such as
Moody's, Standard & Poor's, Duff & Phelps, and Fitch IBCA. IP's commercial
paper is rated P-2 by Moody's, A-2 by Standard & Poor's, D-2 by Duff & Phelps,
and F-2 by Fitch IBCA. The Company's mortgage bonds are currently rated Baa1 by
Moody's, BBB by Standard & Poor's, BBB by Duff & Phelps, and BBB+ by Fitch IBCA.
The ratings for IP's preferred stock are Baa2 by Moody's, BB+ by Standard &
Poor's, BBB- by Duff & Phelps, and BBB by Fitch IBCA. All these ratings, with
the exception of IP's preferred stock rating by Standard & Poor's, are within
the "investment grade" category that permits utilities to realize the most
favorable terms and widest investment audience when issuing securities. Mr.
Schultz testified that it is expected that the ratings will remain at investment
grade levels after the Merger is completed.
Mr. Schultz noted that IP received positive feedback from the rating
agencies after the announcement of the Merger. Duff & Phelps placed the
Company's ratings on Rating Watch - Up following the announcement of the Merger.
Standard & Poor's placed IP on CreditWatch with positive implications. Moody's
confirmed its credit ratings of IP. A press release from Fitch IBCA states that
it expects the Merger to have little effect on the credit ratings of IP. This
information establishes that IP's credit ratings will likely remain the same or
improve after the Merger.
Mr. Schultz explained that IP obtains common equity through retained
earnings. If greater common equity capital is required, IP can reduce the
amount of dividends paid to its parent company. If common equity capital is
required by IP in excess of the earnings on common equity, the parent
corporation would have to invest additional capital, either out of cash flow,
retained earnings, borrowings, or the issuance of common equity or preferred
stock by the parent. IP has not required an investment of common equity capital
beyond its own earnings since it became a subsidiary of Illinova, and does not
anticipate the need for the investment of common equity capital for its retail
natural gas operations within the foreseeable future. However, if investments
of common equity were required in the future, the larger financial base of the
combined companies would likely make it easier to obtain any needed capital.
Given these facts, Mr. Schultz concluded that the Merger may enhance IP's
ability to finance on reasonable terms.
Staff witness Smith concluded that the proposed Merger will not impair IP's
ability to raise capital on reasonable terms, and will not impair its ability to
maintain a reasonable capital structure.
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E. CONTINUED APPLICATION OF ALL APPLICABLE LAWS, REGULATIONS, RULES,
DECISIONS, AND POLICIES GOVERNING THE REGULATION OF ILLINOIS PUBLIC
UTILITIES TO IP'S GAS UTILITY OPERATIONS.
Messrs. Altenbaumer and Clarke both testified that the proposed Merger will
not in any manner change IP's status as a gas public utility subject to the
jurisdiction of the Commission. IP's gas utility operations will remain subject
to all applicable laws, regulations, rules, decisions, and policies governing
the regulation of Illinois public utilities, in accordance with Section 7-
204(b)(5) of the Act. Thus, Messrs. Altenbaumer and Clarke concluded that the
Merger will cause no change affecting the regulation of IP as a public utility.
Staff witness Smith concluded that the proposed Merger will not result in a
change in the regulation of IP, and that all applicable laws, regulations,
rules, decisions, and policies governing the regulation of Illinois public
utilities will continue to apply to IP's gas utility operations after the
Merger.
F. IMPACT OF PROPOSED REORGANIZATION ON COMPETITION IN THE NATURAL GAS
UTILITY MARKET OVER WHICH THE COMMISSION HAS JURISDICTION.
Mr. Altenbaumer addressed the impact of the Merger on competition in the
natural gas utility market over which the Commission has jurisdiction. He
explained that while Dynegy or its affiliates provide unregulated gas sales
service in IP's gas service territory, they serve an immaterial share of the
market. Moreover, Dynegy and its affiliates will continue to offer such service
after the proposed Merger. IP is required to provide non-discriminatory gas
distribution services to all its retail customers and will not provide
preferential treatment to Dynegy or to Dynegy's retail gas customers in the
provision of retail gas distribution services. Dynegy does not own any gas
transmission and distribution facilities and does not offer any gas distribution
and transmission service in Illinois. IP does not provide retail gas service in
Illinois outside of its regulated service territory. With regard to the
Company's Best Efforts Gas Service, which is a competitive gas service offering
provided to Service Classification 76 customers, IP intends to continue to offer
this service after the Merger. Therefore, Mr. Altenbaumer concluded that, in
accordance with Section 7-204(b)(6) of the Act, the proposed Merger is not
likely to have an adverse effect on competition in those retail gas markets over
which the Commission has jurisdiction.
Staff witness Smith concluded that the proposed Merger is not likely to
have an adverse effect on competition in those retail gas markets over which the
Commission has jurisdiction.
G. RATE IMPACT OF PROPOSED REORGANIZATIONS ON RETAIL CUSTOMERS.
Mr. Altenbaumer explained that the Merger is expected to result in cost
reductions, a portion of which would be allocable to IP's gas utility
operations, as well as operating efficiencies. These cost reductions and
operating efficiencies would serve to delay, and ultimately reduce the level of,
any future requests for gas rate increases.
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IP will not seek treatment for these Merger-related cost savings that is
different than the treatment of any other reduction in the cost of providing gas
service. Thus, the Commission will be able to allocate these savings to IP's gas
customers in any future rate case. Finally, IP's customers' gas costs will not
be adversely affected by the reorganizations. Indeed, the Commission will have
the opportunity to ensure that this is the case in its annual Gas Cost
Adjustment proceedings. In fact, if anything, the Merger is likely to enhance
IP's ability to purchase low cost gas supplies for system supply purposes.
Therefore, Mr. Altenbaumer concluded that, in accordance with Section
7-204(b)(7) of the Act, the proposed Merger is not likely to result in any
adverse rate impacts on IP's retail gas customers.
Ms. Steward testified that there is no expectation of higher gas rates
caused by this Merger. In fact, the cost savings and operating efficiencies
anticipated to result from the Merger would serve to delay, and ultimately
reduce the level of, any request for a gas rate increase. She explained further
that IP is currently earning less than its allowed gas rate of return. Even
assuming an optimistic level of cost savings resulting from the Merger and a
generous allocation of those savings to the gas utility, IP would continue to
earn less than its allowed rate of return on gas operations after the Merger.
IP is not currently planning to seek an increase in natural gas rates, although
IP will continue to monitor its rate of return on gas operations. She concluded
that, if anything, the proposed Merger will serve to delay any future request
for a rate increase.
Staff witness Smith concluded that the proposed Merger is not likely to
result in any adverse rate impacts on the Company's retail gas customers.
H. ALLOCATION OF SAVINGS AND COSTS ASSOCIATED WITH THE PROPOSED
REORGANIZATIONS.
Section 7-204(c) of the Act requires the Commission to rule on the
allocation of any savings resulting from the proposed Merger. This Section also
requires the Commission to rule whether the reorganizing companies should be
allowed to recover costs incurred in accomplishing the proposed Merger, and if
so, the amount of costs eligible for recovery and how the costs will be
allocated.
Mr. Altenbaumer testified that Dynegy and Illinova project annual Merger
synergies of $125 to $165 million. Two-thirds of these synergies are expected
to come from revenue enhancements through increased utilization of non-regulated
electric generation, marketing, and trading based on the combined assets, and
risk management and arbitrage opportunities. One-third is expected to come from
cost efficiencies including elimination of duplicate activities, greater
operating efficiencies, and lower capital costs. Mr. Altenbaumer emphasized
that the objective of the Merger is growth, not cost cutting. He testified
that an approximate 5% reduction is anticipated in the combined 6,500 person
workforces of Dynegy and Illinova, mainly in those administrative functions
where there is duplication between the two companies. The areas primarily
affected will be corporate support and overhead functions, as opposed to
operating personnel. A joint integration team will be identifying these
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potentially duplicative functions over several months. IP and Dynegy expect
that normal attrition, new employment opportunities at Dynegy and voluntary
separation or early retirement will mitigate the impact of this reduction on IP
employees.
IP's position in this case is that 100% of the actual gas utility-related
Merger savings should be flowed through to its gas customers. IP proposes to do
so through inclusion of those savings in its gas cost of service. This proposal
will serve to delay the need for a rate increase or reduce any future requested
rate increase. Mr. Altenbaumer explained that because IP is currently earning
below its authorized rate of return, these savings will likely defer a request
for a rate increase. He also pointed out that any synergies related to reduced
gas commodity costs would also be flowed directly through in their entirety to
IP's gas customers.
Mr. Altenbaumer testified that Illinova and Dynegy have incurred and
continue to incur significant transaction costs associated with the proposed
Merger, including investment banking fees, financial consulting costs,
accountants' charges, printing, postage, proxy solicitation, filing fees, and
legal fees. In addition, there will be costs associated with employee
separations, system integration, employee relocation, and internal and external
communications which will be necessary to achieve the expected savings. During
1999, Illinova expects to incur $16 million of these costs. These are necessary
expenses to accomplish the Merger, an allocated portion of which would be
properly recoverable from IP's gas utility customers. Mr. Altenbaumer testified,
however, that IP has committed to not seek to recover, in any future gas rate
case, the costs incurred in accomplishing the Merger.
Staff witness Smith testified that IP's proposal satisfied the
requirements of Section 7-204(c). He agreed that the result of IP's proposal is
that 100% of the actual gas-related Merger savings will be passed on to IP's gas
customers through inclusion in IP's gas cost of service and that no Merger costs
will be passed on to IP's gas customers.
VII. SECTION 7-204A
Section 7-204A of the Act sets forth information to be furnished in
connection with certain applications for approval of reorganizations under
Section 7-204. As detailed in paragraphs 16 through 25 of IP's Petition and the
related exhibits, IP provided to the Commission all the information required
under Section 7-204A.
VIII. REQUEST FOR RELIEF UNDER SECTION 7-101
With respect to transactions with affiliates, IP is seeking in this
application approval pursuant to Section 7-101 of the Act of an Interim Services
and Facilities Agreement, which would be effective pending approval of a
permanent Services and Facilities Agreement, approval of which is currently
pending before the Commission in Docket 99-0114. In addition, IP originally
sought a Commission determination in this proceeding that the Services and
Facilities Agreement which is ultimately approved by
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the Commission in Docket 99-0114 would be deemed to be effective as to IP and
Dynegy after the Merger.
A. INTERIM SERVICES AND FACILITIES AGREEMENT
With regard to the first request for approval of an Interim Services and
Facilities Agreement, Ms. Steward testified that IP and Illinova have a Services
and Facilities Agreement in place which was approved by the Commission in Docket
94-0005. An addendum was approved in a supplemental order in Docket 94-0005 in
1995, and that approval was extended to December 31, 2000 by a further
supplemental order in 1998. This agreement was originally approved before
electric industry restructuring was contemplated, and only allows for the one-
way provision of services from IP to Illinova. In this agreement, charges for
facilities and services provided by IP to Illinova are at IP's fully loaded
cost, which includes direct labor expense, labor overheads, employee benefits
participation/processing expenses, other administrative and general overheads
and costs, and interest on cash advances.
Ms. Steward further explained that on February 26, 1999, IP filed a
petition with the Commission requesting approval of a new Services and
Facilities Agreement between and among Illinova, IP, and all other Illinova
subsidiaries. Unlike the current agreement, the new agreement is reciprocal
since it provides for services and facilities to be provided both by IP and to
IP. The new Services and Facilities Agreement generally covers two types of
transactions: transactions involving facilities and services, and those
involving the sale of assets. Transactions for use of facilities may involve
office space or various types of equipment. Services may include, but are not
limited to, financial, personnel, purchasing, information technology,
administrative, and engineering. Transactions involving sale of assets include
Illinova stock, transfers of real property, tangible personal property, or
intangible assets. Under the proposed Services and Facilities Agreement,
charges for facilities and services would be set at fully distributed cost
unless that cost is above market price. If fully distributed cost is above
market price, then the charge would be set above incremental cost but at no more
than market price. Costs charged on a fully distributed (embedded) cost basis
reflect the direct labor, direct materials, direct purchased services and
certain labor-related indirect costs associated with the related asset or
service. In general, asset sales would be charged at the fair market value of
the asset unless laws or regulations require a different price. As with
services and facilities, the charge would be set symmetrically. Costs that are
specifically attributable to a party would be charged directly to that party.
Costs that have joint benefit to two or more parties (but not all) would be
allocated according to cost causative or benefit derivation measures.
Ms. Steward explained that in the event that a new Services and Facilities
Agreement is not approved prior to consummation of the Merger, IP has sought
approval in its Petition for an Interim Services and Facilities Agreement, a
copy of which was provided as IP Exhibit 4.2, in order to provide a basis for
services and facilities and asset sales to be provided from Dynegy and its
subsidiaries to IP and vice versa. This Interim Agreement incorporates all of
the terms and conditions of the
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proposed agreement pending in Docket 99-0114 and would be effective as to any
services and facilities provided by IP to its affiliates, including new
affiliates resulting from the Merger, or vice versa. The Interim Agreement will
terminate and be superseded by the new agreement approved by the Commission when
the new agreement is in fact approved in Docket 99-0114.
Ms. Steward stated that an Interim Services and Facilities Agreement for IP
was previously approved in Docket 99-0209 and is applicable to services provided
to IP by its new generation affiliate, Illinova Power Marketing, Inc. and the
Interim Agreement is also identical to the Services and Facilities Agreement
pending in Docket 99-0114. IP agreed to use the Interim Agreement only until
the final order is issued in Docket 99-0114, and then to use the Services and
Facilities Agreement approved by the Commission in that docket. Thus, IP's
request in this case is identical to its request which was granted in Docket 99-
0209.
