-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ITYbPU0vUrcsCQrQPv31jrgVKniW6ucM2xk7AZMEqPX/yEHpX/6GJ1yV/damDjyL +lo7nnSEmKa/dAH8aSZcXA== 0000898080-96-000007.txt : 19960131 0000898080-96-000007.hdr.sgml : 19960131 ACCESSION NUMBER: 0000898080-96-000007 CONFORMED SUBMISSION TYPE: U-1 PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19960130 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW CENTURY ENERGIES INC CENTRAL INDEX KEY: 0001004858 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: U-1 SEC ACT: 1935 Act SEC FILE NUMBER: 070-08787 FILM NUMBER: 96508774 BUSINESS ADDRESS: STREET 1: 1225 17TH ST CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3032948989 MAIL ADDRESS: STREET 1: 1225 17TH ST CITY: DENVER STATE: CO ZIP: 80202 U-1 1 FORM U-1 File No. 70- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 __________________________________ FORM U-1 APPLICATION/DECLARATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 _________________________________ New Century Energies, Inc. 1225 Seventeenth Street Denver, Colorado 80202 __________________________________ (Name of company filing this statement and address of principal executive offices) None __________________________________ (Name of top registered holding company) Richard C. Kelly Doyle R. Bunch II President and Treasurer Chairman and Secretary 1225 Seventeenth Street Tyler at Sixth Denver, Colorado 80202 Amarillo, Texas 79101 (Names and addresses of agents for service) The Commission is requested to send copies of all notices, orders and communications in connection with this Application- Declaration to: William S. Lamb, Esq. Gary W. Wolf, Esq. LeBoeuf, Lamb, Greene & MacRae, L.L.P. Cahill Gordon & Reindel 125 West 55th Street 80 Pine Street New York, New York 10019 New York, New York 10005 Patricia T. Smith, Esq. William M. Dudley, Esq. Public Service Company of Colorado 1225 Seventeenth Street Denver, Colorado 80202 TABLE OF CONTENTS Page Item 1. Description of Proposed Transaction . . . . . . . . 1 A. Introduction . . . . . . . . . . . . . . . . . . . 1 1. General Request . . . . . . . . . . . . . . . 2 2. Overview of the Transaction . . . . . . . . . 2 B. Description of the Parties to the Transaction . . . 3 1. General Description . . . . . . . . . . . . . 3 a. PSCo . . . . . . . . . . . . . . . . . . 3 b. SPS . . . . . . . . . . . . . . . . . . . 5 c. NCE and its Subsidiaries . . . . . . . . 6 i. NCE . . . . . . . . . . . . . . . . 6 ii. PSCo Merger Corp . . . . . . . . . . 7 iii. SPS Merger Corp. . . . . . . . . . 7 iv. NC Services . . . . . . . . . . . . 7 v. NC Hold . . . . . . . . . . . . . . 8 vi. WestGas Interstate, Inc. . . . . . . 8 2. Description of Facilities . . . . . . . . . . 8 a. PSCo . . . . . . . . . . . . . . . . . . 8 i. General . . . . . . . . . . . . . . 8 ii. Electric Generating Facilities and Resources . . . . . . . . . . . . . 9 iii. Electric Transmission Facilities . . 11 iv. Gas Facilities . . . . . . . . . . . 12 v. Other . . . . . . . . . . . . . . . 12 b. SPS . . . . . . . . . . . . . . . . . . . 13 i. General . . . . . . . . . . . . . . 13 ii. Electric Generating Facilities . . . 13 iii. Electric Transmission Facilities . . 14 iv. Other . . . . . . . . . . . . . . . 15 3. Non-Utility . . . . . . . . . . . . . . . . . 15 a. PSCo . . . . . . . . . . . . . . . . . . 15 b. SPS . . . . . . . . . . . . . . . . . . . 16 C. Description of Transaction . . . . . . . . . . . . 18 1. Background and Negotiations Leading to the Proposed Transaction . . . . . . . . . . . . . 18 2. Merger Agreement . . . . . . . . . . . . . . . 21 D. PSCo and SPS Benefit Plans . . . . . . . . . . . . 22 E. Management and Operations of NCE Following the Merger . . . . . . . . . . . . . . . . . . . . . . 23 Item 2. Fees, Commissions and Expenses . . . . . . . . . . . 24 Item 3. Applicable Statutory Provisions . . . . . . . . . . 25 A. Legal Analysis . . . . . . . . . . . . . . . . . . 26 1. Section 10(b) . . . . . . . . . . . . . . . . 28 a. Section 10(b)(1) . . . . . . . . . . . . 29 i. Interlocking Relationships . . . . . 29 ii. Concentration of Control . . . . . . 29 b. Section 10(b)(2) -- Fairness of Consideration . . . . . . . . . . . . . . 32 c. Section 10(b)(2) -- Reasonableness of Fees . . . . . . . . . . . . . . . . . . 33 d. Section 10(b)(3) . . . . . . . . . . . . 35 2. Section 10(c) . . . . . . . . . . . . . . . . 37 a. Section 10(c)(1) . . . . . . . . . . . . 37 i. Retention of Gas Operations . . . . 38 ii. Other Businesses . . . . . . . . . . 46 I. Direct Subsidiary of NCE . . . . . . 47 II. Subsidiaries of NC Hold . . . . . . 47 III. Subsidiaries and Operations of PSCo . . . . . . . . . . . . . . . 55 b. Section 10(c)(2) . . . . . . . . . . . . 58 i. Efficiencies and Economies . . . . . 58 ii. Integrated Public Utility System . . 62 3. Section 10(f) . . . . . . . . . . . . . . . . 68 4. Other Applicable Provisions - Section 9(a)(1) . . . . . . . . . . . . . . . . . . . 69 B. NC Services . . . . . . . . . . . . . . . . . . . . 70 C. UE . . . . . . . . . . . . . . . . . . . . . . . . 74 D. QPS . . . . . . . . . . . . . . . . . . . . . . . . 75 E. Other Services . . . . . . . . . . . . . . . . . . 77 Item 4. Regulatory Approvals . . . . . . . . . . . . . . . . 77 A. Antitrust . . . . . . . . . . . . . . . . . . . . . 78 B. Federal Power Act . . . . . . . . . . . . . . . . . 78 C. State Public Utility Regulation . . . . . . . . . . 78 Item 5. Procedure . . . . . . . . . . . . . . . . . . . . . 80 Item 6. Exhibits and Financial Statements . . . . . . . . . 80 A. Exhibits . . . . . . . . . . . . . . . . . . . . . 80 B. Financial Statements . . . . . . . . . . . . . . . 82 Item 7. Information as to Environmental Effects . . . . . . 83 Item 1. Description of Proposed Transaction A. Introduction This Application/Declaration seeks approvals relating to the proposed combination of Public Service Company of Colorado ("PSCo") and Southwestern Public Service Company ("SPS"), pursuant to which PSCo and SPS will become wholly owned subsidiaries of New Century Energies, Inc. ("NCE"), a new Delaware holding company (the "Transaction"). Following the consummation of the Transaction, NCE will register with the Securities and Exchange Commission (the "Commission") as a holding company under the Public Utility Holding Company Act of 1935 (the "Act"). The Transaction is expected to produce substantial benefits to the public, investors and consumers, and meets all applicable standards of the Act. Among other things, PSCo and SPS believe that the Transaction will allow the shareholders of each of the companies to participate in a larger, financially stronger company, that, through a pooling of the equity, management, human resources and technical expertise of each company, will be able to achieve increased financial stability and strength, greater opportunities for earnings and dividend growth, reduction of operating costs, deferral of certain capital expenditures, efficiencies of operation, better use of facilities for the benefit of customers, seasonal diversity of demand, improved ability to use new technologies, greater retail and industrial sales diversity and improved capability to make wholesale power purchases and sales. In this regard, PSCo and SPS believe that synergies created by the Transaction will generate substantial cost savings to NCE which would not be available absent the Transaction. PSCo and SPS have estimated the dollar value of certain synergies resulting from the Transaction to be approximately $770 million, net of costs to achieve the savings, over the first 10-year period from 1997 to 2006. The expected Transaction benefits are discussed in further detail in Item 3.A.2.b.i. below. The shareholders of PSCo and SPS are scheduled to vote on approval of the Transaction at their respective meetings to be held on January 31, 1996. PSCo and SPS have submitted applications requesting approval of the Transaction and/or related matters to (i) the Public Utility Commission of the State of Colorado (the "CPUC"), (ii) the Public Utility Commission of the State of New Mexico (the "NMPUC"), (iii) the Public Service Commission of the State of Wyoming (the "WPSC"), (v) the Public Utility Commission of the State of Texas ("PUCT"), (vi) the Kansas Corporation Commission (the "KCC"), (vii) the Federal Energy Regulatory Commission (the "FERC") and (viii) the Nuclear Regulatory Commission (the "NRC"). PSCo will also request the approval of the Municipality of Brighton, Colorado as required under the franchise granted by the municipality to PSCo. Finally, both companies will make the required filings with the Antitrust Division of the U.S. Department of Justice (the "DOJ") and the Federal Trade Commission (the "FTC") under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"). See Item 4 below for additional detail regarding these regulatory approvals. Apart from the approval of the Commission under the Act, the foregoing approvals are the only regulatory approvals required for the Transaction. In order to permit timely consummation of the Transaction and the realization of the substantial benefits it is expected to produce, NCE requests that the Commission's review of this Application/Declaration commence and proceed as expeditiously as practicable. 1. General Request Pursuant to Sections 9(a)(2) and 10 of the Act, NCE hereby requests authorization and approval of the Commission to acquire, by means of the mergers described below, all of the issued and outstanding common stock of PSCo, SPS and Cheyenne Light, Fuel and Power Company, a Wyoming public utility company and currently a wholly owned subsidiary of PSCo ("Cheyenne"). NCE also hereby requests that the Commission approve (i) the acquisition by NCE of all of the outstanding voting securities of New Century Services, Inc. ("NC Services"), New Century Hold Co. ("NC Hold") and West Gas Interstate, Inc., currently a non- utility subsidiary of PSCO that is engaged in the gas transportation business ("WGI"), under Section 9(a)(1) of the Act; (ii) the acquisition by NC Hold of the outstanding voting securities of all of SPS's, and certain of PSCo's, non-utility subsidiaries under Section 9(a)(1) of the Act; (iii) NC Services as a subsidiary service company in accordance with the provisions of Rule 88 of the Act and the Service Agreement and the Non-Utility Service Agreement as a basis for NC Services to comply with Section 13 of the Act and the Commission's rules thereunder; (iv) Utility Engineering Corporation ("UE"), which following the consummation of the Transaction will be an indirect subsidiary of NCE, as a subsidiary service company in accordance with the provisions of Rule 88 of the Act and the UE Service Agreement and the UE Non-Utility Service Agreement as a basis for UE to comply with Section 13 of the Act and the Commission's rules thereunder; (v) certain additional affiliate transactions as being in accordance with the provisions of Section 13 of the Act and (vi) the issuance of NCE Common Stock in connection with the Transaction. 2. Overview of the Transaction Pursuant to an Agreement and Plan of Reorganization, dated as of August 22, 1995, as amended on December 8, 1995 (the "Merger Agreement"), PSCo Merger Corp., a Colorado corporation and a wholly-owned subsidiary of NCE ("PSCo Merger Corp."), will be merged with and into PSCo, with PSCo continuing as the surviving corporation (the "PSCo Merger"), and SPS Merger Corp., a New Mexico corporation and a wholly-owned subsidiary of NCE, will be merged with and into SPS, with SPS as the surviving corporation (the "SPS Merger"). As a result of the PSCo Merger and the SPS Merger, and the declaration of a dividend by PSCo to NCE of all of the stock of Cheyenne, PSCo, SPS and Cheyenne will become operating subsidiaries of NCE, and NCE will be a holding company within the meaning of the Act. In addition, WGI will become a direct subsidiary of NCE (by the declaration of a dividend by PSCo to NCE of WGI's stock), as will NC Services and NC Hold (which will be newly formed corporations). Upon consummation of the Transaction, the non-utility subsidiaries of SPS will become subsidiaries of NC Hold, and certain of the non-utility subsidiaries of PSCo will become subsidiaries of NC Hold while others will remain subsidiaries of PSCo (as described below). NCE is also requesting approval of the terms of (1) the Service Agreement among NC Services and the operating utility subsidiaries of NCE, (2) the Non-Utility Service Agreement between NC Services and the non-utility subsidiaries of NCE, (3) the UE Service Agreement among UE and the utility subsidiaries of NCE and (4) the UE Non- Utility Service Agreement among UE and the non-utility subsidiaries of NCE. NCE is also requesting approval of the acquisition by NC Hold of the outstanding capital stock of certain of the non-utility subsidiaries of PSCo and of SPS. The two SPS subsidiaries, Quixx Corporation ("Quixx") and UE will be transferred through the sale by SPS of all of the outstanding common stock of such subsidiaries to NC Hold in exchange for debt of NC Hold. The subsidiaries of PSCo to be transferred to NC Hold will be transferred by a declaration of a dividend of their stock to NCE and subsequent capital contribution of their stock to NC Hold. A chart of the proposed corporate structure of NCE following consummation of the Transaction is attached hereto as Exhibit E-6. The common shareholders of PSCo and SPS will receive one and 0.95 of one share of common stock, par value of $1.00 per share, of NCE ("NCE Common Stock"), respectively, and will become common shareholders of NCE (see Item 1.C.2 below). The Transaction will have no effect on the shares of preferred stock of PSCo and SPS issued and outstanding at the time of the consummation of the Transaction, each series of which and each share of which will remain unchanged. A copy of the Merger Agreement is incorporated by reference as Exhibit B-1 hereto. B. Description of the Parties to the Transaction 1. General Description a. PSCo PSCo was incorporated under the laws of the State of Colorado in 1924 and is a public utility holding company exempt from regulation by the Commission under the Act (except for Section 9(a)(2) thereof) pursuant to Section 3(a)(2) of the Act and Rule 2 thereunder. Pursuant to Rule 2, PSCo has filed a statement with the Commission on Form U-3A-2 for the year ended December 31, 1994, which was subsequently amended and which is incorporated by reference as Exhibits H-3 and H-4 hereto. PSCo and Cheyenne are primarily engaged in providing electric and gas service in Colorado and Cheyenne, Wyoming. As of December 31, 1994, PSCo provided electric utility service to 1.1 million customers, and Cheyenne provided electric utility service to 33,000 customers in the Cheyenne area. In addition, PSCo and Cheyenne provided gas utility service to approximately 920,000 and 26,000 customers, respectively. Maps of PSCo's and Cheyenne's service territory are attached as Exhibits E-3 and E-4 respectively. PSCo is subject to regulation as a public utility under the Colorado Public Utilities Law as to retail electric and gas rates and other matters by the CPUC. PSCo and Cheyenne are also subject to regulation by the FERC with respect to the classification of accounts, rates for any wholesale sales of electricity, the interstate transmission of electric power and energy, interconnection agreements, issuances of securities not regulated by state commissions and acquisitions and sales of certain utility properties under the Federal Power Act. Cheyenne is subject to regulation in connection with its electric and gas retail sales and other matters by the WPSC. In addition, PSCo and Cheyenne are subject to regulation by the FERC under the Natural Gas Act of 1935, as amended. PSCo is also currently subject to regulation by the NRC in connection with its ownership of the Fort St. Vrain nuclear generating facility. This facility ceased operations on August 29, 1989 and is in the process of being decommissioned in accordance with the terms of orders issued by the NRC. PSCo directly owns a majority of the issued and outstanding common stock of nine non-utility companies. In addition, PSCo has a controlling interest in six small water and ditch companies, a general partner interest in a partnership engaged in gas storage and minority interests in a number of limited partnerships. The common stock, par value of $5.00 per share, of PSCo ("PSCo Common Stock") is listed on the New York Stock Exchange ("NYSE"), the Chicago Stock Exchange and the Pacific Stock Exchange. As of December 12, 1995, there were 63,350,157 shares of PSCo Common Stock and 2,888,652 shares of PSCo preferred stock outstanding. PSCo's principal executive office is located at 1225 Seventeenth Street, Denver, Colorado 80202. A copy of the Restated Articles of Incorporation of PSCo is incorporated by reference as Exhibit A-3. For the year ended December 31, 1994, PSCo's operating revenues on a consolidated basis were approximately $2.06 billion, of which approximately $1.4 billion were derived from electric operations, $625 million from gas operations and $33 million from other operations. Consolidated assets of PSCo and its subsidiaries at December 31, 1994 were approximately $4.2 billion, consisting of approximately $2.5 billion in identifiable electric utility property, plant and equipment; approximately $675 million in identifiable gas utility property, plant and equipment; and approximately $990 million in other corporate assets. A more detailed summary of information concerning PSCo and its subsidiaries is contained in PSCo's Annual Report on Form 10-K and Statement on Form U-3A-2 for the year ended December 31, 1994, as amended, copies of which are incorporated by reference as Exhibits H-1, H-3 and H-4, respectively, and PSCo's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995, June 30, 1995 and September 30, 1995 copies of which are incorporated by reference as Exhibits H-5, H-6 and H-7, respectively. b. SPS SPS, incorporated under the laws of the State of New Mexico in 1921, is a public utility company as defined in the Act. SPS is engaged in the generation, transmission, distribution and sale of electric energy. It serves a population of approximately one million in a 52,000 square-mile area of the Panhandle and south plains of Texas, eastern and southeastern New Mexico, the Oklahoma Panhandle and southwestern Kansas. SPS provides electric energy to 46 communities with a population of 2,000 or more: 35 in Texas, 9 in New Mexico and 1 each in Oklahoma and Kansas. Approximately 56 percent of SPS's operating revenues during fiscal 1995, excluding sales to other utilities, were derived from operations in Texas. A map of SPS's service area is attached as Exhibit E-3. As a public utility under the laws of the states of Texas, New Mexico, Kansas and Oklahoma, SPS is regulated by the PUCT, NMPUC, KCC and the Oklahoma Corporation Commission (the "OCC"), respectively, as to its retail rates, services, accounts, depreciation, and acquisitions and sales of utility properties, and in other respects. In addition, issuances of securities by SPS are regulated by the NMPUC and the KCC, and the issuances of securities secured by a lien on Oklahoma property is regulated by the OCC. SPS is also subject to regulation by the FERC with respect to borrowings and the issuance of securities not regulated by the state commissions listed above, the classification of accounts, rates to any wholesale customers, the interstate transmission of electric power and energy, interconnection agreements, and acquisitions and sales of certain utility properties under the Federal Power Act. SPS also owns all of the issued and outstanding common stock of two corporations engaged in non-utility businesses, which are described in more detail below. The common stock of SPS, par value $1.00 per share (the "SPS Common Stock"), is listed on the NYSE, the Chicago Stock Exchange and the Pacific Stock Exchange. As of December 12, 1995, there were 40,917,908 shares of SPS Common Stock outstanding. All outstanding shares of SPS Preferred Stock have been redeemed or repurchased. SPS redeemed and repurchased these shares to facilitate obtaining the required vote at the SPS Annual Meeting to be held on January 31, 1996 for the approval of the Transaction and for the modernization of the preferred stock provisions in the SPS Restated Articles of Incorporation (the "SPS Articles"), including eliminating the covenants imposed by the current provisions. SPS may issue one or more series of preferred stock following the SPS Annual Meeting, subject to obtaining the necessary regulatory approvals. SPS's principal executive office is located at SPS Tower, Tyler at Sixth, Amarillo, Texas 79101. A copy of the SPS Articles and a copy of the proposed amendment to such Articles to be voted upon at the January 31, 1996 Annual Meeting of Shareholders are incorporated by reference as Exhibits A-4 and C-1, respectively. On a consolidated basis, SPS's operating revenues for the year ended August 31, 1995 were approximately $834 million, and its total assets at August 31, 1995 were approximately $1.9 billion. More detailed information concerning SPS is contained in the Annual Report of SPS on Form 10-K for the year ended August 31, 1995 and the Quarterly Report on Form 10-Q for the quarter ended November 30, 1995, which are incorporated by reference as Exhibits H-2 and H-8, respectively. c. NCE and its Subsidiaries i. NCE NCE was incorporated under the laws of the State of Delaware on August 21, 1995 to become a holding company for PSCo and SPS following the Transaction and for the purpose of facilitating the Transaction. NCE filed a Restated Certificate of Incorporation on December 11, 1995. NCE has, and prior to the consummation of the Transaction will have, no operations other than those contemplated by the Merger Agreement to accomplish the Transaction. Upon consummation of the Transaction, NCE will be a public utility holding company and will own all of the issued and outstanding common stock of PSCo, SPS, Cheyenne, NC Services, NC Hold and WGI. NC Hold will, in turn, own all of the issued and outstanding common stock of the SPS non-utility subsidiaries and certain of the PSCo non-utility subsidiaries described in Item 1.B.3. below. At present, the common stock of NCE, which consists of 200 issued and outstanding shares, is owned by PSCo and SPS, each of which owns 100 shares. A copy of the Restated Certificate of Incorporation of NCE is attached as Exhibit A-1. ii. PSCo Merger Corp. Solely for the purpose of facilitating the Transaction proposed herein, PSCo Merger Corp. will be incorporated under the laws of the State of Colorado prior to the consummation of the Transaction. The authorized capital stock of PSCo Merger Corp. will consist of 100 shares of common stock, no par value ("PSCo Merger Corp. Common Stock"), all of which will be held by NCE. PSCo Merger Corp. has not had, and prior to the closing of the Transaction will not have, any operations other than the activities contemplated by the Merger Agreement necessary to accomplish the combination of PSCo Merger Corp. and PSCo as herein described. iii. SPS Merger Corp. Solely for the purpose of facilitating the Transaction proposed herein, SPS Merger Corp. will be incorporated under the laws of the State of New Mexico prior to the consummation of the Transaction. The authorized capital stock of SPS Merger Corp. will consist of 100 shares of common stock, no par value ("SPS Merger Corp. Common Stock"), all of which will be held by NCE. SPS Merger Corp. has not had, and prior to the closing of the Transaction will not have, any operations other than the activities contemplated by the Merger Agreement necessary to accomplish the combination of SPS Merger Corp. and SPS as herein described. iv. NC Services Prior to the consummation of the Transaction, NC Services will be incorporated in Delaware to serve as the service company for the NCE system. NC Services will provide PSCo, SPS, Cheyenne and the other companies of the NCE system with a variety of administrative, management and support services. NC Services will enter into a service agreement with PSCo, SPS and Cheyenne (the "Service Agreement"). (A copy of the form of Service Agreement as well as an appendix entitled "Description of Services and Determination of Charges for Services" is filed as Exhibit B-2). For the direct and indirect non-utility subsidiaries of NCE, NC Services will enter into one or more separate service agreements (the "Non-Utility Service Agreement"). (A copy of the form of Non-Utility Service Agreement as well as an appendix entitled "Description of Services and Determination of Charges for Services" is filed as Exhibit B-3). The authorized capital stock NC Services will consist of 1,000 shares of common stock, par value $.01 per share. Upon consummation of the Transaction, all issued and outstanding shares of NC Services common stock will be held by NCE. v. NC Hold Prior to the consummation of the Transaction, NC Hold will be incorporated in Delaware to serve as a holding company for (and directly or indirectly acquire the outstanding capital stock of) the following non-utility subsidiary companies of PSCo and SPS: e prime, inc. ("e prime"), Young Gas Storage Company, Inc. ("Young Gas"), Natural Fuels Corporation Company ("Natural Fuels"), Quixx and UE. These companies are described below in Item 1.B.3. The authorized capital stock of NC Hold will consist of 1,000 shares of common stock, par value $.01 per share. Upon consummation of the Transaction, all issued and outstanding shares of NC Hold common stock will be held by NCE. NC Hold will also have issued debt to SPS in connection with its acquisition of UE and Quixx as more fully described in Item 3.A.4 below. vi. WestGas Interstate, Inc. WGI is a natural gas transmission company operating in Colorado and Wyoming that will be a wholly-owned subsidiary of NCE following consummation of the Transaction. WGI's interstate pipeline system consists of approximately 0.23 miles of 8-inch pipe, 11.45 miles of 4-inch pipe, a 300 foot 8-inch discharge main, and a meter station. The facilities extend from PSCo's Chalk Bluffs meter station in Weld County, Colorado, approximately two miles south of the Wyoming border, north to the WestGas Paraffin Meadows meter station in Laramie County, Wyoming. This meter station is interconnected with the Cheyenne distribution system, approximately four miles south of the City of Cheyenne, Wyoming. The system's peak day capacity is 13 MMcf, and annual throughput is 2,900 MMcf. Annual revenues are approximately $109,000. WGI currently serves the following four customers only: Cheyenne, Associated Interstate Pipeline Company, Enron Power Marketing, Inc., and Frontier Oil and Refining Company. 2. Description of Facilities a. PSCo i. General For the year ended December 31, 1994, PSCo and its utility subsidiaries sold the following amount of electric energy (at retail or wholesale) and distributed the following amount of natural or manufactured gas at retail: PSCo Kwh of electric energy sold . . . . . . . . 23,270,399,589 Mcf of gas distributed at retail . . . . . . . . 144,561,732 Cheyenne Kwh of electric energy sold . . . . . . . . . . 763,593,221 Mcf of gas distributed at retail . . . . . . . . . 5,066,104 ii. Electric Generating Facilities and Resources As of December 31, 1994, PSCo had a total net generating capability of approximately 3186 MW available from the following units: Arapahoe: Arapahoe is located in Denver, Colorado and has an installed gross capacity of 262 MW and a net dependable capacity of 246 MW. Its major fuel source is coal. Cabin Creek: A pumped storage hydro station located near Georgetown, Colorado and has a total capacity of 324 MW at maximum load and a net dependable capacity of 162 MW. Cameo: Cameo is located near Grand Junction, Colorado and has an installed gross capacity of 77 MW and a net dependable capacity of 72.7 MW. Its major fuel source is coal. Cherokee: Cherokee is located in Denver, Colorado and has an installed gross capacity of 784 MW and a net dependable capacity of 723 MW. Its major fuel source is coal. Comanche: Comanche is located near Pueblo, Colorado and has an installed gross capacity of 725 MW and a net dependable capacity of 660 MW. Its major fuel source is coal. Craig: Craig is located near Craig, Colorado and is comprised of three units, two of which are owned by PSCo. The total installed gross capacity of the units is 894 MW, of which PSCo has a 9.72% undivided ownership interest. PSCo's share in the installed gross capacity is 86.89 MW. Its share in the net dependable capacity is 83.20 MW. Its major fuel source is coal. Hayden: Hayden, located near Hayden, Colorado is comprised of two units, Units 1 and 2, which have gross maximum capabilities of 202.1 MW and 285.96 MW, respectively. PSCo has a 75.5% undivided ownership interest in Unit 1 and a 37.4% undivided ownership interest in Unit 2. Its total share in the installed gross capacity of these units is 259.47 MW. Its total share in the net dependable capacity is 236.90 MW. Its major fuel source is coal. Pawnee: Pawnee is located near Brush, Colorado and has an installed gross capacity of 530 MW and a net dependable capacity of 495 MW. Its major fuel source is coal. Valmont Unit 5: Valmont is located near Boulder, Colorado and has an installed gross capacity of 188 MW and a net dependable capacity of 178 MW. Its major fuel source is coal. Zuni: Zuni is located in Denver, Colorado and has an installed gross capacity of 115 MW and a net dependable capacity of 107 MW. Its major fuel source is coal. PSCo has six combustion turbine units at various locations. The total installed gross capacity of these units is 209 MW. The units' net dependable capacity is 171 MW. In addition to Cabin Creek, PSCo has 14 hydro units at various locations, including one station (two units) not owned by PSCo but operated by it under contract. These units have a total installed gross capacity of 52.70 MW. The units' net dependable capacity is 35.90 MW. Seasonal hydro plant net dependable capabilities are based upon average water conditions and limitations for each particular season. The individual plant seasonal capabilities are sometimes limited by less than design water flow. PSCo has seven diesel generators at various locations with a total of 15.5 MW installed gross capacity and net dependable capacity. PSCo purchases capacity and energy from various regional utilities as well as Qualifying Facilities ("QFs"), as that term is defined in the Public Utility Regulatory Policies Act of 1978 ("PURPA") in order to meet energy needs of its customers. Together, PSCo and Cheyenne purchased approximately 37% of the total electric system energy input for 1994. PSCo's 1995 summer peak load, which occurred on August 11, 1995, was 4262.2 MW and its 1995 winter peak load, which occurred on January 4, 1995, was 3927.8 MW. Cheyenne does not generate any electricity, but purchases all of its electric energy requirements from an unaffiliated electric utility. Cheyenne does own five small diesel generating units (nameplate rating of 2 MW each) which are held on cold standby and which have been contractually placed under the control of the unaffiliated electric utility company that supplies all of Cheyenne's electric energy requirements. iii. Electric Transmission Facilities PSCo's transmission system is located primarily within Colorado although small portions of two jointly owned lines are located in New Mexico and Nebraska, both along the Colorado border. As of December 31, 1994, PSCo's transmission system consisted of approximately 182 circuit miles of 345 KV overhead lines; 1,832 circuit miles of 230 KV lines; 15 circuit miles of 230 KV underground lines; 65 circuit miles of 138 KV overhead lines; 965 circuit miles of 115 KV underground lines; 19 circuit miles of 115 KV underground lines; 355 circuit miles of 69 KV overhead lines; 170 circuit miles of 44 KV overhead lines; and 1 circuit mile of 44 KV underground lines. PSCo jointly owns with other utilities approximately 347 circuit miles of 345 KV overhead lines and 330 miles of 230 KV overhead lines, of which PSCo's share is 182 miles and 114 miles, respectively, which shares are included in the amounts referred to above. The system is interconnected with the systems of the following utilities with which PSCo has major firm purchase power contracts; capacity and energy are provided primarily by generating sources in the locations indicated: Utility Location Basin Electric Power Cooperative Southeast Wyoming PacifiCorp West & Northwest U.S. Northwest Colorado Platte River Power Authority Northcentral Colorado Tri-State Southeast Wyoming and Northwest Colorado PSCo has wheeling agreements with the above, and with other utilities and public power agencies, which are utilized to provide capacity and energy to PSCo's system from time to time. PSCo's transmission system also interconnects with the system of the Western Area Power Administration ("WAPA"). PSCo is a member of the Western Systems Coordinating Council (the "WSCC"), an interstate network of transmission facilities which are owned by public entities and investor-owned utilities. WSCC is the regional reliability council providing planning and coordination for member electric power systems in the Western United States. PSCo is also a member of the Western Systems Power Pool (the "WSPP") which is an economic power pool that operates an electronic bulletin board and acts as a clearinghouse for bulk power transactions among over 90 member utilities and marketers. The WSPP Agreement, to which PSCo is a signatory, provides for the sale and purchase of capacity, energy and transmission services at market-based rates with a cost-based floor and ceiling. Cheyenne owns two 115 KV transmission line segments that total 25.5 miles in length that fall within and are operated by WAPA's Loveland control area. ____________________ SPS is also a member of the WSPP, as described in Item b.iii below. iv. Gas Facilities The gas property of PSCo at December 31, 1994 consisted chiefly of approximately 14,619 miles of distribution mains ranging in size from 0.50 to 30 inches and related equipment. The Denver distribution system consisted of 8,100 miles of mains. The gas property of Cheyenne at December 31, 1994 consisted chiefly of approximately 532 miles of distribution/transmission mains ranging in size from 1 to 16 inches and related equipment. v. Other PSCo owns and operates four underground gas storage facilities Rountup, Asbury, Fruita (all conventional depleted gas reservoirs) and Leyden (a converted mined cavern). These combined facilities have a maximum working volume of 18,974,000 Mcf, and a maximum daily sendout capacity of 252,000 Mcf/day. PSCo's steam heating property at December 31, 1994 consisted of 10.5 miles of transmission, distribution and service lines in the business district of Denver, including a steam transmission line connecting the steam heating system with PSCo's Zuni electric power plant. Steam is supplied from boilers installed at PSCo's Denver Steam Plant, which has a capability of 295,000 pounds of steam per hour under sustained load. An additional 300,000 pounds of steam per hour is available from PSCo's Zuni electric generating plant on a peak demand basis. PSCo also owns service and office facilities in Denver and other communities located throughout its service territory. In addition PSCo and its subsidiaries own other property, plant and equipment supporting their electric and gas utility functions. PSCo's former nuclear generating station, Fort St. Vrain, located near Platteville, Colorado ceased operations on August 29, 1989. b. SPS i. General For the year ended August 31, 1995, SPS sold 20.3 billion kwh of electric energy (at retail and wholesale). ii. Electric Generating Facilities At December 31, 1995 SPS had a total of 4135 MW net generation capability. SPS's steam generation stations have a combined net capability of 3990 MW. These stations are: Harrington: Harrington, located near Amarillo, TX, has a net capability of 1066 MW. Its principal fuel source is coal. Tolk: Tolk, located near Muleshoe, TX, has a net capability of 1080 MW. Its principal fuel source is coal. Jones: Jones, located near Lubbock, TX, has a net capability of 486 MW. Its principal fuel source is natural gas. Plant X: Plant X, located near Earth, TX, has a net capability of 442 MW. Its principal fuel source is natural gas. Nichols: Nichols, located near Amarillo, TX, has a net capability of 457 MW. Its principal fuel source is natural gas. Cunningham: Cunningham, located near Hobbs, NM, has a net capability of 267 MW. Its principal fuel source is natural gas. Maddox: Maddox, located near Hobbs, NM, has a net capability of 118 MW. Its principal fuel source is natural gas. Moore County: Moore County, located near Sunray, TX, has a net capability of 48 MW. Its principal fuel source is natural gas. CZ-2: CZ-2, located near Pampa, TX, has a net capability of 26 MW. Its principal fuel source is purchased steam. SPS's other electric generation facilities -- gas turbines and diesel engines -- have a total net capability of 145 MW. These stations are: Carlsbad (gas turbine): Carlsbad, located in Carlsbad, NM, has a net capability of 16 MW. CZ-1 (gas turbine): CZ-1, located near Pampa, TX, has a net capability of 10 MW. Maddox (gas turbine): Maddox, located near Hobbs, NM, has a net capability of 76 MW. Riverview (gas turbine): Riverview, located near Borger, TX, has a net capability of 25 MW. Tucumcari (diesel engine): Tucumcari, located in Tucumcari, NM, has a net capability of 15 MW. SPS's summer peak load for the calendar year 1995, which occurred on July 28, 1995, was 3952 MW and its 1995 winter peak load, which occurred on February 28, 1995, was 2486 MW. iii. Electric Transmission Facilities As of December 31, 1994, SPS's transmission system consisted of 319 circuit miles of 345 KV lines, 1,551 circuit miles of 230 KV lines, 2,317 circuit miles of 138 KV lines and 1,827 circuit miles of 69 KV lines. SPS is in the southwest corner of the Eastern Interconnection of the United States and is a member of the Southwest Power Pool ("SPP"), one of the seven reliability councils on the Eastern Interconnection. SPS is bordered to the south and southeast by the Electric Reliability Council of Texas ("ERCOT") and to the west by the WSCC. SPS is not interconnected with ERCOT. SPS is connected with utilities west of its service territory through two high voltage direct current (HVDC) interconnections in New Mexico and has four interconnecting transmission lines with utilities of the SPP. These interconnections are described in the following table: Voltage (kilovolts) Other Location Interconnecting Utility The Company Utility Near Artesia, NM El Paso Electric Co. and Texas-New Mexico Power Co. 230* 345 Near Clovis, NM Public Service Company of New Mexico 230* 345 Near Oklaunion, Public Service Company TX of Oklahoma 345 345 Near Elk City Public Service Company OK of Oklahoma 230 230 Near Shamrock West Texas Utilities TX 115 115 Near Guymon, OK West Plains Energy 115 115 *These are HVDC interconnections owned by the interconnecting utilities. SPS has scheduling capabilities over these facilities through the WSPP agreement and pursuant to agreements with the interconnecting utilities. Transactions with the SPP are handled through interties near Elk City and Guymon, Oklahoma, and Shamrock and Oklaunion, Texas. These interties allow SPS to sell energy to or to purchase energy from the eastern electrical grid. Sales through eastern interties accounted for 2.0% of fiscal 1995 total sales. HVDC interconnections link SPS with the western electrical grid of the United States. SPS purchases and sells energy through HVDC interties near Artesia and Clovis, New Mexico. Sales through these interties accounted for 4.1% of fiscal 1995 total sales. iv. Other In addition, SPS and its subsidiaries own property, plant and equipment supporting their electric utility functions. 3. Non-Utility a. PSCo PSCo has nine non-utility subsidiaries, eight of which are wholly-owned: WGI, e prime, 1480 Welton, Inc. ("1480 Welton"), PS Colorado Credit Corporation ("PSCCC"), P.S.R. Investments, Inc. ("PSRI"), Fuel Resources Development Co. ("Fuelco"), Young Gas and Green and Clear Lakes Company ("Green and Clear Lakes"). In addition, PSCo owns 80% of the capital stock of Natural Fuels. WGI is a natural gas transmission company operating in Colorado and Wyoming (see Item I.B.1.c.vi.); e prime will offer energy related products and services to energy-using customers and to selected segments of the utility industry; Fuelco has been engaged in the exploration for, and the development and production of, natural gas and oil, principally in Colorado; 1480 Welton is a real estate company which owns certain of PSCo's real estate interests for use in its utility business; PSRI owns and manages company owned life insurance (COLI) policies on certain past and present employees, the benefits from which are to provide future funding for general corporate purposes; PSCCC is a company that finances (factors) certain of PSCo's current assets; Young Gas holds a 47.5% interest in a partnership which owns an underground gas storage facility; Green and Clear Lakes owns water rights and storage facilities for water used at PSCo's Georgetown Hydroelectric Station; and Natural Fuels sells compressed natural gas as a transportation fuel to retail markets, converts vehicles for natural gas usage, constructs fueling facilities and sells miscellaneous fueling facility equipment. PSCo also holds a controlling interest in several other relatively small ditch and water companies whose capital requirements are not significant and which are not consolidated in PSCo's financial statements or statistical data. Together, at December 31, 1994, PSCo's non-utility subsidiaries and investments constituted less than three percent of the consolidated book value of the assets of both PSCo and its subsidiaries. A corporate chart of PSCo and its subsidiaries, showing their non-utility interests, is filed as Exhibit E-4. b. SPS SPS wholly owns two direct non-utility subsidiaries, UE and Quixx. UE is a wholly owned subsidiary formed in 1986. It is engaged in engineering, design, construction management and other miscellaneous services, employing approximately 120 employees. UE's assets at August 31, 1995, were approximately $42.3 million and total revenues for fiscal year 1995 were $38.5 million. Although SPS is UE's major client, UE is also involved in other projects for nonaffiliate customers, providing general engineering and design services. UE also works jointly with Quixx on cogeneration projects. Quixx is a wholly owned subsidiary formed in 1986. Its primary business is investing in and developing cogeneration and energy-related projects. Quixx also holds water rights and certain other non-utility assets. Quixx employs approximately 70 employees. Quixx's assets at August 31, 1995 were approximately $86.4 million and total revenues for fiscal year 1995 were $16.2 million. UE has two affiliates as follows: S.A. Garza Engineers, Inc. ("Sage"), in which UE holds a 39% convertible preferred stock interest and a 12% common stock interest, is involved in municipal water and wastewater projects, civil works, surveying and environmental services and may in the future provide services to NCE's utility subsidiaries; and Vista Environmental Services, L.L.C., 49% of which is owned by UE, performs environmental consulting services, client-regulatory interfacing, complete site assessments, due diligence, waste management planning, remedial action design and implementation, groundwater valuation, mineral surveys, and on-site field supervision in both the private and governmental sectors and is providing site remediation services, and will continue to provide site remediation and other services, to SPS. Quixx has five wholly owned subsidiaries, four of which hold partnership interests in various energy-related limited partnerships. In addition, Quixx directly holds interests in five other entities. The following is a description of Quixx's subsidiaries and affiliates: Quixx holds a 25% limited partnership interest in BCH Energy Limited Partnership ("BCH"), which is constructing a waste-to-energy cogeneration facility located near Fayetteville, North Carolina to provide steam to a Du Pont De Nemours & Company ("Du Pont") plant near Fayetteville and electric power to Carolina Power & Light. Quixx holds a 95% interest in Vedco Louisville L.L.C., which owns a facility consisting of two gas-fired boilers providing steam to a Du Pont plant in Louisville, Kentucky. Quixx Jamaica, Inc., a wholly owned subsidiary of Quixx, holds a 99% limited partnership interest in KES Jamaica, L.P. which owns a 42.3 megawatt oil-fired combustion turbine power plant located in Montego Bay, Jamaica, W.I. and sells electricity to Jamaica Power Services. Quixx holds a 32-1/3% limited partnership interest and, through Quixx Carolina, Inc., a wholly owned subsidiary of Quixx, a 1% general partnership interest in Carolina Energy, Limited Partnership ("Carolina Energy"), which will develop, own and operate solid waste fueled cogeneration facilities in Wilson and Lenoir Counties, North Carolina, which will provide steam to a Du Pont plant and will sell electric power to Carolina Power & Light. Quixx holds a 24.67% limited liability partnership interest and, through Quixx WPP94, Inc., a wholly owned subsidiary of Quixx, a 0.33% general partnership interest in Windpower Partners, 1994, L.P., which owns a 35 megawatt windplant in Texas and sells the electricity to the City of Austin and the Lower Colorado River Authority. Quixx Power Services, Inc., a wholly owned subsidiary of Quixx, will operate and maintain generation facilities in various locations, including the BCH and Carolina Energy cogeneration facilities. Amarillo Railcar Services, a railcar maintenance facility owned and operated by Quixx, provides inspection, light and heavy maintenance and storage for unit trains. A majority of these services are provided for railcars that transport coal for use by SPS. Quixx holds a 50% general partnership interest in Lindsay Cogeneration Limited Partnership, which intends to construct and operate an on site cogeneration facility to be utilized to remediate brine contamination of groundwater as mandated by California. Quixx holds a 1% general partnership interest and, through Quixx Resources, Inc., a wholly owned subsidiary of Quixx, a 99% limited partnership interest in Quixx WRR, L.P., which will hold all of Quixx's water rights located in Roberts, Gray, Hutchinson and Carson Counties, Texas. In addition, Quixx has royalty interests in coal and other minerals produced and to be produced from certain New Mexico properties owned by the Pittsburgh and Midway Coal Mining Company. Quixx also finances sales of heat pumps and markets other non-utility goods and services. Together, SPS's non-utility subsidiaries constituted approximately 13 percent of the consolidated book value of the assets of SPS and it subsidiaries at August 31, 1995. A corporate chart of SPS and its subsidiaries, showing their non-utility interests, is filed as Exhibit E-5. C. Description of Transaction 1. Background and Negotiations Leading to the Proposed Transaction PSCo and SPS have had numerous discussions over the past several years related to various means of better utilizing their facilities, including pursuing possibilities to enter into joint ventures for the construction of various generation and transmission facilities. In addition, PSCo and SPS share the view that fundamental changes in the electric energy industry are inevitable and that such changes are leading to greater competition in a once monopolistic industry. The Energy Policy Act of 1992 (the "1992 Act") granted the FERC the authority to order electric utilities to provide transmission service to other utilities and to other buyers and sellers of electricity in the wholesale market. The 1992 Act also created a new class of power producers, exempt wholesale generators ("EWGs"), which are exempt from regulation under the Act. The exemption from regulation under the Act of EWGs has increased the number of entrants into the wholesale electric generation market, thus increasing competition in the wholesale segment of the electric utility industry. Commencing in December 1993, pursuant to its authority under the 1992 Act, the FERC issued a number of orders in spe- cific cases directing utilities to provide transmission services. Under the FERC's evolving transmission policies, utilities are being required to offer transmission services to third parties on a basis comparable to service that the utilities provide themselves. On April 7, 1995, the FERC issued a notice of proposed rule making under which it proposed to implement on a comprehensive basis the comparable transmission service policies it has developed in specific cases. The FERC's actions to date and its transmission rulemaking proceeding have increased the availability of transmission services, thus creating greater competition in the wholesale power market. In addition, state regulatory bodies in certain states have initiated proceedings to review the basic structure of the industry. These bodies are considering proposals to require some measure of competition in the retail portion of the industry. With the passage of the 1992 Act and the rapidly changing utility environment in general, both PSCo and SPS began investigating their individual strategic options related to the new competitive landscape. Both companies reached the same conclusions: 1. A key to future success would be to become a quality low cost provider; 2. Size would be a key factor related to the various options that could be provided to meet customer demands and further reduce costs; and 3. Financial strength would be essential in the changing environment. On March 29, 1995, following an electric utility industry meeting in Washington, D.C., senior management from both PSCo and SPS met to discuss a variety of business opportunities the two companies could jointly pursue as part of the changing environment, including a possible merger. Soon after this meeting, PSCo engaged the law firm of LeBoeuf, Lamb, Greene & MacRae, L.L.P. to advise it with respect to the potential business combination and SPS engaged the law firm of Cahill Gordon & Reindel ("Cahill Gordon") to advise it with respect to the potential business combination. On May 12, 1995, certain PSCo employees met with certain SPS employees to discuss, among other items, (i) the hiring of Deloitte & Touche LLP ("Deloitte & Touche") to assist the managements of PSCo and SPS in preparing a detailed synergy analysis; (ii) establishing a timetable to investigate a possible merger; (iii) the financial and operational modeling and analysis that would be required; and (iv) the exchange of preliminary information requests. On May 12, 1995, a Confidentiality and Standstill Agreement was signed between PSCo and SPS. Pursuant to that agreement, the two companies and their representatives agreed to provide non-public information to each other with a view toward exploring a possible business combination. Following those preliminary discussions, PSCo engaged Barr Devlin & Co. Incorporated ("Barr Devlin") to act as its financial advisor in connection with a possible business combination with SPS and SPS engaged Dillon, Read & Co. Inc. ("Dillon Read") to act as its financial advisor in connection with the possible business combination with PSCo. During the months of June, July and August of 1995, PSCo and SPS management personnel and representatives of Deloitte & Touche had numerous meetings in Dallas and Denver to analyze all aspects of the synergy study (i.e., operations and maintenance, capacity deferrals, fuel savings, other corporate programs, etc.). In these meetings, PSCo and SPS management personnel, with the assistance of Deloitte & Touche, analyzed potential savings which would be created by the Transaction and which could not be obtained absent the Transaction and savings which would be accelerated as result of the merging of the operations of the two companies. Costs of achieving the merger- related savings as well as savings which were already planned to be achieved through other means were also identified and quantified so that the synergy savings would be a "net" amount. In addition, preliminary due diligence activities and financial and operating modeling assumptions were discussed, and conferences were held between the respective financial advisors and counsel with respect to merger-related matters. In July, representatives of LeBoeuf Lamb and Cahill Gordon began drafting the Merger Agreement. Throughout this period, the Boards of Directors of PSCo and SPS discussed various aspects of the Transaction and the status of the negotiations. On August 22, 1995, the PSCo Board met to review and approve the Mergers. Barr Devlin rendered its written fairness opinion, provided the PSCo Board with information supporting that opinion and discussed in detail the analysis underlying its opinion. The PSCo management and its legal advisors also made presentations reviewing the transaction, including valuation issues, legal issues, and issues concerning the Merger Agreement and related documents. After the presentations, the PSCo Board approved the Merger Agreement and related documents. On August 22, 1995, the SPS Board met to approve the Mergers. SPS management and its legal and financial advisors made presentations reviewing the transaction (valuation, legal, Merger Agreement and related documents). Dillon Read delivered its fairness opinion to the SPS Board. After the presentations, final negotiations were held with representatives of PSCo regarding the conversion ratio. At the conclusion of those discussions and negotiations, the SPS Board unanimously approved the Merger Agreement and related documents. Additional information regarding the background of the Transaction is set forth in the NCE Registration Statement on Form S-4 (Exhibit C-1 hereto). 2. Merger Agreement The Merger Agreement provides for SPS Merger Corp. to be merged with and into SPS, and PSCo Merger Corp. to be merged with and into PSCo. The Merger Agreement is incorporated by reference as Exhibit B-1. Under the terms of the Merger Agreement, upon consummation of the Transaction: - each issued and outstanding share of PSCo Common Stock, together with appurtenant rights, shall be converted into the right to receive one share of NCE Common Stock (the "PSCo Conversion Ratio"); - each issued and outstanding share of SPS Common Stock, together with appurtenant rights, shall be converted into the right to receive 0.95 of one share of NCE Common Stock (the "SPS Conversion Ratio" and, together with the PSCo Conversion Ratio, the "Conversion Ratios"); - each share of PSCo Merger Corp. Common Stock issued and outstanding prior to the Transaction will be converted into one share of Common Stock of PSCo as the surviving corporation; - each share of SPS Merger Corp. Common Stock issued and outstanding prior to the Transaction will be converted into one share of Common Stock of SPS as the surviving corporation; and - all shares of capital stock of NCE issued and outstanding immediately prior to the Transaction will be cancelled. The shares of preferred stock of PSCo and SPS outstanding at the time of the consummation of the Transaction will remain preferred stock of PSCo and SPS, respectively. The Transaction is conditioned on being tax-free to PSCo and SPS shareholders (except as to dissenters' rights and fractional shares.) Based on the capitalization and the Conversion Ratios of PSCo and SPS on December 1, 1995 the shareholders of PSCo and SPS would own securities representing approximately 62.0% and 38.0%, respectively, of the outstanding shares of common stock. The Transaction is subject to customary closing conditions, including the receipt of the requisite shareholder approvals of PSCo and SPS and all necessary governmental approvals, including the approval of the Commission. The Transaction is designed to qualify as a tax-free reorganization under Section 351 of the Internal Revenue Code of 1986, as amended. PSCo and SPS believe that the Transaction will be treated as a "pooling of interests" for accounting purposes. D. PSCo and SPS Benefit Plans PSCo and SPS currently have ten plans which involve the issuance of shares of the companies' common stock to participating employees, or, in the case of Dividend Investment Plans, shareholders, as follows: the PSCo Employee Savings and Stock Ownership Plan, the PSCo Omnibus Incentive Plan, the PSCo Annual Incentive Plan, the PSCo Long Term Incentive Plan, the PSCo Automatic Dividend Reinvestment and Common Stock Purchase Plan, the SPS 1989 Stock Incentive Plan, the SPS Employee Investment Plan, the SPS Dividend Reinvestment and Cash Payment Plan for Employees and the SPS Dividend Reinvestment and Cash Payment Plan for Shareholders. It is anticipated that for an undetermined period of time after the consummation of the Transaction all, such PSCo and SPS plans, except the dividend reinvestment plans, will be maintained on substantially the same terms, except that shares of NCE Common Stock will be used instead of PSCo Common Stock and SPS Common Stock. It is also anticipated that the PSCo Dividend Reinvestment Plan and the two SPS Dividend Reinvestment Plans ____________________ Other than treasury and certain other shares which will be cancelled, fractional shares and shares held by holders who dissent in compliance with Colorado law. Other than those shares which will be cancelled, fractional shares and shares held by holders who dissent in compliance with New Mexico law. will be terminated in connection with the consummation of the Transaction to be replaced by an NCE dividend reinvestment plan (the "NCE DRIP"). NCE will seek authorization from the Commission as required in connection with NCE shares to be issued under the PSCo or the SPS plans or the NCE DRIP. At some point subsequent to the consummation of the Transaction, it is intended that certain of the stock-based plans of NCE (the "NCE Stock-Based Benefit Plans") will replace the PSCo or SPS benefit plans with a similar name. It is intended that each of the NCE Stock-Based Benefit Plans will contain substantially the same provisions as the existing PSCo or SPS plans with similar name. All of the NCE Stock-Based Benefit Plans will be adopted and approved by PSCo and SPS, as the shareholders of NCE, prior to the consummation of the Transaction. Again, NCE will seek authorization from the Commission as required in connection with NCE shares to be issued under the NCE Stock Based Benefit Plans. E. Management and Operations of NCE Following the Merger The NCE Board of Directors and officers currently are Doyle R. Bunch II, Executive Vice-President of SPS and Richard C. Kelly, Senior Vice-President, Finance, Treasurer and Chief Financial Officer of PSCo. Messrs. Bunch and Kelly will resign from their current positions as directors and officers of NCE upon consummation of the Transaction. Pursuant to the Merger Agreement, upon consummation of the Transaction the NCE Board will consist of 14 members, eight designated by PSCo and six by SPS. As of the date hereof, PSCo and SPS had not determined which individuals, in addition to Bill D. Helton, Chairman of the Board of Directors and Chief Executive Officer of SPS, and Wayne H. Brunetti, President, Chief Executive Officer and Chief Operating Officer of PSCo, will be designated to serve as directors of NCE upon consummation of the Transaction. Upon consummation of the Transaction, the NCE Board of Directors shall have four committees as follows: an audit committee, a compensation committee, a finance committee and a nominating and civic responsibility committee. PSCo and SPS each shall designate the chairmen of two of these committees. In addition to the chairmen, each committee shall consist of two members designated by PSCo and two members designated by SPS. The Merger Agreement provides that for four and one-half years following consummation of the Transaction, these arrangements concerning the NCE Board of Directors and its committees may not be modified unless the terms of such modification are approved by a vote of two-thirds of the NCE Board of Directors. Initially, Mr. Helton will be Chairman of the Board of Directors and Chief Executive Officer of NCE and Mr. Brunetti will be NCE's Vice-Chairman of the Board, President and Chief Operating Officer. Mr. Helton and Mr. Brunetti will each have an employment agreement with NCE following the consummation of the Transaction. The forms of these employment agreements are attached as Annexes VI and VII to NCE's Registration Statement on Form S-4 incorporated by reference herein as Exhibit C-1. The Merger Agreement provides that NCE shall maintain (i) its corporate offices in Denver, Colorado and (ii) significant operating offices in Amarillo, Texas. Such provision cannot be modified for four and one-half years following the consummation of the Transaction unless the terms of such modification are approved by a vote of two-thirds of the NCE Board of Directors. Following consummation of the Transaction, the activities of NCE will be governed by its Restated Certificate of Incorporation and Restated Bylaws, attached hereto as Exhibits A- 1 and A-2 respectively. Item 2. Fees, Commissions and Expenses The fees, commissions and expenses to be paid or incurred, directly or indirectly, in connection with the Transactions, including the solicitation of proxies, registration of securities of NCE under the Securities Act of 1933, and other related matters, are estimated as follows: Commission filing fee relating to Application/Declaration on Form U-1 . . . . $ 2,000 Commission filing fee for the Registration Statement on Form S-4 . . . . * Accountants' fees . . . . . . . . . . . . . * Legal fees and expenses relating to the Act * Other legal fees and expenses . . . . . . . * Shareholder communication and proxy solicitation . . . . . . . . . . . . . . * NYSE listing fee . . . . . . . . . . . . . * Exchanging, printing, and engraving of stock certificates . . . . . . . . . . . . * Investment bankers' fees and expenses Barr Devlin & Co. Incorporated . . . . . * Dillon, Read & Co. Inc. . . . . . . . . . * Consulting fees related to human resource issues, public relations, regulatory support, and other matters relating to the Transaction . . . . . . . . . . . . . . . * Expenses related to integrating the operations of the merged company and miscellaneous . . . . . . . . . . . . * TOTAL * To be filed by amendment. Item 3. Applicable Statutory Provisions The following sections of the Act and the Commission's rules thereunder are or may be directly or indirectly applicable to the proposed transaction: Section of the Act Transactions to which section or rule is or may be applicable 4, 5 Registration of NCE as a holding company following the consummation of the Transaction 6(a), 7 Issuance of NCE Common Stock in the Transaction in exchange for shares of PSCo and SPS Common Stock; issuance to NC Hold of stock of certain non-utility subsidiaries of PSCo and SPS; issuance by NC Hold of debt to SPS; issuance by NC Hold of stock to NCE; issuance by NC Services of stock to NCE 9(a)(2), 10(a), Acquisition by NCE of common stock (b), (c) and (f) of PSCo, SPS and Cheyenne 9(a)(1), 10 Acquisition by NCE of stock of WGI, NC Services and NC Hold; acquisition by NC Hold of stock of certain non-utility subsidiaries of PSCo and SPS; acquisition by SPS of debt of NC Hold 8, 11(b), 21 Retention by NCE of gas operations and other businesses of PSCo and Cheyenne 13 Approval of the Service Agreement and services provided to utility affiliates thereunder by NC Services; approval of the Non-Utility Service Agreement and services provided to non-utility affiliates thereunder by NC Services; approval of the UE Service Agreement and services provided to utility affiliates thereunder by UE; approval of the UE Non-Utility Service Agreement and services provided to non-utility affiliates thereunder by UE; approval of the performance of certain services between the NCE system companies Rules 80-91 NC Services charges to NCE system companies; UE charges to NCE system companies; certain NCE system companies' charges to other NCE system companies 87(a)(3) Services among NCE system companies 88 Approval of NC Services and UE as subsidiary service companies 93, 94 Accounts, records and annual reports by NC Services and UE To the extent that other sections of the Act or the Commission's rules thereunder are deemed applicable to the Transaction, such sections and rules should be considered to be set forth in this Item 3. A. Legal Analysis Section 9(a)(2) 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." Under the definition set forth in Section 2(a)(11)(A), 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," and "any company 5 per centum or more of whose outstanding voting securities are owned, controlled, or held with power to vote, directly or indirectly, by such specified company." PSCo, SPS and Cheyenne are public utility companies as defined in Section 2(a)(5) of the Act. Because NCE will acquire more than five percent of the voting securities of each of PSCo, SPS and Cheyenne as a result of the Transaction, and because PSCo, SPS and Cheyenne will become "affiliates" of NCE as a result of the Transaction, NCE must obtain the approval of the Commission for the Transaction under Sections 9(a)(2) and 10 of the Act. The statutory standards to be considered by the Commission in evaluating the proposed transaction are set forth in Sections 10(b), 10(c) and 10(f) of the Act. As set forth more fully below, the Transaction complies with all of the applicable provisions of Section 10 of the Act and should be approved by the Commission. Thus: - the consideration to be paid in the Transaction is fair and reasonable; - the Transaction will not create detrimental interlocking relations or concentration of control; - the Transaction will not result in an unduly complicated capital structure for the NCE system; - the Transaction is in the public interest and the interests of investors and consumers; - the Transaction is consistent with Sections 8 and 11 of the Act; and - the Transaction will comply with all applicable state laws. Furthermore, this Transaction also provides an opportunity for the Commission to follow certain of the interpretive recommendations made by the Division of Investment Management (the "Division") in the report issued by the Division in June 1995 entitled "The Regulation of Public Utility Holding Companies" (the "1995 Report"). While the Transaction and the requests contained in this Application/Declaration are well within the precedent of transactions approved by the Commission as consistent with the Act prior to the 1995 Report and thus could be approved without any reference to the 1995 Report, a number of the recommendations contained therein serve to strengthen the Applicants' analysis and would facilitate the creation of a new holding company better able to compete in the rapidly evolving utility industry. The Division's overall recommendation that the Commission "act administratively to modernize and simplify holding company regulation. . . and minimize regulatory overlap, while protecting the interests of consumers and investors," should be used in reviewing this Application/Declaration since, as demonstrated below, the Transaction will benefit both consumers and shareholders of NCE and the other federal and state regulatory authorities with jurisdiction over this Transaction will have approved it as in the public interest. In addition, although discussed in more detail in each applicable item below, the specific recommendations of the Division with regard to financing transactions, utility ownership and diversification are applicable to this Transaction. ____________________ Letter of the Division of Investment Management to the Securities and Exchange Commission, 1995 Report. E.g., the reduced regulatory burdens associated with routine financings. 