File No. 070-09895
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-1/A
AMENDMENT NO. 3 TO
APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Reliant Energy, Incorporated
CenterPoint Energy, Inc.
1111 Louisiana
Houston, Texas 77002
(Name of companies filing this statement and address
of principal executive offices)
None
(Name of top registered holding company parent of
each applicant or declarant)
Hugh Rice Kelly
Executive Vice President, General Counsel and Corporate Secretary
1111 Louisiana
Houston, Texas 77002
(713) 207-3000
Rufus S. Scott
Vice President, Deputy General Counsel and Assistant Corporate Secretary
1111 Louisiana
Houston, Texas 77002
(713) 207-7451
(Names and addresses of agents for service)
The Commission is also requested to send copies
of any communications in connection with this matter to:
James R. Doty, Esq. Margo S. Scholin, Esq.
Joanne C. Rutkowski, Esq. Baker Botts L.L.P.
Baker Botts L.L.P. 3000 One Shell Plaza
The Warner Houston, Texas 77002-4995
1299 Pennsylvania Avenue, N.W. (713) 229-1234
Washington, D.C. 20004-2400
(202) 639-7700
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TABLE OF CONTENTS
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION.............................................................1
A. Introduction And Request For Commission Action.........................................1
B. Background.............................................................................3
1. Overview of REI and Its Principal Subsidiaries................................3
2. The REI Electric System.......................................................4
3. The REI Gas System............................................................6
4. Integration and Geographic Overlap of Electric and Gas Utilities..............8
C. OVERVIEW OF THE RESTRUCTURING..........................................................9
1. The Business Separation Plan..................................................9
2. The Electric Restructuring...................................................11
3. The Distribution.............................................................13
4. Texas Genco IPO..............................................................13
5. The GasCo Separation.........................................................14
D. Other Regulation......................................................................15
1. Arkansas.....................................................................15
2. Louisiana....................................................................16
3. Minnesota....................................................................17
4. Mississippi..................................................................18
5. Oklahoma.....................................................................18
6. Texas........................................................................19
7. Nuclear Regulatory Commission................................................20
8. Internal Revenue Service.....................................................21
ITEM 2. FEES, COMMISSIONS AND EXPENSES.................................................................21
ITEM 3. APPLICABLE STATUTORY PROVISIONS................................................................21
A. Section 10(b).........................................................................23
1. Section 10(b)(1).............................................................23
2. Section 10(b)(2).............................................................24
3. Section 10(b)(3).............................................................25
B. Section 10(c).........................................................................28
1. Section 10(c)(1).............................................................28
2. Section 10(c)(2).............................................................37
C. Section 10(f).........................................................................39
D. Section 3(a)(1).......................................................................39
E. Affiliate Transactions................................................................39
F. FINANCING REQUEST.....................................................................40
1. Introduction.................................................................40
2. Parameters for Financing Authorization.......................................41
3. Use of Proceeds..............................................................43
4. Proposed Financing Program...................................................43
5. Description of Specific Types of Financing...................................43
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G. OTHER AUTHORITY.......................................................................51
1. Distribution of Reliant Resources Stock to Shareholders......................51
2. Sale or Distribution of Stock of Texas Genco Holdings, Inc...................54
3. Rule 53 and 54 Analysis......................................................55
4. Filing of Certificates of Notification.......................................56
ITEM 4. REGULATORY APPROVALS...........................................................................58
ITEM 5. PROCEDURE......................................................................................58
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS..............................................................58
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS........................................................63
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
From time to time we make statements concerning our expectations,
beliefs, plans, objectives, goals, strategies, future events or performance and
underlying assumptions and other statements that are not historical facts. These
statements are "forward-looking statements" within the meaning of Rule 103A
under the Public Utility Holding Company Act of 1935 or other provisions of the
securities laws. Actual results may differ materially from those expressed or
implied by these statements. In some cases, the reader can identify our
forward-looking statements by the words "anticipate," "believe," "continue,"
"could," "estimate," "expect," "intend," "may," "plan," "potential," "predict,"
"should," "will," "forecast," "goal," "objective," "projection," or other
similar words.
We have based our forward-looking statements on our management's
beliefs and assumptions based on information available to our management at the
time the statements are made. We caution the reader that assumptions, beliefs,
expectations, intentions and projections about future events may and often do
vary materially from actual results. Therefore, we cannot assure the reader that
actual results will not differ materially from those expressed or implied by our
forward-looking statements.
The following list identifies some of the factors that could cause
actual results to differ from those expressed or implied by our forward-looking
statements:
o state, federal and international legislative and regulatory
developments, including deregulation; re-regulation and
restructuring of the electric utility industry; and changes
in, or application of environmental, siting and other laws and
regulations to which we are subject,
o timing of the implementation of our business separation plan
described herein,
o the effects of competition,
o industrial, commercial and residential growth in our service
territories,
o our pursuit of potential business strategies,
o state, federal and other rate regulations in the United States
and in foreign countries in which we operate,
o the timing and extent of changes in commodity prices,
particularly natural gas,
o weather variations and other natural phenomena,
o political, legal and economic conditions and developments in
the United States and in foreign countries in which we
operate,
o financial market conditions and the results of our financing
efforts, and
o other factors we discuss in this Form U-1/A.
The reader should not place undue reliance on forward-looking
statements. Each forward-looking statement speaks only as of the date of the
particular statement, and we undertake no obligation to publicly update or
revise any forward-looking statements.
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Applicants hereby amend and restate their Application filed
previously in this proceeding as follows:
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION
A. INTRODUCTION AND REQUEST FOR COMMISSION ACTION
Reliant Energy, Incorporated ("REI") and CenterPoint Energy,
Inc. ("New REI") hereby file this Application/Declaration (this "Application")
seeking approval from the Securities and Exchange Commission (the "Commission")
under the Public Utility Holding Company Act of 1935, as amended (the "Act" or
the "1935 Act"), in connection with the restructuring (the "Restructuring") of
the utility operations of REI, a Texas public-utility holding company currently
exempt from registration pursuant to Section 3(a)(2) of the Act.(1)
The Restructuring will involve the formation of New REI as a
new holding company over REI's existing utility operations, which will be
reorganized along functional and geographic lines. Upon completion of the
Restructuring, New REI will have five public-utility subsidiaries for purposes
of the Act: (i) the "T&D Utility," which will own and operate REI's transmission
and distribution assets; (ii) "Texas Genco LP," which will own and operate REI's
Texas generation assets; (iii) "Entex, Inc.," which will provide gas
distribution services to customers in Texas, Louisiana and Mississippi; (iv)
"Arkla, Inc.," which will provide gas distribution services to customers in
Texas, Louisiana, Arkansas and Oklahoma; and (v) "Minnegasco, Inc.," which will
provide gas distribution services to customers in Minnesota.(2)
The Restructuring will proceed in stages. Under Texas law, the
first stage -- the separation of REI's electric utility operations into Texas
Genco LP and the T&D Utility (the "Electric Restructuring") - must be completed
as quickly as possible.(3) Accordingly, the Applicants ask the Commission to
issue an order authorizing New REI to acquire indirectly the securities of Texas
Genco LP, the T&D Utility, and Reliant Energy Resources, Inc. ("GasCo"), which
currently conducts REI's gas utility operations through three unincorporated
divisions, the
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(1) Houston Indus., HCAR No. 26744, 1997 WL 414391 (July 24, 1997).
(2) For tax efficiency purposes, New REI will hold its utility
ownership interests through special purpose subsidiaries. Utility Holding LLC
will be a first tier subsidiary of New REI that will hold the securities of
GasCo, the T&D Utility, Texas Genco Holdings, Inc. and a holding company for
certain international operations discussed more fully herein. Texas Genco
Holdings, Inc., in turn, will have two wholly-owned subsidiary limited liability
companies, GP LLC and LP LLC, which will own the partnership interests in Texas
Genco LP. Utility Holding LLC, Texas Genco Holdings, Inc. and GP LLC will be
intermediate holding companies (the "Intermediate Holding Companies"), similar
to those approved by the Commission in National Grid Group plc, HCAR No. 27154,
2000 WL 279236 (Mar. 15, 2000).
(3) Under Texas law, the Electric Restructuring was required to be
completed by January 1, 2002. REI filed an update with the Texas Commission,
advising them that not all regulatory approvals needed for the Electric
Restructuring would be obtained by January 1, 2002.
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Entex division, the Arkla division and the Minnegasco division, and certain
intermediate holding companies. Texas Genco LP, the T&D Utility and GasCo are
hereinafter referred to as the "Utility Subsidiaries." To enable REI to complete
the first part of the Restructuring in a timely fashion pursuant to Texas law,
Applicants ask the Commission to issue an order (the "Initial Order") approving
the Electric Restructuring as expeditiously as possible.
Applicants contemplate that, soon after completion of the
Electric Restructuring, New REI will distribute to shareholders (the
"Distribution") the remaining common stock of Reliant Resources, Inc. ("Reliant
Resources"), the entity through which REI currently conducts most of its
nonutility operations, including merchant power generation and energy trading
and marketing.(4) The Distribution is intended, among other things, to reduce
the business risk profile of New REI. Upon completion of the Distribution,
Reliant Resources will cease to be an affiliate of REI or New REI for the
purposes of the Act.
On or before December 31, 2002, New REI expects to conduct an
initial public offering of approximately 20% of the common stock of Texas Genco
Holdings, the holding company for the Texas Genco assets, or to distribute the
stock to New REI's shareholders. As explained more fully herein, the market
value of the common stock will be used to determine the amount of stranded costs
that New REI will be allowed to recover if the market value of the Texas Genco
assets is less than the book value of the assets.
Finally, New REI will separate its gas utility operations into
Entex, Inc., Arkla, Inc. and Minnegasco, Inc. (the "GasCo Separation"), a
process that will require state, as well as Commission, approval and therefore
may not be completed at the same time as the Electric Restructuring.
Accordingly, the Applicants ask the Commission to reserve jurisdiction over the
acquisition by New REI of the securities of the Entex, Arkla and Minnegasco
subsidiaries pending completion of the record with respect to the second stage
of the Restructuring.(5)
Upon completion of the GasCo Separation, Applicants believe
that New REI will qualify for exemption under Section 3(a)(1) of the Act.(6) In
the interim, however, pending receipt
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(4) On May 4, 2001, Reliant Resources completed an initial public offering
of approximately 20% of its common stock.
(5) New REI will make the acquisition through an Intermediate Holding
Company, Utility Holding LLC, and so the Commission is also requested to reserve
jurisdiction over the request for Utility Holding LLC to acquire the securities
of Entex, Inc., Arkla, Inc. and Minnegasco, Inc. as part of the GasCo
Separation.
(6) As explained more fully herein, Texas Genco Holdings, Inc. and GP LLC
will be organized under Texas law and derive all of their utility revenues from
operations within Texas. Accordingly, Applicants seek an order of exemption
under Section 3(a)(1) for these entities, upon the completion of the Electric
Restructuring. Because Utility Holding LLC will be formed under the laws of the
State of Delaware, it will not meet the technical requirements for exemption
under Section 3(a)(1). Applicants are asking the Commission to "look through"
Utility Holding LLC in much the same way as the Commission treated the various
intermediate holding companies in National Grid Group plc, HCAR No. 27154, 2000
WL 279236.
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of the state approvals for the GasCo Separation, there will be a period
(anticipated not to exceed one year from the date of the Initial Order) during
which New REI will not be fully in compliance with the standards for exemption.
Specifically, although the New REI holding company system will be "predominantly
intrastate in character" and carry on its business "substantially in a single
state" (that is, Texas), under Commission precedent GasCo will be a material
subsidiary with utility operations that are not predominantly and substantially
confined to Texas.(7)
To address this situation, New REI will register as a holding
company pursuant to Section 5 of the Act. Thus, in addition to the approvals
required for the Electric Restructuring, New REI is seeking certain financing
and other authority for it and its subsidiary companies.
B. BACKGROUND
1. Overview of REI and Its Principal Subsidiaries
REI is a public-utility holding company exempt from
registration under the Act pursuant to Section 3(a)(2). REI is incorporated and
maintains its principal place of business in the State of Texas. Its common
stock is listed on the New York and Chicago Stock Exchanges. REI is also an
"electric-utility company" within the meaning of Section 2(a)(3) of the Act.
REI's electric utility operations are conducted through its unincorporated
Reliant Energy HL&P division ("HL&P"), while its gas utility operations are
conducted through GasCo, a wholly-owned subsidiary company. GasCo is a "gas
utility company" as defined in Section 2(a)(4) of the Act.(8)
REI's existing holding company structure resulted from the
acquisition by Houston Industries Incorporated ("Houston Industries") of NorAm
Energy Corp. ("NorAm") in August 1997.(9) Prior to the acquisition, Houston
Industries' principal utility operations had been conducted through its
integrated electric utility subsidiary, Houston Lighting & Power Company. NorAm
had no electric utility operations but did engage in gas distribution operations
through its Entex, Arkla and Minnegasco divisions. In the merger, Houston
Industries merged into Houston Lighting & Power Company (which then adopted the
name Houston Industries Incorporated). Houston Lighting & Power Company referred
to herein as "HL&P," became a division of the
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(7) It is contemplated that, on or before the expiration of the
one-year period, New REI will file a claim of exemption pursuant to Rule 2,
apply for an order under Section 3(a)(1) of the Act or take such other action as
may be necessary to establish compliance with the Act.
(8) A description of the REI electric system is set forth at Item 1,
Section B.2. below. A description of the REI gas system is set forth at Item 1,
Section B.3. below. Both systems are subject to effective state regulation, as
discussed below.
(9) See Houston Indus., HCAR No. 26744, 1997 WL 414391.
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holding company, Houston Industries, and NorAm became a first tier, wholly-owned
subsidiary of the holding company.(10)
REI conducts its nonutility operations, including merchant
power generation and energy trading and marketing, largely through its
nonutility subsidiary company, Reliant Resources, Inc. ("Reliant Resources"),
and Reliant Resources' subsidiary companies.(11) On May 4, 2001, Reliant
Resources completed an initial public offering of approximately 20% of its
common stock. Applicants contemplate that the remaining common stock of Reliant
Resources will be distributed to shareholders soon after completion of the
Electric Restructuring (the "Distribution").(12) Upon completion of the
Distribution, Reliant Resources will cease to be an affiliate of REI or New REI
for the purposes of the Act.
2. The REI Electric System
Through its HL&P division, REI generates, purchases, transmits
and distributes electricity to approximately 1.7 million customers in the State
of Texas, primarily serving a 5,000-square-mile area on the Texas Gulf Coast,
including the Houston metropolitan area. All of REI's generation and operating
properties are located within Texas. As an electric utility, HL&P is subject to
regulation of its rates, services and operations by the Public Utility
Commission of Texas (the "Texas Commission"). HL&P is subject to the provisions
of the Texas Act, as that term is defined below.
As of December 31, 2001, HL&P owned: 25,998 pole miles of
overhead distribution lines and 3,606 circuit miles of overhead transmission
lines, including 452 circuit miles operated at 69,000 volts, 2,095 circuit miles
operated at 138,000 volts and 1,059 circuit miles operated at 345,000 volts;
12,701 circuit miles of underground distribution lines and 15.6 circuit miles of
underground transmission lines, including 4.5 circuit miles operated at 69,000
volts and 11.1 circuit miles operated at 138,000 volts; and 223 major substation
sites (252 substations) having a total installed rated transformer capacity of
64,783 megavolt amperes.
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(10) In 1999, the name of the holding company was changed from Houston
Industries Incorporated to Reliant Energy, Incorporated, referred to herein as
"REI," and the integrated electric utility became Reliant Energy HL&P, a
division of REI. NorAm became Reliant Energy Resources Corp., referred to herein
as "GasCo." A diagram of the current corporate structure of the REI system is
attached hereto as Exhibit F-1.
(11) These nonutility subsidiaries include wholesale power, trading and
communications operations. Reliant Resources' business and the offering of its
stock are more fully described in Amendment No. 8 to Registration Statement on
Form S-1 of Reliant Resources, Inc. (Registration No. 333-48038) filed with the
Commission on April 27, 2001 and declared effective on April 30, 2001 (the
"Reliant Resources Registration Statement"), which is included as Exhibit C-1 to
this Application and incorporated by reference herein.
(12) As of December 31, 2001, REI owns approximately 83% of Reliant
Resources, due to treasury stock repurchases of $189 million by Reliant
Resources in 2001.
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As of December 31, 2001, HL&P owned and operated 12 power
generating facilities (62 generating units), with a net generating capacity of
14,095 megawatts (MW), including a 30.8% interest in the South Texas Project
Electric Generating Station (South Texas Project). The South Texas Project is a
nuclear generating plant with two 1,250 MW nuclear generating units. The
following table contains information regarding the regulated electric generating
assets, which will be transferred to Texas Genco, LP at the time of the Electric
Restructuring:
NET GENERATING CAPACITY AS OF
GENERATION FACILITIES DECEMBER 31, 2001 (IN MW)
- --------------------- -----------------------------
W. A. Parish 3,661
Limestone(13) 1,532
South Texas Project 770
San Jacinto 162
Cedar Bayou 2,260
P. H. Robinson 2,213
T. H. Wharton 1,254
S. R. Bertron 844
Greens Bayou 760
Webster 387
Deepwater 174
H. O. Clarke 78
Total 14,095
As of December 31, 2001, HL&P's peak load was 13,228 megawatts
and its total net capability (including firm purchase power capacity) at the
time of the peak load was 14,360 megawatts. Effective January 1, 2002, HL&P no
longer conducts electric operations as a traditional integrated electric
utility, including generation, transmission and distribution, and retail
electric sales operations.
As contemplated by the Texas electric restructuring law,
described infra, full retail competition began in Texas on January 1, 2002. HL&P
has functionally separated its generation, transmission and distribution
operations and, upon receipt of this Commission's approval, will complete the
process of separating those operations among different business entities. In
December 2000, prior to the beginning of retail competition, HL&P transferred
its retail electric sales operations to subsidiaries of Reliant Resources,
though those retail customers remained customers of HL&P until their first meter
reading following the onset of full retail competition on January 1, 2002. After
that date those customers have been entitled to purchase their electricity from
any of a number of certified retail electric providers, including Reliant
Resources. Residential and small commercial customers who did not select another
retail
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(13) The capacity of the Limestone facility was uprated from 1,532 MW
to 1,612 MW on January 1, 2002.
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electric provider became customers of Reliant Resources, where the bulk of those
customers have remained to date.
The generation operations in the regulated business segment
are now operated independently of the retail electric sales and transmission and
distribution operations.
REI is a member of the Electric Reliability Council of Texas,
Inc. ("ERCOT"). ERCOT is one of ten Regional Reliability Councils in the North
American Electric Reliability Council Organization. ERCOT represents a bulk
electric system located entirely within the State of Texas and serves
approximately 85% of the state's electrical load. Because of the intrastate
status of their operations, the primary regulatory authority for HL&P and ERCOT
is the Texas Commission, although the Federal Energy Regulatory Commission
("FERC") exercises limited authority. ERCOT serves as Independent System
Operator for its member utilities.
For the year ended December 31, 2001, HL&P reported operating
income of $1.091 billion on total operating revenues (including base and
reconcilable fuel revenues) of $5.5 billion. Total electric sales in
gigawatt-hours were 71,325.
3. The REI Gas System
REI conducts natural gas distribution operations through three
unincorporated divisions of GasCo, which is a "gas utility company" for purposes
of the Act: (i) the Entex Division ("Entex") serves over 500 communities,
located in Texas (including the Houston metropolitan area), Louisiana and
Mississippi; (ii) the Arkla Division ("Arkla") serves over 245 communities
located in Texas, Louisiana, Arkansas, and Oklahoma; and (iii) the Minnegasco
Division ("Minnegasco") serves over 240 communities in Minnesota. The largest
communities served by Arkla are the metropolitan areas of Little Rock, Arkansas
and Shreveport, Louisiana. Minnegasco serves the Minneapolis metropolitan area.
In 2001, Arkla purchased approximately 53% of its natural gas
supply from Reliant Energy Services, 29% pursuant to third-party contracts, with
terms varying from three months to one year, and 18% on the spot market. Arkla's
major third-party natural gas suppliers in 2001 included Oneok Gas Marketing
Company, Tenaska Marketing Ventures, Marathon Oil Company and BP Energy Company.
Arkla transports substantially all of its natural gas supplies under contracts
with our pipeline subsidiaries.
In 2001, Entex purchased virtually all of its natural gas
supply pursuant to term contracts, with terms varying from one to five years.
Entex's major third-party natural gas suppliers in 2001 included AEP Houston
Pipeline, Kinder Morgan Texas Pipeline, L.P., Gulf Energy Marketing, Island Fuel
Trading and Koch Energy Trading. Entex transports its natural gas supplies on
both interstate and intrastate pipelines under long-term contracts with terms
varying from one to five years.
In 2001, Minnegasco purchased approximately 74% of its natural
gas supply pursuant to term contracts, with terms varying from one to ten years,
with more than 20 different suppliers. Minnegasco purchased the remaining 26% on
the daily or spot market. Most of the natural gas volumes under long-term
contracts are committed under terms providing for delivery during the winter
heating season, which extends from November through March. Minnegasco
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purchased approximately 67% of its natural gas requirements from four suppliers
in 2001: Pan-Alberta Gas Ltd., Reliant Energy Services, TransCanada Gas Services
Inc. and Tenaska Marketing Ventures. Minnegasco transports its natural gas
supplies on various interstate pipelines under long-term contracts with terms
varying from one to five years.
Arkla and Minnegasco use various leased or owned natural gas
storage facilities to meet peak-day requirements and to manage the daily changes
in demand due to changes in weather. Minnegasco also supplements contracted
supplies and storage from time to time with stored liquefied natural gas and
propane-air plant production. Minnegasco owns and operates a 7.0 billion cubic
feet ("Bcf") underground storage facility, having a working capacity of 2.1 Bcf
available for use during a normal heating season and a maximum daily withdrawal
rate of 50 million cubic feet ("MMcf") per day. Minnegasco also owns nine
propane-air plants with a total capacity of 191 MMcf per day and on-site storage
facilities for 11 million gallons of propane (1.0 Bcf gas equivalent).