Staff witness Smith filed testimony regarding the Company's request that
the Commission authorize use of the terms in the Services and Facilities
Agreement proposed in Docket 99-0114 for transactions between IP and its
subsidiaries pending approval of an agreement in Docket 99-0114. It is Staff's
position that an interim agreement is necessary in order for services to flow
both to and from IP. It is further Staff's position that, rather than utilize
all the terms of the as-yet-unapproved agreement submitted in Docket 99-0114,
the Company should use the pricing terms of the existing Docket 94-0005
agreement until such time as a new agreement is approved in Docket 99-0114. In
addition, Staff recommends that IP be directed to provide the names of all
affiliated entities who will enter into business transactions with IP. Staff
further recommends that during the period between consummation of the Merger and
approval of an agreement in Docket 99-0114, the terms of the 94-0005 agreement
should be applicable to transactions between IP and Dynegy as if Dynegy were
inserted in place of Illinova in that agreement. No additional written
agreement need be executed in order for such transactions to take place for this
interim period. IP has accepted Staff's position on this issue.
As a result of a change in the procedural schedule in Docket 99-0114, the
parties have further agreed that the pricing for services and facilities
provided to and from IP pursuant to the interim arrangement approved in this
Order will be trued up to comport with the pricing contained in the services and
facilities agreement ultimately approved in Docket 99-0114. Specifically,
within 45 days after approval of an agreement in Docket 99-0114 IP will make the
necessary accounting adjustments to implement the pricing in the approved
agreement with the result that all transactions entered into under the interim
arrangement will be priced as if the permanent agreement's pricing terms had
been in effect at the time the transactions took place. The parties also
agreed, and the Commission concludes that the interim arrangement will expire
June 30, 2000.
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B. SUBSTITUTION OF DYNEGY FOR ILLINOVA IN AGREEMENT APPROVED IN DOCKET
99-0114
With regard to the other request for relief related to the Services and
Facilities Agreement, Ms. Steward explained that the Services and Facilities
Agreement pending in Docket 99-0114 was drafted and filed with the Commission
for approval before the Merger was announced. The Agreement therefore is not
between IP and Dynegy, but instead between IP and Illinova. IP requests in this
docket that the Commission conclude that the Services and Facilities Agreement
ultimately approved in Docket 99-0114 be deemed to be applicable to transactions
between Dynegy and IP. In other words, IP is seeking the Commission's approval
in this case of the substitution of Dynegy for Illinova in whatever agreement is
approved in Docket 99-0114. IP stated that it would provide a revised version
of such Agreement at the conclusion of Docket 99-0114.
Staff witness Smith filed testimony opposing this request. It is Staff's
position that such a request should be considered by the Commission in Docket
99-0114. Based on Staff's position, IP has agreed to make its request to
substitute Dynegy for Illinova in Docket 99-0114 and to withdraw that request in
this Docket.
IX. FINDINGS AND ORDERING PARAGRAPHS
The Commission, having considered the entire record, is of the opinion and
finds that:
(1) IP is an Illinois corporation providing natural gas service to
customers in the State of Illinois and is a public utility within the
meaning of the Act;
(2) the Commission has jurisdiction over IP and the subject matter of this
proceeding;
(3) the recitals of fact and conclusions reached in the prefatory portion
of this Order are supported by the evidence of record, and are hereby
adopted as findings of fact;
(4) the proposed Reorganization meets the criteria set forth in Section 7-
204 of the Act with respect to IP's gas operations, in that:
(a) the proposed Reorganization will not diminish IP's ability to
provide adequate, reliable, efficient, safe, and least-cost gas
public utility service;
(b) the proposed Reorganization will not result in the unjustified
subsidization of non-utility activities by IP or its customers
with respect to IP's gas operations;
(c) costs and facilities are fairly and reasonably allocated between
utility and non-utility activities in such a manner that the
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Commission may identify those costs and facilities which are
properly included by IP for ratemaking purposes for its gas
utility operations;
(d) the proposed Reorganization will not significantly impair IP's
ability to raise necessary capital on reasonable terms or to
maintain a reasonable capital structure with respect to its gas
utility operations;
(e) IP will remain subject to all applicable laws, regulations,
rules, decisions, and policies governing the regulation of
Illinois public utilities with respect to IP's gas utility
operations;
(f) the proposed Reorganization is not likely to have a significant
adverse effect on competition in the Illinois gas utility markets
over which the Commission has jurisdiction; and
(g) the proposed Reorganization is not likely to result in any
adverse rate impacts on retail gas customers of IP;
(5) IP has furnished to the Commission the information specified in
Section 7-204A with respect for the proposed Reorganization;
(6) the proposed Reorganization will not adversely affect the ability of
IP to perform its duties under the Act with respect to its gas utility
operations;
(7) any savings resulting from the proposed Reorganization with respect to
IP's gas utility operations shall be reflected in IP's cost of service
for recognition in future rate proceedings;
(8) transaction costs with respect to IP's gas utility operations portion
of the Reorganization shall not be recovered from IP's gas utility
customers;
(9) IP will not seek to recover from its gas customers in any future gas
rate case the costs incurred in accomplishing the Reorganization;
(10) IP may provide services and facilities to or purchase services and
facilities from Dynegy and all other affiliates in existence post-
Reorganization during the period after the Reorganization is
consummated but prior to the approval of a Services and Facilities
Agreement in Docket 99-0114 under the pricing provisions and other
terms and conditions of the Services and Facilities Agreement approved
in Docket 94-0005, provided that this interim arrangement will
terminate the earlier of the date the Services and Facilities
Agreement is approved by the Commission in Docket 99-0114 or June 30,
2000; and provided that IP shall provide to Staff the names of all
affiliated entities who will enter into business transactions with IP
pursuant to this authority; and provided that IP will true up all
amounts paid or received pursuant to this
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interim arrangement with the pricing provisions ultimately approved in
Docket 99-0114 in the manner described above;
(11) IP's petition for approval of the proposed Reorganization with respect
to IP's gas utility operations should be approved; and
(12) the consent, authority, and approval of the Commission should be
granted to IP to do any and all other things not contrary to law or to
the rules and regulations of the Commission that are incidental,
necessary, or appropriate to the performance of any and all acts
specifically authorized by the Commission in this Order.
IT IS THEREFORE ORDERED by the Illinois Commerce Commission that approval
is hereby granted to Illinois Power Company, with respect to its gas utility
operations, for the Reorganization that is the result of the transactions in
which Dynegy, Inc. will acquire ownership and control of Illinova Corporation
and, at a future date, Energy Convergence Holding Company will acquire direct
ownership of a majority of the voting capital stock of Illinois Power Company,
as more fully described in Illinois Power Company's application and in Section
II of this Order.
IT IS FURTHER ORDERED that Illinois Power Company shall file with the
Commission written notice of completion of the Reorganization and the effective
date thereof within 30 days after the effective date of the Reorganization.
IT IS FURTHER ORDERED that Illinois Power Company may provide services and
facilities to or purchase services and facilities from Dynegy and all other
affiliates in existence post-Reorganization during the period after the
Reorganization is consummated but prior to approval of a Services and Facilities
Agreement in Docket 99-0114 under the pricing provisions and other terms and
conditions of the Services and Facilities Agreement approved in Docket 94-0005,
provided that this interim arrangement will terminate the earlier of the date
the Services and Facilities Agreement approved by the Commission in Docket 99-
0114 or June 30, 2000; and provided further that Illinois Power Company shall
provide to Staff the names of all affiliated entities who will enter into
business transactions with Illinois Power Company pursuant to this authority;
and provided further that Illinois Power company will true up all amounts paid
or received pursuant to this interim arrangement with the pricing provisions
ultimately approved in Docket 99-0114 in the manner described above.
IT IS FURTHER ORDERED that the consent, authority, and approval of the
Commission are granted to Illinois Power Company to do any and all other things
not contrary to law or to the rules and regulations of the Commission that are
incidental, necessary, or appropriate to the performance of any and all acts
specifically authorized by the Commission in this Order.
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IT IS FURTHER ORDERED that subject to the provisions of Section 10-113 of
the Public Utilities Act and 83 Ill. Adm. Code 200.880, this Order is final; it
is not subject to the Administrative Review Law.
By order of the Commission this 23rd day of November, 1999.
Chairman
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<PAGE>
SECURITIES AND EXCHANGE COMMISSION
(RELEASE NO. 35-27122; 70-9553)
CHEVRON CORPORATION, ET AL.
ORDER AUTHORIZING THE ACQUISITION OF COMMON STOCK OF A PUBLIC UTILITY HOLDING
COMPANY
DECEMBER 27, 1999
Chevron Corporation ("Chevron"), San Francisco, California; Chevron U.S.A.
Inc. ("Chevron USA"), a wholly owned subsidiary of Chevron located in Houston,
Texas; Illinova Corporation ("Illinova"), Decatur, Illinois, an Illinois
public-utility holding company exempt from registration under section 3(a)(1) of
the Public Utility Holding Company Act of 1935, as amended ("Act"); and Energy
Convergence Holding Company ("New Dynegy"), a special purpose subsidiary of
Illinova located in Houston, Texas (collectively "Applicants") have filed an
application with this Commission under sections 9(a)(2) and 10 of the Public
Utility Holding Company Act, as amended ("Act"). The Commission issued a notice
of the filing of the application on November 19, 1999 (HCAR No. 27105).
In summary, applicants request authority to consummate a series of
transactions that will result in (a) the affiliation of Illinova with Dynegy,
Inc. ("Dynegy"), a nonutility company engaged, among other things, in energy
commodities trading and owning and operating power generation projects and (b)
the establishment of New Dynegy, which would be a subsidiary of Chevron USA,/1/
as a holding company over Illinova and Dynegy./2/ New Dynegy states that it
- ----------------
/1/ Chevron USA currently owns approximately 29% of the outstanding common
and preferred stock of Dynegy and, upon completion of the proposed
transactions described below, will own approximately 28% of the common stock
of New Dynegy.
/2/ New Dynegy currently has no material assets and no public utility assets,
subsidiaries, or affiliates.
<PAGE>
2
will file for the exemption from registration provided for in section 3(a)(1) of
the Act under rule 2 under the Act after it acquires Illinova. In addition,
Chevron USA intends to apply for an exemption from registration under section
3(a)(3) of the Act.
Background
Chevron, a Delaware corporation, manages its investments in, and provides
administrative, financial, and management support to, domestic and foreign
subsidiaries and affiliates that engage in petroleum and chemical operations in
the United States and approximately 90 other countries. Chevron USA is a
Pennsylvania corporation which conducts operations worldwide through its various
divisions. Its principal business activity is in its domestic upstream division
that explores for and produces crude oil, natural gas liquids, and natural gas
in the United States and its domestic downstream division that refines, markets,
and transports gasoline and other refined products in the United States. Neither
Chevron 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.
Dynegy is a Delaware corporation which markets and trades natural gas,
natural gas liquids, electricity, and coal. Dynegy also owns power generation
subsidiaries that develop, own, and operate projects that are not electric
utility companies under the Act, including exempt wholesale generators ("EWGs"),
as defined in section 32 of the Act, and companies with interests in qualifying
facilities ("QFs") under the Public Utility Regulatory Policies Act of 1978. The
majority of Chevron's natural gas production, as well as the natural gas liquids
extracted from that gas, are committed to Dynegy under various commercial
agreements. In addition to Chevron USA, Dynegy has two major industrial
<PAGE>
3
shareholders: NOVA Gas Services (U.S.) Inc. ("NOVA") and BG Holdings, Inc.
("BG"), each of which owns approximately 25% of the outstanding voting stock of
Dynegy./3/ Dynegy has no public-utility company operations, subsidiaries or
affiliates.
Illinova, an Illinois corporation, has three utility subsidiaries, i.e.,
Illinois Power Company ("Illinois Power"); Electric Energy Incorporated
("EEInc"); and Illinova Power Marketing, Inc. ("Illinova Marketing"). In
addition Illinova has five active nonutility subsidiaries, i.e., Illinova
Generating Company ("Illinova Generating"); Illinova Energy Partners, Inc.
("Illinova Energy"); Illinova Insurance Company ("Illinova Insurance"); and
Illinova Business Enterprises ("Illinova Business").
Illinois Power is Illinova's principal public-utility company subsidiary
and is engaged in the generation, transmission, and distribution of electric
energy and the sale of electric energy at wholesale and retail. Illinois Power
also owns facilities for the distribution of natural gas and is engaged in the
sale of natural gas at retail. It 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. All of Illinois Power's utility assets
are located in Illinois. Illinois Power is regulated by the Illinois Commerce
Commission ("ICC") and the Federal Energy Regulatory Commission ("FERC").
Illinova owns, through Illinova Generating, 20% of the Stock of EEInc, a
public-utility company which generates electricity at a plant located in Joppa,
Illinois for sale to the United States government nuclear processing plant near
Paducah, Kentucky.
- ---------------
/3/ Of the remaining outstanding voting stock of Dynegy, 11% is owned by
management and the balance is publicly owned.
<PAGE>
4
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
electric power from EEInc in excess of the federal government's requirements.
Illinova Marketing, a wholly owned subsidiary of Illinova, owns and
operates 3,812 megawatts ("MW") of fossil-fired generating capacity in Illinois
formerly owned by Illinois Power. Illinois Power transferred this capacity
in order to comply with recent Illinois legislation calling for the functional
separation of delivery services and generation services in connection with the
restructuring of the electric utility industry in Illinois. Illinova Marketing
will use this generating capacity primarily to meet the power requirements of
Illinois Power during the period of transition to competition in the electric
power industry established under Illinois law.
