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Exhibit D-3.2
DISCLAIMER
----------
This electronic version of an SCC order is for informational purposes only and
is not an official document of the Commission. An official copy may be
obtained from the Clerk of the Commission, Document Control Center.
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
AT RICHMOND, JULY 21, 2000
JOINT PETITION OF
POWERGEN plc, LG&E ENERGY CORP. CASE NO. PUA000020
and
KENTUCKY UTILITIES COMPANY, d/b/a
OLD DOMINION POWER COMPANY
For approval of a merger
FINAL ORDER
-----------
On March 24, 2000, PowerGen plc ("PowerGen"), LG&E Energy Corp. ("LG&E
Energy"), and Kentucky Utilities Company, d/b/a Old Dominion Power Company
("KU"), (collectively, the "Petitioners") filed a joint petition requesting
approval, pursuant to (S) 56-88.1 of the Code of Virginia (the "Code"), of a
proposed transaction whereby LG&E Energy will merge into PowerGen. Under the
terms of the Agreement and Plan of Merger ("Merger Agreement"), the stock of
LG&E Energy, the parent company of KU, will be acquired by PowerGen.
The Petitioners also request that the Commission determine that
neither LG&E Energy nor PowerGen or any intermediate company between LG&E Energy
and PowerGen will, by reason or ownership of all outstanding shares of common
stock of LG&E Energy, be a public service company as defined in (S) 56-1 of
<PAGE>
the Code.
Further, the Petitioners request that the Commission certify to the
Securities and Exchange Commission ("SEC") under Section 33(a) (2) of the Public
Utility Holding Company Act of 1935 ("the 1935 Act") that the Commission has the
authority and resources to protect the ratepayers of KU subject to its
jurisdiction and that it intends to exercise that authority.
PowerGen is a public limited holding company formed in 1998 under the laws
of England and Wales and is engaged in regulated and unregulated power
activities around the world. PowerGen, through its subsidiaries, owns and
operates cogeneration projects, nine power stations in England and Wales, and a
regulated electric distribution utility known as East Midlands Electricity. It
also develops independent power projects in Europe, India, and the Asian Pacific
area. PowerGen conducts energy trading, shipping, and gas pipeline operations,
is a leading developer and operator of cogeneration, and is involved in
renewable energy ventures.
LG&E Energy is a corporation organized under the laws of the Commonwealth
of Kentucky. LG&E Energy is an exempt holding company under the 1935 Act and is
engaged in cogeneration, independent power projects, exempt wholesale
generation, and the ownership and operation of two retail electric and gas
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distribution utilities, known as Louisville Gas and Electric Company and KU/1/.
KU is a public service corporation organized pursuant to the laws of the
Commonwealth of Kentucky and the Commonwealth of Virginia. In Kentucky, KU
provides retail electric service to approximately 478,000 customers in 77
counties and wholesale service to several municipalities. In Virginia, KU
conducts business under the name Old Dominion Power Company ("ODP") and provides
retail electric service to approximately 29,000 customers in five southwestern
counties. ODP does not have any wholesale customers in Virginia.
On February 25, 2000, the Boards of Directors of PowerGen and LG&E Energy
approved the Merger Agreement and executed the agreement on February 27, 2000.
Under the terms of the Merger Agreement, LG&E Energy will merge with PowerGen
Acquisition, a corporation to be formed and indirectly owned by PowerGen for the
purpose of facilitating the merger. LG&E Energy will survive the merger, and
PowerGen Acquisition will cease to exist, resulting in LG&E Energy becoming a
wholly owned subsidiary of PowerGen.
PowerGen will acquire 100 percent of all outstanding shares and share
options of LG&E Energy common stock. The holders of
-------------------
1 By Order dated January 20, 1998, in Case No. PUA970041, the Commission
approved the merger of KU's then parent company, KU Energy Corporation, with and
into LG&E Energy with LG&E Energy being the surviving company.
