[Federal Register Volume 59, Number 58 (Friday, March 25, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-7081]
[[Page Unknown]]
[Federal Register: March 25, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 35-26008]
Filings Under the Public Utility Holding Company Act of 1935
(``Act'')
March 18, 1994.
Notice is hereby given that the following filing(s) has/have been
made with the Commission pursuant to provisions of the Act and rules
promulgated thereunder. All interested persons are referred to the
application(s) and/or declaration(s) for complete statements of the
proposed transaction(s) summarized below. The application(s) and/or
declaration(s) and any amendments thereto is/are available for public
inspection through the Commission's Office of Public Reference.
Interested persons wishing to comment or request a hearing on the
application(s) and/or declaration(s) should submit their views in
writing by April 11, 1994, to the Secretary, Securities and Exchange
Commission, Washington, DC 20549, and serve a copy on the relevant
applicant(s) and/or declarant(s) at the address(es) specified below.
Proof of service (by affidavit or, in case of an attorney at law, by
certificate) should be filed with the request. Any request for hearing
shall identify specifically the issues of fact or law that are
disputed. A person who so requests will be notified of any hearing, it
ordered, and will receive a copy of any notice or order issued in the
matter. After said date, the application(s) and/or declaration(s), as
filed or as amended, may be granted and/or permitted to become
effective.
University Cogeneration, Inc., (31-904)
University Cogeneration, Inc. (``University'') 4464 Alvarado Canyon
Road, San Diego, California 92120, has filed an application for an
order declaring it not to be an electric utility company under section
2(a)(3) of the Act.
University is a California corporation and is primarily engaged in
the business of designing, developing, owning, operating and
maintaining, either directly or indirectly, industrial energy projects
that are qualifying facilities (``QFs'') as defined by the Public
Utility Policies Act of 1978. University wholly owns the Chula Vista
Cogeneration Project (``Project'') located at Rohr Industries in Chula
Vista, California. In addition to owning the Project, University serves
as general partner in two California limited partnerships, each of
which owns a QF in California.
The Project is a 9 megawatt, combined-cycle, gas-fired facility and
is currently operated as a QF. Rohr Industries (``Rohr'') serves as the
steam host for the Project and purchases approximately 90% of the
electric output from the Project. The remainder of the output is sold
to the San Diego Gas & Electric Company. It is stated that gross annual
sales from the Project were $4,031,852 in 1991, were $3,571,584 in
1992, and will be approximately $2,891,000 in 1993.
University states that Rohr, the steam host for the Project, has
recently decreased its steam requirements, thereby placing the
Project's QF status at risk.
University is wholly owned by JWP West, a subsidiary of JWP, Inc.
JWP, Inc. owns a single QF on Long Island. University states that
neither JWP, Inc., nor University, nor any of their affiliates
currently owns or operates any public-utility as defined by the Act.
Monongahela Power Company, et al. (70-6179)
Monongahela Power Company (``Monongahela''), 1310 Fairmont Avenue,
Fairmont, West Virginia 26554, The Potomac Edison Company (``Potomac
Edison''), 10345 Downsville Pike, Hagerstown, Maryland, and West Penn
Power Company (``West Penn''), 800 Cabin Hill Drive, Greenburg,
Pennsylvania 15601 (collectively, ``Companies''), all wholly owned
public-utility subsidiary companies of Allegheny Power System Inc., a
registered holding company, have filed a post-effective amendment to
their declaration under Sections 6(a), 7, 9(a), 10 and 12(c) of the Act
and Rule 50(a)(5) thereunder.
The County Commission of Pleasants County, West Virginia (``County
Commission''), is planning to issue three new series of pollution
control revenue bonds in the aggregate principal amount of not more
than $77.5 million and maturing no later than 2020 (``Series C
Bonds''). The proceeds from the Series C Bonds will be used to refund
the County Commission's Series B Pollution Control Revenue Bonds
currently outstanding as follows: (i) $11.5 million principal amount of
Pollution Control Revenue Bond 6.95% (West Penn Power Company Pleasants
Power Station Project), 1978 Series B, maturing August 1, 2003; (ii)
$20 million principal amount of Pollution Control Revenue Bonds 7.00%
(West Penn Power Company Pleasants Power Station Project), 1978 Series
B, maturing August 1, 2008; (iii) $21 million principal amount of
Pollution Control Revenue Bonds 7.30% (The Potomac Edison Company
Pleasants Power Station Project), 1978 Series B, maturing August 1,
2008; and (iv) $25 million principal amount of Pollution Control
Revenue Bonds 7.75% (Monongahela Power Company Pleasants Power Station
Project), 1979 Series B, maturing August 1, 2009 (collectively,
``Series B Bonds''). The Series B Bonds were used to provide additional
money for the installation of pollution control equipment and
facilities (``Facilities'') at Pleasants Power Station in Pleasants
County, West Virginia.
The Series C Bonds will be issued under a supplemental trust
indenture with a corporate trustee, approved by the Companies, and will
be sold at such time, at such interest rate and for such price as shall
be approved by the Companies. However, the interest rate for each
series of Series C Bonds will not exceed the interest rate of the
corresponding series of Series B Bonds presently outstanding.