Illinova Generating, which is wholly owned by Illinova, is Illinova's
independent power subsidiary. As noted above, it owns 20% of the stock of EEInc.
It also owns interests in EWGs and QFs located throughout North America, as well
as interests in several generation facilities located outside of North America.
Illinova Energy brokers and markets electric power and gas. It also
develops and sells energy-related services in the United States and Canada and
owns interests in several gas marketing companies. Illinova Insurance's primary
business is to insure the risks related to or associated with the business
enterprises of Illinova's subsidiaries. Illinova Business engages in unregulated
energy management software and hardware sales that do fall within the business
scope of Illinova's other subsidiaries.
Illinova's revenues for 1998 were $2.43 billion, producing a net loss of
$1.38 billion. The public-utility income of Illinova derived from Illinois Power
has been negative
<PAGE>
5
recently 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./4/ Approximately 15% of Illinova's operating
revenues in 1998 came from its other, diversified enterprises.
Proposed Transaction
The proposed transaction ("Transaction") involves a combination of Dynegy
and Illinova through a series of mergers that will establish New Dynegy as a
public-utility holding company. New Dynegy will initially have two wholly owned
subsidiaries, an Illinois corporation and a Delaware corporation, 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 continue to exist,
retaining their respective historical assets and liabilities, but will be wholly
owned subsidiaries of New Dynegy. The parties intend to eliminate Illinova as a
tier in the holding company structure following the Transaction in order to
simplify the New Dynegy holding company system.
In the Transaction, Dynegy shareholders, other than Chevron USA, will have
the option to elect to receive either (i) .69 shares of New Dynegy Class A
common stock, or (ii) $16.50 in cash, in exchange for each share of Dynegy
common stock. Each Dynegy shareholder will receive cash for any fractional share
regardless of the shareholder's
- --------------------
/4/ Applicants state that the revenues and net income of EEInc are not material
to Illinova's total public-utility revenues and income.
<PAGE>
6
election. However, New Dynegy will pay cash for only approximately 40% of the
outstanding shares of Dynegy. 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 cash elections completely, 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
common stock or Series A preferred stock.
BG and NOVA have elected to receive all cash for their Dynegy shares, but
the 40% limit on the cash portion of the merger consideration will result in
their receiving at least some portion of their consideration in New Dynegy
stock, which BG and NOVA will receive in the form of Series A preferred stock.
NOVA and BG intend to liquidate to liquidate their investment, and 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 in
order to facilitate this divestment. 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 USA's equity interest in New Dynegy will be in the form of Class B
common stock. These shares give Chevron USA the right to elect three of the
fourteen
<PAGE>
7
members of the New Dynegy Board of Directors./5/ They also give Chevron USA the
right to block New Dynegy from entering into certain transactions ("Blocking
Rights"), including (a) 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 (b) mergers,
acquisitions, and other business combinations, sales of businesses or assets,
and major transactions, including joint ventures, valued at over $1 billion or
one-quarter of New Dynegy's market capitalization, whichever is greater. If
Chevron USA exercises these blocking 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 these 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 exercise of the Blocking Rights.
The acquisition of Illinova by New Dynegy will be accomplished by an
exchange of New Dynegy Class A common stock for Illinova common stock.
Specifically, Illinova shareholders will receive one share of New Dynegy Class A
common stock for each share of Illinova common stock that they own.
Applicants state that 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
- --------------
/5/ The remaining eleven members of the New Dynegy Board of Directors are
elected by the holders of New Dynegy Class A common stock.
<PAGE>
8
Transaction on October 11, 1999. In addition, Applicants note that each of
Dynegy and Illinova have been advised by professional investment advisors that
the consideration to be paid in the Transaction is fair./6/ Applicants state
that the Transaction does not affect the mortgage debt of Illinova 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. Applicants
further state that the Transaction does not affect the rights of holders of debt
issued by Dynegy.
Applicants identify a number of financial and organizational benefits that
are expected to accrue from the Transaction./7/ Illinova states that it seeks
this business combination with Dynegy in order to achieve 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 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. 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. Applicants state that a broader slate of
- ---------------
/6/ Lehman Brothers advised Dynegy in an opinion dated June 14, 1999, and
Berenson Minella & Company advised Illinova in an opinion dated June 13,
1999.
/7/ WPL Holdings, Inc., Holding Co. Act Release No. 25377 (September 18, 1991).
<PAGE>
9
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.
Applicants assert that the existence of the New Dynegy Class B common
stock will not result in an unnecessarily complicated capital structure or
voting power that is unfairly or inequitably distributed among system security
holders. Applicants state that the Class B common stock will be issued
exclusively to Chevron USA to be responsive to the role of Chevron USA as a
strategic investor in New Dynegy.
Applicants state that there will be no effect on the legal title to New
Dynegy assets or the responsibilities for the liabilities of New Dynegy or its
subsidiaries. The record also notes that the Class B common stock is identical
in all respects to Class A common stock, except with respect to the Block Rights
and with respect to certain restrictions on the transfer or conversion of the
Class B common stock. Applicants further note that the terms of all of these
securities have been disclosed to the public and to the shareholders of Dynegy
and Illinova in the New Dynegy Registration Statement filed with the Commission.
Applicants state that the FERC, the ICC, the U.S. Department of Justice
("DOJ"), and the Federal Trade Commission ("FTC") have jurisdictions over the
proposed transactions. Specifically, the FERC approved on November 10, 1999,
among other things, the transfer of control of Illinova's utility assets to New
Dynegy. On November 23, 1999, the ICC granted Illinois Power authorization to
transfer control over its gas utility operations to New Dynegy. In addition,
Chevron, Dynegy, and Illinova have each made the necessary filings with the DOJ
and the FTC under the Hart Scott-Rodino
<PAGE>
10
Antitrust Improvements Act of 1976, and on August 24, 1999 were informed by the
FTC that early termination of the waiting periods under those filings had been
granted.
Fees and expenses in the estimated amount of approximately $46 million are
expected to be incurred in connection with the proposed transactions.
Due notice of the filing of the application has been given in the manner
prescribed in rule 23 under the Act, and no hearing has been ordered by the
Commission. Upon the basis of the facts in the record, the Commission finds that
the applicable standards of the Act and rules are satisfied, and that no adverse
findings are necessary.
IT IS ORDERED, under the applicable provisions of the Act and rules under
the Act, that the application, as amended, is granted, subject to the terms and
conditions prescribed in rule 24 under the Act.
For the Commission, by the Division of Investment Management, under
delegated authority.
Jonathan G. Katz
Secretary
<PAGE>
DYNEGY-ILLINOVA MERGER
POST-MERGER ORGANIZATION
[ORGANIZATION CHART]
<PAGE>
EXHIBIT L
HISTORIC AND PROJECTED ILLINOIS POWER PUBLIC UTILITY OPERATIONS
EXCLUDING GENERATION TO BE DIVESTED BY ILLINOIS POWER
This Exhibit contains forward-looking information based on current
expectations and plans that involve risks and uncertainties. Forward-looking
information includes, among other things, financial forecasts and projections,
statements concerning the impact of regulatory changes, plans for the Clinton
Facility, divesting fossil-fired generation and success in addressing Year 2000
issues. Although Illinova and Illinois Power (collectively "Illinova") believe
these forward-looking statements are reasonable projections for their business
planning purposes and to inform regulatory agencies concerning the scope of
Illinova's public utility operations excluding generation to be divested by
Illinois Power, these projections are made for the latter purpose only.
Illinova's public utility business is dependent on various regulatory issues,
general economic conditions and future trends, and these factors can cause
actual results to differ materially from the forward-looking statements.
<PAGE>
Exhibit L-1
ILLINOIS POWER COMPANY
BALANCE SHEET
EXCLUDING ELECTRIC POWER GENERATION
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
Historical Forecast
------------------------------------------------------
1996 1997 1998 2000 2001 2002
<S> <C> <C> <C> <C> <C> <C>
ASSETS-GAS
Utility Plant
Gross Plant in Service $ 672 $ 712 $ 728 $ 781 $ 810 $ 839
Plus Capital Additions 35 20 24 - - -
------ ------ ------ ------ ------ ------
Total Utility Plant 707 732 752 781 810 839
Total Accumulated Depreciation 290 312 331 386 413 442
------ ------ ------ ------ ------ ------
418 420 421 396 397 397
Gas Underground Storage-Noncurrent 17 17 17 17 17 17
Other Property and Investments 0 0 0 0 0 0
Temporary Cash Investments - - - - - -
Notes Receivable-Asset Transfer - - - - - -
Cash 3 3 3 3 3 3
Other Current Assets 170 113 133 133 133 133
Deferred Charges 80 80 84 64 64 64
------ ------ ------ ------ ------ ------
Total Assets $ 687 $ 633 $ 637 $ 613 $ 613 $ 614
ASSETS-TRANSMISSION & DISTRIBUTION
Utility Plant
Gross Plant in Service $1,508 $1,610 $1,880 $1,990 $2,032 $2,163
Plus Capital Additions 94 78 67 47 103 63
------ ------ ------ ------ ------ ------
1,602 1,687 1,938 2,037 2,135 2,226
Total Accumulated Depreciation 838 679 715 847 870 896
------ ------ ------ ------ ------ ------
Net Utility Plant 963 1,008 1,222 1,190 1,285 1,330
Gas Underground Storage-Noncurrent - - - - - -
Other Property and Investments 11 3 2 97 96 95
Temporary Cash Investments - 11 - - - -
Notes Receivable-Asset Transfer - - - - - -
Cash 9 4 7 7 8 8
Other Current Assets 168 149 192 111 135 167
Deferred Charges 42 49 63 85 77 64
------ ------ ------ ------ ------ ------
Total Assets $1,194 $1,225 $1,487 $1,491 $1,581 $1,664
ASSETS-TOTAL
Utility Plant
Gross Plant in Service $2,181 $2,322 $2,608 $2,771 $2,841 $3,002
Plus Capital Additions 129 97 81 47 103 63
------ ------ ------ ------ ------ ------
2,309 2,419 2,689 2,818 2,944 3,065
Total Accumulated Depreciation 928 991 1,047 1,232 1,283 1,338
------ ------ ------ ------ ------ ------
Net Utility Plant 1,381 1,428 1,643 1,586 1,651 1,727
Gas Underground Storage-Noncurrent 17 17 17 17 17 17
Other Property and Investments 12 4 2 97 96 95
Temporary Cash Investments - 11 - - - -
Notes Receivable-Asset Transfer - - - - - -
Cash 12 7 10 11 11 11
Other Current Assets 338 262 325 244 268 300
Deferred Charges 122 129 127 149 141 128
------ ------ ------ ------ ------ ------
Total Assets $1,882 $1,858 $2,124 $2,103 $2,194 $2,277
</TABLE>
<PAGE>
EXHIBIT L
HISTORIC AND PROJECTED ILLINOIS POWER PUBLIC UTILITY OPERATIONS
EXCLUDING GENERATION TO BE DIVESTED BY ILLINOIS POWER
This Exhibit contains forward-looking information based on current
expectations and plans that involve risks and uncertainties. Forward-looking
information includes, among other things, financial forecasts and projections,
statements concerning the impact of regulatory changes, plans for the Clinton
Facility, divesting fossil-fired generation and success in addressing Year 2000
issues. Although Illinova and Illinois Power (collectively "Illinova") believe
these forward-looking statements are reasonable projections for their business
planning purposes and to inform regulatory agencies concerning the scope of
Illinova's public utility operations excluding generation to be divested by
Illinois Power, these projections are made for the latter purpose only
Illinova's public utility business is dependent on various regulatory issues,
general economic conditions and future trends, and these factors can cause
actual results to differ materially from the forward-looking statements.
