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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): FEBRUARY 5, 1997
____________________________
HOUSTON INDUSTRIES INCORPORATED
(Exact name of registrant as specified in its charter)
TEXAS 1-7629 74-1885573
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
1111 LOUISIANA
HOUSTON, TEXAS 77002
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: (713) 207-3000
____________________________
HOUSTON LIGHTING & POWER COMPANY
(Exact name of registrant as specified in its charter)
TEXAS 1-3187 74-0694415
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
1111 LOUISIANA
HOUSTON, TEXAS 77002
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: (713) 207-1111
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This combined Form 8-K is separately filed by Houston Industries Incorporated
(Company) and Houston Lighting & Power Company (HL&P). Information contained
herein relating to HL&P is filed by the Company and, separately, by HL&P on its
own behalf. HL&P makes no representation as to information relating to the
Company and its subsidiaries (other than HL&P)
ITEM 5. OTHER EVENTS.
The Company and NorAm Energy Corp. (NorAm) are in the process of obtaining
regulatory approvals necessary to close their merger, which was announced in
August, 1996. Approvals have been received from all state regulatory
commissions and municipalities whose prior approval was required (Arkansas
having conditioned its approval on the parties obtaining approvals from other
regulatory authorities). The last state approval, from Minnesota, was received
on February 6, 1997. In addition, the pre-merger notification period
prescribed under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 has
expired. There remains pending with the U.S. Securities and Exchange
Commission an application for an order exempting the Company from the
registration requirements of the Public Utility Holding Company Act of 1935
following the merger.
In September, a subsidiary of NorAm, NorAm Energy Services, Inc. (NES), which
is engaged in the business of power marketing in interstate commerce at
market-based rates, filed a notification with the Federal Energy Regulatory
Commission (FERC) advising of its pending change in status by virtue of the
merger. The parties do not believe that FERC action is required prior to
consummation of the merger, in response to that notification or otherwise.
However, on February 5, 1997, FERC initiated a jurisdictional inquiry to
determine whether its prior approval of the merger is required under Section
203 of the Federal Power Act. FERC directed NES to set forth its views as to
whether such prior approval may be required because of the jurisdictional
status of NES as a power marketer. In the alternative, FERC invited NES to
submit an application for approval of the merger transaction under Section 203
of the Federal Power Act. FERC directed NES to submit its views regarding FERC
jurisdiction or an application within 30 days of the order. HL&P and NorAm
continue to believe that no prior FERC approval is required by law for their
merger agreement and that application of FERC jurisdiction to a transaction of
this nature would be unprecedented.
The Company and NorAm are studying FERC's order and evaluating their
alternatives. They expect to file a response with FERC in the near future. If
FERC's inquiry results in an approval proceeding under Section 203,
consummation of the merger is likely to be materially delayed. For additional
information regarding these matters, reference is made to the Order and HI's
press release, each of which is attached as an exhibit to this Form 8-K and is
incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
99.1 Press Release dated February 6, 1997
99.2 Order Initiating Jurisdictional Inquiry
(Docket No. EL97-25-000) dated February 5, 1997
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOUSTON INDUSTRIES INCORPORATED
(Registrant)
/s/ Mary P. Ricciardello
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Mary P. Ricciardello
Vice President and Comptroller
Date: February 10, 1997
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOUSTON LIGHTING & POWER COMPANY
(Registrant)
/s/ Mary P. Ricciardello
------------------------------
Mary P. Ricciardello
Vice President and Comptroller
Date: February 10, 1997
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EXHIBIT INDEX
Exhibit
Number Exhibit Description
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99.1 Press Release dated February 6, 1997
99.2 Order Initiating Jurisdictional Inquiry
(Docket No. EL97-25-000) dated February 5, 1997
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Exhibit 99.1
NEWS
[HOUSTON INDUSTRIES LOGO] Houston Industries Incorporated
P.O. BOX 4567 HOUSTON, TEXAS 77210 (713) 207-1111
FOR FURTHER INFORMATION, CONTACT:
Sandy Fruhman (713) 207-3123 (Media) - Houston Industries (HOU)
Dennis Barber (713) 207-3042 (Investors) - Houston Industries (HOU)
FOR RELEASE: Thursday, February 6, 1997
Houston Industries Incorporated (HI) announced that the Federal Energy
Regulatory Commission (FERC) has initiated an inquiry which could delay HI's
completion of its pending merger with NorAm Energy Corp.