Additionally, the Companies state that they will not enter into the
proposed refunding transaction unless the estimated present value
savings derived from the net difference between interest payments on
the new issues of comparable securities and on the securities to be
refunded is, on an after tax basis, greater than the present value of
all redemption and issuing costs, assuming an appropriate discount
rate. The discount rate used shall be the estimated after tax interest
rate on the Series C Bonds to be issued.
Concurrently with the issuance of the Series C Bonds, the Companies
propose to issue, through December 31, 1995, non-negotiable promissory
notes (``Pollution Control Notes'') corresponding to the Series C Bonds
in respect of the principal amount, interest rates and redemption
provisions (which may include a special right of the holder to require
the redemption or repurchase of the holder of the Series C Bond at
stated intervals) and having installments of principal corresponding to
any mandatory sinking fund payments and stated maturities. The
Pollution Control Notes will be substituted for and replace the
promissory notes presently outstanding. The outstanding notes will be
cancelled.
The Pollution Control Notes will be secured by a second lien on the
Facilities and certain other properties, pursuant to the Deed of Trust
and Security Agreement dated November 1, 1977, as supplemented by a
First Supplement thereto dated August 1, 1978 as to West Penn and
Potomac Edison and a First Supplemental thereto dated February 1, 1979
as to Monongahela (``Deed''). The security interest in the Facilities
and certain other property conveyed by the Deed is subject to the lien
securing each Company's first mortgage bonds.
Payments on the Pollution Control Notes will be made to the Trustee
under supplements to the existing indentures and shall be applied by
the Trustee to pay the maturing principal and redemption price of and
interest and other costs on the Series C Bonds as the same become due.
Each Company also proposes to pay any trustees' fees and expenses
incurred by the County Commission. The Companies request an exception
from the competitive bidding requirements of rule 50 under subsection
(a)(5) thereof in connection with the issuance of the Pollution Control
Notes.
The Series C Bonds may be in either coupon or registered form and
will bear interest semi-annually at rates to be determined. The Series
C Bonds will be issued pursuant to supplemental indentures which
provide for redemption, no-call and other appropriate provisions to be
determined. The supplemental indentures will also provide that
substantially all the proceeds of the sale of the Series C Bonds by the
County Commission must be applied to the cost of the Facilities,
including the cost refunding the Series B Bonds. The Series C Bonds
will be secured by the Pollution Control Notes and will be supported by
various covenants of each Company contained in the original Pollution
Control Financing Agreement dated as of November 1, 1977.
Northeast Utilities, et al. (70-8062)
Northeast Utilities (``Northeast''), 174 Brush Hill Ave., West
Springfield, Massachusetts 01089, a registered holding company, and its
wholly owned subsidiaries, Charter Oak Energy, Inc. (``Charter Oak'')
and COE Development Corporation (``COE Development'') (collectively,
``Applicants''), each located at 107 Selden Street, Berlin,
Connecticut, 06037-1616, have filed a further post-effective amendment
under sections 6(a), 7, 9(a), 10, 12(b), 13(b), 32, and 33 of the Act
and rules 45, 53, 87, 90, and 91 thereunder to their application-
declaration filed under sections 6(a), 7, 9(a), 10, 12(b), and 13(b) of
the Act and rules 45, 87, 90, and 91 thereunder.
By order dated January 24, 1994 (HCAR. 25977) (``January 1994
Order'') Charter Oak and COE Development were authorized to engage in
preliminary development activities and make investments in and finance
the acquisition of exempt wholesale generators (``EWGs'') and foreign
utility companies (``FUCOs'') in the amount of $100 million through
December 30, 1994. The January 1994 Order also authorized the
Applicants to issue guarantees and assume the liabilities of subsidiary
companies for preliminary development activities.
The Applicants now propose to issue guarantees and assume the
liabilities of subsidiary companies for development activities,
including construction and permanent financing, and contingent
liabilities subsequent to operation with regard to those EWG and FUCO
projects that do not require advance approval from the Commission for
the Applicants to acquire an interest.
The Applicants have found that on occasion such guarantees and
assumptions of liability may provide them with opportunities to
participate in private power opportunities on a favorable basis without
expending funds. The full contingent amount of any guarantees or
assumptions of liabilities would be counted as part of the authorized
development activities limit of $100 million authorized in the January
1994 Order.
The Applicants also propose to use Charter Oak or other system
company employees within a de minimis 'limit to render services to
affiliated EWGs and FUCOs. The Applicants represent that they would not
use more than 0.5% of total holding company system employees and no
more than 1% of the system service company employees at any one time
for rendering services to affiliated EWGs and FUCOs.
Consolidated Natural Gas Company (70-8107)
Consolidated Natural Gas Company (``CNG''), CNG Tower, 625 Liberty
Avenue, Pittsburgh, Pennsylvania 15222, a registered holding company,
has filed a declaration under sections 6 and 7 of the Act and Rule
50(a)(5) thereunder.