<PAGE>
EXHIBIT L-2
ILLINOIS POWER COMPANY
NET REVENUES
EXCLUDING ELECTRIC POWER GENERATION
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
Historical Forecast
-----------------------------------------------------------
1996 1997 1998 2000 2001 2002
<S> <C> <C> <C> <C> <C> <C>
GAS REVENUES:
Total Gas Revenues $ 348 $ 354 $ 288 $ 351 $ 355 $ 356
Less: Gas Purchased for Resale 203 208 150 195 198 199
------ ------ ------ ------ ------ ------
Net Gas Revenues 146 146 138 156 157 157
ELECTRIC REVENUES:
Total Electric Revenues 1,203 1,244 1,224 1,154 1,154 1,138
Less: Fuel for Electric Plant 248 232 250 - - -
Less: Power Purchased 55 62 69 29 16 16
Less: Transfer Price from WESCO/Nuclear - - - 572 500 509
Less: Transition Charges - - - 108 183 140
------ ------ ------ ------ ------ ------
Net Electric Revenues 900 950 905 445 455 473
Total Net Revenues $1,048 $1,096 $1,043 $ 601 $ 612 $ 630
</TABLE>
<PAGE>
EXHIBIT N - 6
Market Shares for Electric Companies in Illinois and Bordering States
Companies Sorted by Revenue
<TABLE>
<CAPTION>
Revenue Share of Cumulative
Holding Company (millions of $) Rank Total Share
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unicom Corp. 7,136 1 18.4% 18.4%
American Electric Power Co., Inc. 7,054 2 18.2% 36.5%
Cinergy Corp. 5,002 3 12.9% 49.4%
Ameren Corp. 3,186 4 8.2% 57.6%
Northern States Power Co. 2,641 5 6.8% 64.4%
Illinova Corp. 1,781 6 4.6% 69.0%
Wisconsin Energy Corp. 1,679 7 4.3% 73.3%
Alliant Energy Corp. 1,576 8 4.1% 77.4%
LG&E Energy Corp. 1,469 9 3.8% 81.1%
MidAmerican Energy Holdings Co. 1,170 10 3.0% 84.1%
NiSource, Inc. 1,076 11 2.8% 86.9%
Kansas City Power & Light Co. 939 12 2.4% 89.3%
IPALCO Enterprises, Inc. 786 13 2.0% 91.4%
UtiliCorp United, Inc. 617 14 1.6% 92.9%
WPS Resources Corp. 548 15 1.4% 94.4%
Minnesota Power, Inc. 512 16 1.3% 95.7%
Ohio Valley Electric Corp. 460 17 1.2% 96.9%
Cilcorp, Inc. 360 18 0.9% 97.8%
SIGCORP, Inc. 298 19 0.8% 98.5%
Empire District Electric Co. 239 20 0.6% 99.2%
Madison Gas & Electric Co. 170 21 0.4% 99.6%
St. Joseph Light & Power Co. 89 22 0.2% 99.8%
Consolidated Water Power Co. 37 23 0.1% 99.9%
Northwestern Wisconsin Electric Co. 11 24 0.0% 100.0%
Mount Carmel Public Utility Co. 10 25 0.0% 100.0%
Wisconsin River Power Co. 5 26 0.0% 100.0%
North Central Power Co., Inc. 2 27 0.0% 100.0%
Pioneer Power & Light Co. 2 28 0.0% 100.0%
Total 38,854
</TABLE>
<PAGE>
EXHIBIT N - 6
Market Shares for Electric Companies in Illinois and Bordering States
Companies Sorted by Assets
<TABLE>
<CAPTION>
Assets Share of Cumulative
Holding Company (millions of $) Rank Total Share
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unicom Corp. 26,223 1 23.3% 23.3%
American Electric Power Co., Inc. 16,847 2 15.0% 38.3%
Cinergy Corp. 9,878 3 8.8% 47.1%
Ameren Corp. 8,755 4 7.8% 54.9%
Northern States Power Co. 7,457 5 6.6% 61.6%
Illinova Corp. 7,150 6 6.4% 67.9%
Wisconsin Energy Corp. 4,839 7 4.3% 72.2%
Alliant Energy Corp. 4,313 8 3.8% 76.1%
LG&E Energy Corp. 4,056 9 3.6% 79.7%
NiSource, Inc. 3,769 10 3.4% 83.0%
MidAmerican Energy Holdings Co. 3,574 11 3.2% 86.2%
UtiliCorp United, Inc. 3,078 12 2.7% 89.0%
Kansas City Power & Light Co. 2,845 13 2.5% 91.5%
IPALCO Enterprises, Inc. 2,123 14 1.9% 93.4%
Minnesota Power, Inc. 2,074 15 1.8% 95.2%
WPS Resources Corp. 1,504 16 1.3% 96.6%
Cilcorp, Inc. 1,058 17 0.9% 97.5%
SIGCORP, Inc. 951 18 0.8% 98.3%
Empire District Electric Co. 674 19 0.6% 98.9%
Madison Gas & Electric Co. 488 20 0.4% 99.4%
Ohio Valley Electric Corp. 357 21 0.3% 99.7%
St. Joseph Light & Power Co. 243 22 0.2% 99.9%
Consolidated Water Power Co. 37 23 0.0% 99.9%
Northwestern Wisconsin Electric Co. 22 24 0.0% 100.0%
Wisconsin River Power Co. 18 25 0.0% 100.0%
Mount Carmel Public Utility Co. 13 26 0.0% 100.0%
North Central Power Co., Inc. 7 27 0.0% 100.0%
Pioneer Power & Light Co. 2 28 0.0% 100.0%
Total 112,354
</TABLE>
<PAGE>
EXHIBIT N - 6
Market Shares for Electric Companies in Illinois and Bordering States
Companies Sorted by Number of Customers
<TABLE>
<CAPTION>
Customers Share of Cumulative
Holding Company (thousands) Rank Total Share
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unicom Corp. 3,445 1 19.4% 19.4%
American Electric Power Co., Inc. 2,955 2 16.7% 36.1%
Northern States Power Co. 1,547 3 8.7% 44.8%
Ameren Corp. 1,506 4 8.5% 53.3%
Cinergy Corp. 1,424 5 8.0% 61.3%
Wisconsin Energy Corp. 1,005 6 5.7% 67.0%
Alliant Energy Corp. 902 7 5.1% 72.0%
LG&E Energy Corp. 832 8 4.7% 76.7%
MidAmerican Energy Holdings Co. 651 9 3.7% 80.4%
Illinova Corp. 568 10 3.2% 83.6%
Kansas City Power & Light Co. 448 11 2.5% 86.1%
WPS Resources Corp. 440 12 2.5% 88.6%
IPALCO Enterprises, Inc. 423 13 2.4% 91.0%
NiSource, Inc. 418 14 2.4% 93.4%
UtiliCorp United, Inc. 370 15 2.1% 95.4%
Cilcorp, Inc. 195 16 1.1% 96.5%
Empire District Electric Co. 143 17 0.8% 97.3%
Minnesota Power, Inc. 139 18 0.8% 98.1%
SIGCORP, Inc. 123 19 0.7% 98.8%
Madison Gas & Electric Co. 123 20 0.7% 99.5%
St. Joseph Light & Power Co. 62 21 0.3% 99.9%
Northwestern Wisconsin Electric Co. 11 22 0.1% 99.9%
Mount Carmel Public Utility Co. 6 23 0.0% 100.0%
North Central Power Co., Inc. 4 24 0.0% 100.0%
Pioneer Power & Light Co. 2 25 0.0% 100.0%
Consolidated Water Power Co. 1 26 0.0% 100.0%
Ohio Valley Electric Corp. 0 27 0.0% 100.0%
Wisconsin River Power Co. 0 28 0.0% 100.0%
Total 17,743
</TABLE>
<PAGE>
EXHIBIT N - 7
Market Shares for Gas Companies in Illinois and Bordering States
Companies Sorted by Revenue
<TABLE>
<CAPTION>
Revenue Share of Cumulative
Holding Company (millions of $) Rank Total Share
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nicor, Inc. 1,229 1 16.7% 16.7%
Peoples Energy Corp. 967 2 13.1% 29.8%
Columbia Energy Group, Inc. 613 3 8.3% 38.1%
NiSource, Inc. 604 4 8.2% 46.3%
Northern States Power Co. 446 5 6.1% 52.4%
MidAmerican Energy Holdings Co. 430 6 5.8% 58.2%
Wicor, Inc. 429 7 5.8% 64.0%
Indiana Energy, Inc. 420 8 5.7% 69.8%
Cinergy Corp. 404 9 5.5% 75.2%
Alliant Energy Corp. 311 10 4.2% 79.5%
Illinova Corp. 288 11 3.9% 83.4%
Ameren Corp. 217 12 2.9% 86.3%
Southern Union Co. 196 13 2.7% 89.0%
LG&E Energy Corp. 192 14 2.6% 91.6%
Cilcorp, Inc. 181 15 2.5% 94.0%
WPS Resources Corp. 165 16 2.2% 96.3%
Madison Gas & Electric Co. 87 17 1.2% 97.4%
SIGCORP, Inc. 67 18 0.9% 98.4%
Wisconsin Fuel & Light Co. 41 19 0.6% 98.9%
UtiliCorp United, Inc. 33 20 0.5% 99.4%
Minnesota Power, Inc. 11 21 0.2% 99.5%
Illinois Gas Co. 7 22 0.1% 99.6%
Midwest Bottle Gas Co. 7 23 0.1% 99.7%
St. Joseph Light & Power Co. 5 24 0.1% 99.8%
Consumers Gas Co. 4 25 0.1% 99.8%
St. Croix Valley Natural Gas Co., Inc. 4 26 0.0% 99.9%
Master Gas Service Co. 3 27 0.0% 99.9%
Indiana Utilities Corp. 3 28 0.0% 100.0%
Mount Carmel Public Utility Co. 2 29 0.0% 100.0%
Fidelity Natural Gas, Inc. 1 30 0.0% 100.0%
Total 7,365
</TABLE>
<PAGE>
EXHIBIT N - 7
Market Shares for Gas Companies in Illinois and Bordering States
Companies Sorted by Assets
<TABLE>
<CAPTION>
Assets Share of Cumulative
Holding Company (millions of $) Rank Total Share
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nicor, Inc. 3,040 1 20.3% 20.3%
Peoples Energy Corp. 2,160 2 14.4% 34.8%
NiSource, Inc. 1,280 3 8.6% 43.4%
Columbia Energy Group, Inc. 1,009 4 6.8% 50.1%
Indiana Energy, Inc. 862 5 5.8% 55.9%
Wicor, Inc. 812 6 5.4% 61.3%
MidAmerican Energy Holdings Co. 798 7 5.3% 66.6%
Cinergy Corp. 772 8 5.2% 71.8%
Illinova Corp. 654 9 4.4% 76.2%
Northern States Power Co. 653 10 4.4% 80.5%
Southern Union Co. 489 11 3.3% 83.8%
Ameren Corp. 469 12 3.1% 87.0%
Alliant Energy Corp. 443 13 3.0% 89.9%
Cilcorp, Inc. 394 14 2.6% 92.6%
UtiliCorp United, Inc. 295 15 2.0% 94.5%
WPS Resources Corp. 247 16 1.7% 96.2%
Madison Gas & Electric Co. 170 17 1.1% 97.3%
SIGCORP, Inc. 141 18 0.9% 98.3%
Delta Natural Gas Co., Inc. 120 19 0.8% 99.1%
Wisconsin Fuel & Light Co. 60 20 0.4% 99.5%
Midwest Bottle Gas Co. 16 21 0.1% 99.6%
Minnesota Power, Inc. 15 22 0.1% 99.7%
Illinois Gas Co. 13 23 0.1% 99.8%
St. Joseph Light & Power Co. 7 24 0.0% 99.8%
Consumers Gas Co. 6 25 0.0% 99.8%
Master Gas Service Co. 5 26 0.0% 99.9%
Fidelity Natural Gas, Inc. 5 27 0.0% 99.9%
Indiana Utilities Corp. 5 28 0.0% 99.9%
Mount Carmel Public Utility Co. 4 29 0.0% 100.0%
St. Croix Valley Natural Gas Co., Inc. 4 30 0.0% 100.0%
Total 14,947
</TABLE>
<PAGE>
EXHIBIT N - 7
Market Shares for Gas Companies in Illinois and Bordering States
Companies Sorted by Number of Customers
<TABLE>
<CAPTION>
Customers Share of Cumulative
Holding Company (thousands) Rank Total Share
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nicor, Inc. 1,865 1 15.3% 15.3%
Columbia Energy Group, Inc. 1,763 2 14.4% 29.7%
Southern Union Co. 1,006 3 8.2% 37.9%
Peoples Energy Corp. 955 4 7.8% 45.7%
UtiliCorp United, Inc. 828 5 6.8% 52.5%
NiSource, Inc. 694 6 5.7% 58.2%
MidAmerican Energy Holdings Co. 620 7 5.1% 63.2%
Wicor, Inc. 518 8 4.2% 67.5%
Indiana Energy, Inc. 489 9 4.0% 71.5%
Northern States Power Co. 459 10 3.8% 75.2%
Cinergy Corp. 447 11 3.7% 78.9%
Atmos Energy Corp. 425 12 3.5% 82.4%
Illinova Corp. 400 13 3.3% 85.6%
Alliant Energy Corp. 385 14 3.2% 88.8%
Ameren Corp. 296 15 2.4% 91.2%
LG&E Energy Corp. 287 16 2.3% 93.6%
WPS Resources Corp. 224 17 1.8% 95.4%
Cilcorp, Inc. 201 18 1.6% 97.0%
Madison Gas & Electric Co. 108 19 0.9% 97.9%
SIGCORP, Inc. 107 20 0.9% 98.8%
Wisconsin Fuel & Light Co. 49 21 0.4% 99.2%
Delta Natural Gas Co., Inc. 37 22 0.3% 99.5%
Minnesota Power, Inc. 11 23 0.1% 99.6%
Midwest Bottle Gas Co. 11 24 0.1% 99.7%
Illinois Gas Co. 10 25 0.1% 99.8%
St. Joseph Light & Power Co. 6 26 0.1% 99.8%
Consumers Gas Co. 6 27 0.0% 99.9%
St. Croix Valley Natural Gas Co., Inc. 5 28 0.0% 99.9%
Master Gas Service Co. 4 29 0.0% 99.9%
Mount Carmel Public Utility Co. 4 30 0.0% 100.0%
Indiana Utilities Corp. 3 31 0.0% 100.0%
Total 12,221
</TABLE>
<PAGE>
EXHIBIT N - 8
<TABLE>
<CAPTION>
Market Shares for Combined Gas and Electric Companies in Illinois and Bordering States
Companies Sorted by Revenue
Revenue Share of Cumulative
Holding Company (millions of $) Rank Total Share