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LG&E Energy common stock will not become shareholders of PowerGen, but instead
will receive $24.85 per share in cash. The purchase price represents a premium
of 58 percent above the closing price ($15.75) of LG&E Energy shares on February
25, 2000, the last trading day prior to the merger announcement. The value of
equity, on a fully diluted basis, is $3.2 billion. Upon completion of the
merger, there will be no publicly traded shares of LG&E Energy stock. LG&E
Energy will continue to own 100 percent of the issued and outstanding common
stock of LG&E and KU. LG&E's and KU's outstanding preferred stock will not be
changed, converted, or otherwise exchanged as a result of the merger. In
addition, PowerGen will assume all the debt of LG&E Energy and its subsidiaries,
which totals approximately $2.2 billion as of December 31, 1999. Thus, the total
value of the acquisition is approximately $5.4 billion.
Furthermore, the Petitioners state that there will be additional companies
between LG&E Energy and PowerGen. These intermediate companies will be, directly
or indirectly, wholly owned by PowerGen and will have no public or private
institutional equity or debt holders. The Petitioners state that such structures
are typical for UK-US cross border transactions and will exist primarily for the
purpose of creating an economically efficient and viable structure for
completing the merger transaction.
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Once the merger becomes effective, the Petitioners state that PowerGen will
increase the size of its board of directors to allow LG&E Energy's Chief
Executive Officer to be appointed. In addition, LG&E's Chief Executive Officer
will also serve as Chairman and Chief Executive Officer of LG&E Energy. LG&E
Energy's Board of Directors will be dissolved and replaced with a three-member
board and an Advisory Board. PowerGen also intends to retain the existing LG&E
Energy, LG&E, and KU senior management team.
The Petitioners state that KU will continue to function as a public utility
subject to the regulatory jurisdiction of the Virginia State Corporation
Commission, the Kentucky Public Service Commission, and, to the extent required
by applicable law, the Tennessee Regulatory Authority. In addition, the Federal
Energy Regulatory Commission ("FERC") will continue to regulate KU's
transmission services and wholesale rates.
The shareholders of PowerGen and LG&E approved the Merger Agreement on June
5 and June 7, 2000. The merger was also approved by the Public Service
Commission of Kentucky on May 15, 2000, and by FERC on June 28, 2000. The
Petitioners are awaiting approval from the SEC.
PowerGen and the intermediate companies are expected, subject to SEC
approval of the merger, to register as holding companies under the 1935 Act. As
registered holding companies,
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they will be subject to various statutory and administrative requirements. As
part of the merger approval process, the SEC will review the Petitioners'
non-utility operations and the corporate structure proposed for the merged
company. In addition, the SEC will request certification that the Virginia State
Corporation Commission has the authority and resources to protect ratepayers
subject to its jurisdiction and that it intends to exercise such authority.
Registration under the 1935 Act will also impose a number of restrictions
on the operations of PowerGen and its subsidiaries. The restrictions include
such things as requiring advance approval of securities issuance, sales and
acquisitions of utility assets, acquisitions of other businesses, prohibiting
PowerGen subsidiaries from providing certain services to each other, and
limiting the ability of PowerGen and its subsidiaries from engaging in various
businesses. The Petitioners state that LG&E Energy currently has four first
tier subsidiaries/2/, and, in order to comply with the 1935 Act, will add a
service company, LG&E Energy Services, Inc. ("LG&E Services"), to that tier.
LG&E Service will provide utility and non-utility subsidiaries
-------------------
/2/The first tier subsidiaries of LG&E Energy are LG&E, KU, LG&E Capital Corp.,
and LG&E Energy Marketing, Inc.
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and affiliates in the PowerGen group with administrative, management, and
support services./3/
The Petitioners state that the merger is intended to allow LG&E Energy and
its utility subsidiaries, LG&E and KU, to become part of a larger international
enterprise that will provide the size and scale that, they represent, have
become critical and necessary prerequisites to success in an energy industry
that has entered a period of accelerating evolution, rapid deregulation and
regulatory change, and increased competition. By becoming part of PowerGen, KU
states it will be better able to utilize beneficial developments in transmission
and distribution technology, information systems, and capital markets. In
addition, PowerGen's experience in the United Kingdom and other countries is
expected to provide help in advancing KU's efforts in the wholesale market, as
well as in preparing KU for restructuring and competition.