Minnegasco owns a liquefied natural gas facility with a 12 million-gallon
liquefied natural gas storage tank (1.0 Bcf gas equivalent) with a send-out
capability of 72 MMcf per day.
GasCo, through subsidiaries, also owns two interstate
pipelines and a gas gathering system. Through Reliant Energy Gas Transmission
Company ("REGT"), GasCo owns and operates a major interstate transmission system
(approximately 6,100 miles of transmission lines) located in the United States
mid-continent region. Through the Mississippi River Transmission Corporation
("MRT"), GasCo owns and operates a major interstate transmission system
(approximately 2,100 miles of transmission lines) that extends from East Texas
and Northern Louisiana to the St. Louis metropolitan area. A majority of Arkla's
gas supply and a portion of Entex's gas supply are transported by REGT. Reliant
Energy Field Services ("Field Services") is comprised of approximately 300
separate gathering systems, consisting of approximately 4,300 miles of gathering
pipelines connecting over 4,000 wells located in the Mid-continent region of the
United States and gathers natural gas for major and independent exploration and
production companies operating in Arkoma, Anadarko and ArkLaTex gas basins.
Field Services gathers approximately 850 million cubic feet of gas per day. REGT
and MRT are subject to regulation by the FERC.
As noted above, Entex provides natural gas distribution
services in over 500 communities in Louisiana, Mississippi and Texas. The
largest metropolitan area served by Entex is Houston, Texas. It delivers gas to
approximately 1.5 million residential, commercial, industrial and transportation
customers. Entex has 29,600 miles of main piping, 18,000 miles of service line
and 1.5 million meters. Entex is subject to regulation by the Texas Railroad
Commission, the Louisiana Public Service Commission (the "Louisiana Commission")
and the Mississippi Public Service Commission (the "Mississippi Commission").
Arkla provides natural gas distribution services in Arkansas,
northern Louisiana, Oklahoma and northeastern Texas. The largest metropolitan
areas served by Arkla are Little Rock, Arkansas and Shreveport, Louisiana. It
delivers gas to approximately 716,600 residential, commercial, industrial and
transportation customers. Arkla has 19,800 miles of main piping, 8,800 miles of
service line and 716,600 meters. Arkla is subject to regulation by the Texas
Railroad Commission, the Louisiana Commission, the Arkansas Public Service
Commission (the
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"Arkansas Commission") and the Corporation Commission of the State of Oklahoma
(the "Oklahoma Commission").
Minnegasco provides natural gas distribution services in over
240 communities in Minnesota. The largest metropolitan area served by Minnegasco
is Minneapolis, Minnesota. It delivers gas to 711,000 residential, commercial
and industrial customers. Minnegasco is subject to regulation by the Minnesota
Public Utilities Commission (the "Minnesota Commission").
For the year ended December 31, 2001, Entex, Arkla and
Minnegasco reported combined net operating income of $158 million. Reported net
property, plant and equipment at December 31, 2001 was $ 1.6 billion.
4. Integration and Geographic Overlap of Electric and Gas Utilities
REI's electric and gas systems substantially overlap as
described above and as shown by the diagram attached as Exhibit E-1 to this
Application. Each of REI's electric and gas systems is an "integrated public
utility system" under the Act as described in Section B.1. of Item 3 below.
* * * * *
Additional information regarding the Restructuring, REI, GasCo
and their respective subsidiaries is set forth in the following documents, each
of which has been previously filed with the Commission and is incorporated
herein by reference:
(i) Annual Report on Form 10-K of REI (Commission File
Number 1-3187) and GasCo (Commission File Number
1-13265) for the fiscal year ended December 31, 2001,
filed with the Commission on April 15, 2002;
(ii) Quarterly Reports on Form 10-Q of REI (Commission
File Number 1-3187) and GasCo (Commission File Number
1-13265) for the quarter ended March 31, 2001, filed
with the Commission on May 15, 2001, and for the
quarter ended June 30, 2001, filed with the
Commission on August 10, 2001, as amended pursuant an
amendment to Form 10-Q/A, filed with the Commission
on March 25, 2002 and to the quarter ended September
30, 2001, filed with the Commission on November 13,
2001 as amended pursuant an amendment to Form 10-Q/A,
filed with the Commission on March 25, 2002;
(iii) Current Reports on Form 8-K of REI and GasCo filed
with the Commission on January 26, 2001, April 16,
2001, September 12, 2001, January 11, 2002, February
5, 2002, March 6, 2002, March 15, 2002, April 8, 2002
and April 29, 2002
(iv) Annual Report Concerning Foreign Utility Companies on
Form U-33-S of REI for the fiscal year ended December
31, 2000, filed with the Commission on April 30,
2001; and
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(v) Registration Statement on Form S-4 of CenterPoint
Energy, Inc. (Commission File Number 333-69502),
filed with the Commission on September 17, 2001.
C. OVERVIEW OF THE RESTRUCTURING
1. The Business Separation Plan
S.B.7, known as the Texas Electric Choice Plan (the "Texas
Act"), substantially amends the regulatory structure governing electric
utilities in Texas to provide for full retail competition beginning on January
1, 2002. Under the Texas Act, the traditional vertically integrated
electric-utility companies are required to separate their generation,
transmission and distribution, and retail activities.
The Texas Commission has approved a business separation plan
under which REI's existing electric utility operations will be separated into
three businesses: generation, transmission and distribution, and retail
sales.(14) Under the plan, Reliant Resources became the successor to REI as the
retail electric provider ("REP") to customers in the Houston metropolitan
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(14) The specific form of the business separation was the result of a
contested proceeding before the Texas Commission. Before receiving approval in
that proceeding, REI had filed two other business separation plans that proposed
alternative corporate structures. Both of those proposed plans were opposed in
the proceedings before the Texas Commission for reasons explained below, and
neither plan was approved.
REI's initial business separation plan contemplated the separation of HL&P's
activities into three unincorporated divisions of the existing parent entity.
These divisions were to be a power generation company, a transmission and
distribution utility and a retail electric provider. This plan was opposed by
the staff of the Texas Commission and certain intervenors in the proceeding
because it did not place each of the three functional units in a separate
corporation.
In response, REI filed an amended business separation plan, which contemplated
that REI would create new first or second tier corporate subsidiaries to house
the power generation company and the retail electric provider and that the
transmission and distribution utility would continue as an unincorporated
division of REI. Although supported by the commercial intervenors in the
proceeding, this approach was opposed by the staff of the Texas Commission,
based on the fact that the parent entity's transmission and distribution utility
operations would be liable for a substantial amount of debt unrelated to its
operations and that the regulated utility's credit would be used to support
unregulated businesses. The Texas Commission indicated its preference for a plan
that would not only place the three functional units in separate legal entities
but would also result in the regulated transmission and distribution utility no
longer being a creditor of or financing source for other business activities.
Thus, the business separation model which gives rise to this Application
reflects the pattern of vigorous and effective state oversight to which the
Commission has "watchfully deferred" in past matters. See Sierra Pacific
Resources, HCAR No. 24566, 1988 WL 236860 (Jan. 28, 1988), aff'd sub nom.
Environmental Action, Inc. v. SEC, 895 F.2d 1255 (9th Cir. 1990).
9
area when the Texas market opened to competition in January 2002.(15) The T&D
Utility will be a subsidiary of New REI, and will retain its existing
transmission and distribution businesses, which will remain subject to
traditional utility rate regulation. The T&D Utility will be an "electric
utility company" within the meaning of the Act. REI's Texas generation assets
will be transferred to Texas Genco LP, a newly-formed indirect subsidiary that
will also be an "electric utility company" within the meaning of the Act. New
REI will hold such assets subject to an option by Reliant Resources as more
fully described below.
The T&D Utility -- The T&D Utility will continue to be subject
to cost-of-service rate regulation. The rates for transmission and distribution
were set by the Texas Commission, effective January 1, 2002.
Texas Genco LP -- To facilitate a competitive market, each
power generator, such as Texas Genco LP, that will be affiliated with a
transmission and distribution utility will be required to sell at auction 15% of
the output of its installed generating capacity. The obligation continues until
January 1, 2007, unless before that date the Texas Commission determines that at
least 40% of the quantity of electric power consumed in 2000 by residential and
small commercial customers in the utility's service area is being served by REPs
not affiliated with the incumbent utility. An affiliated REP such as Reliant
Resources may not purchase capacity sold by its affiliated power generation
company in the mandated capacity auction. Any differences between market power
prices received by Texas Genco LP and the Texas Commission's estimate of those
prices, made for purposes of estimating stranded costs, will be accrued and
included in a true-up of New REI's stranded costs in a final order of the Texas
Commission. These costs are to be recaptured pursuant to a securitization order
of the Texas Commission.
REP -- Reliant Resources has become the REP for all of REI's
approximately 1.7 million residential and small commercial customers located in
the Houston metropolitan area who have not selected another retail electric
provider. Although, upon completion of the Distribution, Reliant Resources will
cease to be an affiliate of REI or New REI for purposes of the 1935 Act, the
Reliant Resources REPs are treated as affiliates of the T&D Utility for purposes
of the Texas Act. Under the market framework required by the Texas Act, the
Reliant Resources REPs are required to sell electricity to residential and small
commercial customers within the utility's service territory at a specific price,
which is referred to in the law as the "price to beat."(16) In contrast, new
entrants may sell electricity to REI's retail and small commercial customers at
any price. The initial price to beat for Reliant Resources was set to
- ----------
(15) Reliant Resources provides these services through subsidiary REPs.
The REPs are power marketers and, as such, are not 1935 Act-jurisdictional
electric utility companies because they do not own or operate physical
facilities that are used for the generation, transmission or distribution of
electric energy for sale. See Holding Co. Act Rule 58(b)(1)(v) (exempting
investments in certain non-utility companies, including companies that derive
substantially all of their revenues from the brokering and marketing of energy
commodities).
(16) The price to beat applies only to electric services provided to
residential and small commercial customers. Electric services provided to large
commercial and industrial customers may be provided at any negotiated price.
10
provide a 6% reduction from the average rates, on a bundled basis, in effect for
REI on January 1, 1999, adjusted to take into account a new fuel factor as of
December 31, 2001. Reliant Resources will not be permitted to sell electricity
to residential and small commercial customers in REI's service territory at
prices other than the price to beat until January 1, 2005, unless the Texas
Commission determines that 40% or more of the amount of electric power that was
consumed in 2000 by the relevant class of customers is committed to be served by
other REPs.(17)
By allowing nonaffiliated REPs to provide retail electric
service to customers in an electric utility's traditional service territory at
any price, the Texas Act encourages competition among retail electric providers.
The Texas Commission is currently developing regulations governing quality,
reliability and other aspects of service from retail electric providers.
* * * * *
2. The Electric Restructuring
To prepare for the Texas Genco IPO, REI will contribute its
regulated assets used to generate electric power and energy for sale within
Texas and the liabilities associated with those assets (the "Texas Genco
assets") to a newly-formed subsidiary company, Texas Genco Holdings, Inc. Texas
Genco Holdings, Inc., in turn, will contribute the Texas Genco assets to two
newly-formed limited liability companies: 1% of the Texas Genco assets to GP
LLC, and 99% of the Texas Genco assets to LP LLC. GP LLC and LP LLC will, in
turn, contribute the Texas Genco assets to a limited partnership, Texas Genco,
LP.
Texas Genco, LP will be a Texas limited partnership and an
"electric utility company" within the meaning of the Act. Texas Genco Holdings,
Inc., will be a Texas corporation and a holding company that receives all of its
utility revenues from operations within Texas. Accordingly, it will be entitled
to an exemption under Section 3(a)(1) of the Act.
GP LLC and LP LLC are conduit entities that will exist solely
to minimize certain Texas franchise tax liability. LP LLC, which will be a
Delaware limited liability company, will acquire a 99% limited partnership
interest with no voting rights in Texas Genco LP. Because it will not acquire
10% or more of the voting securities of Texas Genco LP, it will not be a holding
company for purposes of the Act. GP LLC, which will be a Texas limited liability
company, will be a "holding company" because it will acquire the 1% general
partnership interest in Texas Genco LP. Because it too will derive all of its
utility revenues from operations within Texas, GP LLC will qualify for exemption
under Section 3(a)(1).(18)
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(17) Reliant Resources may request that the Texas Commission adjust the
fuel factor included in its price to beat not more than twice a year if Reliant
Resources can demonstrate that the existing fuel factor does not adequately
reflect significant changes in the market price of natural gas and purchased
energy used to serve retail customers.
(18) Texas franchise tax is based upon 4.5% of taxable income. Texas
franchise tax law does not provide for any consolidated return concept. Thus
each company reports its income on a
11
At the conclusion of the transactions contemplated herein, GP
LLC and LP LLC will not own the Texas Genco assets. A diagram of this stage of
the Restructuring is attached hereto as Exhibit F-2.
The next steps relate to the formation of New REI as a holding
company for the regulated operations. REI has formed New REI as a wholly-owned
subsidiary.(19) New REI, in turn, will form a special-purpose wholly-owned
subsidiary, Utility Holding LLC which, in turn, will form a special-purpose
wholly-owned subsidiary company, MergerCo, which will merge with and into REI
with REI as the surviving entity. REI common stock will be exchanged for New REI
common stock in the merger, and New REI will become the holding company for
Utility Holding LLC, REI and its subsidiaries.
REI will then convert to a Texas limited liability company,
Reliant Energy, LLC ("REI LLC"). REI LLC will distribute the stock of all its
subsidiaries to New REI.(20) Thereafter, with the specific timing dependent on
market conditions and obtaining appropriate approvals, New REI will effect a
tax-free distribution to its shareholders of its remaining ownership interest
- ----------
stand-alone basis, and the payment of dividends from a Texas company to its
parent is a taxable event for purposes of Texas franchise tax law. Dividends
from a non-Texas company such as LP LLC, however, are not treated as Texas
receipts. The use of the LP LLC helps to minimize the Texas franchise tax
liability of New REI. But for the Texas franchise tax issue, the generating
assets would be owned directly by Texas Genco Holdings, Inc.
(19) New REI was incorporated in Delaware on December 13, 2000. As part
of the Restructuring, on October 9, 2001, REI reincorporated New REI as a Texas
corporation.
(20) The distribution of the stock of REI's subsidiaries, including
GasCo and Texas Genco Holdings, Inc. will be currently taxable under state law
as a distribution of appreciated property to New REI and will be also taxable to
New REI as an in-kind dividend. To minimize tax inefficiencies, New REI will
hold its utility interests through a newly-formed Delaware limited liability
company, Utility Holding LLC. The distributions would thus be made first by REI
to Utility Holding LLC and, under the "Gain Sourcing Rule," this distribution to
a non-Texas entity will eliminate the gain to REI for purposes of Texas state
tax law. The in-kind dividend to Utility Holding LLC will not be included in the
Texas taxable income of that company because Utility Holding LLC will have no
contacts in Texas and accordingly will not be subject to Texas franchise tax.
Because Utility Holding LLC will be a Delaware limited liability
company, it will not qualify for exemption under Section 3(a)(1) of the Act.
However, as discussed more fully herein, Applicants believe it is appropriate to
"look through" Utility Holding LLC for purposes of analysis under Section
3(a)(1) of the Act. Utility Holding LLC, which will be wholly-owned by New REI,
will not be a means by which New REI seeks to diffuse control. Rather, Utility
Holding LLC will be a special-purpose entity created for the sole purpose of
helping the Applicants to capture economic efficiencies that might otherwise be
lost in this transaction. In this regard, it is analogous to the Intermediate
Holding Companies that the Commission deemed consistent with Section 11(b)(2) of
the Act in National Grid, supra, note 2.
12
in Reliant Resources (approximately 83%). As a result of the distribution,
Reliant Resources will become a separate, publicly traded corporation.
New REI will be the holding company for Texas Genco LP, REI,
referred to herein as the "T&D Utility" (which will continue to hold REI's
existing electric transmission and distribution businesses), and certain limited
nonutility businesses, which are described more fully in Exhibit G-3.
The formation of Texas Genco LP and the T&D Utility has been
expressly approved by the Texas Commission. The Louisiana Commission has issued
a statement of nonopposition concerning the Electric Restructuring. In addition,
as discussed below, certain aspects of the transaction have been approved by the
Nuclear Regulatory Commission ("NRC"). With the exception of the approvals
requested herein, no other regulatory approvals are required to complete the
Electric Restructuring.
3. The Distribution
In July 2000, REI announced its intention to divide into two
publicly-traded companies and separate its regulated and unregulated businesses.
On May 4, 2001, Reliant Resources completed an initial public offering of
approximately 20% of its common stock. As noted above, Applicants contemplate
that soon after completion of the Electric Restructuring New REI will distribute
to shareholders the remaining common stock of Reliant Resources. The
Distribution is intended, among other things, to reduce the business risk
profile of New REI. Upon completion of the Distribution, Reliant Resources will
cease to be an affiliate of REI or New REI for the purposes of the Act.
The Distribution will complete a process intended to provide
increased access to equity capital for Reliant Resources' wholesale energy
business. As a freestanding entity, Reliant Resources will be able to pursue the
aggressive growth contemplated by its business plan, free of the competing
capital needs and regulatory considerations of REI's regulated businesses.
Moreover, the separation of REI's businesses into two distinct companies will
better align investors' interests by allowing more risk-averse investors to
continue their investments in the regulated utility business of New REI and more
risk-tolerant investors to invest in Reliant Resources' growth-oriented
wholesale energy and other businesses. Finally, it has been a fundamental
premise of management that both New REI and Reliant Resources emerge from the
Restructuring with their debt securities being rated as "investment grade" by
one or more Nationally Recognized Statistical Rating Organizations.
4. Texas Genco IPO
The Texas Genco IPO relates to the determination and recovery
of "stranded costs" associated with REI's Texas generation assets.(21)
- ----------
(21) The term "stranded costs" generally refers to historic investments
that had been expected to be recovered under regulation that cannot be recovered
in a competitive market.
13
As noted previously, on or before December 31, 2002, New REI
expects to conduct an initial public offering of, or distribute to shareholders,
approximately 20% of the common stock of Texas Genco Holdings, Inc., the holding
company for the Texas Genco LP assets or distribute such stock to its
shareholders. Creation of the minority public ownership interest in Texas Genco
Holdings, Inc. will permit REI to use the "partial stock valuation method" under
the Texas Act for purposes of determining the stranded costs associated with its
regulated generation assets.(22)
Reliant Resources will have the right to purchase all of New
REI's equity interest in Texas Genco LP remaining after the Texas Genco IPO,
which retained equity interest will be at least 80% (the "Texas Genco
Option").(23) The Texas Genco Option is exercisable in January 2004. The
exercise price for the option will be determined by a market-based formula based
on the formula employed by the Texas Commission for determining stranded costs
under the partial stock valuation method referenced above.(24)
5. The GasCo Separation
The final stage of the Restructuring relates to the
reorganization of GasCo into three separate companies.
Upon obtaining the necessary regulatory approvals, including
consent from or approval by the Arkansas, Oklahoma, Louisiana, Minnesota, and
Mississippi Commissions, GasCo will form two new subsidiary companies, Arkla,
Inc. and Minnegasco, Inc., and will contribute to them the Arkla and Minnegasco
assets, respectively, in exchange for the stock of the newly-formed
companies.(25) GasCo will then distribute the stock of Arkla, Inc. and
- ----------
(22) Under the "partial stock valuation method," the resulting average
daily closing price of the common stock of Texas Genco Holdings, Inc. can be
used to establish the market value of the Texas Genco assets for purposes of
determining stranded costs used to develop a nonbypassable competition
transition charge.
(23) The Texas Genco Option agreement provides that if Reliant
Resources purchases the Texas Genco LP shares under the Texas Genco Option,
Reliant Resources must also purchase all notes and other receivables from Texas
Genco LP then held by New REI, at their principal amounts plus accrued interest.
The Texas Genco Option agreement contains other provisions regarding the
operation and capitalization of Texas Genco LP.
(24) The per share exercise price under the option will equal the sum
of (i) the average daily closing price on a national exchange for publicly held
shares of common stock of Texas Genco Holdings, Inc. for the 30 consecutive
trading days with the highest average closing price during the 120 trading days
immediately preceding January 10, 2004, and (ii) a control premium, up to a
maximum of 10%, to the extent a control premium is included in the valuation
determination made by the Texas Commission relating to the market value of Texas
Genco Holdings, Inc.'s common stock equity.
(25) It is contemplated that Arkla, Inc. and Minnegasco, Inc. will be
incorporated under the laws of Delaware.
14
Minnegasco, Inc. to Utility Holding LLC.(26) GasCo, which will be renamed Entex,
Inc. and reincorporated in Texas, will own the Entex assets as well as, through
subsidiary companies, natural gas pipelines and gathering business. At the
conclusion of this stage of the Restructuring, Arkla, Minnegasco and Entex will
be affiliated sister subsidiaries owned, through Utility Holding LLC, by New
REI. For further detail regarding this stage of the Restructuring, please see
Exhibit F-2.
D. OTHER REGULATION
REI and GasCo currently are subject to broad regulation as to
rates and other matters in each of their jurisdictions. Following the
Restructuring:
o Entex, Inc. will be subject to the jurisdiction of
the Texas Railroad Commission, the Mississippi
Commission and the Louisiana Commission;
o Arkla, Inc. will be subject to the jurisdiction of
the Arkansas Commission, the Louisiana Commission,
the Oklahoma Commission and the Texas Railroad
Commission;
o Minnegasco, Inc. will be subject to the jurisdiction
of the Minnesota Commission; and
o the T&D Utility and Texas Genco LP will be subject to
the jurisdiction of the Texas Commission.
In connection with the Electric Restructuring, the formation of Texas Genco LP
and the T&D Utility has been expressly approved by the Texas Commission. The
Louisiana Commission has issued a statement of nonopposition with respect to the
Electric Restructuring, and the NRC has approved the jurisdictional aspects of
the transaction.
The GasCo Separation has been approved by the Minnesota
Commission. It will also require approval or review by the Arkansas Commission,
the Louisiana Commission, the Mississippi Commission and the Oklahoma
Commission.