Further details follow.
FERC JURISDICTIONAL INQUIRY CONCERNING NORAM MERGER
(Houston, TX) The Federal Energy Regulatory Commission (FERC) yesterday
issued an order directing that NorAm Energy Corp.'s power marketing subsidiary
make a filing setting forth its views on whether the pending merger between
NorAm and HI requires FERC approval under Section 203 of the Federal Power Act.
Alternatively, FERC invited NorAm to file an application seeking approval under
Section 203. NorAm and HI are studying the FERC order and will file a response
in the near future.
NorAm's subsidiary, NorAm Energy Services, Inc. (NES) holds
authorization from FERC to make market-based sales of electric power and
energy. Under that authorization NES is required to notify FERC if there is a
change in the characteristics relied on by FERC in granting that authorization.
In September 1996, pursuant to the merger agreement, NES filed a notice with
FERC advising that, following the merger, NES would become a subsidiary of a
public utility (HI's Houston Lighting & Power Company subsidiary), but NES
sought to continue its status as a power marketer based on its compliance with
FERC guidelines for utility power-marketer affiliates. That application remains
pending at FERC. Generally, changes in a marketer's status are addressed by
FERC administratively without hearing.
Under Section 203 of the Federal Power Act, a public utility subject to
FERC's jurisdiction must obtain prior approval from FERC for a sale of its
assets or a merger of its assets with those of another public utility. By
virtue of its authorization from FERC, NES is subject to certain requirements
as a public utility under the Federal Power Act, but HL&P is not considered to
be a "jurisdictional" public utility under that Act since it does not operate
facilities that are engaged in the sale or transmission of electric power and
energy in interstate commerce. NorAm and HI believe that approval under Section
203 is not required by law and that the application of FERC jurisdiction in
these circumstances would be unprecedented.
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In its order initiating a jurisdictional inquiry, FERC reviewed prior
merger cases and noted that, following the merger, NES's jurisdictional
facilities (i.e., its tariff and its contracts to sell electric power and
energy in interstate commerce) would become controlled by HI through HI's
ownership of NorAm Energy Corp. FERC concluded that this situation raised an
issue of whether FERC authorization under Section 203 is required for the
merger transaction. FERC accordingly required NES to provide, within 30 days,
its views as to why such approval is not required or, in the alternative, to
file for approval under Section 203.
Although HI and NorAm are still analyzing FERC's order, they remain
convinced that no approval is required or warranted under Section 203.
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EXHIBIT 99.2
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Before Commissioners: Elizabeth Anne Moler, Chair;
Vicky A. Bailey, James J. Hoecker,
William L. Massey, and Donald F. Santa, Jr.
NorAm Energy Services, Inc. ) Docket No. EL97-25-000
ORDER INITIATING JURISDICTIONAL INQUIRY
(Issued February 5, 1997)
In this order, we initiate a jurisdictional inquiry concerning a
transaction involving NorAm Energy Services, Inc. (NorAm), a public utility
under the Federal Power Act (FPA). Under the transaction, NorAm Energy
Corporation (NorAm Energy), the parent company of NorAm, will merge with
Houston Industries, Incorporated (Houston Industries) and Houston Industries'
subsidiaries, Houston Lighting & Power Company (HL&P) and Houston Industries
Energy, Inc. (HI Energy).(1) This transaction may require Commission approval
pursuant to section 203 of the FPA. We direct NorAm to make a filing setting
forth its views on this issue, and offer other interested persons an
opportunity to comment on NorAm's filing. In the alternative, NorAm may file an
application for authorization pursuant to section 203.
Background
NorAm was authorized to make wholesale electric power and energy sales
in interstate commerce at market-based rates by order issued July 25, 1994.(2)
The July 25 order required NorAm to notify the Commission of any change in
status that would reflect a departure from the characteristics that the
Commission relied upon in authorizing market-based pricing. On September 30,
1996, NorAm filed a notice of change in status in Docket No. ER94-1247-010 to
inform the Commission of the planned merger of its parent company, NorAm Energy,
with Houston Industries and HL&P. In its notice of change of status, NorAm
requested authority to continue to charge market-based rates after the
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(1) Houston Industries is an exempt public utility holding company. Its
subsidiary, HL&P is an electric utility located in the Electric
Reliability Council of Texas (ERCOT) engaged in the generation,
transmission, distribution and sale of electric energy. HI Energy, also
a subsidiary, owns various interests in foreign utilities, exempt
wholesale generators, and a qualifying facility.