1995 Report at 50. E.g., the Commission should apply a more flexible interpretation of the integration requirements under the Act; interconnection through power pools, reliability councils and wheeling arrangements can satisfy the physical interconnection requirement of section 2(a)(29); the geographic requirements of section 2(a)(29) should be interpreted flexibly, recognizing technical advances consistent with the purposes and provisions of the Act; the Commission's analysis should focus on whether the resulting system will be subject to effective regulation; the Commission should liberalize its interpretation of the "A-B- C" clauses and permit combination systems where the affected states agree, and the Commission should "watchfully defer" to the work of other regulators. 1995 Report at 71-7. E.g., the Commission should promulgate rules to reduce the regulatory burdens associated with energy-related diversification and the Commission should adopt a more flexible approach in considering all other requests to enter into diversified activities. 1995 Report at 88-90. 1. Section 10(b) Section 10(b) provides that, if the requirements of Section 10(f) are satisfied, the Commission shall approve an acquisition under Section 9(a) unless: (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 interests 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 not 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 interests of investors or consumers or the proper functioning of such holding company system. a. Section 10(b)(1) i. Interlocking Relationships By its nature, any merger results in new links between theretofore unrelated companies. However, these links are not the types of interlocking relationships targeted by Section 10(b)(1), which was primarily aimed at preventing business combinations unrelated to operating synergies. The Merger Agreement provides for the Board of Directors of NCE to be composed of members drawn from the Boards of Directors of both PSCo and SPS. This is necessary to integrate PSCo and SPS fully into the NCE system and will therefore be in the public interest and the interests of investors and consumers. Forging such relations is beneficial to the protected interests under the Act and thus are not prohibited by Section 10(b)(1). ii. Concentration of Control Section 10(b)(1) is intended to avoid "an excess of concentration and bigness" while preserving the "opportunities for economies of scale, the elimination of duplicate facilities and activities, the sharing of production capacity and reserves and generally more efficient operations" afforded by the coordination of local utilities into an integrated system. American Electric Power Co., 46 SEC 1299, 1309 (1978). In applying Section 10(b)(1) to utility acquisitions, the Commission must determine whether the acquisition will create "the type of structures and combinations at which the Act was specifically directed." Vermont Yankee Nuclear Corp., 43 SEC 693, 700 (1968). As discussed below, the PSCo-SPS strategic alliance will not create a "huge, complex, and irrational system," but rather will afford the opportunity to achieve economies of scale and efficiencies which are expected to benefit investors and consumers. American Electric Power Co., 46 SEC 1299, 1307 (1978). Size: If approved, the NCE system will serve approximately 1.5 million electric customers in six states and 946,000 gas customers in Colorado and Wyoming. As of and for the year ended December 31, 1994: (1) the combined assets of PSCo and SPS would have totaled approximately $6 billion; (2) combined operating revenues of PSCo and SPS would have totaled approximately $2.8 billion; and (3) combined owned generating capacity totaled would have totaled approximately 7,248 MW. By comparison, the Commission has approved a number of acquisitions involving significantly larger operating utilities. See, e.g., CINergy Corp., HCAR No. 26146 (Oct. 21, 1994) (combination of Cincinnati Gas Electric Co. and PSI Resources; combined assets at time of acquisition of approximately $7.9 billion); Entergy Corp., 55 HCAR No. 25952 (Dec. 17, 1993) (acquisition of Gulf States Utilities; combined assets at time of acquisition in excess of $21 billion); Northeast Utilities, HCAR No. 25221 (Dec. 21, 1990) (acquisition of Public Service of New Hampshire; combined assets at time of acquisition of approximately $9 billion); Centerior Energy Corp., HCAR No. 24073 (April 29, 1986) (combination of Cleveland Electric Illuminating and Toledo Edison; combined assets at time of acquisition of approximately $9.1 billion); American Electric Power Co., 46 SEC 1299 (1978) (acquisition of Columbus and Southern Ohio Electric combined assets at time of acquisition of close to $9 billion). As the following table demonstrates, seven of the fifteen registered electric utility holding company systems are larger than NCE will be following the Transaction in terms of assets, operating revenues, customers and/or sales of electricity: Total Operating Electric Sales in System Assets Revenues Customers KWH Total ($ Millions) ($ Millions) (Thousands) (Millions) Southern 27,042 8,297 3,507 139,991 AEP 15,713 5,505 2,773 114,080 Entergy 22,613 5,798 2,360 97,452 CSW 10,909 3,623 1,661 57,334 GPU 9,210 3,650 1,949 42,658 Northeast 10,585 3,643 1,680 40,159 CINergy 7,720 2,796 1,221 50,579 NCE 6,018 2,881 1,476 44,229 In addition, NCE will be smaller than two of the registered holding companies to be formed as a result of recently announced mergers, specifically the merger of Wisconsin Energy Corp. and Northern States Power Company (combined 1994 year-end assets of approximately $10,362 million and operating revenues of $4,180 million) and Union Electric Company and CIPSCO, Inc. (combined 1994 year-end assets of approximately $8,402 million and operating revenues of $2,850 million). NCE will be a mid to small-size registered holding company, and its operations would not exceed the economies of scale of current electric generation and transmission technology or provide undue power or control to NCE in the region in which it will provide service. Efficiencies and economies: As noted above, the Commission has rejected a mechanical size analysis under Section 10(b)(1) in favor of assessing the size of the resulting system with reference to the efficiencies and economies that can be achieved through the integration and coordination of utility operations. More recent pronouncements of the Commission confirm that size is not determinative. Thus, in Centerior Energy Corp., HCAR No. 24073 (April 29, 1986), the Commission stated flatly that a "determination of whether to prohibit enlargement of a system by acquisition is to be made on the basis of all the circumstances, not on the basis of size alone." In addition, in the 1995 Report, the Division recommended that the Commission approach its analysis on merger and acquisition transactions in a flexible manner with emphasis on whether the Transaction creates an entity subject to effective regulation and is beneficial for shareholders and customers as opposed to focusing on rigid, mechanical tests. By virtue of the Transaction, NCE will be in a position to realize the "opportunities for economies of scale, the elimination of duplicate facilities and activities, the sharing of production capacity and reserves and generally more efficient operations" described by the Commission in American Electric Power Co. 46 SEC 1299, 1309. Among other things, the Transaction is expected to yield significant capital expenditure savings through the deferral or elimination of certain capacity requirements and a reduction in reserve margin; savings through greater purchasing power; labor cost savings; administrative and general savings; and cost-of-capital savings. These expected economies and efficiencies from the combined utility operations are described in greater detail below and are projected to result in net savings of approximately $770 million over the first ten years alone. Competitive Effects: As the Commission noted in Northeast Utilities, HCAR No. 25221 (Dec. 21, 1990), the "antitrust ramifications of an acquisition must be considered in light of the fact that public utilities are regulated monopolies and that federal and state administrative agencies regulate the rates charged consumers." PSCo and SPS will file Notification and Report Forms with the DOJ and FTC pursuant to the HSR Act describing the effects of the Transaction on competition in the relevant market and it is a condition to the consummation of the Transaction that the applicable waiting periods under the HSR Act shall have expired or been terminated. In addition, the competitive impact of the Transaction is being fully considered by the FERC before it approves the Transaction. A detailed explanation of the reasons why the Transaction will not threaten competition in even the most narrowly drawn geographic and product markets is set forth in the prepared testimony of Dr. Robert Spann, filed with the FERC on behalf of PSCo and SPS, a copy of which is filed as Exhibit D-1.2.1 The application filed by PSCo and SPS with the FERC is filed as Exhibit D-1.1. For these reasons, the Transaction will not "tend toward 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 customers within the meaning of Section 10(b)(1). b. Section 10(b)(2) -- Fairness of Consideration Section 10(b)(2) requires the Commission to determine whether the consideration to be given by NCE to the holders of PSCo Common Stock and SPS Common Stock in connection with the Transaction is reasonable and whether it bears a fair relation to investment in and earning capacity of the utility assets underlying the securities being acquired. Market prices at which securities are traded have always been strong indicators as to values. As shown in the table below, most quarterly price data, high and low, in the years 1994 and 1995, to date, for PSCo and SPS Common Stock provide support for this conversion ratio. ____________________ Amounts are as of December 31, 1994 or for the year ended December 31, 1994. 1995 Report at 73-4. The shares of PSCo preferred stock and SPS preferred stock outstanding at the time of the consummation of the Transaction will remain outstanding preferred stock of PSCo and SPS, respectively. PSCo SPS* High Low Dividends High Low Dividends 1994 First Quarter $ 32 1/8 $ 28 1/2 $ 0.50 $ 30 7/8 $ 27 5/8 $ 0.55 Second Quarter 29 3/4 25 3/8 0.50 29 1/8 23 3/4 0.55 Third Quarter 27 7/8 24 3/4 0.50 27 1/4 24 7/8 0.55 Fourth Quarter 30 1/8 25 7/8 0.50 28 25 3/8 0.55 1995 First Quarter 31 1/2 29 0.51 29 3/8 26 1/2 0.55 Second Quarter 32 7/9 29 1/4 0.51 29 7/8 27 3/4 0.55 Third Quarter 34 1/2 30 5/8 0.51 32 7/8 28 5/8 0.55 Fourth Quarter** 35 33 1/8 -- 33 1/8 32 0.55 ____________________ * The information is provided for calendar quarters. Fiscal quarters for SPS end on the last day of each November, February, May and August. ** Through December 8, 1995. On August 22, 1995, the last full trading day before the public announcement of the execution and delivery of the Merger Agreement, the closing price per share on the NYSE Consolidated Tape of (i) PSCo Common Stock was $31 1/2 and (ii) SPS Common Stock was $29 3/8, a ratio of 1 to 0.93. The fairness of the Transaction's consideration is also evidenced by the fact that the Transaction is a pure stock-for-stock exchange and qualifies for treatment as a pooling of interests for accounting purposes. As set forth more fully above, each share of PSCo Common Stock will be converted into the right to receive one share of NCE Common Stock, and each share of SPS Common Stock will be converted into the right to receive 0.95 of one share of NCE Common Stock. The Transaction will therefore involve no "acquisition adjustment" or other write-up of the assets of SPS or PSCo. In addition, the Conversion Ratios are the product of extensive and vigorous arms-length negotiations between PSCo and SPS. These negotiations were preceded by months of due diligence, analysis and evaluation of the assets, liabilities and business prospects of each of the respective companies. See NCE Registration Statement on Form S-4 (Exhibit C-1 hereto). Finally, nationally-recognized investment bankers for each of PSCo and SPS have reviewed extensive information concerning the companies and analyzed the Conversion Ratios employing a variety of valuation methodologies, and have opined that the Conversion Ratios are fair, from a financial point of view, to the respective holders of PSCo Common Stock and SPS Common Stock. The investment bankers' analyses and opinions are attached as Annexes II and III to NCE's Registration Statement on Form S-4 and are described on pages 33-43 of the Form S-4 (Exhibit C-1 hereto). In light of these opinions and an analysis of all relevant factors, including the benefits that may be realized as a result of the Transaction, NCE believes that the Conversion Ratios fall within the range of reasonableness, and the consideration for the Transaction bears a fair relation to the sums invested in, and the earning capacity of, the utility assets of PSCo and SPS. c. Section 10(b)(2) -- Reasonableness of Fees NCE believes that the overall fees, commissions and expenses incurred and to be incurred in connection with the Transaction are reasonable and fair in light of the size and complexity of the Transaction relative to other transactions and the anticipated benefits of the Transaction to the public, investors and consumers; that they are consistent with recent precedent; and that they meet the standards of Section 10(b)(2). As set forth in Item 2 of this Application/Declaration, PSCo and SPS together expect to incur a combined total of approximately $18 million in fees, commissions and expenses in connection with the Transaction. By contrast, Cincinnati Gas & Electric Company and PSI Resources incurred $47.12 million in fees in connection with their reorganization as subsidiaries of CINergy, Northeast Utilities alone incurred $46.5 million in fees and expenses in connection with its acquisition of Public Service of New Hampshire and Entergy alone incurred $38 million in fees in connection with its recent acquisition of Gulf States Utilities -- which amounts all were approved as reasonable by the Commission. See CINergy, HCAR No. 26146 (Oct. 21, 1994); Northeast Utilities, HCAR No. 25548 (June 3, 1992); Entergy Corp., HCAR No. 25952 (Dec. 17, 1993). With respect to financial advisory fees, PSCo and SPS believe that the fees payable to their investment bankers are fair and reasonable for similar reasons. Pursuant to the terms of Barr Devlin's engagement, PSCo has agreed to pay Barr Devlin for its services in connection with the Transaction: (i) a financial advisory retainer fee of $100,000 payable upon signing the June 5, 1995 engagement letter; (ii) an initial financial advisory progress fee of $1,000,000 payable upon execution of the Merger Agreement; (iii) a second financial advisory progress fee of $1,000,000 payable upon PSCo shareholder approval of the Merger Agreement, and (iv) a transaction fee based on the aggregate consideration to be received by SPS and holders of SPS Common Stock in connection with the Transaction on the consummation of the Transaction, ranging from 0.45 percent of such aggregate consideration (for a transaction with an aggregate consideration of $1,000,000,000) to 0.41 percent of such aggregate consideration (for a transaction with an aggregate consideration of $2,000,000,000). All retainer fees payable during the term of the engagement and all financial advisory progress fees would be credited against any transaction fee payable to Barr Devlin. PSCo has agreed to reimburse Barr Devlin for its out-of- pocket expenses, including fees and expenses of legal counsel and other advisors engaged with the consent of PSCo, and to indemnify Barr Devlin against certain liabilities, including liabilities under the federal securities laws, relating to or arising out of its engagement. Pursuant to the engagement letter between SPS and Dillon Read, SPS has paid Dillon Read the following amounts: $200,000 upon the execution of the engagement letter and $450,000 upon the rendering of Dillon Read's fairness opinion to the SPS Board. In addition, SPS has agreed to pay Dillon Read $200,000 upon the affirmative vote of SPS shareholders in favor of the Transaction, $100,000 on April 30, 1996, and $100,000 every six months thereafter until the Transaction is consummated or Dillon Read's engagement has been terminated. SPS has also agreed to pay Dillon Read a fee upon consummation of the Transaction equal to 0.37 percent of the aggregate amount of consideration received by SPS's common shareholders, less the $850,000 and the $100,000 semi-annual payments mentioned above which will have previously been paid. The investment banking fees of PSCo and SPS reflect the competition of the marketplace, in which investment banking firms actively compete with each other to act as financial advisors to merger partners. PSCo has agreed to reimburse Barr Devlin for its out-of- pocket expenses, including fees and expenses of legal counsel and other advisors engaged with the consent of PSCo, and to indemnify Barr Devlin against certain liabilities, including liabilities under the federal securities laws, relating to or arising out of its engagement. SPS has agreed to reimburse Dillon Read for its out-of- pocket expenses, including fees and expenses of legal counsel and other advisors engaged with the consent of SPS, and to indemnify Dillon Read against certain liabilities, including liabilities under the federal securities laws, relating to or arising out of its engagement. d. Section 10(b)(3) Section 10(b)(3) requires the Commission to determine whether the Transaction will unduly complicate NCE's capital structure or will be detrimental to the public interest, the interests of investors or consumers or the proper functioning of NCE's system. Capital structure: The corporate capital structure of NCE after the Transaction will not be unduly complicated and will be substantially similar to capital structures approved by the Commission in other orders. See, e.g., CINergy, HCAR No. 26146 (Oct. 21, 1994); Centerior Energy Corp., HCAR No. 24073 (April 29, 1986); Midwest Resources, et al., HCAR No. 25159 (Sept. 26, 1990); Entergy Corp., HCAR No. 25952 (Dec. 17, 1993); Northeast Utilities, HCAR No. 25548 (June 3, 1992). In the Transaction, the shareholders of PSCo and SPS will receive NCE Common Stock. NCE will own 100% of the common stock of PSCo and SPS and there will be no minority common stock interest remaining in either company. Each share of PSCo and SPS preferred stock outstanding at the time of the consummation of the Transaction will remain outstanding preferred stock of PSCo and SPS, respectively. The debt securities of PSCo and SPS outstanding at the time of the consummation of the Transaction will likewise remain outstanding without change. The only voting securities of NCE which will be publicly held after the transaction will be NCE Common Stock. NCE will have the ability to issue, subject to the approval of the Commission, preferred stock, the terms of which, including any voting rights, may be set by NCE's Board of Directors as has been authorized by the Commission with regard to other registered holding companies. See, e.g., The Columbia Gas System, Inc., HCAR No. 26361 (Aug. 25, 1995) (approving restated charter, including preferred stock whose terms, including voting rights, can be established by the board of directors). The only class of voting securities of NCE's direct and indirect non-utility subsidiaries will be common stock and, in all but one case, all issued and outstanding shares of such common stock will be held by NCE or a subsidiary of NCE. NCE will hold 80% of the common stock of Natural Fuels. In addition, NC Hold will have issued debt to SPS in connection with its acquisition of the outstanding voting securities of Quixx and UE as more fully described in Item 3.A.4.ii below. Set forth below are summaries of the historical capital structure of PSCo as of December 31, 1994 and of SPS as of August 31, 1995 and the pro forma consolidated capital structure of NCE as of September 30, 1995: PSCo and SPS Historical Capital Structures* (dollars in millions) PSCo SPS Common Stock Equity $1,267 $721 Preferred stock not subject to Mandatory redemption 140 73 Preferred stock subject to mandatory redemption 45 -- Long-term Debt 1,181 583 Short-term Debt 325 -- Total $2,958 $1,490 NCE Pro Forma Consolidated Capital Structure* (dollars in millions) (unaudited) Common Stock Equity $2,033 Preferred stock not subject to mandatory redemption 213 Preferred stock subject to mandatory 41 redemption Long-Term Debt 1,662 Short-Term Debt 326 Total $4,275 * All $73 million of SPS's preferred stock has been retired. SPS may issue new preferred shares in 1996 and information with regard to such shares will be supplied by amendment. The pro forma consolidated capital structure of NCE has been adjusted to reflect future nonrecurring charges directly related to the Transaction, which result in, among other things, the recognition of additional current liabilities and a reduction in retained earnings. NCE's pro forma consolidated common equity to total capitalization ratio of 48% (which percent does not change after excluding the $73 million of SPS preferred stock recently retired) comfortably exceeds the "traditionally acceptable 30% level." Northeast Utilities, 47 SEC Docket at 1279, 1284 (1990). Protected interests: As set forth more fully in Item 3.A.2.b.i (Efficiencies and Economies), Item 3.A.2.b.ii (Integrated Public Utility System) and elsewhere in this Application/Declaration, the Transaction is expected to result in substantial cost savings and synergies, and will integrate and improve the efficiency of the PSCo and SPS utility systems. The Transaction will therefore be in the public interest and the interests of investors and consumers, and will not be detrimental to the proper functioning of the resulting holding company system. 2. Section 10(c) Section 10(c) of the Act provides that, notwithstanding the provisions of Section 10(b), the Commission shall not approve: (1) 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 (2) 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 . . . . ____________________ This number is a preliminary estimate only, and will be updated as necessary. By their terms, Sections 8 and 11 only apply to registered holding companies and are therefore inapplicable at present to NCE, since it is not now a registered holding company. The following discussion of Sections 8 and 11 is included only because, under the present transaction structure, M-P will register as a holding company after consummation of the Transaction. a. Section 10(c)(1) Section 10(c)(1) requires that an acquisition be lawful under Section 8. Section 8 prohibits registered holding companies from acquiring, owning interests in or operating both a gas and an electric utility serving substantially the same area if state law prohibits it. As discussed below, the Transaction does not raise any issue under Section 8 or, accordingly, the first clause of Section 10(c)(1). Indeed, Section 8 indicates that a registered holding company may own both gas and electric utilities where, as here, the relevant state utility commissions support such an arrangement. Section 10(c)(1) also requires that the transactions not be detrimental to carrying out the provisions of Section 11. Section 11(a) of the Act requires the Commission to examine the corporate structure of registered holding companies to ensure that unnecessary complexities are eliminated and voting powers are fairly and equitably distributed. As described above, the Transaction will not result in unnecessary complexities or unfair voting powers. Although Section 11(b)(1) generally requires a registered holding company system to limit its operations "to a single integrated public utility system, and to such other businesses as are reasonably incidental, or economically necessary or appropriate to the operations of such integrated public utility system," a combination integrated gas and electric system within a registered holding company is permissible under Section 8. Additionally, Section 11(b)(1) provides that "one or more additional integrated public utility systems" may be retained if, as here, certain criteria are met. Section 11(b)(2) directs the Commission "to ensure that the corporate structure or continued existence of any company in the 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." As detailed below, the Transaction will not be detrimental to the carrying out of the provisions of Section 11. i. Retention of Gas Operations NCE's retention of the gas operations of PSCo is lawful under Section 8 of the Act and would not be detrimental to the carrying out of Section 11 of the Act. Section 8: Section 8 of the Act provides that [w]henever a State law prohibits, or requires approval or authorization of, the ownership or operation by a single company of the utility assets of an electric utility company and a gas utility company serving substantially the same territory, it shall be unlawful for a registered holding company, or any subsidiary company thereof . . . (1) to take any step, without the express approval of the state commission of such state, which results in its having a direct or indirect interest in an electric utility company and a gas company serving substantially the same territory; or (2) if it already has any such interest, to acquire, without the express approval of the state commission, any direct or indirect interest in an electric utility company or gas utility company serving substantially the same territory as that served by such companies in which it already has an interest. (emphasis added). On its face, the section indicates that, with the approval of the relevant state utility commissions, registered holding company systems can include both electric and gas utility systems. A careful reading of the section indicates that the thrust of the section is to preclude the use by registered holding companies of separate gas and electric utility companies with overlapping service territories in order to circumvent any state law restrictions on the ownership of gas and electric assets by the same company. Thus, two types of combination registered holding companies are implicitly acceptable under the statute absent such state objection -- a registered holding company system that includes combination companies and a system that includes separate gas and electric companies. NCE believes that a reemphasis by the Commission on Section 8, which would allow registered combination companies pending state support, is consistent both with the Act and its policy objectives. Indeed, over time the Commission has in fact emphasized different aspects of Section 8 and its interplay with Section 11 -- initially allowing registered holding companies to own both gas and electric systems under Section 8, then focusing on Section 11 as controlling determinations regarding combination companies, and requiring the second system to meet a strict interpretation of the requirements set forth in clauses A, B and C of Section 11(b)(1). In its early decisions, the Commission adhered to the concept that the decision as to whether or not to allow combination companies is one that states should make (although the Commission might have to implement it in certain cases) and, where such systems were permissible, the role of the Commission was to ensure that both such systems are integrated as defined in the Act. The Commission's most notable decision in this line is In the Matter of American Water Works and Electric Company, Incorporated, 2 SEC 972 (1937). In this case, the Commission approved the applicant's voluntary reorganization plan under Section 11(e) of the Act and permitted the newly reorganized registered holding company to retain its electric and its gas operations, specifically noting that while the Act does not contain a definition of single integrated utility in the context of a combination company: We believe, however, that it is proper to regard such a combined property as a single integrated system, provided that all of the electric properties are integrated and all of the properties, both gas and electric, are in fairly close geographic proximity and are so related that substantial economies may be effectuated by their coordination under common control. The question of public policy as to the common ownership of gas and electric facilities in the same territory is apparently left by the statute to the decision of the states. Thus, since the combination company did not violate state policy, there was no need for the Commission to exercise jurisdiction to implement state policy. By the early 1940's, however, the Commission switched its focus to Section 11 and adopted a narrow interpretation of the standards contained therein as the controlling factor with regard to combination registered holding companies. In connection with its analysis of combination companies under Section 11, the Commission frequently noted a policy concern existing at that time which advocated separating the management of gas and electric utilities based on the belief that the gas utility business tended to be overlooked by combination company management who focused on the electric business. Therefore, gas utilities would benefit from having separate management focused entirely on the gas utility business. However, both the legislative history of the Act and recent changes in the utility industry indicate that it is a propitious time for the Commission to reemphasize the provisions of Section 8 of the Act and allow combination registered holding companies where, as in this case, they are permitted under relevant state law. A review of the legislative history of Section 8 clarifies this intent. In its report, the Senate Committee on Interstate Commerce noted that the provision in Section 8 concerning combination companies "is concerned with competition in the field of distribution of gas and electric energy - a field which is essentially a question of State policy, but which becomes a proper subject of Federal action where the extra-State device of a holding company is used to circumvent state policy." The Report of the Committee on Interstate Commerce, S. Rep. No. 621 at 31 (1935). In addition, attached to the above-referenced committee report is the Report of the National Power Policy Committee on Public-Utility Holding Companies, which sets forth a recommended policy that: "Unless approval of a State commission can be obtained the commission should not permit the use of the holding-company form to combine a gas and electric utility serving the same territory where local law prohibits their combination in a single entity." This does not prohibit combination companies where such approvals can be obtained. Much more recently, in the 1995 Report, the Division noted "it does not appear that the SEC's precedent concerning additional systems precludes the SEC from relaxing its interpretation of Section 11(b)(1)(A)" and "that the utility industry is evolving toward the creation of one-source energy companies that will provide their customers with whatever type of energy supply they want, whether electricity or gas," and recommended that the Commission interpret Section 11(b)(1) of the Act to allow registered holding companies to hold both gas and electric operations as long as each affected state utility regulatory commission approves of the existence of such a company. This change in the industry whereby, among other things, customers are increasingly seeking the most economic means of meeting their energy needs, and not simply their gas needs or their electric needs, is evidenced by the transformation of traditional utilities into energy service companies as well as the growth of new energy providers such as marketers and even the treatment of energy as a commodity for arbitrage transactions. Another important factor in favor of focusing on state commission determinations regarding combination companies is that one of the primary goals of Congress in enacting the Act was to simplify the corporate structures of holding company systems to enable states to regulate the production and distribution of energy. Section 8 provides that the Act may be used as a tool to further state policy when state policy prohibits combined electric and gas operations, and implicitly allows such combination companies where consistent with state policy. This is consistent with the general policy of the Act that local regulators are in the best position to assess the needs of their communities. The Act was never intended to supplant local regulation but, rather, was intended to create conditions under which local regulation was possible. Section 21 of the Act, which further codifies this legislative intent, states: "Nothing in [the Act] shall affect . . . the jurisdiction of any other commission, board, agency, or officer of . . . any State, or political subdivision of any State, over any person, security, or contract, insofar as such jurisdiction does not conflict with any provision of [the Act] . . . ." The legislative history reveals that Section 21 of the Act was further intended "to insure the autonomy of state commissions [and] nothing in the [Act] shall exempt any public utility from obedience to the requirements of state regulatory law." The Report of the Committee on Interstate Commerce, S. Rep. No. 621 at 10 (1935). Thus, the Act should not be used as a tool to override state policy, particularly when the holding company involved is subject to both state and federal regulation and when the affected state regulatory commissions have indicated their support for the combined electric and gas operations in one holding company system. Finally, this reemphasis on Section 8 fits within the overall regulatory scheme of the Act. First, Section 11 of the Act is flexible and was designed to change as the policy concerns over the regulation of utility holding companies changed. As discussed below, the utility industry and the regulation of that industry has changed dramatically in recent years and it is competitive forces (the very thing that the Act was designed to promote) that are pushing holding companies to offer alternative forms of energy. Second, a registered holding company would still be required to demonstrate that any acquisition or transaction by which it would become a combination company would not be detrimental to the carrying out of the provisions of Section 11 of the Act. In other words, its electric system would have to constitute an integrated electric system and that its gas system would have to constitute an integrated gas system and both systems must be capable of being operated efficiently. Thus, the standards of Section 11 would still have to be met, but the construction of those standards should take into account the fundamental policy of the Act and allow local regulators to make the major determination with regard to combination companies. NCE as a combination company is permissible pursuant to the terms of Section 8 of the Act and is in the public interest. First, the combination of electric and gas operations in PSCo and Cheyenne is lawful under all applicable state laws. NCE will not be using its holding company structure to circumvent any state regulations. In addition, in their applications for approval of the Transaction by both the Colorado and Wyoming regulatory commissions -- who have, and will continue to have, direct jurisdiction over the NCE system's gas operations located in their respective states -- PSCo and Cheyenne have asked these commissions to indicate their support for NCE as a combination electric and gas utility company through the retention of PSCo's and Cheyenne's gas operations. Based on preliminary discussions with the staffs of these commissions, the parties expect that these Commissions will be supportive of such retention. In addition, the existence of both gas and electric systems in the NCE holding company system will allow NCE's customers greater choice to meet their energy needs, especially given the fact that the electric and gas systems operate in substantially the same territory. Moreover, the prior fear that a holding company such as NCE would be able to greatly emphasize one form of energy over the other based on its own agenda has dissipated both because of the competitive nature of the energy market, which requires utilities to meet customer demand for energy above all else, and because state regulators will have ____________________ IN THE MATTER OF AMERICAN WATER WORKS AND ELECTRIC COMPANY, INCORPORATED, 2 SEC at 983, n.3. SEE, E.G., IN THE MATTER OF COLUMBIA GAS & ELECTRIC CORPORATION, 8 SEC 443 at 463 (1941); In the Matter of United Gas Improvement Company, HCAR No. 2692 (April 15, 1941); SECURITIES AND EXCHANGE COMMISSION v. NEW ENGLAND ELECTRIC SYSTEM, 384 U.S. 176 (1966). It should be noted that the Commission continued to give primacy to state utility commission determinations in making decisions regarding combination exempt holding companies. SEE, E.G., In the Matter of Northern States Power Company, HCAR No. 12655 (Sept. 16, 1954); DELMARVA POWER & LIGHT CO., 46 S.E.C. 710 (1976); WPL HOLDINGS, HCAR No. 24590 (Feb. 26, 1988). SEE, E.G., IN THE MATTER OF THE PHILADELPHIA COMPANY, 28 SEC 35, 48 (1948); IN THE MATTER OF THE NORTH AMERICAN COMPANY, 11 SEC 169, 179-80 (195); In the Matter of Illinois Power Company, HCAR No. 16574 (Jan. 2, 1970). The National Power Policy Committee was an committee appointed by President Franklin D. Roosevelt consisting of representatives from various government departments concerned with power problems and instructed to report to Congress on the coordination of government policy relating to such problems. Its members were Harold L. Ickes, Frank R. McNinch, Elwood Mead, T.W. Norcross, Morris L. Cooke, Robert E. Healy, David E. Lilienthal and Edward M. Markham. 1995 Report at 15-6. MISSISSIPPI VALLEY GENERATING CO., 36 SEC 159 (1955) (noting that Congress intended the concept of integration to be flexible); UNITIL Corporation, HCAR No 25524 (April 24, 1992) (noting that section 11 contains a flexible standard designed to accommodate changes in the industry). sufficient control over, and would be unlikely to approve, a combination company that attempts to undertake such practices. Even if the Act were not interpreted as generally permitting combination gas and electric systems, Section 11 contains additional provisions that permit the retention by PSCo and Cheyenne of their respective gas systems. Section 11(b)(1) of the Act permits a registered holding company to control one or more additional integrated public utility systems -- i.e., gas as well as electric -- if: (A) each of such additional systems cannot be operated as an independent system without the loss of substantial economies which can be secured by the retention of control by such holding company of such system; (B) all of such additional systems are located in one state, adjoining states, or a contiguous foreign country; and (C) the continued combination of such systems under the control of such holding company is 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. In the 1995 Report, the Division recommended that the Commission "liberalize its interpretation of the `A-B-C' clauses." Historically, as a "guide" to determining whether lost economies are "substantial" under Section 11(b)(1)(A), under its previous narrow interpretation of this section, the Commission has given consideration to four ratios, which measure the projected loss of economies as a percentage of: (1) total gas operating revenues; (2) total gas expense or "operating revenue deductions"; (3) gross gas income; and (4) net gas income or net gas utility operating income. Although the Commission has declined to draw a bright-line numerical test under Section 11(b)(1)(A), under its previous narrow interpretation of this Section it indicated that cost increases resulting in a 6.78% loss of operating revenues, a 9.72% increase in operating revenue deductions, a 25.44% loss of gross income and a 42.46% loss of net income would afford an "impressive basis for finding a loss of substantial economies." Engineers Public Service Co., 12 SEC 41, 59 (1942) (citation omitted). Here, the lost economies that would be experienced if the gas properties of PSCo and Cheyenne were to be operated on a stand-alone basis meet, and in most instances, exceed these numbers, without any increase in benefits to consumers. These lost economies result from the need to replicate services, the loss of economies of scale, the costs of reorganization, and other factors, and are described more fully in the Analysis of the Economic Impact of a Divestiture of the Gas Operations of PSCo and its Cheyenne Subsidiary (the "Divestiture Study") (Exhibit J-1 hereto). As set forth in the Divestiture Study, divestiture of the gas operations of PSCo and Cheyenne into stand-alone companies would result in lost economies of $43,605,187 for PSCo and $1,682,723 for Cheyenne. These lost economies compare with gas operating revenues of $677,326,418 for PSCo and $15,630,080 for Cheyenne; gas operating revenue deductions of $607,599,384 for PSCo and $13,681,672 for Cheyenne; gas gross income of $69,727,034 for PSCo and $1,948,408 for Cheyenne, and gas net income of $51,266,520 for PSCo and $1,530,526 for Cheyenne. On a percentage basis, the lost economies amount to 6.44% of gas operating revenue, 7.18% of gas operating revenue deductions, 62.54% of gross gas income and 85.06% of net gas income for PSCo as well as 10.77% of gas operating revenues; 12.30% of gas operating revenue deductions, and 86.36% of gross gas income and 109.94% of net gas income for Cheyenne. The percent losses in net gas income alone that will be suffered by the PSCo and Cheyenne gas system if operated on a stand-alone basis exceed the 30% loss in the New England Electric System case that the Commission has described as the highest loss of net income in any past divestiture order. The percentage loss that would be suffered by PSCo in gas operating revenue and gross gas income exceeds the percentage loss in the majority of diversification orders issued by the Commission in the past. The percentage loss that would be suffered by Cheyenne in gross gas income also exceeds the percentage loss in the majority of diversification orders issued by the Commission. The applicable percentages here and in past cases are summarized in Exhibit J-3. ____________________ 1995 Report at 74. NEW ENGLAND ELECTRIC SYSTEM, 41 SEC 888 (1964), aff'd, 384 U.S. 176 (1966) and 390 U.S. 207 (1968). In order to recover these lost economies the PSCo gas division would need to increase its revenue from rates by $44,607,669 or 6.62% and the Cheyenne gas division would need to increase rate revenue by $1,775,439 or 11.38%. These increases on rate revenues would have a direct and immediate negative impact on the rates charged to consumers for gas services. In addition, the customers of the PSCo and Cheyenne gas business who are also customers of their respective electric utility business will experience a doubling of their postage costs to pay two separate bills. The total estimated increase in such postage costs is $3.84 per customer, per year or $3,580,032 in the aggregate ($3,478,637 for PSCo's gas customers and $101,395 for Cheyenne's gas customers). Moreover, it should be noted that the divestiture of PSCo's and Cheyenne's gas business will result in increased labor and postage costs to both companies' electric system. Specifically, it is estimated that the cost to PSCo's customers would be approximately $44.9 million, or 3.42% of its electric revenues, and the cost to Cheyenne's customers would be approximately $1.0 million, or 2.86% of its electric revenues. Finally, divestiture of PSCo's and Cheyenne's gas operations would cause a significant, although difficult to quantify, amount of damage to NCE's customers, NCE's regulators and NCE's ability to compete in the marketplace. Such non-quantifiable costs to customers involve the additional expenses of doing business with two utilities instead of one (i.e., additional telephone calls for service and billing inquiries, and costs of providing access to meters and other facilities for two utilities) and costs associated with making the entities supply information to shareholders and publish the reports required by the 1934 Act. Similarly, regulatory costs involve additional duties for the staffs of the CPUC and the WPSC as a result of dealing with an additional utility. These additional duties would largely be the result of duplicating existing functions, such as separate requests for approval of financing and rate case requests. NCE's competitive position in the market would also suffer because as the utility industry moves toward a complete energy services concept, competitive companies must be able to offer customers a range of options to meet their energy needs. Divestiture of gas operations would render NCE unable to offer its customers a significant and important option, namely gas services, and could damage NCE's long- term competitive potential. (B) and (C) clauses: The remaining requirements of Section 11(b)(1) are met because the gas operations of PSCo are located in adjoining states (Colorado and Wyoming) and because the continued combination of the gas operations under NCE is 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. The gas systems are confined to a relatively small area. Moreover, as the Commission has recognized elsewhere, the determinative consideration is not size alone or size in an absolute sense, either big or small, but size in relation to its effect, if any, on localized management, efficient operation and effective regulation. From these perspectives, it is clear that the continued combination of the gas operations under NCE is not too large. With respect to localized management, management will remain geographically close to both gas operations, thereby preserving the advantages of localized management. From the standpoint of regulatory effectiveness, each gas operation is organized in a separate corporation by regulatory jurisdiction which facilitates state regulation. In addition, it is expected that the relevant state regulatory authorities will indicate their support for the retention of the gas system by NCE and thereby indicating that they can continue to regulate this system effectively. Finally, as detailed above, the gas operations of PSCo and Cheyenne enjoy substantial economies as part of the PSCo system, and will realize additional economies as a result of the Transaction as part of the NCE System. Far from impairing the advantages of efficient operation, the continued combination of the gas operations under NCE will facilitate and enhance the efficiency of gas operations. For further discussion of the requirements of Section 11(b)(1)(C), see the legal memorandum filed as Exhibit J-2 hereto. In addition, as previously noted, the parties have requested, and expect to receive a statement by the two affected state utility commissions that they do not object to retention of the gas system in the NCE system, which, as discussed in the 1995 Report, is the prerequisite for potential liberalization of the retention standard. ii. Other Businesses As a result of the Transaction, the non-utility businesses and interests of PSCo and SPS described in Item 1.B.3. above will become businesses and interests of NCE. From PSCo, NCE will hold the following non-utility subsidiaries indirectly through NC Hold: e prime, Young Gas and Natural Fuels. NCE will hold the following non-utility subsidiaries through PSCo: Green & Clear Lakes, 1480 Welton, PSRI, PSCCC, Fuelco and the water and ditch companies and will hold WGI directly. In addition, PSCo will continue to operate certain of its non-utility businesses directly. From SPS, NCE will hold the following non-utility subsidiaries indirectly through NC Hold: UE and Quixx. In addition, the subsidiaries, affiliates and associates of UE and Quixx will become indirect subsidiaries, affiliates and associates, respectively, of NCE. Corporate charts showing the non-utility subsidiaries of PSCo and SPS are filed as Exhibits E-4 and E-5. A corporate chart showing the projected arrangement of these subsidiaries under NCE is filed as Exhibit E-6. Standard for retention: 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." Under the cases interpreting Section 11, an interest is retainable if (1) 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 if (2) 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. 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." As set forth more fully below, the non-utility business interests that NCE will hold directly or through PSCo and NC Hold all meet the Commission's standards for retention. I. Direct Subsidiary of NCE WGI: WGI transports gas from the PSCo gas system to Cheyenne. As discussed previously, this gas pipeline subsidiary ensures access to natural gas supplies for the gas utility operations of Cheyenne and, thus, is functionally related to such utility operations. The Commission's decisions recognize functional relationship of gas pipelines to the gas utility business and the retainability of gas transmission interests in connection with gas utility operations. See, e.g., CNG Transmission Corp., HCAR No. 25239, (Jan. 9, 1991); Gas Related Activities Act of 1990, Sec.2(a). WGI does provide gas transportation services for three other area gas utilities. II. Subsidiaries of NC Hold UE: UE is engaged in engineering, design, construction, management and related services. UE will provide such services to system companies as well as to unaffiliated third parties. Clearly, the engineering, construction and design of utility plants is functionally related to the core utility operations of NCE. A utility company must be able to construct or otherwise acquire additional capacity as needed and UE's ability to do so is one of the reasons SPS has remained a strong low-cost provider of power in the retail and wholesale markets. The retention of UE as a separate subsidiary that offers services to third parties has allowed SPS, and will allow NCE, to keep its power plant and utility construction operations active even when the affiliated utility system is not expanding its own capacity. As a non-regulated subsidiary, UE will be able to compete in the developing independent power market due to its ability to accomplish plant construction quickly and at a competitive price. Moreover, the Commission has authorized registered holding companies to engage in a number of similar businesses, including engineering, development, construction, management and related services. See, e.g., Central and South West Corp., HCAR No. 26280 (Apr. 26, 1995) (authorizing Central and South West Services engineering and construction department to provide services to third parties); Entergy Corporation, HCAR No. 26322 (June 30, 1995) (authorizing Energy Enterprises, Inc. to provide development, design, engineering, construction, maintenance and management services to domestic and foreign power projects); New England Electric System, HCAR No. 26017 (Apr. 1, 1994) (authorizing New England Electric Resources, Inc. to provide consulting services, including engineering, design and construction, to nonaffiliates for profit); General Public Utilities Corp., HCAR No. 25108 (June 26, 1990) (authorizing engineering and management services by Energy Initiatives, Incorporated). The activities of UE will be similar to those approved by the Commission and thus, UE is retainable. In addition concurrently with the 1995 Report, the Commission released for public comment a proposed new Rule 58 (60 Fed. Reg. 33,642 (June 28, 1995)), which would exempt acquisitions or transactions of energy-related businesses from the prior approval requirements of Sections 9(a)(1) and 10. As proposed, energy related activities include the sale of technical, operational, management and other similar kinds of services and expertise developed in the course of utility operations in such areas as power plant and transmission system engineering, development, design and rehabilitation; construction; maintenance and operation. Thus, the Division has indicated that it believes these operations are functionally related businesses under Section 11 of the Act. Quixx: The primary business of Quixx is investment in IPPs, QFs, EWGs, foreign utility companies ("FUCOs") and other energy- related projects. Section 32 of the Act exempts EWGs from the provisions of the Act while Section 33 of the Act exempts FUCOs from the provisions of the Act, thereby allowing registered holding companies to obtain interests in such entities. Moreover, the Commission has authorized the formation and financing of a number of non-utility subsidiaries of registered holding companies in order to invest in and hold securities of IPPs, QFs, FUCOs and EWGs. Unless ____________________ SEE, E.G., MICHIGAN CONSOLIDATED GAS CO., 44 SEC 361, 365 (1970), AFF'D, 444 F.2d 913 (D.C. Cir. 1971) (QUOTING GENERAL PUBLIC UTILITIES CORP., 32 SEC 807, 839 (1951)); UNITED LIGHT AND RAILWAYS CO., 35 SEC 516, 519 (1954). CSW CREDIT, INC., HCAR No. 25995 (1994); JERSEY CENTRAL POWER & LIGHT CO., HCAR No. 24348 (March 18, 1987). UNITED LIGHT AND RAILWAYS CO., 35 SEC at 519. otherwise authorized by the Commission, any IPP in which Quixx invests shall constitute a part of NCE's "integrated public utility system" within the meaning of Section 2(a)(29) of the Act. See, e.g., Northeast Utilities, HCAR No. 25977 (Jan. 24, 1994) (authorizing Charter Oak Energy and COE Development Corporation); Central and Southwest Corp., HCAR No. 26156 (Nov. 3, 1994) (authorizing CSW to form, acquire, finance and own securities of FUCOs); Central and Southwest Corporation, HCAR No. 26155 (Nov. 2, 1994) (authorizing investment in a joint venture which will construct, own and operate IPPs, QFs and EWGs). In addition, proposed Rule 58 lists the ownership of QF's as an energy related activity. Thus, Quixx's principal operations are retainable under the Act. In addition, most of Quixx's subsidiaries and affiliates are IPPs, QFs, EWGs or FUCOs and are thus retainable under Section 11 as demonstrated by the Commission's precedent. In addition to its primary business, Quixx through Quixx WRR, L.P. holds interests in certain water rights in Texas, which may be retained based on the same argument discussed in connection with the Ditch Companies below. It should be noted that Quixx has entered into an agreement to sell approximately 40% of its water rights. Subject to the satisfaction of various conditions, the sale is scheduled to close in 1996. Quixx also provides financing for heat pump acquisitions by SPS customers. This activity is functionally related to the utility business, was developed in the course of SPS's utility business and is de minimus in amount, contributing $1.2 million in income representing interest on heat pump financing contracts for the twelve months ended December 31, 1995. Rule 48 of the Act contains exemptions from the financing approval requirements for certain system companies to finance the acquisition of utility appliance such as water pumps for the customers of the operating utility companies within the holding company system. Although not directly applicable to Quixx, this rule does indicate that such activity is permissible for a registered holding company system and it functionally related to utility operations. Similarly, proposed Rule 58's safe harbor for utility appliances businesses for registered holding company systems and for businesses developed in the course of utility operations indicates this business is functionally related within the meaning of Section 11(b)(1) of the Act. Finally, the Commission has authorized financing and leasing of utility equipment for customers. See Central and South West Corporation, HCAR No. 26367 (Sept. 1, 1995); Entergy Corporation , HCAR No. 25718 (Dec. 28, 1992). See also, Consolidated Natural Gas Co., HCAR No. 26234 (Feb. 23, 1995) (authorizing CNG's subsidiary, CNGF, to finance the purchase of certain gas equipment, including "New Technology Equipment" and "Alternate Fuel Equipment," by customers who would, in turn, purchase gas from CNG System subsidiaries). Amarillo Railcar Services, a division of Quixx should also be retainable. The Commission has authorized electric utility subsidiaries of registered holding companies to construct, finance, acquire, and operate unit train repair and maintenance facilities generally where the railcars were used to service the utility by transporting coal. In the Matter of Southwestern Electric Power Company (subsidiary of CSW), HCAR Nos. 19643; 19468 (Aug. 9, 1976; April 6, 1976, respectively); In the Matter of Ohio Power Company (subsidiary of American Electric Power Company), HCAR Nos. 22977; 21886; 21173 (June 17, 1983; Jan. 16, 1981; Aug. 3, 1979, respectively). The operations of Amarillo Railcar are incident to, and were developed as a result of, utility operations and expertise in connection with the transportation of coal. Although a majority of Amarillo Railcar Services' work involves railcars that transport coal for use by NCE system utility companies, it is also a general railcar maintenance operation that provides services to unaffiliated third parties. Amarillo Railcar's net revenues in the fiscal year ended August 31, 1995 were $1,555,000, which accounted for only two-tenths of one percent of SPS's overall revenues. It is a small operation that developed from utility operations, incurs very little cost at this point and is beneficial to shareholders and, thus, is retainable. Quixx also holds a royalty interest in coal and other minerals produced from certain properties owned by the Pittsburgh and Midway Coal Mining Company. The Commission has approved of the acquisition of coal and mineral rights by registered holding companies or their utility subsidiaries, see, e.g., In the Matter of Alabama Power Company (subsidiary of The Southern Company), HCAR No. 10258 (November 30, 1950); In the Matter of The Youghiogeny and Ohio Coal Company, HCAR No. 19587 (June 21, 1976), as well as the transfer of such rights between subsidiaries, see, e.g., The Columbia Gas System, Inc. et al., HCAR No. 35-24881 (May 5, 1989); National Fuel Gas Supply Corporation, et al., HCAR No. 35-24491 (November 4, 1987). Therefore the Commission should not object to the retention of royalty interests in the coal and mineral production of the Pittsburgh and Midway Coal Mining Co. These rights were acquired in settlement of litigation over an acquisition and are de minimus, contributing $489,000 in revenues from royalty payments on coal for the twelve months ended December 31, 1995. Quixx Power Services, Inc., a wholly owned subsidiary of Quixx ("QPS"), will operate and maintain generation facilities in various locations, including two cogeneration facilities in which Quixx holds an equity interest, the BCH and the Carolina Energy facilities. QPS will perform similar operation and maintenance services for unaffiliated projects. The expertise needed to provide such services is listed as an "energy-related" activity in proposed Rule 58. The services to be provided are consistent with the type of activities approved in various "consulting services" cases such as The Southern Company HCAR No. 26132 (July 17, 1981) and American Electric Power Company, HCAR 22468 (April 21, 1982) (each authorizing the creation of a consulting subsidiary to render management, technical and training services to non-affiliated entities). In addition, QPS' activities are de minimus, accounting for revenues of $609,000 for the twelve months ended December 31, 1995. e prime: e prime is, or intends to, engage in energy related activities and consumer services. Because e prime is a start- up company formed in 1995, many of these activities are in their preliminary phases. It is anticipated that e prime will further develop some or all of these activities, or alternatively, the activities described hereunder may be conducted by Quixx or another NCE system company. The energy-related activities e prime is, or intends to, engage in include: electric and gas brokering and marketing; energy consulting and project development services; construction, operation and ownership of electric generation and gas storage facilities; and construction, operation and ownership of equipment and facilities to gather and disseminate energy-related management information. Other consumer service activities e prime is, or intends to, engage in include: information processing and other technology based services. e prime is currently engaged in purchasing gas from, and reselling it to, utility and non-utility companies at negotiated rates reflecting market conditions. e prime intends to conduct similar activities in connection with its marketing of electricity and has filed an application with the FERC requesting all requisite approvals and waivers to act as a power marketer. Unless authorized by the by FERC, the marketing or brokering of power by e prime will not involve purchases from and sales to associated companies in the NCE system. Both power and gas marketing services will be offered to third parties. The electric power and gas marketing activities of e prime are functionally related to NCE's core utility system. NCE believes that entering into the power and gas marketing businesses is a significant step in allowing NCE to compete in the utility industry and thus is in the best interest of investors and consumers. As a result of e prime's activities, various sources of competitively priced electricity and gas will become more readily available to the wholesale electric power and gas market in general. All consumers of electric power and gas will thus benefit as the alternatives for supply of electricity and gas increase and competition among electric suppliers grows. In addition, e prime's brokering and marketing activities are consistent with the requirements of Section 11(b)(1) as the Division has recommended it to be interpreted. In the 1995 Report, the Division recommended that the Commission adopt a flexible approach for requests by registered holding companies to engage in diversified activities, and especially those activities that the Division deemed to be "energy-related." Moreover, in proposed Rule 58, the definition of energy-related activities includes "the brokering and marketing of energy commodities, including but not limited to electricity and natural or manufactured gas." Additionally, as noted in the 1995 Report, the Commission has authorized various registered holding companies to engage in gas and some power marketing activities in the past. See 1995 Report at 12, citing Consolidated Natural Gas Co., HCAR No. 24329 (Feb. 27, 1987) (authorizing gas marketing subsidiary) and Entergy Co., HCAR No. 25848 (June 8, 1993) (authorizing sale of consulting services to non-affiliates, including sale of expertise relating to brokering of power); Northeast Utilities, HCAR No. 26359 (Aug. 18, 1995) (authorizing certain power marketing activities). Thus, the marketing activities of e prime may be retained consistent with the requirements of the Act. e prime also provides consulting services for project development and energy cost control to commercial and industrial customers and may engage in general demand side management activities. The expertise needed to provide such services is listed as an "energy- related" activity in proposed Rule 58. As discussed in detail with regard to the retention of UE, the Commission has authorized registered holding company subsidiaries to engage in utility-related consulting services numerous times in the past. See also, UNITIL Corporation, HCAR No. 25816 (May 24, 1993) (authorizing subsidiary to engage in consulting and other services on energy related matters), Central and South West Corporation, HCAR No. 26367 (Sept. 1, 1995) (authorizing subsidiary to engage in energy and demand side management services to commercial and industrial customers) and American Electric Power Company, HCAR No. 26267 (April 5, 1995) (authorizing subsidiary to provide demand-side management services). e prime is constructing or owns and operates electric generation and gas storage facilities, directly or indirectly, and is continuing to evaluate additional projects. The categories of electric generation facilities in which e prime may have an interest are QFs, EWGs, FUCOs and IPPs. In connection therewith, e prime may conduct preliminary development activities include project due diligence and design; design review; market studies; site inspection; preparation of bid proposals (including the posting of bid bonds, cash deposits or similar instruments); application or required permits or authorizations, acquisition of options on sites and other rights; negotiation and execution of contractual commitments with owners of existing facilities, equipment vendors and other project contractors; negotiating of financing commitments with lenders and co-investors; and other activities required in preparation for the acquisition or financing of one of the listed entities. The Commission previously has authorized such activities by companies in a registered holding company system (See The Southern Company, HCAR No. 26212 (Dec. 30, 1994)). Managerial and technical services provided to such entities by e prime may include project development, engineering, design, construction and construction management, operating fuel management, testing, maintenance and administrative and technical support, all of which, again, have been previously authorized (See American Electric Power Company, HCAR No. 26267 (April 5, 1995); Entergy Corporation HCAR No. 26322 (June 30, 1995)). As discussed with regard to the retention of Quixx, investments in the listed entities have also been permitted frequently by the Commission and are also listed as an energy-related activity in proposed Rule 58. e prime may hold these interests directly, or indirectly through entities whose sole purpose is to hold such entities. e prime will not acquire an interest in an IPP unless it forms part of NCE's "integrated public utility system" within the meaning of Section 2(a)(29) of the Act unless authorized by the Commission or the Act. It should be noted that e prime may purchase an interest in a QF that is currently owned by an independent third party and is selling power to PSCo. Although the sale of power is not subject to the Commission's jurisdiction as power sales are excluded from the definition of goods in Rule 80 of the Act, such sales and the rates charged are subject to the jurisdiction of the other regulatory entities, which in this specific case is the CPUC. A potential business expansion by e prime is marketing information processing equipment and facilities and other technology based services, including metering and billing, to utilities and non- utility companies at market based rates. e prime is also continuing to evaluate other similar consumer services. Again, these services are ones in which other registered holding company subsidiaries have been authorized to engage. Central and South West Corporation, HCAR No. 26250 (Mar. 14, 1995) (authorizing provisions of metering, billing and collecting services to unaffiliated water and gas utilities); The Southern Company, HCAR No. 26221 (Jan. 25, 1995) (authorizing subsidiary to offer automated billing services to nonaffiliate utilities). Additionally, some of the technology utilized in these services was developed in utility operations and the Commission has previously permitted registered holding company subsidiaries to market to third parties technology developed in the course of the operation of affiliated utilities. See Southern Company HCAR No. 26211 (Dec. 30, 1994) (allowing marketing to third parties of communications network capacity initially developed for utility subsidiaries); Jersey Central Power & Light Company, HCAR No. 24348 (March 18, 1987) (allowing licensing to third party utilities of computer theft prevention technology initially developed for company's own use). Young Gas: Effective February 1, 1996 as the result of a contribution of Young Gas' shares from PSCo, e prime will own all of the outstanding shares of Young Gas. Young Gas owns 47.5% interest in a partnership which owns a gas storage facility which stores gas primarily for use in PSCo's gas operations. The rates charged to PSCo for such services by the partnership are determined in accordance with FERC regulations and are cost-based. The partnership provides services to third parties at FERC determined rates as well. The Commission has recognized the functional relationship of gas storage facilities to a holding company system's utility business. In National Fuel Gas Company, HCAR No. 25437 (Dec. 20, 1991), the Commission authorized the registered holding company: (1) to acquire a wholly owned subsidiary to market natural gas and to assist in transporting and storing natural gas, and (2) to acquire a 50% interest in a partnership engaged in purchasing, storing, transporting, and marketing natural gas throughout the United States. See also, Consolidated Natural Gas Co., HCAR No. 26234 (Feb. 23, 1995) (describing CNG System as comprised of, inter alia, CNG Energy Services Corporation, which gas marketing subsidiary "sells gas and related services such as storage . . . to System [companies] and nonassociates . . ."). Just as the Commission recognized, the benefits and functional relations to utility operations of gas storage subsidiaries, the Commission should also permit retention of Young Gas. Gas storage is also an enumerated energy or gas related activity in proposed Rule 58. Furthermore, it is clear under the Gas Related Activity Act, gas storage is a permitted activity. Natural Fuels: This 80% subsidiary engages in the sale of compressed natural gas for use as a transportation fuel, converts vehicles for natural gas usage, constructs fueling facilities and sells fueling facility equipment. Natural Fuels offers services to third parties. The Commission previously has authorized other registered holding companies to form subsidiaries to engage in the activities that are carried out by Natural Fuels. In Consolidated Natural Gas Co., HCAR No. 25615, (Aug. 27, 1992), Consolidated Natural Gas Company and its wholly owned subsidiary, CNG Energy Co., sought authorization for CNG Energy's Natural Gas Vehicle Division to engage in, inter alia, the following activities: (1) buying and reselling equipment necessary to transform vehicles from gasoline to natural gas and/or combined natural gas and gasoline operation ("Conversion Equipment"); (2) installing and/or maintaining Conversion Equipment on customer vehicles and providing training on the use, installation and maintenance thereof; (3) designing, constructing, owning, leasing, selling and/or maintaining refueling stations or mobile refueling operations for the refueling of natural gas vehicles; and (4) entering into various joint arrangements with unrelated companies or individuals to engage in these activities. The retention of Natural Fuels should thus be authorized. See also, Consolidated Natural Gas Co., HCAR No. 26234 (Feb. 23, 1995) (authorizing CNG's subsidiary, CNGF, to finance the purchase of certain gas equipment, including "New Technology Equipment" and "Alternate Fuel Equipment," by customers who would, in turn, purchase gas from CNG System subsidiaries). This business is also an enumerated energy related business in proposed Rule 58. III. Subsidiaries and Operations of PSCo 1480 Welton: 1480 Welton holds certain of PSCo's real estate used or intended to be used in the utility business of PSCo, is functionally related to the utility operation of PSCo and is retainable. 