Although prior approval is not required from the Texas
Railroad Commission for either stage of the Restructuring, Applicants have
discussed the proposed Restructuring with that commission and will keep it
informed of the regulatory approval process in other jurisdictions.
The jurisdiction of the various state commissions, and a
summary of the necessary state and federal approvals, are provided below.
1. Arkansas
The Arkansas Commission has broad jurisdiction over rates and
other matters. It has authority to require the submission of "[a]ny additional
information which the [Arkansas]
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(26) For federal tax reasons, this distribution should be made after
August 7, 2002.
15
Commission may by rule or regulation prescribe as necessary or appropriate for
the protection of ratepayers of the domestic public utility or in the public
interest."(27) It also can require the production "of any books, accounts,
papers, or records of the public utility, or of any affiliate of the utility
relating to the public utility's business or affairs within the state, pertinent
to any lawful inquiry . . . "(28)
The GasCo Separation will require the approval of the Arkansas
Commission under Sections 23-3-101 and 23-3-102 of the Arkansas Code. Section
23-3-101 of the Arkansas Code provides that (i) "[n]o organization or
reorganization [of a public utility] shall be had or given effect without the
written approval of the [Arkansas Commission]," and (ii) no plan of organization
or reorganization shall be approved unless applicant establishes that approval
of the plan is "consistent with the public interest." Section 23-3-102 provides
that "[w]ith the consent and approval of the [Arkansas Commission], but not
otherwise . . . [a]ny public utility may sell, acquire, lease or rent any public
utility plant or property constituting an operating unit or system." An
application for approval of a transaction covered by Section 23-3-102 must be
made by "the interested public utility and shall contain a concise statement of
the proposed action, the reasons therefor, and such other information as may be
required by the commission."(29) The Arkansas Commission has authority to hold
hearings on the application, but it is not required to do so.
The Arkansas Commission is required to approve the application
if it finds that the proposed action is "consistent with the public
interest."(30) The statute does not, however, impose any time limit for action
by the Arkansas Commission.
2. Louisiana
The Louisiana Commission has broad jurisdiction over rates and
other matters. The Louisiana Commission has authority to review all utility
contracts, including those between utilities and their affiliates.(31) Further,
when setting rates, the Louisiana Commission can review contracts and
interactions between the regulated utility and its affiliates and disallow any
amount it determines "to be unjust, or unreasonable and designed for the purpose
of concealing, abstracting or dissipating the net earnings of the public
utility."(32)
The Electric Restructuring has been reviewed and the GasCo
Separation will be subject to review by the Louisiana Commission, pursuant to a
Louisiana Commission General
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(27) Ark. Code Ann. Section 23-3-307(a)(10).
(28) Ark. Code Ann. Section 23-2-408.
(29) Ark. Code Ann. Section 23-3-102(b)(1).
(30) Ark. Code Ann. Section 23-3-102(b)(2).
(31) La. R.S. Section 45:1176.
(32) Id.
16
Order which provides that, "without prior official action of approval or
official action of non-opposition by the [Louisiana Commission]," no utility
shall, inter alia, "sell, lease, transfer, mortgage, or otherwise dispose of or
encumber the whole or any part of its franchise, works, property or
system . . ."(33) The General Order is "intended to apply to any transfer of the
ownership and/or control of public utilities . . . regardless of the means used
to accomplish that transfer." The General Order lists eighteen factors that the
Commission will take into account, dealing with various aspects of financial
strength, quality of service, and impact on ratepayers, shareholders and
employees, in determining whether to approve, or not oppose, such a transaction.
The Louisiana Commission has discretion to approve (or not
oppose) a transaction if it concludes, based on its consideration of all of the
eighteen factors that the transaction is in the "public interest." On January
16, 2002, the Louisiana Commission issued a statement of nonopposition with
respect to the Electric Restructuring. A copy is attached as Exhibit D-9.
3. Minnesota
The Minnesota Commission has broad jurisdiction over rates and
other matters concerning public utilities operating in Minnesota.
The Minnesota Commission also has authority over transactions
between affiliates within a utility system. In rate proceedings, or proceedings
involving utility practices, the Minnesota Commission can exclude any payment
made to an affiliate unless the utility establishes the reasonableness of the
payment.(34) In addition, the Minnesota Department of Commerce has broad
authority to "inspect at all reasonable times, and copy the books, records,
memoranda and correspondence or other documents of any person relating to any
regulated business."(35)
The GasCo restructuring has been approved by the Minnesota
Commission pursuant to Minn. Stat. Ann. Section 216B.50, which states, in
pertinent part:
No public utility shall sell, acquire, lease, or rent any
plant as an operating unit or system in this state for a total
consideration in excess of $100,000, or merge or consolidate
with another public utility operating in this state, without
first being authorized so to do by the [Minnesota] commission.
Upon the filing of an application for the approval and consent
of the [Minnesota] commission thereto the [Minnesota]
commission shall investigate, with or
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(33) In re: Commission Approval Required of Sales, Leases, Mergers,
Consolidation, Stock Transfers, and All Other Changes of Ownership on Control of
Public Utilities Subject to Commission Jurisdiction, General Order (Mar. 18,
1998) (the "General Order").
(34) Minn. Stat. Ann. Section 216B.48.
(35) Minn. Stat. Ann. Section 206A.07.
17
without public hearing, and in case of a public hearing, upon
such notice as the [Minnesota] commission may require, and if
it shall find that the proposed action is consistent with the
public interest it shall give its consent and approval by
order in writing.
The Minnesota Commission has interpreted the "consistent with the public
interest" standard contained in Section 216B.50 as requiring a showing that a
transaction subject to that Section will not adversely affect customers or the
public.(36) The four main issues considered by the Minnesota Commission have
been the merger's potential impacts on (i) rates; (ii) day-to-day utility
operations and reliability of service; (iii) combined market power of the
merging companies; and (iv) the Minnesota regulatory process, including the
authority of the Minnesota Commission.(37)
4. Mississippi
The Mississippi Commission has broad jurisdiction over rates
and other matters, including affiliate transactions. A public utility must file
with the Mississippi Commission "copies of contracts with any person selling
services of any kind."(38) No public utility may "pay any fees, commission or
compensation of any description whatsoever to any affiliated or subsidiary
holding, managing, operating, constructing, engineering or purchasing company
for services rendered or to be rendered without first filing copies of all
agreements and contracts therefore with the [Mississippi] commission."(39) When
establishing rates, the Mississippi Commission can disallow any payment to be
capitalized or included as a utility operating cost if it finds the cost to be
unjust or unreasonable. In addition, if the utility unreasonably refuses to
provide relevant accounts and records of itself or its affiliates, the
Mississippi Commission can disallow associated costs.(40)
The GasCo Separation will require approval under Section
77-3-23 of the Mississippi Code of 1972.
5. Oklahoma
The Oklahoma Commission has broad authority over rates and
other matters. It has:
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(36) In the Joint Petition of Minnegasco a Division of NorAm Energy
Corp., et al., Docket No. 008/PA-96-950 (Feb. 24, 1997).
(37) Id.
(38) Miss. Code Ann. Section 77-3-10(1).
(39) Miss. Code Ann. Section 77-3-10(2).
(40) Miss. Code Ann. Section 77-3-10(3).
18
full visitorial and inquisitorial power to examine such public
utilities, and keep informed as to their general
conditions, . . . the management, conduct, operation,
practices and services; not only with respect to the adequacy,
security and accommodation afforded by their service, but also
with respect to their compliance with the provisions of this
act, and with the Constitution and laws of this state, and
with the orders of the Commission.(41)
To the extent a utility's records and activities reflect any affiliate
transactions, the Oklahoma Commission can disallow costs that would adversely
affect the ratepayer.
The GasCo Separation will require approval of the Oklahoma
Commission, after a hearing.(42) The Oklahoma Commission's Rules do not provide
a time limit for action on a utility's application for approval of the sale,
transfer or disposition of jurisdictional plant or operating system.
6. Texas
The Texas Commission and the Texas Railroad Commission have
broad authority over electric and gas utility companies, respectively.
As explained in Item 1.C.1. supra, the Restructuring was
prompted by, among other things, the unbundling of retail, transmission and
distribution and generation functions required by the Texas Act. The Electric
Restructuring is subject to the jurisdiction of the Texas Commission under
Section 39.051 of the Texas Act. REI, as an electric utility company, also is
generally subject to the jurisdiction of the Texas Commission pursuant to
Sections 14.001 and 32.001 of the Texas Utilities Code. In December 2000, the
Texas Commission voted to approve the Electric Restructuring and issued an order
to that effect on March 15, 2001 (the "Texas Order"). The Texas Order was
modified on rehearing and a copy of the Texas Order, as modified, is attached as
Exhibit D-1, and the requirements of the Texas Act are described supra in Item
1.C.1.
In addition, the Texas Commission has ongoing authority to
adopt and enforce rules as may be necessary to assure reliable electricity and
the protection of consumers.(43) The T&D Utility remains subject to
cost-of-service rate regulation.(44) The Texas Commission has express authority
"to govern transactions ...or activities...between a transmission and
distribution utility and its competitive affiliates to avoid potential market
power abuses and
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(41) 17 Okl. St. Ann. Section 152(c).
(42) Oklahoma Commission Rules, Ch. 45, Section 165:45-3-5. Section
165:45-3-5 was promulgated by the Oklahoma Commission pursuant to its power of
"general supervision over all public utilities." 17 Okl. St. Ann. Section 152
(43) Tex. Util. Code Ann. Section 14.002.
(44) Tex. Util. Code Ann. Section 39.201.
19
cross-subsidizations between regulated and competitive activities."(45) The
Texas Commission may require a public utility to report information relating to
the utility and a transaction between the utility and an affiliate inside or
outside the state, to the extent the transaction is jurisdictional.(46) In
addition, each public utility is required to "keep and provide to the regulatory
authority, in the manner and form prescribed by the [Texas] commission, uniform
accounts of all business transacted by the utility."(47)
The Texas Railroad Commission has exclusive original
jurisdiction over the rates and services of a gas utility distributing natural
or synthetic gas in areas outside a municipality.(48) The Texas Railroad
Commission may require a gas utility to report information relating to the gas
utility and an affiliate inside or outside the state; require the filing of any
affiliate contracts; and require that affiliate contracts not in writing be
reduced to writing and filed with the commission.(49) Unless a gas utility
reports to the Texas Railroad Commission in a reasonable time, it may not sell,
acquire or lease Texas facilities for a total consideration of more than $1
million or merge or consolidate with another Texas gas utility.(50) The Texas
Railroad Commission has jurisdiction over an affiliate to the extent of access
to an account or a record of the affiliate relating to an affiliate
transaction.(51) The Texas Railroad Commission may require the examination and
audit of the accounts of a gas utility.(52) It may also require the production
of out of state records.(53)
Although the Texas Railroad Commission will not have
jurisdiction over the GasCo Separation, Applicants have discussed the
Restructuring with the commissioners and staff members of the Texas Railroad
Commission. The GasCo Separation will not adversely affect the authority of the
Texas Railroad Commission over the Entex gas utility operations.
7. Nuclear Regulatory Commission
REI owns a 30.8% interest in the South Texas Project electric
generating station, a nuclear generating plant consisting of two 1,250 MW
generating units, and holds NRC licenses
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(45) Tex. Util. Code Ann. Section 39.157(d).
(46) Tex. Util. Code Ann. Section 14.003.
(47) Tex. Util. Code Ann. Section 14.151(a).
(48) Tex. Util. Code Ann. Section 102.001(a).
(49) Tex. Util. Code Ann. Section 102.003.
(50) Tex. Util. Code Ann. Sections 102.051(a)(1)-(2).
(51) Tex. Util. Code Ann. Section 102.104.
(52) Tex. Util. Code Ann. Section 102.202.
(53) Tex. Util. Code Ann. Section 102.206.
20
with respect to its interest. As part of the Restructuring, this interest is
being transferred to Texas Genco LP, which will be a subsidiary of New REI.
Section 184 of the Atomic Energy Act provides that no license may be directly or
indirectly transferred unless the NRC finds that the transfer is in accordance
with the provisions of the Atomic Energy Act and gives its consent in writing.
The NRC approved the transfer of control of its NRC licenses and the ownership
by New REI of Texas Genco LP in connection with the Restructuring, by order
dated December 20, 2001. A copy of the order is attached as Exhibit D-17
8. Internal Revenue Service
REI is in the process of seeking an extension for certain
private letter rulings from the Internal Revenue Service relating to the
Restructuring and the Distribution. These rulings, among other things, confirm
the tax-free treatment of the spin-off of Reliant Resources stock to occur in
the Distribution.
* * * * *
Apart from the above-listed approvals, no other regulatory
authorities have jurisdiction over the Electric Restructuring. The approval or
consent of certain local authorities may be required in connection with the
GasCo Separation. Applicants are in the process of identifying which local
jurisdictions may be implicated and will seek and obtain all such approvals and
supplement the record to reflect same.
E. OTHER REQUESTED APPROVALS
As noted above, New REI, which will become a holding company
upon completion of the Electric Restructuring, will register pursuant to Section
5 and operate as a registered holding company. It is contemplated that, once it
is able to obtain the additional approvals needed to complete the GasCo
Separation, New REI will qualify for exemption under Section 3(a)(1) of the Act.
Applicants believe that this interim period will not exceed twelve months from
the date of the Initial Order. As discussed more fully infra, New REI is seeking
financing and other "housekeeping" authority, similar to that granted other
newly-formed registered holding companies, for a period of one year from the
date of the Initial Order. In addition, New REI is requesting Commission
approval in the Initial Order for the Distribution of Reliant Resources stock to
shareholders and the sale or distribution of Texas Genco Holdings, Inc. stock in
connection with the Texas Genco IPO.
ITEM 2. FEES, COMMISSIONS AND EXPENSES
The fees, commissions and expenses to be paid or incurred,
directly or indirectly, in connection with the Application are estimated to be
*.
* To be filed by amendment
ITEM 3. APPLICABLE STATUTORY PROVISIONS
The following sections of the Act are or may be directly or
indirectly applicable to the Restructuring:
21
Section of the Act Transactions to which Section or Rule is or may be applicable
- ------------------ -------------------------------------------------------------
Section 3(a)(1) Exemption of Texas Genco Holdings, Inc. and GP LLC
Section 5 Registration of New REI
Sections 6, 7, 9, 10, 12(b) and 12(c), Financings by New REI and its subsidiary companies
and Rules 45 and 46
Sections 9 and 10 Acquisition by New REI of Utility Holding LLC, Texas Genco Holdings, Inc.,
GP LLC, Texas Genco LP, the T&D Utility and GasCo
Acquisition by New REI and Utility Holding LLC of Entex, Inc., Arkla, Inc.
and Minnegasco, Inc.
Sections 12(a), 12(c) and 12(f), Distribution of Reliant Resources stock and related transactions
Rule 46
Sections 6 and 7, or 12(c) and Texas Genco IPO.
Rule 46
Sections 13(a) and 13(b) Authorization for New REI to provide goods and services to the Utility
Subsidiaries, and affiliate service, sales and construction contracts,
generally.
* * *
Section 9(a)(2) of the Act makes it unlawful, without approval
of the Commission under Section 10, "for any person . . . to acquire, directly
or indirectly, any security of any public-utility company, if such person is an
affiliate . . . of such company and of any other public utility or holding
company, or will by virtue of such acquisition become such an affiliate."(54) As
set forth more fully below, the Restructuring complies with all of the
applicable provisions of Section 10 of the Act and should therefore be approved
by the Commission. Among other things:
(i) the Restructuring will not create detrimental
interlocking relations or concentration of control;
(ii) the Restructuring will not result in an unduly
complicated capital structure for the New REI group;
- ----------
(54) For purposes of Section 9(a)(2), an "affiliate" of a specified
company means "any person that directly or indirectly owns, controls, or holds
with power to vote, 5 per centum or more of the outstanding voting securities of
such specified company." Act Section 2(a)(11)(A).
22
(iii) the Restructuring is in the public interest and the
interests of investors and consumers;
(iv) the Restructuring is consistent with Sections 8 and
11 of the Act; and
(v) the Restructuring will comply with--and indeed is in
large part driven by the need to comply with--all
applicable state laws.
In considering this Application, the Commission should also recognize that the
Restructuring involves no acquisition of additional utility systems or assets
and no entry into new geographic areas or new businesses.
A. SECTION 10(b)
Section 10(b) of the Act provides that, if the requirements of
Section 10(f) are satisfied, the Commission shall approve an acquisition under
Section 9(a) unless the Commission finds that:
(1) such acquisition will tend towards interlocking
relations or the concentration of control of
public-utility companies, of a kind or to an extent
detrimental to the public interest or the interest of
investors or consumers;
(2) in case of the acquisition of securities or utility
assets, the consideration, including all fees,
commissions, and other remuneration, to whomsoever
paid, to be given, directly or indirectly, in
connection with such acquisition is no reasonable or
does not bear a fair relation to the sums invested in
or the earning capacity of the utility assets to be
acquired or the utility assets underlying the
securities to be acquired; or
(3) such acquisition will unduly complicate the capital
structure of the holding-company system of the
applicant or will be detrimental to the public
interest or the interest of investors or consumers or
the proper functioning of such holding-company
system.(55)
In this case, there is no basis for the Commission to make any adverse findings
under Section 10(b).
1. Section 10(b)(1)
The Restructuring will not give rise to any of the abuses that
Section 10(b)(1) was intended to prevent. The purpose of Section 10(b)(1) is to
prohibit utility acquisitions that result in an undue concentration of economic
power.(56) Although the Restructuring will reorganize the
- ----------
(55) Act Section 10(b).
(56) Section 10(b)(1) is intended to avoid "an excess of concentration
and bigness" that results in a "huge, complex and irrational holding company
systems." American Elec. Power Co.,
23
corporate relationships within the present REI system, it differs significantly
from the vast majority of transactions analyzed under Section 10(b)(1) in that
it will not involve the acquisition of additional utility systems or entry into
new geographic markets and therefore will not involve any additional
concentration of control of public-utility companies.
Further, the competitive effects of the Restructuring have
been considered at length by the Texas Commission. Indeed, REI has undertaken
the Restructuring in response to changes in Texas law designed to foster state
competitive policy and further state regulatory oversight. Following the
Restructuring, control of utility assets will not be more concentrated, but
instead will be more diffused as a result of the competitive policy of the State
of Texas. Moreover, it should be noted that the Restructuring involves no growth
or extension of the REI system as there will be no acquisition of additional
utility systems or assets. Nor does it create the potential for abuse in pricing
or production. To the contrary, the overall effect of the Restructuring is
decidedly pro-competitive.
For these reasons, the Restructuring will not tend towards
interlocking relations or the concentration of control of public-utility
companies of a kind or to the extent detrimental to the public interest or the
interests of investors or consumers.
2. Section 10(b)(2)
This matter involves an internal restructuring and so does not
implicate the question of "adequacy of consideration" in the same way that a
merger or acquisition of new properties would. In the context of corporate
restructurings, the Commission has found the requirements of Section 10(b)(2)
satisfied where the proportion of each shareholder's interest in the underlying
venture is unchanged as a result of the proposed reorganization.(57) In this
matter, the jurisdictional transactions, involving the reorganization of
existing utility operations, do not affect the proportion of each shareholder's
interest. Nor will the larger transaction, the separation of New REI and Reliant
Resources, affect the proportion of each shareholder's interest. At the
conclusion of the Restructuring, a shareholder with stock in REI will have
stock, in the same proportions, in two companies (New REI and Reliant
Resources).
The specific consideration for each of the constituent parts
of the Restructuring is explained in the text accompanying notes 18 through 22.
Of interest here, each of the Utility Subsidiaries will maintain greater than
30% common equity capitalization and, further, it is anticipated that the
electric and gas utility subsidiary companies issuing public debt will each
maintain an investment grade credit rating from one or more Nationally
Recognized Statistical
- ----------
HCAR No. 20633, 46 S.E.C. 1299, 1309 (July 21, 1978). As such, Section 10(b)(1)
is not concerned with a transaction such as the Restructuring which involves no
acquisition of additional utility systems or assets, but is confined to the
organization and relationships of integrated utilities.
(57) See Wisconsin Energy Corp., HCAR No. 24267, 1986 WL 626747 (Dec.
18, 1986) ("The proportion of each shareholder's ownership will be unchanged,
and the consideration is fair and reasonable.") Accord SIGCORP, Inc., HCAR No.
26431, 1995 WL 759826 (Dec. 14, 1995); Niagara Mohawk Holdings, Inc., HCAR No.
26986, 1999 WL 114400 (March 4, 1999).
24
Rating Organizations ("NRSROs"). Thus, both from a consumer as well as investor
perspective, the consideration will be fair and reasonable under the standards
of Section 10(b)(2).
The overall fees, commissions and expenses that REI and New
REI will incur in connection with the Restructuring, the amount of which will be
filed by amendment, will be reasonable and fair in light of the size and
complexity of the Restructuring and the anticipated benefits of the
Restructuring to the public, investors and consumers. Further, they will be
consistent with the percentages of such costs for previously approved, similar
transactions.(58) Therefore, they will meet the standards of Section 10(b)(2).
3. Section 10(b)(3)
Section 10(b)(3) requires the Commission to determine whether
the Restructuring will result in an unduly complicated New REI capital structure
or would be detrimental to the public interest, the interests of investors or
consumers, or the proper functioning of New REI's system.
It is contemplated that New REI will initially own 100% of the
common equity of each of Texas Genco LP, the T&D Utility and GasCo (the "Utility
Subsidiaries"). As noted above, to comply with Texas law, New REI plans to
conduct an initial public offering of approximately 20% of the common stock of
Texas Genco Holdings, Inc. or distribute such stock to its shareholders on or
before December 31, 2002. Creation of a minority public ownership interest in
Texas Genco Holdings, Inc. is one of the methods prescribed in the Texas Act for
the determination of stranded costs associated with REI's existing regulated
generation assets in Texas, and so should not be deemed to create an unduly
complicated capital structure within the meaning of Section 10(b)(3) of the Act.