(2) NorAm Energy Services, Inc., letter order (unpublished).
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Docket No. EL97-25-000 - 2 -
merger is consummated based on a finding that its post-merger affiliation with
HL&P raises no market power concerns. The Commission will address NorAm's
request for continued authority to sell power at market-based rates in a
separate order.
NorAm's notice of change of status describes the planned merger as
follows. Houston Industries would be merged into HL&P, with HL&P, renamed
Houston Industries, Incorporated, (New Houston Industries) as the surviving
corporation. NorAm Energy would then be merged into HI Merger, Incorporated (HI
Merger), a wholly-owned subsidiary of Houston Industries, with HI Merger,
renamed NorAm Energy Corporation (New NorAm Energy), as the surviving
corporation. As a result, New Houston Industries would be the parent company,
with HL&P operating as a division of New Houston Industries, and HI Energy and
New NorAm Energy as subsidiaries. NorAm would become a second-tier
wholly-owned subsidiary of New Houston Industries and a wholly-owned
subsidiary of New NorAm Energy.(3)
Discussion
Section 203
The Commission's jurisdiction over corporate restructurings involving
public utilities is derived from section 203 of the FPA, (4) which reads in
pertinent part:
(a) No public utility shall sell, lease or otherwise dispose of the
whole of its facilities subject to the jurisdiction of the
Commission . . . or by any means whatsoever, directly or
indirectly, merge or consolidate such facilities or any part
thereof with those of any other person . . . without first
having secured an order of the Commission authorizing it to do
so.
(b) The Commission may grant any application for an order under
this section in whole or in part and upon such terms and
conditions as it finds necessary or appropriate to secure the
maintenance of adequate service and the coordination in the
public interest of facilities subject to the jurisdiction of
the
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(3) NorAm's notice of change of status also described alternative merger
plans, which would be used under certain circumstances to effect the
merger of the companies. However, under each alternative merger plan,
NorAm would become a direct or indirect wholly-owned subsidiary of the
Houston Industries corporate organization.
(4) 16 U.S.C. Section 824b (1994).
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Docket No. EL97-25-000 -3-
Commission. The Commission may from time to time for good cause shown
make such orders supplemental to any order made under this section as it
may find necessary or appropriate.
Prior Cases
In Central Vermont Public Service Corporation,(5) the Commission
determined that the transfer of all of a public utility's stock to a
newly-created holding company is a transfer of ownership and control of the
utility's jurisdictional facilities and that such transfer constitutes a
disposition of jurisdictional facilities requiring Commission approval under
section 203.
In Central Illinois Public Service Company,(6) the Commission explained
that its assertion of jurisdiction in Central Vermont was not based solely on
the transfer of stock, but rather that the Commission's concern lies in the
transfer of control of public utilities and, thereby, control over the
jurisdictional facilities of those public utilities. After considering the
legislative history of section 203, the Commission found that "Congress' intent
was to ensure that the Commission maintain oversight over any transfer of
jurisdictional utility property . . . ."(7)
In Missouri Basin Municipal Power Agency,(8) the Commission determined
that ownership of a public utility's stock does not render a holding company a
public utility under the FPA. Because section 203 only encompasses action taken
by public utilities, the merger of two public utility holding companies does
not automatically fall within the Commission's section 203 jurisdiction.
In Illinois Power Company,(9) the Commission reviewed its merger policy
and clarified its jurisdiction under section 203 over indirect mergers of
public utilities owned by public utility
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(5) Central Vermont Public Service Corporation, 39 FERC Paragraph 61,295 at
61,690 (1987) (Central Vermont).
(6) Central Illinois Public Service Company, 42 FERC Paragraph 61,073 at
61,328 (1988) (Central Illinois).
(7) Id. (emphasis in original).