1480 Welton does not hold interests in any other types of properties, nor does it offer services to non-system companies. The Commission has permitted a number of registered holding company systems to establish and/or retain real estate subsidiaries. See, e.g., UNITIL Corporation, HCAR No. 35-25524 (April 24, 1992) (UNITIL Realty); The Southern Company, HCAR No. 21898 (January 27, 1981) (Alabama Property Co. subsidiary of Alabama Power Co.); America Electric Power, HCAR No. 7615 (August 2, 1947) (Franklin Real Estate Co. and Indiana Franklin Realty Co.). PSCCC: PSCCC engages in financing and factoring of certain of PSCo's assets. The Commission has authorized the acquisition of interests in similar credit companies by registered holding companies. See Central and South West Corporation, HCAR No. 23767 (July 19, 1985). Following consummation of the Transaction, PSCCC may engage in factoring and similar transactions with other companies in the NCE holding company system, including SPS, on the same terms as transactions with PSCo. PSCCC will provide services to unaffiliated third parties. However, it should be noted that, consistent with the requirements of the Commission's order in Central and South West Corporation (HCAR No. 25995 (March 2, 1994)), PSCCC currently does not derive more than 50% of its revenues from operations outside the PSCo system and, following consummation of the Transaction, will not derive more than 50% of its revenues from operations outside the NCE system without prior specific authorization from the Commission, unless Rule 58 is adopted. Fuelco: Fuelco is engaged in natural gas and oil exploration and production. The Commission has approved the oil and gas exploration and development activities of New England Energy Incorporated ("NEEI"), the subsidiary of New England Electric System. New England Energy Incorporated, HCAR No. 23988 (Jan. 13, 1986); New England Energy Incorporated, HCAR No. 21862 (Dec. 30, 1980). Fuelco is functionally related to utility operations and is thus retainable. In addition, PSCo, it should be noted that PSCo does intend to divest Fuelco as soon as practicable. Green and Clear Lakes and Ditch companies: Green and Clear Lakes stores water for use by a PSCo hydroelectric facility, a business that clearly is functionally related to utility operations. The Ditch companies own utility water rights that are also clearly functionally related to utility operations. Indeed, at the time of the break-up of the Cities Service holding company system, the Commission noted that the Ditch companies could be retained by PSCo under the standards of Section 11(b)(1). In the Matter of Cities Service Power & Light Company, HCAR No. 4489 (Aug. 18, 1943). PSRI: PSRI owns certain life insurance policies acquired prior to 1986 on certain PSCo employees and retirees. PSRI does not intend to acquire any new policies or engage in any other active business. However, divestiture or the early winding-down of PSRI could have adverse tax consequences for PSCo. In addition, PSRI accounts for only 1.2% of PSCo's consolidated revenue in the year ended December 31, 1994. Steam heating business (division of PSCo): The steam heating business of PSCo, which is located exclusively in its service territory and primarily in the downtown Denver area, serves 120 customers and has annual revenues of approximately $7.2 million. The retention of this business will further NCE's ability to be an energy service company providing consumers with all options to meet their energy needs. Although much of the steam is supplied from boilers at PSCo's Denver steam plant, the steam system is connected to the Zuni plant as well and approximately one-quarter of the steam heating business requirements are met through steam produced by this electric generation plant in the course of its ordinary operation. The Commission has previously approved of the retention of steam heating operations under Section 11(b)(1). See North American Company, 11 SEC 194 (1942); In the Matter of the Philadelphia Company, HCAR No. 8242 (June 2, 1948). Of course, PSCo is aware that the Commission in 1943 in the Service case found similar operations of PSCo to be non- retainable. That fact, however, is not dispositive here as, unlike at that time, the system is now connected with a PSCo generation facility and uses the steam produced by a facility also used for electric generation and the nature of utility services has changed since that time. The retention of steam heating operations will allow NCE to offer customers this additional option to meet their energy needs, thereby, allowing NCE to compete effectively in the energy-services business. Moreover, steam heating also is an enumerated "energy-related" business in proposed Rule 58. Thus, this steam heating business of PSCo is reasonably incidental to NCE's utility operations and may be retained. PSCo also intends to utilize and market the capacity and expertise developed in its thermal operations in different situations such as by offering chilled water services to existing customers, providing services to maintain customer's heating and cooling plants and offering steam cleaning services, all of which qualify as energy related under proposed Rule 58. ____________________ The Commission did not require divestiture of the operations in 1943 as it recognized they were unprofitable and PSCo was unlikely to be able to divest them. Telecommunications operations: PSCo currently leases excess capacity on the fiber optic cable it already has in place for utility operations. PSCo's fiber optic cable contains 48 fibers but PSCo only uses 6 of the fibers for its utility operations. PSCo now leases some of the excess capacity (approximately 14 fibers) at market based rates to an unaffiliated third parties engaged in telecommunications operations. As previously mentioned in the discussion of e prime, the Commission has allowed companies in registered holding company systems to market technology or excess capacity in technology developed for utility operations which allows the utility to recover the costs of developing the technology and has the potential for making a profit. Indeed, the Commission has specifically approved of the licensing of excess capacity in fiber optic lines. See Central and South West Corporation, HCAR No. 26061 (June 3, 1994) and The Southern Company, HCAR No. 26221 (Jan. 25, 1995). In this case, little or no additional investment by PSCo is needed in order for it to recover its costs on this utility equipment. Moreover, the owning of telecommunications operations and leasing fiber optic capacity is an energy-related activity in proposed Rule 58. Similarly, PSCo may lease excess capacity on its paging system, a system developed for utility operations the cost of which, with little additional investment, can be recovered. Energy conservation and demand side management activities: PSCo is also engaged in energy conservation and demand side management services. The focus of PSCo's program is currently upon the customer rebates required by the CPUC. PSCo intends to expand its operations to include such activities as energy audits to establish efficiency solutions and provide financing for customers (including federal government agencies); the provision of services to home offices and the development and marketing of software to monitor energy usage by both industrial and residential customers. Again, demand side management activities have been authorized by the Commission, are closely related to the operation of a utility and are energy-related as defined in proposed Rule 58. Commercialization of electro-technologies and intellectual property: PSCo also markets non-utility products and services developed through electric utility operations. For example, PSCo currently provides relay testing services for customers and may lease or sell surge protection equipment to unaffiliated third parties as well as install, own and operate photovoltaic cells and commercialize other electro-technologies that become available to it. Similarly, PSCo may sell or enter into royalty arrangements with regard to intellectual property owned or developed by PSCo in its utility operations. Such commercialization activities are energy related activities as defined in Rule 58 and, as discussed with regard to e prime's proposed meter reading services, commercialization of technology developed in utility operations has been previously authorized by the Commission (See also American Electric Power Company, HCAR No. 22468 (April 21, 1982) (authorizing sale and licensing of intellectual property developed by utility system companies)). PSCo may also provide home safety monitoring services to customers which would monitor gas leakage and other safety concerns. Electric and gas vehicle products and services: PSCo is currently engaged in a pilot-program to develop fueling sites for natural gas vehicles. The fueling units will be owned by PSCo, but installed at commercial customer sites. PSCo may expand its activities to include the distribution or sale of LNG vehicles, the sale of gas compressors for fueling stations and the development of LNG fueling services and may enter into the business of electric powered-vehicle operation including investments in related technology. Such activities are energy related activities as defined in Rule 58 and most of them have been authorized by the Commission (see discussion of Natural Fuels above). In addition, PSCo may enter into the LNG production and delivery services. Sale and servicing of electric and gas appliances: PSCo's appliance service operations provide repair services and warranties to customers in connection with certain household appliances and may involve the leasing of certain large appliances (i.e. HVAC system. lighting system, chillers) to industrial customers. Such activities are energy related activities as defined in Rule 58. b. Section 10(c)(2) The Transaction will tend toward the economical and efficient development of an integrated public utility system, thereby serving the public interest, as required by Section 10(c)(2) of the Act. i. Efficiencies and Economies The Transaction will produce economies and efficiencies more than sufficient to satisfy the standards of Section 10(c)(2), described above. Although some of the anticipated economies and efficiencies will be fully realizable only in the longer term, they are properly considered in determining whether the standards of Section 10(c)(2) have been met. See American Electric Power Co., 46 SEC 1299, 1320-1321 (1978). Some potential benefits cannot be precisely estimated; nevertheless they too are entitled to be considered: "[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." Centerior Energy Corp., HCAR No. 24073 (April 29, 1986) (citation omitted). PSCo and SPS have estimated the nominal dollar net value of synergies from the Transaction to be approximately $770 million over the first 10-year period from 1997 to 2006. The Transaction is expected to yield several types of presently quantifiable benefits: (1) capital expenditure savings; (2) production cost savings; (3) labor cost savings; and (4) administrative and general savings. The amount of savings currently estimated in each of these categories, on a nominal dollar basis, is summarized in the table below: Category Amount Corporate Programs $ 82.7M Non-fuel Purchasing Economies 19.1M Capacity Deferrals 160.1M Fuel Savings 163.4M Labor 389.5M Less: Pre-merger Initiatives (2.1M) Less: Costs to Achieve (43.0M) Net Total Estimated Savings $769.7M _______ These expected savings far exceed the savings claimed in a number of recent acquisitions approved by the Commission. See, e.g., Kansas Power and Light Co., HCAR No. 25465 (Feb. 5, 1992) (expected savings of $140 million over five years); IE Industries, HCAR No. 25325 (June 3, 1991) (expected savings of $91 million over ten years); Midwest Resources, HCAR No. 25159 (Sept. 26, 1990) (estimated savings of $25 million over five years). These savings categories are described in greater detail below. Corporate Programs: These are savings related to insurance costs, outside services, shareholder services, advertising and other general and administrative overheads. The aggregate cost of these items for the companies on a stand-alone basis is greater than the cost will be to the combined new company. An example would be the hiring of one outside professional service (external auditors, attorneys, consultants, etc.) instead of two. Non-Fuel Purchasing Economies: These are the savings which will result from the new, larger company having greater purchasing power. The new company will be able to coordinate its purchasing needs, buy in greater quantity, negotiate with vendors and receive larger discounts. Capacity Deferrals: This refers to the savings created by deferring the construction of additional generating capacity. For these deferrals to be achieved, the two systems must be integrated via a HVDC interconnection and transmission line. Because of load diversity (the two systems peak at different times) the new company's peak load is less than the sum of the peak loads of the two individual companies. This load diversity requires less total capacity; allowing the new company to defer generation expansion and the associated costs to the ratepayer. The amount of projected capacity deferral savings is net of the estimated fincremental merger-related cost of the HVDC interconnection and transmission line (approximately $112 million). See Item 3.A.2.b.ii.I for details of the interconnection and line. Fuel Savings: These are savings which result from the new, larger company having greater purchasing power. The new company will be able to negotiate contracts to procure and transport fuel in larger quantities, and at much larger discounts than either PSCo or SPS would on a stand-alone basis. Additionally, once the two systems are directly interconnected, the new company's operators will be able to dispatch and generate the power in the most economic manner, as certain plants are more economical than others. Labor Cost Savings: PSCo and SPS estimate that a net reduction in labor costs of approximately $389.5 million on a nominal dollar basis can be achieved as a result of the Transaction through elimination of approximately 550-600 full time equivalent duplicative positions in certain corporate and administrative functions. This assumes a one-year period will be required to achieve the personnel reductions. (less) Pre-Merger Initiatives: The level of employees of both companies combined compared with the level of employees needed for the new company indicates that 550-600 full-time duplicate positions be eliminated through the merger process. There is, however, a level of employee reduction which will occur regardless of the merger. This figure is a part of the total labor savings amount above, and is removed from the savings estimates to avoid double counting of savings for forecasting purposes Costs to Achieve: This consists of merger costs such as investment bankers' fees, attorney and accountant fees, and severance and other employee reduction-related costs. Item 2 provides details of some of these components and their amounts. Additional Expected Benefits: In addition to the benefits described above, there are other benefits which, while presently difficult to quantify, are nonetheless substantial. These other benefits include competitive rates and services, increased size and stability, diversification of service territory, coordination of diversification programs, complementary operational functions and complementary management. - Competitive Rates and Services NCE will be able to meet the challenges of the increasingly competitive environment in the utility industry more effectively than either PSCo or SPS standing alone. The Transaction will create financial and operational benefits for customers in the form of lower rates and better service over the long-term. - Increased Size and Stability As a larger entity, shareholders will benefit over the long-term from the NCE's greater financial strength and financial flexibility. NCE will be better able to take advantage of future strategic opportunities and to reduce its exposure to changes in economic conditions in any segment of the business. - Diversification of Service Territory The combined service territories of PSCo and SPS will be larger and more geographically diverse than the independent service territories of each entity, reducing NCE's exposure to changes in economic, competitive or climatic conditions in any given sector of the combined service territory. - Coordination of Diversification Programs PSCo and SPS each have complementary nonregulated subsidiary businesses, and NCE, as a stronger financial entity, should be able to manage and pursue these subsidiary businesses more efficiently and effectively as a result of access to lower-cost capital and efficiencies achievable through greater size. - Complementary Operational Functions The combination of PSCo, with expertise in customer service applications and energy services as well as natural gas utility operations, and SPS, a low-cost power producer with recognized expertise in engineering services, wholesale power marketing and utility generation projects, will allow NCE to offer customers a more complete menu of service options and a better operational balance. - Complementary Management The managements of PSCo and SPS have complementary strengths which will provide NCE with a strong and capable management team, facilitating the merger of similar corporate cultures and achieving cooperation and coordination in an efficient manner. ii. Integrated Public Utility System I. Electric System As applied to electric utility companies, the term "integrated public utility system" is defined in Section 2(a)(29)(A) of the Act 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. On the basis of this statutory definition, the Commission has established four standards that must be met before the Commission will find that an integrated public utility system will result from a proposed acquisition of securities: (1) the utility assets of the system are physically interconnected or capable of physical interconnection; (2) the utility assets, under normal conditions, may be economically operated as a single interconnected and coordinated system; (3) the system must be confined in its operations to a single area or region; and (4) 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. Environmental Action, Inc. v. Securities and Exch. Comm'n, 895 F.2d 1255, 1263 (9th Cir. 1990) (citing In re Electric Energy, Inc., 38 SEC 658, 668 (1958)). The Transaction satisfies all four of these requirements. It should be noted that in the 1995 Report, the Division recommended that the Commission "respond realistically to the changes in the utility industry and interpret more flexibly each piece of the integration requirement." At the moment, PSCo and SPS have the ability to exchange power over a transmission tie owned by Public Service Company of New Mexico ("PNM"). In the past, the two companies have exchanged electric energy utilizing these facilities. Facilitating the current transmission and exchange of power between the parties is participation by PSCo, SPS and PNM in the WSPP, which provides for, among other things, the exchange of bulk power. The Section 2(a)(29) standard will be met in this Transaction, however, as the NCE system is capable of interconnection through the construction of a new transmission tie line, construction of which is planned within five years of the effective time of the Transaction. PSCo and SPS currently intend to complete the interconnect between the two companies by the year 2001. The estimated length of the tie line is approximately 300 miles, running from near Amarillo, Texas to Southeastern Colorado. The transmission tie line voltage is expected to be 345 KV. Following completion of the line, the PSCo and SPS systems will be operated as a single interconnected system. It is currently estimated that the costs associated with constructing the interconnection line amount to $149 million, of which $112 million are incremental costs attributable to the Transaction. Since SPS operates in the Eastern Interconnection and is a member of the SPP and PSCo is in the Western Interconnection and is a member of the WSCC, the interconnect must include a HVDC back-to-back terminal between the two systems. This HVDC terminal, which will synchronously connect the two companies, is currently expected to be rated at 400 MW and allow for capacity and energy transfers between the two systems. This additional interconnect will further the economic operation of the NCE system by enabling it to achieve additional production-related synergies. Indeed, the plans for the line's construction are not related to any requirement of the Act, but rather to the substantial benefits that will accrue as a result of the line. The production-related benefits of the interconnect were determined in three areas: capacity deferral savings, joint dispatch savings and fuel energy savings. The process used to estimate these savings involved modeling each company's system and determining its costs on a stand-alone basis and then on a combined basis. The savings were based on a comparison of the individual system costs to those determined on a combined basis. The representation of the individual systems was based on each company's most recent resource plan, modified to account for any major changes in assumptions since the plan was developed, and the most recent fuel forecasts. The combined system expansion plan was based on the reduced capacity requirements of the combined system and accounted for the expected fuel synergy savings. The development of these costs considered production costs as well as investment-related costs. Benefits attributed to joint dispatch savings were developed within the combined system model and coincide with the in-service date of a new transmission line between the two companies. Overall, it is anticipated that the electric production-related savings from the merger of PSCo and SPS will aggregate approximately $270 million (net of the cost of the line). To achieve this level of savings, the tie-line will need to be constructed. Additional savings are likely to be realized over time. Additional information regarding electric production-savings can be found in Exhibit D-1.2.2. attached hereto. The Commission has previously indicated that a single integrated system exists even based solely on a planned, future interconnection, provided that such physical interconnection is "contemplated or . . . possible within the reasonably near future" and not just something that "might occur in the remote future, and whose occurrence has not been foreshadowed by any facts shown in the record." The benefits to be derived by the new transmission line are also a factor in determining whether the system is capable of physical interconnection. The fact that the Commission has indicated that, absent special circumstances, the "reasonably near future" mentioned above, should not exceed 10 years, is not an issue in this case as the parties do have definite plans to construct an interconnection that will be in service and generating economies within 5 years of the consummation of the Transaction. In addition, Cheyenne forms a single integrated system with the NCE system. With regard to electric properties and as set forth above, the key to a single integrated system, is that the utility assets are "physically interconnected or capable of interconnection." Historically both Cheyenne and PSCo were part of the Cities Service Power and Light Company holding company system. When the Commission ordered the break-up of that system in the mid- 1940s, it issued orders organizing the various systems within the Cities Services system as independent systems. At that time, the Commission specifically examined the relationship between the electric utility operations of PSCo and Cheyenne and held that together they constituted a single integrated system within the meaning of Section 2(a)(29) of the Act. The Commission noted that the two systems were interconnected via "a transmission line which functions as an important tie between the companies although it is owned, not in the system, but by the United States Bureau of Reclamation." Moreover, although the Commission initially postponed any finding on the issue of PSCo's retention of combination gas and electric utility properties, it did examine the PSCo and Cheyenne gas operations as one unit. PSCo and Cheyenne continue to form such an integrated system and the addition of NCE as a holding company above these entities does not alter that fact, nor does the fact that the NCE system includes SPS utility properties since, as described above, PSCo and SPS will be interconnected and PSCo and Cheyenne are interconnected. Thus, the entire system is, or is capable of being, integrated. The specific physical interconnection via electric transmission ties between PSCo and Cheyenne is as follows: 115KV transmission lines owned by WAPA connect with the Cheyenne system via the Happy Jack, Cheyenne and Archer substations. WAPA transmission lines also interconnect with PSCo transmission lines. One of these WAPA owned lines connects PSCo and Cheyenne, running directly from a WAPA-PSCo interconnection to a WAPA-Cheyenne interconnection. Indeed, the Applicants believe that this line is the same line referred to in the Cities Service decision previously discussed. It should be noted that Cheyenne was receiving electricity from PSCo via this line at the time of the Cities Service decision, while today, as a result of a competitive bid process to supply the Cheyenne system, Cheyenne obtains all of its electricity requirements from an unaffiliated electric utility over different transmission lines. This fact should not alter the above analysis because (1) the two systems remain physically interconnected and have been efficiently operated as a single, integrated utility system and (2) the Act's purposes are being met, as competition has been allowed to flourish in the PSCo holding company system where the winner of a competitive bid, regardless of other corporate relationships, supplies the Cheyenne system. PSCo did bid to supply the Cheyenne system and, had it been successful, could have supplied Cheyenne with its needs using the WAPA line. ____________________ 1995 Report at 71. In the Matter of the North American Company and Its Subsidiaries, HCAR No. 4505 (Apr. 15, 1942). See Also, In the Matter of Hudson River Power Corporation, HCAR No. 2415 (Dec. 9, 1940) (integration standard not met where "the record discloses no definite plan for bringing about any such interconnection"); In the Matter of Cities Service Power & Light Corporation, HCAR No. 5256 (Aug. 30, 1944) (integration standard met where "Derby contemplates the construction of such interconnection facilities"). In one instance, the Commission noted that while "we are not aware of any plans for undertaking these interconnections in the near future ... [w]e find ... no occasion to doubt the validity of the estimates of benefits to be derived therefrom," in its holding that such facilities were considered capable of interconnection. In the Matter of Cities Service Power & Light Company, HCAR No. 4489 (Aug. 18, 1943). See, In the Matter of Union Electric Company, HCAR No. 18368 (Apr. 10, 1974) (holding that in the absence of special circumstances, physical interconnection that might be built in ten years if economical does not meet integration requirement). The issue of Cheyenne's gas properties is discussed under Item 3.A.2.a.i. (Retention of Gas Operations). Cities Service Power & Light Company And Its Subsidiary Companies, HCAR No. 4489 (August 18, 1943) ("We find that the properties of the Cheyenne company and the Arvda company, together with the main body of the Public Service properties in northern Colorado, form a single integrated electric utility system"). ID. ID. SEE SUPRA note 20. The NCE electric system will operate in a single area or region. The system will operate in six contiguous states in the greater southwest region of the United States. It should be noted that in the 1995 Report, the Division has stated that the evaluation of the "single area or region" portion of the integration requirement "should be made... in light of the effect of technological advances on the ability to transmit electric energy economically over longer distance, and other developments in the industry, such as brokers and marketers, that affect the concept of geographic integration." The 1995 Report also recommends primacy be given to "demonstrated economies and efficiencies to satisfy the integration requirements." As set forth in Item 3.A.2.b.i, the Transaction will result in economies and efficiencies for the utilities and, in turn, their customers. Moreover, the NCE electric system will not be so large as to impair the advantages of localized management, efficient operations, and the effectiveness of regulation. After the Transaction, PSCo, SPS and Cheyenne will maintain their current headquarters as subsidiary headquarters and as local operating headquarters for the areas they presently serve, while NCE maintains system headquarters in both Denver (corporate offices) and Amarillo (operating offices). This structure will preserve all the benefits of localized management PSCo, SPS and Cheyenne presently enjoy while simultaneously allowing for the efficiencies and economies that will derive from their strategic alliance. Furthermore, as described earlier, the system will facilitate efficient operation. Additionally, the NCE system will not impair the effectiveness of state regulation. PSCo, SPS and Cheyenne will continue their separate existence as before and their utility operations will remain subject to the same regulatory authorities by which they are presently regulated, namely the CPUC, WPSC, PUCT, NMPUC, KCC, OCC, the FERC and, until the decommissioning of the Fort St. Vrain facility is complete, the NRC. PSCo and SPS are working closely with the CPUC, WPSC, NMPUC, PUCT, KCC and OCC as well as the FERC and the NRC to ensure they are well informed about this Transaction and this Transaction will not be consummated unless all required regulatory approvals are obtained. Pursuant to the recommendations contained in the 1995 Report, this last factor is significant as the Division stated therein "when the affected state and local regulators concur, the [Commission] should interpret the integration standard flexibly to permit non-traditional systems if the standards of the Act are otherwise met," especially since this Transaction will result in a system similar to the traditional registered holding company system. II. Gas Utility System Section 2(a)(29)(B) defines an "integrated public utility system" as applied to gas utility companies: [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 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: 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. The NCE gas utility system will meet the standard set forth in Section 2(a)(29)(B) and, therefore, will satisfy the requirements of Sections 10(c)(1) and (2) and should be approved by the Commission. First, both the Commission's limited precedent and current technological realities indicate that the NCE gas utility system will operate as a coordinated system confined in its operation to a single area or region because it will derive natural gas from a common source of supply. None of the Act, the Commission's orders and rulings or no-action letters of the Commission's staff provide a definition as to what constitutes a "common source of supply." Nevertheless, the Commission has not traditionally required that the pipeline facilities of an integrated system be interconnected, and instead has looked to such issues as from whom the distribution companies within the system receive much, although not all, of their gas supply. The Commission also has considered purchases of gas from a common pipeline as well as from different pipeline's when the gas originates from the same gas field in determining a common source of supply. Since the time of most of these decisions, the state of the art in the industry has developed to allow efficient operation of systems whose gas supplies derive from many sources. ____________________ 1995 Report at 72-74. 1995 Report at 73. 1995 Report at 74. See In the Matter of Penzoil Company, HCAR No. 15963 (1968) (finding an integrated system where facilities both connected with an unaffiliated transmission company but not each other). See also, American Natural Gas Company, HCAR 15620 (1966) ("It is clear the integrated or coordinated operations of a gas system under the Act may exist in the absence of such interconnection"). See, e.g., In the Matter of Philadelphia Company and Standard Power and Light Company, HCAR No. 8242 (1948) ("most of the gas used by these companies in their operations is obtained from common sources of supply"); Consolidated Natural Gas Company, HCAR No. 25040 (1990) (finding integrated system where each company derived natural gas from two transmission companies, although one such company also received gas from other sources). In the Matter of the North American Company, HCAR No. 10320 (1950) (finding Panhandle Eastern pipeline to be a common source of supply). See In the Matter of Central Power Company and Northwestern Public Service Company, HCAR 2471 (1941), in which the Commission declared an integrated system to exist where two entities purchase from different pipeline companies since "both pipelines run out of the Otis field, side by side, and are interconnected at various points in their transmission system; and that they are within two miles of each other at Kearney." PSCo's and Cheyenne's gas operations form an integrated utility system in accordance with the requirements of Section 2(a)(29)(B). The two operations are physically connected through the WestGas Interstate transmission pipeline (owned by WGI) which connects to the PSCo transmission system at Chalk Bluffs, Colorado near the Colorado, Wyoming border and runs to Cheyenne, Wyoming. Through this system, PSCo and Cheyenne derive gas from common sources of supply. PSCo and Cheyenne also derive gas from common sources through the Colorado Interstate Gas Co. transmission system, to which both companies are connected. The gas utility operations of PSCo and Cheyenne are limited to the Colorado/Wyoming area and have been operated efficiently and economically as a single integrated utility for decades. 3. Section 10(f) Section 10(f) 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 to 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. As described in Item 4 of this Application/Declaration, and as evidenced by the applications before the CPUC, WPSC, PUCT, NMPUC and the KCC all relating to the Transaction, NCE intends to comply with all applicable state laws related to the proposed transaction. 4. Other Applicable Provisions - Section 9(a)(1) NCE is also requesting authorization from the Commission under Section 9(a)(1) of the Act for the acquisition by it of the voting securities of NC Services and NC Hold as part of the Transaction. Section 9(a)(1) of the Act requires a registered holding company or any subsidiary thereof to obtain authorization from the Commission before acquiring "any securities or utility assets or any other interest in any business." In order to approve an acquisition under Section 9(a)(1), the Commission must find that such acquisition meets the standards of Section 10 of the Act, which in turn requires compliance with Section 8 and 11 of the Act. Although NCE will not become a registered holding company until consummation of the Transaction and thus Section 9(a)(1) is not applicable to it until that time, because NCE will become subject to Section 9(a)(1) and the exact chronology of the formation of NC Hold and NC Services has not been determined, NCE is requesting the Commission's authorization for these transactions. The acquisition by NCE of the common stock of NC Services, making it a wholly owned subsidiary of NCE, will allow NCE to create a subsidiary service company and capture economies of scale from the centralization of administrative and general services to be provided to system companies. Since the cost of such services are considered in rate cases, the benefits realized as a result of NC Services will accrue to NCE's ratepayers. Virtually every registered holding company has a subsidiary service company performing many of the same functions as NC Services will perform. The acquisition of NC Services is in the public interest, will not unduly complicate the capital structure of NCE and will not cause the NCE system to violate any other provision of the Act. NC Services' only class of authorized stock will be its common stock, all of which will be owned by NCE. The operation of NC Services, and the allocation of cost for its operation, is discussed in detail in Item 3.B below. NCE is also requesting authorization to acquire all of the issued and outstanding common stock of NC Hold, which will serve as an intermediate holding company for certain of the system's non-utility subsidiaries. NCE believes that an intermediate holding company provides a clearer separation between the system's utility and non- utility operations of the system and allows for centralization of the operation of the non-utility operations. Although NC Hold will have issued and outstanding debt to SPS (in connection with NC Hold's acquisition of UE and Quixx) as part of the Transaction, this should not unduly complicate the NCE system's capital structure. While NC Hold will have a board of directors, appointed officers and, possibly, employees, it also will receive services from NC Services. Costs for any work performed for NC Hold by NC Services will be charged to NC Hold in accordance with the appropriate allocation method set forth in the Non-Utility Service Agreement. Finally, NC Hold requests authorization under Section 9(a)(1) of the Act to acquire all of the issued and outstanding common stock of e prime, UE, Quixx, Young Gas and Natural Fuels. As discussed in Item 3.A.2.a.ii above, each of these businesses may be retained by the NCE system under the Act. NCE believes that the reorganization of these non-utility businesses as subsidiaries of NC Hold instead of as subsidiaries of either PSCo or SPS directly, will be beneficial to ratepayers by insulating the operating utilities from the results of operations of these entities. NC Hold will directly or indirectly acquire the securities of certain current PSCo subsidiaries via an equity contribution from NCE. In order to maintain the current equity capitalization of SPS, NC Hold will issue debt to SPS in exchange for the securities of UE and Quixx. The debt will have a twenty year maturity and bear interest at a fixed rate, with interest payments to be made semi-annually. The interest rate will be determined at the time of issuance based on the then prevailing rate which would be charged by an unaffiliated third party. The principal will be repaid in twenty equal annual installments. NC Hold will have the option to prepay the entire obligation, including accrued and unpaid interest, at any time without any prepayment premium. NC Hold expects to have sufficient earnings to service the debt based on the expected earnings of UE and Quixx. See Exhibit J-4. If necessary, NC Hold will also have available the earnings of its other subsidiaries. B. NC Services As described in Item 1.B.1.c.v, NC Services will provide PSCo, SPS and Cheyenne, pursuant to the Services Agreement, and the non-utility subsidiaries of the NCE system, pursuant to the Non- Utility Services Agreement, with a variety of administrative, management and support services, including services relating to electric power planning, transportation, materials management, facilities and real estate, accounting, budgeting and financial forecasting, finance and treasury, rates and regulation, legal, internal audit, corporate communications, environmental, fuel procurement, corporate planning, investor relations, human resources, marketing and customer services, information systems and general administrative and executive management services. In accordance with the Service Agreement, services provided by NC Services will be directly assigned, distributed or allocated by activity, project, program, work order or other appropriate basis. To accomplish this, employees of NC Services will record transactions utilizing the existing data capture and accounting systems of each client company. Costs of NC Services will be accumulated in accounts of NC Services and directly assigned, distributed and allocated to the appropriate client company in accordance with the guidelines set forth in the Service Agreement. SPS and PSCo are currently developing the system and procedures necessary to implement the Service Agreement. It is anticipated that NC Services will be staffed by transfer of personnel from PSCo, SPS and their subsidiaries. NC Services' accounting and cost allocation methods and procedures are structured so as to comply with the Commission standards for service companies in registered holding-company systems. NC Services' billing system uses the "Uniform System of Accounts for Mutual Service Companies and Subsidiary Service Companies" established by the Commission for service companies of registered holding-company systems. As compensation for services, the Service Agreement provides for the client companies to: "pay to [NC Services] all costs which reasonably can be identified and related to particular services performed by [NC Services] for or on its behalf." Where more than one company is involved in or has received benefits from a service performed, the Service Agreement provides that "costs will be directly assigned, distributed or allocated, between or among such companies on a basis reasonably related to the service performed to the extent reasonably practicable," in accordance with the methods set forth in Appendix A to the Service Agreement. Thus, charges for all services provided by NC Services to affiliated utility companies will be on an "at cost" basis as determined under Rules 90 and 91 of the Act. The Non-Utility Service Agreement contains provisions similar to those of the Service Agreement, except as set forth in detail below in this Item 3.B. The Non-Utility Service Agreement also permits charges for certain services to be at fair market value to the extent authorized by the Commission. Thus, except for the requested exceptions discussed below, services provided by NC Services to non-utility affiliates pursuant to the Non-Utility Service Agreement will also be charged on an "at cost" basis as determined under Rules 90 and 91 of the Act. Section 13(b) of the Act allows the Commission to exempt transactions, by rule, regulation or order, from the provisions of Section 13(b) and the rules promulgated thereunder if such transactions: (1) are with any associate company which does not derive, directly or indirectly, any material part of its income from sources within the United States and which is not a public utility company operating within the United States or (2) involve special or unusual circumstances or are not in the ordinary course of business. The Commission has utilized this exemptive power in the past under certain circumstances and recently with some frequency to generally allow non-utility subsidiaries of registered holding companies to provide services to certain FUCOs, EWGs and QFs at market-based rates. In addition, in the 1995 Report, the Division recommended that "the SEC should also issue exemptive orders under Section 13 allowing more nonutility subsidiaries to charge market rates to nonutility affiliates." The Commission's principal concern under Section 13 of the Act is to protect the utility companies in a holding company system from abusive cross- subsidization transactions with affiliates. Exemptions from Rules 90 and 91 for purely non-utility transactions will not interfere with this mandate as all services to utility subsidiaries will be at cost in accordance with Rules 90 and 91, but will benefit the holding company system by allowing it to offer competitively priced services based on market considerations. Thus, NC Services hereby requests that the Commission grant an exemption from the provisions of Rules 90 and 91, and the at-cost requirement contained therein, for the following transactions: Services provided to associate FUCOs and EWGs that derive no part of their income, directly or indirectly, from the generation, transmission or distribution of electric energy for sale or the distribution of natural gas at retail in the United States; and services provided to an associated EWG, QF or IPP, provided that the purchaser of the electricity sold by such entity is not an associate company of NCE. No services will be provided at market-based rates to a QF, IPP or EWG selling electricity to PSCo, SPS or Cheyenne unless authorized by the Act or the Commission. No change in the organization of NC Services, the type and character of the companies to be serviced, the methods of allocating costs to associate companies, or in the scope or character of the services to be rendered subject to Section 13 of the Act, or any rule, regulation or order thereunder, shall be made unless and until NC Services shall first have given the Commission written notice of the proposed change not less than 60 days prior to the proposed effectiveness of any such change. If, upon the receipt of any such notice, the Commission shall notify NC Services within the 60-day period that a question exists as to whether the proposed change is consistent with the provisions of Section 13 of the Act, or of any rule, regulation or order thereunder, then the proposed change shall not become effective unless and until NC Services shall have filed with the Commission an appropriate declaration regarding such proposed change and the Commission shall have permitted such declaration to become effective. NCE believes that the Service Agreement and the Non-Utility Service Agreement are structured so as to comply with Section 13 of the Act and the Commission's rules and regulations thereunder. Rule 88: Rule 88 provides that "[a] finding by the Commission that a subsidiary company of a registered holding company . . . is so organized and conducted, or to be conducted, as to meet the requirements of Section 13(b) of the Act with respect to reasonable assurance of efficient and economical performance of services or construction or sale of goods for the benefit of associate companies, at cost fairly and equitably allocated among them (or as permitted by Rule 90), will be made only pursuant to a declaration filed with the Commission on Form U-13-1, as specified" in the instructions for that form, by such company or the persons proposing to organize it. Notwithstanding the foregoing language, the Commission has on at least two recent occasions made findings under Section 13(b) based on information set forth in an Application/Declaration on Form U-1, without requiring the formal filing of a Form U-13-1. See CINergy Corp., HCAR No. 26146 (Oct. 21, 1994); UNITIL Corp., HCAR No. 25524 (April 24, 1992). In this Application/Declaration, NCE has submitted substantially the same applicable information as would have been submitted in a Form U-13-1. Accordingly, it is submitted that it is appropriate to find that NC Services is so organized and its business will be so conducted as to meet the requirements of Section 13(b), and that the filing of a Form U-13-1 is unnecessary, or, alternatively, that this Application/Declaration should be deemed to constitute a filing on Form U-13-1 for purposes of Rule 88. C. UE NCE also requests that the Commission find that UE is so organized and to be conducted as to meet the requirements of Section 13(b), and that the filing of a Form U-13-1 is unnecessary, or, alternatively, that this Application/Declaration should be deemed to constitute a filing on Form U-13-1 for purposes of Rule 88. As previously discussed, following consummation of the Transaction, UE will be a design, engineering and consulting service subsidiary of NC Hold directly, and indirectly of NCE. It is anticipated that virtually all design and engineering services for PSCo, SPS and Cheyenne will be provided by UE on an "at cost" basis as determined under Rules 90 and 91 of the Act and as further described in the form of UE Service Agreement between UE and its utility affiliates attached hereto as Exhibit B-4. UE will also provide necessary engineering services to non-utility affiliates and the form of UE Non-Utility Service Agreement between UE and its non-utility affiliates, attached hereto, as Exhibit B-5, contains a cost allocation formula designed to ensure compliance with such rules. The procedural methods relating to UE's provision of services to affiliates are set forth in Exhibit B-7 hereto. UE will provide such services to unaffiliated companies on market-based rates. The UE Non-Utility Services Agreement also permits charges for certain services at fair market value to the extent authorized by the Commission. Thus, except for certain requested exceptions discussed below, services provided by UE to non-utility affiliates pursuant to the UE Non-Utility Services Agreement will be charged on an "at cost" basis as determined under Rules 90 and 91 of the Act. NCE hereby requests that the Commission grant an exemption from the provisions of Rules 90 and 91, and the at-cost requirement contained therein, for services provided by UE to associated QFs, IPPs, EWGs and FUCOs meeting the criteria set forth above in Item 3.B. UE intends to provide the following services to these entities: operations and management services, which include development, engineering, design, construction and construction management, pre- operational start-up, testing and commissioning, long-term operations and maintenance, fuel procurement, management and supervision, technical training, administrative support, and any other managerial or technical services required to operate and maintain electric power facilities, to developers, owners and operators of domestic and foreign power projects, including power projects that Quixx, its subsidiaries, or other associated companies may develop on its own or in collaboration with third parties, and to other associated companies, except as described below. No services will be provided at market-based rates to entities or associated companies which sell electricity to PSCo, SPS or Cheyenne unless authorized by the Act or the Commission. NCE believes that significant advantages can be gained by centralizing most design and engineering personnel in the NCE system in this special purpose subsidiary service company as the NCE system will benefit from the economies of scale that come with centralization in general, while at the same time the pre-existing reputation and good-will associated with UE will be maintained, allowing it to continue to compete in the marketplace for third party contracts on the same basis as prior to the Transaction. The Commission has recognized a number of special purpose subsidiary service companies in the past. D. QPS QPS is a wholly owned subsidiary of Quixx, organized to operate and maintain generation facilities. QPS will operate and maintain generation facilities in various locations and is currently under contract to operate and manage two cogeneration facilities in which Quixx has an interest of less than a majority: the BCH waste- to-energy cogeneration facility and the Carolina Energy solid waste fueled cogeneration facility. In both instances, and in future similar situations, QPS will provide operations and management services to these "technical" affiliates (i.e., entities which have more than 5% of their voting securities owned by a NCE subsidiary but which have one or more other non-affiliated, independent security holders holding a percentage of the voting power equal to or greater than that held by the applicable NCE subsidiary) which will include development, engineering design, construction and construction management, pre-operational start-up, testing and commissioning, long- term operations and maintenance, fuel procurement, management and supervision, technical training, administrative support, and any other managerial or technical services required to operate and maintain electric power facilities. NCE hereby requests that the Commission grant an exemption from the provisions of Rules 90 and 91, and the at-cost requirement contained therein, for the provision of such services to these "technical" affiliates. The Commission's principal concern under Section 13 of the Act is to protect the utility companies in a holding company system from abusive cross-subsidization transactions with affiliates. The Commission has granted exceptions to allow for fair market pricing of such services under certain circumstances and NCE requests an exemption from the provisions of Rules 90 and 91 as described above in Item 3.B. With respect to the existing contracts and in future instances, QPS will be providing services to developers, owners and operators of various power projects, including power projects that Quixx, its subsidiaries or other associated companies may develop on their own or in collaboration with third parties, and to other associated companies. In similar circumstances, the Commission has authorized exemptions from the at-cost standard of Section 13. Even if the entities for which QPS will provide services do not meet these requirements, QPS should be allowed an exemption for the "at-cost" standard because these situations involve special or unusual circumstances. The Commission has granted such exemptions in joint venture situations based upon a consideration of what is necessary or appropriate for the public interest and in light of the abuses the Act was intended to prevent. In the existing contracts and in future ventures where one of NCE's associated companies owns an interest of less than a majority and one or more of the other partners owns an interest equal to or greater than the interest owned by the NCE associated company, despite the interests that Quixx, its subsidiaries, or other associated companies may have in the ventures, the terms of QPS provisions of services were and will be made freely and openly by parties dealing at arms' length and subject to the checks and balances of a competitive system. In each case, the partners had and will have economic and competitive incentive to negotiate their own best possible price. Consequently, a situation in which abusive cross-subsidization could occur does not exist. No services will be provided at market-based rates to entities or associated companies which sell electricity to PSCo, SPS or Cheyenne unless authorized by the Act or the Commission. Thus, the concern of the Act with abusive affiliate transactions is not an issue in this instance. E. Other Services As previously mentioned, e prime may provided intra-system services to associated QFs, IPPs, EWG, and FUCOS as well as administrative and consulting services to Young Gas Storage Co., Ltd., the partnership that owns the Young Gas Storage facility and in which Young Gas holds a 47.5% interest. NCE hereby requests that the Commission grant an exemption from the provisions of Rules 90 and 91, and the at-cost requirement contained therein, for services provided by e prime to associated QFs, IPPs, EWGs and FUCOs meeting the criteria set forth above in Item 3.B. No services will be provided at market-based rates to entities or associated companies which sell electricity to PSCo, SPS or Cheyenne unless authorized by the Act or the Commission. In addition, NCE requests an exemption from the provision of Rules 90 and 91 for e prime to continue to provide services to Young Gas Storage Co., Ltd. at market based rates. Similar to the situation with QPS, the NCE system will only hold a 47.5% interest in Young Gas Storage Co., Ltd. and must negotiate on an arms length basis with the majority owner (the Coastal Corporation) with regard to the provision of such services. Thus, the concern of the Act with abusive affiliate transactions is not an issue in this instance. PSCo, SPS and Cheyenne may also provide to one another services incidental to their utility businesses, such as power plant maintenance overhauls, power plant and storm outage emergency repairs and services of personnel with specialized expertise related to the ____________________ See, e.g., New England Electric System, HCAR No. 22309 (Dec. 9, 1981) (utility permitted to enter into lease with affiliated joint venture with lease payments based on market price); EUA Cogenex Corporation, HCAR No. 263731 (Sept. 14, 1995) (authorizing service companies of two registered holding companies to provide services to affiliated joint venture at market based rates in certain circumstances). See, e.g., Entergy Corporation, HCAR No. 26322 (June 30, 1995); General Public Utilities Corporation, HCAR No. 26307 (June 14, 1995) and The Southern Company, HCAR No. 26212 (Dec. 30, 1994). 