Each of the Utility Subsidiaries will maintain greater than
30% common equity capitalization and, further, it is anticipated that the
electric and gas utility subsidiaries issuing public debt will each maintain an
investment grade credit rating from one or more NRSROs. New REI has received
indicative investment grade debt ratings from Moody's (Baa2) and Standard &
Poor's (BBB) for its senior unsecured debt. Further, New REI itself expects to
maintain an investment grade credit rating from one or more NRSROs.(59)
- ----------
(58) Compare CP&L Energy,, Inc. HCAR No. 27284, 2000 WL 1741681 (Nov.
27, 2000); NiSource, Inc., HCAR No. 27263, 2000 WL 1629977 (Oct. 30, 2000);
Exelon Corp., HCAR No. 27256, 2000 WL 1671969 (Oct. 19, 2000); Cinergy Corp.,
HCAR No. 26146, 1994 WL 596377 (Oct. 21, 1994); Entergy Corp., HCAR No. 25952,
1993 WL 541317 (Dec. 17, 1993); Northeast Utilities, HCAR No. 25548, 1992 WL
129531 (June 3, 1992).
(59) It is appropriate for the Commission to consider credit ratings in
determining whether a proposed transaction would be detrimental to the public
interest or the interest of investors or consumers, or the proper functioning of
the holding company system. NRSRO ratings are an important factor in many
regulations. For example, the Commission requires investment grade status for a
registrant seeking to register debt on Form S-3, and Investment Company Act Rule
3a-7 recognizes the role that NRSRO ratings play in the regulatory scheme where
structured
25
Immediately upon completion of the Electric Restructuring, New
REI on a consolidated basis will have greater than 30% common equity
capitalization. The Distribution of Reliant Resources stock, for which authority
is requested below, will significantly reduce the New REI system's common
equity. As explained herein, Applicants believe the Distribution is both
necessary and appropriate under the standards of the Act because it will have
the effect of reducing the business risk profile of the regulated business.
Further, New REI's capital structure will be improved significantly with the
sale of Texas Genco and securitization of any stranded investment that is
anticipated to occur in 2004. Net of securitization debt, New REI's projected
equity capitalization will be approximately 27% in 2005, and the growth of
equity as a percentage of capitalization is anticipated to continue in
subsequent years.(60)
In consideration of the above, Applicants ask the Commission
to consider the investment grade ratings which reflect certain underlying
indicators of financial stability, including:
(i) a growing, stable customer rate base, which the New
REI utilities have served for many years;
(ii) a state regulatory regime which has avoided the
mistakes of other deregulation plans by allowing for
a market adjustment of retail rates;
(iii) an abundance of power generation in Texas; and
(iv) the ability, under the Texas Commission orders, to
securitize utility assets and to service the related
structured finance obligations to the special
- ----------
finance, special purpose vehicles are concerned. See 17 C.F.R. Section 270.3a-7
(concerning issues of asset-backed securities). The Commission commented in that
context that "rating agency evaluations appear to address most of the
[Investment Company] Act's concerns about abusive practices, such as
self-dealing and overreaching by insiders, misvaluation of assets, and
inadequate asset coverage." Exclusion from the Definition of Investment Company
for Certain Structured Financings, ICAR No. 18736, 1992 WL 129535 at *9 (May 29,
1992).
Formal and informal recognition by the Commission of the importance of
NRSRO determinations is a well-understood, established theme in the fabric of
Commission regulation. As Investment Company Act Rule 3a-7 demonstrates, the
Commission has considerable authority to determine the extent to which it gives
weight to the factors underlying these ratings.
(60) If securitization debt is included, then New REI would have
consolidated equity capitalization of 15.9%, similar to that approved for PECO
Energy Company in Exelon Corporation, Holding Co. Act Release No. 27266. 2000 WL
1644531 (Nov. 2, 2000). In that matter, the order stated that "PECO's equity
ratio was approximately 16.3% as of June 30, 2000; however, Applicants indicate
that this is due to the issuance by PECO of transition bonds." In a footnote,
the Commission noted, "Moody's Investors Service, in a September 1999 ratings
review of PECO, state that it would treat PECO's transition bonds as fully
nonrecourse to PECO."
26
purpose entity formed for that financing through
transition charges which are creatures of state law.
The investment grade rating also reflects the fact that the Restructuring will
improve the "business risk profile" of the regulated companies. The
Restructuring will allow the market to distinguish between the risk profiles
associated with REI's two most significant lines of business, a fact recognized
by Standard & Poor's in its assessment of the business risk profile of REI
currently and each of New REI and Reliant Resources following the
Restructuring.(61) Whereas Standard & Poor's currently has assigned REI a
business risk profile of 5, it has assigned New REI a business risk profile of 3
(indicating a lower overall business risk) and Reliant Resources a business risk
profile of 7 to 8.
Under the Restructuring, New REI will remain almost in its
entirety a regulated business: (i) it will no longer be responsible for making
retail electric sales to customers, as that role will be the responsibility of
Reliant Resources' retail segment; (ii) the T&D Utility will be precluded by the
Texas Act from selling electricity at retail; and (iii) unlike the regulated
entity under most other deregulation schemes, the T&D Utility will have no
obligation to serve as a provider of last resort and will only provide the wires
and service to deliver the electricity from the generating company to the retail
provider's customers. Nor will the T&D Utility retain the utility power sourcing
obligation, which has traditionally been the origin of most risk for electric
utilities. Generation will be the obligation of separate power generation
companies, which incur the risks associated with obtaining fuel, constructing
new generating capacity and selling power to the retail providers. Although New
REI initially will retain the Texas Genco business as a separate subsidiary, it
will not have an obligation to construct additional generation capacity, nor
will it be responsible for sourcing power for retail customers.
Under the deregulation law, each power generator that is
unbundled from an integrated electric utility in Texas has an obligation to
conduct state-mandated capacity auctions of 15 percent of its capacity. In
addition, under a master separation agreement between REI and Reliant Resources,
Texas Genco is contractually obligated to auction all capacity in excess of the
- ----------
(61) A "business risk profile" is a metric used by Standard & Poor's to
analyze the strength of an individual company within a specific industry. In
developing a business risk profile of a company, Standard & Poor's analyzes the
characteristics of the particular industry in which that company is involved, as
well as the competitive position of that company relative to other companies
within the industry. The rating scales for business risk profiles differ
depending on the industry. Utilities are rated on a scale from 1 to 10, with 1
representing the least degree of risk. Companies with low business risk profiles
- - usually transmission/distribution companies - are scored 1 through 4 and are
considered to have "well above average" to "above average" business positions
relative to the utilities industry as a whole. Those companies facing greater
competitive threats - typically, power generating companies - are scored between
7 to 10, and are considered to have "below average" to "well below average"
business positions relative to others in the utilities industry. See Standard &
Poor's, Corporate Ratings Criteria 17 (2000). Effectively, the plan in this
matter allocates the business risks associated with the unregulated business to
Reliant Resources and the lower risks associated with regulated business to New
REI.
27
state-mandated capacity auctions. The auctions conducted periodically between
September 2001 and March 2002 were consummated at prices below those assumed by
the Texas Commission's ECOM model. Under the Texas restructuring law, a
regulated utility may recover any difference between market prices received
through the auction process and the Texas Public Utility Commission's earlier
estimates of those market prices. This difference, recorded as a regulatory
asset, produced the $141 million of earnings before interest and taxes ("EBIT")
in the first quarter of 2002.
Given the unique circumstances of this matter, including the
specific protections afforded by Texas law, Applicants believe that the proposed
transactions will not have an adverse effect on the Utility Subsidiaries, their
customers or the ability of their respective state regulators to protect these
companies and their customers. Based upon the foregoing, the Commission should
find that the standards of Section 10(b)(3) are satisfied.
B. SECTION 10(c)
Section 10(c) of the Act provides that, notwithstanding the
provisions of Section 10(b), the Commission shall not approve:
(i) an acquisition of securities or utility assets, or of
any other interest, which is unlawful under the
provisions of section 8 or is detrimental to the
carrying out of the provisions of section 11; or
(ii) the acquisition of securities or utility assets of a
public-utility or holding company unless the
Commission finds that such acquisition will serve the
public interest by tending towards the economical and
the efficient development of an integrated
public-utility system.(62)
In the Restructuring, REI is simplifying its corporate
structure for its regulated businesses and focusing on its core utility
operations consistent with state-imposed utility restructuring legislation.
Accordingly, the Commission should find that the standards of Section 10(c) are
satisfied. While the Restructuring does not implicate the concerns toward which
Section 10(c) is directed, the Applicants nevertheless provide the following
discussion, which demonstrates compliance with the technical requirements of
Sections 10(c), 8 and 11.
1. Section 10(c)(1)
Section 10(c)(1) requires that an acquisition be lawful under
Section 8 of the Act. Section 8 prohibits an acquisition by a registered holding
company of an interest in an electric utility and a gas utility that serve
substantially the same territory without the express approval of the state
commission when that state's law prohibits or requires approval of the
acquisition. In the present case, Section 8 is not implicated because the
Restructuring will not create any new situations of common ownership of
combination systems within a given state. Following the Restructuring, New REI
will continue to provide electric and gas utility services in the State of
- ----------
(62) Act Section 10(c).
28
Texas. Because the Texas Act does not prohibit combination gas and electric
utilities serving the same area, the Restructuring does not raise any issue
under Section 8 or the first clause of Section 10(c)(1).
In addition, Section 10(c)(1) directs the Commission to
disapprove an acquisition that would be detrimental to broad policies set forth
in Section 11 of the Act. Section 11(b)(1) generally requires a registered
holding company system to limit its operations "to a single integrated
public-utility system [either gas or electric], and to such other businesses as
are reasonably incidental, or economically necessary or appropriate to the
operations of such integrated public-utility system."(63) The Commission has
explained that "the limitation [set forth in Section 11(b)(1)] is intended to
eliminate evils that Congress found to exist 'when the growth and extension of
holding companies bears no relation to . . . the integration and coordination of
related operating properties.'"(64) The particular evil at which Section
11(b)(1) is directed is not presented in this case, as the Restructuring does
not involve any growth or extension of the REI system. The legislative history
makes clear that a central purpose of Section 11 is "simply to provide a
mechanism to create conditions under which effective Federal and State
regulation will be possible."(65) The disaggregation of the electric utility
operations in this matter is being undertaken to comply with the requirements of
Texas law while the GasCo Separation will provide greater transparency for the
regulators of the company's gas utility operations.
For this reason, the Restructuring is not at all detrimental
to the policy goals of Section 11(b)(1) of the Act.
New REI will also satisfy the technical requirements of
Section 10(c)(1) by reference to Section 11(b)(1). As discussed below, each of
the New REI gas and electric systems will be an "integrated public-utility
system" within the meaning of Section 2(a)(29) of the Act. It is contemplated
that the T&D Utility will comprise the "primary" integrated system and each of
the additional systems identified below (Texas Genco, Entex and
Arkla-Minnegasco) will be retainable under the (A)-(B)-(C) clauses of Section
11(b)(1) of the Act.(66) Further, the nonutility
- ----------
(63) Act Section 11(b)(1) (emphasis added).
(64) New Century Energies, Inc., HCAR No. 27212, 2000 WL 1160583 at
n.27 (Aug. 16, 2000) (quoting Act Section 1(b)(4)) [hereinafter "2000 NCE
Order"].
(65) S. Rep. No. 74-621 at 11 (1935).
(66) Section 2(a)(29) sets forth the definition of an "integrated
public-utility system," as applied to electric and gas utility companies.
Section 10(c)(2) of the Act prohibits the Commission from approving the
acquisition of utility assets unless it finds that the acquisition will "[tend]
towards the economical and the efficient development of an integrated
public-utility system." The Commission regularly considers the integration
requirement set forth in these two sections in a single integration analysis,
and the Applicants do so here. See, e.g., CP&L Energy, HCAR No. 27284, 2000 WL
1741681 at *8-16; NiSource, HCAR No. 27263, 2000 WL 1629977 at *14; Exelon, HCAR
No. 27256, 2000 WL 1671969 at *10; 2000 NCE Order, HCAR No. 27212, 2000 WL
1160583 at *9; New Centuries Energies, Inc., HCAR No. 26748, 1997 WL 429612 at
*9 (Aug. 1, 1997).
29
operations of New REI, both prior to and following the Reliant Resources
distribution, will be reasonably incidental, or economically necessary or
appropriate to New REI's primary utility business.(67)
(i) Integration of the electric utility operations
Section 2(a)(29)(A) of the Act defines the term "integrated
public-utility system," as applied to electric utility properties, as:
a system consisting of one or more units of generating plants
and/or transmission lines and/or distributing facilities,
whose utility assets, whether owned by one or more electric
utility companies, are physically interconnected or capable of
physical interconnection and which under normal conditions may
be economically operated as a single interconnected and
coordinated system confined in its operation to a single area
or region, in one or more States, not so large as to impair
(considering the state of the art and the area or region
affected) the advantages of localized management, efficient
operation, and the effectiveness of regulation.(68)
Upon completion of the Electric Restructuring, the electric utility assets of
REI will be divided between Texas Genco LP and the T&D Utility, each of which
will be an integrated electric utility system for purposes of the Act.
The REI electric utility operations are all physically
interconnected. They have been economically operated by a single entity as a
single interconnected and coordinated system. As a result of the separation
required by the Texas Act, the generation assets, on the one hand, and the
transmission and distribution assets, on the other, will be run as separate
systems, each of which will be an "integrated public-utility system" within the
meaning of Section 2(a)(29)(A).
Although technically separate systems for purposes of the 1935
Act, the Texas Genco LP and the T&D Utility will continue to be operated under
common senior management,
- ----------
(67) Attached as Exhibit G-3.1 is a list of New REI nonutility
subsidiary companies and the basis for retention of each.
(68) Act Section 2(a)(29)(A). On the basis of this statutory
definition, the Commission has established four standards that must be met
before it will find that an integrated public-utility system will result from a
proposed acquisition of securities: (i) the utility assets of the system must be
physically interconnected or capable of physical interconnection (the
"interconnection requirement"); (ii) the utility assets, under normal
conditions, must be economically operated as a single interconnected and
coordinated system (the "economic and coordinated operation requirement"); (iii)
the system must be confined in its operations to a single area or region (the
"single area or region requirement"); and (iv) the system must not be so large
as to impair (considering the state of the art and the area or region affected)
the advantages of localized management, efficient operation, and the
effectiveness of regulation (the "no impairment requirement").
30
the generation assets of the Texas Genco LP will be interconnected through the
transmission facilities of the T&D Utility; the combined operations will be
confined to the State of Texas, primarily a 5,000-square-mile area on the Texas
Gulf Coast; and the New REI customers will continue to enjoy the advantages of
localized management, efficient operations, and effective state regulation. The
Restructuring does not involve the acquisition or combination of any new utility
assets. Accordingly, the Restructuring is consistent with the requirements of
Section 10(c) with respect to REI's electric utility assets.
(i) Integration of the gas utility operations
With respect to gas utility properties, the term "integrated
public-utility system" is defined in Section 2(a)(29)(B) as:
a system consisting of one or more gas utility companies which
are so located and related that substantial economies may be
effectuated by being operated as a single coordinated system
confined in its operations to a single area or region, in one
or more States, not so large as to impair (considering the
state of the art and the area or region affected) the
advantages of localized management, efficient operation and
the effectiveness of regulation: Provided, That gas utility
companies deriving natural gas from a common source of supply
may be deemed to be included in a single area or region.(69)
Each standard of Section 2(a)(29)(B) must be read in connection with the other
provisions of the Section and in light of the facts under consideration.(70) In
recent orders, the Commission has noted developments that have occurred in the
gas industry, and has interpreted the Act and analyzed proposed transactions in
light of these changing circumstances.(71)
The GasCo system has operated historically with one central
management, both as a division of REI and prior to that as a stand-alone,
publicly-traded company. While GasCo conducts its gas distribution operations
through three unincorporated divisions, all significant management and
administrative functions, such as supply planning and gas acquisition services,
as well as financial, accounting, tax, purchasing and other essential management
functions are performed by a central management located in Houston.
For purposes of analysis under the 1935 Act, the Entex gas
utility operations can be viewed as constituting an integrated gas utility
system, and the Arkla-Minnegasco system can be viewed as constituting a second
integrated gas utility system.
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(69) Act Section 2(a)(29)(B).
(70) See NiSource, HCAR No. 27263, 2000 WL 1629977 at *15.
(71) Id. It should be noted that the Division has recommended that the
Commission "respond realistically to the changes in the utility industry and
interpret more flexibly each piece of the integration requirement." The 1995
Report of the Division of Investment Management on the Regulation of
Public-Utility Holding Companies (the "1995 Report") at 71.
31
Integration of the Entex gas utility operations
The Entex system currently satisfies the criteria set forth in
Section 2(a)(29)(B) and will continue to do so following the Restructuring. The
Entex system has operated historically as an integrated system with one central
management, both as a division of REI and prior to that as part of a
stand-alone, publicly-traded company. All significant management and
administrative functions, such as supply planning and gas acquisition services,
as well as financial, accounting, tax, purchasing and other essential management
functions are performed by a central management located in Houston - which is
the major metropolitan area served by the Entex system.
The system derives 51% of its gas supply from the South Texas
basin, 40% from the Western Gulf (coastal Texas, Louisiana and Mississippi) and
9% from the Mid-continent basin.
Finally, a finding that the Entex system constitutes an
integrated gas utility system will not impair localized management, efficient
operation, or effective regulation of GasCo. The local operations of the Entex
system will continue to be handled in the same manner as they are currently,
allowing managers to remain close to the gas operation and preserving the
advantages of local management while reaping the benefits of scale in certain
centralized functions such as gas procurement and operations support. Further,
the same state regulatory bodies will continue to exercise regulatory authority
over the Entex gas utility operations. For these reasons, the Commission should
conclude that the Entex system satisfies the integration requirements of Section
2(a)(29)(B) of the Act.
Integration of the Arkla-Minnegasco gas utility operations
The Arkla-Minnegasco system similarly satisfies the criteria
set forth in Section 2(a)(29)(B) currently and will continue to do so following
the Restructuring. The Arkla-Minnegasco system has operated historically as part
of an integrated system with one central management, both as a division of REI
and prior to that as part of a stand-alone, publicly-traded company. While the
Arkla-Minnegasco system conducts its gas distribution operations through two
unincorporated divisions, significant management and administrative functions
are performed by a central management located in Houston.
Further, the Arkla-Minnegasco system also procures natural gas
from a common source of supply and therefore is deemed under Section 2(a)(29)(B)
to operate in a single area or region.(72) The Commission has stated that its
consideration of "common source of supply" within the meaning of Section
2(a)(29)(B) is based on its understanding of the contemporary gas
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(72) The Commission has often previously found that systems separated
by intervening service territories are in the same region if they procure gas
from a common source of supply. See, e.g., NiSource, HCAR No. 27263, 2000 WL
1629977 at *17 (approving merger of two gas systems that were not contiguous);
NIPSCO Indus., HCAR 26975, 1999 WL 61423 at *7 (Feb. 10, 1999) (citing cases).
32
industry.(73) The Commission has stated that with respect to the concept of a
common source of supply, the relevant inquiry today is whether the system
utilities purchase substantial quantities of gas produced in the same supply
basins and whether there is sufficient transportation capacity available in the
marketplace to assure delivery on an economic and reliable basis.(74)
Arkla and Minnegasco have overlapping sources of gas supply.
Currently, a subsidiary of Reliant Resources sells gas to Minnegasco (18% of
supply) and Arkla (56% of supply). A majority of this gas is purchased from the
Mid-continent region. Arkla receives approximately 76% of its supply from the
Mid-continent region, Minnegasco receives approximately 64%.(75) In addition,
because of the centralized way in which GasCo conducts its bidding process for
gas supplies, the local distribution companies could receive supplies from other
common suppliers at any time. The Commission has stated that the risk sought to
be addressed by the "single area" or region requirement is the potential for
"scatteration" -- the ownership of widely dispersed utility properties that do
not lend themselves to efficient operation and effective state regulation.(76)
In the present case, there is no such risk as the Arkla-Minnegasco system as
part of GasCo will be managed, operated and regulated in the same manner both
before and after the Restructuring. For these reasons, the Arkla-Minnegasco
system satisfies the "single area or region" requirement.
Finally, a finding that the Arkla-Minnegasco system
constitutes an integrated gas utility system will not impair localized
management, efficient operation, or effective regulation of GasCo. The local
operations of the Arkla-Minnegasco system will continue to be handled in the
same manner as they are currently, allowing managers to remain close to the gas
operation and preserving the advantages of local management while reaping the
benefits of scale in certain centralized functions such as gas procurement and
operations support. Further, the same state regulatory bodies will continue to
exercise regulatory authority over the Arkla-Minnegasco gas
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(73) 2000 NCE Order, HCAR No. 27212, 2000 WL 1160583 at *18.
(74) 2000 NCE Order, HCAR No. 27212, 2000 WL 1160583 at *18 (citing
NIPSCO Indus., HCAR No. 26975, 1999 WL 61423). Compare NiSource, HCAR No. 27263,
2000 WL 1629977 at *17.
(75) These percentages are consistent with those approved in other
matters in which the Commission found an integrated gas utility system. See,
e.g., NIPSCO, supra (noting that each part of system "has contracted for a
significant percentage (36% and 27%, respectively) of its total 'firm'
transportation" on a common pipeline system); see also MCN Corp., HCAR No.
26576, 1996 WL 529043 (Sept. 17, 1996) (finding common source of supply where
the two existing Michigan utilities received 46% and 55%, respectively, of their
gas supply from two common basins).
(76) NiSource, HCAR No. 27263, 2000 WL 1629977 at *17. In this regard,
the Commission has noted that the Act is particularly directed against the
growth and extension of holding companies that bear no relation to the economy
of management and operation or the integration and coordination of related
operating properties and the lack of effective public regulation. Id. at n.33.
33
utility operations. For these reasons, the Commission should conclude that the
Arkla-Minnegasco system satisfies the integration requirements of Section
2(a)(29)(B) of the Act.