CNG proposes on or before June 30, 1995 to issue and sell the
remaining unissued balance of up to $400 million principal amount of
debt securities (``Securities'') authorized by the Commission on April
21, 1993 (HCAR No. 25800) under a new indenture (``Indenture''). The
Securities will be sold in one or more series at a price, exclusive of
accrued interest, which will be not less than 98% nor more than 101% of
the principal amount and at an interest rate which will be a multiple
of \1/8\, \1/10\, or \1/20\ of 1%. The Securities will mature in not
more than thirty years from the date of issue. CNG proposes to issue
and sell the Securities either by competitive bidding, including the
alternative bidding procedures authorized by the Commission's Statement
of Policy Concerning Application of Rule 50 under the Public Utility
Holding Company Act of 1935 (HCAR No. 22623, Sept. 2, 1982) or by an
exception to competitive bidding under Rule 50(a)(5). In the event Rule
50 is rescinded, CNG requests authority to be permitted to issue and
sell the Securities under competitive bidding including the alternative
procedures without prior Commission approval.
The Indenture differs from CNG's current indenture (``1971
Indenture'') in eight substantial ways: (1) Setting of terms; (2) form
of security; (3) lien restrictions; (4) sale and leaseback
restrictions; (5) additional debt incurrence limitations; (6) issue and
sale of subsidiaries' stock; (7) limitation of dividends; and (8)
defeasance.
The proceeds from the sale of the Securities will be added to CNG's
treasury fund and subsequently used to: (1) Finance, in part, capital
expenditures of CNG and CNG's subsidiaries, (2) finance the purchase of
CNG's common stock in the open market, and/or (3) acquire, retire, or
redeem securities of which CNG is an issuer without the need for prior
Commission approval pursuant to Rule 42 under the Act.
New England Electric System, et al. (70-8303)
New England Electric System (``NEES''), a registered holding
company, and its nonutility subsidiary company, New England Electric
Resources, Inc. (``NEERI''), both located at 25 Research Drive,
Westborough, Massachusetts 01582, have filed an application-declaration
under sections 9(a), 10 and 12(b) of the Act and Rule 45 thereunder.
NEES states that, in early 1993, it was approached by Quality Power
Systems, Inc. (``QPS'') to contribute funds for the development of
certain patented technology for a low harmonic distortion
uninterruptible power system (UPS). QPS intends to develop, manufacture
and market UPS and is committed to locating its manufacturing facility
for UPS in either Massachusetts or New Hampshire within the retail
electric service territory of NEES's retail electric company
subsidiaries.
In mid 1993, NEES made a research and development grant of $250,000
to QPS to assist in the development of UPS. In return for this grant
and to encourage the continued support, QPS and New England Power
Service Company (``NEPSCO), a service company subsidiary of NEES,
entered into an agreement, under which QPS gave NEPSCO the right to
receive at no cost $250,000 of QPS's convertible debentures
(``Debentures''). NEPSCO has assigned this right to NEERI effective
January 1, 1994. The applicants state that, upon Commission
authorization to receive the debentures, all rights to receive a
product grant of two UPS per year for the first four years of
commercial production would terminate.
The Debentures would pay quarterly interest after June 1, 1994, at
the Bank of Boston base rate plus 2% and would have a maturity of ten
years from date of issuance. The Debentures would not have sinking fund
provisions nor prepayment provisions nor general voting rights. NEERI
would be allowed to have one member on the Board of Directors of QPS.
The Board would have six or seven members.
NEERI requests authority to exercise its right to the Debentures on
or before July 1, 1994, and if it so elects, to convert the Debentures
on or before December 31, 1995 to 9.9% of the common stock of QPS (990
shares of a total of 10,000 shares, no par value). In addition, NEERI
requests the authority to invest up to an additional $100,000 in QPS on
or before December 31, 1995, in the form of subordinated loans having
an interest rate no lower than the Bank of Boston base rate plus 2% and
a maturity not in excess of five years.
NEERI will not be directly involved in the manufacture, marketing
or selling of the UPS. However, it may offer marketing advise and
consulting services to QPS and permit its name to be used as part of
marketing efforts.
The $250,000 grant made to QPS is currently carried on NEES's books
as an investment. NEES proposes to transfer this amount to NEERI's
books and NEERI would treat it as an investment in QPS. NEES further
proposes that such capital contribution be authorized in addition to
the $1 million previously authorized by Commission order dated
September 4, 1992 (HCAR No. 25621). If NEERI invests up to an
additional $100,000 in QPS, NEERI may use funds from NEES provided
under its existing $1 million authority.
Metropolitan Edison Company (70-8319)
Metropolitan Edison Company (``Met-Ed''), 2800 Pottsville Pike,
Reading, Pennsylvania 19440, an electric public-utility subsidiary
company of General Public Utilities Corporation, a registered holding
company, has filed a declaration under sections 9(a), 10 and 12(c) of
the Act and Rule 42 thereunder.
Met-Ed intends to issue and sell up to $100 million aggregate
stated value of one or more new series of its cumulative preferred
stock, each issue having a stated value not to exceed $100 per share
(``Preferred'') under Rule 52 of the Act. Met-Ed requests authorization
to acquire or redeem through the operation of such sinking fund or
optional redemption provision up to the entire amount of the Preferred
to be issued and sold.