1995 Report at 102. See, e.g., Entergy Corporation, HCAR No. 26322 (June 30, 1995) (authorizing operations and management services including design and long-term operations) and American Electric Power Company, HCAR No. 26267 (April 5, 1995) (authorizing provision of services including engineering and construction services to certain affiliated and non-affiliated entities involved in projects relating to the generation, transmission, and distribution of electric power). See, e.g., American Electric Power Company, HCAR No. 22468 (April 21, 1982) (consulting subsidiary); Entergy Corp., HCAR No. 25718 (Dec. 28, 1992) (subsidiary engaged in energy management services and development of efficient lighting technology); Northeast Utilities, HCAR No. 25565 (June 29, 1992) (subsidiary servicing nuclear power project). See, e.g., Entergy Corporation, HCAR No. 26322 (June 30, 1995) (authorizing fair market prices for the provision of operations and management services, including long-term operations and maintenance, to certain power projects, including those developed by associate companies). See, e.g., New England Electric System, HCAR No. 22309 (December 9, 1981). operation of the utility (i.e., services by an industrial lighting specialist or waste disposal specialist). These services will be provided at cost in accordance with the standards of the Act and the Commission's rules and regulations thereunder. Moreover, the computer system developed by PSCo (the "CIS System") will remain an asset of PSCo following the transaction. While all required system personnel involved in the operation of the CIS System will be employees of the service company and all charges for their labor will be subject to the terms of the Service Agreement and the Non-Utility Service Agreement, PSCo will charge other system companies for the use of the CIS System at cost. Item 4. Regulatory Approvals Set forth below is a summary of the regulatory approvals that NCE has obtained or expects to obtain in connection with the Transaction. A. Antitrust The HSR Act and the rules and regulations thereunder provide that certain transactions (including the Transaction) may not be consummated until certain information has been submitted to the DOJ and FTC and specified HSR Act waiting period requirements have been satisfied. PSCo and SPS will submit Notification and Report Forms and all required information to the DOJ and FTC and the Transaction will not be consummated unless the applicable waiting period has expired or has been terminated. The expiration of the HSR Act waiting period does not preclude the Antitrust Division or the FTC from challenging the Transaction on antitrust grounds; however, Applicant believes that the Transaction will not violate Federal antitrust laws. If the Transaction is not consummated within twelve months after the expiration or earlier termination of the initial HSR Act waiting period, PSCo and SPS would be required to submit new information to the Antitrust Division and the FTC, and a new HSR Act waiting period would have to expire or be earlier terminated before the Transaction could be consummated. B. Federal Power Act Section 203 of the Federal Power Act of 1935, as amended (the "Federal Power Act"), provides that no public utility shall sell or otherwise dispose of its jurisdictional facilities or directly or indirectly merge or consolidate such facilities with those of any other person or acquire any security of any other public utility, without first having obtained authorization from the FERC. PSCo and SPS submitted a joint application for approval of the Transaction to the FERC on November 9, 1995. C. State Public Utility Regulation Colorado: PSCo is subject to the CPUC. Pursuant to Rule 55 of the CPUC's Rules of Practice and Procedure, PSCo filed an application with the CPUC requesting approval of the Merger Agreement on November 9, 1995. The application is required to demonstrate, among other things, that the approval sought is not contrary to the public interest. In addition, the CPUC will consider the rate making treatment associated with the Transaction. Failure to obtain favorable treatment could have a material adverse effect. NCE and PSCo have requested that the CPUC also indicate that it does not object to the retention of PSCO's and Cheyenne's Gas System in the NCE structure. Wyoming: Cheyenne is subject to the jurisdiction of the WPSC. Pursuant to Section 37-1-104 of the Wyoming Revised Statutes, any reorganization of a public utility requires prior approval of the WPSC. The statute defines reorganization as a transaction which results in a change in the ownership of a majority of the voting capital stock of a public utility and precludes the WPSC from approving any reorganization that adversely affects the utility's ability to serve the public. Pursuant to Section 209 of the WPSC's Rules of Practice and Procedure, Cheyenne filed an application for approval of the applicable portions of the Merger Agreement on November 9, 1995. In addition, the WPSC will consider the rate making treatment associated with the Transaction. Failure to obtain favorable treatment could have a material adverse effect. NCE and PSCo have requested that the WPSC also indicate that it does not object to the retention of PSCO's and Cheyenne's Gas System in the NCE structure. New Mexico: SPS is subject to the jurisdiction of the NMPUC. Pursuant to the New Mexico Public Utility Act and the NMPUC's Rules of Practice and Procedure, SPS filed an application with the NMPUC requesting approval of the Merger Agreement on November 9, 1995. The NMPUC will approve the consummation of the Transaction if it finds that they are not unlawful or inconsistent with the public interest and will not interfere with the provision by SPS of reasonable and proper utility service at fair, just and reasonable rates. In addition, the NMPUC will consider the rate making treatment associated with the Transaction. Failure to obtain favorable treatment could have a material adverse effect. Texas: SPS must report the Transaction to the PUCT under Section 1.251 of the Public Utility Regulatory Act of 1995 and obtain a finding that the Transaction is in the public interest. SPS submitted such report to the PUCT on November 9, 1995. While a finding that the Transaction is not in the public interest does not prohibit the consummation of the SPS Merger, if the PUCT makes such a finding it is required to take the effect of the Transaction into consideration in future ratemaking proceedings and disallow the effect of the Transaction if it will unreasonably affect rates or services. Rate treatment resulting from a finding that the Transaction was not in the public interest could materially and adversely affect SPS. Kansas: SPS is subject to the jurisdiction of the KCC, pursuant to the Kansas Public Utility Act. On November 9, 1995, SPS filed an application with the KCC requesting authority for the issuance of common stock by SPS to NCE pursuant to the Merger Agreement. The application is required to describe the purposes for which the common stock is to be issued and state that such issuance is necessary and required and will be sold for such purposes. The KCC issued its order granting the requested authority to SPS on November 28, 1995. NCE may also be subject to the KCC pursuant to the Kansas Holding Companies Act ("KHCA"). The KHCA states that no foreign holding company shall acquire control of a Kansas public utility without first entering into an agreement to keep the KCC fully informed as to transactions between the utility and the holding company and to submit to the jurisdiction of the KCC insofar as such transactions affect the rates or charges to be made by the utility. NCE has entered into such an agreement with the KCC. Oklahoma: SPS is subject to the jurisdiction of the OCC. However, no approval or authorization of any Oklahoma public regulatory body, including the OCC, of the Merger Agreement is required. Item 5. Procedure The Commission is respectfully requested to issue and publish not later than February 22, 1996 the requisite notice under Rule 23 with respect to the filing of this Application/Declaration, such notice to specify a date not later than March 19, 1996 by which comments may be entered and a date not later than March 22, 1996 as the date after which an order of the Commission granting and permitting this Application/Declaration to become effective may be entered by the Commission. It is submitted that a recommended decision by a hearing or other responsible officer of the Commission is not needed for approval of the proposed Transaction. The Division of Investment Management may assist in the preparation of the Commission's decision. There should be no waiting period between the issuance of the Commission's order and the date on which it is to become effective. Item 6. Exhibits and Financial Statements A. Exhibits A-1 Restated Certificate of Incorporation of NCE (filed as Annex VIII to the Registration Statement on Form S-4 on December 13, 1995 (Registration No. 33-64951), and incorporated herein by reference). A-2 Restated Bylaws of NCE (filed as Annex IX to the Registration Statement on Form S-4 on December 13, 1995 (Registration No. 33-64951), and incorporated herein by reference). A-3 Restated Articles of Incorporation of PSCo (filed as Exhibit 3(a) to the PSCo Annual Report on Form 10-K for the year ended December 31, 1990 (File No 1-3280) and incorporated herein by reference). A-4 Restated Articles of Incorporation of SPS (filed as Exhibit 3 to the SPS Form 10-Q for the quarter ended May 31, 1990 (File No. 1-3789) and incorporated herein by reference) and proposed amendment thereto (filed as Annex X to the Registration Statement on Form S-4 on December 13, 1995 (Registration No. 33-64951, and incorporated herein by reference). B-1 Merger Agreement, as amended (filed as Annex I to the Registration Statement on Form S-4 on December 13, 1995 (Registration No. 33-64951), and incorporated herein by reference). B-2 Form of Service Agreement between NC Services, Inc. and utility affiliates (to be filed by amendment). B-3 Form of Service Agreement between NC Services, Inc. and non-utility affiliates (to be filed by amendment). B-4 Form of Service Agreement between UE and its utility affiliates (to be filed by amendment). B-5 Form of Service Agreement between UE and its non- utility affiliates (to be filed by amendment). B-6 Summary of Procedures for NC Services (to be filed by amendment). B-7 Summary of Procedures for UE (to be filed by amendment). C-1 Registration Statement of NCE on Form S-4 (filed on December 13, 1995 (Registration No 33-64951) and incorporated herein by reference). C-2 Joint Proxy Statement and Prospectus (included in Exhibit C-1). D-1.1 Joint Application of PSCo and SPS before the FERC. D-1.2.1 Testimony of Dr. Robert Spann to the FERC (to be filed by amendment). D-1.2.2 Testimony of Matt P. Harris to the FERC. D-1.3 Order of the FERC dated __________ (to be filed by amendment). D-2.1 Application of PSCo before the CPUC. D-2.2 CPUC Order dated __________ (to be filed by amendment). D-3.1 Application of PSCo to the WPSC. D-3.2 WPSC Order dated __________ (to be filed by amendment). D-4.1 Application of SPS to the NMPUC. D-4.2 NMPUC Order dated __________ (to be filed by amendment). D-5.1 Notification of SPS to the PUCT. D-5.2 PUCT Finding dated __________ (to be filed by amendment). D-6.1 Application of SPS to the KCC. D-6.2 KCC Order dated November 28, 1995. E-1 Map of service areas of SPS, PSCo and Cheyenne. E-2 Map of PSCo and Cheyenne transmission system. E-3 Map of SPS transmission system. E-4 PSCo corporate chart. E-5 SPS corporate chart. E-6 NCE corporate chart. F-1 Opinion of counsel (to be filed by amendment). F-2 Past-tense opinion of counsel (to be filed by amendment). G-1 Opinion of Barr Devlin & Co Incorporated (filed as Annex II to the Registration Statement on Form S-4 on December 13, 1995 (Registration No. 33-64951), and incorporated herein by reference). G-2 Opinion of Dillon, Read & Co. Inc. (filed as Annex II to the Registration Statement on Form S-4 on December 13, 1995 (Registration No. 33-64951), and incorporated herein by reference). H-1 Annual Report of PSCo on Form 10-K for the year ended December 31, 1994 (filed on March 3, 1995 (File No. 1- 3280) and incorporated herein by reference). H-2 Annual Report of SPS on Form 10-K for the year ended August 31, 1995 (filed on November 21, 1995 (File No 1- 3789) and incorporated herein by reference). H-3 Statement of PSCo on Form U-3A-2 for the year ended December 31, 1994 (filed on February 23, 1995 and incorporated herein by reference). H-4 Amendment to Statement of PSCo on Form U-3A-2 for the year ended December 31, 1994 (filed on March 29, 1995 and incorporated herein by reference). H-5 PSCo Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 (filed on May 10, 1995 (File No. 1-3280) and incorporated herein by reference). H-6 PSCo Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 (filed on August 10, 1995 (File No. 1-3280) and incorporated herein by reference). H-7 PSCo Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 (filed on November 14, 1995 (File No. 1-3280) and incorporated herein by reference). H-8 SPS Quarterly Report on Form 10-Q for the quarter ended November 30, 1995 (filed on January 16, 1996) (File No. 1-3789) and incorporated herein by reference). I-1 Proposed Form of Notice. J-1 Analysis of the Economic Impact of a Divestiture of The Gas Operations of Public Service Company of Colorado and its Subsidiaries. J-2 Legal Memorandum of LeBoeuf, Lamb, Greene & MacRae, L.L.P. and exhibits thereto. J-3 Table of Estimated Losses of Economies in Prior Decisions on Divestiture and Retention of Gas Operations (to be filed by amendment). J-4 Memorandum on NC Hold debt service (to be filed by amendment). B. Financial Statements FS-1 NCE Unaudited Pro Forma Condensed Consolidated Balance Sheets as of September 30, 1995 (see Registration Statement on Form S-4 of NCE (Exhibit C-1 hereto) at p. 75-76). FS-2 NCE Unaudited Pro Forma Condensed Consolidated Statements of Income for the year ended December 31, 1994 and the nine months ended September 30, 1995. (See Registration Statement on Form S-4 of NCE (Exhibit C-1 hereto) at pp. 77-78)). FS-3 SPS Consolidated Balance Sheet as of August 31, 1995 (see Annual Report of SPS on Form 10-K for the year ended August 31, 1995 (Exhibit H-2 hereto), at p. 23). FS-4 SPS Consolidated Statements of Income for its last three fiscal years (see Annual Report of SPS on Form 10-K for the year ended August 31, 1995 (Exhibit H-2 hereto), at p. 26). FS-7 PSCo Consolidated Balance Sheet as of December 31, 1994 (see Annual Report of PSCo on Form 10-K for the year ended December 31, 1994 (Exhibit H-1 hereto), at p. 46). FS-8 PSCo Consolidated Statement of Income for its last three fiscal years (see Annual Report of PSCo on Form 10-K for the year ended December 31, 1994 (Exhibit H-1 hereto), at p. 47). Item 7. Information as to Environmental Effects The Transaction 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, 42 U.S.C. Sec. 4321 et seq. The only federal actions related to the Transaction pertain to the Commission's declaration of the effectiveness of NCE's Registration Statement on Form S-4, the expiration of the applicable waiting period under the HSR Act, FERC approval of the application filed by NCE with the FERC under the Federal Power Act, and Commission approval of this Application/Declaration. Consummation of the Transaction will not result in changes in the operations of PSCo, Cheyenne or SPS that would have any impact on the environment. No federal agency is preparing an environmental impact statement with respect to this matter. SIGNATURE Pursuant to the requirements of the Public Utility Holding Company Act of 1935, the undersigned company has duly caused this Application/Declaration of New Century Energies, Inc. to be signed on its behalf by the undersigned thereunto duly authorized. Date: January 29, 1996 New Century Energies, Inc. By: /s/ Doyle R. Bunch II Doyle R. Bunch II Chairman and Secretary /s/ Richard C. Kelly Richard C. Kelly President and Treasurer EX-99.1 2 FERC APPLICATION UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION Public Service Company of Colorado ) and ) Docket No. EC96-___-000 Southwestern Public Service Company ) JOINT APPLICATION FOR AUTHORIZATION AND APPROVAL OF MERGER Alan J. Statman Barry S. Spector Michael J. Thompson WRIGHT & TALISMAN, P.C. 1200 G Street, N.W. Suite 600 Washington, D.C. 20005 (202) 393-1200 Attorneys for the Applicants William M. Dudley Associate General Counsel Public Service Company of Colorado 1225 17th Street Suite 600 Denver, Colorado 80201-0840 Attorney for Public Service Company of Colorado November 9, 1995 TABLE OF CONTENTS PAGE I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . 1 II. OVERVIEW OF THE TRANSACTION . . . . . . . . . . . . . . 2 III. THE MERGER IS IN THE PUBLIC INTEREST . . . . . . . . . . 5 A. Introduction And Summary . . . . . . . . . . . . . 5 B. The Commonwealth Edison Factors . . . . . . . . . . 8 1. Impact on Costs and Rates . . . . . . . . . . 8 2. The "Pooling" Method of Accounting Will Be Used . . . . . . . . . . . . . . . . . . . . . 12 3. The Purchase Price Was Negotiated at Arm's Length and Is Reasonable . . . . . . . . . . . 13 4. The Merger Was Not the Result of Coercion . . 13 5. The Merger Will Not Adversely Affect Competition . . . . . . . . . . . . . . . . . 14 6. There Will Continue To Be Effective Regulation of PSCo, Cheyenne, and SPS . . . . 21 C. Comparable Transmission Tariffs Are Already On File With the Commission . . . . . . . . . . . . . 23 IV. REQUEST FOR EXPEDITED APPROVAL WITHOUT A HEARING . . . . 25 V. AUTHORIZATIONS AND WAIVERS REQUESTED . . . . . . . . . . 26 VI. INFORMATION REQUIRED BY THE COMMISSION'S REGULATIONS . . 28 VII. REQUIRED EXHIBITS . . . . . . . . . . . . . . . . . . . 34 VIII.CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . 35 UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION Public Service Company of Colorado ) and ) Docket No. EC96-___-000 Southwestern Public Service Company ) JOINT APPLICATION FOR AUTHORIZATION AND APPROVAL OF MERGER I. INTRODUCTION Public Service Company of Colorado ("PSCo"), on behalf of itself and Cheyenne Light, Fuel and Power Company ("Cheyenne"), a wholly-owned subsidiary owning jurisdictional facilities, and Southwestern Public Service Company ("SPS") (jointly "Applicants") submit this Joint Application pursuant to section 203 of the Federal Power Act ("FPA"), 16 U.S.C. Section 824b, and Part 33 of the Commission's regulations, 18 C.F.R. Part 33. Applicants seek authorization and approval of the merger and reorganization of PSCo and SPS into a holding company (temporarily named M-P New Co.) and the resulting consolidation of facilities subject to the Commission's jurisdiction (the "Merger Transaction"). The Merger Transaction will take place in accordance with the Agreement and Plan of Reorganization, dated August 22, 1995, between PSCo and SPS (the "Merger Agreement"). A copy of the Merger Agreement is included with the Testimony of Richard C. Kelly, which accompanies this application. The Joint Application consists of three volumes. Volume I consists of a transmittal letter and this Joint Application, containing the information and exhibits required by Sections 33.2 and 33.3 of the Commission's regulations. Volumes II and III contain Applicants' case-in-chief, consisting of the direct testimony of six witnesses and accompanying schedules. Workpapers also accompany the application. As detailed in the case-in-chief, the Merger Transaction satisfies all applicable standards for approvals of mergers as established by Commission precedent. The merger is, accordingly, "consistent with the public interest" within the meaning of section 203 of the FPA. Applicants therefore request that the Commission approve the Merger Transaction expeditiously and without an evidentiary hearing so that they can complete the merger by September 6, 1996, and achieve the substantial benefits projected to result from the merger as early as possible. II. OVERVIEW OF THE TRANSACTION The Merger Transaction is a "merger of equals" between utilities located on opposite sides of the division between the Eastern and Western Interconnections. PSCo, incorporated in Colorado and located on the western side, is a combination electric and gas utility providing electric services to approximately one million customers in Colorado, including the population centers of Denver and Boulder. PSCo is a member of the Western Systems Coordinating Council. PSCo's wholly-owned subsidiary, Cheyenne, a Wyoming corporation and also a combination electric and gas utility, provides electric services to approximately 33,000 customers in and around Cheyenne, Wyoming. SPS, incorporated in New Mexico and located on the eastern side, is an electric utility whose service area encompasses portions of southeastern New Mexico, the South Plains and Panhandle areas of Texas, the Oklahoma Panhandle, and southwestern Kansas. SPS provides service to approximately 368,000 customers, and it is a member of the Southwest Power Pool. As specified in the Merger Agreement, PSCo, SPS, and Cheyenne will become operating companies of a new holding company, temporarily called M-P New Co., a Delaware corporation, which will be a registered holding company subject to regulation by the Securities and Exchange Commission ("SEC"). A new service company will be organized as a subsidiary of the holding company to provide certain administrative, management, and support services to PSCo, SPS, Cheyenne, and the holding company's other subsidiaries. Additionally, an intermediate holding company subsidiary will be formed to own the shares of certain existing PSCo and SPS subsidiaries. Under this holding company structure, PSCo, SPS, and Cheyenne each will continue to serve their existing service territories. Although the service company will consolidate and perform corporate support and administrative functions that are currently performed by PSCo (on behalf of itself and Cheyenne) and SPS individually, there will be no immediate operational changes in how the companies serve their customers. PSCo, Cheyenne, and SPS will continue to meet their customers' needs from their own generation and purchased power resources, as they do today. By the year 2001, PSCo and SPS plan to connect their systems by constructing a 400-MW high-voltage direct-current tie and an approximately 300-mile 345-kv transmission line. When the two systems are connected, PSCo and SPS will begin coordinated electric operations. At the corporate level, restructuring will be effectuated by the conversion of stock. Common stock holders of PSCo and SPS will convert their respective shares of PSCo and SPS stock for rights to shares of common stock in the new holding company. Each share of PSCo stock will be converted to a right to receive one share of the new holding company's stock. Each share of SPS stock will be converted to a right to receive 95% of one share of the holding company's stock. These rights then will be exchanged for holding company stock. As a result, the common stockholders of PSCo and SPS will own all of the outstanding shares of the stock of the new holding company. The preferred ____________________ See Testimony of Richard C. Kelly, Exh. APP-1, Schedule RCK-2. A diagram of the new corporate structure is included in the Testimony of Richard C. Kelly, Exh. APP-1, Schedule RCK-3. stockholders and debt holders of each company at the time of the merger will be unaffected. Applicants are undertaking the Merger Transaction because they believe it will produce benefits to their customers and shareholders that cannot be realized through separate planning and operation of their existing electric utility systems. The cost savings from the merger -- projected to be approximately $770 million in the first ten years -- will result in rates for Applicants' electric and gas customers which are lower than they otherwise would have been. Moreover, Applicants believe that the resulting lower-cost, more efficient company will better be able to compete in the nation's increasingly competitive electric power markets. The savings and other efficiencies projected to result from the merger are attributable to many factors. These are summarized below and are detailed in the testimony accompanying the application. For these and other reasons set forth herein, Applicants request that the Commission find that the proposed merger will be consistent with the public interest in accordance with section 203 of the FPA and grant all necessary authorizations to effectuate the merger. III. THE MERGER IS IN THE PUBLIC INTEREST A. Introduction And Summary The standards for approval of a merger under section 203 are well established. "[I]f the Commission finds that the proposed . . . consolidation . . . will be consistent with the public interest, it shall approve the same." 16 U.S.C. Section 824b(a)(1988). The merging entities need only show that "the proposed merger is compatible with the public interest." They "need not show a positive benefit of the merger." In Commonwealth Edison Co., the Commission set forth six factors that it considers in determining whether a proposed merger is in the public interest: (1) the effect of the merger on Applicants' operating costs and rate levels; (2) the contemplated accounting treatment; (3) the reasonableness of the purchase price; (4) whether the merger was the result of coercion; (5) the impact of the merger on competition; and (6) whether the merger impairs effective regulation by the Commission or the appropriate state regulatory authorities. More recently, the Commission has further required that merging companies provide "comparable transmission services" on their systems. As discussed below and in detail in the testimony accompanying this application, the merger satisfies each of the Commonwealth factors. Moreover, in its review of recent utility mergers, the Commission has focused primarily on two factors: (1) the impact of the merger on costs and rates; and (2) the impact of the merger on competition. Neither of these matters requires an evidentiary hearing in this case. Among other benefits, as noted, in the initial ten years following the merger, there will be net cost savings to the merging companies of approximately $770 million. Such savings will enable Applicants to provide reliable, competitive service at lower rates than otherwise would have occurred absent the merger. Even if Applicants' estimate of $770 million in net cost savings is disputed in amount, there can be no question from the evidence submitted that significant, merger-related savings will be realized. Moreover, as discussed below, Applicants are providing a "hold harmless" commitment to wholesale customers, further obviating any need for a hearing. The merger of these two moderately-sized utilities also will have no adverse effect on competition. The merged company will rank only about 30th in size nationally, based on total electric revenues. The accompanying testimony of Dr. Robert M. Spann, Vice President of Charles River Associates, demonstrates that the proposed merger will not adversely affect competition in any relevant transmission or generation market. Both PSCo and SPS already have filed comparable-service, open-access transmission tariffs, which the Commission has accepted and placed into effect. These and other matters pertinent to the Commission's review of the merger are discussed in more detail below. B. The Commonwealth Edison Factors 1. Impact on Costs and Rates The merger will have a positive impact on Applicants' costs and rates. Applicants have submitted the testimony of Thomas J. Flaherty, National Partner for Utilities Consulting of Deloitte & Touche Consulting Group, in which Mr. Flaherty demonstrates that, as a result of the merger, in the first ten years after the transaction, Applicants can achieve approximately $815 million in cost savings. After netting out the costs that will be incurred to accomplish the merger, the total projected net savings are approximately $770 million. The projected savings and costs to achieve them are summarized by Mr. Flaherty as follows: Total Savings 1997 - 2006 Savings Category ($ millions) Corporate and Operations Labor $389.5 Corporate and Administrative Programs 82.7 Purchasing Economies (Non-Fuel) 19.1 Fuel Procurement-Electric 144.1 Fuel Procurement-Gas LDC 53.0 Capacity Deferral 160.1 Joint Dispatch (33.7) Total Savings 814.8 Less: Costs to Achieve (25.0) Transaction Costs (18.0) Premerger Initiatives (2.1) Net Savings $769.7 On a net present value basis, which the Commission often considers in merger cases, the ten-year savings are $488 million. Especially considering the relatively modest size of PSCo and SPS, these are substantial savings. As Mr. Flaherty testifies, the projected cost savings reflect only those savings created by or attributable to the merger. The projected savings reflect the creation of cost reduction or cost avoidance opportunities through the ability to consolidate separate, stand-alone operations into a single entity. The Commission in its past evaluation of mergers has not limited its benefit findings to savings that can be created only by the proposed merger. Yet, here, even if the ____________________ Approximately $53 million of the savings will directly benefit PSCo's local gas distribution customers, while the remaining $717 million will primarily benefit electric customers. Pacific Power & Light Co. v FPC, 111 F.2d 1014, 1016 (9th Cir. 1940); see also Northeast Utils. Serv. Co. v. FERC, 993 F.2d 937 (1st Cir. 1993); Entergy Servs., Inc., 65 FERC Paragraph 61,332 (1993), order on reh'g, 67 FERC Paragraph 61,192 (1994). Utah Power & Light Co., 47 FERC Paragraph 61,209, at 61,750 (1989), remanded on other grounds, Environmental Action v. FERC, 939 F.2d 1057 (D.C. Cir. 1991); see also Entergy Servs., Inc., 62 FERC Paragraph 61,073, at 61,370 (1993). 36 FPC 927 (1966), aff'd sub nom. Utility Users League v. FPC, 394 F.2d 16 (7th Cir), cert. denied, 393 U.S. 953 (1968). El Paso Elec. Co., 68 FERC Paragraph 61,181, at 61,914-15 (1994). See also Southwestern Pub. Serv. Co., 71 FERC Paragraph 61,318, at 62,241 (1995). In fact, the Commission recently specifically concluded that SPS lacks any generation market power. Southwestern Pub. Serv. Co., 72 FERC Paragraph 61,208, at 61,966-67 (1995). It reached a similar conclusion as to PSCo in 1992. Public Serv. Co. of Colorado, 58 FERC Paragraph 61,322 (1992). Southwestern Pub. Serv. Co., 72 FERC Paragraph 61,104 (1995); Public Serv. Co. of Colorado, 73 FERC Paragraph 61,071 (1995). See Testimony of Thomas J. Flaherty, Exh. APP-3 and Schedule TJF-2. The cost of the transmission line which will interconnect Applicants' systems has been accounted for in the capacity deferral savings. See Flaherty, Exh. APP-3, at 57-58. By combining their dispatch, the companies achieve lower energy costs than on a stand-alone basis. However, because Applicants are deferring a capacity addition that would have been fueled by low-cost coal, saving $160 million, energy costs are $33 million higher as compared to the stand-alone scenarios. Combined, however, fuel procurement savings for electric operations, capacity deferral savings, and joint dispatch savings are projected to be $270.5 million. Flaherty, Exh. APP-3, at 26 and Schedule TJF-2. Cf. Midwest Power Sys., Inc., 71 FERC Paragraph 61,386 (1995) (present value merger savings of $270 million over ten years); El Paso Elec. Co. 68 FERC Paragraph 61,181 (1994) (nominal merger savings of $420 million over ten years). See Midwest Power Sys., Inc., 71 FERC Paragraph 61,386, at 62,507 (1995); Northeast Utils. Serv. Co., 56 FERC Paragraph 61,269, at 61,995 (1991) ("[A] claimed benefit should be attributable to the merger even though the benefit could be achieved without the merger."), order on reh'g, 58 FERC Paragraph 61,070 (1992), aff'd in rel. part & remanded on other grounds, 993 F.2d 937 (1st Cir. 1993) (citing Utah Power & Light Co., 45 FERC Paragraph 61,095, at 61,299 (1988)); Commonwealth Edison Co., 36 FPC 927, 931 (1966), aff'd sub nom. Utility Users League v. FPC, 394 F.2d 16 (7th Cir.), cert. denied, 393 U.S. 953 (1968). Commission were to consider only those benefits that cannot be achieved any other way, the merger would satisfy that even stricter standard. Consolidation and integration will enable PSCo and SPS: to eliminate duplicative functions and positions (saving $389.5 million), combine or avoid similar corporate activities (saving $82.7 million), and combine and reduce external purchases of goods and services (saving $19.1 million). The companies will be able to lower the cost of fuel procurement through combined purchases (saving $144.1 million for electric operations and $53 million for gas operations). And, with the construction of an interconnection between the systems, the companies will be able more effectively to coordinate planning and construction, defer generation, and more economically dispatch generation resources (saving $126.4 million). While the exact level of merger savings that will be achieved cannot be predicted with precision, there can be no question that substantial savings will result. No further showing is required, and an evidentiary hearing on this issue is not necessary. Moreover, as described in the testimony of David T. Hudson, Applicants are proposing a "hold harmless" commitment for the first five years after the effective date of the merger. In any general rate increase filing by either PSCo or SPS, neither company will seek to collect certain defined, merger-related costs, except to the extent the costs are offset by merger- related benefits. The Commission has relied on "hold harmless" conditions in the past in determining not to set for hearing the issue of a merger's effect on costs and rates. 2. The "Pooling" Method of Accounting Will Be Used As explained in the testimony of Robert D. Dickerson, Secretary and Treasurer for SPS, the merger will be accounted for by using the pooling-of-interests method of accounting, as provided for under the Generally Accepted Accounting Principles in Accounting Principles Board Opinion No. 16 - Business Combinations. The merger meets the criteria for the pooling method of accounting. No additional ownership rights are being acquired by one group of shareholders to the exclusion of another. Rather, a pooling of ownership interests will be accomplished by the exchange of common stock in the respective companies for the shares of common stock in the new holding company. Consistent with Commission precedent, because the merger transaction meets the criteria of the pooling-of-interests method of accounting, there is no need for a hearing to address accounting issues. 3. The Purchase Price Was Negotiated at Arm's Length and Is Reasonable The Merger Agreement was negotiated at arm's length between PSCo and SPS, and has been approved by the Board of Directors of each company. Under the Merger Agreement, neither company is "purchasing" the other. Rather, the merger transaction is a merger of equals, whereby the common stockholders of PSCo and SPS will exchange their shares for stock in the new holding company. The rate of exchange for common stock -- each share of PSCo common stock converted to one share of common stock in the holding company, and each share of SPS stock converted to 95% of one share of common stock in the holding company -- was negotiated by the merging companies and approved by their respective directors. When merger negotiations are at arms length, there is no need for a hearing on the reasonableness of the purchase price. 4. The Merger Was Not the Result of Coercion Neither company coerced the other into entering the Merger Agreement. Each company recognized the potential long- term benefits from joining the two companies and freely agreed to the merger. Moreover, because the shareholders of each company must approve the Merger Agreement, neither company can coerce the other into consummating the transaction. 5. The Merger Will Not Adversely Affect Competition The Commission has developed a well-defined framework for assessing market power in merger and other cases. The Commission's "primary concern" is whether "customers have genuine alternatives to buying the seller's product" in markets for wholesale bulk power and for transmission services. Although the Commission does not rely on any particular measures of market shares or concentration, it has held that market shares of less than 20% demonstrate a lack of market power. The Commission examines whether eliminating an existing competitor through a proposed merger will increase concentration and, thus, potentially create or enhance market power in transmission and bulk power markets. However, if the evidence shows that pre-merger competition between the merging companies is only de minimis, the merger's elimination of a competitor has no adverse effect on competition. Entergy Servs., Inc., 62 FERC Paragraph 61,073, at 61,374 (1993). Commissioners Massey and Hoecker, in their concurring opinion in Midwest Power Systems, Inc., 71 FERC Paragraph 61,386 (1995), have urged the Commission to reexamine its merger policy in the light of changed circumstances in the electric industry. Id. at 62,512 (Concurring Opinion of Commissioners Massey and Hoecker). The commissioners observed that the principal competitive effect of mergers of utilities today is likely to be to increase concentration in generation markets. Sometimes the increase in concentration will be competitively significant and sometimes it will not, they noted. Id. The commissioners also pointed out that, in some instances, "bigger may be better" with respect to horizontal mergers of transmission systems, providing enhanced market access to others. Id. at 62,513. Applicants are submitting the testimony of Dr. Robert M. Spann, an independent economist with Charles River Associates, who evaluates the potential effects of Applicants' merger on competition. Dr. Spann employs the analytical framework which the Commission has developed in its prior merger decisions and also employs other widely-accepted analytical methods to address concerns and questions that a merger may present. As discussed in detail in the testimony, Dr. Spann concludes that the merger of PSCo and SPS would not create or enhance market power in any relevant market for transmission services or for sales of bulk power at wholesale. PSCo and SPS are relatively small participants in a large geographic market in which buyers and sellers have numerous transmission options and many alternatives for acquiring bulk power supplies. Moreover, ____________________ See Midwest Power Sys., Inc., 71 FERC at 62,513 (Commissioners Massey and Hoecker, concurrence). Capacity, fuel procurement, and dispatch savings are particularly difficult to forecast with precision because they depend on future company loads and future fuel prices. Therefore, Applicants conducted sensitivity studies on these projected savings. These studies show a likely range of combined capacity deferral, fuel procurement, and joint dispatch savings for electric operations (net of the costs of the new transmission line), over a wide variety of future conditions, of between $174 million and $280 million, confirming the reasonableness of the projections in this area. See Testimony of Matt P. Harris, Exh. APP-5, at 45 and Schedule MPH-15. Entergy Servs., Inc., 65 FERC Paragraph 61,322, at 62,475 (1993). See also Midwest Power Sys., Inc., 71 FERC Paragraph 61,386 (1995). See Testimony of David T. Hudson, Exh. APP-4, at 15-16. See Cincinnati Gas & Elec. Co., 64 FERC Paragraph 61,237, at 62,714 (1993), vacated on other grounds, 66 FERC Paragraph 61,028, reinstated, 69 FERC Paragraph 61,005 (1994). As a general matter, however, the Commission does not require hold harmless conditions when the applicants have shown that a merger is otherwise consistent with the public interest. Entergy Servs., Inc., 65 FERC at 62,474 (1993). Because Applicants have shown substantial benefits, the Commission does not have to examine the extent of the voluntary hold harmless commitment. Id. Southern California Edison Co., 47 FERC Paragraph 61,196, order on reh'g, 49 FERC Paragraph 61,091 (1989). Moreover, because pooling-of-interests accounting will be used, no acquisition premium will be paid or recorded. See Testimony of Richard C. Kelly, Exh. APP-1, at 21-22. See Midwest Power Sys., Inc., 71 FERC Paragraph 61,386, at 62,510 (1995). See Testimony of Richard C. Kelly, Exh. APP-1, at 10-11. Public Serv. Co. of Indiana, Inc., 51 FERC Paragraph 61,367, at 62,205, order on reh'g, 52 FERC Paragraph 61,260 (1990); see also Cincinnati Gas & Elec. Co., 64 FERC at 62,727; see also UtiliCorp United, Inc., 56 FERC Paragraph 61,031, at 61,120 (1991). See, e.g., Louisville Gas & Elec. Co., 62 FERC Paragraph 61,016, at 61,146 (1993). The Commission also recently concluded that a market share between 20% and 25% in a few markets (based on total generation resources) does not demonstrate market power, when market shares are below 20% in all markets with respect to uncommitted capacity. Southwestern Pub. Serv. Co., 72 FERC Paragraph 61,208, at 61,966 (1995). Because the PSCo and SPS systems are not contiguous and are not currently interconnected, this merger will not immediately have a "bigger is better" effect on transmission. However, Applicants plan to interconnect their systems by 2001, and their systems will then be subject to all Commission policies applicable to comparable- service, open-access transmission over multi-system companies. both companies already have filed with the Commission comparable- service, open-access transmission tariffs, which are now in effect. As recently as September 1, 1995, the Commission expressly found that one of the merging companies, SPS, does not currently possess market power in generation. In an earlier proceeding, the Commission made the same finding as to PSCo. As to transmission markets, PSCo and SPS do not currently compete with each other. As physically separated companies operating in different electric grids, there are virtually no transactions for which transmission service over the PSCo system would be a viable substitute for transmission service over the SPS system or vice versa. Indeed, Public Service Company of New Mexico ("PNM") is the only utility whose interconnections with both companies enable it to substitute the services of one for the other, and it has substantial generation resources of its own, is interconnected with numerous other sellers of power, and has numerous transmission paths available to it for purchases of power from companies other than PSCo and SPS. The proposed merger therefore would not create or enhance market power in any transmission markets. Further, in Colorado, unlike many other regions of the country, there are multiple owners of transmission facilities throughout the state. In many cases, sellers of power have several alternative transmission providers from which to choose. See Testimony of Matt P. Harris, Exh. APP-5, at 21; Spann Testimony, Exh. APP-6, at 35-36. Regarding the Commission's principal focus in merger proceedings, markets for short-term capacity sales, Dr. Spann concludes that the merger would not increase concentration in, and the merged company would not have a substantial share of, short-term capacity markets. This conclusion holds whether the relevant geographic market is defined, as Dr. Spann recommends, as the entire Western Systems Coordinating Council (where Applicants' market share will be only about 6% based on total generation and 3% based on uncommitted generation) or more narrowly as only those entities (Tier 1 entities) that are directly interconnected with one or both of the merging companies. The Applicants' shares of their Tier 1 markets fall below the Commission's 20% threshold in all but two cases. The two exceptions are the merged company's share of the market represented by the transmission-dependent entities ("TDE's") to which SPS provides full requirements service within its service territory and its share of the market represented by the City of Lubbock, Texas. In each of these cases, the merged company would hold just a 21% share of the Tier 1 market based on total resources. Moreover, when the analysis is based on uncommitted resources, Applicants' short-term market share is zero, because SPS has no short-term uncommitted capacity and PSCo is not and will not be connected to these markets in the short- term. Dr. Spann also finds that the merger would not create or enhance market power in any relevant market for short-term energy sales. Even though the absence of useful reported data forces him to exclude from his analysis the very substantial sales of non-firm energy in the Western Interconnection that are made by the Western Area Power Administration (Western) and other public entities, Dr. Spann finds that the merged company would have a market share for short-term, non-firm energy sales of only approximately 12% and that the merger would not significantly increase concentration. The merger would have an even smaller effect on concentration in the market for short-term sales of firm power. Dr. Spann further concludes that the merger would not create or enhance market power in long-term markets. Applicants do not control sites for new generating facilities or any other key inputs for new generating resources. While PSCo and Cheyenne are engaged in the transportation and sale of natural gas in Colorado and Wyoming, these operations are subject to regulation by the Colorado Public Utilities Commission and the Public Service Commission of Wyoming. Certain sales and transportation services also are subject to the non- discriminatory access provisions of the FERC's regulations. This regulation precludes the merged company from using its natural gas facilities to block entry by competing generators of power. The merger would not, in any event, increase the Applicants' control of natural gas transportation facilities. Dr. Spann notes that entry into generation markets is occurring today in the service areas of both PSCo and SPS, as well as throughout the relevant geographic market. This provides the best evidence that Applicants do not control, and will be unable to erect, barriers to entry in generation markets. Thus, this merger is plainly among the transactions which Commissioners Massey and Hoecker noted would be competitively insignificant. In fact, Dr. Spann analyzed the Applicants' merger even under the hypothetical assumption that no transmission service would be available on Applicants' systems. Even under that highly conservative hypothetical, the merger still would not materially increase concentration in any relevant market, confirming the absence of a competitive issue of consequence in this case. Market shares are still below the Commission's threshold. There is no need for an evidentiary hearing regarding effects on competition. 6. There Will Continue To Be Effective Regulation of PSCo, Cheyenne, and SPS Following completion of the merger, PSCo, Cheyenne, and SPS will continue to be regulated at both the state and federal levels. PSCo's retail rates and services will continue to be regulated by the Colorado Public Utilities Commission, as they are now. Its wholesale electric operations and transmission services will continue to be regulated by the FERC. Likewise, Cheyenne will continue to be regulated at the retail level by the Public Service Commission of Wyoming. ____________________ Southwestern Pub. Serv. Co., 72 FERC Paragraph 61,104 (1995); Public Serv. Co. of Colorado, 73 FERC 61,071 (1995). Southwestern Pub. Serv. Co., 72 FERC Paragraph 61,208, at 61,966-967 (1995). Public Serv. Co. of Colorado, 58 FERC Paragraph 61,332, at 62,038 (1992). See Testimony of Robert W. Spann, Exh. APP-6, at 43. Both PSCo and SPS also are interconnected with WestPlains Energy; but each is connected with a different, electrically separated service area of WestPlains. SPS interconnects with WestPlains's Kansas service area, while PSCo interconnects with WestPlains's Colorado service area. WestPlains's Kansas and Colorado service areas are not interconnected. Accordingly, WestPlains cannot substitute transmission service of one of the merger applicants for transmission service of the other. See Testimony of Robert W. Spann, Exh. APP-6, at 52-53. The Commission distinguishes between short-term and long- term markets for bulk power. See, e.g., Northeast, 56 FERC at 62,003. In short-term markets, the critical factor is the merger's effects on concentration and market share based on uncommitted capacity, i.e., capacity that is surplus to existing peak demands, plus required reserves. Kansas City Power & Light Co., 67 FERC Paragraph 61,183, at 61,556 (1994). Because not all capacity is always needed to meet existing loads, concentration and shares of total capacity are also considered, but are less important. Id. at 61,556 n.11. The Commission includes in its analysis both geographic markets defined according to the usual principles of antitrust economics and narrower, individual "Tier 1" markets. Each Tier 1 market is comprised of one of the utilities with which any or all of the merger applicants is directly interconnected. Entergy Servs., Inc., 58 FERC Paragraph 61,234, at 61,757, order on reh'g, 60 FERC Paragraph 61,168 (1992), remanded on other grounds sub. nom. Cajun Elec. Power Coop. v. FERC, 28 F.3d 173 (D.C. Cir. 1994). The Commission focuses on the narrowest reasonable geographic markets, represented by Tier 1 utilities, because it regards such utilities as the most vulnerable to any market power that the merged company might possess. Id.; Public Serv. Co. of Colorado, 58 FERC Paragraph 61,322, at 62,038 (1992). In any event, the Commission in merger cases addresses only "the specific anticompetitive harms directly resulting from the proposed merger." Entergy, 62 FERC at 61,376. The TDE's and Lubbock's markets are not affected by the merger. These markets are connected only to SPS, which already serves them; they are not first-tier markets of PSCo. In assessing the effects of a merger on long-term generation markets, the Commission focuses on whether the merged company will control or will be able to erect barriers to entry for competing producers and sellers of power. Public Serv. Co. of Indiana, 51 FERC at 62,208. The Commission examines the merged company's potential control of sites for new generation, of key inputs to power generation, such as fuel, and of transportation of key inputs. Midwest Power Sys., Inc., 71 FERC 61,386, at 62,510 (1995). Hudson Testimony, Exh. App-4, at 20-21; Harris Testimony, Exh. App-5, at 25. Both companies hold blanket certificates under 18 C.F.R. Section 284.224 (1995). Public Serv. Co. of Colorado, 61 FERC Paragraph 62,012 (1992); Cheyenne Light, Fuel & Power Co., 67 FERC Paragraph 62,095 (1994). PSCo also will remain subject to regulation by the Nuclear Regulatory Commission with respect to the decommissioning of its Fort St. Vrain Nuclear Electric Generating Station. PSCo and Cheyenne's intrastate natural gas operations will continue to be regulated by the Colorado and Wyoming Commissions, and their interstate transportation will continue to be regulated by the FERC. Similarly, SPS's retail rates and service will continue to be regulated by the municipalities it serves in Texas, the Public Utility Commission of Texas, the New Mexico Public Utility Commission, and the Kansas and Oklahoma Corporation Commissions, just as they are regulated today. Southwestern's wholesale sales of electricity and transmission service will continue to be regulated by the FERC. The new holding company will be subject to further federal regulation as a registered holding company under PUHCA. This will engender increased regulatory oversight, as many of the transactions between and among the holding company and its subsidiaries will require prior approval of the SEC. Furthermore, state regulatory bodies will examine the merger. The Colorado Public Utilities Commission and the New Mexico Public Utility Commission must approve the merger. The Public Utility Commission of Texas will review the merger to assess its effect in future ratemaking proceedings. The Public Service Commission of Wyoming must approve the corporate reorganization. And, the Kansas Corporation Commission must authorize the issuance of common stock certificates by SPS pursuant to the merger. As the Commission stated in Entergy, "the interests of [the] states vis-a-vis state regulation can be protected by those state commissions." C. Comparable Transmission Tariffs Are Already On File With the Commission Commission policy requires all merging utilities to provide transmission service under open-access, comparable- service transmission tariffs. Moreover, in its Notice of Proposed Rulemaking concerning open-access transmission, the Commission further has proposed that all utilities provide comparable, open-access transmission services. PSCo, Cheyenne, and SPS already have on file with the Commission comparable-service, open-access tariffs. Southwestern Pub. Serv. Co., 72 FERC Paragraph 61,104 (1995); Public Serv. Co. of Colorado, 73 FERC Paragraph 61,071 (1995). These tariffs are in effect today. Until such time as the Applicants connect their two systems, Applicants will provide service under their respective accepted tariffs, as they may be modified by the requirements of the final rule in the NOPR proceeding. After the two systems are physically connected, which is currently planned by the year 2001, the Applicants will provide transmission service under a tariff or tariffs conforming to then-effective Commission regulations and policies concerning transmission services offered by multi-system companies. Because PSCo, Cheyenne, and SPS already have tariffs on file, and because the NOPR proceeding will apply to all utilities, there are no material transmission access issues to be addressed in a hearing on this merger. As the Commission has said, when the Commission issues its final rule in the NOPR proceeding, it will resolve what it believes "is sufficient to mitigate transmission market power." American Elec. Power Serv. Corp., 72 FERC Paragraph 61,287, at 62,237 (1995). At that time, "[a]ll of the tariffs that are currently on file with the Commission, or will be on file prior to the effective date of a final rule, will be brought up to conformance, as necessary, to be consistent with the minimum non-discriminatory transmission access requirements specified in the final rule." Id. Through implementation of their existing tariffs and compliance with the Commission's final rule in the NOPR proceeding, Applicants' transmission market power will be mitigated. IV. REQUEST FOR EXPEDITED APPROVAL WITHOUT A HEARING Applicants respectfully request that the Commission act on this Joint Application as expeditiously as possible. As the Commission has stated in connection with another merger proceeding, it "cannot ignore the need to act as expeditiously as possible given the commercial realities and time pressures presented in corporate matters subject to our jurisdiction." Northeast Utils. Serv. Co., 58 FERC Paragraph 61,070, at 61,202 (1992), aff'd in rel. part & remanded on other grounds, 993 F.2d 937 (1st Cir. 1993). Here, too, expedition is appropriate to enable ratepayers of the Applicants to realize merger benefits as quickly as possible. Expedition is particularly appropriate here because the Commission should be able to complete its consideration of the Joint Application without the need for a trial-type evidentiary hearing. It is well established that section 203 of the FPA does not require such a hearing. Midwest Power Sys., Inc., 71 FERC Paragraph 61,386 (1995); UtiliCorp United, Inc., 56 FERC Paragraph 61,031 (1991). An evidentiary hearing is required only when there are material issues of disputed fact that must be resolved to determine whether the proposed merger is consistent with the public interest. As demonstrated by this Joint Application and the accompanying testimony and exhibits, the merger of PSCo and SPS unquestionably meets all of the Commonwealth factors and will produce significant cost savings. Moreover, Applicants' hold- harmless commitment further enables the Commission to act without a hearing. The merger has no adverse competitive effects. Accordingly, expedited review of the merger transaction without an evidentiary hearing is appropriate and in the public interest. V. AUTHORIZATIONS AND WAIVERS REQUESTED In view of the foregoing, and the testimony and exhibits which accompany this application, the Applicants request that the Commission grant all necessary authorizations for the Merger Transaction, including: (a) approval of the indirect disposition and consolidation of the jurisdictional facilities of PSCo, Cheyenne, and SPS, resulting from the reorganization under the Merger Agreement in which M-P New Co. will become the holder of all of the common stock of PSCo, Cheyenne, and SPS; and (b) all other necessary authorizations to complete the Merger Transaction. Except as described below, the Applicants believe they have complied fully with all requirements of the FPA and Part 33 of the Commission's regulations regarding section 203 applications. However, to the extent necessary, the Applicants request a waiver of any applicable requirements which the Commission deems have not been met. The following limited waiver requests are also made: (1) Applicants request a waiver of the requirement to file a separate copy of Exhibit G, applications and exhibits filed with other regulatory bodies, for each of six states affected. See 18 C.F.R. Section 33.3 (1995). Applicants already have provided the original state applications to the respective state jurisdictions considering the merger. These applications, and related testimony and exhibits, are voluminous and largely repetitive of this application. Accordingly, Applicants request permission to file only six copies of Exhibit G. (2) To the extent interested parties request Applicants to provide copies of the application, or the Commission otherwise requires service of the application, Applicants request that they not be required to provide copies of Exhibit G, which, as noted, is voluminous. Exhibit G will be available to other parties at the Commission's offices. Applicants also commit to making available a copy of Exhibit G ____________________ "[T]he fact that the forum to resolve certain issues will be [at the federal level] rather than before a state commission, does not suggest any diminishment of effective regulation." Entergy Servs. Inc., 62 FERC Paragraph 61,073, at 61,374 (1993). SPS also serves Oklahoma on a small scale (SPS's Oklahoma load is only 0.8% of its total load). Oklahoma does not require review or approval of this transaction; this lack of review, however, is not an impediment to effective regulation. Cf. Midwest Power Sys., Inc., 71 FERC at 62,511 n.42. Entergy Servs., Inc., 62 FERC Paragraph 61,073, at 61,374 (1993). See also Kansas Power & Light Co., 54 FERC Paragraph 61,077, at 61,254-55 (1991). El Paso, 68 FERC Paragraph 61,181, at 61,914 (1994). Promoting Wholesale Competition through Open Access Non- Discriminatory Transm. Servs. by Pub. Utils.; Recovery of Stranded Costs by Pub. Utils. & Transmitting Utils., IV FERC Stats. & Regs., Proposed Regs. Paragraph 32,514 (1995) ("NOPR"). PSCo, Cheyenne, and SPS's tariffs substantially conform to existing Commission comparable service policies, as confirmed by the Commission's placing them in effect without significant modification. In any event, prior to the merger, the tariffs will be amended to conform to the final rule in the NOPR proceeding. See Kansas Power & Light Co., 54 FERC Paragraph 61,077, at 61,252 (1991). Entergy Servs., Inc., 64 FERC Paragraph 61,001, at 61,009 (1993) ("The Commission need not conduct an evidentiary hearing when there are no such disputed issues of material fact, and that even when there are disputed issues, the Commission need not conduct such a hearing if the issues may be adequately resolved on the written record.") (citing Moreau v. FERC 982 F.2d 556, 568 (D.C. Cir. 1973)). for inspection at counsel's office in Washington, D.C., and at the companies' headquarters in Denver, Colorado, and Amarillo, Texas. VI. INFORMATION REQUIRED BY THE COMMISSION'S REGULATIONS The following information is submitted by the Applicants in accordance with section 33 of the Commission's Regulations, 18 C.F.R. Section 33 (1995). (a) Names and addresses of principal business offices The following are the names and principal business offices of the Applicants: 1. Public Service Company of Colorado 1225 17th Street Denver, CO 80202 Telephone: (303) 571-7511 Cheyenne Light, Fuel and Power Company 108 West 18th Street Cheyenne, WY 82001 (307) 778-2100 2. Southwestern Public Service Company 600 Tyler P.O. Box 1261 Amarillo, Texas 79170 Telephone: (806) 378-2121 (b) Name and address of persons authorized to receive notices and communications in respect to application The following persons are authorized to receive notices and communications with respect to this Joint Application: Alan J. Statman Barry S. Spector Wright & Talisman, P.C. 1200 G Street, N.W., Suite 600 Washington, D.C. 20005-3802 (202) 393-1200 Attorneys for the Applicants William M. Dudley Associate General Counsel Public Service Company of Colorado 1225 17th Street Suite 600 Denver, CO 80202 (303) 294-2500 Attorney for Public Service Company of Colorado Additionally, the Applicants request that the foregoing be placed on the official service list for this proceeding and that, in addition, the following be placed on the service list: Jerry Diller David T. Hudson Southwestern Public Service Company 600 Tyler P.O. Box 1261 Amarillo, Texas 79170 Fredric C. Stoffel Public Service Company of Colorado 1225 17th Street, Suite 600 P.O. Box 840 Denver, CO 80202 (c) Designation of the territories served, by counties and states 1. PSCo PSCo serves customers in the following counties in Colorado: Adams, Alamosa, Arapahoe, Boulder, Chaffee, Clear Creek, Conejos, Costilla, Denver, Eagle, Garfield, Gilpin, Jefferson, Lake, Logan, Mesa, Morgan, Park, Rio Grande, Saguche, Summit, and Weld. Cheyenne Cheyenne serves customers in Laramie County, Wyoming. 2. SPS Southwestern serves customers in the following counties. New Mexico counties: Chaves, Curry, Eddy, Lea, Quay, and Roosevelt counties. Texas counties: Andrews, Armstrong, Bailey, Briscoe, Carson, Castro, Cochran, Crosby, Dallam, Dawson, Deaf Smith, Donley, Floyd, Gaines, Garza, Gray, Hale, Hansford, Hartley, Hemphill, Hockley, Hutchinson, Lamb, Lubbock, Lynn, Moore, Oldham, Parmer, Potter, Randall, Roberts, Sherman, Swisher, Terry, Wheeler, Yoakum, Lipscomb, and Ochiltree counties. Oklahoma counties: Beaver, Cimarron, and Texas counties. Kansas counties: Morton County. (d) Description of jurisdictional transmission facilities. 1. PSCo PSCo owns approximately 3,300 circuit miles of transmission. Further information regarding the facilities owned or operated by PSCo is contained in the Testimony of Mr. Matt P. Harris, Exh. APP-5. Cheyenne Cheyenne owns two 115 kv transmission line segments that total 25.5 miles in length. 