(ii) New REI will comprise a primary system (the T&D
Utility) and retainable additional systems (Texas
Genco, Entex and Arkla-Minnegasco)
It is most important to understand, first, that the
Restructuring will not involve the acquisition of new utility assets or
operations and, second, that the Commission implicitly passed on the
appropriateness of this particular combination of gas and electric utility
operation in 1997, when it granted REI an exemption under Section 3(a)(2) of the
Act in connection with its acquisition of NorAm.(77) Among other things, the
entire 5,000+ square mile service territory of the T&D Utility overlaps the gas
service territory of Entex and, from a management perspective, the electric
utility operations and Entex's Houston operations are operated under a combined
management. In terms of customers, approximately 925,000 of Entex's gas
customers are also electric customers of HL&P. There is also a close
relationship between the gas utility operations of Entex on the one hand, and
the Arkla-Minnegasco system on the other. The two systems both operate in Texas
and Louisiana, and are contiguous in East Texas. As a practical matter, the gas
and electric systems have been operated under common control since 1997 and
share, among other things, corporate services. The continued combination of
these operations will not give rise to any of the abuses, such as ownership of
scattered utility properties, inefficient operations, lack of local management
or evasion of state regulation, that Section 11(b)(1) of the Act was intended to
address. Further, Applicants believe that the proposed Restructuring will
facilitate the ability of state ratemaking authorities to carry out their
statutory duties.
As a technical matter, the T&D Utility will comprise the
primary system for purposes of analysis under Section 10(c)(1) by reference to
Section 11(b)(1) and each of the Texas Genco, Entex and Arkla-Minnegasco systems
(together, the "Additional Systems") will be a retainable additional system
under the (A)-(B)-(C) clauses of Section 11(b)(1).
Clause (A) requires that the additional system cannot be
operated as an independent system without loss of substantial economies. The
Commission, in recent years, has emphasized that recent industry developments,
such as the trend toward gas-electric convergence and the advent of retail
competition, must also be considered in the analysis under Clause (A).(78)
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(77) See Houston Indus., supra (finding that there was no detriment
under the "unless and except" clause).
(78) Exelon, HCAR No. 27256, 2000 WL 1671969 at *15 (citing cases); WPL
Holdings, Inc., HCAR No. 26856, 1998 WL 172800 (Apr. 14, 1998), aff'd, Madison
Gas & Elec. Co. v. SEC, 168 F.3d 1337 (D.C. Cir. 1999); TUC Holding Co., HCAR
No. 26749, 1997 WL 429581 (Aug. 1, 1997); New Century Energies, Inc., HCAR No.
26748, 1997 WL 429612 at *11. The courts have rejected challenges to the
Commission's new approach to Section 11 and reappraisal of its earlier
assumptions. See Madison Gas, 168 F.3d at 1344 & n.9 ("Although the petitioners
attack this change, they have failed to seriously draw in question the
Commission's reappraisal of its earlier assumptions. We therefore see no
objection to the change of viewpoint.").
34
The Commission has "recognized that significant economies and competitive
advantages inhere in the ownership of both gas and electric operations."(79)
Similarly, there are significant economies associated with the continued
ownership and operation of Texas generation.
Clause (B) requires that all additional systems be located in
the same state as, or in "adjoining states" to, the primary system. The
Commission has interpreted this language, consistent with its interpretation of
an integrated system under Section 2(a)(29), to reflect a policy against
"scatteration" - that is, the ownership of widely dispersed utility properties
that do not lend themselves to efficient operation and effective state
regulation. Thus, in Engineers, although there was arguably technical compliance
with the statute, the Commission rejected an interpretation that would have
permitted retention of a distant, additional system.(80)
The present case does not raise any concern of scatteration as
the Additional Systems are either located in or are contiguous to Texas. In
construing Clause (B), the Commission has regularly found separate systems to
satisfy Clause (B) where the service territories of the two systems at some
point overlap, are adjacent, or are in close proximity to one another.(81) The
combination of systems in this matter will closely resemble the model approved
in NiSource, that is, multi-state gas operations, electric operations confined
to a single state and both gas and electric utility operations in that single
state.(82)
Clause (C) requires that the combined systems be "not so large
(considering the state of the art and the area or region affected) as to impair
the advantages of localized management, efficient operation, or the
effectiveness of regulation." Again, it is important to consider that the
Restructuring will not involve the acquisition of any new utility assets, and
the existing systems are currently operating efficiently on a combined basis.
With respect to localized management, the management of the Utility Subsidiaries
is and will remain geographically close to the operations, thereby preserving
the advantages of localized management. From the standpoint of regulatory
effectiveness, the same state regulatory bodies will continue to exercise
regulatory authority over New REI and the Utility Subsidiaries following the
Restructuring as do currently. Far from impairing the advantages of efficient
operation, the continued combination of the gas and electric operations under
New REI will
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(79) CP&L Energy, HCAR No. 27284, 2000 WL 1741681 at *18; NiSource,
HCAR No. 27263, 2000 WL 1629977 at *19; Exelon, HCAR No. 27256, 2000 WL 1671969
at *15 (citing WPL Holdings, HCAR No. 26856); New Century Energies, Inc., HCAR
No. 26748, 1997 WL 429612; TUC Holding Co., HCAR No. 26749, 1997 WL 429581.
(80) Engineers Public Serv. Co., HCAR No. 2897, 1941 WL 1520 (July 23,
1941).
(81) See, e.g., NiSource, HCAR No. 27263, 2000 WL 1629977 at n.36
(finding Clause (B) satisfied where portions of two integrated systems generally
overlapped in a single state.
(82) The NiSource electrical system is located only in Indiana. The
NiSource gas system is located in Indiana, Ohio, Kentucky, Pennsylvania,
Maryland, Virginia, Massachusetts, New Hampshire and Maine.
35
facilitate and enhance the efficiency of the System's operations.(83) Thus, the
requirements of Clause (C) are satisfied.
(iii) Retention of nonutility businesses
Section 11(b)(1) permits a registered holding company to
retain "such other businesses as are reasonably incidental, or economically
necessary or appropriate to the operations of [an] integrated public-utility
system."(84) Under the cases interpreting Section 11, an interest is retainable
if (i) there is an operating or functional relationship between the operations
of the utility system and the non-utility business sought to be retained, and
retention is in the public interest; or (ii) if the business evolved out of the
system's utility business, the investment is not significant in relation to the
system's total financial resources, and the investment has the potential to
produce benefits for investors and/or consumers.(85) In addition, the Commission
has stated that "retainable non-utility interests should occupy a clearly
subordinate position to the integrated system constituting the primary business
of the registered holding company."(86) As set forth in Exhibit G-3, New REI's
nonutility interests, both before and after the Reliant Resources Distribution,
will meet the Commission's standards for retention. Applicants seek authority
for New REI to retain these nonutility interests. Attached as Exhibit G-3 is a
list of New REI's nonutility interests and the basis for retention of each.
(iv) The Restructuring will not result in an unduly
complicated corporate structure
In addition, Section 11(b)(2) of the Act requires the
Commission to ensure that "the corporate structure or continued existence of any
company in the [registered] holding-company system does not unduly or
unnecessarily complicate the structure, or unfairly or inequitably distribute
voting power among security holders, of such holding-company system." In a
number of recent matters involving registered holding companies, the Commission
has deemed it appropriate to "look through" intermediate holding companies or to
treat them as a single company for purposes of analysis under Section
11(b)(2).(87) The Commission reasoned
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(83) Compare discussion of Clause (C) in CP&L Energy, HCAR No. 27284,
2000 WL 1741681 at *17.
(84) Act Section 11(b)(1).
(85) CSW Credit, Inc., HCAR No. 25995, 1994 WL 65941 (Mar. 2, 1994);
Jersey Central Power & Light Co., HCAR No. 24348, 1987 WL 111988 (Mar. 18,
1987).
(86) United Light & Railways Co., HCAR No. 12317, 1954 WL 1381 at *7
(Jan. 22, 1954).
(87) National Grid, HCAR No. 27154, 2000 WL 279236; Exelon Corp., HCAR
No. 27259, 2000 WL 1568770 (Oct. 20, 2000). See also West Penn Ry. Co., HCAR No.
953, 1938 WL 32259 (Jan. 3, 1938) (authorizing continued existence of
intermediate holding company) and West Texas Util. Co., HCAR No. 4068, 1943 WL
30591 (Jan. 25, 1943) (reserving jurisdiction under section 11(b)(2) in
connection with acquisition creating a "great-grandfather" company). In National
Grid, the Commission explained that: "These decisions rest upon our
determination
36
that the use of such intermediate holding companies does not implicate the
abuses that Section 11(b)(2) was designed to address where, as here, the
intermediate holding companies will have no outside security holders, lenders or
customers. In this matter as in National Grid the Intermediate Holding Companies
will not serve as a means by which New REI seeks to diffuse control of the
Utility Subsidiaries. Rather, these companies will be created as special-purpose
entities for the sole purpose of helping the parties to capture economic
efficiencies that might otherwise be lost in the proposed Restructuring.(88)
For these reasons, the Commission should find that the
standards of Section 10(c)(1) are satisfied.
2. Section 10(c)(2)
The Commission's findings under Section 10(c)(2) are part of a
comprehensive pre-acquisition review under the Act. Section 10(c)(2) is intended
to ensure that an acquisition results in an integrated public-utility system,
and that economies and efficiencies will be produced as a result of the
transaction.(89) The Restructuring will create a new holding company above
integrated gas and electric systems, consistent with Commission precedent. It
will also involve the corporate separation of REI's electric utility operations
in compliance with Texas law and further, will result in the use of separate
corporate subsidiaries for the gas utility operations that are currently
conducted through divisions of GasCo. The question for the Commission is whether
the Restructuring further tends towards the economical and efficient development
of the integrated utility systems.
The "standard of section 10(c)(2) is elastic and . . . must be
applied against the background of the circumstances of each particular
case."(90) The Commission has previously determined that structural changes,
such as the Restructuring at issue here, can provide advantages that will tend
to produce economies and efficiencies in utility operations and benefit both
utility ratepayers and investors.(91) Although some of the anticipated economies
and efficiencies will be fully realizable only in the longer term, they are
properly considered in
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that the economic benefits associated with the additional corporate layers
outweighed the potential for harm and the possibility that there could be a
recurrence of the financial abuses that the Act was intended to eliminate." HCAR
No. 25154, 2000 WL 279236 at n.70.
(88) The corporate structure of New REI as it will exist after
completion of the Restructuring is included as Exhibit F-3 hereto. A discussion
of such economic efficiencies is included as Exhibit G-5 hereto.
(89) Wisconsin's Envtl. Decade, Inc. v. SEC, 882 F.2d 523, 528 (D.C.
Cir. 1989), quoting Union Elec. Co., 45 S.E.C. 489, 494 (April 10, 1974).
(90) Central U.S. Utilities, 8 S.E.C. 691, 701 (March 1, 1941). See
also American Elec. Power Co., Inc., HCAR No. 20633, 46 S.E.C. 1299.
(91) See, e.g., National Grid, HCAR No. 27154, 2000 WL 279236.
37
determining whether the standards of Section 10(c)(2) have been met.(92) While
some potential benefits -- such as the reduction in business risk -- cannot be
precisely estimated, they should be considered by the Commission.(93)
For the reasons that follow, the proposed Restructuring offers
advantages that will tend to produce economies and efficiencies in the operation
of New REI and its utility affiliates.(94)
Concerning the formation of New REI, the Court of Appeals has
noted that "the planned use of the holding company as a mechanism to maintain
appropriate capital levels is plainly related to the operation of the
utility."(95) The holding company structure offers a flexible means to adjust
the Utility Subsidiaries' capital ratios from time to time through dividends to,
or equity investments from, the holding company. This mechanism allows capital
ratios to be maintained at levels determined to be appropriate by state
regulatory authorities.
The Electric Restructuring, in particular, is necessary to
comply with the requirements of the Texas Act which reflects a legislative
finding that "it is in the public interest to implement on January 1, 2002, a
competitive retail electric market that allows each retail customer to choose
the customer's provider of electricity and that encourages full and fair
competition among all providers of electricity."(96)
The Restructuring will also facilitate the continued
implementation of various administrative measures designed to ensure economical
and efficient operation of New REI's utility operations. Following REI's
acquisition of NorAm (GasCo), REI initiated efforts to centralize many of the
activities and administrative functions of the gas and electric utility
operations. Accounting, treasury and human resources functions have been
centralized for Arkla, Entex and HL&P and preparations are underway for the
inclusion of Minnegasco in that centralization. REI is also in the process of
centralizing information systems, with that process to be completed in mid-2002.
Other functions, such as mapping and trenching for the gas and electric
utilities, are being combined.
And, finally, the GasCo Separation will provide greater
transparency concerning the gas utility operations and thus will facilitate the
work of state regulators.
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(92) See American Elec. Power Co., HCAR No. 20633, 46 S.E.C. 1299.
(93) See Centerior Energy Corp., HCAR No. 24073, 1986 WL 626506 at *7
(Apr. 29, 1986) ("[S]pecific dollar forecasts of future savings are not
necessarily required; a demonstrated potential for economies will suffice even
when these are not precisely quantifiable.").
(94) As explained in the discussion under Section 10(b)(3), the
distribution to shareholders of New REI's approximately 83% ownership interest
in Reliant Resources will improve the business risk profile of the remaining
regulated businesses.
(95) Wisconsin's Envtl. Decade, Inc., 882 F.2d at 527.
(96) Section 39.001 of the Texas Act.
38
C. SECTION 10(f)
Section 10(f) of the Act provides that:
The Commission shall not approve any acquisition as to which
an application is made under this section unless it appears to
the satisfaction of the Commission that such State laws as may
apply in respect of such acquisition have been complied with,
except where the Commission finds that compliance with such
State laws would be detrimental to the carrying out of the
provisions of section 11.(97)
As described in Item 4 of this Application, REI has obtained, or is in the
process of obtaining, orders from the affected state commissions. The Applicants
ask the Commission to reserve jurisdiction over the GasCo Separation pending
receipt of these orders.
D. SECTION 3(a)(1)
Section 3(a)(1) of the Act provides that the Commission
shall exempt any holding company, and every subsidiary company
thereof as such, from any provision or provisions of this
title, unless and except insofar as it finds the exemption
detrimental to the public interest or the interest of
investors or consumers, if such holding company, and every
subsidiary company thereof which is a public-utility company
from which such holding company derives, directly or
indirectly, any material part of its income, are predominantly
intrastate in character and carry on their business
substantially in a single State in which such holding company
and every such subsidiary company thereof are organized.(98)
Upon completion of the Electric Restructuring, Texas Genco Holdings, Inc. and GP
LLC will be Texas holding companies for New REI's generation operations which
will be conducted exclusively in Texas. Accordingly, Applicants request that the
Commission grant Texas Genco Holdings, Inc. and GP LLC each an exemption under
Section 3(a)(1) of the Act.
E. AFFILIATE TRANSACTIONS
Because it is contemplated that New REI will qualify for
exemption upon completion of the GasCo Separation and, further, that the
approvals necessary for that separation will be obtained within a year of the
Initial Order, the Applicants do not intend to form a service company. Instead,
REI will provide a variety of services to the New REI system companies, in areas
such as accounting, rates and regulation, internal auditing, strategic planning,
external relations, legal services, risk management, marketing, financial
services and information systems
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(97) Act Section 10(f).
(98) Act Section 3(a)(1).
39
and technology. Charges for all services will be on an at-cost basis, as
determined under Rules 90 and 91 of the Act.(99)
From time to time, system companies may provide to one another
goods or services on an "incidental" basis. All such arrangements will comply
with Section 13 of the Act and the Commission's rules and regulations
thereunder.
F. FINANCING REQUEST
1. Introduction
New REI, on behalf of itself and the Subsidiaries, requests
authorization to engage in the transactions set forth herein for a period of one
year from the date of the Initial Order (the "Authorization Period").(100) The
authorizations requested herein relate to:
(i) with respect to New REI: (a) securities issuances,
(b) guarantees of obligations of affiliated or
unaffiliated persons, including guarantees or support
of others for indebtedness, and (c) hedging
transactions, all as described below;
(ii) with respect to the Subsidiaries, issuances of
securities, guarantees and the entering into of
hedging transactions to the extent not exempt
pursuant to Rule 52;
(iii) the establishment of a New REI Group Money Pool (the
"Money Pool");
(iv) the continuation of certain existing financing
arrangements, guarantees and hedging arrangements,
including extending the terms of existing
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(99) Section 13(a) of the Act authorizes the Commission to exempt "such
transactions, involving special or unusual circumstances or not in the ordinary
course of business" from the general prohibition on a registered holding company
providing goods and services to subsidiary public-utility companies. Cf. Emera
Incorporated, HCAR No. 27445, 2001 WL 1159971 (Oct. 1, 2001) (authorizing
registered holding company to provide services for a limited period of time). If
New REI is unable to complete the GasCo Separation and qualify for exemption
within the Authorization Period, New REI will take such action as may be
necessary to ensure compliance with Commission precedent.
(100) For purposes of this Section E, the term "Subsidiary" shall mean
each directly and indirectly owned subsidiary of New REI as well as other direct
or indirect subsidiaries that New REI may form after the Electric Restructuring
with the approval of the Commission or in reliance on rules or statutory
exemptions. The term "Intermediate Holding Company" shall mean Utility Holding,
LLC, Texas Genco Holdings, Inc. and GP LLC. The term "Utility Subsidiaries," as
previously defined, shall mean Texas Genco LP, the T&D Utility and GasCo. The
term "Nonutility Subsidiary" shall mean any subsidiary company other than an
Intermediate Holding Company or a Utility Subsidiary.
40
obligations, and the assumption by New REI of other
existing financing arrangements, guarantees and
hedging arrangements;
(v) the payment of dividends out of capital or unearned
surplus;
(vi) the formation of financing entities (including
special purpose subsidiaries, or affiliates) and the
issuance by such entities of securities, including
intra-system guarantees of such securities and the
retention of existing financing entities; and
(vii) the ability of the nonutility Subsidiaries to
reorganize from time to time for tax and other
purposes.
2. Parameters for Financing Authorization
The requested financing authority is subject to the following
general terms and conditions:
(a) Effective Cost of Money
The effective cost of money on debt financings will not exceed
the greater of 500 basis points over the comparable term London Interbank
Offered Rate ("LIBOR") or market rates available at the time of issuance to
similarly-situated companies with comparable credit ratings for debt with
similar maturities and terms.
The dividend rate on any series of preferred securities will
not exceed the greater of 500 basis points over LIBOR or a rate that is
consistent with similar securities of comparable credit quality and maturities
issued by other companies.
(b) Maturity
The maturity of long-term debt will not exceed 50 years. All
preferred securities will be redeemed no later than 50 years after issuance.
(c) Issuance Expenses
The underwriting fees, commissions or other similar
remuneration paid in connection with the non-competitive issue, sale or
distribution of a security pursuant to this Application (not including any
original issue discount) will not exceed 5% of the principal or total amount of
the securities being issued.
41
(d) Investment Grade Credit Rating
All ratable long-term debt, preference securities and
preferred stock that is issued to third parties will, when issued, be rated
investment grade by an NRSRO.(101)
(e) Minimum Capitalization Ratios
Each of the Utility Subsidiaries will maintain common stock
equity as a percentage of capitalization of at least 30%.(102)
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(101)New REI requests the Commission reserve jurisdiction over its
issuance of any security that is rated below investment grade.
(102) As noted previously, immediately upon completion of the Electric
Restructuring, New REI on a consolidated basis will have greater than 30% common
equity capitalization. Although the Distribution of Reliant Resources stock will
significantly reduce the New REI's system's common equity, Applicants believe
the Distribution is both necessary and appropriate under the standards of the
Act because it will have the effect of reducing the business risk profile of the
regulated business. Further, New REI's capital structure will be improved
significantly with the sale of Texas Genco and securitization of any stranded
investment that is anticipated to occur in 2004. Net of securitization debt, New
REI's projected equity capitalization will be approximately 27% in 2005, and the
growth of equity as a percentage of capitalization is anticipated to continue in
subsequent years.
Actual results may be affected by a number of factors, including state or
federal legislative and regulatory developments, including deregulation,
re-regulation and restructuring of the electric utility industry and changes in
or application of environmental and other laws and regulations to which
Applicants are subject; industrial, commercial and residential growth in the
service territories; weather variations and other natural phenomena; and
political, legal and economic conditions and developments.
The Private Securities Litigation Reform Act of 1995 created a statutory safe
harbor for certain forward-looking statements. Pub. L. No. 104-67, 109 Stat.
737. See Section 27A of the Securities Act of 1933. The legislation codified and
expanded the Commission's long-standing administrative practice. See, e.g., SAR
No. 6084 (June 25, 1979) (adopting Rule 175 under the Securities Act to provide
a safe harbor for certain forward-looking statements made with a "reasonable
basis" and in "good faith"). The comprehensive nature of the Texas law and the
conservative nature of the assumptions underlying the projections establish that
these are not the type of "smoke and mirrors" pro forma statements criticized
recently by Commissioner Hunt. See Accountants as Gatekeepers - Adding Security
and Value to the Financial Reporting System, Arlington, Virginia (Oct. 26,
2001).
Accordingly, Applicants ask the Commission to consider the investment grade
ratings as evidence of financial stability during the one-year Authorization
Period requested in this filing.
42
3. Use of Proceeds
The proceeds from the sale of securities in external financing
transactions will be used for general corporate purposes including: the
financing, in part, of the capital expenditures of the New REI system;
refinancing existing obligations; the financing of working capital requirements
of the New REI system; the acquisition, retirement or redemption of securities
previously assumed or issued by New REI or its Subsidiaries without the need for
prior Commission approval; and other lawful purposes.