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cinergy Corp. 5,406 1 22.6% 22.6%
Ameren Corp. 3,403 2 14.2% 36.8%
Northern States Power Co. 3,087 3 12.9% 49.7%
Illinova Corp. 2,069 4 8.6% 58.3%
Alliant Energy Corp. 1,888 5 7.9% 66.2%
NiSource, Inc. 1,680 6 7.0% 73.2%
LG&E Energy Corp. 1,660 7 6.9% 80.1%
MidAmerican Energy Holdings Co. 1,600 8 6.7% 86.8%
WPS Resources Corp. 713 9 3.0% 89.8%
UtiliCorp United, Inc. 650 10 2.7% 92.5%
Cilcorp, Inc. 541 11 2.3% 94.8%
Minnesota Power, Inc. 524 12 2.2% 97.0%
SIGCORP, Inc. 365 13 1.5% 98.5%
Madison Gas & Electric Co. 256 14 1.1% 99.6%
St. Joseph Light & Power Co. 94 15 0.4% 99.9%
Mount Carmel Public Utility Co. 12 16 0.1% 100.0%
Total 23,947
</TABLE>
<PAGE>
EXHIBIT N - 8
<TABLE>
<CAPTION>
Market Shares for Combined Gas and Electric Companies in Illinois and Bordering States
Companies Sorted by Assets
Assets Share of Cumulative
Holding Company (millions of $) Rank Total Share
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cinergy Corp. 10,650 1 16.5% 16.5%
Ameren Corp. 9,225 2 14.3% 30.7%
Northern States Power Co. 8,110 3 12.5% 43.3%
Illinova Corp. 7,803 4 12.1% 55.3%
NiSource, Inc. 5,050 5 7.8% 63.1%
Alliant Energy Corp. 4,756 6 7.4% 70.5%
MidAmerican Energy Holdings Co. 4,371 7 6.8% 77.2%
LG&E Energy Corp. 4,056 8 6.3% 83.5%
UtiliCorp United, Inc. 3,374 9 5.2% 88.7%
Minnesota Power, Inc. 2,089 10 3.2% 91.9%
WPS Resources Corp. 1,751 11 2.7% 94.6%
Cilcorp, Inc. 1,452 12 2.2% 96.9%
SIGCORP, Inc. 1,092 13 1.7% 98.6%
Madison Gas & Electric Co. 657 14 1.0% 99.6%
St. Joseph Light & Power Co. 250 15 0.4% 100.0%
Mount Carmel Public Utility Co. 17 16 0.0% 100.0%
Total 64,703
</TABLE>
<PAGE>
EXHIBIT N - 8
<TABLE>
<CAPTION>
Market Shares for Combined Gas and Electric Companies in Illinois and Bordering States
Companies Sorted by Number of Customers
Customers Share of Cumulative
Holding Company (thousands) Rank Total Share
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Northern States Power Co. 2,006 1 13.9% 13.9%
Cinergy Corp. 1,871 2 13.0% 27.0%
Ameren Corp. 1,803 3 12.5% 39.5%
Alliant Energy Corp. 1,287 4 8.9% 48.4%
MidAmerican Energy Holdings Co. 1,270 5 8.8% 57.3%
UtiliCorp United, Inc. 1,199 6 8.3% 65.6%
LG&E Energy Corp. 1,119 7 7.8% 73.4%
NiSource, Inc. 1,112 8 7.7% 81.1%
Illinova Corp. 968 9 6.7% 87.8%
WPS Resources Corp. 664 10 4.6% 92.5%
Cilcorp, Inc. 396 11 2.8% 95.2%
Madison Gas & Electric Co. 232 12 1.6% 96.8%
SIGCORP, Inc. 230 13 1.6% 98.4%
Minnesota Power, Inc. 150 14 1.0% 99.5%
St. Joseph Light & Power Co. 68 15 0.5% 99.9%
Mount Carmel Public Utility Co. 9 16 0.1% 100.0%
Total 14,382
</TABLE>
<PAGE>
EXHIBIT N - 9
Market Shares for Utilities in Illinois and Bordering States
Companies sorted by Revenue
<TABLE>
<CAPTION>
Revenue Share of Cumulative
Holding Company (millions of $) Rank Total Share
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unicom Corp. 7,136 1 15.4% 15.4%
American Electric Power Co., Inc. 7,054 2 15.3% 30.7%
Cinergy Corp. 5,406 3 11.7% 42.4%
Ameren Corp. 3,403 4 7.4% 49.8%
Northern States Power Co. 3,087 5 6.7% 56.4%
Illinova Corp. 2,069 6 4.5% 60.9%
Alliant Energy Corp. 1,888 7 4.1% 65.0%
NiSource, Inc. 1,680 8 3.6% 68.6%
Wisconsin Energy Corp. 1,679 9 3.6% 72.3%
LG&E Energy Corp. 1,660 10 3.6% 75.9%
MidAmerican Energy Holdings Co. 1,600 11 3.5% 79.3%
Nicor, Inc. 1,229 12 2.7% 82.0%
Peoples Energy Corp. 967 13 2.1% 84.1%
Kansas City Power & Light Co. 939 14 2.0% 86.1%
IPALCO Enterprises, Inc. 786 15 1.7% 87.8%
WPS Resources Corp. 713 16 1.5% 89.3%
UtiliCorp United, Inc. 650 17 1.4% 90.8%
Columbia Energy Group, Inc. 613 18 1.3% 92.1%
Cilcorp, Inc. 541 19 1.2% 93.2%
Minnesota Power, Inc. 524 20 1.1% 94.4%
Ohio Valley Electric Corp. 460 21 1.0% 95.4%
Wicor, Inc. 429 22 0.9% 96.3%
Indiana Energy, Inc. 420 23 0.9% 97.2%
SIGCORP, Inc. 365 24 0.8% 98.0%
Madison Gas & Electric Co. 256 25 0.6% 98.6%
Empire District Electric Co. 239 26 0.5% 99.1%
Southern Union Co. 196 27 0.4% 99.5%
St. Joseph Light & Power Co. 94 28 0.2% 99.7%
Wisconsin Fuel & Light Co. 41 29 0.1% 99.8%
Consolidated Water Power Co. 37 30 0.1% 99.9%
Mount Carmel Public Utility Co. 12 31 0.0% 99.9%
Northwestern Wisconsin Electric Co. 11 32 0.0% 99.9%
Illinois Gas Co. 7 33 0.0% 99.9%
Midwest Bottle Gas Co. 7 34 0.0% 99.9%
Wisconsin River Power Co. 5 35 0.0% 100.0%
Consumers Gas Co. 4 36 0.0% 100.0%
St. Croix Valley Natural Gas Co., Inc. 4 37 0.0% 100.0%
Master Gas Service Co. 3 38 0.0% 100.0%
Indiana Utilities Corp. 3 39 0.0% 100.0%
North Central Power Co., Inc. 2 40 0.0% 100.0%
Pioneer Power & Light Co. 2 41 0.0% 100.0%
Fidelity Natural Gas, Inc. 1 42 0.0% 100.0%
Total 46,220
</TABLE>
<PAGE>
EXHIBIT N - 9
Market Shares for Utilities in Illinois and Bordering States
Companies sorted by Assets
<TABLE>
<CAPTION>
Assets Share of Cumulative
Holding Company (millions of $) Rank Total Share
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unicom Corp. 26,223 1 20.6% 20.6%
American Electric Power Co., Inc. 16,847 2 13.2% 33.8%
Cinergy Corp. 10,650 3 8.4% 42.2%
Ameren Corp. 9,225 4 7.2% 49.4%
Northern States Power Co. 8,110 5 6.4% 55.8%
Illinova Corp. 7,803 6 6.1% 61.9%
NiSource, Inc. 5,050 7 4.0% 65.9%
Wisconsin Energy Corp. 4,839 8 3.8% 69.7%
Alliant Energy Corp. 4,756 9 3.7% 73.5%
MidAmerican Energy Holdings Co. 4,371 10 3.4% 76.9%
LG&E Energy Corp. 4,056 11 3.2% 80.1%
UtiliCorp United, Inc. 3,374 12 2.7% 82.7%
Nicor, Inc. 3,040 13 2.4% 85.1%
Kansas City Power & Light Co. 2,845 14 2.2% 87.3%
Peoples Energy Corp. 2,160 15 1.7% 89.0%
IPALCO Enterprises, Inc. 2,123 16 1.7% 90.7%
Minnesota Power, Inc. 2,089 17 1.6% 92.3%
WPS Resources Corp. 1,751 18 1.4% 93.7%
Cilcorp, Inc. 1,452 19 1.1% 94.9%
SIGCORP, Inc. 1,092 20 0.9% 95.7%
Columbia Energy Group, Inc. 1,009 21 0.8% 96.5%
Indiana Energy, Inc. 862 22 0.7% 97.2%
Wicor, Inc. 812 23 0.6% 97.8%
Empire District Electric Co. 674 24 0.5% 98.4%
Madison Gas & Electric Co. 657 25 0.5% 98.9%
Southern Union Co. 489 26 0.4% 99.3%
Ohio Valley Electric Corp. 357 27 0.3% 99.5%
St. Joseph Light & Power Co. 250 28 0.2% 99.7%
Delta Natural Gas Co., Inc. 120 29 0.1% 99.8%
Wisconsin Fuel & Light Co. 60 30 0.0% 99.9%
Consolidated Water Power Co. 37 31 0.0% 99.9%
Northwestern Wisconsin Electric Co. 22 32 0.0% 99.9%
Wisconsin River Power Co. 18 33 0.0% 99.9%
Mount Carmel Public Utility Co. 17 34 0.0% 100.0%
Midwest Bottle Gas Co. 16 35 0.0% 100.0%
Illinois Gas Co. 13 36 0.0% 100.0%
North Central Power Co., Inc. 7 37 0.0% 100.0%
Consumers Gas Co. 6 38 0.0% 100.0%
Master Gas Service Co. 5 39 0.0% 100.0%
Fidelity Natural Gas, Inc. 5 40 0.0% 100.0%
Indiana Utilities Corp. 5 41 0.0% 100.0%
St. Croix Valley Natural Gas Co., Inc. 4 42 0.0% 100.0%
Pioneer Power & Light Co. 2 43 0.0% 100.0%
Total 127,301
</TABLE>
<PAGE>
EXHIBIT N - 9
Market Shares for Utilities in Illinois and Bordering States
Companies sorted by Number of Customers
<TABLE>
<CAPTION>
Customers Share of Cumulative
Holding Company (thousands) Rank Total Share
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unicom Corp. 3,445 1 11.5% 11.5%
American Electric Power Co., Inc. 2,955 2 9.9% 21.4%
Northern States Power Co. 2,006 3 6.7% 28.1%
Cinergy Corp. 1,871 4 6.2% 34.3%
Nicor, Inc. 1,865 5 6.2% 40.5%
Ameren Corp. 1,803 6 6.0% 46.5%
Columbia Energy Group, Inc. 1,763 7 5.9% 52.4%
Alliant Energy Corp. 1,287 8 4.3% 56.7%
MidAmerican Energy Holdings Co. 1,270 9 4.2% 60.9%
UtiliCorp United, Inc. 1,199 10 4.0% 64.9%
LG&E Energy Corp. 1,119 11 3.7% 68.7%
NiSource, Inc. 1,112 12 3.7% 72.4%
Southern Union Co. 1,006 13 3.4% 75.7%
Wisconsin Energy Corp. 1,005 14 3.4% 79.1%
Illinova Corp. 968 15 3.2% 82.3%
Peoples Energy Corp. 955 16 3.2% 85.5%
WPS Resources Corp. 664 17 2.2% 87.7%
Wicor, Inc. 518 18 1.7% 89.5%
Indiana Energy, Inc. 489 19 1.6% 91.1%
Kansas City Power & Light Co. 448 20 1.5% 92.6%
Atmos Energy Corp. 425 21 1.4% 94.0%
IPALCO Enterprises, Inc. 423 22 1.4% 95.4%
Cilcorp, Inc. 396 23 1.3% 96.7%
Madison Gas & Electric Co. 232 24 0.8% 97.5%
SIGCORP, Inc. 230 25 0.8% 98.3%
Minnesota Power, Inc. 150 26 0.5% 98.8%
Empire District Electric Co. 143 27 0.5% 99.3%
St. Joseph Light & Power Co. 68 28 0.2% 99.5%
Wisconsin Fuel & Light Co. 49 29 0.2% 99.7%
Delta Natural Gas Co., Inc. 37 30 0.1% 99.8%
Northwestern Wisconsin Electric Co. 11 31 0.0% 99.8%
Midwest Bottle Gas Co. 11 32 0.0% 99.9%
Illinois Gas Co. 10 33 0.0% 99.9%
Mount Carmel Public Utility Co. 9 34 0.0% 99.9%
Consumers Gas Co. 6 35 0.0% 99.9%
St. Croix Valley Natural Gas Co., Inc. 5 36 0.0% 100.0%
Master Gas Service Co. 4 37 0.0% 100.0%
North Central Power Co., Inc. 4 38 0.0% 100.0%
Indiana Utilities Corp. 3 39 0.0% 100.0%
Pioneer Power & Light Co. 2 40 0.0% 100.0%
Consolidated Water Power Co. 1 41 0.0% 100.0%
Ohio Valley Electric Corp. 0 42 0.0% 100.0%
Wisconsin River Power Co. 0 43 0.0% 100.0%
Total 29,964
</TABLE>
<PAGE>
EXHIBIT N - 10
Market Shares for Electric Companies in the U.S.
<TABLE>
<CAPTION>
Number of Portion of Market Served
Illinova's Illinova's Larger by Illinova and Larger
Parameter Units Statistics Share Companies Companies
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Customers thousands 568 0.6% 48 87.9%
Assets $millions 7,150 1.2% 30 73.3%
Revenues $millions 1,781 0.9% 36 79.8%
Comparison of Illinova Corp. to Large Electric Utilities
Number of Utilities Average Size
Necessary for 50% of of These Ratio of These Utilities
Parameter Units U.S. Utilities to Illinova
- -----------------------------------------------------------------------------------------------
Customers thousands 17 2,718 5
Assets $millions 17 18,027 3
Revenues $millions 17 6,091 3
Number of Utilities Average Size
Necessary for 80% of of These Ratio of These Utilities
Parameter Units U.S. Utilities to Illinova
- -----------------------------------------------------------------------------------------------
Customers thousands 39 1,892 3
Assets $millions 38 12,449 2
Revenues $millions 38 4,268 2
</TABLE>
<PAGE>
EXHIBIT N - 10
Market Shares for Electric Companies in the U.S.