2. SPS SPS owns approximately 6,000 circuit miles of transmission. Further information regarding the facilities owned or operated by SPS is contained in the Testimony of David T. Hudson, Exh. APP-4. (e) Description of the Merger Transaction and statement as to consideration Under the Merger Agreement, the reorganization will be accomplished as follows. First, PSCo and SPS will each merge into separate operating utility subsidiaries of a new holding company, temporarily called M-P New Co. At the same time, Cheyenne and West Gas Interstate, Inc., a subsidiary of PSCo, will become operating subsidiaries of the holding company. Two additional subsidiaries will be created: a service company to provide services to the other subsidiaries of the holding company; and an intermediate holding company to hold the shares of existing non-utility subsidiaries of PSCo and SPS. There is no consideration being exchanged between PSCo and SPS because the Merger Transaction is a merger of equals with an exchange of stock for stock in the holding company, rather than a purchase of one company by the other. The Merger Transaction and the stock exchange is further described in the Testimony of Richard C. Kelly, Exh. APP-1. (f) Description of facilities to be merged The Testimony of Matt P. Harris, Exh. APP-5, describes the facilities owned and operated by PSCo and Cheyenne. All of the operating facilities of PSCo and Cheyenne are included in the Merger Transaction. The Testimony of David T. Hudson, Exh. APP-4, describes the facilities owned and operated by SPS. All of the operating facilities of SPS are included in the Merger Transaction. PSCo, Cheyenne, and SPS will continue to use their facilities after the merger to provide retail, wholesale, and transmission services, as they are used today. (g) Statement of the cost of the jurisdictional facilities involved in the merger The Merger Transaction will involve the disposition of all of the jurisdictional and non-jurisdictional facilities of the Applicants. The jurisdictional facilities have been accounted for, and will continue to be accounted for, based on original cost, in accordance with the Commission's Uniform System of Accounts. Statements of the utility plant in service and the cost thereof are included as part of Exhibit C. (h) Effect of the proposed transaction upon any contract for the purchase, sale, or interchange of electric energy. The Merger Transaction will have no impact or effect upon any contract for the purchase, sale, or interchange of electric energy. (i) Other required regulatory approvals State Approvals As the Testimony of Richard C. Kelly, Exh. APP-1, discusses, approval of the Merger Transaction is required by the Colorado Public Utilities Commission, the New Mexico Public Utility Commission, and the Public Service Commission of Wyoming. In addition, the Public Utility Commission of Texas must review the merger to assess its effect in future ratemaking proceedings. The Kansas Corporation Commission must authorize the issuance of common stock certificates by SPS. Federal Approvals At the federal level, approval is required by this Commission. Also at the federal level, the Securities and Exchange Commission must approve the merger and the issuance of the securities for the utility holding company formed under the Merger Transaction. The merger also will be reviewed by the Federal Trade Commission and the Department of Justice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Nuclear Regulatory Commission (NRC) approval is required to reflect PSCo becoming an operating subsidiary of the holding company continuing to own and hold NRC licenses for the Fort St. Vrain Nuclear Electric Generating Station. (j) The facts relied upon by applicants to show that the Merger Transaction is consistent with the public interest A description of the benefits to the public is included in Section III, above, and the Testimony of Richard C. Kelly, Exh. APP-1, the Testimony of Thomas J. Flaherty, Exh. APP-3, as well as the supporting testimony of Applicants' other witnesses. (k) Description of franchises held A list of the franchises held is included in Exhibit J. (l) Form of notice A form of Notice suitable for publication in the Federal Register accompanies this Joint Application. VII. REQUIRED EXHIBITS Attached to this Joint Application are copies of the exhibits required by Section 33.3 of the Commission's Regulations. EXHIBIT A - Resolutions of directors. EXHIBIT B - Statement of measure of control or ownership exercised by or over each party to the transaction as to any public utility, bank, trust company, banking association, firm that is authorized to participate in marketing of securities of a public utility, or any company supplying electric equipment to such party. EXHIBIT C - Balance sheets and plant schedules for most recent 12-month period, on actual and pro forma basis. EXHIBIT D - Statement of all known contingent liabilities. EXHIBIT E - Income statement for most recent 12-month period, on actual and pro forma basis. EXHIBIT F - Analysis of Retained earnings. EXHIBIT G - Copies of each application and exhibit filed with other regulatory bodies. EXHIBIT H - Agreement and Plan of Reorganization. EXHIBIT I - Map of territory. EXHIBIT J- List of franchises and expiration dates. VIII. CONCLUSION The Applicants respectfully request that the Commission expeditiously approve the Merger Transaction without an evidentiary hearing. Respectfully submitted, PUBLIC SERVICE COMPANY OF COLORADO AND SOUTHWESTERN PUBLIC SERVICE COMPANY Alan J. Statman Barry S. Spector Michael J. Thompson WRIGHT & TALISMAN, P.C. 1200 G Street, N.W. Suite 600 Washington, D.C. 20005 (202) 393-1200 Attorneys for the Applicants William M. Dudley Associate General Counsel Public Service Company of Colorado 1225 17th Street Suite 600 Denver, Colorado 80201-0840 Attorney for Public Service Company of Colorado November 9, 1995 EX-99.2 3 TESTIMONY-HARRIS Exhibit No. APP-5 UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION Public Service Company of ) Colorado and Southwestern ) Docket No. EC96-___ Public Service Company ) Direct Testimony Of MATT P. HARRIS On Behalf Of: Applicants November 9, 1995 UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION Public Service Company of ) Colorado and Southwestern ) Docket No. EC96-___ Public Service Company ) Direct Testimony Of MATT P. HARRIS TABLE OF CONTENTS Page I. INTRODUCTION AND QUALIFICATIONS . . . . . . . . . 1 II. SUMMARY OF TESTIMONY . . . . . . . . . . . . . . 4 III. PSCO'S OPERATIONS AND RESOURCES . . . . . . . . . 5 IV. PSCo WHOLESALE CUSTOMERS AND SERVICES . . . . . . 17 VI. PSCo'S RESOURCE PLANNING . . . . . . . . . . . . 21 VII. THE CHEYENNE LIGHT, FUEL & POWER COMPANY . . . . 26 VIII. PRODUCTION-RELATED BENEFITS FROM THE MERGER . . . 27 GLOSSARY OF ACRONYMS AND DEFINED TERMS ACRONYM DEFINED TERMS CCPG Colorado Coordinated Planning Group Cheyenne Cheyenne Light, Fuel & Power Company CPUC Colorado Public Utilities Commission DSM Demand-side Management FERC Federal Energy Regulatory Commission IPP Inland Power Pool IRP Integrated Resource Planning kV kilovolt MEAN Municipal Energy Agency of Nebraska MW Megawatts MWh Megawatt Hours PRPA Platte River Power Authority PSCo Public Service Company of Colorado QF Qualifying Facilities SPS Southwestern Public Service Company TOT defined transmission path Tri-State Tri-State Generation and Transmission Association, Inc. Western Western Area Power Administration WRTA Western Regional Transmission Association WSCC Western Systems Coordinating Council WSPP Western Systems Power Pool UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION Public Service Company of ) Colorado and Southwestern ) Docket No. EC96-___ Public Service Company ) DIRECT TESTIMONY OF MATT P. HARRIS I. INTRODUCTION AND QUALIFICATIONS Q. PLEASE STATE YOUR NAME AND BUSINESS ADDRESS. A. My name is Matt P. Harris. My business address is 5909 E. 38th Avenue, Denver, Colorado 80207. Q. BY WHOM ARE YOU EMPLOYED AND IN WHAT CAPACITY? A. I am employed by Public Service Company of Colorado ("PSCo") as the Unit Manager, Loads and Resources Planning. Q. PLEASE BRIEFLY DESCRIBE YOUR RESPONSIBILITIES IN THAT POSITION. A. My primary responsibilities are to develop PSCo's Integrated Resource Plan and to perform a variety of other generation planning studies (i.e., production costing, expansion planning, and generation system reliability studies). Q. PLEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND. A. I graduated form San Jose State University, San Jose, California, in December 1985, with a Bachelor of Science degree in Mechanical Engineering. Q. PLEASE DESCRIBE YOUR PROFESSIONAL EXPERIENCE. A. Before beginning work at PSCo, I was employed by Sierra Pacific Power Company as a Planning Engineer. My responsibilities included the engineering and economic analysis of demand-side management programs and performing supply-side planning studies. I participated in the development of Sierra's 1989 Integrated Resource Plan and its 1990 Request for Proposal for supply-side resources. Between January 1986, and March 1987, I was employed by Pacific Gas and Electric Company as an Energy Management Representative. I was responsible for implementing DSM programs for commercial, industrial, and agricultural customers. In July 1991, I began my employment with PSCo as a Senior Planning Engineer. In this capacity, I played a key role in the development of PSCo's first Integrated Resource Plan and was also responsible for performing detailed production costing studies of PSCo's generation system, performing generation system reliability studies, expansion planning studies, and marginal pricing studies for use in DSM evaluations, and in the development of power sales proposals to other utilities. I was promoted to my current position of Unit Manager, Loads and Resources Planning, in October 1994. Q. HAVE YOU ATTENDED OR TAKEN ANY SPECIAL COURSES OR SEMINARS REGARDING PUBLIC UTILITIES? A. Yes. I have completed the Utility Resource Planning course offered by the University of California at Berkeley. I have also completed Power Technologies' Reliability Analysis Techniques for Resource Planning course. In addition to these courses, I have taken several courses in utility production costing and expansion planning models. Q. DO YOU HOLD A PROFESSIONAL LICENSE? A. Yes. I am a registered Professional Engineer in the State of Nevada. Q. HAVE YOU TESTIFIED BEFORE ANY REGULATORY AUTHORITIES? A. Yes. I have testified before the Colorado Public Utilities Commission ("CPUC") several times in the past two years regarding: PSCo's 1993 Integrated Resource Plan; PSCo's 1994 Phase II rate case; and PSCo's recommendations to the CPUC in their Notice of Proposed Rulemaking regarding QF and IRP Rules. II. SUMMARY OF TESTIMONY Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY? A. The purpose of my testimony is to provide the following information: - A profile of PSCo's service territory, operations and resources, including generating units, transmission facilities, and pooling arrangements; - A description of PSCo's activities in the bulk power market, including off-system sales and purchases, and a description of PSCo's transmission services; - A description of PSCo's resource planning process, including load forecasts and integrated resource planning ("IRP"); - A description of the system of PSCo's wholly-owned affiliate, Cheyenne Light, Fuel & Power Company ("Cheyenne"); and - - A description of the projected production-related cost benefits resulting from the combination of PSCo and Southwestern Public Service Company ("SPS") and how these benefits were quantified. III. PSCO'S OPERATIONS AND RESOURCES A. SERVICE TERRITORY Q. WOULD YOU PLEASE DESCRIBE PSCo's ELECTRIC SERVICE AREA. A. PSCo provides electric service to about 1.08 million customers in the state of Colorado. While PSCo's service territory covers only about 10 percent of the state, it includes about 80 percent of the total population. PSCo's service territory includes many of the major load centers in Colorado, including the cities of Denver and Boulder. Schedule MPH-1 shows PSCo's service area. Q. PLEASE DESCRIBE PSCo'S SYSTEM LOAD PROFILE? A. PSCo's summer peak demand in 1994 was 4,011 MW. PSCo's annual system load factor is approximately 69 percent. The summer and winter peaks are fairly close. However, PSCo's resource needs are driven by the summer peak demand because of the decreased capability of some its generating resources in the summer. Q. PLEASE DESCRIBE PSCo'S ENERGY SALES. A. PSCo's total energy sales during the year ending December 31, 1994, were approximately 23,270,400 Megawatt-hours ("MWh"), including all wholesale and non-firm sales. The breakdown of sales by revenue class is 25.5 percent residential, 37.2 percent small commercial and industrial, 23.3 percent large commercial and industrial, 13.1 percent resale, and 0.9 percent other. B. PSCo'S GENERATING RESOURCES Q. PLEASE DESCRIBE PSCo'S EXISTING GENERATING RESOURCES. A. PSCo's electrical system includes 3,176.35 MW of installed generating capacity, consisting of 2694.8 MW of coal-fired generation, 107 MW of gas-fired generation, 171 MW of oil/gas-fired combustion turbines, 5.5 MW of diesel generators, 162 MW of pumped storage hydro, and 36.05 MW of conventional hydroelectric generation. Schedules MPH-2A, MPH-2B, and MPH-2C list each of PSCo's generating plants and show each plant's primary fuel type, nameplate rating, and net dependable capacity. Except for the Hayden and Craig plants, PSCo wholly owns the listed plants. Schedule MPH-3 lists jointly-owned units, the owners of each unit and their ownership percentage, the amount of capacity available to each owner, and the operator of each unit. PSCo-owned resources make up 63.2 percent of its total resource capability. Q. PLEASE DESCRIBE PSCo'S POWER PURCHASE RESOURCES. A. In addition to PSCo-owned generation, the company has several power purchase contracts. Some of these contracts are with other utilities, while others are with Qualifying Facilities ("QF") under the Public Utility Regulatory Policies Act of 1978. PSCo currently purchases 1000 MW of power from four other utilities in the region: Tri-State Generation and Transmission ("Tri-State") (425 MW); Platte River Power Authority ("PRPA") (224 MW); Basin Electric Power Cooperative (175 MW); and PacifiCorp (176 MW). These purchases are pursuant to long-term power purchase agreements and account for 20.4 percent of PSCo's total resource capability. PSCo also currently purchases an additional 593 MW of power from 33 different QFs under long- term purchase agreements. QF purchases account for 12.1 percent of PSCo's total resource capability. Q. IS PSCo PLANNING ANY SIGNIFICANT RESOURCE ADDITIONS? A. Yes. PSCo is now in the process of repowering its Fort St. Vrain plant as a 471 MW combined-cycle facility. Fort St. Vrain was originally a nuclear-powered steam generation plant. It ceased operations in 1989, and the nuclear portion of the facility is now being decommissioned. Through the repowering now underway, the existing steam turbine will be powered by steam produced by two heat recovery steam generators attached to two natural gas-fired combustion turbines. The repowering project is to be completed in three phases, beginning with the first 130 MW combustion turbine in 1996 (Phase 1A). A heat recovery steam generator (Phase 1B) then will be installed to produce steam for the steam turbine and begin the plant's combined-cycle mode of operation. This phase is currently scheduled to be in service in 1999 and will increase the total plant capacity to 232 MW. In the second phase (Phase 2), PSCo will build a second combustion turbine and heat recovery steam generator to bring the total plant capacity to 471 MW. This phase is currently scheduled to be in service in 2000. In addition, PSCo's most recent forecast shows that in the next ten years the company plans to: construct a third combustion turbine and heat recovery steam generator (Phase 3) at the Fort St. Vrain site in 2001 to bring the total plant capacity to 685 MW; repower an existing coal-fired steam plant to a combined-cycle plant in 2003; repower a previously retired steam plant to a simple-cycle plant in 2004; and construct a new coal plant in 2005. PSCo's future resource additions are summarized in Schedule MPH-4. C. PSCo'S TRANSMISSION SYSTEM Q. PLEASE DESCRIBE PSCo'S TRANSMISSION SYSTEM. A. PSCo owns and maintains approximately 3,268 circuit-miles of transmission lines located primarily in Colorado. These transmission lines include 1,640 circuit-miles of 230 kV lines, 65 circuit-miles of 138 kV lines, 1,015 circuit-miles of 115 kV lines, 378 circuit-miles of 69 kV lines, and 170 circuit-miles of 44 kV lines. Additionally, PSCo jointly owns an additional 263 circuit-miles of transmission lines, consisting of 112 circuit-miles of 345 kV lines and 151 circuit-miles of 230 kV lines. PSCo's jointly-owned 345 kV transmission lines are located in western Colorado along a corridor running from the Craig generating station to the San Juan substation in New Mexico. PSC's jointly-owned 230 kV transmission lines are located in southeastern Colorado (connecting the Lamar substation to the Midway substation), southern Colorado (connecting the Poncha substation to the San Luis Valley substation), and northeastern Colorado (connecting the Craig generating station to the Wolcott, Gore Pass, and Blue River substations). Q. DO ANY OTHER UTILITIES OWN TRANSMISSION FACILITIES IN THE SAME REGION AS PSCo? A. Yes. Schedule MPH-5 is a map of bulk transmission facilities in Colorado, including those of PSCo. Several utilities own and operate bulk transmission facilities in Colorado. In addition to PSCo, the principal transmission-owning utilities are Western Area Power Administration ("Western"), Tri-State, Platte River Power Authority ("PRPA"), and the City of Colorado Springs. The bulk transmission facilities of PSCo and these other entities are highly integrated within Colorado. Because transmission facilities in the region are highly integrated, the utilities in the region have defined various transmission paths and, through operating agreements, have agreed upon the transfer capability of the paths and the rights of each utility to use these paths. These transmission paths are commonly referred to as TOT paths. TOT path flows, which are the sum of power flowing over the individual lines owned by multiple entities, have been defined to provide an indication of reliable operating limits. If actual loading exceeds a TOT path limit, then several utilities must work together to reschedule generation and power transfers to reduce the loading on that TOT path. Through the ownership of transmission lines that constitute a defined transmission path, each utility has defined capacity rights to use a percentage of the maximum TOT transmission path rating. Q. CAN YOU ELABORATE ON THIS CONCEPT WITH EXAMPLES? A. Yes. TOT 5 is a path across the Continental Divide used primarily to transfer power from western Colorado to eastern Colorado. Loads in western Colorado (approximately 500 MW) are much smaller than western Colorado generation (exceeding 2,300 MW). Most of the generation not used to service local loads in western Colorado is exported over the TOT 5 path to the heavy load areas in eastern Colorado. In addition, power can be imported from Utah or the Arizona/New Mexico region over the TOT 5 path into eastern Colorado. TOT 5 is comprised of eight individual transmission lines, which are owned by four entities, including PSCo. The current TOT 5 transmission path simultaneous rating is 1680 MW. PSCo has the right to use 479 MW, or 28.5 percent, of the TOT 5 transmission path rating. Two other transmission paths, TOT 3 and TOT 7, govern imports of power from the north into eastern Colorado. TOT 3, connecting Wyoming and Nebraska with northern Colorado, is a transmission path that defines the amount of power that can be transferred into eastern Colorado from the north. TOT 3 consists of six transmission lines owned by four utilities. PSCo has the right to use only 4 percent of the TOT 3 transmission path rating. TOT 7 is a transmission path located south of the TOT 3 transmission path and also defines the amount of power that can be transferred both into and within eastern Colorado. The TOT 7 transmission path consists of three transmission lines owned by PSCo and PRPA. PSCo has the right to use 58 percent of the TOT 7 transmission path rating. Two other transmission paths, TOT 1A and TOT 2A, govern power transfers through Colorado's western and southern borders. TOT 1A connects northwestern Colorado with Utah. PSCo has no ownership in the transmission lines constituting this path. TOT 2A is the north to south transmission path from the southwestern corner of Colorado to New Mexico. PSCo has the right to use 10 percent of the TOT 2A transmission path rating. Q. CAN YOU PROVIDE AN EXAMPLE OF HOW THE TOT ALLOCATIONS AFFECT PSCo OPERATIONS? A. The generation that PSCo owns or purchases in western Colorado and imports into eastern Colorado exceeds the company's simultaneous TOT 5 allocation. PSCo must maintain firm transmission paths for generation resources it relies upon to meet its firm customer demand. Therefore, to meet its firm load obligations, PSCo purchases 180 MW of TOT 5 wheeling rights from Western. Q. PLEASE DESCRIBE ANY PLANNED ADDITIONS TO PSCo'S TRANSMISSION SYSTEM AS A RESULT OF THE MERGER. A. PSCo is not currently interconnected with SPS. As described by Witness Hudson, PSCo plans to interconnect with SPS through a high-voltage, direct-current transmission tie and an approximately 300-mile 345 kV transmission line in 2001. D. COORDINATION AND POOLING ARRANGEMENTS Q. WHAT POOLING AND COORDINATION ARRANGEMENTS HAS PSCo ENTERED INTO? A. PSCo has joined the following pools and regional transmission associations: the Western Systems Coordinating Council ("WSCC"); the Inland Power Pool ("IPP"); the Western Systems Power Pool ("WSPP"); the Colorado Coordinated Planning Group ("CCPG"); and the Western Regional Transmission Association ("WRTA"). Q. PLEASE DESCRIBE THE WSCC. A. PSCo is a member of the WSCC, which is the regional reliability council providing planning and reliability coordination for the entire Western Interconnection. PSCo currently plans its installed reserve capacity based on the WSCC Power Supply Design Criteria. Membership in the WSCC does not include any type of power pooling arrangements or contractual interchange agreements. Q. PLEASE DESCRIBE THE IPP. A. PSCo also is a member of the IPP, which is a reserve sharing pool of twenty-three utilities located in a five-state region covering Wyoming, Colorado, Utah, New Mexico, and Arizona. The intent of the IPP is, as a group, to meet or exceed WSCC reliability criteria and to promote the efficient and economic use of generation facilities, transmission facilities, and interconnections. The IPP sharing of reserves is designed to enable the members as a group to carry fewer reserves than would otherwise be required by WSCC reliability criteria. The IPP's membership is diverse, consisting of investor owned-utilities, cooperatives, municipals, and Western. Q. PLEASE DESCRIBE THE WSPP. A. The WSPP is an economic power pool that operates an electronic bulletin board and acts as a clearinghouse for bulk power transactions among over 90 member utilities and marketers located predominantly throughout the western United States. The WSPP Agreement provides for the sale and purchase of capacity, energy, and transmission services at market-based rates with a cost-based floor and ceiling. PSCo is a signatory to the WSPP Agreement and is currently making spot market sales and purchases in accordance with its terms. Q. PLEASE DESCRIBE THE CCPG. A. The CCPG was created in response to an agreement reached by PSCo, Tri-State, and the Colorado Association of Municipal Utilities regarding the acquisition of Colorado-Ute assets in 1992. The agreement resolved transmission access issues as described in the "Joint Transmission Access Principles." The CCPG is a coordinated planning organization formed as a result of these principles. The CCPG operates much like a regional transmission group, meeting at least twice a year to discuss transmission issues and to coordinate transmission planning activities. Q. PLEASE DESCRIBE WRTA. A. WRTA is a regional transmission group formed in May 1995, as a voluntary organization of utilities, marketers, transmission dependent utilities, non-utility members, and state regulatory commissions in the Western Interconnection. WRTA was formed for the purpose of facilitating the efficient use of transmission facilities, coordinating the planning of future transmission facilities, and accelerating the resolution of disputes concerning transmission. PSCo is a member of WRTA. IV. PSCo WHOLESALE CUSTOMERS AND SERVICES Q. PLEASE DESCRIBE GENERALLY PSCo'S WHOLESALE POWER TRANSACTIONS. A. PSCo sells wholesale power to nine requirements customers located throughout Colorado. In addition to these requirements customers, PSCo engages in non-firm energy transactions with many different utilities throughout the Rocky Mountain Region and several Western states. Q. PLEASE ELABORATE ON THE ELECTRIC SERVICES PSCo PROVIDES ITS REQUIREMENTS CUSTOMERS. A. PSCo provides long-term firm and peaking services to its nine requirements customers. The requirements customers are a diverse group consisting of four municipal utilities, four rural electric cooperatives, and one investor-owned utility. These customers are provided wholesale services under individual contracts with associated specific FERC rate schedules. The rural electric cooperatives and municipals also receive an allocation of Western preference power. Some of the requirements customers also purchase short-term firm and non-firm wholesale services from other utilities. Q. HOW WILL THE MERGER IMPACT PSCo'S OPERATIONS? A. PSCo will largely operate as it does today and will continue to operate its own generation, transmission, and distribution systems. Increased negotiating leverage from the merger will enable PSCo to obtain significant fuel procurement savings. In the year 2001, as Witness Hudson describes, PSCo and SPS plan to interconnect their two systems. When the two systems are interconnected, the companies will take advantage of additional savings from joint dispatch and capacity deferrals. Q. HOW WILL PSCo'S WHOLESALE CUSTOMERS BE AFFECTED BY PSCo'S MERGER WITH SPS? A. The wholesale services offered by PSCo will be favorably impacted by the substantial cost savings which result from the merger and which reduce the companies' cost of service. These cost savings are described in greater detail by Witness Flaherty and by myself later in this testimony. Further, as Witness Hudson describes in his testimony, PSCo and SPS are offering to wholesale customers a hold-harmless commitment for the first five years following the effective date of the merger. V. TRANSMISSION SERVICES Q. PLEASE DESCRIBE THE TRANSMISSION SERVICES OFFERED BY PSCo. A. PSCo provides firm and non-firm service under individual transmission service contracts with Western, Tri-State, and PacifiCorp. In addition, since December 1992, PSCo has provided transmission service, similar to network transmission service, for Holy Cross Electric Association under a Transmission Integration and Equalization Agreement. PSCo also has had on file with FERC since April 1992, an open-access transmission tariff which provides for point-to- point transmission services. Wholesale transmission service is provided under the open-access transmission service tariff for the Municipal Energy Agency of Nebraska ("MEAN"). On June 26, 1995, and August 18, 1995, PSCo and its wholly owned subsidiary, Cheyenne Light, Fuel & Power Company ("Cheyenne"), submitted for filing with the FERC new Point- to-Point Transmission Service Tariffs and Network Integration Transmission Service Tariffs. These comparable- service, open-access tariffs have been accepted for filing, with an effective date of August 25, 1995, and set for hearing regarding rate levels in Docket No. ER95-1268-000. A non-firm service agreement has recently been executed between PSCo and a power marketer under these tariffs. Q. DO PURCHASERS AND SELLERS OF BULK POWER IN COLORADO HAVE TRANSMISSION ALTERNATIVES TO THE USE OF PSCo'S SYSTEM? A. In many instances, yes. Western and Tri-State have extensive transmission networks within Colorado and provide transmission service to many buyers and sellers of wholesale power within the state. The transmission systems of PRPA, WestPlains Energy, and the City of Colorado Springs also provide wholesale transmission services within the state. In fact, PSCo is dependent on the transmission systems of Western, Tri-State, and PRPA to serve portions of its own retail and wholesale loads. VI. PSCo'S RESOURCE PLANNING Q. HOW DOES PSCO FORECAST FUTURE CUSTOMER LOADS? A. On an annual basis, a task force within PSCo analyzes current and projected customer use in the development of its demand and energy forecast. This process is supported by econometric and analytical modeling tools. In developing its corporate load forecasts, PSCo develops forecasts of energy and demand for both its retail and wholesale customers. Each forecast is developed to meet a twenty-year planning horizon as required by the Integrated Resource Planning ("IRP") rules of the Colorado Public Utilities Commission ("CPUC"). Q. PLEASE DESCRIBE PSCo'S INTEGRATED RESOURCE PLANNING PROCESS. A. PSCo's integrated resource planning process is a comprehensive analysis process designed to meet the requirements of the CPUC IRP Rules. The CPUC issued its IRP Rules in December of 1992. The IRP Rules require utilities in Colorado to develop a Preferred Resource Plan every three years, which is to be submitted for CPUC approval. The rules further require that utilities file an Annual Progress Report on their efforts to implement their approved Preferred Resource Plan one and two years thereafter. PSCo filed its first IRP in October of 1993 and its Annual Progress Reports in October of 1994 and 1995. Q. PLEASE ELABORATE ON PSCo'S PREFERRED RESOURCE PLAN. A. PSCo developed its Preferred Resource Plan, commonly referred to as its "1993 IRP", using accepted utility practices and with the input received through the public participation process as set out in the CPUC IRP rules. The starting point of the analysis is the company's forecast of its customers' energy and demand requirements over the required twenty-year planning period. This forecast, combined with the appropriate level of reserve capacity, is compared to the capability of the existing resources to determine the company's expected resource needs. To meet future resource needs, PSCo considered both demand and supply-side resources consistent with the requirements of the CPUC IRP rules. As part of the development of the 1993 IRP, PSCo conducted a Request for Information, in which seventy-three responses were received from third parties offering proposals to meet all or a portion of PSCo's forecasted needs. PSCo's Preferred Resource Plan was developed by considering various criteria, including total resource costs, utility revenue requirements, electricity prices, environmental impacts, the company's financial health, and system reliability. Associated with the resource plan was the company's Short-term Action Plan detailing its more near-term resource requirements. Q. WOULD YOU PLEASE SUMMARIZE THE RESOURCE COMMITMENTS THAT WERE INCLUDED IN THE SHORT-TERM ACTION PLAN. A. The most significant resource in this plan was the repowering of Fort St. Vrain, which I discussed previously. Also as part of the 1993 IRP Short-term Action Plan, PSCo committed to completing two 50 MW DSM bidding pilot programs as well as other DSM activities, and to participate in a wind farm project near Arlington, Wyoming. Q. WAS THIS PLAN SUBMITTED TO THE CPUC FOR APPROVAL? A. Yes. PSCo submitted its Preferred Resource Plan and associated Short-term Action Plan to the CPUC in October 1993. The CPUC conducted hearings on the plan in 1994, and thereafter approved it. Subsequent to that approval, PSCo sought and obtained the necessary certificates of public convenience and necessity for the repowering of Fort St. Vrain and PSCo's interest (10.5 MW) in the Arlington Wind Project. Q. ARE THERE ANY ASPECTS OF THE 1994 ANNUAL PROGRESS REPORT OF NOTE? A. Yes. In developing its 1994 Annual Progress Report, PSCo evaluated the impact of its 1994 demand and energy forecast on the schedule for the repowering of Fort St. Vrain and the other resources included in the Preferred Resource Plan later in the planning period. Schedule MPH-6 shows the Preferred Resource Plan as presented in the 1994 Annual Progress Report. As a result of the 1994 load forecast, the in-service dates of several resources were changed from the years shown in the Preferred Resource Plan contained in PSCo's 1993 IRP. Q. ARE THERE SUFFICIENT GENERATION SITES AVAILABLE FOR DEVELOPMENT BEYOND THOSE SITES IDENTIFIED IN PSCo's PREFERRED RESOURCE PLAN? A. Yes. There are numerous sites available for development by PSCo or by others. Three neighboring utilities (PRPA, Westplains Energy, and the City of Colorado Springs) have identified five future sites for potential development. In addition, in two recent solicitations for future generation resources, PSCo received seventy-three proposals and Westplains Energy received four proposals, indicating the ready availability of generation sites in the region. VII. THE CHEYENNE LIGHT, FUEL & POWER COMPANY Q. PLEASE PROVIDE A BRIEF DESCRIPTION OF CHEYENNE'S ELECTRIC SYSTEM. A. Cheyenne's electric system serves approximately 33,000 residential, commercial, and industrial retail electric customers in a certificated area of approximately 960 square miles in and around Cheyenne, Wyoming. Cheyenne is normally a winter peaking system, although occasionally a peak is reached during the summer. In 1994, the Cheyenne system had a peak load of 129 MW and sold 763,593 MWh to its retail customers. Cheyenne has no wholesale customers. Cheyenne purchases 100 percent of its system power and energy requirements from PacifiCorp on a full requirements basis. While Cheyenne does own five small diesel generating units (nameplate rating of 2 MW each), these units are held on cold standby and have been contractually placed under the control of PacifiCorp to be used on an emergency basis only. Q. WOULD YOU DESCRIBE CHEYENNE'S TRANSMISSION SYSTEM? A. Cheyenne's transmission system consists of two 115 kV transmission line segments that total 25.5 miles in length. The primary purpose of these transmission lines is to deliver power purchased from PacifiCorp and wheeled through Western's transmission system to Cheyenne's distribution substations. These two line segments fall within, and are operated by, Western's Loveland Control area. Cheyenne is not interconnected with PSCo. Q. HOW DOES CHEYENNE PROCURE ITS POWER SUPPLY? A. In regards to power supply, PSCo and Cheyenne operate their respective systems and procure resources independently of each other. Cheyenne most recently selected its power supplier through an RFP process. While PSCo was a bidder in the RFP, Cheyenne conducted an independent competitive procurement process in which it selected PacifiCorp as the power supplier. VIII. PRODUCTION-RELATED BENEFITS FROM THE MERGER A. OVERVIEW Q. WHAT WAS YOUR ROLE IN THE DEVELOPMENT OF PRODUCTION-RELATED BENEFITS OF THE MERGER? A. I worked with both Deloitte and Touche and SPS in the development of the production-related benefits. Using a combined resource plan and certain fuel procurement savings developed by Deloitte and Touche, I worked with SPS to develop the production-related savings achievable from the merger. Q. PLEASE DESCRIBE THE PRODUCTION-RELATED BENEFITS. A. The production-related benefits were determined in three areas: capacity deferral savings; joint dispatch savings; and fuel procurement savings. The process used to estimate these savings involved defining each company's resource plan and production-related costs on a stand-alone basis and then on a combined basis. The savings were based on a comparison of the stand-alone costs to those determined on a combined basis for a study period of ten years (1997-2006). Q. HOW WERE THE STAND-ALONE RESOURCE PLANS AND COSTS DEFINED? A. The representations of the individual systems were based on each company's most recent resource plan, modified to account for any major changes since the plan was developed, and the most recent fuel forecasts. PSCo's resource plan was based on its 1994 Annual Progress Report filed with the CPUC in October, 1994, with modifications. The modifications reflected known changes to the plan, which have now been incorporated into PSCo's 1995 Annual Progress Report, filed with the CPUC in October 1995. PSCo's stand-alone resource plan is shown in Schedule MPH-7. SPS's stand-alone resource plan is described in Witness Hudson's testimony and is shown in his Schedule DTH-4. The stand-alone production-related costs are based on each company's stand-alone plan. These costs were developed using the PROSCREEN production costing and expansion planning model, a widely used software package licensed by Energy Management Associates, Inc., and considered both the operating costs and investment-related costs of each company's stand-alone resource plans. Q. HOW WERE THE COMBINED RESOURCE PLAN AND PRODUCTION-RELATED COSTS DEVELOPED? A. Based on the reduced capacity requirements of the combined system (discussed below), Deloitte and Touche developed a combined system resource plan. The combined system resource plan is shown in Witness Flaherty's Schedule TJF-4. For convenience, I have included a copy of Schedule TJF-4 in my testimony as Schedule MPH-8. In addition to this combined resource plan, fuel procurement synergies created by the increased negotiating leverage of the combined companies were developed. Using the combined companies' resource plan, the fuel prices that result from fuel procurement synergies, and the synergies enabled by the construction of a new 400 MW transmission line between the two companies in the year 2001, we developed the combined production-related costs. As in the stand-alone cases, production-related costs were developed using the PROSCREEN production costing and expansion planning model. Q. WHAT CONCLUSIONS WERE REACHED? A. Capacity deferral benefits were determined to be $160 million over a ten-year period, net of the costs of the transmission line added in the year 2001. Fuel savings, including fuel procurement savings and joint dispatch savings, were determined to be $110 million over the same period. B. REDUCED CAPACITY REQUIREMENTS Q. HOW ARE THE TWO COMPANIES ABLE TO REDUCE THEIR CAPACITY REQUIREMENTS THROUGH THE MERGER? A. The reduced capacity requirements reflect savings from load diversity between the two systems and reduced reserve margins resulting from a reduction in PSCo's reserve requirements in the combined case. Q. PLEASE DESCRIBE THE REDUCED CAPACITY REQUIREMENTS ATTRIBUTABLE TO LOAD DIVERSITY BETWEEN THE TWO SYSTEMS. A. Both systems are summer peaking utilities. Each company, however, serves different types of customers. PSCo, for example, serves customers with more diverse load characteristics that in turn lead to its high system load factor. PSCo's relatively high system load factor is a result of low residential air-conditioning loads, moderate winter heating loads, and a diverse mix of commercial and industrial loads. In addition, PSCo provides wholesale power to its four rural electric cooperatives whose winter loads are significantly higher than their summer loads. In contrast, SPS has a lower load factor attributable to high summer air-conditioning and agriculture loads. Another distinguishing characteristic of the two systems is the difference in time zones. PSCo operates in the Mountain Time Zone while SPS operates in the Central Time Zone. Schedule MPH-9 provides a three-year summary of peak load data for the two companies and shows the combined companies' coincident peak demand (adjusted to account for the different time zones). Each company's peak load occurred on different days of the month and, in two cases, occurred in different months of the summer season. The review of peak load data was limited to three years of historical data because, beginning in April 1992, PSCo's loads reflect the addition of four new wholesale customers as a result of the Colorado-Ute acquisition. Q. WHAT ARE THE ACTUAL AMOUNTS OF CAPACITY SAVINGS RELATED TO LOAD DIVERSITY? A. The 1994 summer peak demand for PSCo was 4011 MW. The 1994 summer peak demand for SPS was 3692 MW. The arithmetic total of these two individual peak demands was 7703 MW. However, the coincident peak demand for the two systems -- accounting for differing time zones -- was 7591 MW. The diversity in loads for the two systems in 1994 was 112 MW. Performing a similar analysis over the three-year period (1992-1994), the average diversity between the two systems was 98 MW or 1.3 percent of the combined individual peak demands of the two systems. Q. WHAT LOAD DIVERSITY WAS USED TO DEVELOP THE CAPACITY SAVINGS? A. A one percent load diversity savings was used in determining the overall capacity deferral-related benefits of the merger. The one percent load diversity savings was applied to the arithmetic sum of the projected coincident peak demands of each company over the ten-year study period beginning with the in-service date of the new transmission line in the year 2001. The result is a load diversity savings equal to 84 MW in 2001 increasing to 92 MW in 2006. Schedule MPH-10 shows the load diversity savings used in each year of the ten-year study period. Q. WHEN CAN THE COMBINED COMPANIES TAKE ADVANTAGE OF THE LOAD DIVERSITY SAVINGS? A. The combined companies can take advantage of the one percent load diversity savings when the new transmission line is in service in the year 2001. Q. PLEASE DESCRIBE THE APPROACH USED TO DETERMINE THE REDUCED CAPACITY REQUIREMENTS ATTRIBUTABLE TO A REDUCTION IN RESERVE MARGINS. A. As a result of the merger, and beginning with the in-service date of the new transmission line, PSCo should be able to reduce its reserve margin criteria from its current minimum reserve requirements used in the stand-alone case to at least a 15 percent reserve margin in the combined case. Currently, reserve margins are higher for PSCo as described below. SPS's reserve margin is 15 percent in both the stand-alone and combined cases. Q. PLEASE DISCUSS THE BASIS FOR LOWERING PSCo'S RESERVE MARGIN IN THE COMBINED CASE? A. The reason for a lower PSCo reserve margin in the combined case is that the installation of the new 400 MW transmission line between the systems will enable delivery of power to eastern Colorado from the available generation resources of SPS. Although PSCo is a member of the IPP which allows PSCo to meet WSCC reliability criteria on a combined utility basis (i.e., jointly with the 23 members of the IPP), PSCo recently has been following WSCC reliability criteria on an individual basis instead, primarily for three reasons: (1) PSCo's concern over the quality of reserves carried by members of the IPP; (2) the region becoming more in balance between load and available generation thus reducing overall reserve levels; and (3) PSCo's heavy reliance on the import of power from the west and north into eastern Colorado. The WSCC reliability criteria that PSCo follows because of these concerns (largest risk plus 5 percent load responsibility) equates to a reserve margin of 16.9 percent in 1997, gradually decreasing to 15.1 percent in 2006. With the installation of a 400 MW transmission line into eastern Colorado, connecting PSCo to SPS's generation resources, the above concerns are lessened considerably. As a result, PSCo believes that it can at least reduce its installed reserves to 15 percent between 2001 and 2006. It may in fact be able to reduce its reserves further to the even lower levels permitted by the IPP. Q. WHAT ARE THE CAPACITY REDUCTIONS ENABLED BY PSCo FOLLOWING A 15 PERCENT RESERVE MARGIN? A. Schedule MPH-11 shows the reduced PSCo requirements from following a 15 percent reserve margin requirement. By following a 15 percent reserve margin requirement, PSCo's required reserves in 2001 are reduced from 720 MW to 675 MW, a 45 MW savings. The savings gradually reduce to 6 MW in 2006. As noted, the reserve requirements may be able to be reduced significantly more under IPP reserve obligations; so, these projected savings are conservative. Q. WHAT ARE THE TOTAL CAPACITY DEFERRAL SAVINGS ATTRIBUTABLE TO BOTH THE ONE PERCENT LOAD DIVERSITY SAVINGS AND PSCo'S REDUCED RESERVE MARGIN? A. As noted, the capacity deferral savings are $160 million. A comparison of the stand-alone resource plans to the combined companies' resource plan that is enabled by the load diversity and reduced reserve requirements is shown in Schedules MPH-12A, MPH-12B, MPH-12C, and MPH-12D. A comparison of the investment-related and other fixed costs of the stand-alone and combined resource plans, using the PROSCREEN model, is shown in Schedule MPH-13. C. FUEL SAVINGS Q. PLEASE DESCRIBE THE FUEL SAVINGS ATTRIBUTABLE TO THE MERGER. A. The fuel savings attributable to the merger can be broken down into savings related to fuel procurement and savings attributable to the joint-dispatch of the combined systems. The fuel savings are as follows: Cumulative Savings ($ million) Fuel Savings (1997-2006) 1. Fuel Procurement-PSCo $112.1 Transportation 2. Fuel Procurement- $32.2 Other 3. Joint Dispatch -$33.7 4. Total $110.6 Q. PLEASE DISCUSS THE PSCo FUEL TRANSPORTATION SAVINGS OF $112 MILLION. A. These fuel procurement savings are based on a reduction in coal transportation costs at PSCo's Pawnee and Comanche coal-fired steam plants. The reductions reflect the increased purchasing strength of the combined companies. Both PSCo and SPS transport coal to several of their plants from the Powder River Basin over the Burlington Northern railroad. The Powder River Basin covers a geographic area that encompasses southeastern Montana and northeastern Wyoming. The railroad's freight charge to transport coal is typically a function of the amount of coal needed by the plants and the distance from the mine to the plant. The cost of transporting coal is generally expressed by utilities on a mils per ton-mile basis. As a result of the merger, the combined companies will become one of the largest utility shippers of coal out of the Powder River Basin on a tonnage basis, as well as one of the largest shippers on the Burlington Northern railroad. Separately, PSCo purchases approximately 4 million tons of coal per year for its Comanche and Pawnee coal-fired stations from the Amax Coal Company. SPS purchases 7-8 million tons of coal per year for its Tolk and Harrington coal-fired stations from the ARCO Thunder Basin Coal Company. Combined, the companies will purchase 11-12 million tons of coal per year from the Powder River Basin. Further, the distance between the mine and PSCo's plants is relatively short in comparison to SPS's plants. For example, the distance from the mine to PSCo's Pawnee and Comanche plants is 368 miles and 575 miles, respectively. For SPS's Harrington and Tolk plants, the distance is 901 miles and 1003 miles, respectively. SPS's greater ton-mile requirement results in a much lower ton-mile rate. In contrast, PSCo's ton-mile requirements, on a stand-alone basis, produce a transportation rate that is higher than SPS's. PSCo's contract with the Burlington Northern railroad expires in the year 2000. The increased leverage the combined company will have in negotiating coal transportation rates at that time, based on the combined high ton-mile requirements, will allow PSCo to reduce its coal transportation costs as part of a combined company. As part of the combined companies, PSCo should achieve more market-based transportation rates for its Pawnee and Comanche plants. PSCo expects to reduce coal transportation rates to its Pawnee plant from 25 mils per ton-mile to 15 mils per ton-mile beginning in the year 2000. Similarly, PSCo expects to reduce the coal transportation rate to its Comanche plant from 20 mils per ton-mile to 15 mils per ton- mile. The resulting savings are $112 million, based on PSCo's annual requirement of 1,926 million ton-miles in the combined case. Absent the leverage of the combined high ton-mile requirements of PSCo and SPS, PSCo could not achieve these savings. Q. PLEASE DESCRIBE THE OTHER FUEL PROCUREMENT SAVINGS RESULTING FROM THE MERGER. A. As discussed in Witness Flaherty's testimony, the companies are also expected to have increased negotiating leverage for fuel commodities, both natural gas and coal, due to the increased volumes of fuel purchased on a combined basis. Gas prices are projected to decrease by 1.0 percent and coal prices by 0.5 percent on a total $/mmBtu basis. Applying these fuel price savings in the PROSCREEN model results in additional fuel procurement savings of $32 million. Q. PLEASE DESCRIBE THE COMPUTATION OF THESE OTHER FUEL PROCUREMENT SAVINGS IN GREATER DETAIL. A. In the studies, a 1.0 percent reduction in gas prices was reflected in both PSCo's and SPS's existing and future gas- fired plants as a straight percentage reduction in the fuel price of each plant for the study period. The 0.5 percent reduction in coal prices was reflected as a straight percentage reduction in the fuel price of the combined companies' coal-fired plants receiving coal from the Powder River Basin. The reduction in coal prices was applied to PSCo's Pawnee and Comanche plant and SPS's Tolk and Harrington plants beginning in the year 2003. Q. FINALLY, PLEASE DESCRIBE THE JOINT-DISPATCH SAVINGS. A. The joint-dispatch savings reflect the benefits that can be achieved by the companies sharing the energy from their generation resources after PSCo and SPS are interconnected in 2001. Whenever the incremental costs of SPS's generation are lower than the incremental costs of PSCo's generation, SPS energy can be transferred to PSCo across the new 400 MW tie. Similarly, whenever PSCo's incremental costs are lower than SPS's incremental costs, PSCo energy can be transferred to SPS. As noted, through the PROSCREEN model, the companies were able to compare the costs of operating the companies' generation resources on a stand-alone and combined basis. By isolating the effects of the lower coal transportation costs and other fuel procurement costs, we were able to determine the remaining effect of the joint dispatch of the two systems. Q. WHAT WERE THE LEVELS OF JOINT DISPATCH SAVINGS? A. Schedule MPH-14 shows the year-by-year energy transfers expected to take place as a result of the joint dispatch that will begin in 2001 when the new transmission line is in service. Energy is transferred between the two companies only when it produces savings. As can be seen, in every year, both companies benefit from the ability to transfer energy between the two companies, thereby reducing operating costs. Q. WHAT IS THE DOLLAR IMPACT OF JOINT DISPATCH INDICATED BY THE PROSCREEN MODEL? A. The year-by-year changes in operating costs as a result of joint dispatch when comparing the stand-alone operation to the combined operations are as follows: Joint Dispatch Year Savings ($000) 2001 $5,942 2002 $8,763 2003 $1,362 2004 $4,668 2005 ($25,481) 2006 ($28,921) Total ($33,667) Q. WHY ARE THE JOINT DISPATCH SAVINGS NEGATIVE IN 2005 AND 2006? A. The total costs of owning and operating the system include both the operating costs of generating resources and investment-related costs. The mix of resources included in each utility's resource plan, both on an individual and combined basis, determines the relative savings of operating costs and investment-related costs. For example, by deferring a coal plant, you expect a large reduction in investment-related costs due to a coal plant's relatively high investment costs. However, by deferring a coal plant, operating costs tend to increase since coal plants offer lower operating costs compared to simple-cycle or combined- cycle gas-fired plants. The combination of operating costs and investment-related costs must always be examined. In the case of the PSCo and SPS merger, the deferral of a large coal plant late in the study period (2005) results in a large reduction in investment-related costs, but also increases operating costs somewhat for the reasons I have described above. Therefore, in 2005 and 2006, the joint dispatch savings, viewed in isolation, are negative. The net impact of capacity deferrals and joint dispatch costs, however, is an overall large reduction in the total costs of owning and operating the combined systems. D. REASONABLENESS OF PRODUCTION SAVINGS Q. WHAT OTHER TYPES OF ANALYSES WERE PERFORMED THAT LEAD YOU TO BELIEVE THAT THE PRODUCTION-RELATED SAVINGS CAN BE REALIZED? A. Sensitivity analyses on two key variables -- load forecasts and fuel prices -- were performed to test the validity of the savings. Q. PLEASE DESCRIBE THE SENSITIVITY ANALYSES. A. Low load growth and high load growth cases were developed for each company. Similarly, low fuel price and high fuel price assumptions were developed for each company's generating units. Then, several combinations (i.e., low, base, and high) of scenarios with differing load and fuel price forecasts were investigated to determine production- related savings. In total, eight additional scenario's (i.e., low load with low fuel price, low load with high fuel prices, high load with low fuel prices, etc.) were developed. Using PROSCREEN, we compared production-related costs developed under each scenario on a stand-alone basis to the production-related costs resulting from combining the two companies. Q. WHAT WAS THE RESULT OF THE SENSITIVITY ANALYSES? A. Over each combination of fuel and load forecasts, there are substantial production-related savings. The savings range from a low of $174.2 million to a high of $280.0 million over the ten-year study period. Schedule MPH-15 shows the savings associated with each sensitivity analysis performed. Q. WHAT DO YOU CONCLUDE FROM THE SENSITIVITY ANALYSES? A. Over a wide range of assumptions, there will be production- related savings from the merger. For example, if load growth is higher than expected and fuel prices escalate faster than expected, then the savings will not be able to be realized from deferring PSCo's coal plant in 2005, thus reducing capacity deferral savings. However, in such an event, the availability of the coal plant in 2005 provides the opportunity to achieve much greater joint dispatch savings, as would be expected. While the companies believe their base case assumptions are the most probable to occur, even if other scenarios prevail, there will be substantial production-related savings from the merger. Q. ARE THERE ANY OTHER REASONS THAT YOU CONSIDER THE PRODUCTION-RELATED SAVINGS TO BE REASONABLE? A. Yes. Because of time constraints, we did not quantify several items that are likely to cause the savings to be even greater. Q. WHAT FACTORS WERE NOT INCLUDED IN THE ANALYSIS? A. Several factors were not included. Most significant is the potential reduction in PSCo's reserve margin to those permitted by the IPP as a result of the new transmission line and PSCo's resulting access to SPS's generation resources. The potential further reduction in PSCo reserve margins, previously discussed, may result in over a 200 MW decrease in the company's installed reserves. In our analysis, we reduced reserves by only between 6 and 45 MW. Second, SPS's Utility Engineering subsidiary offers PSCo access to low-cost engineering and construction services at cost. The cost of future PSCo generation resources will reflect these low costs, but we did not quantify that benefit. Third, there are potential fuel savings available to SPS from access to other low-priced producers in the WSCC Rocky Mountain Power Area. The new transmission line increases SPS's access to this low coal-priced energy. We did not quantify this benefit. Q. WILL THE PRODUCTION-RELATED SAVINGS BENEFIT BOTH THE CUSTOMERS OF PSCo AND SPS? A. Yes. Customers of both companies will benefit since each company will experience savings resulting from the deferral of future generation resources, from fuel savings attributable to the joint dispatch of the companies' resources, and from fuel procurement savings that result from the increased negotiating power of the combined companies. Q. DOES THIS CONCLUDE YOUR TESTIMONY AT THIS TIME? A. Yes. EX-99.3 4 CPUC APPLICATION BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF COLORADO * * * IN THE MATTER OF THE APPLICATION ) OF PUBLIC SERVICE COMPANY OF ) COLORADO FOR COMMISSION ) AUTHORIZATION (1) TO MERGE WITH ) DOCKET NO.________ SOUTHWESTERN PUBLIC SERVICE ) COMPANY THROUGH THE FORMATION ) OF A REGISTERED PUBLIC UTILITY ) HOLDING COMPANY AND FOR ISSUANCE ) OF SECURITIES IN CONJUNCTION ) THEREWITH AND (2) TO IMPLEMENT ) A FIVE-YEAR REGULATORY ) PLAN WHICH INCLUDES AN EARNINGS ) SHARING MECHANISM; FOR ) ESTABLISHMENT OF A PROCEDURAL ) SCHEDULE; AND FOR SUCH OTHER RELIEF) AS MAY BE APPROPRIATE OR NECESSARY ) APPLICATION I. INTRODUCTION Public Service Company of Colorado ("PSCo") submits this application for the following purposes. Pursuant to Rule 55 of the Commission s Rules of Practice and Procedure, PSCo seeks Commission authorization (1) to merge with Southwestern Public Service Company ("SPS") through the formulation of a registered public utility holding company and (2) for the issuance of securities in conjunction with the merger. The new holding company is currently named M-P New Co. and is incorporated in Delaware. Upon completion of the merger transaction, M-P New Co. will be subject to the jurisdiction of the Securities and Exchange Commission ("SEC") as a registered holding company under the Public Utility Holding Company Act of 1935 ("PUHCA"), 15 U.S.C. Section 79a et seq., and the SEC's regulations thereto, 17 C.F.R. Section 250 et seq. Under this structure, PSCo will be an operating company of M-P New Co. and thereby retain its separate corporate identity. PSCo will remain subject to the jurisdiction of this Commission. In order to effectuate the merger transaction, PSCo will cancel all outstanding common stock and issue new common stock to M-P New Co. ____________________ With respect to its request for authorization to issue securities in conjunction with the merger, PSCo has attempted to comply with the information requested in Rule 56 of the Commission s Rules of Practice and Procedure. The nature of the transaction contemplated herein is such that Rule 56 appears not to be applicable. Nevertheless, PSCo has attempted to provide the information to the extent practicable. To the extent the information provided is not consistent with the information requested, PSCo requests a waiver of compliance for good cause shown. The term merger is used for the sake of convenience and not as a technical legal description of the business combination. PSCo and SPS will not merge into one another; they will reorganize as wholly-owned subsidiaries of a registered public utility holding company. In conjunction with this request for authorization to merge and issue securities, PSCo also seeks Commission authorization to implement a five-year regulatory plan which includes an earnings sharing mechanism. The plan also includes a five-year moratorium on base electric rates, amortization of PSCo's share of the costs to achieve the merger over the five-year period, continued use of the Energy Cost Adjustment ("ECA") clause, and a Quality of Service Program. Under PUHCA, M-P New Co. will have to obtain SEC approval to retain PSCo's gas and steam operations. The applicable PUHCA requirements are discussed in more detail subsequently herein. PSCo requests that the Commission indicate its preference that the SEC not order divestiture of PSCo's gas or steam operations. PSCo also seeks a procedural schedule which results in a final Commission decision becoming effective no later than September 4, 1996. Consistent with that goal, PSCo specifically requests that a prehearing conference be scheduled promptly, and believes it should be no later than the week of January 8, 1996. PSCo believes it has complied with all applicable Commission rules. To the extent waivers from any rules are necessary, PSCo requests that such waivers be granted. Finally, PSCo requests that it be granted such other relief that is appropriate or necessary. In support of this Application, PSCo states as follows: II. BACKGROUND REGARDING PSCO AND SPS 1. PSCo, a Colorado corporation with corporate headquarters in Denver, is an operating public utility engaged principally in the generation, purchase, transmission, distribution and sale of electricity, and in the purchase, transmission, distribution, sale and transportation of natural gas. PSCo provides electricity to approximately one million electric customers and gas to approximately 900,000 gas customers. Seventy-five percent of the electric customers and sixty-eight percent of the gas customers are in the Denver metropolitan area. PSCo's retail electric and gas sales are subject to the jurisdiction of the Commission. PSCo owns an extensive transmission system, and makes wholesale sales and provides third-party transmission services, which are subject to the jurisdiction of the Federal Energy Regulatory Commission ("FERC"). At year-end 1994, PSCo and its subsidiaries owned property, plant, and equipment totaling approximately $3.3 billion. Total revenues from electric, gas, and other operations were approximately $2.1 billion, with net income totaling approximately $170 million. PSCo and its subsidiaries employ approximately 5,000 people. 2. PSCo wholly owns Cheyenne Light, Fuel and Power Company ("Cheyenne"), which is also a combination electric and gas utility. Cheyenne s electric system serves over 33,000 retail customers in an area of approximately 960 square miles in and around Cheyenne, Wyoming. While Cheyenne has a small amount of transmission facilities and has an open-access transmission system on file with the FERC, its system essentially operates as a distribution system. Cheyenne has no electric wholesale customers. Cheyenne serves 26,000 retail gas customers. At year-end 1994, Cheyenne owned total property, plant, and equipment of approximately $49.5 million. Cheyenne had consolidated revenues totaling approximately $51.9 million, with net income of approximately $3.0 million. Cheyenne employs approximately 95 people. Cheyenne maintains its corporate headquarters in Cheyenne, Wyoming. 3. SPS, a New Mexico corporation with corporate headquarters in Amarillo, Texas, is an electric utility, providing service to about 368,000 customers in a territory of approximately 52,000 square miles in the Panhandle and South Plains regions of Texas, eastern New Mexico, the Oklahoma Panhandle, and southwestern Kansas. SPS's service territory is primarily agricultural, with large areas of oil and gas production. SPS, like PSCo, has an extensive transmission system. SPS derives a high percentage of its revenues from FERC- jurisdictional wholesale sales (approximately 33%). At August 1995, SPS and its subsidiaries owned total property, plant, and equipment of approximately $1.6 billion. SPS had consolidated revenues totaling approximately $889 million, with net income of approximately $119.5 million. SPS employs approximately 2,000 people. In addition to its corporate headquarters in Amarillo, SPS maintains division offices in Roswell, New Mexico and Lubbock,Texas. III. OVERVIEW OF THE TRANSACTION AND RESULTING CORPORATE STRUCTURE 4. On August 22, 1995, SPS and PSCo entered into an Agreement and Plan of Reorganization ("Agreement") to engage in a business combination as peer firms in a merger of equals. This Agreement presents among other things, the representations and warranties of the two companies, the structure of the merger, and the required conditions precedent to closing. Pursuant to the Agreement, PSCo and SPS have formed a Delaware corporation, temporarily named M-P New Co., that upon consummation of the reorganization will serve as a publicly traded holding company under PUHCA. Upon receipt of all regulatory and stockholder approvals, discussed in greater detail below, M-P New Co. will form two wholly-owned subsidiaries, one a Colorado corporation ("PSCo Merger Corp.") and the other a New Mexico corporation ("SPS Merger Corp."). PSCo Merger Corp. and SPS Merger Corp. will simultaneously merge with and into PSCo and SPS, respectively. PSCo and SPS will survive the mergers as wholly-owned separate operating utility subsidiaries of M-P New Co. Cheyenne and Westgas Interstate, currently subsidiaries of PSCo, will also become separate utility subsidiaries of M-P New Co. Additionally, two more subsidiaries will be created. A service company subsidiary, M-P Services Co., will be organized to provide services to the subsidiaries of M-P New Co. Also, a subsidiary will be formed to hold the shares of the existing non-utility subsidiaries of SPS and PSCo. Some subsidiaries of PSCo will be retained under PSCo because their primary business purpose is tied to PSCo, and also to take into account certain tax considerations. 5. Under this holding company structure, PSCo, Cheyenne, and SPS will retain their corporate identities and will continue their independent operations. M-P Services will provide various services to PSCo and SPS and the other M-P New Co. subsidiaries. Through the formation and operation of M-P Services, various functions now performed separately by or on behalf of these companies will be consolidated to eliminate duplicative efforts. Any activities that M-P Services performs on behalf of PSCo, SPS, or any other subsidiary of M-P New Co. will be governed by service agreements. The SEC must approve the terms and conditions of any service agreements, including the cost allocation mechanisms contained therein. 