4. Proposed Financing Program
The aggregate amount of financing pursuant to the authority
requested by New REI, exclusive of guarantees and obligations assumed by New REI
at the time of the Electric Restructuring, shall not exceed $6 billion at any
one time outstanding during the Authorization Period. The types of securities
that New REI may issue are described more fully herein, subject to the following
limits:
Common stock $2 billion
Preferred securities $1 billion
Debt securities
Long-term debt $5 billion
Short-term debt $6 billion
The aggregate amount of external financing pursuant to the
authority requested by the Subsidiaries, exclusive of guarantees and exempt
financings, shall not exceed $4 billion at any one time outstanding during the
Authorization Period. The types of securities that the Subsidiaries may issue
are described more fully herein, subject to the following limits:
Common stock $1 billion
Preferred securities $1 billion
Debt securities
Long-term debt $4 billion
Short-term debt $3 billion
The aggregate amount of nonexempt guarantees shall not exceed
$2 billion for the New REI system at any one time outstanding during the
Authorization Period.(103)
5. Description of Specific Types of Financing
(A) New REI External Financing
As indicated on Exhibit G-7 hereto, upon completion of the
Electric Restructuring, New REI will have outstanding long-term debt,
obligations relating to tax-exempt debt issued by governmental authorities (such
as pollution control bonds) and obligations relating to trust preferred
securities issued by a subsidiary. In addition, New REI will have
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(103) This limit applies to guarantees of financial obligations but not
to performance guarantees entered into in the normal course of a system
company's duly-authorized business.
43
executed bank facilities that may be utilized in the form of direct borrowings,
commercial paper support or letters of credit.
New REI requests authorization to assume the debt and
obligations described in the previous paragraph and to replace the bank
facilities of REI subsidiary companies with bank facilities of New REI at the
time of the Electric Restructuring. In addition, New REI requests authority to
assume obligations under certain hedging transactions to manage its risk and for
other lawful purposes.
New REI also requests authority to issue and sell securities
including common stock, preferred securities (either directly or through a
subsidiary), long-term and short-term debt securities and convertible securities
and derivative instruments with respect to any of the foregoing. New REI also
requests authorization to enter into obligations with respect to tax-exempt debt
issued on behalf of New REI by governmental authorities. Such obligations may
relate to the refunding of outstanding tax-exempt debt or to the remarketing of
tax-exempt debt. New REI seeks authorization to enter into lease arrangements,
and certain hedging transactions in connection with the foregoing issuances of
taxable or tax-exempt securities.
(i) New REI External Financing: Common Stock
New REI is authorized under its restated articles of
incorporation to issue 1 billion shares of common stock, par value $.01 per
share, and related preferred stock purchase rights. Common stock issued by New
REI after completion of the Electric Restructuring will be valued, for purposes
of determining compliance with the aggregate financing limitation set out
herein, at its market value as of the date of issuance (or, if appropriate, at
the date of a binding contract providing for the issuance thereof).
New REI proposes, from time to time during the Authorization
Period, to issue and/or acquire in open market transactions or negotiated block
purchases, up to 7.5 million shares of New REI common stock for allocation under
certain incentive compensation plans and certain other employee benefit
plans.(104) Such acquisitions would comply with applicable law and Commission
interpretations then in effect.
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(104) New REI will assume the obligations of REI under existing plans.
REI maintains the Reliant Energy, Incorporated Savings Plan, a tax-qualified
defined contribution plan, which includes an employee stock ownership plan
intended to qualify under Sections 401(a), 401(k), 501(a) and 4975(e)(7) of the
Internal Revenue Code of 1986, as amended. Participants under the Savings Plan
may elect to invest any portion of their contributions to the Plan in the common
stock of the Company. REI maintains various long-term incentive plans to
attract, retain and provide incentives to certain employees selected for
participation by the Compensation Committee of the Board of Directors.
Generally, employee awards may be in the form of options to purchase company
common stock, stock appreciation rights, restricted or unrestricted grants of
common stock or units denominated in common stock or any other property or
grants denominated in cash. The vesting of such grants may be made subject to
the attainment of one or more performance goals.
44
New REI proposes, from time to time during the Authorization
Period, to issue and/or acquire in open market transactions or by negotiated
block purchases, up to 4 million shares of New REI common stock under the New
REI Investors' Choice Program (or any similar or successor program), attached as
Exhibit G-9 to this Application.
New REI has established a Stockholder Rights Plan under which
each share of its common stock will include one right to purchase from New REI a
fraction of a share of New REI preferred stock. The rights will be issued
pursuant to a rights agreement between New REI and a nationally-recognized bank
that will serve as the rights agent. As currently contemplated, the rights will
become exercisable shortly after (i) any public announcement that a person or
group of associated persons has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the outstanding shares of New REI common
stock; or (ii) the start of a tender or exchange offer that would result in a
person or group of associated persons becoming a 15% owner. New REI expects that
the Stockholder Rights Plan will also provide for the rights to be exercisable
for shares of (i) New REI common stock in the event of certain tender or
exchange offers not approved by the New REI board; and (ii) the common stock of
an acquiring company in the event of certain mergers, business combinations, or
substantial sales or transfers of assets or earning power. The rights will
attach to all certificates representing the outstanding shares of common stock
and will be transferable only with such certificates. The Stockholder Rights
Plan will provide for the rights to be redeemable at New REI's option prior to
their becoming exercisable and for the rights to expire at a date certain. The
terms of the New REI Stockholders Rights Plan will be described in greater
detail in the New REI Form S-4.
(ii) New REI External Financing: Preferred
Securities
New REI seeks to have the flexibility to issue its authorized
preferred stock or other types of preferred securities (including trust
preferred securities) directly or indirectly through one or more subsidiaries,
including special-purpose financing subsidiaries organized for such purpose. The
proceeds of preferred securities would provide an important source of future
financing for the operations of and investments in businesses in which New REI
or its Subsidiaries are authorized to invest.(105) Preferred stock or other
types of preferred securities may be issued in one or more series with such
rights, preferences, and priorities as may be designated in the instrument
creating each such series, as determined by New REI's board of directors, or a
pricing committee or other committee of the board performing similar functions.
Preferred securities may be redeemable and may be perpetual in duration.
Dividends or distributions on preferred securities will be made periodically and
to the extent funds are legally available for such purpose, but may be made
subject to terms which allow New REI to defer dividend payments for specified
periods. Preferred securities may be convertible or exchangeable into shares of
New REI common stock, other forms of equity or indebtedness, or into other
securities or assets.
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(105) Recently, the Commission approved a similar financing application
filed by Southern Company in which Southern Company requested approval to issue
preferred securities and long-term debt, directly or indirectly through
special-purpose financing entities. See Southern Co., HCAR No. 27134, 2000 WL
143332 (Feb. 9, 2000).
45
Preferred securities may be sold directly through underwriters
or dealers in any manner and for purposes similar to those described for common
stock above.
(iii) New REI External Financing: Long-Term Debt
Long-term debt securities could include notes or debentures
under one or more indentures (each, the "New REI Indenture") or long-term
indebtedness under agreements with banks or other institutional lenders directly
or indirectly. Long term securities could also include obligations relating to
the refunding or remarketing of tax-exempt debt issued on behalf of New REI by
governmental authorities. Long-term debt will be unsecured. Specific terms of
any borrowings will be determined by New REI at the time of issuance and will
comply in all regards with the parameters on financing authorization set forth
in above.
(iv) New REI External Financing: Short-Term Debt
New REI seeks authority to arrange short term financing,
including, but not limited to institutional borrowings, commercial paper and
privately-placed notes.
New REI may sell commercial paper or privately placed notes
("commercial paper") from time to time, in established domestic or European
commercial paper markets. Such commercial paper may be sold at a discount or
bear interest at a rate per annum prevailing at the date of issuance for
commercial paper of a similarly situated company.
New REI may, without counting against the limit on parent
financing set forth above, maintain back up lines of credit in connection with
one or more commercial paper programs in an aggregate amount not to exceed the
amount of authorized commercial paper.
Credit lines may also be set up for use by New REI for general
corporate purposes. Such credit lines may support commercial paper, may be
utilized to obtain letters of credit or may be borrowed against, from time to
time, as it is deemed appropriate or necessary.
(v) New REI External Financing: Risk Management
Devices
New REI requests authority to assume and to enter into hedging
arrangements intended to reduce or manage the volatility of financial or other
business risks to which New REI is subject, including, but not limited to,
interest rate swaps, caps, floors, collars and forward agreements or any other
agreements or derivative instruments intended to reduce or manage risks to which
New REI is or may become exposed ("Hedging Instruments"). The transactions would
be for fixed periods and stated notional amounts. New REI may employ interest
rate hedges and other derivatives as a means of prudently managing the risk
associated with any of its outstanding debt issued pursuant to this
authorization or an applicable exemption by, in effect, synthetically (i)
converting variable rate debt to fixed rate debt; (ii) converting fixed-rate
debt to variable rate debt; (iii) limiting the economic or accounting impact of
changes in interest rates resulting from variable rate debt; and (iv) managing
other risks that may attend outstanding securities. Transactions will be entered
into for fixed or determinable periods. Thus, New REI
46
will not engage in speculative transactions. New REI will only enter into
agreements with counterparties having a senior debt rating at the time the
transaction is executed of at least investment grade as published by a NRSRO
("Approved Counterparties"), unless adequate security is presented.
In addition, New REI requests authorization to assume and to
enter into hedging transactions with respect to anticipated debt offerings (the
"Anticipatory Hedges"), subject to certain limitations and restrictions.
Anticipatory Hedges will only be entered into with Approved Counterparties, and
will be used to fix and/or limit the risk associated with any issuance of
securities through appropriate means, including (i) forwards and futures (a
"Forward Sale"); (ii) the purchase of put options (a "Put Options Purchase");
(iii) a purchase of put options in combination with the sale of call options (a
"Collar"); (iv) some combination of a Forward Sale, Put Options Purchase, Collar
and/or other derivative or cash transactions, including, but not limited to
structured notes, caps and collars, appropriate for the Anticipatory Hedges; or
(v) other financial derivatives or other products including Treasury rate locks,
swaps, forward starting swaps, and options on the foregoing. Anticipatory Hedges
may be executed on-exchange ("On-Exchange Trades") with brokers through the
opening of futures and/or options positions traded on the Chicago Board of Trade
("CBOT"), "off-exchange" through the execution of agreements with one or more
counterparties ("Off-Exchange Trades"), or a combination of On-Exchange Trades
and Off-Exchange Trades. New REI or a Subsidiary will determine the optimal
structure of each Anticipatory Hedge transaction at the time of execution. New
REI or a Subsidiary may decide to lock in interest rates and/or limit its
exposure to interest rate increases.
New REI and its Subsidiaries seek authority to modify the
terms and conditions of any Hedging Instruments or Anticipatory Hedges that are
put in place prior to the Electric Restructuring.
New REI and its Subsidiaries will comply with Statement of
Financial Accounting Standards ("SFAS") 133 ("Accounting for Derivatives
Instruments and Hedging Activities") and SFAS 138 ("Accounting for Certain
Derivative Instruments and Certain Hedging Activities") or other standards
relating to accounting for derivative transactions as are adopted and
implemented by the Financial Accounting Standards Board.
(B) Subsidiary External Financings
As indicated on Exhibit G-8 hereto, the Utility Subsidiaries
will have outstanding long-term debt and trust preferred securities upon
completion of the Electric Restructuring. In addition, the Utility Subsidiaries
will have a receivables facility and bank facilities that may be utilized in the
form of direct borrowings, commercial paper support or letters of credit.
To the extent such transactions are not otherwise exempted,
the Subsidiaries request authority to issue and sell securities, including
common equity, preferred securities (either directly or through a subsidiary),
long-term and short-term debt securities and derivative instruments with respect
to any of the foregoing on the same terms and conditions discussed above for New
REI, except that Subsidiary debt may be secured or unsecured. The Subsidiaries
also request authorization to enter into obligations with respect to tax-exempt
debt issued on
47
behalf of a Subsidiary by governmental authorities in connection with the
refunding of outstanding tax-exempt debt assumed by New REI at the time of the
Electric Restructuring. The Subsidiaries also request authority to enter into
hedging transactions to manage their risk in connection with the foregoing
issuance of securities.
(C) Guarantees, Intra-system Advances and
Intra-System Money Pool
(i) Guarantee and Intra-system Advances
New REI requests authorization to enter into guarantees,
obtain letters of credit, enter into expense agreements or otherwise provide
credit support with respect to the obligations of its Subsidiaries and to enter
into guarantees of non-affiliated third party obligations in the ordinary course
of New REI's business ("New REI Guarantees") in an amount, together with the
Subsidiary Guarantees (defined below), not to exceed $2 billion outstanding at
any one time (not taking into account obligations exempt pursuant to Rule 45).
Any such guarantees shall also be subject to the limitations of Rule 53(a)(1) or
Rule 58(a)(1), as applicable.
Certain of the guarantees referred to above may be in support
of obligations that are not capable of exact quantification. In such cases, New
REI will determine the exposure under such guarantee by appropriate means
including estimation of exposure based on loss experience or projected potential
payment amounts. As appropriate, such estimates will be made in accordance with
generally accepted accounting principles and/or sound financial practices.
(ii) Subsidiary Guarantees
The Utility Subsidiaries request authority to provide to other
Subsidiaries guarantees and other forms of credit support, subject to the terms
and conditions outlined above.106
Each of the Intermediate Holding Companies also seeks
authority to issue guarantees and other forms of credit support to direct and
indirect subsidiary companies, subject to the terms and conditions outlined
above.
(iii) Authorization and Operation of the Money
Pool
New REI will establish and manage a centralized system of
intercompany borrowings and investments (the "Money Pool") which will be used as
a short-term cash management system by New REI and its Subsidiaries.
Participants in the Money Pool will include New REI and certain subsidiaries of
New REI. New REI will not borrow from the Money Pool
- ----------
(106) It is contemplated that the Nonutility Subsidiaries will rely on
the exemptions provided by Rules 45 and 52.
48
(iv) Other Intra-System Financing
The Utility Subsidiaries may also finance their capital needs
through borrowings from New REI, directly or indirectly through one or more
Intermediate Holding Companies.
Each of the Intermediate Holding Companies requests authority
to issue and sell securities to their respective parent companies and to acquire
securities from their subsidiary companies.
(D) Changes in Capital Stock of Majority Owned
Subsidiaries
Request is made for authority to change the terms of any 50%
or more owned Subsidiary's authorized capital stock capitalization or other
equity interests by an amount deemed appropriate by New REI or other
intermediate parent company. A Subsidiary would be able to change the par value,
or change between par value and no-par stock, without additional Commission
approval. Any such action by a Utility Subsidiary would be subject to and would
only be taken upon the receipt of any necessary approvals by the state
commission in the state or states where the Utility Subsidiary is incorporated
and doing business.(107) New REI will be subject to all applicable laws
regarding the fiduciary duty of fairness of a majority shareholder to minority
shareholders in any such 50% or more owned Subsidiary and will undertake to
ensure that any change implemented under this paragraph comports with such legal
requirements.
(E) Payment of Dividends out of Capital or Unearned
Surplus
As a result of the accounting treatment for the Restructuring,
New REI and the Subsidiaries is requesting authority to declare and pay
dividends out of capital or unearned surplus. To assure that the Utility
Subsidiaries have sufficient cash to support their businesses, the dividends
paid by these entities will not exceed 75% of net income, based on a rolling
five-year average. Although the dividend policy of New REI has not been finally
determined, it is contemplated that New REI will seek to maintain a pay-out
ratio comparable to that of REI currently.
(F) Financing Subsidiaries
New REI proposes to organize and acquire, directly or
indirectly, the common stock or other equity interests of one or more
subsidiaries (collectively, the "Financing Subsidiary") for the purpose of
effecting various financing transactions from time to time through the
Authorization Period involving the issuance and sale of up to an aggregate of $1
billion (cash proceeds to New REI or the respective subsidiary company) in any
combination of common stock, preferred securities, debt securities, stock
purchase contracts and stock purchase units, as well as its common stock
issuable pursuant to such stock purchase contracts and stock purchase units, all
as defined below and described herein. Any security issued pursuant to the
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(107) See New Century Energies,, HCAR No. 26750, 1997 WL 429588;
Conectiv, HCAR No. 26832, 1998 WL 78803; Dominion Resources, HCAR No. 27112,
1999 WL 1206667; SCANA Corp., HCAR No. 27135, 2000 WL 158996.
49
authority granted in this File will be appropriately disclosed in the system's
financial statements. No Finance Subsidiary shall acquire or dispose of,
directly or indirectly, any interest in any utility asset, as that term is
defined under the Act, without first obtaining such further approval as may be
required.
The business of the Financing Subsidiary will be limited to
effecting financing transactions for New REI and its associates. In connection
with such financing transactions, New REI or the Subsidiaries may enter into one
or more guarantee or other credit support agreements in favor of the Financing
Subsidiary.
Any Finance Subsidiary organized pursuant to this File shall
be organized only if, in management's opinion, the creation and utilization of
such Finance Subsidiary will likely result in tax savings, increased access to
capital markets and/or lower cost of capital for New REI or the Subsidiaries.
The ability to use finance subsidiaries in financing
transactions can sometimes offer increased state and/or federal tax efficiency.
Increased tax efficiency can result if a finance subsidiary is located in a
state or country that has tax laws that make the proposed financing transaction
more tax efficient relative to the sponsor's existing taxing jurisdiction. For
example, foreign finance subsidiaries, depending upon the identity of the
borrowers, can often earn income that is not subject to current U.S. federal
income taxation. However, decreasing tax exposure is usually not the primary
goal when establishing a finance subsidiary. Because of the potential
significant non-tax benefits of such transactions, discussed below, use of a
financing subsidiary can benefit an issuer even without a net improvement in its
tax position.
Financing subsidiaries can increase a company's ability to
access new sources of capital by enabling it to undertake financing transactions
with features and terms attractive to a wider investor base. Financing
subsidiaries can be established in jurisdictions and/or in forms that have terms
favorable to its sponsor and that at the same time provide targeted investors
with attractive incentives to provide financing. Many of these investors would
not be participants in the sponsor's bank group, and they typically would not
hold sponsor bonds or commercial paper. Thus they represent potential new
sources of capital.
One aspect of transactions involving finance subsidiaries is
that they can enable a more efficient allocation of risks among investors and
the sponsor, resulting in a lower all-in financing rate. In a simple example,
finance subsidiaries can be used to securitize specific assets, or pools of
assets, at reasonable-to-attractive rates. The financing cost could be lower
because the assets may have a unique risk profile that is especially appealing
to specific investors, or because the diversification achieved by pooling assets
reduces the total level of risk.
New REI will file, on a quarterly basis corresponding with the
periodic reporting requirements of the Securities Exchange Act of 1934, the
information required pursuant to Rule 24 with respect to any Finance Subsidiary
organized or otherwise acquired pursuant to this File. Such filings, if any,
will include a representation that the financial statements of New REI shall
account for any Finance Subsidiary in accordance with generally accepted
accounting principles and shall further disclose, with respect to any such
subsidiary, (i) the name of the subsidiary; (ii)
50
the value of New REI's investment account in such subsidiary; (iii) the balance
sheet account where the investment and the cost of the investment are booked;
(iv) the amount invested in the subsidiary by New REI; (v) the type of corporate
entity; (vi) the percentage owned by New REI; (vii) the identification of other
owners if not 100% owned by New REI; (viii) the purpose of the investment in the
subsidiaries; and (ix) the amounts and types of securities to be issued by the
subsidiaries. Regardless if any such duty to file is triggered, New REI will
maintain sufficient internal controls to enable it to monitor the creation and
use of any such entity.
Each of New REI and the Subsidiaries also requests
authorization to enter into an expense agreement with its respective financing
entity, pursuant to which it would agree to pay all expenses of such entity. Any
amounts issued by such financing entities to third parties pursuant to this
authorization will be included in the additional external financing limitation
authorized herein for the immediate parent of such financing entity. However,
the underlying intra-system mirror debt and parent guarantee shall not be so
included.(108)
REI currently has two financing subsidiaries ("FinanceCos")
with external debt. The FinanceCos are Delaware limited partnerships whose
limited partnership interests are wholly-owned, directly or indirectly, by REI.
Each of the FinanceCos has issued debt, the proceeds of which have been used to
purchase separate series of cumulative preference stock of REI. Dividends on the
preference stock accrue based on the net interest requirements on the debt,
subject to reduction of any payments previously made by REI under REI support
agreements relating to each series of debt. After giving effect to this credit,
REI must pay aggregate cash dividends on the preference stock equal to the
lesser of the aggregate amount of interest then payable on the debt or its
excess cash flow (excess funds of REI remaining after taking into account its
cash requirements and other expenditures required by sound utility financial and
management practices).
(G) Authority to Reorganize Nonutility Interests
New REI proposes to restructure its nonutility interests from
time to time as may be necessary or appropriate. New REI will engage, directly
or indirectly, only in businesses that are duly authorized, whether by order,
rule or statute.
G. OTHER AUTHORITY
1. Distribution of Reliant Resources Stock to Shareholders
Upon completion of the Electric Restructuring and subject to
board approval, market and other conditions, New REI will distribute all of the
shares its owns in Reliant
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(108) The authorization sought herein with respect to financing
entities is substantially the same as that given to New Century Energies and
others. See New Century Energies, HCAR No. 26750, 1997 WL 429588; Conectiv, HCAR
No. 26832, 1998 WL 78803; Cinergy Corp., HCAR No. 26984 1999 WL 101873 (Mar. 1,
1999); Dominion Resources, HCAR No. 27112, 1999 WL 1206667; and SCANA Corp.,
HCAR No. 27135, 2000 WL 158996.
51
Resources to New REI's shareholders, effecting the separation of operations into
two unaffiliated publicly-traded corporations.
Prior to the initial public offering of Reliant Resources'
common stock, Reliant Energy entered into a Master Separation Agreement and
associated ancillary agreements with Reliant Resources providing for the
separation of their businesses.(109) These agreements generally provided for the
transfer to Reliant Resources of assets relating to Reliant Resources' business,
and the assumption by Reliant Resources of associated liabilities.
The Master Separation Agreement provides for the separation of
Reliant Energy's assets and businesses from those of Reliant Resources. It also
provides for cross-indemnities intended to place sole financial responsibility
on Reliant Resources and its subsidiaries for all liabilities associated with
the current and historical businesses and operations they conduct, regardless of
the time those liabilities arise, and to place sole financial responsibility for
liabilities associated with REI's other businesses with REI and its other
subsidiaries. REI and Reliant Resources also agreed to assume and be responsible
for specified liabilities associated with activities and operations of the other
party and its subsidiaries to the extent performed for or on behalf of their
respective current or historical businesses. The Master Separation Agreement
also contains indemnification provisions under which REI and Reliant Resources
will each indemnify the other with respect to breaches by the indemnifying party
of the Master Separation Agreement or any ancillary agreements.