Companies Sorted by Revenue
<TABLE>
<CAPTION>
Revenue Share of Cumulative
Holding Company (millions of $) Rank Total Share
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Southern Company 9,763 1 4.9% 4.9%
Edison International 7,383 2 3.7% 8.5%
PG&E Corp. 7,245 3 3.6% 12.1%
Entergy Corp. 7,205 4 3.6% 15.7%
Unicom Corp. 7,136 5 3.5% 19.3%
American Electric Power Co., Inc. 7,054 6 3.5% 22.8%
TXU 6,556 7 3.3% 26.0%
FPL Group, Inc. 6,132 8 3.0% 29.1%
Public Service Enterprise Group, Inc. 5,870 9 2.9% 32.0%
Consolidated Edison, Inc. 5,728 10 2.8% 34.8%
FirstEnergy Corp. 5,264 11 2.6% 37.5%
Cinergy Corp. 5,002 12 2.5% 40.0%
PECO Energy Co. 4,866 13 2.4% 42.4%
PacifiCorp 4,834 14 2.4% 44.8%
Dominion Resources, Inc. 4,628 15 2.3% 47.1%
Duke Energy Corp. 4,529 16 2.3% 49.3%
Reliant Energy, Inc. 4,350 17 2.2% 51.5%
Northeast Utilities 4,257 18 2.1% 53.6%
GPU, Inc. 4,028 19 2.0% 55.6%
DTE Energy Co. 3,861 20 1.9% 57.5%
PP&L Resources, Inc. 3,571 21 1.8% 59.3%
Central & South West Corp. 3,564 22 1.8% 61.1%
Niagara Mohawk Holdings, Inc. 3,262 23 1.6% 62.7%
Ameren Corp. 3,186 24 1.6% 64.3%
Carolina Power & Light Co. 3,167 25 1.6% 65.9%
New England Electric System 2,774 26 1.4% 67.2%
Florida Progress Corp. 2,648 27 1.3% 68.6%
Northern States Power Co. 2,641 28 1.3% 69.9%
Allegheny Energy, Inc. 2,614 29 1.3% 71.2%
CMS Energy Corp. 2,604 30 1.3% 72.5%
New Century Energies, Inc. 2,590 31 1.3% 73.8%
Conectiv 2,311 32 1.1% 74.9%
Constellation Energy Group, Inc. 2,221 33 1.1% 76.0%
Potomac Electric Power Co. 2,064 34 1.0% 77.0%
Pinnacle West Capital Corp. 1,911 35 1.0% 78.0%
Sempra Energy 1,867 36 0.9% 78.9%
Illinova Corp. 1,781 37 0.9% 79.8%
Everyone else combined 40,614 20.2% 100.0%
Total 201,080
</TABLE>
<PAGE>
EXHIBIT N - 10
Market Shares for Electric Companies in the U.S.
Companies Sorted by Revenue
<TABLE>
<CAPTION>
Revenue Share of Cumulative
Holding Company (millions of $) Rank Total Share
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unicom Corp. 26,223 1 4.4% 4.4%
Southern Company 25,367 2 4.3% 8.7%
PG&E Corp. 23,879 3 4.0% 12.8%
Entergy Corp. 21,348 4 3.6% 16.4%
Edison International 21,121 5 3.6% 20.0%
TXU 20,540 6 3.5% 23.4%
FirstEnergy Corp. 20,311 7 3.4% 26.9%
Duke Energy Corp. 17,692 8 3.0% 29.9%
American Electric Power Co., Inc. 16,847 9 2.8% 32.7%
FPL Group, Inc. 16,643 10 2.8% 35.5%
Public Service Enterprise Group, Inc. 15,239 11 2.6% 38.1%
Consolidated Edison, Inc. 14,599 12 2.5% 40.6%
Dominion Resources, Inc. 14,545 13 2.5% 43.0%
Niagara Mohawk Holdings, Inc. 14,542 14 2.5% 45.5%
GPU, Inc. 13,361 15 2.3% 47.7%
PECO Energy Co. 12,531 16 2.1% 49.9%
DTE Energy Co. 11,671 17 2.0% 51.8%
PacifiCorp 11,624 18 2.0% 53.8%
Northeast Utilities 11,486 19 1.9% 55.7%
Reliant Energy, Inc. 10,333 20 1.7% 57.5%
Cinergy Corp. 9,878 21 1.7% 59.2%
Central & South West Corp. 9,752 22 1.6% 60.8%
PP&L Resources, Inc. 9,275 23 1.6% 62.4%
Carolina Power & Light Co. 9,139 24 1.5% 63.9%
Ameren Corp. 8,755 25 1.5% 65.4%
Western Resources, Inc. 8,543 26 1.4% 66.9%
Constellation Energy Group, Inc. 8,170 27 1.4% 68.2%
CMS Energy Corp. 7,709 28 1.3% 69.5%
New Century Energies, Inc. 7,553 29 1.3% 70.8%
Northern States Power Co. 7,457 30 1.3% 72.1%
Illinova Corp. 7,150 31 1.2% 73.3%
Everyone else combined 157,876 26.7% 100.0%
Total 591,161
</TABLE>
<PAGE>
EXHIBIT N - 10
Market Shares for Electric Companies in the U.S.
Companies Sorted by Revenue
<TABLE>
<CAPTION>
Revenue Share of Cumulative
Holding Company (millions of $) Rank Total Share
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PG&E Corp. 4,536 1 5.0% 5.0%
Edison International 4,284 2 4.7% 9.6%
Southern Company 3,761 3 4.1% 13.8%
FPL Group, Inc. 3,615 4 4.0% 17.7%
Unicom Corp. 3,445 5 3.8% 21.5%
Consolidated Edison, Inc. 3,031 6 3.3% 24.8%
American Electric Power Co., Inc. 2,955 7 3.2% 28.0%
TXU 2,517 8 2.8% 30.8%
Entergy Corp. 2,482 9 2.7% 33.5%
FirstEnergy Corp. 2,161 10 2.4% 35.8%
DTE Energy Co. 2,062 11 2.3% 38.1%
GPU, Inc. 2,030 12 2.2% 40.3%
Dominion Resources, Inc. 1,977 13 2.2% 42.5%
Duke Energy Corp. 1,968 14 2.2% 44.6%
Public Service Enterprise Group, Inc. 1,911 15 2.1% 46.7%
Central & South West Corp. 1,735 16 1.9% 48.6%
Northeast Utilities 1,729 17 1.9% 50.5%
CMS Energy Corp. 1,628 18 1.8% 52.3%
Reliant Energy, Inc. 1,596 19 1.7% 54.0%
Niagara Mohawk Holdings, Inc. 1,551 20 1.7% 55.7%
Northern States Power Co. 1,547 21 1.7% 57.4%
New Century Energies, Inc. 1,545 22 1.7% 59.1%
Ameren Corp. 1,506 23 1.6% 60.7%
PECO Energy Co. 1,488 24 1.6% 62.4%
PacifiCorp 1,454 25 1.6% 64.0%
Cinergy Corp. 1,424 26 1.6% 65.5%
Allegheny Energy, Inc. 1,410 27 1.5% 67.1%
Florida Progress Corp. 1,341 28 1.5% 68.5%
PP&L Resources, Inc. 1,250 29 1.4% 69.9%
Sempra Energy 1,190 30 1.3% 71.2%
Carolina Power & Light Co. 1,169 31 1.3% 72.5%
Constellation Energy Group, Inc. 1,117 32 1.2% 73.7%
New England Electric System 1,009 33 1.1% 74.8%
Wisconsin Energy Corp. 1,005 34 1.1% 75.9%
Conectiv 939 35 1.0% 76.9%
Alliant Energy Corp. 902 36 1.0% 77.9%
Puget Sound Energy, Inc. 882 37 1.0% 78.9%
LG&E Energy Corp. 832 38 0.9% 79.8%
Energy East Corp. 813 39 0.9% 80.7%
Pinnacle West Capital Corp. 778 40 0.9% 81.5%
OGE Energy Corp. 694 41 0.8% 82.3%
Enron Corp. 691 42 0.8% 83.0%
Potomac Electric Power Co. 690 43 0.8% 83.8%
BEC Energy 667 44 0.7% 84.5%
MidAmerican Energy Holdings Co. 651 45 0.7% 85.2%
Eastern Utilities Associates 641 46 0.7% 85.9%
Western Resources, Inc. 620 47 0.7% 86.6%
DQE, Inc. 581 48 0.6% 87.2%
Illinova Corp. 568 49 0.6% 87.9%
Everyone else combined 11,105 12.1% 100.0%
Total 91,480
</TABLE>
<PAGE>
EXHIBIT N - 11
Market Shares for Gas Companies in the U.S.
<TABLE>
<CAPTION>
Number of Portioni of Market Served
Illinova's Illinova's Larger by Illinova and Larger
Parameter Units Statistics Share Companies Companies
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Customers thousands 400 0.8% 37 83.4%
Assets $millions 654 1.1% 29 77.5%
Revenues $millions 288 0.9% 36 82.6%
Comparison of Illinova Corp. to Large Gas Utilities
Number of Utilities Average Size
Necessary for 50% of of These Ratio of These Utilities
Parameter Units U.S. Utilities to Illinova
- -----------------------------------------------------------------------------------------------
Customers thousands 12 2,098 5
Assets $millions 13 2,308 4
Revenues $millions 14 1,132 4
Number of Utilities Average Size
Necessary for 80% of of These Ratio of These Utilities
Parameter Units U.S. Utilities to Illinova
- -----------------------------------------------------------------------------------------------
Customers thousands 34 1,169 3
Assets $millions 33 1,437 2
Revenues $millions 35 721 3
</TABLE>
<PAGE>
EXHIBIT N - 11
Market Shares for Gas Companies in the United States
Companies Sorted by Revenue
<TABLE>
<CAPTION>
Revenue Share of Cumulative
Holding Company (millions of $) Rank Total Share
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PG&E Corp. 1,832 1 5.9% 5.9%
Public Service Enterprise Group, Inc. 1,559 2 5.0% 10.9%
Consolidated Natural Gas Co. 1,507 3 4.8% 15.7%
Houston Industries, Inc. 1,368 4 4.4% 20.1%
Nicor, Inc. 1,229 5 3.9% 24.0%
AGL Resources, Inc. 1,195 6 3.8% 27.8%
CMS Energy Corp. 1,044 7 3.3% 31.2%
MCN Energy Group, Inc. 980 8 3.1% 34.3%
Washington Gas Light Co. 970 9 3.1% 37.4%
Peoples Energy Corp. 967 10 3.1% 40.5%
Consolidated Edison, Inc. 962 11 3.1% 43.6%
National Fuel Gas Co. 801 12 2.6% 46.2%
TXU 771 13 2.5% 48.7%
Eastern Enterprises 661 14 2.1% 50.8%
New Century Energies, Inc. 659 15 2.1% 52.9%
Columbia Energy Group, Inc. 613 16 2.0% 54.8%
NiSource, Inc. 604 17 1.9% 56.8%
Niagara Mohawk Holdings, Inc. 566 18 1.8% 58.6%
ONEOK, Inc. 552 19 1.8% 60.4%
Sempra Energy 493 20 1.6% 61.9%
Questar Corp. 477 21 1.5% 63.5%
Constellation Energy Group, Inc. 451 22 1.4% 64.9%
Northern States Power Co. 446 23 1.4% 66.3%
MidAmerican Energy Holdings Co. 430 24 1.4% 67.7%
Wicor, Inc. 429 25 1.4% 69.1%
Indiana Energy, Inc. 420 26 1.3% 70.4%
Puget Sound Energy, Inc. 417 27 1.3% 71.8%
Cinergy Corp. 404 28 1.3% 73.1%
NW Natural (Northwest Natural Gas Co.) 404 29 1.3% 74.4%