Met-Ed would acquire shares of the Preferred through sinking fund
and redemption provisions. Specifically, shares of the Preferred would
be redeemable, under certain conditions, at Met-Ed's option in
connection with any merger or consolidation to which Met-Ed may be a
party. Any such redemption would be at a price equal to the stated
value of those shares of the Preferred being redeemed, together with
accrued dividends to the date of redemption, plus a premium of up to
100% of the dividend rate.
The preferred would not otherwise be redeemable at the option of
Met-Ed for a period ending on a date occurring up to 15 years following
the date of its issuance.
Alternatively, Met-Ed may preclude redemption at its option for a
period of up to 15 years if the monies for such redemption are obtained
at an effective interest rate or dividend cost less than the dividend
rate of the Preferred shares being redeemed. After the expiration of
such non-redemption or non-refunding period, as the case may be, such
shares would be redeemable at Met-Ed's option. The price paid to redeem
such shares would equal the stated value thereof together with accrued
dividends to the date of redemption, plus a premium of up to 100% of
the dividend rate. This price would decline annually on a straight-line
basis until arriving at the stated value thereof, and thereafter be set
at the stated value of the shares being redeemed.
In addition, certain shares of the Preferred may be subject to a
sinking fund. Such a sinking fund would require that, following the
expiration of a non-redemption or non-refunding period, Met-Ed annually
redeem a number of shares of Preferred equal to between 5% and 20% of
the number of shares of Preferred initially issued. The price paid to
redeem such shares of the Preferred would equal the stated value
thereof, together with accrued dividends to the date of redemption.
Met-Ed may also, at its option, redeem on any such date an additional
equivalent amount of Preferred (sometimes referred to as a ``double
up'' option). Met-Ed may reduce or satisfy any such sinking fund
redemption requirement, in whole or in part, by the number of shares of
Preferred theretofore purchased or otherwise acquired by Met-Ed (other
than pursuant to such redemption provisions) and not previously made
the basis for such reduction or satisfaction.
Pennsylvania Electric Company (70-8321)
Pennsylvania electric Company (``Penelec''), 1001 Broad Street,
Johnstown, Pennsylvania 15907, an electric public-utility subsidiary
company of General Public Utilities Corporation, a registered holding
company, has filed a declaration under sections 9(a), 10 and 12(c) of
the Act and Rule 42 thereunder.
Penelec intends to issue and sell up to $100 million aggregate
stated value of one or more new series of its cumulative preferred
stock, each issue having a stated value not to exceed $100 per share
(``Preferred'') under Rule 52 of the Act. Penelec requests
authorization to acquire or redeem through the operation of such
sinking fund or optional redemption provision up to the entire amount
of the Preferred to be issued and sold.
Penelec would acquire shares of the Preferred through sinking fund
and redemption provisions. Specifically, shares of the Preferred would
be redeemable, under certain conditions, at Penelec's option in
connection with any merger or consolidation to which Penelec may be a
party. Any such redemption would be at a price equal to the stated
value of those shares of the Preferred being redeemed, together with
accrued dividends to the date of redemption, plus a premium of up to
100% of the dividend rate.
The Preferred would not otherwise be redeemable at the option of
Penelec for a period ending on a date occurring up to 15 years
following the date of its issuance.
Alternatively, Penelec may preclude redemption at its option for a
period of up to 15 years if the monies for such redemption are obtained
at an effective interest rate or dividend cost less than the dividend
rate of the Preferred shares being redeemed. After the expiration of
such non-redemption or non-refunding period, as the case may be, such
shares would be redeemable at Penelec's option. the price paid to
redeem such shares would equal the stated value thereof together with
accrued dividends to the date of redemption, plus a premium of up to
100% of the dividend rate. This price would decline annually on a
straight-line basis until arriving at the stated value thereof, and
thereafter be set at the stated value of the shares being redeemed.
In addition, certain shares of the Preferred may be subject to a
sinking fund. Such a sinking fund would require that, following the
expiration of a non-redemption or non-refunding period, Penelec
annually redeem a number of shares of Preferred equal to between 5% and
20% of the number of shares of Preferred initially issued. The price
paid to redeem such shares of the Preferred would equal the stated
value thereof, together with accrued dividends to the date of
redemption. Penelec may also, at its option, redeem on any such date an
additional equivalent amount of Preferred (sometimes referred to as a
``double up'' option). Penelec may reduce or satisfy any such sinking
fund redemption requirement, in whole or in part, by the number of
shares of Preferred thereto fore purchased or otherwise acquired by
Penelec (other than pursuant to such redemption provisions) and not
previously made the basis for such reduction or satisfaction.
Ohio Valley Electric Corporation (70-8335)
Ohio Valley Electric Corporation (``OVEC''), P.O. Box 468, Piketon,
Ohio 45661, an electric public-utility subsidiary company of American
Electric Power Company, Inc. and Allegheny Power System, Inc., both
registered holding companies, has filed an application under sections 9
and 10 of the Act.