(8) Missouri Basin Municipal Power Agency, 53 FERC Paragraph 61,368 (1990),
reh'g denied, 55 FERC Paragraph 61,464 (1991) (Missouri Basin).
(9) Illinois Power Company, 67 FERC Paragraph 61,136 (1994).
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Docket No. EL97-25-000 -4-
holding companies. The Commission stated that such clarification was "necessary
to ensure the continued adequacy of our merger policies in protecting the
public interest," since "most mergers of public utility holding companies will
simultaneously involve an indirect merger of the public utility subsidiaries of
such holding companies."(10) In Illinois Power, the Commission described the
three-step process some utilities were following to reorganize, and explained
how section 203 jurisdiction applied at each step:
In step one, a public utility transfers ownership of all of its stock to
a newly-formed holding company. The Commission stated that under Central
Vermont such a transfer constitutes a transfer of the ownership and
control of the utility's jurisdiction facilities and, therefore, is a
disposition of facilities subject to section 203 approval.
In step two, the newly-formed public utility holding company merges with
another public utility holding company. The Commission followed its
previous determination that it does not have jurisdiction over the
merger of holding companies unless the holding companies themselves
directly own or operate jurisdictional facilities and, consequently, are
public utilities. However, the Commission also adopted a rebuttable
presumption that when public utility holding companies merge, their
public utility subsidiaries likely retain no real corporate
independence, that decision-making for the public utilities would
typically rest with the new holding company, and that, therefore, an
indirect merger of the public utilities occurs requiring section 203
authorization.
In step three, the public utility subsidiaries of the merged holding
companies formally merge and section 203 approval is required.
The Instant Transaction
NorAm is a public utility marketer. Its jurisdictional facilities
include its market-based power sales tariff under which it is authorized to
engage in sales of electric energy at wholesale in interstate commerce and its
contracts for sales for resale in interstate commerce.(11) Pre-merger, the
public utility NorAm, and its jurisdictional facilities, are controlled by its
parent, NorAm Energy. Post-merger, it appears that the
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(10) Id. at 61, 352-53.
(11) During the first three calendar quarters of 1996, NorAm sold
approximately 1.3 million kWh at wholesale in interstate commerce.
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Docket No. EL97-25-000 -5-
new parent holding company, New Houston Industries, will control the
jurisdictional facilities of the public utility NorAm through its ownership of
NorAm Energy. Thus, there is an issue of whether Commission authorization under
section 203 is required for this transaction.(12)
Without deciding the issue, we note that in Central Vermont we
indicated that, in reviewing corporate transactions and relationships, we would
focus on the substance of transactions and relationships rather than their
form.(13) Moreover, section 203 was intended to be prophylactic in operation.
Under section 203, the enumerated activities can only be undertaken after the
applicant has "secured an order of the Commission authorizing it to do so."
Although NorAm has not sought a ruling on this issue, we believe the
jurisdictional question must be resolved prior to consummation of the
transaction.
Further Procedures
NorAm is directed to file a response within 30 days of the date of this
order either (1) providing arguments as to why the transaction does not require
Commission authorization under FPA section 203 or (2) an application for
authorization under section 203. If it elects the former, interventions,
protests, or comments will be due 15 days after its filing. If it files an
application for authorization, a notice of filing will be issued pursuant to
the procedures discussed in the Merger Policy Statement.(14)
The Commission orders:
(A) NorAm is hereby directed to make a filing as discussed in the
body of this order within 30 days.
(B) If NorAm files a response arguing that authorization under
section 203 of the Federal Power Act is not required, interventions, protests
or comments will be due 15 days after NorAm's filing.
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(12) In our Merger Policy Statement we acknowledged that new types of
mergers in addition to mergers between public utilities may be subject
to our jurisdiction under section 203. 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 Stats. &
Regs. Paragraph 31,044 (1996) (Merger Policy Statement), mimeo at
pp.7-8.
(13) 39 FERC at 61,690.
(14) See Merger Policy Statement.
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Docket No. EL97-25-000 - 6 -
(C) If NorAm files an application for authorization under section
203 of the Federal Power Act, interventions, protests, or comments will be due
as specified in a further notice to be issued by the Commission.
By the Commission.
( S E A L )
/s/ LOIS D. CASHELL
Lois D. Cashell,
Secretary.