The Master Separation Agreement requires Texas Genco (and,
prior to the Electric Restructuring, REI) to auction capacity remaining after it
conducts the mandated auctions of its capacity required by the Texas
restructuring law. After certain deductions, Reliant Resources has the right to
purchase 50% (but no less than 50%) of the capacity that would otherwise be
auctioned at the prices to be established in the auctions required by the Master
Separation Agreement.
The Master Separation Agreement also requires Reliant
Resources to make a payment to REI equal to the amount, if any, required to be
credited to REI Energy by Reliant Resources REPs pursuant to Texas law. This
payment, which is sometimes referred to as the "clawback" payment, will be
required unless 40% or more of the amount of electric power that was consumed
before the onset of retail competition by residential or small commercial
customers within HL&P's service territory is being served by retail electric
providers other than Reliant Resources by January 1, 2004. The payment by
Reliant Resources will be the lesser of (a) the amount that the price to beat,
less non-bypassable delivery charges, is in excess of the prevailing market
price of electricity during such period per customer or (b) $150, multiplied by
the number of residential or small commercial customers in HL&P's service
territory that are buying electricity at the price to beat on January 1, 2004
less the number of new customers obtained by Reliant Resources outside HL&P's
service area.
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(109) The Master Separation Agreement and ancillary agreements were
filed as exhibits to the Annual Report on Form 10-K of REI (Commission File
Number 1-3187) and GasCo (Commission File Number 1-13265) for the fiscal year
ended December 31, 2001, filed with the Commission on April 15, 2002 and
incorporated by reference herein.
52
The Master Separation Agreement contains provisions relating
to certain nuclear decommissioning assets, the exchange of information,
provision of information for financial reporting purposes, dispute resolution,
and provisions limiting competition between the parties in certain business
activities and provisions allocating responsibility for the conduct of
regulatory proceedings and limiting positions that may be taken in legislative,
regulatory or court proceedings in which the interests of both parties may be
affected.(110)
As noted above, the Distribution will significantly reduce the
New REI's system's common equity. Applicants believe, however, that the
Distribution is both necessary and appropriate under the standards of the Act
because it will have the effect of reducing the business risk profile of the
regulated business. Further, New REI's capital structure will be improved
significantly with the sale of Texas Genco and securitization of any stranded
investment that is anticipated to occur in 2004. Net of securitization debt, New
REI's projected equity capitalization will be approximately 27% in 2005, and the
growth of equity as a percentage of capitalization is anticipated to continue in
subsequent years.
The allocation of REI's debt between New REI and Reliant
Resources is the product of several factors: the provisions governing treatment
of the debt under the existing indentures, the business goals underlying the
Restructuring (largely the need to have investment grade ratings at both New REI
and Reliant Resources), and regulatory requirements imposed by the Texas Act
that contributed to the ultimate structure adopted. A substantial portion of
REI's debt and the movement of that debt is governed by existing indentures that
do not permit REI to determine where individual debt obligations will reside.
Instead, these indentures generally provide that the obligor will be the entity
that ultimately holds all or substantially all of the relevant assets Following
the Restructuring, New REI will continue to hold nearly all the mortgaged
assets. Although certain of the indebtedness remaining at New REI was not
incurred under the indentures, an attempt to allocate debt away from New REI
would not be consistent with the preservation of the investment grade ratings of
both companies which is a fundamental premise of the transaction.
As a result, New REI will carry the debt that has been
created, either at the old holding company (before REI's acquisition of NorAm)
or to fund unregulated businesses through the financing subsidiary structure. By
its terms, this debt either moves to the new holding company with the transfer
of "all or substantially all" of the assets, or remains where it currently
resides (e.g., the utility first mortgage bonds, which must remain where the
assets securing them reside, and debt of the financing subsidiaries, which by
its terms must remain with a subsidiary of REI).
Here, as in Southern Company, Holding Co. Act Release No.
27303 (Dec. 15, 2000), management has determined that its existing and potential
shareholders would prefer the
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(110) REI and Reliant Resources entered into several other agreements
pursuant to the Master Separation Agreement. These agreements include an
employee matters agreement, which addresses asset and liability allocation
relating to Reliant Resources' employees and their continued participation in
Reliant Energy's benefit plans.
53
opportunity to select between a predominantly traditional public utility holding
company system and an exempt project-oriented business such as Reliant
Resources. Applicants believe that the Distribution will result in benefits
accruing both to the shareholders of REI and to the public through the reduced
business risk for the regulated operations. Applicants expect that the benefits
to New REI and its Utility Subsidiaries and to Reliant Resources will be
comparable to those typical of distributions of business units.(111)
Also as in Southern Company, none of the indemnification
provisions of the Master Separation Agreement and ancillary agreements is an
"extension of credit or indemnity" within the meaning of the Act. The provisions
are consistent with the standards of the Act, including Section 12 in its
entirety. When a party contractually agrees to bear responsibility for a portion
of a transaction, the resulting indemnification for claims does not constitute
an extension of credit and is not therefore an "indemnity" agreement within the
meaning of Section 12(a) of the Act. With respect to Section 12(a), the
Commission has recognized that the creation of bona fide reciprocal obligations
does not give rise to the extensions of credit that the Act was intended to
prohibit. Southern Company, supra; Mississippi Valley Generating Co. v. United
States, 175 F. Supp. 505, 520-21 (Ct. Claims 1959), affirming Mississippi Valley
Generating Co., Holding Co. Act Release No. 12794 (Feb. 9, 1955).
Accordingly, Applicants seek authority under Section 12(c)
and, to the extent applicable, 12(f) for the Distribution.
2. Sale or Distribution of Stock of Texas Genco Holdings, Inc.
In accordance with the provisions of the Texas Act relating to
the determination of stranded costs, it is anticipated that Texas Genco
Holdings, Inc. will conduct an initial public offering ("IPO") of approximately
20% of its capital stock by the end of 2002. In the alternative, New REI may
distribute approximately 20% of the common stock of Texas Genco Holdings, Inc.
to New REI shareholders in a taxable transaction, again as a means of valuing
stranded costs. The IPO will require Commission approval under Section 12(d).
The distribution may require approval under Section 12(c). No other regulatory
approvals are required. Again, Applicants believe that the authority sought in
this regard is consistent with that granted the Southern Company in File No.
70-9727. Accordingly, the Applicants ask that the Commission authorize the sale
or distribution of the stock of Texas Genco Holdings, Inc., as outlined above as
part of the Initial Order.
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(111) As noted previously, REI and Reliant Resources also entered into
an agreement under which, subject to the completion of the Distribution, Reliant
Resources will have an option to purchase all of the shares of capital stock of
Texas Genco owned by New REI after the initial public offering or distribution
of no more than 20% of Texas Genco's capital stock. The Texas Genco Option may
be exercised between January 10, 2004 and January 24, 2004. The purchase of the
shares of Texas Genco common stock upon exercise of the Texas Genco Option by
Reliant Resources will be subject to various regulatory approvals. The
Applicants are not seeking authority in connection with an exercise of the Texas
Genco Option at this time.
54
3. Rule 53 and 54 Analysis
(A) Rule 53 Requirements
Rule 53 provides that, if each of the conditions of paragraph
(a) thereof is met, and none of the conditions of paragraph (b) thereof is
applicable, then the Commission may not make a finding that the issuance or sale
of a security by a registered holding company for the purposes of financing the
acquisition of an exempt wholesale generator ("EWG") or the guarantee of a
security of an EWG by a registered holding company is not reasonably adapted to
the earning power of such company or to the security structure of the companies
in the holding company system, or that the circumstances are such as to
constitute the making of such guarantee an improper risk for the company.
Generally, paragraph (a) limits the aggregate amount invested in EWGs and FUCOs
to not more than 50% of the holding company's consolidated retained earnings.
Paragraph (b) relates to certain events of bankruptcy and recent significant
declines in the amount of consolidated retained earnings.
Effective December 1, 2000 (Measurement Date), REI's board of
directors approved a plan to dispose of its Latin America and Indian business
segment through sales of assets. At the time, REI's major Latin America
investments consisted of interests in cogeneration projects, utilities and other
power projects in Argentina, Brazil and Colombia. Its Indian investment consists
of a minority interest in a coke calcining plant ("Rain"). REI began disposing
of these assets and reporting the results of the associated business segment as
"discontinued operations" in its 2000 consolidated financial statements in
accordance with Accounting Principles Board Opinion No. 30 "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," ("APB Opinion No. 30").
By December 2001, REI had disposed of all of its Latin America
assets except for its Argentine investments, which consist of a 100% interest in
a corporation formed to develop, own and operate a 160 MW cogeneration project
("Argener") located at a steel plant near San Nicolas, Argentina and a 90%
interest in a utility in north-central Argentina ("EDESE"). REI was in
negotiations to dispose of Argener and EDESE, but the negotiations terminated in
December 2001 in light of recent adverse economic developments in Argentina.
Under applicable accounting rules, because REI was not able to dispose of
Argener and EDESE, and Rain within one year of the Measurement Date, its
remaining investments are no longer classified as discontinued operations, and
the related amounts have been reclassified into continuing operations.
As of December 31, 2001, the pro forma consolidated amount of
New REI's post-Distribution aggregate investment in EWGs and FUCOs as that term
is defined in Rule 53 was $8 million.(112) It is not contemplated that New REI,
which is continuing to attempt to dispose of
- ----------
(112) Immediately upon completion of the Electric Restructuring,
pending the Distribution, New REI will have approximately $7 billion in
additional aggregate investment, representing Reliant Resources' holdings in
EWGs and FUCOs. This additional aggregate investment will be eliminated by the
Distribution. In addition, even if the Distribution were not to occur, it is
55
these interests, will issue and sell securities to finance additional
investments in or operations of EWGs and FUCOs; nor will it provide any
guarantees thereof.
(B) Rule 54 Analysis
Rule 54 states that in determining whether to approve the
issue or sale of a security by a registered holding company for purposes other
than the acquisition of an EWG or FUCO, or other transactions by such registered
holding company or its subsidiaries other than with respect to EWGs or FUCOs,
the Commission shall not consider the effect of the capitalization or earnings
of any subsidiary which is an EWG or FUCO upon the registered holding company
system if Rules 53(a), (b) and (c) are satisfied. As a result of the accounting
treatment for the Distribution, it is anticipated that immediately upon
completion of the Distribution, New REI may have no consolidated retained
earnings. Accordingly, the Commission can properly consider the capitalization
and earnings of any EWG or FUCO investment.
4. Filing of Certificates of Notification
It is proposed that, with respect to New REI, the reporting
systems of the Securities Exchange Act of 1934, as amended (the "1934 Act") and
the 1933 Act be integrated with the reporting system under the 1935 Act. This
would eliminate duplication of filings with the Commission that cover
essentially the same subject matters, resulting in a reduction of expense for
both the Commission and New REI. To effect such integration, the portion of the
1933 Act and 1934 Act reports containing or reflecting disclosures of
transactions occurring pursuant to the authorizations granted in this proceeding
would be incorporated by reference into this proceeding through Rule 24
certificates of notification. The certificates would also contain all other
information required by Rule 24, including the certification that each
transaction being reported had been carried out in accordance with the terms and
conditions of and for the purposes represented in this Application. Such
certificates of notification would be filed within 60 days after the end of the
first three calendar quarters and within 90 days after the end of the last
calendar quarter in which transactions occur, commencing with the first calendar
quarter ended at least 45 days following the date of the Commission's order in
this proceeding.
A copy of relevant documents (e.g., underwriting agreements,
indentures, bank agreements) for the relevant quarter will be filed with, or
incorporated by reference from 1933 Act or 1934 Act filings in such Rule 24
certificates.
The Rule 24 certificates will contain the following
information as of the end of the applicable quarter (unless otherwise stated
below):
- ----------
contemplated that any additional EWG or FUCO financings in respect of Reliant
Resources' holdings would occur at the Reliant Resources level or below and so,
there would be no relevant financing request for purposes of Rule 53.
56
(i) The sales of any common stock or preferred securities
by New REI and the purchase price per share and the
market price per share at the date of the agreement
of sale;
(ii) The total number of shares of New REI common stock
issued or issuable pursuant to options granted during
the quarter under employee benefit plans and dividend
reinvestment plans, including any employee benefit
plans or dividend reinvestment plans hereafter
adopted;
(iii) If New REI common stock has been transferred to a
seller of securities of a company being acquired, the
number of shares so issued, the value per share and
whether the shares are restricted in the hands of the
acquirer;
(iv) If a guarantee is issued during the quarter, the name
of the guarantor, the name of the beneficiary of the
guarantee and the amount, terms and purpose of the
guarantee;
(v) The amount and terms of any long-term debt issued by
New REI during the quarter, and the aggregate amount
of short-term debt outstanding as of the end of the
quarter, as well as the weighted average interest
rate for such short-term debt as of such date;
(vi) The amount and terms of any long-term debt issued by
any Utility Subsidiary during the quarter, and the
aggregate amount of short-term debt outstanding as of
the end of the quarter, as well as the weighted
average interest rate for such short-term debt as of
such date;
(vii) The amount and terms of any financings consummated by
any Non-Utility Subsidiary that are not exempt under
Rule 52;
(viii) The notional amount and principal terms of any Hedge
Instruments or Anticipatory Hedges entered into
during the quarter and the identity of the other
parties thereto;
(ix) The name, parent company and amount of equity in any
intermediate subsidiary or financing subsidiary
during the quarter and the amount and terms of any
securities issued by such subsidiaries during the
quarter;
(x) The information required by a Certificate of
Notification on Form U-6B-2;(113)
(xi) Consolidated balance sheets for New REI and/or a
Utility Subsidiary as of the end of the
- ----------
(113) Applicants request that they be exempt from the requirement to
file Forms U-6B-2 because the information contained therein will be set forth in
their quarterly Rule 24 Certificates.
57
quarter and separate balance sheets as of the end of
the quarter for each company that has engaged in
jurisdictional financing transactions during the
quarter;
(xii) A table showing, as of the end of the quarter, the
dollar and percentage components of the capital
structure of New REI on a consolidated basis and each
Utility Subsidiary; and
(xiii) A retained earnings analysis of New REI on a
consolidated basis and each Utility Subsidiary
detailing gross earnings, dividends paid out of each
capital account and the resulting capital account
balances at the end of the quarter.
ITEM 4. REGULATORY APPROVALS
Various aspects of the Restructuring have been or will be
submitted for review and/or approval by (i) the Texas Commission; (ii) the
Louisiana Commission; (iii) the Arkansas Commission; (iv) the Oklahoma
Commission; (v) the Minnesota Commission; (vi) the Mississippi Commission; and
(iv) the NRC.(114) Requisite filings have also been made with the Internal
Revenue Service to extend the effectiveness of appropriate rulings.
ITEM 5. PROCEDURE
The Applicants respectfully request that the Commission issue
its Initial Order approving those aspects of the Restructuring for which the
record has been completed and granting the other relief sought herein as quickly
as possible. Applicants further request that the Commission reserve jurisdiction
over the separation of GasCo into the Entex, Arkla and Minnegasco subsidiary
companies, pending completion of the record.
The Applicants hereby waive a recommended decision by a
hearing officer of the Commission and agree that the Division of Investment
Management may assist in the preparation of the decision of the Commission.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
Exhibits
Exhibit A: Constituent Instruments
A-1: Certificate of Incorporation of CenterPoint Energy,
Inc. (previously filed with the Commission on Form
S-4 of Reliant Energy Regco, Inc. (Registration No.
333-69502) on September 17, 2001 and incorporated by
reference herein)
- ----------
(114) See supra Item 1.C.
58
A-2: Articles of Incorporation of CenterPoint Energy,
Inc., as amended (previously filed with the
Commission on Form S-4 of Reliant Energy Regco, Inc.
(Registration No. 333-69502) on September 17, 2001
and incorporated by reference herein)
A-3 Bylaws of CenterPoint Energy, Inc. (previously filed
with the Commission on Form S-4 of Reliant Energy
Regco, Inc. (Registration No. 333-69502)on September
17, 2001 and incorporated by reference herein)
A-4: Articles of Merger merging Reliant Energy Regco, Inc.
and CenterPoint Energy, Inc. with and into Reliant
Energy Regco, Inc. (previously filed with the
Commission on Form U-1 (File No. 070-09895) on
October 26, 2001 and incorporated by reference
herein)
Exhibit B: Intentionally omitted, not applicable
Exhibit C: Registration Statements
C-1: Amendment No. 8 to Registration Statement on Form S-1
of Reliant Resources, Inc. (Registration No.
333-48038), as amended (previously filed with the
Commission on April 27, 2001 and incorporated by
reference herein)
Exhibit D: Applications and Orders of Certain Commissions listed
in Item 4
D-1: Order of the Texas Commission, dated March 15, 2001
(previously filed with the Commission on June 7, 2001
and incorporated by reference herein)
D-2 Motion for Rehearing before the Texas Commission
(previously filed with the Commission on November 20,
2001 and incorporated by reference herein)
D-3 Second Motion for Rehearing before the Texas
Commission (previously filed with the Commission on
November 20, 2001 and incorporated by reference
herein)
D-4 Business Separation Plan Update (previously filed
with the Commission on November 20, 2001 and
incorporated by reference herein)
D-5 Order on Rehearing of the Texas Commission, dated May
25, 2001 (previously filed with the Commission on
November 20, 2001 and incorporated by reference
herein)
D-5.1 Order of the Texas Commission on Application for
Update, dated December, 2001 (to be filed by
amendment)
59
D-6: Application to the Arkansas Commission (previously
filed with the Commission on November 20, 2001 and
incorporated by reference herein)
D-7: Order of the Arkansas Commission (to be filed by
amendment)
D-8: Application to the Louisiana Commission (to be filed
by amendment)
D-9: Letter of Nonopposition to the Electric Restructuring
from the Louisiana Commission (to be filed by
amendment)
D-10: Application to the Mississippi Commission (previously
filed with the Commission on November 20, 2001 and
incorporated by reference herein)
D-11: Order of the Mississippi Commission (to be filed by
amendment)
D-12: Application to the Oklahoma Commission (previously
filed with the Commission on November 20, 2001 and
incorporated by reference herein)
D-13: Order of the Oklahoma Commission (to be filed by
amendment)
D-14: Application to the Minnesota Commission (previously
filed with the Commission on November 20, 2001 and
incorporated by reference herein)
D-15: Order of the Minnesota Commission (to be filed by
amendment)
D-16: Application of STP Nuclear Operating Company to the
Nuclear Regulatory Commission, dated May 31, 2001
(previously filed with the Commission on June 7, 2001
and incorporated by reference herein)
D-17: Order of the Nuclear Regulatory Commission (to be
filed by amendment)
Exhibit E: Maps of interconnection or relationships of
properties
E-1 Map of REI Electric and Gas Systems (previously filed
with the Commission on June 7, 2001 and incorporated
by reference herein)
E-2: Map of REI electric system (previously filed with the
Commission on June 7, 2001 and incorporated by
reference herein)
E-3: Map of GasCo gas system (previously filed with the
Commission on June 7, 2001 and incorporated by
reference herein)
Exhibit F: Corporate Structure of REI and New REI
60
F-1: Pre-Restructuring Structure of REI system (previously
filed with the Commission on June 7, 2001 and
incorporated by reference herein)
F-2: Corporate structure of REI/New REI through the stages
of the Restructuring (previously filed with the
Commission on November 20, 2001 and incorporated by
reference herein)
F-3: Post-Restructuring corporate structure of New REI
(previously filed with the Commission on June 7, 2001
and incorporated by reference herein)
Exhibit G: Other Information
G-1: Chart detailing percentage of New REI Utility
Revenues (confidential treatment requested)
(previously filed with the Commission on June 7, 2001
and incorporated by reference herein)
G-2: Table providing geographic breakdown of gas-utility
customers by business unit, by state, as of August,
2001 (previously filed with the Commission on Form
U-1 (File No. 070-09895) on October 26, 2001 and
incorporated by reference herein)
G-3: List of New REI nonutility subsidiary companies
(previously filed with the Commission on Form U-1
(File No. 070-09895) on October 26, 2001 and
incorporated by reference herein)
G-3.1: List of New REI nonutility subsidiary companies and
basis for retention of each
G-4: List of Reliant Resources nonutility subsidiary
companies (previously filed with the Commission on
Form U-1 (File No. 070-09895) on October 26, 2001 and
incorporated by reference herein)
G-5: Discussion of tax implications of Intermediate
Holding Companies (previously filed with the
Commission on Form U-1 (File No. 070-09895) on
October 26, 2001 and incorporated by reference
herein)
G-6: CenterPoint Energy, Inc. capital structure chart
(Confidential Treatment requested)
G-7: Long-term debt and preferred securities to be assumed
by New REI (to be filed by amendment)
G-8: Long-term debt and preferred securities of Utility
Subsidiaries (to be filed by amendment)
G-9: Investor's Choice Plan (to be filed by amendment)
61
Exhibit H: Draft Notice
Financial Statements
1. Statement of Applicants
FS-1: Reference is made to the following documents, each of
which is incorporated by reference herein: (i) Annual
Report on Form 10-K of REI (Commission File Number
1-3187) and GasCo (Commission File Number 1-13265)
for the fiscal year ended December 31, 2001, filed
with the Commission on April 15, 2002; (ii) Quarterly
Report on Form 10-Q of REI and GasCo for the
quarterly period ended March 31, 2001, filed with the
Commission on May 15, 2001; (iii) Quarterly Report on
Form 10-Q of REI and GasCo for the quarterly period
ended June 30, 2001, filed with the Commission on
August 10, 2001; (iv) Quarterly Report on Form 10-Q
of REI and GasCo for the quarterly period ended
September 30, 2001, filed with the Commission on
November 13, 2001; (v) Current Reports on Form 8-K of
REI, filed with the Commission on January 26, 2001,
April 16, 2001 and September 12, 2001; and
Registration Statement on Form S-4 of CenterPoint
Energy, Inc. (Commission File Number 333-69502),
filed with the Commission on September 17, 2001.