KU further contends that the merger will bring benefits to customers,
employees, LG&E Energy's shareholders (a number of whom are residents of
Virginia), and the Commonwealth of Virginia. After the merger, KU will have the
financial,
-------------------
/3/The Petitioners state that they will file a separate application pursuant to
Chapter 4 of Title 56 of the Code of Virginia ("Affiliates Act") requesting the
Commission to exempt ODP from all of the requirements of ss. 56-77A or, in the
alternative, approve a service agreement between LG&E, ODP, and LG&E Services.
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technical, and managerial capabilities that are needed to provide efficient
customer service. Petitioners represent that customers should benefit from
improved service quality and energy efficiency resulting from the reciprocal
adoption of "best practices". For employees, the merger represents an
opportunity for growth as the existing KU affiliated group becomes the U.S. base
of operations for a large international entity.
PowerGen pledges to maintain the same commitment to KU that was exhibited
by LG&E Energy and KU Energy Corporation, and it is firmly committed to
maintaining and supporting the relationships between KU and the communities it
serves. KU will maintain its separate existence, will keep its headquarters in
Lexington, Kentucky, and will also maintain its connections and commitments to
southwestern Virginia.
On May 12, 2000, the Commission issued an order directing the Petitioners
to provide public notice of their petition and to provide an opportunity for
interested persons to comment and request a hearing. The Commission also
directed its Staff to file a report detailing the results of its investigation
of the matter.
There were no comments or requests for hearing filed in this proceeding.
Pursuant to a May 12, 2000, Order Extending Procedural
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Schedule, Staff filed its Report on July 5, 2000. In its Report, Staff stated
that it appears that there will be no direct change in the relationship between
LG&E Energy and KU other than the inclusion of LG&E Services as a direct
affiliate of LG&E Energy. Staff also stated that it believes that ODP is subject
to the provisions of (S) 56-590 of the Code. Staff recommended that the
Commission address the matter of Petitioners' request for certification when the
SEC submits a letter requesting the same. Staff also recommended approval of the
joint petition subject to certain conditions as addressed herein.
There was no response to Staff's Report filed by either the Petitioners or
any interested person.
On July 13, 2000, Staff, on behalf of itself and the Petitioners filed a
motion wherein it requested that the Commission approve the Memorandum of
Agreement ("MOA") attached thereto. The MOA is designed to resolve all issues
between Staff and the Petitioners and to ensure that the statutory standard set
out in (S) 56-90 of the Code is met.
NOW THE COMMISSION, having considered the joint petition, the Staff Report,
and the proposed MOA, is of the opinion and finds that the MOA should be
approved without modification. We find, consistent with the requirements of
(S) 56-90 of the Code, that the provisions of the MOA will ensure that adequate
service
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to the public at just and reasonable rates will not be impaired or jeopardized.
We will not address in this proceeding the Petitioners' request regarding a
determination that neither LG&E Energy, PowerGen, nor any intermediate company
will be a public service company as defined in (S) 56-1. We will defer our
consideration of the requested certification to the SEC until such time as we
receive a request from that regulatory agency.
Accordingly, IT IS ORDERED THAT:
(1) The Agreement and Plan of Merger is hereby approved subject to the
terms and conditions of the Memorandum of Agreement.
(2) The Memorandum of Agreement is adopted in full herein, and the
Petitioners are ORDERED to comply with its terms and the conditions established
therein.
(3) Except to the extent set out in the Memorandum of Agreement adopted
above, this Order shall have no ratemaking implications.
(4) There being nothing further to be done in this matter, it is hereby
dismissed.
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COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
JOINT PETITION OF
POWERGEN, PLC, LG&E ENERGY CASE NO. PUA000020
CORP., and KENTUCKY UTILITIES
COMPANY, d/b/a OLD DOMINION
POWER COMPANY
For approval of a Merger
MOTION FOR CONSIDERATION OF STIPULATION
---------------------------------------
On March 24, 2000, PowerGen, plc, LG&E Energy Corp., and Kentucky
Utilities Company, d/b/a Old Dominion Power Company ("ODP"), (collectively,
"Petitioners") filed their Joint Petition seeking approval under Chapter 5 of
Title 56 of the Code of Virginia of a proposed merger that would result in ODP
becoming a wholly owned indirect subsidiary of PowerGen, plc.