PECO Energy Co. 400 30 1.3% 75.6%
Bay State Gas Co. 343 31 1.1% 76.7%
Equitable Resources, Inc. 333 32 1.1% 77.8%
UGI Corp. 314 33 1.0% 78.8%
Alliant Energy Corp. 311 34 1.0% 79.8%
Energy East Corp. 306 35 1.0% 80.8%
Commonwealth Energy System 289 36 0.9% 81.7%
Illinova Corp. 288 37 0.9% 82.6%
Everyone else combined 5,421 17.4% 100%
Total 31,216
</TABLE>
<PAGE>
EXHIBIT N - 11
Market Shares for Gas Companies in the United States
Companies Sorted by Assets
<TABLE>
<CAPTION>
Assets Share of Cumulative
Holding Company (millions of $) Rank Total Share
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PG&E Corp. 6,217 1 10.6% 10.6%
Nicor, Inc. 3,040 2 5.2% 15.7%
MCN Energy Group, Inc. 2,662 3 4.5% 20.3%
Consolidated Natural Gas Co. 2,550 4 4.3% 24.6%
Peoples Energy Corp. 2,160 5 3.7% 28.3%
CMS Energy Corp. 2,007 6 3.4% 31.7%
AGL Resources, Inc. 1,946 7 3.3% 35.0%
Washington Gas Light Co. 1,940 8 3.3% 38.3%
Houston Industries, Inc. 1,855 9 3.2% 41.4%
Consolidated Edison, Inc. 1,837 10 3.1% 44.6%
Piedmont Natural Gas Co., Inc. 1,284 11 2.2% 46.7%
NiSource, Inc. 1,280 12 2.2% 48.9%
National Fuel Gas Co. 1,225 13 2.1% 51.0%
NW Natural (Northwest Natural Gas Co.) 1,222 14 2.1% 53.1%
Puget Sound Energy, Inc. 1,218 15 2.1% 55.1%
New Century Energies, Inc. 1,198 16 2.0% 57.2%
Niagara Mohawk Holdings, Inc. 1,180 17 2.0% 59.2%
Columbia Energy Group, Inc. 1,009 18 1.7% 60.9%
Eastern Enterprises 1,007 19 1.7% 62.6%
Constellation Energy Group, Inc. 921 20 1.6% 64.2%
Questar Corp. 897 21 1.5% 65.7%
PECO Energy Co. 878 22 1.5% 67.2%
Indiana Energy, Inc. 862 23 1.5% 68.7%
Wicor, Inc. 812 24 1.4% 70.0%
MidAmerican Energy Holdings Co. 798 25 1.4% 71.4%
Cinergy Corp. 772 26 1.3% 72.7%
ONEOK, Inc. 765 27 1.3% 74.0%
PSC of North Carolina, Inc. 718 28 1.2% 75.2%
UGI Corp. 665 29 1.1% 76.4%
Illinova Corp. 654 30 1.1% 77.5%
Everyone else combined 13,261 22.5% 100%
Total 58,840
</TABLE>
<PAGE>
EXHIBIT N - 11
Market Shares for Gas Companies in the United States
Companies Sorted by Number of Customers
<TABLE>
<CAPTION>
Customers Share of Cumulative
Holding Company (thousands) Rank Total Share
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sempra Energy 5,583 1 11.2% 11.2%
PG&E Corp. 3,902 2 7.9% 19.1%
Houston Industries, Inc. 2,107 3 4.2% 23.3%
Nicor, Inc. 1,865 4 3.8% 27.1%
Columbia Energy Group, Inc. 1,763 5 3.6% 30.7%
Consolidated Natural Gas Co. 1,724 6 3.5% 34.1%
Public Service Enterprise Group, Inc. 1,576 7 3.2% 37.3%
CMS Energy Corp. 1,540 8 3.1% 40.4%
AGL Resources, Inc. 1,405 9 2.8% 43.2%
TXU 1,385 10 2.8% 46.0%
MCN Energy Group, Inc. 1,187 11 2.4% 48.4%
MarketSpan Corp. 1,143 12 2.3% 50.7%
Consolidated Edison, Inc. 1,038 13 2.1% 52.8%
New Century Energies, Inc. 1,034 14 2.1% 54.9%
Southern Union Co. 1,006 15 2.0% 56.9%
Peoples Energy Corp. 955 16 1.9% 58.8%
UtiliCorp United, Inc. 828 17 1.7% 60.5%
Washington Gas Light Co. 800 18 1.6% 62.1%
ONEOK, Inc. 749 19 1.5% 63.6%
National Fuel Gas Co. 697 20 1.4% 65.0%
NiSource, Inc. 694 21 1.4% 66.4%
Questar Corp. 648 22 1.3% 67.7%
MidAmerican Energy Holdings Co. 620 23 1.2% 69.0%
Eastern Enterprises 574 24 1.2% 70.1%
Puget Sound Energy, Inc. 532 25 1.1% 71.2%
Niagara Mohawk Holdings, Inc. 527 26 1.1% 72.3%
Constellation Energy Group, Inc. 519 27 1.0% 73.3%
Wicor, Inc. 518 28 1.0% 74.4%
Southwest Gas Corp. 500 29 1.0% 75.4%
Indiana Energy, Inc. 489 30 1.0% 76.3%
NW Natural (Northwest Natural Gas Co.) 465 31 0.9% 77.3%
Piedmont Natural Gas Co., Inc. 464 32 0.9% 78.2%
Northern States Power Co. 459 33 0.9% 79.1%
Cinergy Corp. 447 34 0.9% 80.0%
Atmos Energy Corp. 425 35 0.9% 80.9%
PECO Energy Co. 415 36 0.8% 81.7%
PSC of New Mexico 413 37 0.8% 82.6%
Illinova Corp. 400 38 0.8% 83.4%
Everyone else combined 8,259 16.6% 100%
Total 49,653
</TABLE>
<PAGE>
EXHIBIT N - 12
Market Shares for Combined Gas & Electric Companies in the U.S.
<TABLE>
<CAPTION>
Number of Portion of Market Served
Illinova's Illinova's Larger by Illinova and Larger
Parameter Units Statistics Share Companies Companies
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Customers thousands 968 1.5% 22 87.7%
Assets $millions 7,803 3.0% 13 69.7%
Revenues $millions 2,069 2.2% 15 75.0%
Comparison of Illinova Corp. to Large Utilities
Number of Utilities Average Size
Necessary for 50% of of These Ratio of These Utilities
Parameter Units U.S. Utilities of Illinova
- --------------------------------------------------------------------------------------------
Customers thousands 7 4,630 5
Assets $millions 9 15,687 2
Revenues $millions 8 6,084 3
Number of Utilities Average Size
Necessary for 80% of of These Ratio of These Utilities
Parameter Units U.S. Utilities of Illinova
- --------------------------------------------------------------------------------------------
Customers thousands 19 2,697 3
Assets $millions 20 10,798 1
Revenues $millions 19 4,073 2
</TABLE>
<PAGE>
EXHIBIT N - 12
Market Shares for Combined Gas and Electric Companies in the United States
Companies Sorted by Revenue
<TABLE>
<CAPTION>
Revenue Cumulative
Holding Company (millions of $) Rank Share of Total Share
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PG&E Corp. 9,077 1 9.5% 9.5%
Public Service Enterprise Group, Inc. 7,429 2 7.8% 17.3%
TXU 7,327 3 7.7% 25.0%
Consolidated Edison, Inc. 6,690 4 7.0% 32.0%
Cinergy Corp. 5,406 5 5.7% 37.7%
PECO Energy Co. 5,266 6 5.5% 43.2%
Niagara Mohawk Holdings, Inc. 3,828 7 4.0% 47.2%
CMS Energy Corp. 3,649 8 3.8% 51.0%
PP&L Resources, Inc. 3,624 9 3.8% 54.8%
Ameren Corp. 3,403 10 3.6% 58.4%
New Century Energies, Inc. 3,248 11 3.4% 61.8%
Northern States Power Co. 3,087 12 3.2% 65.0%
Constellation Energy Group, Inc. 2,672 13 2.8% 67.8%
Conectiv 2,461 14 2.6% 70.4%
Sempra Energy 2,360 15 2.5% 72.9%
Illinova Corp. 2,069 16 2.2% 75.0%
Everyone else combined 23,833 25.0% 100%
Total 95,428
</TABLE>
<PAGE>
EXHIBIT N - 12
Market Shares for Combined Gas and Electric Companies in the United States
Companies Sorted by Assets
<TABLE>
<CAPTION>
Assets Cumulative
Holding Company (millions of $) Rank Share of Total Share
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PG&E Corp. 30,096 1 11.4% 11.4%
TXU 20,540 2 7.8% 19.2%
Consolidated Edison, Inc. 16,436 3 6.2% 25.4%
Niagara Mohawk Holdings, Inc. 15,722 4 6.0% 31.3%
Public Service Enterprise Group, Inc. 15,239 5 5.8% 37.1%
PECO Energy Co. 13,409 6 5.1% 42.2%
Cinergy Corp. 10,650 7 4.0% 46.2%
CMS Energy Corp. 9,716 8 3.7% 49.9%
PP&L Resources, Inc. 9,373 9 3.5% 53.5%
Ameren Corp. 9,225 10 3.5% 56.9%
Constellation Energy Group, Inc. 9,091 11 3.4% 60.4%
New Century Energies, Inc. 8,751 12 3.3% 63.7%
Northern States Power Co. 8,110 13 3.1% 66.8%
Illinova Corp. 7,803 14 3.0% 69.7%
Everyone else combined 79,947 30.3% 100%
Total 264,108
</TABLE>
<PAGE>
EXHIBIT N - 12
Market Shares for Combined Gas and Electric Companies in the United States
Companies Sorted by Number of Customers
<TABLE>
<CAPTION>
Customers Cumulative
Holding Company (thousands) Rank Share of Total Share
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PG&E Corp. 8,438 1 13.3% 13.3%
Sempra Energy 6,772 2 10.7% 24.1%
Consolidated Edison, Inc. 4,068 3 6.4% 30.5%
TXU 3,902 4 6.2% 36.7%
Public Service Enterprise Group, Inc. 3,487 5 5.5% 42.2%
CMS Energy Corp. 3,167 6 5.0% 47.2%
New Century Energies, Inc. 2,579 7 4.1% 51.3%
Niagara Mohawk Holdings, Inc. 2,078 8 3.3% 54.6%
Northern States Power Co. 2,006 9 3.2% 57.7%
PECO Energy Co. 1,903 10 3.0% 60.8%
Cinergy Corp. 1,871 11 3.0% 63.7%
Ameren Corp. 1,803 12 2.9% 66.6%
Constellation Energy Group, Inc. 1,636 13 2.6% 69.1%
Puget Sound Energy, Inc. 1,414 14 2.2% 71.4%
Alliant Energy Corp. 1,287 15 2.0% 73.4%
MidAmerican Energy Holdings Co. 1,270 16 2.0% 75.4%
PP&L Resources, Inc. 1,250 17 2.0% 77.4%
UtiliCorp United, Inc. 1,199 18 1.9% 79.3%
LG&E Energy Corp. 1,119 19 1.8% 81.1%
NiSource, Inc. 1,112 20 1.8% 82.8%
Energy East Corp. 1,053 21 1.7% 84.5%
Conectiv 1,043 22 1.7% 86.2%
Illinova Corp. 968 23 1.5% 87.7%
Everyone else combined 7,786 12.3% 100%
Total 63,209
</TABLE>
<PAGE>
EXHIBIT N - 13
Market Shares for Utility Companies in the U.S.