OVEC requests authority to purchase or lease 515 railcars for
approximately $22.7 million. OVEC proposes to use the railcars to
deliver coal to its associate company, Indiana-Kentucky Electric
Corporation's Clifty Creek Plant.
To minimize the costs associated with the railcars, OVEC also
proposes to sublease the railcars to its associate companies and,
during times of non-utilization by OVEC and its associate companies, to
non-affiliates. OVEC states that it would sublease the railcars only if
the revenue generated by the sublease covered all variable costs and
makes a contribution to the fixed costs of the railcars.
Central Power and Light Company, et al. (70-8345)
Central Power and Light Company, 539 North Carancahua Street,
Corpus Christi, Texas 78401, Public Service Company of Oklahoma, 212
East 6th Street, Tulsa, Oklahoma 74119, Southwestern Electric Power
Company, 428 Travis Street, Shreveport, Louisiana 71156, and West Texas
Utilities Company, 301 Cypress, Abilene, Texas 79601 (collectively,
``Applicants''), all electric public-utility subsidiary companies of
Central and South West Corporation, a registered holding company, have
filed an application under sections 9(a)(1) and 10 of the Act.
Applicants propose to lease owned unit trains and railcars to
nonaffiliates through July 1, 1999. Lease terms will cover those
periods during which the Applicants do not need the unit trains and
railcars for operations, and could range for as short a time as it
takes to make one trip to ten months. Any leases will provide for lease
rates at or near market rates at the time such leases are entered into.
Applicants anticipate that leases of the owned unit trains and
railcars to nonaffiliates will be a small percentage not expected to
exceed an average of 50% of available unit trains and railcars for each
Applicant. Rental income received from the leasing of unit trains and
railcars will be recorded as credit to fuel stock account number 151
and will go to offset the depreciation of railcars and unit trains
which is charged to this account. Any leasing income in excess of the
amount of depreciation charged to account number 151 will be credited
to rental income account number 454.
Consolidated Natural Gas Company (70-8365)
Consolidated Natural Gas Company (``CNG''), CNG Tower, 625 Liberty
Avenue, Pittsburgh, Pennsylvania 15222-3199, a registered holding
company, has filed a declaration under sections 6(a) and 7 of the Act
and Rule 50 and 50(a)(5) thereunder.
CNG proposes to issue and sell on or before June 30, 1996 up to
$400 million principal amount of debentures (``Debentures''). The
Debentures will be sold in one or more series at a price, exclusive of
accrued interest, which will be not less than 98% nor more than 101% of
the principal amount and at an interest rate which will be a multiple
of \1/8\, \1/10\, or \1/20\ of 1%. The Debentures will mature in not
more than thirty years and will be issued in accordance with the
indenture between CNG and Chemical Bank, as Trustee, dated May 1, 1971.
CNG proposes to issue and sell the Debentures either by competitive
bidding, including the alternative bidding procedures authorized by the
Commission's Statement of Policy Concerning Application of Rule 50
under the Public Utility Holding Company Act of 1935 (HCAR No. 22623,
September 2, 1982), or by an exception to the competitive bidding
requirements under Rule 50(a)(5) through negotiated public or private
offerings. In the event Rule 50 is rescinded as proposed by the
Commission in HCAR No. 25668 (November 4, 1992), CNG requests authority
to be permitted to issue and sell Debentures under competitive bidding
including the aforesaid alternative procedures without prior Commission
approval.
The proceeds from the sale of the Debentures will be added to CNG's
treasury fund and subsequently used for general corporate purpose to:
(1) Finance, in part, capital expenditures of CNG and CNG's
subsidiaries, (2) displace roll-over of commercial paper previously
issued for working capital purposes, (3) finance the purchase of CNG's
common stock in the open market, and/or (4) acquire, retire, or redeem
securities of which CNG is an issuer without the need for prior
Commission approval pursuant to Rule 42 under the Act.
Energy Initiatives, Inc., et al. (70-8369)
Energy Initiatives, Inc. (``EII''), One Upper Pond Road,
Parsippany, New Jersey 07054, a non-utility subsidiary of General
Portfolios corporation (``GPC'), and GPC, Mellon Bank Center, Tenth and
market Streets, Wilmington, Delaware 19801, a non-utility subsidiary of
General Public Utilities Corporation (``GPU''), and GPU, 100 Interpace
Parkway, Parsippany, New Jersey 07054, a registered holding company,
have filed an application-declaration under Sections 6(a), 7, 9(a), 10,
12(b) and 13(b) of the Act and Rules 45, 50, 51, 90 and 91 thereunder.
By orders dated June 26, 1990 and December 18, 1992 (HCAR Nos.
25108 and 25715, respectively), EII was authorized to engage in
preliminary project development and administrative activities in
connection with its investment in qualifying cogeneration facilities
(``QF'') and small power production facilities, each as defined in the
Public Utility Regulatory Policies Act of 1978, as amended (``PURPA''),
and in exempt wholesale generators (``EWG''), as defined in the Act.