On July 12, 2000, the Staff of the State Corporation Commission ("Staff")
and the Petitioners entered into a Memorandum of Agreement to resolve the issues
raised by the Joint Petition. A copy of the Memorandum of Agreement is attached
to this motion. The Staff and the parties agree that, if adopted by the
Commission, the Memorandum of Agreement will result in a fair, reasonable and
efficient resolution of the proceeding, will assure that the statutory standard
set out in (S) 56-90 of the Code of Virginia is met, and will otherwise protect
the public interest.
<PAGE>
The principal components of the Stipulation include:
1. The Petitioners' agreement to make an average investment of $2.0 million
annually during the period 2000-2005, in gross additions to transmission,
distribution and general electric plant in service in Petitioners' Virginia
service territories;
2. Petitioners' representation to maintain all benefits that ODP's
customers currently receive as a result of the previous merger approved in Case
No. PUA970041 between ODP, KU Energy Corporation, and LG&E Energy Corp.;
3. Petitioners' agreement not to seek recovery of specified merger-related
costs in rates; and
4. Petitioners' and ODP's representation that the merger will not affect
the Commission's regulatory authority with regard to ODP, and their pledge to
continue to maintain a high degree of cooperation with the Staff and to take all
actions necessary to ensure ODP's timely response to Staff inquiries with regard
to its provision of service in Virginia.
In addition to the provisions set out above, the Petitioners and ODP have
made other representations and undertakings as set out in the Memorandum of
Agreement, which has been signed by undersigned counsel for the Commission
Staff, and by John R. McCall, Executive Vice President, General Counsel and
Corporate Secretary for LG&E Energy Corp. and KU/ODP and
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David Jackson, General Counsel and Company Secretary for PowerGen, plc.
WHEREFORE, for these reasons, the Staff, for itself and on behalf of the
Petitioners, moves the Commission to give appropriate consideration to, and
approve the Memorandum of Agreement.
Respectfully submitted,
The Staff of the
State Corporation Commission
By: /s/ William H. Chambliss
----------------------------
William H. Chambliss, General Counsel
State Corporation Commission
Office of General Counsel
P.O. Box 1197
Richmond, Virginia 23218
(804) 371-9571
July 13, 2000
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CERTIFICATE
-----------
I hereby certify that a true copy of the foregoing "Motion for
Consideration of Stipulation" was hand-delivered or mailed, first-class mail,
postage prepaid this 13th day of July, 2000, to: Kendrick R. Riggs, Esquire, and
Timothy J. Eifler, Esquire, Ogden, Newell & Welch, 500 West Jefferson Street,
Louisville, Kentucky 40202; and Richard D. Gary, Esquire, Hunton & Williams,
Riverfront Plaza, East Tower, 951 East Byrd Street, Richmond, Virginia
23219-4074.
/s/ William H. Chambliss
------------------------
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COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
Joint Petition of:
POWERGEN, plc, LG&E ENERGY CORP. )
and KENTUCKY UTILITIES COMPANY )
d/b/a OLD DOMINION POWER COMPANY ) CASE NO. PUA000020
For Approval of a Merger )
MEMORANDUM OF AGREEMENT
This Memorandum of Agreement made and entered into as of the 13 day of
July, 2000, sets forth an agreement among PowerGen, plc ("PowerGen"), LG&E
Energy Corp. ("LG&E Energy"), Kentucky Utilities Company/1/ ("KU/ODP")
(collectively, the "Petitioners"), and Staff of the State Corporation Commission
("Staff") as to a proposed resolution of the Joint Petition in the
above-captioned case. The Joint Petition requests approval under Chapter 5,
Title 56, of the Code of Virginia ((S)56-88 et seq.) of a proposed merger
("Proposed Merger") that would result in LG&E Energy becoming a wholly owned
indirect subsidiary of PowerGen. Staff and the Petitioners believe that this
Memorandum of Agreement will efficiently and expeditiously resolve the issues
raised by the Joint Petition, will assure the statutory standard of (S)(S) 56-90
and 56-590 F 2 of the Code of Virginia are met, and will otherwise protect the
public interest.