6. The restructuring of PSCo and SPS will be effectuated by the conversion of stock. Common stock holders of each company will convert their respective shares of stock for rights to shares of common stock in M-P New Co. Each share of PSCo stock will be converted to a right to receive one share of M-P New Co. stock, and each share of SPS stock will be converted to a right to receive 95% of one share of M-P New Co. stock. As a result of the exchange, the common stock holders of PSCo and SPS will then own all of the outstanding shares of the stock in M-P New Co. The preferred stock holders and debt holders of each company will be unaffected by the merger. After the exchange of shares occurs, the existing common stock of PSCo and SPS will be canceled. New common stock of PSCo and SPS will be issued to M-P New Co. The number of shares to be issued by PSCo will be equivalent to the number of shares of PSCo stock issued and outstanding on the date of consummation of the merger transaction. IV. RATIONALE FOR THE MERGER 7. The PSCo and SPS merger was negotiated and is now being submitted for regulatory approval in an increasingly competitive electric environment. In this environment, customers have more options for their power supply needs, either through open-access transmission or through self-build proposals. This environment has put increasing pressure on utilities to control costs and to take steps to give themselves flexibility to respond to market forces. The PSCo and SPS merger brings together two utilities with complementary strengths, which should enable the combined company to meet these goals. For example, in addition to its fast growing service area, PSCo brings to the combined company its natural gas utility operations, and its experience in developing innovative approaches to information technology and energy services. Also by way of example, SPS brings to the combined company well-recognized generation operations and engineering expertise, and success with wholesale markets and non-regulated generation projects. SPS is ranked best in the nation in non-fuel production O&M costs per kwh, according to the Utility Data Institute. 8. PSCo and SPS expect to realize the following benefits from the merger: Competitive rates and services Increased size and stability Diversification of service territory More economical use of generation capacity Savings in the procurement of goods and services Complementary diversification programs Complementary operational functions Complementary management Reductions in administrative costs. 9. Although the final total will be affected by a number of different variables and factors, PSCo and SPS are projecting net savings resulting from the merger of approximately $770 million over a ten-year period commencing in 1997. These savings are summarized as follows: Total Savings 1997 - 2006 Savings Category ($ millions) Corporate and Operations Labor $389.5 Corporate and Administrative Programs 82.7 Purchasing Economies (Non-Fuel) 19.1 Fuel Procurement 197.1 - Electric: 144.1 - Gas LDC: 53.0 Capacity Deferral 160.1 Joint Dispatch (33.7) ______ Total Savings 814.8 Less: Costs to Achieve (25.0) Transaction Costs (18.0) Premerger Initiatives (2.1) ______ Net Savings $769.7 ____________________ This figure is net of the costs of the transmission line that will be constructed to interconnect PSCo and SPS, which is described below. By combining dispatch functions, the companies achieve lower energy costs than on a stand-alone basis. However, because PSCo and SPS are deferring coal capacity additions, saving $160 million, energy costs are $33 million higher with the merger than in the stand-alone scenarios. Combined, however, capacity deferral and joint dispatch savings from the merger are $126.4 million. 10. Following is a chart showing the years in which the savings of $770 million are projected to be achieved: Savings Before Costs to Achieve 1997-2006 Year ($ Millions) 1997 $ 40 1998 $ 43 1999 $ 48 2000 $ 69 2001 $ 63 2002 $ 84 2003 $ 93 2004 $111 2005 $103 2006 $160 11. PSCo and SPS are not directly interconnected at present. In order to integrate their operations and achieve certain of the projected cost savings from the merger noted above, PSCo and SPS are planning to construct a 345 kV interconnection, including a 400 MW high voltage direct current tie, around the year 2001. PSCo is not at this time seeking a certificate of public convenience and necessity from the Commission authorizing it to construct this line. V. REQUIRED REGULATORY APPROVALS 12. The merger of PSCo and SPS is conditioned upon the receipt of various approvals and the occurrence of various events. Initially, shareholders' approvals by both PSCo and SPS are required and a special meeting of shareholders will be held on January 31, 1996. Approval of the merger is recommended by the boards of Directors of PSCo and SPS. 13. The requisite regulatory approvals include those PSCo is requesting from the Commission in this Application. Cheyenne is seeking from the Public Service Commission of Wyoming approval of the reorganization of PSCo's ownership. SPS is requesting approvals from the New Mexico Public Utility Commission, the Texas Public Utility Commission and the Kansas Corporation Commission. 14. At the federal level, approval to merge facilities is required by the FERC for both PSCo and SPS. Nuclear Regulatory Commission ("NRC") approval will be required for PSCo to reflect that after the merger PSCo will become an operating subsidiary of the holding company continuing to own the Fort St. Vrain Nuclear Electric Generating Station and to hold NRC licenses connected with the facility. The Federal Trade Commission and the Department of Justice will review the merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Also at the federal level, M-P New Co. must register its securities to be issued to the existing shareholders of PSCo and SPS with the SEC. After the merger, M-P New Co. must register with the SEC as a holding company under PUHCA. As noted above, SEC approval will also be required with respect to the foundation of M-P Services, and the cost allocation methodologies it utilizes. VI. REGULATORY PLAN TO SHARE BENEFITS FROM THE MERGER WITH CUSTOMERS 15. An essential aspect of the regulatory approvals necessary to accomplish the merger is the approval of regulatory plans pursuant to which PSCo and SPS will share the benefits of the merger with their customers. In developing its proposed plan, PSCo considered and worked in, to the greatest extent possible, the regulatory initiatives that had been underway in Colorado. PSCo's plan, as summarized below and described in greater detail in the testimony filed in support of this Application, should be evaluated in that context. 16. This plan is designed to meet four principal objectives, namely: (1) to provide for an equitable and reasonable savings distribution between customers and shareholders; (2) to provide for tangible benefits to be delivered to customers and shareholders; (3) to provide for a more flexible regulatory framework; and (4) to provide for certainty of regulatory treatment. 17. The primary features of the Colorado regulatory plan are as follows: The plan is based on a five-year planning period. PSCo is proposing a five-year rate moratorium on base electric rates. During that period, PSCo shall not increase base electric rates. The plan retains PSCo's ability to file new rate designs within the five year moratorium period. PSCo reserves the right to file a general gas and/or steam rate case PSCo is proposing an earnings test that provides for sharing earnings between customers and shareholders on a 50/50 basis for all earnings over 12.5% return on equity. The earnings test is based on PSCo's total CPUC jurisdictional earnings of the electric, gas and steam departments. For purposes of calculating earnings in the earnings test, PSCo is proposing a five-year amortization of PSCo's share of the costs to achieve the merger. The plan maintains the ECA clause as the means of passing on the reduction in fuel costs that are anticipated to result from the merger. The plan includes PSCo's proposed Quality of Service Program, which is designed to assess important aspects of PSCo's service relative to sustained customer complaints received by the Commission, phone response time at PSCo's customer inquiry center, response time to customer-initiated gas odor complaints, and electric service availability. PSCo is proposing that strong performance will allow it to use an enhanced rate of return threshold in its earnings sharing mechanism, while poor performance will require that it credit customers up to $4 million annually. VII. RETENTION OF GAS OPERATIONS 18. Section 11(b)(1) of PUHCA directs the SEC to take action to limit the operations of each registered holding company system to a single integrated public-utility system, which the SEC has interpreted to mean a single gas utility system or a single electric utility system, but not both. On this basis, the SEC has required the divestiture of gas and electric properties. 19. Section 11(b)(1), however, also permits registered holding companies to retain "additional systems" if three criteria are met, namely: (1) the additional system cannot be operated as an independent system without the loss of substantial economies; (2) the additional system is located in one or more adjoining states or a contiguous country; and (3) the combination of such systems under the control of a single holding company is not so large as to impair the advantages of localized management. While the SEC has applied these criteria -- commonly referred to as the "A-B-C clauses" -- restrictively in the past by requiring that a registered system demonstrate that divestiture would result in a "substantial hardship to investors and consumers were its relationship with the holding company terminated," Philadelphia Co., 28 S.E.C. 35, 46 (1948), the SEC is now proposing to liberalize its interpretation of the A-B-C clauses to permit registered holding companies to own gas and electric utility systems where the affected states agree. See SEC Report on the Regulation of Public Utility Holding Companies, June 1995, at 74-76. Attachment 1 to this application is the relevant chapter from this report. Accordingly, PSCo requests that the Commission indicate its preference that the SEC not order divestiture of PSCo's gas operations. 20. The SEC may also look at the retention by PSCo of its steam operations. PSCo also requests that the Commission indicate its preference that the SEC not order divestiture of PSCo's steam operations. VIII. TESTIMONY SUBMITTED IN SUPPORT OF THE APPLICATION 21. With this Application, PSCo has submitted extensive testimony and exhibits explaining various aspects about the merger and the associated rate plan that PSCo is proposing in conjunction with the merger. In support of this Application, PSCo is sponsoring the following witnesses: Richard C. Kelly, Senior Vice President, Finance, Treasurer and Chief Financial Officer, PSCo. Mr. Kelly will provide an overview of the merger, including a discussion of PSCo and SPS, the rationale behind the merger, how the merger is to be effectuated, and the resulting corporate structure. Mr. Kelly will also discuss the financial aspects of the merger. Fredric C. Stoffel, Manager, Rates & Regulatory Affairs, PSCo. Mr. Stoffel will describe in detail the Colorado regulatory plan that PSCo is proposing in conjunction with this Application to seek authority to merge with SPS. W. Wayne Brown, Controller and Corporate Secretary, PSCo. Mr. Brown will testify regarding the accounting treatment for the merger under the pooling of interests methodology of Generally Accepted Accounting Principles. Teresa S. Madden, Corporate Accounting Manager, PSCo. Ms. Madden will provide a description of the services that M-P Services is expected to provide to PSCo, SPS, and Cheyenne as operating company subsidiaries of M-P New Co., and how costs are to be charged or allocated from M-P Services to those and other subsidiary companies. William C. Weeden, Senior Utility Advisor at Reid & Priest and formerly Associate Director, Office of Public Utility Regulation, Division of Investment Management at the SEC. Mr. Weeden will discuss the SEC's regulation of registered holding companies and its effect on the Commission's regulation. Thomas J. Flaherty, National Partner for Utilities Consulting, Deloitte & Touche LLP. Mr. Flaherty will provide support for the $770 million in cost savings that are expected to be achieved through the merger of PSCo and SPS over a ten-year period beginning in 1997. This support will include a detailed discussion of the types of savings that are likely to be achieved. David T. Hudson, Manager of Rate and Economic Research in the Rates and Regulation Department, SPS. Mr. Hudson will provide background information regarding the SPS system. Matt P. Harris, Unit Manager, Loads & Resources Planning, PSCo. Mr. Harris will provide a description of PSCo's electric production and transmission systems, and the projected production cost savings arising from the merger. Deborah A. Blair, Unit Manager, Revenue Requirements, Rates & Regulatory Affairs, PSCo. Ms. Blair will discuss the earnings sharing mechanism that PSCo is proposing and how the quality of service performance measures that PSCo is proposing will tie into the earnings sharing mechanism. James F. Forchtner, Manager of Business Processes, PSCo. Mr. Forchtner will discuss the performance measures that PSCo is proposing to use to evaluate its service. Steven T. Brown, Manager, Planning and Business Services, PSCo. Mr. Brown will provide information on the prudency of PSCo's investment in its customer information system. IX. INFORMATION REQUIRED BY RULE 55 Rule 55 of the Commission s Rules of Practice and Procedure requires the provision of certain information when fixed utilities subject to its jurisdiction seek to obtain, extend, or transfer certificates of public convenience and necessity, including where utilities seek to transfer assets, obtain a controlling interest in another utility, stock transfer, or merger. As has been noted above, due to the effectuation of the PSCo/SPS merger through the formation of a holding company, PSCo will retain its corporate identity. Moreover, as an out-of-state utility, SPS does not have any certificates of public convenience and necessity in the State of Colorado. Thus, the merger does not involve the direct transfer or extension of any certificates of public convenience and necessity. Regardless, PSCo believes that Rule 55 is the appropriate rule to follow in seeking the Commission's approval of its merger with SPS and the associated regulatory plan. Therefore, although Rule 55 does not appear crafted to elicit information regarding a merger to be effectuated through the formation of a new holding company, PSCo will respond to all applicable requests for information set out in Rule 55. Moreover, although Rule 55 does not appear to require the provision of information regarding SPS or M-P New Co., since they are not applicants in this proceeding, such information will be provided where appropriate. (1) Applicant's Name and Complete Address Public Service Company of Colorado 1225 17th Street Denver, Colorado 80202 Although SPS and M-P New Co. are not applicants in this proceeding, their addresses are as follows: Southwestern Public Service Company P.O. Box 1261 Amarillo, Texas 79710 M-P New Co. 1225 17th Street Denver, Colorado 80202 (A) Statement regarding Corporate Status PSCo is a Colorado corporation, with its corporate headquarters in Denver. Attachment 2 lists the names of PSCo's directors, officers, and Colorado agent for service. A copy of PSCo's Restated Articles of Incorporation dated July 9, 1990 has been previously filed with the Commission in Docket No. 90A-498S. A copy of the amendment to PSCo's Restated Articles of Incorporation was filed on October 19, 1994 SPS is a New Mexico corporation with its principal office in Texas. It does not have an office or conduct any business in Colorado. Attachment 3 lists the names of SPS's directors, officers, and Colorado agent for service. Attachment 4 is SPS's Articles of Incorporation. M-P New Co. is a Delaware corporation. Upon the completion of the merger, its principal office will be located in Denver, Colorado. Attachment 5 lists the names of M-P New Co.'s directors, officers, and Colorado agent for service. (B) Out-of-State Applicants' Authority to Do Business in Colorado Not applicable. (C) Partnership Status Not applicable. (2) Applicant's Representatives to Receive Notice and Inquiries PSCo requests that any notices, inquiries, or other communications, including pleadings submitted by intervening parties, be submitted to the following: Fredric C. Stoffel Public Service Company of Colorado 1225 17th Street, Suite 1000 Denver, Colorado 80202 (303) 294-2013 William M. Dudley, Esq. Associate General Counsel Public Service Company of Colorado 1225 17th Street, Suite 600 Denver, Colorado 80202 (303) 294-2500 James K. Tarpey, Esq. LeBoeuf, Lamb, Greene & MacRae L.L.P 633 17th Street, Suite 2800 Denver, Colorado 80202 (303) 291-2600 Although SPS is not an applicant and will not intervene in this proceeding, PSCo requests that the following SPS representative be placed on the official service list in this proceeding: Gerald J. Diller Vice President, Rates and Regulations Tyler at 6th, Suite 2002 Amarillo, Texas 79101 (806) 378-2822 (3) Authority Sought PSCo seeks Commission authorization to merge with SPS and to issue securities in conjunction therewith; and to implement a regulatory plan. The authorization sought, together with the other relief requested, is more fully set forth in the Application. PSCo is not proposing to change the types of utility services that it is providing, nor is it proposing to change its service area. PSCo has described its operations in Paragraph 1. Maps showing PSCo's electric and gas service areas are included as Attachment 6 to this Application. (4) Statement Regarding Affiliates Attachment 7 to this Application shows the corporate structure of M-P New Co. after the combination. Attachment 8 lists the subsidiaries of M-P New Co. and provides a brief description of them. PSCo's present subsidiaries are denoted by asterisks on Attachment 8. None of PSCo's affiliates hold authority duplicating in any respect the authority PSCo seeks in the Application. (5) Feasibility Study The testimony and exhibits that PSCo has submitted in support of this Application -- in particular the testimony and schedules of Messrs. Flaherty and Harris discussing projected cost savings -- establishes the feasibility of the merger between PSCo and SPS. (6) Copy of Proposed Tariff Proposed tariff changes to implement the regulatory plan that PSCo is proposing in this Application are included as Schedule DAB-3 of the testimony of Ms. Blair (7) Balance Sheets A copy of the most recent balance sheet available for a period ending not earlier than six months before the date of filing of this Application is included as Attachment 9. (8) Statement of Income and Retained Earnings Statements of income and retained earnings for a period ending not earlier than six months before the date of filing of this Application is included as Attachment 10. (9) Statement regarding Public Utilities Providing Service Near Area Not applicable. (10) Statement Regarding Qualifications to Conduct Proposed Utility Operations This section is inapplicable since PSCo is retaining its corporate identity and is not proposing to change the utility operations that it currently provides. (11) Statement of Facts Regarding Necessity for Certificate of PC&N Not applicable. (12) Statement that the Merger Is Not Contrary to the Public Interest As discussed in this Application and in the testimony and exhibits that PSCo has submitted in support of this Application, the merger of PSCo and SPS through the formation of a holding company brings together two utilities with complementary strengths. The result should be a larger, stronger company that will be more efficient than either company standing alone. Moreover, the merged companies should have greater flexibility to respond to an increasingly competitive electric market. The synergies that will be achieved through the merger are projected to result in cost savings of approximately $770 million (net of costs to achieve) over a ten-year period beginning in 1997. These facts demonstrate that PSCo's merger with SPS would not be contrary to the public interest. PSCo will present additional evidence at hearing, as necessary, to establish the facts supporting the proposed merger. (13) Information Required for Applications to Transfer Certificates Not applicable. (14) Information Required for Applications to Exercise Franchise Rights Not applicable. (15) Statement regarding Preferred Hearing Location PSCo prefers that the hearing on this application be held in Denver. PSCo has no preferred alternative choices. (16) Statement regarding Authority to Operate PSCo understands that the mere filing of the Application does not, by itself, constitute authority to operate. (17) Statement regarding the Filing of Tariffs and Operations If the Commission grants the authority requested in this Application, PSCo will file necessary tariffs and will operate in accordance with all applicable Commission Rules and Regulations. (18) Affidavit Attachment 11 to this Application is an affidavit signed by Mr. Kelly, stating that the contents of this Application and supporting documentation are true, accurate, and correct, to the best of his knowledge and belief. X. INFORMATION REQUIRED BY RULE 56 Approval of the merger is being sought in this Application, and the securities to be issued in conjunction therewith are an integral part of the merger transaction. The securities will be issued to M-P New Co. and not to the public; PSCo will not be required to file a registration statement with the SEC. The issuance of securities should only be authorized together with approval of the merger transaction; it should not be issued separately and it should not be issued within 30 days of the filing of this Application. Finally, the Commission will issue notice of the Application, as contemplated by Rule 55. It would be confusing for separate notice of the securities to be given under Rule 56. PSCo will provide the information requested under Rule 56. However PSCo requests a determination that Rule 56 does not apply. Alternatively, PSCo requests that the notice requirement of Rule 56 be waived. (1) Applicant's Name and Complete Address The information requested is set forth in response to information requested under Rule 55. (2) Applicant's Representatives The information requested is set forth in response to information requested under Rule 55. (3) Statement Regarding Affiliates The information requested is set forth in response to information requested under Rule 55. (4) Applicant's Existing Operations This information is set forth in paragraph 1 of this Application. (5) Capital Stock Under its Restated Articles of Incorporation, amended May 11, 1994, the authorized capital stock of PSCo consists of $1,200,000,000 divided into 160,000,000 shares of Common Stock, par value $5 per share (the "PSCo stock, par value $5"; which term shall include the Rights appertaining thereto), 3,000,000 shares of Cumulative Preferred Stock, par value $100 each (the "Cumulative Preferred Stock ($100)"), and 4,000,000 shares of Cumulative Preferred Stock, par value $25 each (the "Cumulative Preferred Stock ($25)"). Of such authorized PSCo stock, par value $5, there were 62,923,493 shares issued and outstanding as of June 30, 1995. The Cumulative Preferred Stock ($100) is authorized to be issued in one or more series, and there were issued and outstanding as of June 30, 1995, the following: Series Shares 4.20% 100,000 4-1/4% 175,000 4-1/2% 65,000 4.64% 160,000 4.90% 150,000 4.90% (2nd Series) 150,000 7.15% 250,000 7.50% 216,000 8.40% 236.412 The Cumulative Preferred Stock ($25) is authorized to be issued in one or more series, and there were issued and outstanding as of June 30, 1995, 1,400,000 shares of the 8.40% Series. (6) Long-Term Indebtedness Pursuant to the Indenture dated as of December 1, 1939, between PSCo and First Trust of New York, National Association, as successor Trustee, as amended and supplemented (the "1939 Indenture"), PSCo has issued and there were outstanding as of June 30, 1995, $599,750,000 principal amount of first Mortgage Bonds issued in series. There were also outstanding as of June 30, 1995, $151,500,000 principal amount of Medium Term Notes. A condensed description of the 1939 Indenture and of the outstanding bonds issued thereunder is included as Attachment 12. A copy of the 1939 Indenture has been previously filed with the Commission. Pursuant to the Indenture dated as of October 1, 1993, between the PSCo and First Trust of New York, National Association, as successor trustee, as supplemented (the "1993 Indenture"), PSCo has issued and there were outstanding as of June 30, 1995, $347,167,000 principal amount of First Collateral Trust Bonds issued in series. A condensed description of the 1993 Indenture and of the outstanding securities issued thereunder is included as Attachment 13. A copy of the 1993 Indenture has been previously filed with the Commission. (7) Short-Term Indebtedness At June 30, 1995, PSCo had short-term indebtedness of $93.5 million in commercial paper at a weighted average interest cost of 6.18%. (8) Statement of Interest Changes A schedule setting forth the amount of interest charges accrued by PSCo for the twelve months ended June 30, 1995, and the rates thereof is included as Attachment 14. (9) Statement of Dividends Declared Included as Attachment 15 is a schedule setting forth the rates and amounts of dividends declared by PSCo for the years ended December 31, 1991, 1992, 1993 and 1994 and for the six months ended June 30, 1995. (10)(11) Balance Sheet and Statement of Income A per books balance sheet of PSCo at June 30, 1995, and a per books statement of its income, retained earnings and cash flows for the twelve months then ended are included as Attachments 9 and 10, respectively. For further information relative to PSCo's financial condition, reference is hereby made to the annual reports filed by PSCo with the Commission. (12) Statement of Uses A description of PSCo's proposed construction program is not included in this application because the authority sought in this application is the approval of a merger transaction and the issuance of PSCo stock, par value $1 per share to M-P New Co. which is required to effectuate the merger transaction. Accordingly, the securities issuance is related to the merger transaction and not to raising capital to fund PSCo's construction program. As part of the approval of the merger transaction, PSCo requests authority to issue shares of PSCo stock, par value $1 per share to M-P New Co. The number of shares to be issued will be equivalent to the number of shares of PSCo stock, par value $5 issued and outstanding on the date of the consummation of the merger transaction. It is estimated that, if the merger transaction is consummated on or about September 6, 1996, approximately 64,500,000 shares of PSCo stock, par value $5 will be issued and outstanding on such date. The estimated cost of canceling the outstanding PSCo stock, par value $5 and issuing PSCo stock, $1 par value will be negligible. The costs associated with the merger transaction are included in the testimony filed as part of the merger application. (13) Statement Regarding Financial Status Because of the credit rating of SPS and PSCo, PSCo anticipates that the consummation of the merger transaction will positively affect PSCo's financial status, credit worthiness, as measured by Standard and Poor's Corporation and Moody's Investor Service, and its overall credit rating, which in the long term will enable PSCo to attract capital at the lowest overall cost and maintain its financial integrity. (14) Securities To Be Issued See paragraph (12) above. (15) Registration Statement PSCo is not required to file a registration statement with the SEC for the PSCo stock, par value $1. M-P New Co. will file a registration statement with the SEC to register the M-P New Co. stock. (16) Resolution Included as Attachment 16 is a certified extract of resolutions from the minutes of the meeting of the PSCo's Board of Directors on August 22, 1995, authorizing, among other matters, its proper officers to execute and file this Application, or to cause such Application to be executed and filed. (17) Statement of Capital Structure The capital structure of PSCo will be the same at the time of the consummation of the merger transaction as it is immediately prior to such consummation. Consequently, a pro forma capital structure is not included in this application. (18) Statement of Estimated Cost of Financing The estimated cost will be negligible for the reasons set forth in paragraph (12). (19) Notice For the reasons set forth earlier herein, notice of publication is not included. (20) Affidavits See Attachment 11 for the Affidavit of Mr. Kelly. XI. RELIEF REQUESTED Public Service Company respectfully requests that the Commission: authorize Public Service to merge with Southwestern Public Service Company through the formation of a registered public utility holding company and for the issuance of securities in conjunction therewith; authorize the implementation of Public Service Company five-year regulatory plan; establish a procedural schedule which results in a final Commission decision becoming effective no later than September 4, 1996; indicate its preference that the SEC should not order divestiture of PSCo's gas or steam operations; schedule a prehearing conference promptly, which Public Service believes should be no later than the week of January 8, 1996; grant, to the extent necessary, waivers from applicable Commission rules; and grant to Public Service such other relief as may be necessary or appropriate. Date: November 9, 1995 Respectively submitted /s/ James K. Tarpey, #1709 LeBoeuf, Lamb, Greene & MacRae L.L.P. 633 17th Street, Suite 2800 Denver, Colorado 80202 (303) 291-2600 William M. Dudley Associate General Counsel 1225 17th Street, Suite 600 Denver, Colorado 80202 (303) 294-2500 EX-99.4 5 WPSC APPLICATION BEFORE THE PUBLIC SERVICE COMMISSION OF WYOMING APPLICATION OF CHEYENNE LIGHT, FUEL ) AND POWER COMPANY FOR AUTHORITY ) TO ENGAGE IN A REORGANIZATION ) INVOLVING THE TRANSFER OF A ) DOCKET NO.________ CONTROLLING INTEREST IN A PUBLIC ) UTILITY ) APPLICATION Pursuant to Wyoming Statute Section 37-1-104 (1995) and Section 209 of the Rules of Practice and Procedure of the Public Service Commission of Wyoming ("Commission"), the applicant, Cheyenne Light, Fuel and Power Company ("Cheyenne"), respectfully shows the Commission as follows: 1. Cheyenne is a public utility furnishing both electric and natural gas service in the City of Cheyenne, State of Wyoming, and in a major portion of Laramie County, Wyoming. Cheyenne also distributes natural gas to customers in the communities of Pine Bluffs, Burns, and Carpenter located in the eastern portion of Laramie County. 2.a. Cheyenne desires to engage in a reorganization that involves the transfer of control of Cheyenne from Public Service Company of Colorado ("PSCo") to M-P New Co., a Delaware corporation. This reorganization is to occur as part of a merger between PSCo and Southwestern Public Service Company, ("SPS"). 2.b. On August 22, 1995, SPS and PSCo entered into an Agreement and Plan of Reorganization ("Agreement") to engage in a business combination as peer firms in a merger of equals. This Agreement presents the representations and warranties of the two companies, the structure of the merger, and the required conditions precedent to closing. A copy of the Agreement is included as Attachment 1 to this application. Pursuant to the Agreement, PSCo and SPS have formed a Delaware corporation, temporarily named M-P New Co., that upon consummation of the reorganization will serve as a publicly traded holding company under the PUHCA. Upon receipt of all regulatory and stockholder approvals, M-P New Co. will form two wholly-owned subsidiaries, one a Colorado corporation ("PSCo Merger Corp.") and the other a New Mexico corporation ("SPS Merger Corp.") PSCo Merger Corp. and SPS Merger Corp. will simultaneously merge with and into PSCo and SPS, respectively. PSCo and SPS will survive the mergers as wholly-owned separate operating utility subsidiaries of M-P New Co. Cheyenne and WestGas Interstate, currently subsidiaries of PSCo, will also become separate utility subsidiaries of M-P New Co. Additionally, two more subsidiaries will be created. A service company subsidiary, M-P Services Co., will be organized to provide services to the subsidiaries of M-P New Co. Also, a subsidiary will be formed to hold the shares of the existing non-utility subsidiaries of SPS and PSCo. Attachment 2 to this Application is an organizational diagram of M-P New Co. Attachment 3 lists the subsidiaries of M- P New Co. and provides a brief description of their activities. 2.c. Under this holding company structure, Cheyenne, PSCo, and SPS will retain their corporate identities and will continue their independent operations. M-P Services will provide various services to PSCo and SPS and the other M-P New Co. subsidiaries, including Cheyenne. Through the formation and operation of M-P Services, various functions now performed separately by or on behalf of these companies will be consolidated to eliminate duplicative efforts. M-P Services will perform the administrative and support functions that PSCo currently provides to Cheyenne. Any activities that M-P Services performs on behalf of Cheyenne, PSCo, SPS, or any other subsidiary of M-P New Co. will be governed by service agreements. The Securities and Exchange Commission ("SEC") must approve the formation of M-P Services and the terms and conditions of any service agreements. 2.d. The restructuring of PSCo and SPS will be effectuated by the conversion of stock. Common stock holders of each company will convert their respective shares of stock for rights to shares of common stock in M-P New Co. Each share of PSCo stock will be converted to a right to receive one share of M-P New Co. Stock, and each share of SPS stock will be converted to a right to receive 95% of one share of M-P New Co. stock. As a result of the exchange, the common stock holders of PSCo and SPS will then own all of the outstanding shares of the stock in M-P New Co. The preferred stock holders and debt holders of each company will be unaffected by the merger. After the exchange of shares occurs, the existing stock of PSCo and SPS will be cancelled. New stock of PSCo and SPS will be issued to M-P New Co. The Cheyenne stock, which is currently wholly-owned by PSCo, will be transferred to M-P Holding Co. 3.a. As stated above, M-P New Co. is a Delaware corporation and will be a registered holding company, subject to the regulation of the SEC under PUHCA upon the effectuation of the merger. 3.b. PSCo, a Colorado corporation with corporate headquarters in Denver, is an operating public utility engaged principally in the generation, purchase, transmission, distribution and sale of electricity, and in the purchase, transmission, distribution, sale and transportation of natural gas. PSCo provides electricity to approximately 1 million electric customers and gas to approximately 900,000 gas customers. Seventy-five percent of the electric customers and sixty-eight percent of the gas customers are in the Denver metropolitan area. At year-end 1994, PSCo and its subsidiaries, including Cheyenne, owned property, plant, and equipment totaling approximately $3.3 billion. Total revenues from electric, gas, and other operations were approximately $2.1 billion, with net income totaling approximately $170 million. PSCo and its subsidiaries employ approximately 5000 people. 3.c. SPS, a New Mexico corporation with corporate headquarters in Amarillo, Texas, is an electric utility, providing service to about 368,000 customers in a territory of approximately 52,000 square miles in the Panhandle and South Plains regions of Texas, eastern New Mexico, the Oklahoma Panhandle, and southwestern Kansas. At August 1995, SPS and its subsidiaries owned total property, plant, and equipment of approximately $1.6 billion. SPS had consolidated revenues totaling approximately $889 million, with net income of approximately $119.5 million. SPS employs approximately 2,000 people. In addition to its corporate headquarters in Amarillo, SPS maintains division offices in Roswell, New Mexico and Lubbock, Texas. 4.a. PSCo wholly owns Cheyenne which is also a combination electric and gas utility. Cheyenne's electric system serves over 33,000 retail customers in an area of approximately 960 square miles in and around Cheyenne, Wyoming. While Cheyenne has a small amount of transmission facilities and has an open-access transmission system on file with the FERC, its system essentially operates as a distribution system. Cheyenne has no electric wholesale customers. Cheyenne serves 26,000 retail gas customers. At year-end 1994, Cheyenne owned total property, plant, and equipment of approximately $49.5 million. Cheyenne had consolidated revenues totaling approximately $51.9 million with net income of approximately $3.0 million. Cheyenne employs approximately 95 people. Cheyenne maintains its corporate headquarters in Cheyenne, Wyoming. 4.b. Under the holding company structure, Cheyenne will retain its separate corporate identity. Therefore, it will retain its existing filed rates, rules, regulations, and classifications of service. The merger should have no impact on the service of Cheyenne. 5.a. Cheyenne has previously filed with the Commission copies of its latest FERC Form No. 1-F, Annual Report of Nonmajor Public Utilities and Licenses, and annual report, which show its financial condition. 5.b. Pro forma financial statements of M-P New Co. are presented in Mr. Wayne Brown's testimony. The business combination merges two managerially and financially strong companies which will result in even greater financial strength ____________________ To the extent possible, Cheyenne will follow the format set out in Form No. 5 of the Commission's rules. The term "merger" is used for the sake of convenience and not as a technical legal description of the business combination. As described more fully herein, PSCo and SPS will not merge into one another; they will reorganize as wholly-owned subsidiaries of a registered public utility holding company. and integrity than could be achieved by each company individually. 6. The merger between PSCo and SPS, of which the proposed transaction is a part, shall necessarily have an impact on those two utilities. However, as stated above, the merger should not directly affect Cheyenne, which will continue its independent operations. There may, on the other hand, be an indirect impact on Cheyenne. PSCo and SPS are seeking to merge because of the substantial anticipated savings that are anticipated to result from the merger -- approximately $770 million over a ten-year period beginning in 1997. A portion of these savings will be allocated to Cheyenne in the form of lower costs for administrative and other support services. 7. The proposed transaction will otherwise have no impact on the operations of any other utility in the state of Wyoming. 8. There is one aspect of regulation under PUHCA that Cheyenne requests that the Commission specifically address in its order on this application. Section 11(b)(1) of PUHCA directs the SEC to take action to limit the operations of each registered holding company system to a single integrated public-utility system, which the SEC has interpreted to mean a single gas utility system or a single electric utility system, but not both. On this basis, the SEC has required the divestiture of gas and electric properties. Section 11(b)(1), however, also permits registered holding companies to retain "additional systems" if three criteria are met, namely: (1) if the additional system cannot be operated as an independent system without the loss of substantial economies; (2) the additional system is located in one or more adjoining states or a contiguous country; and (3) the combination of such systems under the control of a single holding company is not so large as to impair the advantages of localized management. While the SEC has applied these criteria -- commonly referred to as the "A-B-C clauses" -- restrictively in the past by requiring that a registered system demonstrate that divestiture would result in a "substantial hardship to investors and consumers were its relationship with the holding company terminated," Philadelphia Co., 28 S.E.C. 35, 46 (1948), the SEC is now proposing to liberalize its interpretation of the A-B-C clauses to permit registered holding companies to own gas and electric utility systems where the affected states agree. See SEC Report on the Regulation of Public Utility Holding Companies, June 1995, at 74- 76. Attachment 4 to this application is the relevant chapter from this report. Accordingly, Cheyenne requests that the Commission, in acting on this application, indicate its preference that the SEC should not order divestiture of Cheyenne's gas operations. 9. In support of this application, Cheyenne is submitting the testimony and exhibits of the following witnesses: Richard L. Kaysen, Vice President and General Manager of Cheyenne. Mr. Kaysen will discuss the effects of the merger and reorganization on Cheyenne. Richard C. Kelly, Senior Vice President, Finance, Treasurer and Chief Financial Officer, PSCo. Mr. Kelly will provide an overview of the merger of PSCo and SPS, including a discussion of PSCo and SPS, the rationale behind the merger, how the merger is to be effectuated, and the resulting corporate structure. Mr. Kelly will also discuss the financial aspects of the merger. W. Wayne Brown, Controller and Corporate Secretary, PSCo. Mr. Brown will testify regarding the accounting treatment for the merger under the pooling of interests methodology of Generally Accepted Accounting Principles. Teresa S. Madden, Corporate Accounting Manager, PSCo. Ms. Madden will provide a description of the services that M-P Services is expected to provide to PSCo, SPS, and Cheyenne as operating company subsidiaries of M-P New Co., and how costs are to be charged or allocated from M-P Services to those and other subsidiary companies. William C. Weeden, Senior Utility Advisor at Reid & Priest and formerly Associate Director, Office of Public Utility Regulation, Division of Investment Management at the SEC. Mr. Weeden will discuss the SEC's regulation of registered holding companies and its effect on the Commission's regulation. Thomas J. Flaherty, National Partner for Utilities Consulting, Deloitte & Touche LLP. Mr. Flaherty will provide support for the $770 million in cost savings that are expected to be achieved through the merger of PSCo and SPS over a ten-year period beginning in 1997. This support will include a detailed discussion of the types of savings that are likely to be achieved. David T. Hudson, Manager of Rate and Economic Research in the Rates and Regulations Department, SPS. Mr. Hudson will provide background information regarding the SPS system. Matt P. Harris, Unit Manager, Loads & Resources Planning, PSCo. Mr. Harris will provide a description of PSCo's electric production and transmission systems, and the projected production cost savings arising from the merger. 10. Cheyenne requests that the following persons be placed on the official service list in this proceeding: William M. Dudley, Esq. Associate General Counsel Public Service Company of Colorado 1225 17th Street, Suite 600 Denver, CO 80202 (303) 294-2500 Richard L. Kaysen Vice President and General Manager Cheyenne Light, Fuel and Power Company 108 West 18th Street Cheyenne, WY 82001 (307) 778-2100 John A. Sundahl, Esq. Sundahl, Powers, Kapp & Martin P.O. Box 328 Cheyenne, WY 82003 WHEREFORE, Cheyenne Light, Fuel and Power Company prays that the Public Service Commission of Wyoming make its order authorizing Cheyenne to engage in the reorganization involving the transfer of a controlling interest of Cheyenne from PSCo to M-P New Co. Dated this 9th day of November, 1995. CHEYENNE LIGHT, FUEL AND POWER COMPANY BY /s/ Richard L. Kaysen Vice President and General Manager AFFIDAVIT STATE OF WYOMING ) ) COUNTY OF LARAMIE ) Richard L. Kaysen, being duly sworn, deposes and says that he is Vice President and General Manager of Cheyenne Light, Fuel and Power Company, and that he has read the foregoing application, knows the contents thereof, and that the matters set forth therein as to Cheyenne Light, Fuel and Power Company are true and correct to the best of his knowledge and belief. __________________________________ Richard L. Kaysen Subscribed and sworn to before me this ____ day of November, 1995. ___________________________________ Notary Public EX-99.5 6 NMPUC APPLICATION BEFORE THE NEW MEXICO PUBLIC UTILITY COMMISSION IN THE MATTER OF THE APPLICATION ) OF SOUTHWESTERN PUBLIC SERVICE ) COMPANY FOR APPROVALS AND ) AUTHORIZATIONS TO (i) MERGE WITH ) PUBLIC SERVICE COMPANY OF ) COLORADO AND TO REORGANIZE AND ) FORM A HOLDING COMPANY, (ii) ) DIVEST ITS NON-UTILITY SUBSIDIARIES, ) (iii) ISSUE SECURITIES TO THE HOLDING ) CASE NO. ________ COMPANY, (iv) AMEND ITS GENERAL ) DIVERSIFICATION PLAN, AND (v) ) OBTAIN ALL OTHER APPROVALS AND ) AUTHORIZATIONS NECESSARY TO ) EFFECTUATE THE MERGER, REORGANIZATION ) AND RELATED TRANSACTIONS, ) ) SOUTHWESTERN PUBLIC SERVICE COMPANY, ) ) APPLICANT. ) APPLICATION ___________ Applicant Southwestern Public Service Company ("SPS") respectfully applies to the New Mexico Public Utility Commission ("NMPUC" or the "Commission"), pursuant to the New Mexico Public Utility Act ("PUA"), for the following approvals and authoriza- tions: (1) approval of SPS's merger with Public Service Company of Colorado ("PSCo") and their reorganization and formation of a public utility holding company to be temporarily called "M-P New Co."; (2) approval of SPS's divestiture and transfer to M- P New Co. of SPS's wholly owned subsidiaries Quixx Corporation ("Quixx") and Utility Engineering Corporation ("UE"); (3) authorization of SPS's issuance of common stock certificates to M-P New Co. pursuant to the August 22, 1995 Agreement and Plan of Reorganization among SPS, PSCo, and M-P New Co. (the "Merger Agreement"); (4) approval of SPS's proposed Class II transactions associated with the proposed merger, reorganization, formation of a holding company, and divestiture (collectively the "Transac- tions"), and approval of SPS's Amended General Diversification Plan ("Amended GDP"), which reflects the affiliated interests resulting from the Transactions; (5) approval of SPS's proposed regulatory plan that provides for the sharing of benefits and savings resulting from the Transactions between SPS's customers and shareholders; and (6) granting such other approvals, authorizations and relief as may be necessary and appropriate to effectuate the merger and the related Transactions. ____________________ The name "M-P New Co." will be changed when PSCo and SPS agree upon a permanent name. SPS joined with PSCo to form M-P New Co. on August 22, 1995. SPS and PSCo each made a de minimus capital contribution of $100 to M-P New Co. for 50 percent of its stock. This stock will be canceled pursuant to the Merger Agreement immediately prior to the SPS Merger and the PSCo Merger. INTRODUCTION 1. SPS is a New Mexico corporation which owns, operates and controls plant, property, and facilities that provide genera- tion, transmission, distribution, and sale of electric energy to the public in portions of New Mexico, Texas, Oklahoma, and Kansas (i.e., retail service), and to purchasers for resale (i.e., wholesale service). A. SPS is a public utility in New Mexico as defined in Section 62-3-3 of the PUA, and SPS is subject to the jurisdic- tion and authority of the NMPUC. B. SPS's principal office in New Mexico is located at 111 E. Fifth Street, Roswell, New Mexico 88201, and its principal corporate office is located at Tyler at Sixth Street, Post Office Box 1261, Amarillo, Texas 79170. C. SPS's corporate representatives and attorneys who should receive all notices, pleadings, discovery requests and responses, and other documents related to this case are: Gerald J. Diller Vice President, Rates and Regulations Post Office Box 1261 Amarillo, Texas 79170 (806) 378-2819/FAX: (806) 378-2820 David T. Hudson Manager, Rate and Economic Research Post Office Box 1261 Amarillo, Texas 79170 (806) 378-2824/FAX: (806) 378-2820 Jeffrey L. Fornaciari, Esq. Hinkle, Cox, Eaton, Coffield & Hensley Post Office Box 2068 Santa Fe, New Mexico 87504-2068 (505) 982-4554/FAX: (505) 982-8623 2. PSCo, a Colorado corporation, is an operating public utility that, along with its wholly owned subsidiary, Cheyenne Light, Fuel and Power Company ("Cheyenne"), is engaged in the generation, transmission, distribution and sale of electricity to the public. PSCo's operations are wholly within Colorado, and Cheyenne's operations are wholly within Wyoming. PSCo and Cheyenne also engage in the purchase, transmission, distribution, sale and transportation of natural gas to the public in portions of Colorado and Wyoming. PSCo owns all or a majority of the common stock of eleven subsidiaries, including Cheyenne. A. PSCo's and Cheyenne's principal executive offices are located at 1225 Seventeenth Street, Denver, Colorado 80202. B. PSCo's corporate representatives and attorneys who should receive all notices, pleadings, discovery requests and responses, and other documents in this case are: Fredric C. Stoffel Manager, Rates and Regulatory Affairs Public Service Company of Colorado Suite 1000 Post Office Box 840 Denver, Colorado 80202 (303) 294-2013/FAX: (303) 294-2194 William M. Dudley, Esq. Associate General Counsel Public Service Company of Colorado Suite 600 Post Office Box 840 Denver, Colorado 80202 (303) 294-2500/FAX: (303) 294-7782 3. SPS currently engages in diversified businesses and activities through its wholly owned corporate subsidiaries Quixx and UE, pursuant to its General Diversification Plan ("GDP") approved by the NMPUC on April 9, 1986 in NMPUC Case No. 1972. 4. M-P New Co., a Delaware corporation, was created to become a holding company for SPS and PSCo and their respective subsidiaries following the merger. After the merger, M-P New Co. will be a public utility holding company registered with the Securities and Exchange Commission ("SEC") under the Public Utility Holding Company Act of 1935 ("PUHCA"), and it will not have any public utility operations. M-P New Co.'s principal executive offices will be located at 1225 Seventeenth Street, Denver, Colorado 80202. DESCRIPTION OF THE MERGER AND REORGANIZATION AND RELATED TRANSACTIONS 5. The Merger Agreement provides for: A. The merger of SPS Merger Corp., a New Mexico corporation and a wholly owned subsidiary of M-P New Co. (which M-P New Co. will create for the sole purpose of facilitating the merger), with and into SPS, and SPS will be the surviving corpo- ration (the "SPS Merger"); B. The merger of PSCo Merger Corp., a Colorado corporation and a wholly owned subsidiary of M-P New Co. (which M-P New Co. will create for the sole purpose of facilitating the merger), with and into PSCo, and PSCo will be the surviving corporation (the "PSCo Merger") (the SPS Merger and PSCo Merger will be collectively referred to as the "merger"); C. The conversion of all issued and outstanding shares of SPS common stock, $1.00 par value per share ("SPS Common Stock"), and PSCo common stock, $5.00 par value per share ("PSCo Common Stock"), into shares of M-P New Co. common stock, $1.00 par value per share (the "M-P Common Stock"); D. The cancellation of all shares of capital stock of M-P New Co. which are issued and outstanding immediately prior to the merger; and E. Upon the consummation of the merger, the cancella- tion of: (i) each share of SPS Common Stock outstanding immedi- ately prior to the merger and the conversion thereof into the right to receive 0.95 of one share of M-P New Co. Common Stock, resulting in the holders of SPS Common Stock becoming holders of M-P New Co. Common Stock; and (ii) each share of PSCo Common Stock outstanding immediately prior to the merger and the conver- sion thereof into a right to receive one share of M-P New Co. Common Stock, resulting in the holders of PSCo Common Stock becoming holders of M-P New Co. Common Stock. 6. As a result of the merger, SPS and PSCo will become wholly owned electric utility operating subsidiaries of M-P New Co., and SPS will continue its corporate existence and will continue to operate as an electric public utility subject to the PUA and the regulatory authority of the NMPUC. SPS will not transfer, or sell any of its public utility system or facilities to M-P New Co. and it will not modify or abandon its service facilities in New Mexico. SPS will, however, divest its owner- ship interests in Quixx and UE and transfer those subsidiaries to M-P New Co. or to another subsidiary of the holding company (i.e., M-P Intermediate Holding Company) ("M-P Intermediate"). 7. Following the merger, M-P New Co. will become a public utility holding company and an affiliated interest of SPS as those terms are defined in Sections 62-3-3(A) and 62-3-3(M) of the PUA. M-P New Co. will be a registered electric utility holding company pursuant to PHUCA, and, accordingly, it will be subject to the regulatory jurisdiction of the SEC. M-P New Co. will not own, operate or control any of SPS's public utility plant, property, or facilities used for the generation, transmis- sion, distribution or sale of electricity for light, heat, power or other uses to or for the public, and M-P New Co. will not in any way act as a public utility in New Mexico or in any other state. REQUESTED APPROVALS AND AUTHORIZATIONS FOR THE MERGERS, REORGANIZATION AND RELATED TRANSACTIONS 8. The Merger Agreement, which is attached as Schedule DRB-3 to the testimony of SPS witness Doyle R. Bunch II, provides the terms and conditions of the merger. As described above, the merger will not change SPS's legal status as a public utility under the PUA, and SPS will continue its corporate existence and will continue to operate as an electric public utility subject to the PUA and the regulatory authority of the NMPUC. In order to effectuate the Merger Agreement and to accomplish the Transac- tions required to implement the merger, SPS requests the Commission to enter its order granting the following approvals and authorizations of: A. The merger between SPS and PSCo pursuant to Sections 62-6-12 and 62-6-13 of the PUA; B. The reorganization of the merged SPS and PSCo and formation of a holding company (i.e., M-P New Co.) as defined in Section 62-3-3(M) of the PUA and pursuant to Section 62-6-19 of the PUA and NMPUC Rule 450; C. The issuance of securities necessary to effectuate and implement SPS's merger, reorganization and formation of a holding company, as defined in Section 62-3-3(K) of the PUA and pursuant to Sections 62-6-6, 62-6-7 and 62-6-19 of the PUA and NMPUC Rule 450; D. SPS's divestiture of Quixx and UE and its transfer of those subsidiaries to M-P New Co. or M-P Intermediate as defined in Section 62-3-3(K)(4) of the PUA and pursuant to Section 62-6-19 of the PUA and NMPUC Rule 450; E. The amendments to SPS's GDP necessary to reflect the GDP modifications that will result from the merger (i.e., the reorganization, formation of holding company, divestiture of SPS's subsidiaries, and the creation of new affiliated interests based on the holding company structure) as defined in Sections 62-3-3(A) of the PUA and pursuant to Section 62-6-19 of the PUA and NMPUC Rule 450; and F. SPS's regulatory plan for sharing merger benefits and savings between SPS's customers and shareholders, pursuant to Sections 62-6-12 and 62-6-13 of the PUA. BENEFITS AND FEATURES OF MERGER AND OTHER TRANSACTIONS 9. The following benefits and features relate to the merger and the Transactions: A. The Merger. The merger and the Transactions related thereto will produce substantial benefits for SPS, its customers, and its shareholders, as well as for New Mexico and the other states in which SPS engages in public utility operations. The merger and the Transactions are lawful and are consistent with the public interest. The merger and Transactions are projected to reduce SPS's and PSCo's future costs of admin- istration and operation and result in net benefits and cost savings of approximately $770 million (i.e., on a nominal basis) over 10 years. The cost savings resulting from the merger will be realized in the areas of corporate operations, labor, corp- orate and administrative programs, purchasing economies (non- fuel), fuel procurement, capacity deferral and joint dispatch, and the projected cost savings will result in lower future costs than would have otherwise been required had the merger not occurred. Accordingly, the benefits of the merger greatly outweigh any detriments, and the merger and the Transactions are consistent with the public interest in accordance with Section 62-6-13 of the PUA. B. Reorganization and Formation of a Holding Company The merger and reorganization of SPS and PSCo into a holding company structure will produce administrative, operational, and financial synergies which will reduce SPS's and PSCo's costs, will result in substantial cost savings and benefits, and will satisfy the requirements of Section 62-6-19 of the PUA and NMPUC Rule 450. Additionally, the merger, reorganization, and form- ation of a holding company will create a combined company that will be operationally and financially stronger than either SPS and PSCo on a stand alone basis, and the Transactions will also promote each company's mission in the developing competitive market place by separating the financial and operational bases of the operating utility company subsidiary businesses and the competitive non-regulated subsidiary businesses. Accordingly, SPS will continue its corporate existence and will continue to operate as an electric public utility. SPS's preferred stock- holders, creditors and holders of its first mortgage bonds at the time of closing will not be affected by the merger and the Transactions. The NMPUC will continue its supervision and regulation of SPS pursuant to Section 62-6-19 of the PUA and NMPUC Rule 450 and will continue to assure that SPS's relation- ship with any affiliated interests, i.e., the holding company and its other subsidiaries, will not have an adverse and material effect on SPS's ability to provide reasonable and proper service at fair, just, and reasonable rates. C. The Issuance of Securities. As previously noted herein, the Merger Agreement contemplates a Plan of Merger among SPS, M-P New Co. and SPS Merger Corp., which provides for the merger of SPS Merger Corp. with and into SPS pursuant to New Mexico laws, and provides that SPS will be the surviving corpora- tion. Each share of SPS Merger Corp. common stock outstanding immediately before the SPS Merger will be converted into one share of SPS Common Stock. As a result, SPS will become a wholly owned subsidiary of M-P New Co. SPS will subsequently issue a new certificate to M-P New Co. evidencing its ownership of all of the issued and outstanding shares of SPS Common Stock. SPS will receive no proceeds from the issuance of the certificate repre- senting the SPS Common Stock to M-P New Co. The issuance of the certificate evidences the ownership by M-P New Co. of all of the issued and outstanding SPS Common Stock by operation of law immediately after the SPS Merger. The proposed securities issuance may be considered a Class II transaction as described in Section 62-3-3(K) of the PUA, and, if so, it (a) satisfies the requirement of Section 62-6-19 of the PUA in that it will not adversely and materially affect SPS's rates or services, and (b) satisfies all other requirements of Section 62-6-7 of the PUA in that it: (i) is consistent with the public interest, (ii) is for purposes that are permitted by the PUA, (iii) does not have any unusual features, and (iv) contemplates that the amount of the proposed securities issuance, plus the aggregate amount of SPS's securities outstanding, will not exceed the fair value of SPS's properties and business. D. The Divestiture of SPS's Subsidiaries. SPS will divest itself of Quixx and UE and transfer those subsidiaries to M-P New Co. or M-P Intermediate. SPS's divestiture of Quixx and UE will satisfy the requirements of NMPUC Rule 450.7(b)(11) in that: (i) the divestiture will not affect SPS's utility opera- tions, financial viability, cost of capital and adequacy of service for a period of ten years following the divestiture, and (ii) SPS will receive a promissory note issued by M-P Intermedi- ate which is in an amount equal to the fair market value of Quixx and UE. The proceeds of the divestiture are more fully described in Section XI of the Amended GDP attached as Application Exhibit "A." E. The Termination Fees. The Merger Agreement requires that certain fees be paid upon termination of the Merger Agreement under certain circumstances. The aggregate termination fees under these provisions may not exceed $60 million (plus out- of-pocket expenses of up to $10 million) and, to the extent legally possible within six months, that portion of such payment which does not constitute reimbursement of out-of-pocket expenses shall be paid in common stock of the paying party. F. Amendments to SPS's GDP. SPS has prepared an Amended GDP, which is attached to this Application as Exhibit A, in accordance with NMPUC Rule 450.7(b). The Amended GDP incorpo- rates the changes in SPS's GDP that will result from the merger and the related reorganization, the formation of M-P New Co., and SPS's divestiture of Quixx and UE. The Amended GDP identifies and describes all of SPS's newly created affiliated interests which will result from the Transactions. G. SPS's Representations in Connection with the Amended GDP. In accordance with NMPUC Rule 450.7(c), SPS repre- sents that: (i) SPS's books and records will be kept separately from those of M-P New Co. and its other subsidiaries: (ii) in accordance with Sections 62-6-17 and 62-6-19 of the PUA, the Commission and its Staff will have access to the books, records, accounts or documents of the holding company and the holding company's other subsidiaries which are affiliated interests of SPS and which participate with SPS in any Class I or II transac- tions: (iii) the NMPUC's supervision and regulation of SPS will not be obstructed, hindered, diminished, impaired or unduly complicated by the merger, reorganization, formation of M-P New Co. or the divestiture of Quixx and UE; (iv) SPS will not pay excessive dividends to M-P New Co. following the merger and related reorganization: (v) SPS will not, without prior Commis- sion approval: (a) loan its funds or securities or transfer similar assets to an affiliated interest: or (b) purchase debt instruments of, or guarantee or assume liabilities of, any affiliated interest: (vi) when requested by the Commission, SPS will have an allocation study (which will not be charged to ratepayers) or a management audit (which also will not be charged to ratepayers) performed by a consulting firm(s) under the Commission's direction; H. Regulatory Plan. SPS seeks approval of the regulatory plan which is fully described in the testimony of SPS witness David T. Hudson. The regulatory plan includes the following components: (i) it is based on a five-year transition period: (ii) SPS's customers and shareholders will share on a 50/50 basis the non-fuel and non-purchased power operation and maintenance expense savings realized during the five-year transition period; (iii) SPS will amortize its share of the costs to complete the merger during the five-year transition period; (iv) fuel cost savings will be realized by customers through the fuel cost recovery mechanism; (v) customers will realize capital and rate base investment savings through the base rate process; (vi) SPS will institute an experimental performance-based ratemaking program which incorporates a rate of return on equity adder as a function of performance; and (vii) SPS will hold its customers harmless from merger-related net cost increases during the five- year transition period. I. The Pooling of Interest Method of Accounting for the Merger. SPS seeks the NMPUC's approval of its use of the pooling of interest method of accounting and the requisite journal entries for accounting entries to reflect the merger and other related transactions. 10. SPS includes and incorporates as if fully set forth herein the direct testimony, which has been concurrently filed with this Application, of the following witnesses: Doyle R. Bunch II (i.e., overview of the transactions contemplated by the Merger Agreement); David T. Hudson (i.e., SPS's operations and resourc- es, resource planning, and regulatory plan); Robert D. Dickerson (i.e., the accounting treatment for the merger and related transactions); James D. Steinhilper (i.e., the financial aspects of the merger and related Transactions and the issuance of securities); Teresa S. Madden (i.e., the creation and functions of M-P Service Company and affiliated accounting); Thomas J. Flaherty (i.e., merger benefits and synergies); Matt P. Harris (i.e., PSCo's electrical operations and the production cost savings); Gerald J. Diller (i.e., the diversification related requests for approval); William C. Weeden (i.e., the implications of the merger in relation to SEC/NMPUC jurisdiction and authori- ty); James K. Mitchell (i.e., the implications of the merger in relation to FERC/NMPUC jurisdiction and authority); and Charles J. Cicchetti (i.e., overview of current restructuring in the electric utility industry and evaluation of SPS/PSCo. merger and proposed organization of the holding company). 