<TABLE>
<CAPTION>
Number of Portion of Market Served
Illinova's Illinova's Larger by Illinova and Larger
Parameter Units Statistics Share Companies Companies
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Customers thousands 968 0.7% 50 78.5%
Assets $millions 7,803 1.2% 30 69.3%
Revenues $millions 2,069 0.9% 34 71.8%
</TABLE>
Comparison of Illinova Corp. to Large Utilities
<TABLE>
<CAPTION>
Number of Utilities Average Size
Necessary for 50% of of These Ratio of These Utilities
Parameter Units U.S. Utilities to Illinova
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Customers thousands 22 3,239 3
Assets $millions 18 18,233 2
Revenues $millions 19 6,198 3
Number of Utilities Average Size
Necessary for 80% of of These Ratio of These Utilities
Parameter Units U.S. Utilities to Illinova
- -----------------------------------------------------------------------------------------------
Customers thousands 54 2,099 2
Assets $millions 44 11,826 2
Revenues $millions 46 4,052 2
</TABLE>
<PAGE>
EXHIBIT N - 13
Market Shares for Utilities in the United States
Companies sorted by Revenue
<TABLE>
<CAPTION>
Revenue Share of Cumulative
Holding Company (millions of $) Rank Total Share
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Southern Company 9,763 1 4.2% 4.2%
PG&E Corp. 9,077 2 3.9% 8.1%
Public Service Enterprise Group, Inc. 7,429 3 3.2% 11.3%
Edison International 7,383 4 3.2% 14.5%
TXU 7,327 5 3.2% 17.6%
Entergy Corp. 7,205 6 3.1% 20.7%
Unicom Corp. 7,136 7 3.1% 23.8%
American Electric Power Co., Inc. 7,054 8 3.0% 26.9%
Consolidated Edison, Inc. 6,690 9 2.9% 29.7%
FPL Group, Inc. 6,132 10 2.6% 32.4%
Cinergy Corp. 5,406 11 2.3% 34.7%
PECO Energy Co. 5,266 12 2.3% 37.0%
FirstEnergy Corp. 5,264 13 2.3% 39.2%
PacifiCorp 4,834 14 2.1% 41.3%
Dominion Resources, Inc. 4,628 15 2.0% 43.3%
Duke Energy Corp. 4,529 16 1.9% 45.3%
Reliant Energy, Inc. 4,350 17 1.9% 47.1%
Northeast Utilities 4,257 18 1.8% 49.0%
GPU, Inc. 4,028 19 1.7% 50.7%
DTE Energy Co. 3,861 20 1.7% 52.4%
Niagara Mohawk Holdings, Inc. 3,828 21 1.6% 54.0%
CMS Energy Corp. 3,649 22 1.6% 55.6%
PP&L Resources, Inc. 3,624 23 1.6% 57.1%
Central & South West Corp. 3,564 24 1.5% 58.7%
Ameren Corp. 3,403 25 1.5% 60.1%
New Century Energies, Inc. 3,248 26 1.4% 61.5%
Carolina Power & Light Co. 3,167 27 1.4% 62.9%
Northern States Power Co. 3,087 28 1.3% 64.2%
New England Electric System 2,774 29 1.2% 65.4%
Constellation Energy Group, Inc. 2,672 30 1.2% 66.6%
Florida Progress Corp. 2,648 31 1.1% 67.7%
Allegheny Energy, Inc. 2,614 32 1.1% 68.8%
Conectiv 2,461 33 1.1% 69.9%
Sempra Energy 2,360 34 1.0% 70.9%
Illinova Corp. 2,069 35 0.9% 71.8%
Everyone else combined 65,510 28.2% 100.0%
Total 232,297
</TABLE>
<PAGE>
EXHIBIT N - 13
Market Shares for Utilities in the United States
Companies sorted by Assets
<TABLE>
<CAPTION>
Assets Share of Cumulative
Holding Company (millions of $) Rank Total Share
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PG&E Corp. 30,096 1 4.6% 4.6%
Unicom Corp. 26,223 2 4.0% 8.7%
Southern Company 25,367 3 3.9% 12.6%
Entergy Corp. 21,348 4 3.3% 15.9%
Edison International 21,121 5 3.2% 19.1%
TXU 20,540 6 3.2% 22.3%
FirstEnergy Corp. 20,311 7 3.1% 25.4%
Duke Energy Corp. 17,692 8 2.7% 28.1%
American Electric Power Co., Inc. 16,847 9 2.6% 30.7%
FPL Group, Inc. 16,643 10 2.6% 33.3%
Consolidated Edison, Inc. 16,436 11 2.5% 35.8%
Niagara Mohawk Holdings, Inc. 15,722 12 2.4% 38.2%
Public Service Enterprise Group, Inc. 15,239 13 2.3% 40.6%
Dominion Resources, Inc. 14,545 14 2.2% 42.8%
PECO Energy Co. 13,409 15 2.1% 44.9%
GPU, Inc. 13,361 16 2.1% 46.9%
DTE Energy Co. 11,671 17 1.8% 48.7%
PacifiCorp 11,624 18 1.8% 50.5%
Northeast Utilities 11,486 19 1.8% 52.3%
Cinergy Corp. 10,650 20 1.6% 53.9%
Reliant Energy, Inc. 10,333 21 1.6% 55.5%
Central & South West Corp. 9,752 22 1.5% 57.0%
CMS Energy Corp. 9,716 23 1.5% 58.5%
PP&L Resources, Inc. 9,373 24 1.4% 59.9%
Ameren Corp. 9,225 25 1.4% 61.3%
Carolina Power & Light Co. 9,139 26 1.4% 62.7%
Constellation Energy Group, Inc. 9,091 27 1.4% 64.1%
New Century Energies, Inc. 8,751 28 1.3% 65.5%
Western Resources, Inc. 8,543 29 1.3% 66.8%
Northern States Power Co. 8,110 30 1.2% 68.1%
Illinova Corp. 7,803 31 1.2% 69.3%
Everyone else combined 199,832 30.7% 100%
650,001
</TABLE>
<PAGE>
EXHIBIT N - 13
Market Shares for Utilities in the United States
Companies sorted by Number of Customers
<TABLE>
<CAPTION>
Customers Share of Cumulative
Holding Company (thousands) Rank Total Share
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PG&E Corp. 8,438 1 6.0% 6.0%
Sempra Energy 6,772 2 4.8% 10.8%
Edison International 4,284 3 3.0% 13.8%
Consolidated Edison, Inc. 4,068 4 2.9% 16.7%
TXU 3,902 5 2.8% 19.5%
Southern Company 3,761 6 2.7% 22.1%
FPL Group, Inc. 3,615 7 2.6% 24.7%
Public Service Enterprise Group, Inc. 3,487 8 2.5% 27.2%
Unicom Corp. 3,445 9 2.4% 29.6%
CMS Energy Corp. 3,167 10 2.2% 31.8%
American Electric Power Co., Inc. 2,955 11 2.1% 33.9%
New Century Energies, Inc. 2,579 12 1.8% 35.8%
Entergy Corp. 2,482 13 1.8% 37.5%
FirstEnergy Corp. 2,161 14 1.5% 39.1%
Houston Industries, Inc. 2,107 15 1.5% 40.5%
Niagara Mohawk Holdings, Inc. 2,078 16 1.5% 42.0%
DTE Energy Co. 2,062 17 1.5% 43.5%
GPU, Inc. 2,030 18 1.4% 44.9%
Northern States Power Co. 2,006 19 1.4% 46.3%
Dominion Resources, Inc. 1,977 20 1.4% 47.7%
Duke Energy Corp. 1,968 21 1.4% 49.1%
PECO Energy Co. 1,903 22 1.3% 50.5%
Cinergy Corp. 1,871 23 1.3% 51.8%
Nicor, Inc. 1,865 24 1.3% 53.1%
Ameren Corp. 1,803 25 1.3% 54.4%
Columbia Energy Group, Inc. 1,763 26 1.2% 55.7%
Central & South West Corp. 1,735 27 1.2% 56.9%
Northeast Utilities 1,729 28 1.2% 58.1%
Consolidated Natural Gas Co. 1,724 29 1.2% 59.3%
Constellation Energy Group, Inc. 1,636 30 1.2% 60.5%
Reliant Energy, Inc. 1,596 31 1.1% 61.6%
PacifiCorp 1,454 32 1.0% 62.7%
Puget Sound Energy, Inc. 1,414 33 1.0% 63.7%
Allegheny Energy, Inc. 1,410 34 1.0% 64.7%
AGL Resources, Inc. 1,405 35 1.0% 65.6%
Florida Progress Corp. 1,341 36 1.0% 66.6%
Alliant Energy Corp. 1,287 37 0.9% 67.5%
MidAmerican Energy Holdings Co. 1,270 38 0.9% 68.4%
PP&L Resources, Inc. 1,250 39 0.9% 69.3%
UtiliCorp United, Inc. 1,199 40 0.8% 70.1%
MCN Energy Group, Inc. 1,187 41 0.8% 71.0%
Carolina Power & Light Co. 1,169 42 0.8% 71.8%
MarketSpan Corp. 1,143 43 0.8% 72.6%
LG&E Energy Corp. 1,119 44 0.8% 73.4%
NiSource, Inc. 1,112 45 0.8% 74.2%
Energy East Corp. 1,053 46 0.7% 75.0%
Conectiv 1,043 47 0.7% 75.7%
New England Electric System 1,009 48 0.7% 76.4%
Southern Union Co. 1,006 49 0.7% 77.1%
Wisconsin Energy Corp. 1,005 50 0.7% 77.8%
Illinova Corp. 968 51 0.7% 78.5%
Everyone else combined 30,322 21.5% 100.0%
Total 141,133
</TABLE>
<PAGE>
EXHIBIT N-14
Market Shares for Electric Companies in Illinois
Companies Sorted by Revenue
<TABLE>
<CAPTION>
Revenue Share of Cumulative
Holding Company (million of $) Rank Total Share
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unicom Corp. 7,136 1 57.2% 57.2%
Ameren Corp. 3,186 2 25.5% 82.8%
Illinova Corp. 1,781 3 14.3% 97.0%
Cilcorp, Inc. 360 4 2.9% 99.9%
Mount Carmel Public Utility Co. 10 5 0.1% 100.0%
Total 12,473
</TABLE>
<PAGE>
EXHIBIT N-14
Market Shares for Electric Companies in Illinois
Companies Sorted by Assets
<TABLE>
<CAPTION>
Assets Share of Cumulative
Holding Company (millions of $) Rank Total Share
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unicom Corp. 26,223 1 60.7% 60.7%
Ameren Corp. 8,755 2 20.3% 81.0%
Illinova Corp. 7,150 3 16.6% 97.5%
Cilcorp, Inc. 1,058 4 2.4% 100.0%
Mount Carmel Public Utility Co. 13 5 0.0% 100.0%
Total 43,199
</TABLE>
<PAGE>
EXHIBIT N-14
Market Shares for Electric Companies in Illinois
Companies Sorted by Number of Customers
<TABLE>
<CAPTION>
Customers Share of Cumulative
Holding Company (thousands) Ranks Total Share
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unicom Corp. 3,445 1 60.2% 60.2%
Ameren Corp. 1,506 2 26.3% 86.6%
Illinova Corp. 568 3 9.9% 96.5%
Cilcorp, Inc. 195 4 3.4% 99.9%
Mount Carmel Public Utility Co. 6 5 0.1% 100.0%
Total 5,720
</TABLE>
<PAGE>
EXHIBIT N-15
Market Shares for Gas Companies in Illinois
Companies Sorted by Revenue
<TABLE>
<CAPTION>
Revenue Share of Cumulative
Holding Company (millions of $) Rank Total Share
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nicor, Inc. 1,229 1 42.5% 42.5%
Peoples Energy Corp. 967 2 33.4% 76.0%
Illinova Corp. 288 3 10.0% 85.9%
Ameren Corp. 217 4 7.5% 93.4%
Cilcorp, Inc. 181 5 6.3% 99.7%
Illinois Gas Co. 7 6 0.3% 99.9%
Mount Carmel Public Utility Co. 2 7 0.1% 100.0%
Total 2,891
</TABLE>
<PAGE>
EXHIBIT N-15
Market Shares for Gas Companies in Illinois
Companies Sorted by Assets
<TABLE>
<CAPTION>
Assets Share of Cumulative
Holding Company (millions of $) Rank Total Share
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nicor, Inc. 3,040 1 45.1% 45.1%
Peoples Energy Corp. 2,160 2 32.1% 77.2%
Illinova Corp. 654 3 9.7% 86.9%
Ameren Corp. 469 4 7.0% 93.9%
Cilcorp, Inc. 394 5 5.9% 99.8%
Illinois Gas Co. 13 6 0.2% 99.9%
Mount Carmel Public Utility Co. 4 7 0.1% 100.0%
Total 6,734
</TABLE>
<PAGE>
EXHIBIT N-15
Market Shares for Gas Companies in Illinois
Companies Sorted by Number of Customers
<TABLE>
<CAPTION>
Customers Share of Cumulative
Holding Company (thousands) Rank Total Share
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nicor, Inc. 1,865 1 50.0% 50.0%
Peoples Energy Corp. 955 2 25.6% 75.6%
Illinova Corp. 400 3 10.7% 86.3%
Ameren Corp. 296 4 7.9% 94.2%
Cilcorp, Inc. 201 5 5.4% 99.6%
Illinois Gas Co. 10 6 0.3% 99.9%
Mount Carmel Public Utility Co. 4 7 0.1% 100.0%
Total 3,731
</TABLE>
<PAGE>
EXHIBIT N-16
Market Shares for Combined Gas and Electric Companies in Illinois
Companies Sorted by Revenue
<TABLE>
<CAPTION>
Revenue Share of Cumulative
Holding Company (millions of $) Rank Total Share
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ameren Corp. 3,403 1 56.5% 56.5%
Illinova Corp. 2,069 2 34.3% 90.8%
Cilcorp, Inc. 541 3 9.0% 99.8%
Mount Carmel Public Utility Co. 12 4 0.2% 100.0%
Total 6,025
</TABLE>
<PAGE>
EXHIBIT N-16
Market Shares for Combined Gas and Electric Companies in Illinois
Companies Sorted by Assets
<TABLE>
<CAPTION>
Assets Share of Cumulative
Holding Company (millions of $) Rank Total Share
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ameren Corp. 9,225 1 49.9% 49.9%
Illinova Corp. 7,803 2 42.2% 92.1%
Cilcorp, Inc. 1,452 3 7.8% 99.9%
Mount Carmel Public Utility Co. 17 4 0.1% 100.0%
Total 18,497
</TABLE>
<PAGE>
EXHIBIT N-16
Market Shares for Combined Gas and Electric Companies in Illinois
Companies Sorted by Number of Customers
<TABLE>
<CAPTION>
Customers Share of Cumulative
Holding Company (thousands) Rank Total Share
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ameren Corp. 1,803 1 56.8% 56.8%
Illinova Corp. 968 2 30.5% 87.2%
Cilcorp, Inc. 396 3 12.5% 99.7%
Mount Carmel Public Utility Co. 9 4 0.3% 100.0%
Total 3,176
</TABLE>
<PAGE>
EXHIBIT N-17
Market Shares for Utilities in Illinois
Companies sorted by Revenue
<TABLE>
<CAPTION>
Revenue Share of Cumulative
Holding Company (millions of $) Rank Total Share
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unicom Corp. 7,136 1 46.4% 46.4%
Ameren Corp. 3,403 2 22.1% 68.6%
Illinova Corp. 2,069 3 13.5% 82.1%
Nicor, Inc. 1,229 4 8.0% 90.1%
Peoples Energy Corp. 967 5 6.3% 96.4%
Cilcorp, Inc. 541 6 3.5% 99.9%
Mount Carmel Public Utility Co. 12 7 0.1% 100.0%
Illinois Gas Co. 7 8 0.0% 100.0%
Total 15,365
</TABLE>
<PAGE>
EXHIBIT N-17
Market Shares for Utilities in Illinois
Companies sorted by Assets
<TABLE>
<CAPTION>
Assets Share of Cumulative
Holding Company (millions of $) Rank Total Share
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unicom Corp. 26,223 1 52.5% 52.5%
Ameren Corp. 9,225 2 18.5% 71.0%
Illinova Corp. 7,803 3 15.6% 86.6%
Nicor, Inc. 3,040 4 6.1% 92.7%
Peoples Energy Corp. 2,160 5 4.3% 97.0%
Cilcorp, Inc. 1,452 6 2.9% 99.9%
Mount Carmel Public Utility Co. 17 7 0.0% 100.0%
Illinois Gas Co. 13 8 0.0% 100.0%
Total 49,933
</TABLE>
<PAGE>
EXHIBIT N-17
Market Shares for Utilities in Illinois
Companies sorted by Number of Customers
<TABLE>
<CAPTION>
Customers Share of Cumulative
Holding Company (thousands) Rank Total Share
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unicom Corp. 3,445 1 36.4% 36.4%
Nicor, Inc. 1,865 2 19.7% 56.2%
Ameren Corp. 1,803 3 19.1% 75.3%
Illinova Corp. 968 4 10.2% 85.5%
Peoples Energy Corp. 955 5 10.1% 95.6%
Cilcorp, Inc. 396 6 4.2% 99.8%
Illinois Gas Co. 10 7 0.1% 99.9%
Mount Carmel Public Utility Co. 9 8 0.1% 100.0%
Total 9,450
</TABLE>