The signatories to this Memorandum of Agreement will, as soon as possible
after execution of the Memorandum of Agreement, file it with the Virginia State
Corporation Commission ("Commission"), together with a motion by Staff
requesting that the
-------------------
/1/Kentucky Utilities Company does business in Virginia as Old Dominion Power
Company.
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Commission enter an order approving the Memorandum of Agreement and ordering
such other actions and imposing such conditions as necessary to conclude this
proceeding.
The points of agreement are as follows:
1) Petitioners commit to: a) adequately fund and maintain KU's transmission and
distribution systems; b) comply with all Commission regulations and statutes;
and c) supply KU customers' service needs. PowerGen further commits to
maintaining LG&E Energy's level of commitment to high quality utility service
and will maintain the KU track record for superior service quality. To this end
and to provide assurance to the Commission that the requirements of (S)56-590
F 2 will be satisfied, Petitioners undertake and agree they will invest an
average of $2.0 million annually during the five year period ending December 31,
2005, in gross additions to transmission, distribution, and general electric
plant in service in the Petitioners' Virginia service area. Within 90 days of
the end of each calendar year beginning on March 31, 2001, KU will provide the
Division of Energy Regulation a report detailing its level of plant investments
for the prior calendar year and will provide a cumulative report at the end of
the five year period in which KU shall, if necessary, detail any deviations from
the average planned investments;
2) Petitioners commit that the merger will not reduce the benefits customers
currently receive as a result of the merger approved in Case No. PUA970041,
Petition of Kentucky Utilities Company d/b/a Old Dominion Power Company,
-----------------------------------------------------------------------
KU Energy Corporation and LG&E Energy Corp. for Approval of the Acquisition of
------------------------------------------------------------------------------
Control of Kentucky Utilities Company by LG&E Energy Corp;
---------------------------------------------------------
3) PowerGen and LG&E Energy commit to support and assist KLPs continued
maintenance of a balanced capital structure and recognize the Commission's
continued
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ratemaking authority over KU's capital structure, financing, and cost of capital
after the acquisition;
4) The Petitioners commit that LG&E Energy, its subsidiary, KU, and its
ratepayers, directly or indirectly, shall not incur any additional costs,
liabilities, or obligations in conjunction with the acquisition of LG&E Energy
by PowerGen including, but not limited to, the following: accountants' fees,
legal fees, shareholder communication and proxy solicitation expenses, New York
Stock Exchange listing fees, costs of printing and engraving stock certificates,
investment bankers' fees, or consulting fees;
5) PowerGen commits that the Commission shall have open access to the books and
records of LG&E Energy and KU, and to appropriate personnel, including the books
and records of affiliates and subsidiaries as they relate to transactions
between KU and other affiliates. Petitioners also commit to continue the same
reporting process currently in place and to include such additional, special, or
periodic reports, schedules, classifications, or other information that the
Commission reasonably requires in accordance with Virginia regulatory law, to
monitor significant transfers of utility assets, personnel changes, business
ventures, other major transactions, and to regulate effectively the operations
of KU. Further, Petitioners agree to continue to maintain a high level of
cooperation with Staff and will take all actions necessary to ensure KU's timely
response to informal data requests submitted by Staff with respect to KU's
provisions of service in Virginia;
6) The transfer or assignment by KU of any real or personal property not
included in the Petition to any affiliate or non-affiliate shall require
additional Commission approval in accordance with (S) 56-77 of the Code;
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7) Petitioners commit that KU will not seek recovery of the acquisition premium
paid by PowerGen for the LGE Energy stock and the costs associated with the
consummation of the transaction through its Virginia jurisdictional retail
rates. Further, Petitioners commit that the premium paid by PowerGen for the
LG&E Energy stock as well as any other associated costs, will not be "pushed
down" to KU for ratemaking purposes;
8) Petitioners commit not to assert, in any forum, that the Securities and
Exchange Commission's ("SEC") jurisdiction legally preempts the Commission from
disallowing recovery in retail rates for the costs of goods and services that KU
obtains from or transfers to an associate, affiliate, or subsidiary in the same
holding company system. However, KU should retain the right to assert that the
charges are reasonable and appropriate. Further, the Petitioners commit to
oppose any challenge or defense raised by any party that seeks to abrogate the
Commission's authority on the grounds of federal preemption under the Public
Utility Holding Company Act of 1935 ("1935 Act");
9) Petitioners and their affiliates will bear the full risk of any preemptive
effects of the 1935 Act. Petitioners and their affiliates should agree to take
all such action as the Commission finds is necessary and appropriate as a result
of possible 1935 Act preemptive effects to hold Virginia ratepayers harmless
from rate increases or foregone opportunities for rate decreases. Such actions
may include, but are not limited to, filing with and seeking to obtain approval
from the SEC for such commitments as deemed necessary to prevent such preemptive
effects.