11. SPS will serve a copy of the Application and supporting direct testimony on the parties to its last rate case (i.e., NMPUC Case No. 2573), and it will also publish notice of its filing of the Application in accordance with the requirements of the PUA and the NMPUC Rules of Practice and Procedure. SPS's proposed form of Certificate of Service is attached as Applica- tion Exhibit "B" and its proposed form of Notice is attached as Application Exhibit "C". WHEREFORE, SPS respectfully requests that the Commission enter its final order granting the following relief: A. Approving SPS's merger with PSCo and their reorga- nization and formation of a public utility holding company (i.e., M-P New Co.); B. Approving SPS's divestiture and transfer to M-P New Co. of SPS's wholly owned subsidiaries Quixx and UE; C. Authorizing SPS's issuance of common stock certif- icates to M-P New Co. pursuant to the Merger Agreement; D. Approving SPS's Class II transactions associated with the merger, reorganization, formation of a holding company, and divestiture, and SPS's Amended GDP; E. Approving SPS's proposed regulatory plan; and F. Granting such other approvals, authorizations and relief as the Commission deems necessary and appropriate to effectuate the merger and related Transactions. Respectfully submitted, HINKLE, COX, EATON, COFFIELD & HENSLEY, P.L.L.C.,LTD.- CO. ___________________________________ Jeffrey L. Fornaciari Post Office Box 2068 Santa Fe, New Mexico 87504-2068 (505) 982-4554 Attorneys for Southwestern Public Service Company EX-99.6 7 PUCT APPLICATION DOCKET NO. ______________ APPLICATION OF SOUTHWESTERN ) PUBLIC SERVICE COMPANY REGARDING ) PUBLIC UTILITY COMMISSION PROPOSED BUSINESS COMBINATION ) WITH PUBLIC SERVICE COMPANY ) OF TEXAS OF COLORADO ) APPLICATION of SOUTHWESTERN PUBLIC SERVICE COMAPNY November 9, 1995 DOCKET NO. ______________ APPLICATION OF SOUTHWESTERN ) PUBLIC SERVICE COMPANY REGARDING ) PUBLIC UTILITY COMMISSION PROPOSED BUSINESS COMBINATION ) WITH PUBLIC SERVICE COMPANY ) OF TEXAS OF COLORADO ) APPLICATION OF SOUTHWESTERN PUBLIC SERVICE COMPANY REGARDING PROPOSED BUSINESS COMBINATION WITH PUBLIC SERVICE COMPANY OF COLORADO SOUTHWESTERN PUBLIC SERVICE COMPANY ("SPS") files this Application pursuant to Section 1.251 of the Texas Public Utility Regulatory Act of 1995 ("PURA"). SPS proposes to combine with PUBLIC SERVICE COMPANY OF COLORADO ("PSCo") whereby both utilities will become wholly-owned subsidiaries of M-P New Co. This Application seeks (1) a determination by the Public Utility Commission of Texas ("PUCT") that the proposed transaction is consistent with the public interest, and (2) approval of the proposed regulatory plan. In support of its Application, SPS shows the following: JURISDICTION. SPS is a public utility under Sections 1.004 and 2.0011(1) of PURA. The PUCT has jurisdiction over this matter pursuant to Sections 1.101, 1.251, and 2.201 of PURA. I. PARTIES AFFECTED. SPS and its customers are the only parties who will be affected by granting the requested relief. II. IDENTITY OF PARTIES TO THE TRANSACTION. A. SPS SPS is a public utility incorporated in New Mexico. Its principal business is the generation, transmission, distribution, and sale of electricity. SPS serves approximately one million people in a 52,000-square-mile area encompassing eastern and southeastern New Mexico, the south plains and Panhandle of Texas, the Oklahoma Panhandle, and southwestern Kansas. SPS also makes wholesale sales of electricity. SPS has two wholly owned subsidiaries: Utility Engineering Corporation ("UEC") and Quixx Corporation ("QUIXX"). UEC provides engineering services and construction management to utilities and a variety of other industries. Quixx invests in non-utility power generation projects and other non-regulated businesses that are consistent with SPS s experience and expertise. These subsidiaries represent approximately 5 percent of the consolidated total assets of SPS. At the end of fiscal 1995, SPS and its subsidiaries owned total property, plant, and equipment assets of $1.6 billion, had total revenues of $889 million, and a consolidated net income of $119 million. QUIXX and UEC accounted for approximately $55 million of these total revenues, which are reflected in other income and deductions on SPS's income statement. Also at that time, SPS had 2,022 employees in its utilities operations with 187 additional employees in its subsidiary operations. SPS maintains its corporate headquarters in Amarillo, Texas, with division offices in Roswell, New Mexico, and Amarillo and Lubbock, Texas. SPS is regulated by the municipalities it serves in Texas, the PUCT, the New Mexico Public Utility Commission ("MPUC"), and the Corporation Commissions of Oklahoma and Kansas for its electric facilities, rates, accounts, services, and issuance of securities. It is also regulated by the Federal Energy Regulatory Commission ("FERC") for wholesale electric sales and transmission services. For purposes of this proceeding, SPS's representatives are as follows: Gerald J. Diller Vice President, Rates and Regulation David T. Hudson Manager of Rate and Economic Research Tyler at 6th, Suite 2002 Amarillo, Texas 79101 (806) 378-2822; FAX (806) 378-2820 Jerry Shackelford, Esq. Hinkle, Cox, Eaton, Coffield & Hensley, P.L.L.C. P.O. Box 9238 1700 Bank One Center Amarillo, Texas 79105-9238 (806) 372-5569; FAX (806) 372-9761 B. PSCo PSCo is an operating utility incorporated in Colorado. Its principal business is the generation, purchase, transmission, distribution, and sale of electricity, and the purchase, transmission, distribution, sale, and transportation of natural gas. PSCo provides electricity, gas, or both in an area having an estimated population of 2.8 million, of whom approximately 2.1 million are in the Denver metropolitan area. PSCo's operations are wholly in Colorado. PSCo owns all of the capital stock of Cheyenne Light, Fuel and Power Company ("Cheyenne"), an electric and gas utility operating principally in Cheyenne, Wyoming. Cheyenne's assets make up approximately 1.4 percent of the consolidated assets of PSCo. Cheyenne has approximately 33,000 electric customers and 26,000 gas customers. PSCo also owns a number of non-utility subsidiaries which represent approximately 6.9 percent of the consolidated assets of PSCo, including e prime, inc., created in January 1995 to offer energy related products and services to energy-using customers and to selected segments of the utility industry. A list of the subsidiaries of SPS and PSCo is attached as Schedule DRB-1 to Doyle Bunch's direct testimony. At the end of 1994, PSCo and its subsidiaries owned property, plant, and equipment assets totalling $3.3 billion. Total revenues were $2.1 billion from electric, gas, and other operations with a net income of $170 million. Also at that time, PSCo and its subsidiaries employed 5,160 persons, of whom approximately 370 were transferred to an outside company in February 1995 as part of an agreement to out-source the company's information technology systems and network infrastructure. PSCo maintains its corporate offices in Denver, Colorado. PSCo is regulated by the Colorado Public Utility Commission ("CPUC") for its facilities, rates, accounts, services, and issuance of securities. It is also regulated by the FERC for its wholesale electric operations and the transportation of natural gas in interstate commerce. PSCo is also subject to regulation by the Nuclear Regulatory Commission for decommissioning its Fort St. Vrain Nuclear Electric Generating Station, which PSCo is now in the process of converting to a 471 MW gas-fueled combined-cycle facility. Additionally, Cheyenne, is regulated by the Wyoming Public Service Commission ("WPSC"). C. M-P New Co. M-P New Co. is a Delaware corporation which was created to become a holding company for SPS, PSCo, and their respective subsidiaries following the business combination. After the business combination is completed, M-P New Co. will operate as a public utility holding company registered under the Public Utility Holding Company Act of 1935 ("PUHCA"). Prior to that, M- P New Co. will have no operations except for activities related to completing the business combination. The principal executive offices of M-P New Co. are located at 1225 Seventeenth Street, Denver, Colorado 80202. III. APPLICABLE SECTION OF PURA. SPS files this Application in accordance with Section 1.251 of PURA. This section provides in part: Sec. 1.251. REPORT OF SALE, MERGER, ETC.; INVESTIGATION, DISALLOWANCE OF TRANSACTION. (b) All transactions involving the sale of 50 percent or more of the stock of a public utility shall also be reported to the commission within a reasonable time. On the filing of report with the commission, the commission shall investigate the same with or without public hearing to determine whether the action is consistent with the public interest. In reaching its determination, the commission shall take into consideration the reasonable value of the property, facilities, or securities to be acquired, disposed of, merged, transferred, or consolidated and whether such a transaction will adversely affect the health or safety of customers or employees, result in the transfer of jobs of Texas citizens to workers domiciled outside the State of Texas, or result in the decline of service, that the public utility will receive consideration equal to the reasonable value of the assets when it sells, leases, or transfers assets, and that the transaction is consistent with the public interest. As a public utility regulated by the PUCT, SPS is required by Section 1.251(b) to report its plan to combine with another public utility or to sell 50 percent or more of its stock. The proposed business combination of SPS and PSCo includes transactions covered by PURA Section 1.251(b). SPS requests that the PUCT determine that the combination is consistent with the public interest. Also, SPS has completed the form promulgated by the PUCT, which is required whenever a utility is involved in a sale, transfer, or merger. This form is attached as Application Schedule-1. If the business combination is approved consistent with the agreement between the companies, SPS will continue to operate as a public utility in Texas and remain under the regulatory authority of the PUCT. However, it will do so as a subsidiary of the registered public utility holding company, temporarily named M-P New Co., subject to the jurisdiction of the Securities and Exchange Commission ("SEC") under the PUHCA. Thus, following the business combination, SPS will continue to be a public utility under PURA Section 2.0011(1). IV. THE PROPOSED BUSINESS COMBINATION. On August 22, 1995, SPS and PSCo entered into an Agreement and Plan of Reorganization ("Agreement") to engage in a business combination as peer firms in a "merger of equals." This Agreement presents the representations and warranties of the two companies, the structure of the combination, and the required conditions precedent to closing. The Agreement is attached as Schedule DRB-2 to Doyle Bunch's direct testimony. Pursuant to the Agreement, SPS and PSCo have formed a Delaware corporation, temporarily named M-P New Co., that upon consummation of the combination will serve as a publicly traded holding company registered under the PUHCA. The Articles of Incorporation of M-P New Co. are attached as Schedule DRB-3 to Doyle Bunch's direct testimony. Upon receipt of all regulatory and stockholder approvals, M-P New Co. will form two wholly owned subsidiaries, one a New Mexico corporation ("SPS Merger Corp.") and the other a Colorado corporation ("PSCo Merger Corp."). SPS Merger Corp. and PSCo Merger Corp. will simultaneously merge with and into SPS and PSCo, respectively. SPS and PSCo will survive the mergers as wholly owned separate operating utility subsidiaries of M-P New Co. Cheyenne and WestGas Interstate, currently subsidiaries of PSCo, will also become separate utility subsidiaries of M-P New Co. Additionally, two more subsidiaries will be created. A service company subsidiary will be organized to provide services to the subsidiaries of M-P New Co. Also, a subsidiary will be formed to hold the shares of most of the existing non-utility subsidiaries of PSCo and SPS. Some subsidiaries of PSCo will be retained under PSCo because their primary purpose is tied to PSCo, and also to take into account certain tax considerations. An organizational chart of M-P New Co. is attached as Schedule DRB-4 to Doyle Bunch's direct testimony. A Board of Directors will be elected for M-P New Co., which will be made up of 14 directors, 8 to be designated by PSCo and 6 by SPS. Mr. Bill D. Helton, currently Chairman of the Board and Chief Executive Officer of SPS, will become Chairman of the Board and Chief Executive Officer of the holding company. Mr. Wayne H. Brunetti, currently President and Chief Operating Officer of PSCo, will become President, Chief Operating Officer, and Vice Chairman of the Board of Directors of the holding company. The corporate offices of the holding company and PSCo will be maintained in Denver, Colorado, with SPS's corporate offices remaining in Amarillo, Texas. The testimony of witnesses filed in support of this Application at times refers to the proposed business combination as the "merger of SPS and PSCo." The term "merger" is used for the sake of convenience, and not as a technical legal description of the business combination. As explained above and in the supporting testimony, SPS and PSCo will not merge into one another, but will reorganize as wholly owned subsidiaries of a registered public utility holding company. V. SHAREHOLDER APPROVALS. A joint proxy statement and prospectus will be provided to all shareholders of SPS and PSCo explaining the proposed business combination and announcing a meeting of shareholders to be held on January 31, 1996. The purpose of the proxy statement and prospectus is to solicit the vote of shareholders to approve the business combination, which is recommended by both SPS's and PSCo's Boards of Directors. For SPS, approval of the business combination requires an affirmative vote by two-thirds of all holders of common and preferred stock, each voting as a separate class. For PSCo, approval of the business combination by shareholders requires an affirmative vote by two-thirds of all eligible holders of PSCo common and preferred stock voting together as a single class. VI. REGULATORY APPROVAL NEEDED. At the state level, SPS needs regulatory approval in Texas, New Mexico, and Kansas. The PUCT must find that the business combination is consistent with the public interest. The NMPUC must find that the business combination is not contrary to the public interest. These authorities must also give satisfactory approval of the regulatory plans proposed by SPS. Additionally, the Kansas Corporation Commission must authorize the issuance of common stock by SPS to M-P New Co. PSCo needs state regulatory approval in Colorado and Wyoming. The CPUC must find that the business combination is not contrary to the public interest. The CPUC must also give satisfactory approval to the Colorado regulatory plan proposed by PSCo. The WPSC, which has jurisdiction over PSCo's subsidiary, Cheyenne, must approve the reorganization of Cheyenne. At the federal level, approval to combine facilities is required by the FERC for both SPS and PSCo. SPS and PSCo must file information with the Federal Trade Commission and the Department of Justice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Nuclear Regulatory Commission approval may be required for PSCo to transfer the license for its on-site fuel storage facility at the Fort St. Vrain Nuclear Electric Generating Station from its current ownership to PSCo as a subsidiary of the holding company. Also at the federal level, M-P New Co. must register its securities to be issued to the existing shareholders of SPS and PSCo with the SEC. After the business combination, M-P New Co. must also register with the SEC as a holding company under the PUHCA. VII. BENEFITS OF THE BUSINESS COMBINATION. SPS believes that the business combination with PSCo will provide opportunities to achieve benefits for shareholders and customers that would not be available if the two companies remain as separate enterprises. SPS and PSCo have estimated a potential net savings of $770 million to be achieved over a ten-year period as the result of the business combination. The savings are expected to be derived through labor reductions, reduced operation and maintenance costs, reductions in corporate and administrative programs, reduced fuel cost and non-fuel purchases, economies of scale, deferral of future electric generating capacity, and joint dispatch opportunities. The construction of a tie line between the existing transmission systems of the two utilities will be necessary to accomplish some of these synergies. The estimated cost of the tie line has been deducted from the savings figure cited above. Benefits that SPS and PSCo expect to realize from the business combination include: Competitive Rates and Services - SPS's customers will enjoy rates lower than they would have been otherwise and better service over the long term because of this business combination. SPS and PSCo will be able to meet the challenges of the increasingly competitive environment in the utility industry more effectively than either standing alone. Increased Size and Stability - As a larger entity, SPS's shareholders and customers will benefit over the long term from the combined entities' greater financial strength and financial flexibility. SPS will be better able to take advantage of future strategic opportunities and to reduce exposure to economic changes in any segment of its business. Diversification of Service Territory - The combined service territories of SPS and PSCo will be larger and more geographically diverse than the independent service territories of either entity, reducing exposure to changes in economic, competitive, or climatic conditions in any given sector of the combined service territory. In addition, the more rapid economic growth currently experienced in the PSCo service territory provides opportunities to take advantage of low-cost generating options. More Economical Use of Generation Capacity - PSCo and SPS expect to add generation capacity in the next decade. Construction of a transmission line linking SPS and PSCo territories will permit joint operation with a resulting lower generation capacity requirement. This will allow SPS and PSCo to defer capital expenditures to construct additional generation capacity and to dispatch generation assets more economically. Purchasing Savings - The larger entities will have improved bargaining position in the purchase of fuel, supplies, equipment, and material, thus lowering costs. Complementary Diversification Programs - SPS and PSCo each have complementary, non- regulated subsidiary businesses. As a stronger financial entity, M-P New Co. will be able to manage and pursue these subsidiary businesses more efficiently and effectively through access to lower-cost capital and efficiencies achievable through greater size. Complementary Operational Functions - The combination of SPS, a low-cost power producer with recognized expertise in engineering services, wholesale power marketing, and non- utility generation products, and PSCo, with expertise in customer-service applications, energy services, and natural gas utility operations, will allow SPS to offer its customers a more complete menu of service options and a better operational balance. Complementary Management - The managements of SPS and PSCo have complementary strengths which provide a strong, capable management team. In addition, the companies have comparable corporate cultures committed to providing quality service and a future vision for customer expectations which will allow the efficient integration of the corporations and least cost planning. The business combination will maximize the potential for utilizing the strengths of SPS and PSCo. Reduced Administrative Costs - It is anticipated that by combining staff functions there will be fewer employees than the current total at PSCo and SPS. To the extent possible, these work-force reductions will be accomplished through hiring freezes, normal attrition, and early retirement programs. In addition, savings in areas such as insurance, legal, audit, and consulting fees will be realized. VIII. EFFECTS ON CUSTOMERS, EMPLOYEES, AND QUALITY OF SERVICE. Customers will benefit from the reduced costs of capital resulting from the financially stronger company. Strong credit quality and diminished needs for external financing will reduce capital costs. Additionally, efficiencies will be created as a direct result of the business combination and from the combined expertise of the two companies. The efficiencies will produce cost reductions that will allow SPS to achieve lower rates than otherwise would have been possible in the long term, thus making SPS more competitive. Improved and expanded services will also be more readily available for our existing customers and for the new customers SPS hopes to attract. Also, customers will benefit from the common utilization of assets, deferred capital expenditures, and improved utilization of available generation. Finally, SPS is agreeing to hold its customers harmless from net cost increases resulting from the business combination over the five-year transition period. A broad range of opportunities will be created for SPS's employees, both immediately and over the long term. A larger corporation will create access to future job openings in each subsidiary. A financially stronger company will create access to future job openings as new business opportunities are pursued. The effectiveness of the combined companies and the ability to compete in the increasingly competitive electric industry will translate into greater opportunities and rewarding challenges for SPS's employees. In the short term, SPS's employee reductions will create the efficiencies necessary to make SPS more competitive. To the extent possible, these reductions will be achieved through a hiring freeze, normal attrition, and voluntary early retirement programs. The total reduction in employees at SPS and PSCo is targeted at approximately 550-600. Some employees may be relocated as a result of consolidating staff functions in Denver and in Amarillo. The movement of employees between these locations will be kept to a minimum. However, needed operations, maintenance, and service employees will continue to be maintained at each of the operating companies. SPS consistently ranks as one of the least-cost providers of electric service in the nation. Additionally, SPS's customers enjoy a high quality of service. SPS is dedicated to continuing its practice of providing inexpensive, high-quality service. The business combination will not result in a decline in the overall quality of service to SPS's customers. Additionally, SPS has a very good record for customer and employee health and safety. After the business combination, SPS intends to maintain its policy of providing its employees a safe place to work and its customers the best, safest electric service possible. IX. EFFECT ON STAKEHOLDERS. Overall, SPS's stakeholders: its customers, employees, regulators, communities, and investors, will benefit from this business combination. The benefits listed above will translate into a better company. A larger, stronger company will provide stability and flexibility to give market-staying power with competitive prices. SPS and PSCo are committed to achieving all the benefits listed previously. SPS's dedication in the past to its customers, investors, employees, and communities will only be strengthened by the business combination with PSCo. X. PROPOSED REGULATORY PLAN. The Agreement between SPS and PSCo to combine their operations is conditioned upon receiving regulatory approval from the PUCT as well as from all other regulatory authorities with jurisdiction over this transaction. The business combination will achieve savings that will benefit SPS's customers. Because a transaction of this significance cannot be undertaken if doubt exists about whether it will ultimately receive regulatory authorization, this Application seeks prior regulatory approval of the terms and conditions of the transaction that SPS and PSCo have agreed upon. SPS has developed a regulatory plan, in which it proposes the following: (1) a five-year transition period for the business combination; (2) a 50-50 sharing between SPS and its customers of the non-fuel and non-purchased power operation and maintenance expense savings over the five-year transition period; (3) amortization of SPS's cost to complete the business combination over the five-year transition period; (4) an experimental performance-based ratemaking plan which incorporates a return-on-equity adder as a function of performance; and (5) SPS's customers held harmless from net cost increases resulting from the business combination during the five-year transition period. After the five-year transition period, customers will receive the full operation and maintenance expense savings resulting from the business combination through the traditional ratemaking process. XI. NOTICE. The proposed combination of SPS and PSCo has received widespread publicity in SPS's service area. Nonetheless, SPS believes that publication of notice regarding this proceeding is appropriate. SPS proposes to publish notice once a week for four consecutive weeks in a newspaper of general circulation in each county in SPS's Texas service area. Additionally, SPS will provide direct notice to its Texas customers by bill inserts. The form of notice which SPS proposes is attached as Application Schedule-2. XII. REQUEST FOR PROTECTIVE ORDER. SPS anticipates that it may need to furnish, either in workpapers or in responses to Requests for Information, highly sensitive and confidential information, the disclosure of which to third parties would either place SPS, PSCo, or both at a severe competitive disadvantage or cause SPS or PSCo to violate contractual confidentiality obligations. SPS has provided a proposed Protective Order, attached as Application Schedule-3. The proposed Protective Order is similar to the order entered in Docket No. 14499. SPS requests that the Presiding Officer enter a protective order in this docket that reflects the same terms as set forth in Application Schedule-3. XIII. REQUESTED PUCT ACTION. SPS seeks the PUCT's determination that the proposed combination of SPS and PSCo is consistent with the public interest. SPS also requests the PUCT's approval of the proposed regulatory plan and determination that it is just and reasonable. Because of the benefits this transaction will produce for its customers and shareholders, SPS requests that the PUCT issue a final and appealable order containing the requested determinations no later than September 4, 1996. WHEREAS, PREMISES CONSIDERED, SPS requests that the PUCT review this Application for the proposed combination of SPS and PSCo and determine that this transaction is consistent with the public interest, that the regulatory plan proposed by SPS is just and reasonable, and that the PUCT undertake its investigation of the proposed transaction expeditiously and make its final determinations no later than September 4, 1996, so that the proposed transaction can be consummated and the benefits of the savings resulting from SPS's combination with PSCo can be implemented as soon as possible. Respectfully submitted, HINKLE, COX, EATON, COFFIELD & HENSLEY, P.L.L.C. By: Jerry F. Shackelford Texas Bar No. 18070000 Steven D. Arnold Texas Bar No. 01345480 Bradley G. Bishop Texas Bar No. 00790308 1700 Bank One Center (zip 79101) P.O. Box 9238 Amarillo, Texas 79105-9238 (806) 372-5569 FAX (806) 372-9761 ATTORNEYS FOR SOUTHWESTERN PUBLIC SERVICE COMPANY APPLICATION SCHEDULE-1 to APPLICATION OF SOUTHWESTERN PUBLIC SERVICE COMPANY REGARDING PROPOSED BUSINESS COMBINATION WITH PUBLIC SERVICE COMPANY OF COLORADO COMMISSION-PROMULGATED APPLICATION FOR SALE, TRANSFER, OR MERGER PUBLIC UTILITY COMMISSION OF TEXAS (Commission Use Only) 7800 Shoal Creek Blvd., Suite 450N Docket No. __________ Austin, Texas 78757 File No.____________ (512) 458-0100 APPLICATION FOR SALE, TRANSFER, OR MERGER This Form should be used by public utilities for: 1) seeking authority to sell, assign, or lease a Certificate of Convenience and Necessity or any rights obtained under a certificate; 2) reporting the sale, acquisition, lease, or rental by or to any public utility of any plant as an operating system or unit for a total consideration in excess of $100,000; 3) reporting the merger or consolidation of two or more public utilities; and 4) reporting the purchase by one public utility of voting stock in another public utility. See Sections 2.261, 1.251, and 1.252 of the Public Utility Regulatory Act of 1995, S.B. 319, and 373, 74th Leg., R.S. 1995. 1. Subject of report: _____ Sale, transfer, or lease of an entire Certificate of Convenience and Necessity _____ Sale, transfer, or lease of a portion of Applicant's service area or facilities to which it is certificated (including certificate rights) _____ Sale, transfer, or lease of a utility plant as an operating system or unit for more than $100,000 (including certificate rights) X Merger or consolidation of public utilities [PURA Section 1.251(b)] Although many of the questions are not applicable to this transaction, this form is completed to the extent possible. _____ Purchase by a public utility of voting stock in another public utility List all counties in which the utility's service area will be affected by this transaction: Not applicable. 2. Applicant: Southwestern Public Service Company ("SPS"). Mark one: X Applicant holds Certificate of Convenience and Necessity No. 30153. _____ Applicant does not hold a certificate from the Public Utility Commission. The Applicant is the: _____ Seller (transferor or lessor) _____ Purchaser (transferee or lessee) X One of the merging or consolidating utilities _____ Other (please explain) _______________________________________________ _________________________________________________________________ Business Address Business Telephone 6th & Tyler Streets, P.O. Box 1261 (806) 378-2121 (Street Address must be entered here; (Area Code-Number) P.O. Box may also be entered) Amarillo Potter Texas 79170 (City) (County) (State & Zip Code) 3. Applicant is a(n) New Mexico corporation (Individual, Partnership, Corporation, Cooperative, Corporation, Water Supply Corporation, Political Subdivision, Municipally Owned Utility) 4. If applicable, list the names, addresses, and offices of all partners or all officers of Applicant. Officers: Bill D. Helton, Chairman of the Board and Chief Executive Officer David M. Wilks, President and Chief Operating Officer Doyle R. Bunch, II, Executive Vice President, Accounting and Corporate Development Kenneth L. Ladd, Jr., Senior Vice President John L. Anderson, Vice President, Personnel Robert D. Dickerson, Secretary and Treasurer Gerald J. Diller, Vice President, Rates and Regulation Gary L. Gibson, Vice President, Marketing Henry M. Hamilton, Vice President, Production Carl E. Jeans, Vice President, Management Systems John McAfee, Vice President, Engineering and Operations Mary Pullum, Assistant Secretary The address for each of the officers is 6th and Tyler Streets, P.O. Box 1261, Amarillo, TX 79170. 5. If applicable, list names, addresses, and positions of Applicant's five largest shareholders. SPS's Five Largest Shareholders: (1) Cede & Co. 7 Hanover Street Bowling Green Station New York, New York 10005-2808 (2) Steak & Co. c/o Boatmen's First National Bank of Amarillo ATTN: Trust Department Box 1331 Amarillo, Texas 79180-0001 (3) Palo & Co. First National Bank of Amarillo ATTN: Trust Department P.O. Box 500409 St. Louis, Missouri 63150-0409 (4) Ameritrust - Company Agent for Dividend Reinvestment Plan Participants P.O. Box 6477 Cleveland, Ohio 44101-1477 (5) Kray & Co. One Financial Place 440 South LaSalle Street Chicago, Illinois 60605-1000 6. Applicant designates the following person to be contacted with respect to any question regarding filing: Gerald J. Diller Vice President, Rates and Regulations David T. Hudson Manager of Rate and Economic Research Southwestern Public Service Company 600 S. Tyler, Suite 2002 Amarillo, Texas 79101 (806) 378-2822; FAX (806) 378-2820 7. If Applicant is represented by an attorney: Jerry F. Shackelford Hinkle, Cox, Eaton, Coffield & Hensley 1700 Bank One Center P.O. Box 9238 Amarillo, Texas 79105-9238 (806) 372-5569; FAX (806) 372-9761 8. Does Applicant presently have a tariff on file with the Commission? X Yes. If Yes, date of filing: September 23, 1993 _____ No. If No, attach a written schedule of present rates and services. (Use forms or format required by Commission's Tariff Clerk.) 9. Please indicate the proposed effect of this transaction on rates to be charged affected customers: X All customers will be charged the same rates as they were charged before the transaction. See additional explanation below. _____ (Some) (all) customers will be charged different rates than they were charged before the transaction. If so, please explain. _______________________________________________________ _______________________________________________________ _____ Applicant intends to file with the Commission an application to change rates of (some) (all) of its customers as a result of this transaction. If so, please explain:__________________________________________ __________________________________________________ _____ Other. Please explain. The rates that SPS's customers are charged will not increase as a result of this business combination. To the contrary, the savings created by the business combination of SPS and Public Service Company of Colorado will ultimately result in rates for SPS's customers that will be lower than they would have been without the business combination. Furthermore, the regulatory plan SPS is asking this Commission to approve includes a commitment by SPS to hold its customers harmless from net cost increases as a result of the business combination over a five-year transition period following the business combination. 10. Other party to this transaction: Public Service Company of Colorado ("PSCo") 1225 17th Street Denver, Colorado 80202 (303) 294-8989 _____ The other party holds Certificate of Convenience and Necessity No. _______. X The other party does not hold a Certificate of Convenience and Necessity. The other party is the: _____ Seller (transferor or lessor) _____ Purchaser (transferee or lessee) X One of the merging or consolidating utilities _____ Other (please explain)__________________________________________ _________________________________________________ Business Address Business Telephone 1225 17th Street (303) 294-8989 (Street Address must be entered here; (Area Code-Number) P.O. Box may also be entered) Denver Denver Colorado 80202 (City) (County) (State & Zip Code) If there are more than two parties to this transaction, please attach sheets providing the information required in Questions No. 9 through 16 for each party. 11. Other party is a(n) Colorado corporation (Individual, Partnership, Corporation, Cooperative, Corporation, Water Supply Corporation, Political Subdivision, Municipally Owned Utility) 12. If applicable, list the names, addresses, and offices of all partners or all officers of other party. Officers D. D. Hock Chairman of the Board and Chief Executive Officer Wayne E. Brunetti President and Chief Operating Officer Richard C. Kelly Senior Vice President of Finance, Treasurer, and Chief Financial Officer Patricia T. Smith Senior Vice President and General Counsel W. Wayne Brown Controller and Secretary A. Clegg Crawford Vice President, Engineering and Operations Support Ross C. King Vice President, Gas and Electric Distribution Earl E. McLaughlin, Jr. Vice President, Retail Energy Services Ralph Sargent, III Vice President, Production and Systems Operations Marilyn E. Taylor Vice President, Human Resources The address for each of the officers is 1225 17th Street, Denver, Colorado 80202, (303) 294-8989 13. If applicable, list names, addresses and positions of other party's five largest shareholders. PSCo's Five Largest Shareholders: (1) CEDE & Co. c/o Depository Trust Co. P.O. Box 20 Bowling Green Station New York, New York 10276 (2) Stanley & Co. c/o Public Service Company of Colorado P.O. Box 860 Denver, Colorado 80201 (3) Dentru & Co. Norwest Bank 1700 Broadway Denver, Colorado 80274 (4) Kray & Co. One Financial Plaza 440 S. Leslie Chicago, Illinois 60605 (5) Philadep & Co. 1900 Market Street, 2nd Floor Philadelphia, Pennsylvania 19103 14. The other party designates the following person to be contacted with respect to any question regarding filing: Fredric C. Stofel Manager, Rates and Regulatory Affairs Public Service Company of Colorado 1225 17th Street Denver, Colorado 80202 (303) 294-2013 15. If the other party has retained an engineer: Not applicable. The PUCT should be informed of any change of engineer prior to the completion of a project in progress. 16. If the other party is represented by an attorney: William M. Dudley Associate General Counsel Public Service Company of Colorado Suite 600 P.O. Box 840 Denver, Colorado 80201-0840 (303) 294-2500 17. List all neighboring utilities, cities, political subdivisions, or other parties directly affected by this application. (Use separate sheet if needed). Not applicable. Applicant represents to the Public Utility Commission that each of the above parties and all other parties to this transaction were notified of the nature of this application and its filing with the Commission, and that each of the above parties by that notification has an opportunity to protest the application (See page 9). Other parties to this transaction have been furnished copies of this application. 18. Please describe the nature of the transaction. Indicate if it involves the transfer of certificated facilities and/or service area. The proposed transaction is the business combination of SPS and PSCo. On August 22, 1995, SPS and PSCo entered into an Agreement and Plan of Reorganization ("Agreement") to engage in a business combination as peer firms in a merger of equals. This Agreement presents the representations and warranties of the two companies, the structure of the business combination and the required conditions precedent to closing. The Agreement is attached as Schedule DRB-2 to Doyle Bunch's direct testimony. Pursuant to the Agreement, SPS and PSCo have formed a Delaware corporation, temporarily named M-P New Co., that upon consummation of the reorganization will serve as a publicly traded holding company under the Public Utility Holding Company Act of 1935. The Articles of Incorporation of M-P New Co. are attached as Schedule DRB-3 to Doyle Bunch's direct testimony. Upon receipt of all regulatory and stockholder approvals, M-P New Co. will form two wholly owned subsidiaries, one a New Mexico corporation ("SPS Merger Corp.") and the other a Colorado corporation ("PSCo Merger Corp."). SPS Merger Corp. and PSCo Merger Corp. will simultaneously merge with and into SPS and PSCo, respectively. SPS and PSCo will survive the mergers as wholly owned separate operating utility subsidiaries of M-P New Co. Cheyenne Light, Fuel and Power Company and WestGas Interstate, currently subsidiaries of PSCo, will also become separate utility subsidiaries of M-P New Co. Additionally, two more subsidiaries will be created. A service company subsidiary will be organized to provide services to the subsidiaries of M-P New Co. Also, a subsidiary will be formed to hold the shares of most of the existing non-utility subsidiaries of PSCo and SPS. An organizational chart of M-P New Co. is attached as Schedule DRB-4 to Doyle Bunch's direct testimony. A Board of Directors will be elected for M-P New Co., which will be made up of 14 directors, 8 to be designated by PSCo and 6 by SPS. Mr. Bill D. Helton, currently Chairman of the Board and Chief Executive Officer of SPS, will become Chairman of the Board and Chief Executive Officer of the holding company. Mr. Wayne H. Brunetti, currently President and Chief Operating Officer of PSCo, will become President, Chief Operating Officer, and Vice Chairman of the Board of Directors of the holding company. The corporate offices of the holding company and PSCo will be maintained in Denver, Colorado, with SPS's corporate offices remaining in Amarillo, Texas. This transaction does not involve the transfer of certificated facilities and/or service areas. 19. If the transaction involves the transfer of certificated facilities and/or service area, please describe the qualifications of the purchaser (or transferee) to provide adequate utility service. Not applicable. 20. State the purchase price $ Not applicable and/or the other consideration for the transaction: Neither SPS nor PSCo is "purchasing" the other. This business combination is a "merger of equals." The common stockholders of SPS and PSCo will exchange their shares for common stock in M-P New Co., the newly formed holding company. The rate of exchange for common stock is as follows: each share of PSCo's stock will be converted to a right to receive one share of M-P New Co. stock. Each share of SPS's stock will be converted to a right to receive 95 percent of one share of M-P New Co. stock. This conversion ratio was negotiated between SPS and PSCo and approved by their respective directors. 21. If applicable, state the original cost of plant to be sold or merged, as recorded on books of Seller (or merging companies): Not applicable. As explained in No. 20, this transaction does not involve the purchase of assets; it entails the exchange of SPS's current stock for stock in M-P New Co., the newly formed holding company. The cost of electric plant as shown on SPS's books will not be changed as a result of the transaction. 22. If applicable, state the amount of accumulated depreciation and the date of acquisition: Not applicable. See response to No. 21. 23. If applicable, state the amount recorded as plant acquisition adjustment on books of selling company(ies): $____________________________________________________ Not applicable. SPS does not contemplate recording an acquisition adjustment as a result of this business combination. 24. Complete the following proposed entries in books of purchasing (or surviving) company to record purchase (or merger): Utility plant in service ___________________________________________ Plant acquisition adjustment ___________________________________________ Extraordinary loss on purchase______________ _____________________________________________ Accumulated depreciation plant ___________________________________________ Cash ___________________________________________ Notes payable ___________________________________________ Mortgage payable ___________________________________________ Other list ___________________________________________ (Additional entries may be made - the above are suggested only and are not intended to pose descriptive limitations) Not applicable. See testimony of Robert D. Dickerson. 25. If utility plant in service is traded for utility plant in service, give details of original cost - accumulated depreciation, and reasons for or justification of the trade: Not applicable. See testimony of Robert D. Dickerson. 26. Provide analysis of tax consequences in transaction and recognition given in books of parties concerned: The business combination is structured to qualify as a tax-free exchange as described in Section 351 of the Internal Revenue Code. Assuming the business combination qualifies, no gain or loss will be recognized by SPS or PSCo as a result of this business combination. 27. Describe type of plant facilities, and number of connections affected by this application. No plant facilities or connections in SPS's Texas service territory will be affected by this transaction. See response to No. 18. 28. Describe the location of plant facilities involved in this application with respect to streets, highways, cities, known landmarks, water courses, coordinates of transmitter sites, etc.: Not applicable. See response to No. 27. 29. Regarding the utility being sold, provide details of the following: a. Planned or needed capital improvements; b. Estimated cost of such improvements; c. Whether required to make such improvements by a federal or state agency; d. Any time limits imposed for such improvements. Not applicable. 30. Please describe anticipated impact of this transaction on the quality of utility service. Please explain anticipated changes in quality of service. The high quality of service enjoyed by SPS's customers will continue, if not improve, as a result of this business combination. The business combination is expected to produce a financially stronger, more competitive company. As a result, the only anticipated change would be an enhancement of SPS's quality of service. 31. If a merger or combination is sought by this application, please provide the following: a. A balance sheet for each entity; b. An income statement for each entity; c. Articles of Incorporation of a newly created entity; d. A preliminary prospectus if stock of a newly created entity is to be publicly held. ____________________ Note: Applicant is advised that under present Commission policy total recovery of plant acquisition adjustment in subsequent rate proceedings is not assured, but is dependent upon certain factors in a rate case. a. The balance sheets for each entity are attached as Schedule RDD-1 to Robert D. Dickerson's direct testimony. b. The income statements for each entity are attached as Schedule RDD-1 to Robert D. Dickerson's direct testimony. c. The Articles of Incorporation of M-P New Co. is attached as Schedule DRB-3 to Doyle Bunch's direct testimony. d. No prospectus is available at this time. If the Affiant to this form is any person other than the sole owner, partner, officer of the applicant or its attorney, a properly verified Power of Attorney must be enclosed. OATH STATE OF TEXAS : : COUNTY OF POTTER : I, DAVID T. HUDSON, being duly sworn, file this application as Manager of Rate and Economic Research (indicate relationship to Applicant, that is, owner, member of partnership, title as officer of corporation, or other authorized representative of Applicant); in such capacity, I am qualified and authorized to file and verify such application, am personally familiar with the documents filed with this application, and have complied with all the requirements contained in the application; all such statements made and matters set forth therein with respect to Applicant are true and correct. Statements about other parties are made on information and belief. I further state that the application is made in good faith, that notice of its filing was given to all other parties to the transaction, and that this application does not duplicate any filing presently before the Commission. __________________________________________ AFFIANT (Applicant's Authorized Representative) SUBSCRIBED AND SWORN TO BEFORE ME, a Notary Public in and for the State and County above-named, this _____ day of November, 1995. __________________________________________ Notary Public APPLICATION SCHEDULE-2 to APPLICATION OF SOUTHWESTERN PUBLIC SERVICE COMPANY REGARDING PROPOSED BUSINESS COMBINATION WITH PUBLIC SERVICE COMPANY OF COLORADO PROPOSED FORM OF PUBLIC NOTICE PUBLIC NOTICE On November 9, 1995, Southwestern Public Service Company ("SPS") filed an Application with the Public Utility Commission of Texas ("PUCT") regarding the proposed business combination with Public Service Company of Colorado ("PSCo"). The PUCT is required by Section 1.251 of the Public Utility Regulatory Act of 1995, to investigate this proposal and to determine whether it is consistent with the public interest. The Application seeks a determination by the PUCT that the combination is consistent with the public interest. If the PUCT makes the requested determination and otherwise approves the proposal, SPS will continue to operate as a public utility in Texas and remain under the regulatory authority of the PUCT, but will do so as a wholly- owned subsidiary of M-P New Co., a public utility holding company. SPS is not seeking to change rates in its Application. SPS seeks the PUCT's approval of a regulatory plan proposing: (1) a five-year transition period for the business combination; (2) a 50/50 sharing between SPS and its customers of the non-fuel and non-purchased power operation and maintenance expense savings produced by the business combination over the five-year transition period; (3) amortization of SPS's costs to complete the business combination over the five-year transition period; (4) an experimental performance based ratemaking plan which incorporates a return-on-equity adder as a function of performance in various service areas; and (5) SPS's customers held harmless from net cost increases resulting from the business combination during the five-year transition period. This filing has been assigned Docket No. ____________. Persons who wish to intervene or comment upon these proceedings should notify the Public Utility Commission of Texas as soon as possible, as an intervention deadline will be imposed. A request to intervene or for further information, should be mailed to the Public Utility Commission of Texas, 7800 Shoal Creek Blvd., Austin, Texas 78757. Further information may also be obtained by calling the Public Utility Commission of Texas' Consumer Affairs Office at (512) 458-0256, or (512) 458-0221 for text telephone. The deadline for intervention in the proceeding is 45 days after the date the Application was filed with the Public Utility Commission of Texas. APPLICATION SCHEDULE-3 to APPLICATION OF SOUTHWESTERN PUBLIC SERVICE COMPANY REGARDING PROPOSED BUSINESS COMBINATION WITH PUBLIC SERVICE COMPANY OF COLORADO PROPOSED PROTECTIVE ORDER DOCKET NO. ____________ APPLICATION OF SOUTHWESTERN ) PUBLIC SERVICE COMPANY ) PUBLIC UTILITY COMMISSION REGARDING PROPOSED BUSINESS ) OF TEXAS COMBINATION WITH PUBLIC ) SERVICE COMPANY OF COLORADO ) PROTECTIVE ORDER This protective order shall govern the use of all information deemed confidential or highly sensitive by a party responding to discovery requests, including information whose confidentiality is currently under dispute. It is ORDERED that: 1. (a) Any party or person producing or filing a document, including, but not limited to, records stored or encoded on a computer disk or other similar electronic storage medium, in this proceeding may designate that document, or any portion of it, as confidential pursuant to this Protective Order by typing or stamping on its face "PROTECTED MATERIALS PROVIDED PURSUANT TO PROTECTIVE ORDER ISSUED IN DOCKET NO. _______" (hereinafter referred to as "protected materials"). (b) However, protected materials shall not include any information or document contained in the public files of the Public Utility Commission of Texas (hereinafter referred to as the "PUCT") or any other federal or state agency, court, or local government authority subject to the Open Records Act. Protected materials also shall not include documents or information which at the time of, or prior to, disclosure in these proceedings is or was public knowledge, or which becomes public knowledge other than through disclosure in violation of this Protective Order. 2. A "party" is a party to this docket, including the General Counsel and the PUCT Staff. 3. Except as otherwise provided in this paragraph, a party shall be permitted access to protected materials only through its authorized representatives. "Authorized representatives" of a party include its counsel of record in this proceeding and associated attorneys, paralegals, engineers, economists, statisticians, accountants, consultants, or other persons employed or retained by the party and directly engaged in these proceedings, provided the person has signed the certification required by Paragraph 4. The term "Highly Sensitive Protected Materials" is a subset of "protected materials" and refers to information which a responding party claims includes (a) the prices, economics, terms or conditions of capacity or energy contracts, proposals, or opportunities; (b) securities, dividend, or competitively-sensitive financial information, or (c) other highly sensitive information, so that access to such information by employees of the reviewing party would expose the responding party to an unreasonable risk of harm. Documents so classified by a producing party shall bear the designation "HIGHLY SENSITIVE PROTECTED MATERIALS PROVIDED PURSUANT TO PROTECTIVE ORDER ISSUED IN DOCKET NO. _____." Highly Sensitive Protected Materials shall be made available for inspection only at the Austin, Texas, address specified pursuant to Paragraph 6, unless they are a part of a response that exceeds eight linear feet in length, in which case they shall be made available for inspection only at the place where the documents are located in accordance with P.U.C. PROC. R. 22.144(h)(3). No copies shall be made of any Highly Sensitive Protected Materials. The General Counsel's authorized representatives shall be allowed: to make handwritten notes of Highly Sensitive Protected Materials; to use data contained in Highly Sensitive Materials for analyses; and, as provided in Paragraph 8, to present testimony and related exhibits concerning Highly Sensitive Protected Materials. Other persons authorized to view Highly Sensitive Protected Materials may make limited handwritten notes of Highly Sensitive Protected Materials, provided that the notes are restricted to a description of the document and a general characterization of its subject matter; handwritten notes shall not include any information contained in Highly Sensitive Protected Materials. With the exception of the General Counsel, the authorized representatives for the purpose of access to Highly Sensitive Protected Materials must be persons who are either outside counsel for the reviewing party or who are outside consultants for the reviewing party working under the direction of the reviewing party's counsel. General Counsel's authorized representatives for the purpose of access to these materials shall consist of its counsel of record in this docket and associated attorneys, paralegals, engineers, economists, statisticians, accountants, consultants, or other persons employed or retained by General Counsel and directly engaged in this docket. 4. Each person who inspects the protected materials shall, before such inspection, agree in writing to the following certification: I certify my understanding that the protected materials are provided to me pursuant to the terms and restrictions of the Protective Order in Public Utility Commission of Texas Docket No. _____, and that I have been given a copy of it and have read the Protective Order and agree to be bound by it. I understand that the contents of the protected materials, any notes, memoranda, or any other form of information regarding or derived from the protected materials shall not be disclosed to anyone other than in accordance with the Protective Order and shall be used only for the purpose of the proceeding in Docket No. _____. I acknowledge that the obligations imposed by this certification are pursuant to an order of the Public Utility Commission of Texas. Provided, however, if the information contained in the protected materials is obtained from independent sources, the understanding stated herein shall not apply. A copy of each signed certification shall be provided to counsel for the party asserting confidentiality. Except for Highly Sensitive Protected Material, any authorized representative may disclose protected materials to any other person who is an authorized representative or is qualified to be an authorized representative, provided that, if the person to whom disclosure is to be made has not executed and provided for delivery of a signed certification to the party asserting confidentiality, the certification shall be executed prior to any disclosure. In the event that any authorized representative to whom protected materials are disclosed ceases to be engaged in these proceedings, access to protected materials by that person shall be terminated, and all notes or memoranda or other information derived from protected material shall be destroyed or returned to the party on whose behalf that person was acting. Any person who has agreed to the foregoing certification shall continue to be bound by the provisions of this Protective Order for the duration thereof, even if no longer engaged in these proceedings. Parties asserting confidentiality shall maintain a list of persons who sign a certification pursuant to this paragraph and provide a copy of this list to the other parties and provide revised lists when persons are added to or deleted from the list. 5. Except for Highly Sensitive Protected Materials and voluminous protected materials, the party asserting confidentiality shall provide a party one copy of the protected materials. Except for Highly Sensitive Protected Materials, a party may make further copies of protected materials for use in this proceeding pursuant to this Protective Order, but a record shall be maintained as to the documents reproduced and the number of copies made, and upon request, the party shall promptly provide the party asserting confidentiality a copy of that record. Parties may take handwritten notes or derive other information from the protected materials provided in response to this Paragraph 5, subject to the conditions of Paragraphs 3 and 7. 6. (a) Voluminous protected materials shall be made available for inspection between the hours of 9:00 a.m. and 4:30 p.m., Monday through Friday (except holidays), as provided in P.U.C. PROC. R. 22.144(h). A party shall notify the other parties of the precise address in Austin, Texas, at which voluminous data of less than eight linear feet will be produced simultaneously with the production of such data. The protected materials may be reviewed only during the "reviewing period," which shall commence upon issuance of this Protective Order and continue until conclusion of the evidentiary record in this proceeding. (b) Subject to Paragraphs 3 and 7, parties may take handwritten notes regarding the information contained in protected materials made available for inspection pursuant to Paragraph 6(a), or they may make photographic or mechanical copies of the protected materials. Only one copy of the materials designated in the notice shall be reproduced. Parties shall make a diligent, good-faith effort to limit the amount of photographic or mechanical copying requested to only that which is appropriate for purposes of this proceeding. Notwithstanding the foregoing provisions of this Paragraph 6(b) but expressly subject to Paragraphs 3 and 7, a party may make further copies of reproduced materials for use in this proceeding pursuant to the Protective Order, but a record shall be maintained as to the documents reproduced and the number of copies made, and upon request, the party shall provide the party asserting confidentiality a copy of that record. Only that information which is relevant to this proceeding may be extracted from these materials. 7. All protected materials shall be made available to the parties solely for the purpose of this proceeding. Protected materials, as well as a party's notes, memoranda, or other information regarding, or derived from, the protected materials are to be treated confidentially by the parties and shall not be disclosed or used by the party except as permitted and provided in this Protective Order. Information derived from or describing the protected materials shall be maintained in a secure place and shall not be placed in the public or general files of the party except in accordance with the provisions of this Protective Order. A party must take all reasonable precautions to insure that the protected materials, including handwritten notes and analyses made from the protected materials, are not viewed or taken by any person other than an authorized representative of the party. 8. (a) If a party tenders for filing any written testimony, exhibit, brief, or other submission that quotes from protected materials or discloses the confidential content of protected materials, the confidential portion of such testimony, exhibit, brief, or other submission shall be filed and served in sealed envelopes or other appropriate containers endorsed to the effect that they are sealed pursuant to this Protective Order. Such documents shall be marked "PROTECTED MATERIAL" and shall be filed under seal with the presiding officer and served under seal to the parties. The presiding officer may subsequently, on his or her own motion or on motion of a party, issue a ruling respecting whether or not the inclusion, incorporation, or reference to protected materials is such that the written testimony, exhibit, brief, or other submission should remain under seal. (b) Any party or person giving testimony in this proceeding may designate that portion of his or her testimony deemed to be confidential material in accordance with Paragraph 1 of this Protective Order by advising the presiding officer of such fact. In that event, the presiding officer shall, on a case-by-case basis, devise procedures which are fair to all parties without unduly burdening the record in this docket. (c) All protected materials filed with the PUCT, the presiding officer, or any other judicial or administrative body in support of or as a part of a motion, other pleading, brief, or other document shall be filed and served in sealed envelopes or other appropriate containers. 9. Each party shall have the right to seek changes in this Protective Order as appropriate from the presiding officer, the PUCT, or the courts. 10. (a) During the pendency of Docket No. _____ at the PUCT, if a party wishes to disclose protected materials to any person to whom disclosure is not authorized by this Protective Order, or wishes to have changed the designation of certain information or material as protected materials by alleging, for example, that such information or material has entered the public domain, such party shall first file and serve on all parties written notice of such proposed disclosure or request for change in designation, identifying with particularity each of such protected materials. If the party asserting confidentiality wishes to contest such proposed disclosure or request for change in designation, that party shall file with the PUCT its objection to such proposal, with supporting sworn affidavits, if any, and may file a request for a prehearing conference, within five (5) working days after receiving such notice of proposed disclosure or request for change in designation. Failure of that party to file such an objection or request within this period shall be deemed a waiver of objection to the proposed disclosure or request for change in designation. Responses to such an objection, with supporting affidavits, if any, shall be filed within five (5) working days after receipt of the objection. If the party seeking to prevent disclosure wishes to submit the material in question for in-camera inspection, it shall do so no later than five (5) working days after filing its objection to disclosure. If that party files such an objection, the presiding officer will determine whether the proposed disclosure or change in designation is appropriate. The burden is on the party asserting confidentiality to show that such proposed disclosure or change in designation should not be made. If the presiding officer determines that such proposed disclosure or change in designation should be made, disclosure shall not take place earlier than five (5) days after such determination to permit the opportunity for appeal. No party waives any right to seek additional administrative or judicial remedies concerning such presiding officer's ruling. As long as the period for filing the pleadings described above for consideration by the presiding officer or for challenging the determination of the presiding officer has not expired and while a challenge is pending, the protected materials shall maintain the confidential treatment and status provided for in this Protective Order. (b) If a party appeals the presiding officer's order, to permit the opportunity for further appeal all protected materials shall be afforded the confidential treatment and status provided for in this Protective Order for a period of ten (10) working days from: (i) the date of an unfavorable order from the PUCT, or (ii) if the PUCT does not rule on the appeal of the presiding officer's order, the date the appeal of the presiding officer's order is overruled by operation of law. Nothing in this provision, however, shall preclude a party from seeking and obtaining an appropriate order continuing the protection of the challenged materials during the pendency of any appeal. (c) No later than four (4) working days before the hearing in this docket begins, every party intending to offer into evidence a document or part of a document claimed to be confidential shall so indicate by written filing, listing all such documents or portions thereof. On the first day of the hearing, each party shall bring to the hearing room a copy of all documents or excerpts thereof indicated on that party's list. The confidential status of such documents or excerpts, as well as of any pre-filed testimony submitted under seal, and appropriate procedures relating to such materials, will be considered at the hearing on the merits. 