EII now proposes to acquire all of the issued and outstanding
common stock (``Stock'') of a non-affiliated, privately-held California
corporation the name of which is confidential at this time but which
shall be referred to as ``Cogen Corp.'' herein. Cogen Corp. is engaged
exclusively in the business of owning or leasing and operating QFs and
developing other QFs and EWGs. Cogen Corp. is the wholly-owned
subsidiary of a California corporation (``Parent No. 1''), which, in
turn, is a wholly-owned subsidiary of a publicly-held Canadian
corporation (``Parent No. 2'') engaged in oil and gas exploration,
development, production and sales (collectively, ``Sellers''). Upon the
acquisition by EII of the Cogen Corp. Stock, Cogen Corp. will become a
wholly-owned subsidiary of EII.
In order to purchase the Stock, EII proposes to enter into a stock
purchase agreement (``Stock Purchase Agreement'') which the Sellers
under which: (i) EII would agree to purchase the Stock for a total cash
consideration of $80 million, subject to adjustment under certain
circumstances described below (``Purchase Price''), and (ii) GPU or EII
would enter into one or more assumption agreements (``Assumption
Agreements'') under which they would agree to assume certain contingent
obligations undertaken by Parent No. 2 with respect to three of Cogen
Corp.'s projects, as described below, and indemnify Parent No. 2
against any liabilities arising thereunder.
Upon execution of the Stock Purchase Agreement, GPU would deposit
into escrow cash in an amount equal to the maximum estimated Purchase
Price (including any possible ``Deferred Consideration'' as described
below) (``Escrow Cash'') and Parent No. 1 would deposit the Stock into
escrow under an escrow agreement (``Escrow Agreement'') between the
parties and an independent bank or trust company acting as escrow agent
(``Escrow Agent'').
Distribution of the Escrow Cash to Sellers and the Stock to EII by
the Escrow Agent (``Closing'') would be expressly conditioned upon: (i)
Receipt of a Commission order authorizing the transaction; (ii)
satisfaction of the requirements of the Hart-Scott-Rodino Act; (iii)
receipt of the required number of necessary third-party consents to the
transaction; and (iv) certain other specified conditions.
If the Closing conditions are not satisfied by May 15, 1994, the
Purchase Price is subject to increase by $15,000 per day (``Deferred
Consideration'') for each day the Closing or the termination of the
Escrow Agreement is thereafter delayed; provided, however, that either
EII or Sellers may terminate the Escrow Agreement if all such
conditions are not satisfied by August 15, 1994, in which case, the
Escrow Agent will refund the Escrow Cash to GPU and return the Stock to
Parent No. 2, subject, however, to payment to Sellers of any required
Deferred Consideration and a ``stipulated damage payment,'' as
described below, under certain circumstances. In addition, if the third
party consents with respect to at least three QF projects (including
one of either project number 1 (``Project No. 1'') or project number 2
(``Project No. 2''), which are generally described below) are not
received by May 15, 1994, the Sellers may, at their option, terminate
the Escrow Agreement, and the Escrow Agent would refund the Escrow Cash
to GPU and return the Stock to Parent No. 2 without further liability
to either party.
The Stock Purchase Agreement and escrow Agreement will also provide
that in the event that required third party consents with respect to at
least three QF projects (including at least one of Project No. 1 or
Project No. 2) are obtained, the Closing would occur, provided the
other Closing conditions are satisfied. In such event, the Purchase
Price would be reduced, based upon an agreed upon valuation of the QF
projects which would be retained by Sellers (``Unsold Projects'') and
either retained in the existing entities or transferred to a separate
entity (``Unsold Project Corps.'') EII would retain until December 31,
1994 the exclusive right to continue to seek such remaining third party
consents and purchase the related Unsold Projects or the Unsold Project
Corps. stock at the initially agreed upon price. After that date, the
Escrow Agreement would be terminated with respect to the Unsold
Projects, the balance of the Escrow Cash (representing the unpaid
Purchase Price relating to the Unsold Projects) would be refunded to
GPU and the stock of the Unsold Project Corps. returned to Sellers. EII
would then have a non-exclusive right until December 31, 1995 to
purchase the Unsold Project Corps. stock or, alternatively, its
interests in any of the Unsold Projects at the initially agreed upon
price.
In addition, as noted below, in order to comply with the Federal
Energy Regulatory Commission's (``FERC's'') 50% limitation on electric
utility ownership under PURPA, it will be necessary for EII to provide
for the sale, at the Closing, or at least a 50% ownership interest in
Project No. 1 since 100% of that project is currently indirectly owned
by Cogen Corp. In the event such sale cannot be so accomplished, EII's
purchase of Project No. 1 at the Closing would be effectively limited
to 50% thereof and the balance of the Project No. 1 ownership would be
retained by Sellers and together with a portion ($7 million) of the $10
million Purchase Price related thereto would continue to be held by the
Escrow Agent under the Escrow Agreement or pursuant to another
arrangement agreed by the parties. EII would retain an irrevocable
option or similar right to effect the sale of such remaining 50%
interest within 12 months of the signing of the Stock Purchase
Agreement. If EII is unable to do so, the Project No. 1 interest would
be returned to Sellers and the related escrowed Purchase Price amount
refunded to GPU.