10) LG&E Energy will file with the Commission's Division of Public Utility
Accounting a copy of all documents or reports filed with the SEC under the 1935
Act as well as
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copies of all orders issued by the SEC directly affecting LG&E Energy's and KU's
accounting practices;
11) Petitioners commit to provide Staff annually with information regarding the
general corporate objectives of the consolidated operations of LG&E Energy and
their potential impact on KU. Any confidential or commercially sensitive
information provided by PowerGen, LG&E Energy, or KU shall be so designated and
Staff shall accord such information confidential treatment unless and until it
is ordered to do otherwise;
12) Petitioners will use their best efforts to track and maintain records of all
costs associated with the proposed merger and provide such information to the
Commission's Staff upon request;
13) KU agrees to operate and maintain the distribution system of its Virginia
service territory at or above current levels of service quality and reliability.
KU agrees to implement, on a timely basis, distribution system improvements that
are required to maintain such system levels of service quality and reliability
as well as to provide any individual customer or groups of customers with an
acceptable level of service quality and reliability consistent with nationally
recognized standards acceptable to the Commission, which may include but are not
limited to standards established by East Central Area Reliability Council and
the North American Electric Reliability Council. KU will report on a semi-annual
basis both including and excluding the impact of major storms the Standard
Average Interruption Frequency Index (SAIFI) and the Standard Average
Interruption Duration Index (SAIDI) for its Virginia retail service territory.
KU will also agree to make all reasonable efforts to support any additional
distribution reliability monitoring efforts undertaken by Staff. Nothing in this
paragraph is to be
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deemed to waive or supersede any requirement within KU's approved Virginia
retail tariff relating to services or extensions, or customer contributions
relating to services or extensions; and
14) Petitioners and Staff represent and acknowledge that this Memorandum of
Agreement, if approved by the Commission, would result in full and fair
resolution of the issues raised in Case No. PUAOOOO2O. This Memorandum of
Agreement reflects a balancing of many important interests put forward in these
proceedings by, or affecting, Petitioners and Staff. If the Commission does not
intend to approve all aspects of this Memorandum of Agreement, then Petitioners
and Staff respectfully request that the Commission (a) notify them of such
intention and the basis thereof, and (b) allow them three days to attempt to
reach a modified Memorandum of Agreement that addresses the Commission's
concerns. If no such time period is permitted by the Commission, or if no such
modified Memorandum of Agreement is reached within three days, then Petitioners
and Staff or any of them, may withdraw their support of this Memorandum of
Agreement and request to be heard on any issues raised in this proceeding.
IN WITNESS WHEREOF, the following corporations have caused this Memorandum
of Agreement to be executed, acknowledged, and delivered on their behalves by
their respective officers identified below:
PowerGen, plc /s/ [ILLEGIBLE SIGNATURE]
-------------------------
LG&E Energy Corp. /s/ [ILLEGIBLE SIGNATURE]
-------------------------
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Kentucky Utilities Co. d/b/a Old
Dominion Power Co. /s/ [ILLEGIBLE SIGNATURE]
-------------------------
Staff of the
State Corporation Commission /s/ [ILLEGIBLE SIGNATURE]
-------------------------
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