FS-2: Financial statements for New REI and its
public-utility subsidiary companies, on a pro-forma
basis, for 1998 through 2000 (previously filed with
the Commission on November 20, 2001 and incorporated
by reference herein)
FS-3: Financial information for New REI and its
public-utility subsidiary companies, on a pro-forma
basis, for 2001 through 2003 (Confidential treatment
requested)
FS-4: Financial information for New REI and its subsidiary
companies, showing the effect of the Electric
Restructuring and the Distribution (to be filed by
amendment)
2. Statement of Top Registered Holding Company
None
3. Statement of Company Whose Securities Are Being Acquired or
Sold
Intentionally omitted, not applicable
4. Statement of Changes
None
62
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
The Restructuring, which is a corporate restructuring, neither
involves a "major federal action" nor "significantly affects the quality of the
human environment," as those terms are used in Section 102(2)(c) of the National
Environmental Policy Act. Consummation of the Restructuring will not result in
changes in the operations of the parties that would have any impact on the
environment. No federal agency is preparing an Environmental Impact Statement
with respect to this matter.
63
SIGNATURE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, as amended, the Applicants have duly caused this Amendment
No. 3 to Application/Declaration to be signed on their behalf by the undersigned
thereunto duly authorized.
Date: May 1, 2002
RELIANT ENERGY, INCORPORATED
By: /s/ RUFUS S. SCOTT
------------------------------------------------
Rufus S. Scott
Vice President, Deputy General Counsel
* and Assistant Corporate Secretary
CENTERPOINT ENERGY, INC.
By: /s/ RUFUS S. SCOTT
------------------------------------------------
Rufus S. Scott
Vice President and Assistant Corporate Secretary
64
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
G-1: Chart detailing percentage of New REI Utility
Revenues (confidential treatment requested)
(previously filed with the Commission on June 7, 2001
and incorporated by reference herein)
G-2: Table providing geographic breakdown of gas-utility
customers by business unit, by state, as of August,
2001 (previously filed with the Commission on Form
U-1 (File No. 070-09895) on October 26, 2001 and
incorporated by reference herein)
G-3: List of New REI nonutility subsidiary companies
(previously filed with the Commission on Form U-1
(File No. 070-09895) on October 26, 2001 and
incorporated by reference herein)
G-3.1: List of New REI nonutility subsidiary companies and
basis for retention of each
G-4: List of Reliant Resources nonutility subsidiary
companies (previously filed with the Commission on
Form U-1 (File No. 070-09895) on October 26, 2001 and
incorporated by reference herein)
G-5: Discussion of tax implications of Intermediate
Holding Companies (previously filed with the
Commission on Form U-1 (File No. 070-09895) on
October 26, 2001 and incorporated by reference
herein)
G-6: CenterPoint Energy, Inc. capital structure chart
(Confidential Treatment requested)
G-7: Long-term debt and preferred securities to be assumed
by New REI (to be filed by amendment)
G-8: Long-term debt and preferred securities of Utility
Subsidiaries (to be filed by amendment)
G-9: Investor's Choice Plan (to be filed by amendment)
Exhibit H: Draft Notice
EXHIBIT G-3.1
NEW REI NONUTILITY SUBSIDIARIES (POST-DISTRIBUTION)
1. Reliant Energy Investment Management, Inc., a Delaware corporation,
holds the stock of Time Warner AOL, which was received in connection
with the 1996 sale of certain telecommunications businesses. See Exelon
Corporation, Holding Co. Act Release No. 27256 (Oct. 19, 2000), citing
GPU, Inc., Holding Co. Act Release No. 27165 (Apr. 14, 2000)
(authorizing registered holding company to engage in telecommunications
activities). Applicants believe that Reliant Energy Investment
Management, Inc. would also qualify as an "exempt telecommunications
company" under Section 34 of the Act.
2. Reliant Energy Power Systems, Inc., a Delaware corporation, invests in
fuel cell technology. See Rule 58(b)(1)(ii).
3. Reliant Energy Properties, Inc., a Delaware corporation, owns a public
parking garage that is used by company employees and others, and will
own the office building that houses New REI. See New Century Energies,
Inc., Holding Co. Act Release No. 26748 (Aug. 1, 1997) (authorizing
retention of a dedicated real-estate subsidiary).
4. Reliant Energy Thermal Systems, Inc., a Delaware corporation, is
engaged in the ownership and operation of thermal systems, which
deliver chilled water to office buildings and other facilities and in
other energy services. See Rule 58(b)(1)(vi).
5. Reliant Energy Transition Bond Company LLC, a Delaware limited
liability company, has issued securitization bonds in connection with
the restructuring under S.B. 7. Exelon Corporation, Holding Co. Act
Release No. 27256 (Oct. 19, 2000).
6. Reliant Energy International, Inc., a Delaware corporation, holds
foreign utility investments, which are in the process of being
divested. These properties are qualified as either EWGs or FUCOs.
7. Mississippi River Transmission Corporation, a Delaware corporation,
owns and operates an interstate pipeline system that extends from East
Texas and Northern Louisiana to the St. Louis metropolitan area. See,
e.g., NiSource Inc., Holding Co. Act Release No. 27263 (Oct. 30, 2000).
Under Rule 58(b)(2)(i), gas registered holding companies may acquire
the securities of companies engaged in "gas-related activities" within
the meaning of Section 2(a) of the Gas-Related Activities Act of 1990,
without Commission approval.
8. Reliant Energy Field Services, Inc., a Delaware corporation, owns and
operates gas-gathering systems in the mid-continent. See PowerGen plc,
Holding Co. Act Release No. 27291 (Dec. 6, 2000) (authorizing retention
of gas gathering operations); see also Rule 58(b)((1)(ix) and (b)(2).
9. Reliant Energy Gas Transmission Company, a Delaware corporation, owns
and operates an interstate pipeline system located in the mid-continent
region. See, e.g., NiSource Inc., Holding Co. Act Release No. 27263
(Oct. 30, 2000). Under Rule 58(b)(2)(i), gas registered
holding companies may acquire the securities of companies engaged in
"gas-related activities" within the meaning of Section 2(a) of the
Gas-Related Activities Act of 1990, without Commission approval.
10. Reliant Energy Pipeline Services, Inc., a Delaware corporation, is
engaged in pipeline services. See Rule 58(b)(2).
11. Gas sales and marketing subsidiaries -- See, e.g., NiSource Inc.,
Holding Co. Act Release No. 27263 (Oct. 30, 2000); see also Rule
58(b)(1)(iv) (defining energy related companies to include entities
engaged in "the brokering and marketing of energy commodities,
including but not limited to electricity or natural or manufactured gas
or other combustible fuels"):
o Entex Fuels, Inc., a Texas corporation
o Entex Gas Marketing Company, a Texas corporation
o Entex Gas Resources Corp., a Texas corporation
o Reliant Energy Retail, Inc., a Delaware corporation
o MRT Energy Marketing Company, a Delaware corporation
12. Intrastate Pipeline Operations -- See, e.g., NiSource Inc., Holding Co.
Act Release No. 27263 (Oct. 30, 2000). Under Rule 58(b)(2)(i), gas
registered holding companies may acquire the securities of companies
engaged in "gas-related activities" within the meaning of Section 2(a)
of the Gas-Related Activities Act of 1990, without Commission
approval.:
o Reliant Energy Intrastate Holdings, LLC, a Delaware
limited liability company
o Illinois Gas Transmission Company, a Delaware
corporation
o Industrial Gas Supply Corporation, a Texas
corporation
o Louisiana Unit Gas Transmission Company, a Texas
corporation
o Minnesota Intrastate Pipeline Company, a Delaware
corporation
o Unit Gas Transmission Company, a Texas corporation
13. Corporate and Financial Subsidiaries - See Exelon Corporation, Holding
Co. Act Release No. 27256 (Oct. 19, 2000) (authorizing retention of
financing subsidiaries/trusts); see also New Century Energies, Holding
Co. Act Release No. 26750 (Aug. 1, 1997) (authorizing Southwestern
Public Service Capital I, a trust formed to facilitate certain
financing transactions); Conectiv, Inc., Holding Co. Act Release No.
26833 (Feb. 26, 1998) (authorizing retention of financing trust);
Dominion Resources, Holding Co. Act Release No. 27112 (Dec. 15, 1999)
(authorizing retention of financing subsidiaries); SCANA Corp., Holding
Co. Act Release No. 27135 (Feb. 14, 2000).
o HL&P Capital Trust I
o HL&P Capital Trust II
o Houston Industries FinanceCo GP, LLC
o Houston Industries FinanceCo LP
o Houston Industries Funding Company
o REI Trust I
o REI Trust II
o Reliant Energy FinanceCo II GP, LLC
o Reliant Energy FinanceCo II LP
o Reliant Energy FinanceCo III GP, LLC
o Reliant Energy FinanceCo III LP
o Reliant Energy FinanceCo IV GP, LLC
o Reliant Energy Finance Co IV LP
o Arkansas Louisiana Finance Corporation, a Delaware
corporation
o NorAm Financing I, a Delaware business trust.
o Reliant Energy Trading and Transportation Group,
Inc., a Texas corporation
o Reliant Energy Funds Management, Inc., a Delaware
corporation
14. Inactive Subsidiaries - The following are inactive subsidiaries.
Additional authority will be requested as necessary for any inactive
subsidiary that New REI reactivates.
o HL&P Receivables, Inc.
o Houston Industries Energy (UK), Inc.
o Houston Industries Incorporated
o Houston Lighting & Power Company
o NorAm Energy Corp.
o Reliant Energy Products, Inc.
o Reliant Energy Water, Inc.
o Utility Rail Services, Inc.
o ALG Gas Supply Company, a Delaware corporation
o Allied Materials Corporation, a Texas corporation
o Arkla Industries Inc., a Delaware corporation
o Arkla Products Company , a Delaware corporation
o Blue Jay Gas Company, a Delaware corporation
o Entex NGV, Inc., a Delaware corporation
o Entex Oil & Gas Co., a Texas corporation
o Intex, Inc., a Texas corporation
o National Furnace Company, a Texas corporation
o NorAm Utility Services, Inc., a Delaware corporation
o Reliant Energy Consumer Group, Inc., a Delaware
corporation
o Reliant Energy Hub Services, Inc., a Delaware
corporation
NEW REI NONUTILITY SUBSIDIARIES (PRE-DISTRIBUTION)
In addition to the subsidiaries described above, New REI will
have as a partially-owned subsidiary company RELIANT RESOURCES, INC., a Delaware
corporation, and its subsidiary companies. See, e.g., Exelon Corporation,
Holding Co. Act Release No. 27256 (Oct. 19, 2000) (authorizing the retention of
a holding company for the system's non-regulated investments). It is
contemplated that New REI will distribute to shareholders its interest in
Reliant Resources soon after completion of the Electric Restructuring.
1. GuideStreet, Inc., a Delaware corporation, provides informational
services via the internet. See Exelon Corporation, Holding Co. Act
Release No. 27256 (Oct. 19, 2000), citing GPU, Inc., Holding Co. Act
Release No. 27165 (Apr. 14, 2000) (authorizing registered holding
company to engage in telecommunications activities). Applicants believe
that GuideStreet, Inc. would also qualify as an "exempt
telecommunications company" under Section 34 of the Act.
2. Reliant Energy Broadband, Inc., a Delaware corporation, invests in
communications ventures. See Exelon Corporation, Holding Co. Act
Release No. 27256 (Oct. 19, 2000), citing GPU, Inc., Holding Co. Act
Release No. 27165 (Apr. 14, 2000) (authorizing registered holding
company to engage in telecommunications activities). Applicants believe
that Reliant Energy Broadband, Inc. would also qualify as an "exempt
telecommunications company" under Section 34 of the Act.
3. Reliant Energy Communications, Inc., a Delaware corporation, and its
subsidiaries (Insync Internet Services, Incorporated, Reliant Energy
Communications (Delaware), LLC, Reliant Energy Communications Networks,
LP, Reliant Energy Communications (Texas), LLC) provide
telecommunications and internet services. See Exelon Corporation,
Holding Co. Act Release No. 27256 (Oct. 19, 2000), citing GPU, Inc.,
Holding Co. Act Release No. 27165 (Apr. 14, 2000) (authorizing
registered holding company to engage in telecommunications activities).
Applicants believe that each of these entities would also qualify as an
"exempt telecommunications company" under Section 34 of the Act. During
the third quarter of 2001, management decided to exit this business.
This exit plan was substantially completed in the first quarter of
2002.
4. Reliant Energy Net Ventures, Inc., a Delaware corporation, invests in
eBusiness ventures. See Exelon Corporation, Holding Co. Act Release No.
27256 (Oct. 19, 2000), citing GPU, Inc., Holding Co. Act Release No.
27165 (Apr. 14, 2000) (authorizing registered holding company to engage
in telecommunications activities). Applicants believe that Reliant
Energy Net Ventures, Inc. would also qualify as an "exempt
telecommunications company" under Section 34 of the Act.
5. Reliant Energy Power Generation Merger Sub, Inc., a Delaware
corporation, will be utilized in connection with an acquisition of an
unaffiliated corporation.
6. Reliant Energy Retail Holdings, LLC, a Delaware limited liability
company, and its subsidiaries (Reliant Energy Customer Care Services,
LLC, Reliant Energy Retail Services, LLC, Reliant Energy Solutions,
LLC, Reliant Energy Deepwater Finance, LLC, Reliant Energy Deepwater
Finance, LP, Reliant Energy Solutions California, Inc., New Texas
Energy Company, and StarEn Power, LLC) supply electric energy at the
retail level and
provide energy services. See Rule 58(b)(1)(i) (defining energy related
companies to include entities engaged in the "rendering of energy
management services and demand-side management") and
(b)(1)(iv) (defining energy related companies to include entities
engaged in "the brokering and marketing of energy commodities,
including but not limited to electricity or natural or manufactured gas
or other combustible fuels"):
7. Energy Trading and Marketing (domestic United States) - see Rule
58(b)(1)(v):
o Reliant Energy Services, Inc., a Delaware
corporation, and its subsidiaries Reliant Energy
Services Channelview LLC, Reliant Energy Services
Desert Basin, LLC, Reliant Energy Services Holdings,
Inc., Reliant Energy Services Mid-Stream, LLC, and
Reliant Energy Services New Mexico, LLC.
8. Energy Trading and Marketing (Canada) -- :
o Reliant Energy Services International, Inc., a
Delaware corporation, and its subsidiary Reliant
Energy Services Canada, Ltd.
9. Energy Trading & Marketing (Europe) - These activities are in
connection with and furtherance Reliant Resources' European EWG and
FUCO operations. Applicants would ask the Commission to reserve
jurisdiction over the retainability of these subsidiaries.
o Reliant Energy Europe Trading & Marketing, Inc., a
Delaware corporation, and its subsidiaries Reliant
Energy Financial Trading B.V., Reliant Energy Trading
& Marketing, B.V., Reliant Energy Trading & Marketing
GmbH
10. Reliant Energy Trading Exchange, Inc., a Delaware corporation, owns an
interest in a internet-based energy trading and marketing platform. See
Exelon Corporation, Holding Co. Act Release No. 27256 (Oct. 19, 2000),
citing GPU, Inc., Holding Co. Act Release No. 27165 (Apr. 14, 2000)
(authorizing registered holding company to engage in telecommunications
activities). Applicants believe that Reliant Energy Trading Exchange,
Inc. would also qualify as an "exempt telecommunications company" under
Section 34 of the Act.
11. Reliant Energy Ventures, Inc., a Delaware corporation, invests in
venture capital opportunities. Applicants ask the Commission to reserve
jurisdiction over the retainability of this subsidiary. See Exelon
Corporation, Holding Co. Act Release 27256 (Oct. 19, 2000) (reserving
jurisdiction over venture capital fund).
12. Administrative and financing subsidiaries. The following subsidiaries
provide administrative and financing services for other company
subsidiaries. Such services are provided in accordance with the Act,
including Section 13 and the rules thereunder.
o Reliant Energy Construction, LLC, a Delaware limited
liability company
o Reliant Energy Wholesale Service Company, a Delaware
corporation
o Reliant Resources International Services, Inc., a
Delaware corporation.
13. Inactive subsidiaries. The following are inactive subsidiaries:
o Arkla Finance Corporation, a Delaware corporation
o ReliantEnergy.com, Inc., a Delaware corporation.
14. Reliant Energy Power Generation, Inc. and Subsidiaries. Each of these
entities is qualified as a QF, an EWG or a FUCO or is an intermediate
holding company for same: See, e.g., PowerGen plc, Holding Co. Act
Release No. 27291 (Dec. 6, 2000).
o Reliant Energy Power Generation, Inc., a Delaware
corporation, holds domestic and foreign subsidiaries
engaged in power generation development, operations
and related activities
o Reliant Energy California Holdings, LLC, a Delaware
limited liability company, owns subsidiaries (Reliant
Energy Coolwater, LLC, Reliant Energy Ellwood, LLC,
Reliant Energy Etiwanda, LLC, Reliant Energy
Mandalay, LLC, and Reliant Energy Ormond Beach, LLC)
that own and operate power generation facilities in
California
o Reliant Energy Capital (Europe), Inc., a Delaware
corporation, through its subsidiaries (Reliant Energy
Europe, Inc., Reliant Energy Trading and Marketing
(UK) B.V., Reliant Energy Wholesale (Europe) Holdings
B.V., Reliant Energy Wholesale (Europe) Holdings II
C.V., Reliant Energy Wholesale (Europe) C.V., Reliant
Energy UNA B.V., and Reliant Energy Power Generation
Benelux N. V., operates power generating units in The
Netherlands and is developing associated trading
operations.
15. Reliant Energy CapTrades Holding Corp., a Delaware corporation, through
its subsidiary CapTrades, LP, a Delaware limited partnership, is
engaged in the development of energy trading See Rule 58(b)(1)(v).
16. Reliant Energy Florida Holdings, LLC, a Delaware limited liability
company, owns Reliant Energy Indian River, LLC, Reliant Energy New
Smyrna Beach, LLC, and Reliant Energy Osceola, LLC which are engaged in
the development of power generation projects in the Southeastern United
States. See New Century Energies, Inc., Holding Co. Act Release 27212
(Aug. 16, 2000) (authorizing retention of project development
companies).
17. Reliant Energy Mid-Atlantic Development, Inc., a Delaware corporation,
owns Reliant Energy Atlantic, LLC, Reliant Energy Erie West, LLC,
Reliant Energy Gilbert, LLC, Reliant Energy Hunterstown, LLC, Reliant
Energy Portland, LLC, Reliant Energy Seward, LLC, and Reliant Energy
Titus, LLC which are power generation project development entities. See
New Century Energies, Inc., Holding Co. Act Release 27212 (Aug. 16,
2000) (authorizing retention of project development companies).
18. Reliant Energy Northeast Holdings, Inc., a Delaware corporation, and
its subsidiaries engage in power generation and development activities
in the Mid-Atlantic region. See New Century Energies, Inc., Holding Co.
Act Release 27212 (Aug. 16, 2000) (authorizing retention of project
development companies).
19. Administrative and financing subsidiaries. See New Century Energies,
Inc., Holding Co. Act Release 27212 (Aug. 16, 2000) (authorizing
retention of project development companies). See also Exelon
Corporation, Holding Co. Act Release No. 27256 (Oct. 19, 2000)
(authorizing retention of financing subsidiaries/trusts); see also New
Century Energies, Holding Co. Act Release No. 26750 (Aug. 1, 1997)
(authorizing Southwestern Public Service Capital I, a trust formed to
facilitate certain financing transactions); Conectiv, Inc., Holding Co.
Act Release No. 26833 (Feb. 26, 1998) (authorizing retention of
financing trust);
Dominion Resources, Holding Co. Act Release No. 27112 (Dec. 15, 1999)
(authorizing retention of financing subsidiaries); SCANA Corp., Holding
Co. Act Release No. 27135 (Feb. 14, 2000).:
o Reliant Energy Development Services, Inc.
o Reliant Energy Power Operations I, Inc.
o Reliant Energy Power Operations II, Inc.
20. Power generation project development and operation subsidiaries. See
New Century Energies, Inc., Holding Co. Act Release 27212 (Aug. 16,
2000) (authorizing retention of project development companies).
o Reliant Energy Deer Park, Inc., a Delaware
corporation
o Reliant Energy Desert Basin, LLC, a Delaware limited
liability company
o Reliant Energy Channelview (Delaware) LLC, Reliant
Energy Channelview LP, Reliant Energy Channelview
(Texas) LLC
o Reliant Energy Choctaw County, LLC, a Delaware
limited liability company
o Reliant Energy Colusa County, LLC, a Delaware limited
liability company
o Reliant Energy Rancho Cucamonga, LLC, a Delaware
limited liability company
o Reliant Energy Renewables, Inc., a Delaware
corporation and its subsidiaries
o Reliant Energy Sabine (Delaware), Inc., Reliant
Energy Sabine (Texas), Inc. and Sabine Cogen, LP
o Reliant Energy Shelby Holding Corp., Reliant Energy
Shelby I, LP, Reliant Energy Shelby II, LP, Reliant
Energy Shelby County, LP, Reliant Energy Shelby
County II, LP, Reliant Energy Shelby Development
Corp.
o Reliant Energy Signal Peak, LLC, a Delaware limited
liability company
o Reliant Energy Sunrise, LLC, a Delaware limited
liability company.
21. Inactive subsidiaries. The following are inactive subsidiaries.
Additional authority will be requested as necessary for any inactive
subsidiary that New REI reactivates.
o Reliant Energy McHenry I, L.P., a Delaware limited
partnership
o Reliant Energy McHenry II, L.P., a Delaware limited
partnership
o Reliant Energy McHenry County, L.P., a Delaware
limited partnership
o Reliant Energy McHenry Development Corp., a Delaware
corporation
EXHIBIT G-6
CenterPoint Energy, Inc. capital structure chart
(Confidential Treatment requested)