Accrued interest on the Escrow Cash would be payable to GPU except
to the extent the Closing is delayed due solely to the failure to
satisfy a specified closing condition, in which case such accrued
interest for the period of the delay attributable to the condition
failure and until the Closing would be payable to Sellers.
Following the execution of the Stock Purchase and escrow Agreements
and pending the Closing, EII and Sellers would jointly manage Cogen
Corp's. business and operations subject to certain restrictions and
limitations set forth in the Stock Purchase Agreement. EII and Sellers
would share equally in Cogen Corp's. expenses incurred from March 1,
1994 until the earlier of the Closing or the date the Escrow Agreement
is otherwise terminated.
GPU and EII have agreed to pay Sellers a ``stipulated damage
amount'' of up to $7 million in the event the Closing does not occur by
August 15, 1994 due to the failure of a specified condition set forth
in the Stock Purchase Agreement, or $5 million if EII otherwise fails
or refuses to purchase the Cogen Corp. Stock, except for certain
specified reasons.
Additional authorization is being herein requested for EII to
issue, sell and renew from time to time through December 31, 2004 its
promissory notes (``EII Notes'') to one or more commercial banks
representing borrowings in the aggregate principal amount of up to $25
million outstanding at any one time. The proceeds of such borrowings
would be used to pay a portion of the Purchase Price, and the balance
of the Purchase Price would be supplied through cash capital
contributions from GPU or GPC. The EII Notes, which would be issued
pursuant to loan agreements with the bank lenders who financed Sellers'
QF projects, would mature no later than December 31, 2004 and bear
interest at varying rates as provided in the loan agreements, but in
any event not in excess of: (a) 250 basis points above the lending
bank's prime or base rate as in effect from time to time, (b) 400 basis
points above the specified London Interbank Offered Rate, as in effect
from time to time, or (c) a negotiated fixed rate which, in any event,
would not exceed 12%. The EII Notes would be prepayable to the extent
provided therein.
It is proposed that payment of principal and interest on the EII
Notes, together with EII's other obligations under the loan agreements,
be unconditionally guaranteed by GPU or secured by a pledge by GPC of
the EII common stock to the bank lenders. Alternatively, GPU may enter
into a support agreement with the lending banks with respect to
repayment of the EII Notes.
Project No. 1 is a 102 MW (net) natural gas fired qualifying
cogeneration facility located in Florida. Project No. 1 is owned by a
Florida limited partnership in which Cogen Corp. presently holds,
indirectly through wholly-owned subsidiaries, 100% of the general and
limited partnership interests. In order to comply with the ownership
limitations for qualifying cogeneration facilities pursuant to the
FERC's regulations under PURPA, simultaneous with its purchase of the
Stock, EII will either: (a) Sell at the Closing not less than a 50%
interest in Project No. 1 to an unaffiliated third-party which is not
an electric utility affiliate, or (b) otherwise effectively limit at
the Closing its acquisition in Project No. 1 to 50% thereof, pending
such sale. (As noted above, in the latter event, EII would have 12
months from the signing of the Stock Purchase Agreement to sell such
50% interest; absent such sale, the remaining 50% Project No. 1
interest would be retained by Sellers and the related portion of the
escrowed Purchase Price refunded to GPU.)
Project No. 1 sells its entire net capacity and energy to a Florida
utility under a long-term power purchase contract and provides steam
under a long-term steam sales contract to an agricultural cooperative
for food processing, packaging and cold storage.
On August 30, 1993, after completion of construction, Project No. 1
was sold to an owner-trustee and leased back to the Project No. 1
partnership. In the event the Project No. 1 partnership elects not to
extend the lease for the 5 year option period, rent which would
otherwise have been paid during the option period, equal to
approximately $7 million, will become immediately due and payable. The
obligation to pay such rent in the event the lease term is not extended
has been guaranteed (``Rent Guarantee'') by Parent No. 2
In addition to the Rent Guarantee, in connection with the sale and
lease back financing Parent No. 2 has also guaranteed until July 1,
1995 payment of any cost incurred by it that becomes necessary to
correct a defect in Project No. 1's steam turbine foundation, up to $2
million (``Foundation Guarantee''), and the payment under certain
circumstances of certain state taxes which might be deemed payable in
the future in connection with Project No. 1's construction financing
(``Tax Guarantee''). In connection with EII's acquisition of the Stock,
GPU and EII will enter into an Assumption Agreement under which they
would assume Parent No. 2's obligations under the Rent Guarantee, the
Foundation Guarantee, and the Tax Guarantee (as well as the Repurchase
Guarantee and the Catalyst Guarantee described below) and would agree
to indemnify Parent No. 2 against any liabilities arising thereunder.
Except with respect to obligations which may arise under the Rent
Guarantee, the Foundation Guarantee and the Tax Guarantee, Project No.
1 partnership obligations under the lease and all other Project No. 1
partnership obligations are non-recourse to Cogen Corp.
Project No. 2 is a 102 MW (net) natural gas fired qualifying
cogeneration facility located in Florida. Project No. 2 is owned by a
Florida limited partnership in which Cogen Corp. holds, indirectly
through wholly-owned subsidiaries, 50% of the general and limited
partnership interests and of which Cogen Corp. is the managing general
partner. The other 50% of the general and limited partnership interests
are held, indirectly through wholly-owned subsidiaries, by an
unaffiliated privately-held diversified industrial corporation
(``Investor 2'') which, among other businesses, is engaged in natural
gas supply and transportation. Investor 2, through subsidiary
companies, provides a portion of project No. 2's gas transportation
services and peaking gas requirements and is project No. 2's steam
host.
Project No. 2 sells its entire net capacity and energy to a Florida
electric utility under a long-term power purchase contract and provides
steam to a subsidiary of Investor 2 for citrus processing under a long-
term steam sales agreement.
Project number 3 (``Project No. 3'') is an 80 MW (net) natural gas
fired QF located in New York. Project No. 3 is owned by a Delaware
limited partnership in which Cogen Corp. holds, indirectly through
wholly-owned subsidiaries, approximately 33% of the general and limited
partnership interests and of which Cogen Corp. is the managing general
partner. The balance of the partnership interests is held by an
institutional insurance company, the operations and maintenance
contractor and an unaffiliated energy project developer.
Project No. 3 sells its entire net capacity and energy to a New
York utility under a long-term power purchase agreement and sells steam
to an adjacent educational institution primarily for space heating
under a long-term steam sales contract.
Project number 4 (``Project No. 4'') is a 29.4 MW (net) QF located
in Michigan. Project No. 4 is owned by a Michigan limited partnership
in which Cogen Corp. holds indirectly through a wholly-owned
subsidiary, a 1% general partnership interest and of which Cogen Corp.
is the managing general partner. The balance of the partnership
interests is held indirectly by the local gas distribution company
(`Investor 4'') which, through a separate subsidiary, is Project No.
4's gas supplier. Cogen Corp. also leases the project site from Project
No. 4's steam host and, through a subsidiary, subleases the site to the
partnership, for which it receives sublease payments from the
Partnership under a sublease. Project No. 4 sells its entire net
capacity and energy to a Michigan utility and sells steam for process
use to an industrial corporation under a long-term steam sales
contract.
Project Nos. 1, 2, 3 and 4 are operated and maintained under a
contract with an unaffiliated operations and maintenance contractors.
Project number 5 (``Project No. 5'') is a 26 MW (net) qualifying
cogeneration facility located in California. Project No. 5 is owned by
a California limited partnership in which Cogen Corp. holds, indirectly
through wholly-owned subsidiaries, a 30% interest in the partnership as
a general partner. The balance of the partnership interests is held by
an unaffiliated energy project developer and the financing subsidiary
of a large industrial corporation.
Project No. 5 provides all of the electric energy required by its
steam host, up to 4 MW, and sells the balance of its net capacity and
energy to a California utility under a long-term power purchase
agreement. The steam host is an industrial corporation which purchases
steam under a long-term steam sales contract for use in certain
manufacturing processes.
Project No. 5 is operated and maintained under a long-term contract
with one of the partnership's general partners which is not affiliated
with Cogen Corp.
Applicants state that Cogen Corp. also has other projects under
active development (``Development Projects''), principally: (i) A 28.5
MW gas-fired QF located in New York for which a power purchase contract
with a New York electric and gas utility has been executed and a steam
sales agreement is being negotiated; and (ii) a number of other natural
gas-fired QFs or EWGs, totalling approximately 275 MW, with respect to
which proposals to supply electric power have been submitted in
response to utility requests for proposals. The Applicants further
state that EII will fund any preliminary project development costs with
respect to the Development Projects either through internally generated
funds or pursuant to further Commission authorization.
Applicants also request an exception from the requirements of
Section 13 of the Act so that EII, either directly or indirectly
through Cogen Corp. and/or its affiliated subsidiaries and
partnerships, may provide project management, administrative and
similar services as managing general partner of the projects from time
to time and to sublease the Project No. 4 site to the Project No. 4
partnership in the manner and under such terms and conditions,
including with respect to the fees payable by each project partnership
for such services, as may be provided in the related project
partnership agreements and Project No. 4 sublease.
Moreover, the Applicants state that the amount of such management
fees and sublease payments payable to EII by each project partnership
will in no way effect the rates to be paid for each project's energy
and capacity by the purchasing electric utility and thus by the
utility's ratepayers, since those rates have been established based
upon the purchasing utility's ``avoided costs'' of obtaining energy and
capacity which costs are unrelated to each project partnership's
operating expenses. Accordingly, GPU and EII believe that it is not
necessary or appropriate for the protection of investors or consumers
that such management services or sublease arrangements be performed at
cost.
It is stated that each QF project (namely, Project No. 1, Project
No. 2, Project No. 3, Project No. 4 and Project No. 5) is now and will,
following the consummation of the proposed transactions, remain a
``qualifying facility'' under PURPA and the FERC's regulations
thereunder.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-7081 Filed 3-24-94; 8:45 am]
BILLING CODE 8010-01-M