11. Nothing in this Protective Order shall be construed as precluding any party from objecting to the use of protected materials on grounds other than confidentiality, including the lack of required relevance. Nothing in this Protective Order shall be construed as an agreement by any party that the protected materials are entitled to confidential treatment. 12. All notices, applications, responses, or other correspondence shall be made in a manner which protects protected materials from unauthorized disclosure. 13. Each party must, no later than thirty (30) days following conclusion of these proceedings, return to the party asserting confidentiality or destroy all copies of the protected materials provided by that party pursuant to this Protective Order and all copies reproduced by a reviewing party pursuant to Paragraph 5 or 6(b), and counsel for each party must provide to the party asserting confidentiality a verified certification that, to the best of his or her knowledge, information, and belief, all copies of notes, memoranda, and other documents regarding or derived from the protected materials (including copies of protected materials) that have not been so returned, if any, have been destroyed, other than notes, memoranda, or other documents which contain information in a form which, if made public, would not cause disclosure of protected materials. Promptly following the conclusion of these proceedings, counsel for the party asserting confidentiality will send a written notice to all other parties, reminding them of their obligations under this paragraph. Nothing in this paragraph shall prohibit counsel for each party from retaining two (2) copies of any filed testimony, brief, motion for rehearing, or other pleading which refers to the protected materials provided that any such protected materials retained by counsel shall remain subject to the provisions of this Protective Order. As used in this paragraph, "conclusion of these proceedings" refers to the exhaustion of available appeals, or the running of the time for the making of such appeals, as provided by applicable law. 14. This Protective Order is subject to the requirements of the Open Records Act, the Open Meetings Act, and any other applicable law, provided that parties subject to those acts will give the party asserting confidentiality notice, if possible under those acts, prior to disclosure pursuant to those acts. SIGNED AT AUSTIN, TEXAS, the _____ day of ____________________, 1995. _________________________________________ ADMINISTRATIVE LAW JUDGE EX-99.7 8 KCC APPLICATION BEFORE THE STATE CORPORATION COMMISSION OF THE STATE OF KANSAS IN THE MATTER OF THE APPLICATION ) OF SOUTHWESTERN PUBLIC SERVICE COMPANY ) FOR A CERTIFICATE PURSUANT TO K.S.A. ) Docket No. 193, 653-U 66-125. ) APPLICATION Southwestern Public Service Company, a New Mexico corporation ("SPS"), hereby applies, pursuant to K.S.A. 66-125 for a Certificate authorizing it to issue and deliver a certificate representing [100] shares of its common stock, $1 par value per share (the "SPS Common Stock"), to M-P New Co., a Delaware corporation ("Newco"), in connection with a reorganization of SPS and Public Service Company of Colorado, a Colorado corporation ("PSCo"), pursuant to an Agreement and Plan of Reorganization dated as of August 22, 1995, among SPS, PSCo, and Newco (the "Merger Agreement"). 1. The address of SPS's principal corporate office is SPS Tower, Tyler at Sixth Streets, P.O. Box 1261, Amarillo, Texas 79170. 2. SPS is engaged principally in the business of generating, transmitting, distributing, and selling electic energy to the public in various parts of New Mexico, Texas, Oklahoma, and Kansas. SPS is a public utility within Kansas and holds appropriate Certificates of Convenience and Authority granted by this Commission. SPS serves approximately 1,500 customers within Kansas. 3. PSCo is an operating public utility engaged, together with its subsidiaries, primarily in the generation, purchase, transmission, distribution and sale of electricity and in the purchase, transmission, distribution, sale and transportation of natural gas in Colorado and Wyoming. Its corporate office is located at 1225 Seventeenth Street, Denver, Colorado 80202. 4. The Merger Agreement contemplates a Plan of Merger among SPS, Newco, and SPS Merger Corp., a New Mexico corporation and wholly owned subsidiary of Newco ("SPS Merger Corp."), which provides for the merger of SPS Merger Corp. with and into SPS pursuant to the laws of New Mexico, with SPS to be the surviving corporation of the merger (the "SPS Merger"). Each share of SPS Merger Corp. outstanding immediately before the SPS Merger will be converted into one share of SPS Common Stock. Each certificate which immediately before the SPS Merger represents outstanding shares of SPS Merger Corp. common stock shall, on and after the SPS Merger, be deemed for all purposes to represent the number of shares of SPS Common Stock into which the shares of SPS Merger Corp. common stock represented by such certificate shall have been converted. As a result, SPS will become a wholly owned subsidiary of Newco. SPS will subsequently issue a new certificate to Newco evidencing its ownership of all of the issued and outstanding shares of SPS Common Stock. 5. SPS will receive no proceeds from the issuance of the certificate representing the SPS Common Stock to Newco. The issuance of the certificate evidences the ownership by Newco of all of the issued and outstanding SPS Common Stock by operation of law immediately after the SPS Merger. 6. Upon the consummation of the SPS Merger, each share of SPS Common Stock outstanding immediately prior to the SPS Merger will be canceled and converted into the right to receive 0.95 of one share of common stock, $1 par value per share, of Newco (the "Newco Common Stock"). As a result, holders of SPS Common Stock will become holders of Newco Common Stock. 7. As indicated above, SPS must deliver to Newco appropriate certificates representing the number of shares of SPS Common Stock resulting from the conversion of SPS Merger Corp. common stock into SPS Common Stock. Such certificates, in the opinion of counsel, are securities within the definition of K.S.A. 66-125 and require the Commission's authorization. The amount and character of the proposed certificates and the terms on which they are to be issued are reflected in the Joint Proxy Statement filed herewith on a confidential basis. 8. The proposed securities transactions are necessary and required for and will be used for the purposes set forth herein. WHEREFORE, Applicant (SPS) prays that the Commission approve this Application and thereafter issue an appropriate Order and Certificate pursuant to K.S.A. 66-125 authorizing applicant to issue and deliver the Certificates described in this Application, upon the special terms and conditions set forth therein. Respectfully submitted, SOUTHWESTERN PUBLIC SERVICE COMPANY By:/s/James L. Grimes, Jr. James L. Grimes, Jr. - #04592 FOULSTON & SIEFKIN L.L.P. 1515 Bank IV Tower Topeka, Kansas 66603 (913) 233-3600 VERIFICATION STATE OF TEXAS ) ) SS: COUNTY OF POTTER ) Doyle R. Bunch II, being duly sworn upon his oath, deposes and states that he is Executive Vice President, Accounting and Corporate Development, of Southwestern Public Service Company, Applicant herein; that he has read and is familiar with the foregoing Application filed herewith; and that the statements made therein are true to the best of his knowledge, information and belief. /s/Doyle R. Bunch II Doyle R. Bunch II Subscribed and sworn to before me this 3rd day of November, 1995. /s/Gwen Birtciel Notary Public ____________________ The name "M-P New Co." will be changed when PSCo and SPS agree upon a permanent name. SPS joined with PSCo to form Newco on August 21, 1995. SPS and PSCo each made a capital contribution of $100 to Newco for 50 percent of its stock. This stock will be canceled pursuant to the Merger Agreement in connection with the SPS Merger and the PSCo Merger. Similar action will be taken by PSCo whereby PSCo Merger Corp., a Colorado corporation and wholly owned subsidiary of Newco, will be merged with and into PSCo, with PSCo to be the surviving corporation and a wholly owned subsidiary of Newco. The then existing shareholders of PSCo Common Stock will become shareholders of Newco. EX-99.8 9 KCC ORDER THE STATE CORPORATION COMMISSION OF THE STATE OF KANSAS Before Commissioners: Susan M. Seltsam, Chair F. S. Jack Alexander Timothy E. McKee In The Matter Of The Application Of ) Southwestern Public Service Company For ) Docket No. 193,653-U A Certificate Pursuant To K.S.A. 66-125.) ORDER AND CERTIFICATE NOW comes the above-captioned matter before the State Corporation Commission of the State of Kansas (Commission) for consideration and determination. Having reviewed its files and records and being duly advised in the premises, the Commission finds and concludes as follows: BACKGROUND 1. On November 9, 1995, Southwestern Public Service Company (SPS) filed an application requesting authority from the Commission to issue and deliver 100 shares of SPS common stock, $1.00 par value, to M-P New Co. (Newco). 2. The purpose of the transfer is to facilitate the merger of SPS, Newco, and SPS Merger Corp., a New Mexico corporation and wholly owned subsidiary of Newco. 3. The Merger Agreement provides for the Merger of SPS Merger Corp. with and into SPS pursuant to the laws of New Mexico, with SPS to be the surviving corporation of the merger. Each share of SPS Merger Corp. outstanding immediately before the merger will be converted into one share of SPS Common Stock. As a result SPS will become a wholly owned subsidiary of Newco. 4. SPS must deliver to Newco appropriate certificates representing the number of shares of SPS common stock resulting from the conversion of SPS Merger Corp. common stock into SPS Common Stock. Such certificates are securities within the definition of K.S.A. 66-125 and require the Commission's authorization. 5. The proposed securities transactions are necessary and required. FINDINGS AND CONCLUSIONS 6. The Commission finds and concludes that SPS is a corporation duly organized under the laws of the State of New Mexico, having its principal office in Amarillo, Texas. The Commission further finds that SPS is a public utility engaged in the business of generating, distributing, and selling electric energy to the public within the meaning of the Kansas Statutes, Rules and Regulations, and is therefore subject to the jurisdiction of the Commission. SPS serves the public in various parts of New Mexico, Texas, Oklahoma, and Kansas. 7. The Commission notes that K.S.A. 66-125(b)(1)(A) through (B) sets forth the information required to be provided to the Commission in order for the Commission to issue a certificate. The Commission finds that the above information satisfies the requirements of the statute. Therefore, the Commission shall issue its certificate permitting SPS to issue and deliver 100 shares of common stock, $1.00 par value of M-P New Co. 8. The Commission finds that granting SPS authority to issue and deliver the above described shares of common stock does not reduce or restrict the Commission's authority over the security issuances for the following reasons: 1) approval of a securities filing does not guarantee the utility and specific rate treatment; and 2) if the utility uses the proceeds to acquire additional utility property, the Commission retains its authority to investigate the effect of the transaction on Kansas ratepayers. 9. The Commission concludes that in order to remain fully informed of SPS' debt and equity financing activities, SPS shall be required to file the details of the transaction with the Commission as soon as possible after closing. The information should include the type of security sold, amount of capital raised through the sale, specific terms and conditions of the instrument, and the general use of the proceeds. Each filing should be addressed to the Executive Director and reference this docket number. IT IS, THEREFORE, BY THE COMMISSION CONSIDERED AND CERTIFIED: 1. SPS has requested authority to issue and deliver 100 shares of common stock, $1.00 par value to M-P New Co.; 2. The statements contained in SPS' Application and otherwise provided to Staff (so far as required by law to be contained therein) have been ascertained to be true; 3. The authority requested by SPS in its Application may be granted without a hearing. IT IS, THEREFORE, BY THE COMMISSION ORDERED THAT: The authority requested by SPS in its Application shall be and is hereby granted in full. SPS is hereby issued the certificate as set forth in this Order and Certificate with respect to the issuance of 100 shares of common stock in accordance with K.S.A. 66-125. The parties have fifteen (15) days from the date of this Order, plus an additional three (3) days, if service of this Order is by mail, to file for reconsideration regarding the decision herein. The Commission retains jurisdiction of the subject matter and the parties for the purpose of entering such further order or orders as it may deem necessary and proper. BY THE COMMISSION IT IS SO ORDERED. Seltsam, Chr.; Alexander, Com.; McKee, Com. Dated: November 28, 1995 /s/ JUDITH McCONNELL EXECUTIVE DIRECTOR CGA:tdh EX-99.9 10 FORM OF NOTICE SECURITIES AND EXCHANGE COMMISSION (Release No. 35- ) Filing under the Public Utility Holding Company Act of 1935 January 30, 1996 New Century Energies, Inc. (70- ) New Century Energies, Inc. ("NCE"), 1225 17th Street, Denver, Colorado 80202, a Delaware corporation not currently subject to the Act, has filed an application-declaration under sections 5, 6(a), 7, 8, 9(a)(1), 9(a)(2), 10, 11, 13 and rules 80-91 and 93-94 thereunder. The application-declaration seeks approvals relating to the proposed combination (the "Transaction") of Public Service Company of Colorado ("PSCo"), a Colorado combination electric and gas public-utility holding company exempt from registration under section 3(a)(2) of the Act pursuant to rule 2, and Southwestern Public Service Company ("SPS"), an electric public-utility company organized in the state of New Mexico, by which PSCo and SPS, would become wholly owned subsidiaries of NCE. In addition, PSCo's combination electric and gas public-utility subsidiary, Cheyenne Light, Fuel and Power Company ("Cheyenne"), a Wyoming corporation, would become a direct wholly-owned subsidiary of NCE. Following the transaction, NCE would register with the Commission under section 5 the Act. NCE also seeks approvals in connection with services to be rendered by NC Services, Inc. ("NC Services"), NCE's newly formed service company subsidiary as well as intra-system engineering services to be performed by Utility Engineering Corporation ("UE"), currently a subsidiary of SPS, and certain other intra-system services. NCE also seeks approvals with regard to the formation of a new NCE subsidiary that will hold certain of the NCE system's non-utility assets, the issuance of common stock by such subsidiary and by NC Services and the retention of gas operations of PSCo and certain other non-utility businesses. PSCo and Cheyenne are primarily engaged in providing electric and gas service in Colorado and Cheyenne, Wyoming. As of December 31, 1994, PSCo provided electric utility service to 1.1 million customers, and Cheyenne provided service to 33,000 customers in the Cheyenne area. In addition, PSCo and Cheyenne provided gas utility service to approximately 920,000 and 26,000 customers, respectively. As of December 12, 1995, there were 63,150,357 shares of PSCo common stock, par value $5.00 per share, and 2,888,652 shares of PSCo preferred stock outstanding. PSCo's principal executive office is located in Denver, Colorado. On a consolidated basis, for the year ended December 31, 1994, PSCo's operating revenues were approximately $2.06 billion, of which approximately $1.4 billion were derived from electric operations, $625 million from gas operations and $33 million from other operation. Consolidated assets of PSCo were approximately $4.2 billion, consisting of $2.5 billion in identifiable electric utility property, plant, and equipment and $675 million in identifiable gas utility property, plant, and equipment, and $990 million in other corporate assets. PSCo has nine direct and indirect non-utility subsidiaries, eight of which are wholly-owned, and controlling interests in several small water and ditch companies. These non-utility companies are: West Gas Interstate, Inc., a natural gas transmission company operating in Colorado and Wyoming; e prime, inc. which offers energy related products and services to energy- using customers and to selected segments of the utility industry; Fuel Resources Development Co. which is engaged in the exploration for, and the development and production of, natural gas and oil, principally in Colorado; 1480 Welton, Inc. a real estate company which owns certain of PSCo's real estate interests for use in its utility business; P.S.R. Investments, Inc. which owns and manages company owned life insurance (COLI) policies on certain past and present employees, the benefits from which are to provide future funding for general corporate purposes; PS Colorado Credit Corporation, a company that finances (factors) certain of PSCo's current assets; Young Gas Storage Company which holds a 47.5% interest in partnership which owns an underground gas storage facility; Green and Clear Lakes Company which owns water rights and storage facilities for water used at PSCo's Georgetown Hydroelectric Station; and Natural Fuels Company, in which PSCO holds an 80% interest, which sells compressed natural gas as a transportation fuel to retail markets, converts vehicles for natural gas usage, constructs fueling facilities and sells miscellaneous fueling facility equipment. SPS, incorporated under the laws of New Mexico, is a public utility company engaged in the generation, transmission, distribution and sale of electric energy. It serves a population of approximately one million in a 52,000 square-mile area of the Panhandle and south plains of Texas, eastern and southeastern New Mexico, the Oklahoma Panhandle and southwestern Kansas. As of December 12, 1995 there were 40,917,908 shares of SPS common stock , par value $1.00 per share, outstanding. All shares of SPS preferred stock outstanding on that date have been redeemed or repurchased. SPS's principal corporate office is located in Amarillo,Texas. On a consolidated basis, for the year ended August 31, 1995, SPS's operating revenues were approximately $834 million, and its total assets were approximately $1.9 billion. SPS has two non-utility subsidiaries, UE and Quixx Corporation ("Quixx"). UE is engaged in engineering, design, construction management and other miscellaneous services. The primary business of Quixx is investing in and developing cogeneration and energy related projects. Quixx also holds certain other non-utility assets. Both UE and Quixx hold interests in subsidiaries and affiliates as part of their business operations. NCE was incorporated in Delaware on August 21, 1995 to become a holding company over PSCo and SPS following the proposed merger. At present, the common stock of NCE, which consists of 200 issued and outstanding shares, is owned by PSCo and SPS. Each company owns 100 shares. PSCo Merger Corp. will be incorporated under the laws of the State of Colorado prior to the consummation of the Transaction. The only authorized capital stock of PSCo Merger Corp. will be common stock, no par value and all outstanding shares will be held by NCE. PSCo Merger Corp. has not had, and prior to the closing of the Transaction will not have, any operations other than the activities contemplated by the Merger Agreement necessary to accomplish the combination of PSCo Merger Corp. and PSCo. SPS Merger Corp. will be incorporated under the laws of the State of New Mexico prior to the consummation of the Transaction. The only authorized capital stock of SPS Merger Corp. will be common stock, no par value, and all outstanding shares will be held by NCE. SPS Merger Corp. has not had, and prior to the closing of the Transaction will not have, any operations other than the activities contemplated by the Merger Agreement necessary to accomplish the combination of SPS Merger Corp. and SPS. Pursuant to an Agreement and Plan of Reorganization, dated as of August 22, 1995, as amended on December 8, 1995 ("Merger Agreement"), PSCo Merger Corp. will be merged with and into PSCo with PSCo continuing as the surviving corporation and SPS Merger Corp. will be merged with and into SPS, with SPS as the surviving corporation. As a result of these mergers, and the declaration of a dividend by PSCo to NCE of all of the stock of Cheyenne, PSCo, SPS and Cheyenne will become operating subsidiaries of NCE, and NCE will be a holding company within the meaning of the Act. Specifically, upon consummation of the proposed transaction: (1) each issued and outstanding share of PSCo common stock, together with the appurtenant rights (other than treasury and certain other shares which will be cancelled, fractional shares and shares held by holders who dissent in compliance with Colorado law) will be converted into the right to receive one share of NCE common stock, par value $1.00 per share ("PSCo Conversion Ratio"); (2) each issued and outstanding share of SPS common stock, together with the appurtenant right, (other than treasury and certain other shares which will be cancelled, fractional shares and shares held by holders who dissent in compliance with New Mexico law) will be converted into the right to receive 0.95 of one share of NCE common stock ("SPS Conversion Ratio"); (3) each share of PSCo Merger Corp. common stock issued and outstanding prior to the transaction will be converted into the right to receive one share of common stock of PSCo as the surviving corporation; (4) each share of SPS Merger Corp. common stock issued and outstanding prior to the transaction will be converted into the right to receive one share of common stock of SPS as the surviving corporation and (5) all shares of capital stock of NCE issued and outstanding immediately prior to the transaction will be cancelled. The shares of preferred stock of PSCo and SPS outstanding at the time of the consummation of the Transaction will remain preferred stock of PSCo and SPS, respectively. NCE states that the transaction is expected to be tax-free to PSCo and SPS shareholders (except as to dissenters' rights and fractional shares). Based on the capitalization of PSCo and SPS on December 1, 1995, the shareholders of PSCo and SPS would own securities representing approximately 62.0% and 38.0%, respectively, of the outstanding voting power of NCE. NCE states that the proposed merger qualifies for treatment as a pooling of interests. Following the merger, PSCo, SPS and Cheyenne will become direct public utility subsidiaries of NCE and the non-utility subsidiaries of PSCo and SPS will become either direct or indirect non-utility subsidiaries of NCE. The Merger Agreement provides that NCE's principal corporate office will be in Denver, Colorado, with significant operating offices in Amarillo, Texas. NCE's board of directors will consist of a total of 14 directors, 8 of whom will be designated by PSCo and 6 of whom will be designated by SPS. NCE also requests authorizations with respect to the activities of NC Services, which will be incorporated in Delaware to serve as the service company for the NCE system after the proposed merger. NC Services will be a direct subsidiary of NCE. NCE proposes that NC Services provide companies in the NCE system with a variety of administrative, management, and support services. It is anticipated that NC Services will be staffed by a transfer of personnel from the current employee rosters of PSCo, SPS, and their subsidiaries. NCE states that NC Services' accounting and cost allocation methods and procedures will comply with the Commission's standards for service companies in registered holding-company systems, and that NC Services' billing system will use the Commission's "Uniform System of Accounts for Mutual Service Companies and Subsidiary Service Companies." Except as permitted by the Act or the Commission, all services provided by NC Services to affiliated companies will be on an "at cost" basis as determined by Rules 90 and 91 of the Act. NCE has requested an exemption from Rules 90 and 91 in connection with the provision of services by NC Services to certain affiliated Qualifying Facilities ("QFs"), Independent Power Projects ("IPPs"), Exempt Wholesale Generators ("EWGS"), and Foreign Utility Companies ("FUCOs"). NCE requests authorizations with respect to the intra-system service activities of UE. NCE proposes that UE will provide design, engineering and related technical and management services to NCE system companies. NCE states that UE's accounting and cost allocation methods and procedures will comply with the Commission's standards for service companies in registered holding-company systems, and that UE's billing system will use the Commission's "Uniform System of Accounts for Mutual Service Companies and Subsidiary Service Companies." Except as permitted by the Act or the Commission, all services provided by UE to affiliated companies will be on an "at cost" basis as determined by Rules 90 and 91 of the Act. NCE has requested an exemption from Rules 90 and 91 in connection with the provision of services by UE to certain affiliated QFs, IPPs, EWGs and FUCOs. NCE has also requested an exemption from Rules 90 and 91 in connection with the provision of services by certain other system companies to certain affiliated QFs, IPPs, EWGs and FUCOs. NCE requests authority to form a new subsidiary, NC Hold Co. ("NC Hold"), which will be incorporated in Delaware, to hold certain of the NCE system's non-utility interests. At the consummation of the Transaction, all outstanding shares of NC Hold common stock will be held by NCE. NC Hold will acquire the common stock of certain of PSCo's non-utility subsidiaries and the common stock of SPS's non-utility subsidiaries. For the Commission, by the Division of Investment Management, pursuant to delegated authority. EX-99.10 11 LEGAL MEMO EXHIBIT J-3 LEGAL MEMORANDUM ON THE RETENTION OF GAS DIVISION BY NEW CENTURY ENERGIES, INC. INTRODUCTION The combination of Public Service Company of Colorado ("PSCo") and Southwestern Public Service Company ("SPS") in a merger of equals transaction (the "Transaction") will result in PSCo and SPS becoming wholly owned subsidiaries of New Century Energies, Inc. ("NCE"), a holding company which will be registered under the Public Utility Holding Company Act of 1935 (the "Act"). NCE has filed an Application/Declaration on Form U-1 (the "Application") seeking the approval of the Securities and Exchange Commission (the "Commission") under the Act for the Transaction and related matters. In addition, the Application seeks the Commission's authorization for PSCo and its subsidiary, Cheyenne Light, Fuel and Power Company ("Cheyenne"), to retain their gas utility systems following the consummation of the Transaction. This memorandum supplements the Application with respect to legal issues related to NCE's request for authority to retain these gas systems following its registration as a holding company under the Act. SUMMARY Both the legislative history of the Act as well as the Commission's early interpretation of the Act indicate that the purpose of the Act was to facilitate the process by which state utility regulatory commissions determine whether or not registered combination gas and electric holding company systems are permissible, and not to impose a more restrictive federal view. In addition, as the Commission has noted in a number of prior decisions, the Act is intended to provide for a flexible regulatory scheme that is capable of adapting to changes in the utility industry. The industry is in the process of its most radical change (from regulation to competition) since that which occurred as a result of the adoption of the Act and it is clear that the industry is currently evolving in a direction that requires utility company systems to offer their customers a range of energy options in order to remain competitive. Thus, the Commission should analyze the retention of PSCo's and Cheyenne's gas systems by focusing on those sections of the Act (Sections 8 and 21) that give primacy to state utility commission decisions with regard to combination registered holding companies and should "watchfully defer" to such local decision makers who are in the optimum position to regulate the combination utility. Under such analysis, NCE must be allowed to retain the gas systems of PSCo and Cheyenne as long as the Colorado Public Utilities Commission (the "CPUC") and the Wyoming Public Service Commission (the "WPSC") who have, and will continue to have, direct jurisdiction over the NCE's gas operations in their respective states, permit the continued existence of a combination system. Even if the Commission chooses not to focus on state commission determinations, Section 11 of the Act contains additional provisions that permit the retention of PSCo's and Cheyenne's gas systems -- namely, the so-called A-B-C clauses (the "A-B-C Clauses") of Section 11(b)(1) under which the Commission in the past has permitted retention of an additional gas or electric utility system in addition to the large electric utility system within a registered holding company system. Again, the standards set forth in this section should be read in light of the current changes in the utility industry. In any event, NCE without a doubt meets these standards with regard to the retention of the gas operations discussed herein. DISCUSSION I. Section 8 1. General Section 8 of the Act states: Whenever a state law prohibits, or requires approval or authorization of, the ownership or operation by a single company of the utility assets of an electric utility company and a gas utility company serving substantially the same territory, it shall be unlawful for a registered holding company, or any subsidiary thereof ... (1) to take any step, without the express approval of the State commission of such State, which results in it having a direct or indirect interest in an electric utility company and a gas utility company serving substantially the same territory; or (2) if it already has any such interest, to acquire, without the express approval of the State commission, any direct or indirect interest in an electric utility company or gas utility company serving substantially the same territory as that served by such companies which it already has an interest. On its face, this section indicates that, with approval of the relevant state utility commissions, a registered holding company can include a combination of electric and gas utility systems. A careful reading of the section indicates that the thrust of the section is to preclude the use by a holding company of separate gas and electric utility subsidiary companies with overlapping service territories in order to circumvent any state law restrictions on the ownership of gas and electric assets by the same company. Nevertheless, over time the Commission has adopted different interpretations of this section -- initially allowing registered holding companies to own both gas and electric systems pending relevant state approvals under Section 8, then focusing on Section 11 as controlling determinations regarding such combination companies and, requiring the "additional system" to meet a strict interpretation of the A-B-C Clauses. 2. Early Cases In its early decisions, the Commission adhered to the concept that the decision as to whether or not to allow a particular combination company is one that the affected states should make (although the Commission may have to implement the states' decisions in certain cases) and, where such systems were permissible, the role of the SEC is to ensure that both such systems are integrated as defined in the Act. The Commission's most notable decision in this line is In the Matter of American Water Works and Electric Company, Incorporated, 2 SEC 972 (1937). In this case, the Commission approved the applicant's voluntary reorganization plan under Section 11(e) of the Act and permitted the newly reorganized registered holding company to retain both its electric and its gas operations. While specifically noting that the Act does not contain a definition of single integrated utility in the context of a combination company, the Commission stated in this case that: We believe, however, that it is proper to regard such a combined property as a single integrated system, provided that all of the electric properties are integrated and all of the properties, both gas and electric, are in fairly close geographic proximity and are so related that substantial economies may be effectuated by their coordination under common control. The question of public policy as to the common ownership of gas and electric facilities in the same territory is apparently left by the statute to the decision of the states. Thus, since the combination company did not violate state policy, there was no need for the Commission to exercise jurisdiction to implement state policy by requiring divestiture of gas and electric operations. In this case the Commission's concern, under the Act, was that each system was an integrated system and otherwise met the standards of Section 11 of the Act. 3. Other Cases By the 1940's, however, the Commission de-emphasized its role as the implementer of state policy on combination companies and focused on a narrow interpretation of the standards of Section 11 as the basis for a policy, adopted and implemented in simplification proceedings, that the Commission should not allow registered holding companies to own both gas and electric companies unless the smaller system qualified for retention under the A-B-C Clauses. At this point, the Commission revisited and reinterpreted the American Water Works decision by noting that it could also have been viewed as a permissible retention under the A-B-C Clauses. Thus, most Section 11 proceedings involving the question of combination companies from that time forward discussed retention of the gas system solely in the context of whether or not it was a permissible "additional system" meeting the requirements of the A-B-C Clauses. In connection with this analysis, the Commission noted a policy concern existing at that time which advocated separating the management of gas utility operations from the management of electric utility operations. This policy was based on the belief that gas utilities benefitted from having a separate management focusing their entire energy on the gas business, as opposed to being part of a combination company where management tended to focus on electric utility operations at the expense of gas utility operations. In other words, there was a perception of internal management competition between gas and electric operations that could be detrimental to the gas operations and, in turn, to consumers. The Supreme Court addressed the interplay between Sections 8 and 11 of the Act in its decision Securities and Exchange Commission v. New England Electric System ("NEES"), 384 U.S. 176 (1966). In this decision, the Court noted: To some extent, local policy was expected to govern, with Section 8 serving to prevent circumvention of that policy ... At the same time, Section 11 was expected to assist in imposing restrictions with regard to the combination of gas and electricity in one system. Discussing the interplay between Section 8 and Section 11, the Senate Committee noted that Section 8 only applied to future acquisitions [and] "the policy upon which this section was based was essential in any Federal legislation in utility holding companies; it did not think that the section should make it unlawful to retain (up to the time that section 11 may require divestment) interests in businesses in which the companies were lawfully engaged on the date of enactment of this title." The Commission's policy with regard to exempt combination holding companies gives primacy to state determinations. In prior cases, the Commission has considered whether or not it could approve transactions and grant exemptions to combination holding companies under the Act as being in the public interest in light of the dictates of Section 11(b)(1) and its single integrated utility requirement. In a 1954 decision granting an exemption from the Act, the Commission considered whether or not the holding company was eligible for the exemption because it conducted both gas and electric utility operations and such operations could be considered detrimental to the public interest as violative of Section 11(b)(1). In this case the Commission first decided that "the mere existence of the combined electric and gas operations does not of itself require the denial of an exemption." The final decision on whether or not the combined system was in the public interest was based on the concept that: competition in the field of distribution of gas and electric energy is essentially a question of state policy. The considered conclusions of the local authorities, deriving their power from specific state legislation, should be given great weight in determining whether the public interest would be adversely affected by the retention of combined operations. In the absence of a compelling showing in the record to the contrary, we would not be warranted in rejecting the appraisal of such authorities that the local public interest ... is served by retention of the combined operations. ____________________ PSCo is an operating electric and gas public utility company as well as a holding company as a result of its ownership of all of the outstanding common stock of Cheyenne, an electric and gas public utility company organized in and operating in the state of Wyoming. In the case of both PSCo and Cheyenne, the electric utility operations are much larger than the gas utility operations. PSCo is currently exempt from registration under the Act pursuant to Section 3(a)(2) of the Act and Rule 2 thereunder. Id., at 983 n.3. See, e.g., In the matter of Columbia Gas & Electric Corporation, 8 SEC 443 at 463 (1941); In the Matter of United Gas Improvement Company, HCAR No. 2692 (April 15, 1941). See, e.g., In the Matter of the North American Company, 11 SEC 194, 216 (1942); In the Matter of Engineers Public Service Company, 12 SEC 41, 56 (1942); UNITIL Corporation, HCAR No. 25524 (April 24, 1992). See In the Matter of the Philadelphia Company, 28 SEC 35, 48 (1948); In the Matter of the North American Company, 18 SEC 169, 179-80 (1950); In the Matter of Illinois Power Company, HCAR No. 16574 (Jan. 2, 1970). Id., at 183 n.14. The dissenting opinion in this case specifically disputed this discussion, noting that "the House and Senate Committees in identical language expressly stated that common ownership of competing forms of energy was a field which is essentially a question of state policy; the present Section 8 was enacted to support this approach by using federal power to limit common ownership only where it is contrary to state law." Id. at 190 (Harlan dissenting). In the Matter of Northern States Power Company, HCAR No. 12655, 36 SEC 1 (Sept. 16, 1954). Id. at 8 (citations omitted). The Commission made a number of similar determinations in subsequent decisions relating to exempt holding companies. For example, in a 1988 case involving Section 9(a)(2) approval of an acquisition and subsequent exemption, the Commission reviewed its precedent and determined: the judgement of a state's legislature and public- service commission as to what will benefit their constituents is entitled to considerable deference .... we do not believe that the pro-competitive thrust of the Act expresses an absolute Federal policy against combination gas and electric operations .... Neither the Act nor the NEES decisions require that the [SEC] adopt such an inflexible rule. 4. Legislative History and Recent Developments A review of the legislative history of the Act together with the recent evolution of the utility industry indicates that now is a propitious time for the Commission to revisit its interpretations and allow combination registered holding companies where permitted under relevant state law without violating the spirit of the remaining sections of the Act. As embodied throughout Section 1 of the Act, one of the principle "evils" that the Act was designed to remedy was that multistate holding companies with activities "extending over many States are not susceptible of effective control by any State and make difficult, if not impossible, effective State regulation of public utility companies." Thus, the Act attempts to simplify the corporate structures of holding company systems to enable states to regulate the production and distribution of energy. In general, the Act is not concerned with those types of holding companies that can indeed be effectively regulated on the state level and provides exemptions for them in Sections 3(a)(1) and Section 3(a)(2). The Act creates federal jurisdiction to regulate those holding companies that could otherwise escape state and local regulation, but no indication exists that it should be used to override effective state regulatory policy. Section 8 in particular provides for the use of the Act as a tool to further state policy with regard to combination companies within registered holding company systems by prohibiting such companies where state law prohibits them and, implicitly, allowing such companies where state law and state regulatory officials do not object. A review of the legislative history of Section 8 clarifies this intent. In its 1935 report, the Senate Committee in Interstate Commerce noted that the provision in Section 8 concerning combination gas and electric companies "is concerned with competition in the field of distribution of gas and electric energy -- a field which is essentially a question of State policy, but which becomes a proper subject of Federal action where the extra-State device of a holding company is used to circumvent state policy." Conversely, when the holding company is not attempting to circumvent state policy, there does not appear to be any need for the federal government to exercise its jurisdiction. As noted in the report of the National Power Policy Committee on public- Utility Holding Companies, which is attached to the Senate report cited above, the policy of Section 8 is: Unless approval of a State commission can be obtained, the [SEC] should not permit the use of the holding-company form to combine a gas and an electric utility servicing the same territory where local law prohibits their combination in a single entity; but not to prohibit them where such approval can be obtained. Recent changes in the competitive nature of the utility industry indicate that any conceived need for regulation by the Commission due to a concern that the managements of combination companies may emphasize one form of energy over the other has been eliminated by market forces providing customers the ability to select the form and supplier of their energy needs which in turn mandates that utility companies offer a range of options to compete effectively. As the Division of Investment Management indicated in its recent report entitled the Regulation of Public-Utility Holding Companies, "the utility industry is evolving toward the creation of one-source energy companies that will provide their customers with whatever type of energy supply they want, whether electricity or gas." Thus, now that the fundamental restructuring of holding company systems has been completed and the industry is undergoing structural changes that will shift control over certain matters from utilities to consumers able to choose services offered by competing utilities, the Commission should reemphasize the provisions of Section 8 and the initial policy impetus of the Act by allowing combination registered holding companies to compete in the market as long as they can be effectively regulated on the state level. The Commission should again use the Act as a tool to implement state policy rather than as a device to impose additional unneeded and burdensome protections. This would not conflict with earlier interpretations of the Act. First, Section 11 is flexible and was designed to change as the policy concerns over the regulation of utility holding companies changed. Clearly, the utility industry and the regulation of that industry has changed dramatically in recent years and it is competitive forces (the very thing that the Act was designed to promote) that are pushing holding companies to offer alternative forms of energy. Second, a registered holding company would still be required to demonstrate that any acquisition or transaction by which it would become a combination company would not be detrimental to the carrying out of the provisions of Section 11 of the Act. In other words, its electric system would have to constitute an integrated electric system and that its gas system would have to constitute an integrated gas system and both systems would have to be capable of efficient operation. As discussed in Section II below, the Section 11 standards are met by the Transaction. In addition, nothing in the Supreme Court's NEES decision discussed above requires a different conclusion. First, as the Commission noted in its Union Electric decision, the Supreme Court's NEES decision attached "great weight... to [the Commission's] expertise in the administration of the Act." 45 SEC at 509 n.77. The NEES decision therefore leaves the Commission free to apply its expertise to administer the Act in light of changes in legal, regulatory and economic circumstances which were not foreseen at the time of the NEES decisions, including market and regulatory changes which has "substantially changed" the Act. As is clear, and the 1995 Report substantiates, the reform of the industry so as to be competitively based is as "substantial" a change as has occurred since that which was imposed by the adoption of the Act. Thus, NCE as a combination company is permissible pursuant to the terms of Section 8 of the Act and is in the public interest. First, the combination of electric and gas operations of PSCo and Cheyenne is lawful under both Colorado and Wyoming law, and PSCo in its applications to the CPUC and WPSC requesting their approval of the Transaction has requested that they indicate that they do not object to the continuance of this system. Moreover, the existence of both gas and electric systems in NCE's holding company system will allow NCE's customers greater choice to meet their energy needs, especially given that the electric and gas operations occur in substantially the same service territory, and will allow NCE to remain competitive with other utility companies. Indeed, the local regulators have effectively regulated this system as a combination gas and electric utility for decades. Finally, any concern that a holding company such as NCE would emphasize one form of energy over the other based on a single management's agenda is now unwarranted because of the increasingly competitive nature of the energy market. The market requires utilities to focus on customer demands for flexible energy supplies and, as a result of open-access to gas lines, forces gas providers like PSCo and Cheyenne to pre- empt and react to competitors. Furthermore, state regulatory authorities who approve of the combination company have sufficient authority to prevent energy preferences. II. Section 11 NCE meets the standards for retention of the gas operations of PSCo and Cheyenne pursuant to Section 11 of the Act as well. Under the A-B-C Clauses, a registered holding company is entitled to retain one or more additional integrated public utility systems if: (A) each of such additional systems cannot be operated as an independent system without the loss of substantial economies which can be secured by the retention of control by such holding company of such system; (B) all of such additional systems are located in one state, adjoining states, or a contiguous foreign country; and (C) the continued combination of such systems under the control of such holding company is not so large (considering the state of the art and the area or region so affected) as to impair the advantages of localized management, efficient operation, or the effectiveness of regulation. In fact, the Commission has held that the retention of existing gas properties is governed by less stringent standards than the acquisition of new gas properties, and has allowed at least two registered electric systems to retain long-standing gas utility properties without a showing of compliance with the A-B-C Clauses, subject to re-examination by the Commission when more information became available. In its Application and supporting exhibits, PSCo and NCE have shown that clause (A) above will be satisfied because the gas divisions of PSCo and of Cheyenne will both suffer substantial losses of economy if they are separated from the NCE system and are operated on a stand-alone basis. This evidence is presented in the "Analysis of the Economic Impact of the Divestiture of PSCo's Gas Operations and its Regulated Gas Subsidiary" conducted by management of PSCo (the "Divestiture Study"), Exhibit J-1 to the Application. In addition, following the effectiveness of the transaction, NCE will satisfy the criteria of clause (B) as its gas utility operations will be confined to the contiguous states of Colorado and Wyoming. Finally, the NCE gas system will not be so large as to impair local management, efficient operation or effective regulation. Additional detail regarding clauses (A) and (C) follow. 1. Loss of Substantial Economies ____________________ See, e.g., Delmarva Power & Light Co., 46 S.E.C. 710 (1976); Wisconsin Energy Corp., HCAR No. 24267 (Dec. 18, 1986). WPL Holdings, HCAR No. 24590 (Feb. 26, 1988). This exemption applies where the holding company and all material utility subsidiaries are incorporated in and operate predominantly in the same state. This exemption applies where the holding company is predominantly a utility company whose operations do not extend beyond the state in which it is incorporated and states contiguous thereto. Indeed, Section 21 of the Act specifically indicates that "nothing in [the Act] shall affect ... the jurisdiction of an other commission, board, agency, or officer of ... any State ... insofar as such jurisdiction does not conflict with any provision of [the Act]." The Report of the Committee on Interstate Commerce, S. Rep. No. 621 at 31 (1935). The Division of Investment Management, The Regulation of Public-Utility Holding Companies at 15-16 (1995) (the "1995 Report"). The 1995 Report at 63 (citing the SEC Annual Report of 1952 reporting that the simplification proceedings required under the Act were nearly completed). Mississippi Valley Generating Co., 36 SEC 159 (1955) (noting that Congress intended the concept of integration to be flexible); UNITIL Corporation, HCAR No. 25524 (April 24, 1992) (noting that section 11 contains a flexible standard designed to accommodate changes in the industry). See the 1995 Report for a discussion of the recent changes in the industry and the regulation thereof. See, e.g., Wisconsin's Environmental Decade, Inc. v. SEC, 882 F.2d 523, 527-28 (D.C. Cir. 1989); Delmarva Power & Light Co., HCAR 35-19717, 46 SEC 710, 715 (Oct. 19, 1976) (distinguishing between stricter standards applicable to the acquisition of new combination properties and the mere "continued existence of a combination company which had been in operation for thirty years"); Columbia Gas & Electric Corp., HCAR 35-2477, 8 SEC 443, 462-463 (Jan. 10, 1941); Union Electric Company, HCAR 35- 18368, 45 SEC 489, 503-506 (April 10, 1974) ("acquisitions are measured by standards more stringent than those governing retainability of existing properties"), aff'd without op. sub nom., City of Cape Girardeau v. SEC, 521 F.2d 324 (D.C. Cir. 1975); and American Gas and Electric Co., HCAR 35-6639, 22 SEC 808 (May 17, 1946). See Middle South Utilities, Inc. et al., HCAR 35- 11782 (March 20, 1953), 35 SEC 1, 14-15 (1953) (gas properties retained by New Orleans Public Service Inc.); and The North American Company, HCAR 35- 10320, 32 SEC 169 (Dec. 28, 1950) and Union Electric Company of Missouri, HCAR 35-12262, 35 SEC 483 (Dec. 15, 1953) (retention by Union Electric Company of Missouri of gas properties of Missouri Power & Light Company and Missouri Edison Company, respectively). The starting point for any attempt to define "loss of substantial economies" is a line of cases beginning with New England Electric System ("NEES"), HCAR 35-15035, 41 SEC 888 (March 19, 1964) and culminating in SEC v. New England Electric System ("NEES"), 390 U.S. 207 (1968), the second of two Supreme Court opinions. The Supreme Court, in attempting to flesh out the concept of substantial economies, accepted the formulation developed in The North American Company, HCAR 35-3446, 11 SEC 194 (April 14, 1942), aff'd, 133 F.2d 148, aff'd as to constitutionality, 327 U.S. 687 (1946), that the loss must be such that it would be "likely to cause a serious impairment of the system." 390 U.S. at 211. In accepting the "serious impairment test," the Supreme Court rejected a very generous "business judgment" test adopted by the First Circuit when it reviewed the Commission's order in NEES. The NEES Commission opinion made clear that the Commission believed that the issue was not the total estimated loss, but the proportion of operations that such loss represents. As the Commission stated therein: "we have previously pointed out that the test of the substantiality of the estimated loss is not in absolute terms but rather in relation to total revenues, expenses and income." 41 SEC at 897. See also Philadelphia Company, HCAR 35-8242, 28 SEC 35, 49 (June 1, 1948); General Public Utilities Corporation, HCAR 35-10982, 32 SEC 807, 837 (Dec. 28, 1951). The Commission then compared the anticipated proportionate losses that would have been suffered by New England Electric System with the anticipated losses in other divestiture cases decided by the Commission and held that the anticipated losses of New England Electric System were no more substantial than in previous cases where divestiture had been ordered. The Supreme Court expressly approved the Commission's use of loss ratios in comparable cases. 390 U.S. at 216. The use of comparisons to other holding companies' anticipated losses was also used by the Commission in General Public Utilities Corp., 32 SEC at 8837. The examination of the NEES case and the other cases which the Commission used for comparison reveals that the losses in those cases are not of the magnitude of the losses that the PSCo and Cheyenne gas divisions would suffer if divested, and that the "serious impairment" test is met. The total lost economies of $41,810,868 that an independent PSCo gas division would suffer represent 6.17 percent of the total gas operating revenues of $677,326,418, and the total lost economies to be suffered by an independent Cheyenne gas division amount to $[543,931] or [3.48] percent of its total operating revenues of $15,630,080. In the NEES case the loss of economies represented only 4.83 percent of operating revenues. Of the cases considered by the Commission, the lost economies in this case exceed, on a percentage basis, the loss of economies to gas operating revenues in The Philadelphia Company (3.00 percent), General Public Utilities Corp. (4.87 percent) and Middle South Utilities, Inc. (5.18 percent) cases. More importantly, in NEES, the company estimated it would suffer a reduction in gross income and net income that would have been approximately 23.28 percent and 29.94 percent, respectively. As is extensively documented in the Divestiture Study, the losses that a separate PSCo gas division would incur will result in a decrease in gross gas income of 39.96 percent and gas income of 81.56 percent. Similarly, Cheyenne would suffer a loss of 27.98 percent in gross gas income and 35.54 percent in net gas income. These numbers exceed the comparable estimated losses in the Engineers Public Service Company (20.85 percent in gross gas income and 25.25 percent in net gas income); The North American Company (21.68 percent in gross gas income and 24.34 percent in net gas income), The Philadelphia Company (14.03 percent in gross gas income) and Middle South Utilities, Inc. (23.68 percent in gross gas income) cases. The Supreme Court in NEES, 390 U.S. at 215, held that the Commission did not err in deciding that the decline in rate of return on base rates from 6.4 percent to 5.2 percent was not sufficient to constitute a loss of substantial economies. The Court also approved the Commission's use of projected return comparisons with that of other gas companies in the area. NEES would have tied for the second lowest rate of return on rate base. In the present situation, the effect is again more dramatic than it was in NEES. The new PSCo company would only have a projected return on rate base of 2.89 percent -- approximately half of what NEES would have had and a rather substantial decrease from the 9.31 percent rate of return over the 12 months ended ________. Cheyenne's gas operation, on a stand-alone basis, would have a projected rate of return of [7.71 percent] -- down from 9.62 percent for the same period. In the three areas considered most important by the Commission -- net income, operating revenues and return on rate base -- an independent PSCo gas division and an independent Cheyenne gas division would suffer losses of economies that would be more substantial than in the majority of previous cases where divestiture was ordered. 2. Size of Additional System Under clause (C), the dispositive consideration in evaluating the size of a system is not size alone or size in an absolute sense, either big or small, but size in relation to its effect, if any, on localized management, efficient operation and effective regulation. The statutory language makes clear that the size of the additional system(s) is not to be considered abstractly or mechanistically, on the basis of preconceived notions of "appropriate" size limitations. Rather, the express terms of Section 11(b)(1)(C) mandate a flexible test based on the specific facts and circumstances at hand. To this end, the Act requires that the Commission assess the size of the additional system with reference both to the impact on localized management, efficient operations, and the effectiveness of regulation and to "the state of the act and the area or region affected." The Commission's decisions recognize these principles. In the relatively few instances where it has squarely addressed Clause (C), the Commission has stated that the applicable inquiry is similar to that involved in applying the size standards of Section 2(a)(29), which defines "integrated" electric and gas systems using substantially identical language. Commission decisions construing the size criteria of Section 2(a)(29)(A) firmly establish that sheer size is not dispositive and that the Commission must take into account all relevant circumstances and must "exercise its best judgment as to the maximum size of a holding company in a particular area, considering the state of the art and the area or region affected." As discussed in more detail below, from these perspectives -- i.e., a flexible fact-specific perspective in which size is evaluated in relation both to its effect (if any) on localized management, efficient operation and effectiveness of regulation and to the "state of the art" and the area or region affected -- it is clear that the continued combination of gas and electric operations under NCE is not prohibitively large under Section 11(b)(1)(C). (a) The continued combination of gas and electric operations under NCE will preserve the effectiveness of regulation. From the standpoint of regulatory effectiveness, PSCo's gas division and Cheyenne's gas division are each organized in separate corporations by regulatory jurisdictions, which facilitate state regulation. Following consummation of the Transaction, all Colorado gas operations will continue to be conducted through PSCo and all Wyoming gas operations through Cheyenne, both of which will continue to be separate corporations, although Cheyenne will become a direct subsidiary of NCE instead of PSCo. Thus, the effective state regulatory scheme currently in place will continue unaltered after the consummation of the Transaction. As previously mentioned, both the CPUC and the WPSC will have indicated that they do not object to this structure, confirming that they believe they will continue to have effective regulatory control over these gas operations. (b) Localized management: The Commission's past decisions on "localized management" have evaluated localized management in terms of such factors as responsiveness to local needs, whether management and directors were drawn from local utilities, the preservation of corporate identities, the ease of communication, and other factors. In addition, the Commission has held that so long as there is evidence as to the local nature of important policy determinations, the advantages of localized management are not necessarily impaired by central control. The North American Co., 11 SEC at 237. The localization of policy determinations can be effectively achieved where management's time and efforts are concentrated in the area served by the principal system (here, the electric system). Southern Union Gas Co. et al., HCAR 35-3802, 12 SEC 116, 142 (Sep. 19, 1942). It can also be achieved where the systems are in close proximity to each other. Engineers Public Service Co., HCAR 35-3796, 12 SEC 41, 66 (Sep. 16, 1942). The retention of the gas properties under NCE satisfies all of these considerations. Retention of the PSCo gas properties would preserve the local nature of important policy determinations in relation to those gas services, since ____________________ A table of anticipated losses in previous decisions was attached to the Commission's decision and is reproduced as Exhibit J-2 to the Application. The Court of Appeals had overturned the Commission's order by relying upon an estimated return of 4.1 percent and an average in Massachusetts of 5.9 percent. 376 F.2d 107, 114. The Supreme Court did not decide whether such a reduction would be a substantial loss, but rather found that the Court of Appeals had used an improperly low figure and that when additional tax deductions were considered the proper figure was 5.2 percent. See The North American Company, 11 SEC at 214 (footnote omitted): The language of Clause (C) finds an almost identical counterpart in the definition of an integrated electric utility system contained in Section 2(a)(29)(A). That definition describes a system having certain physical characteristics and which is, further -- ...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. Similar language appearing in different sections of a statute is normally to be given the same meaning. The use of this similar language in Section 2(a)(29)(A) and in Clause (C) of Section 11(b)(1), in our opinion, casts considerable light on the meaning of the size standards of Clause (C) and would seem to indicate that similar considerations are involved in applying the size standards of Clause (C) to a combination of principal and additional systems, as are involved in applying the size standards of Section 2(a)(29)(A) to determine the maximum limits of a single integrated system. See also Lone Star Gas Corp. et al., HCAR 35-3865, 12 SEC 286, 295 (Oct. 22, 1942); Cities Service Power & Light Co., HCAR 35-7615, 14 SEC 28, 59 (Aug. 17, 1943); The Commonwealth & Southern Co., HCAR 35-4489, 26 SEC 464, 488-489 (Aug. 1, 1947). See, e.g., Energy Corp., 55 SEC Docket 2035, 2040 (1993); Centerior Energy Corp., HCAR 35-24073, 35 SEC Docket 769, 771 (April 29, 1986); American Electric Power Company, Inc., HCAR 35-20633, 46 SEC 1299, 1309 (July 21, 1978). American Electric Power Company, Inc., 46 SEC at 1309. Entergy Corp., HCAR 35-25952, 55 SEC Docket 2035, 2046 n.83 (Dec. 17, 1993); American Electric Power Co., HCAR 35-20633, 15 SEC Docket 375, 383 (July 21, 1978) (advantages of localized management evaluated in terms of whether an enlarged system could be "responsive to local needs"); General Public Utilities Corp. et al., HCAR 35-13116, 37 SEC 28, 36 (March 2, 1956) (localized management evaluated in terms of "local problems and matters involving relations with consumers"). See Centerior Energy Corp., 35 SEC Docket at 775 (advantages of localized management would not be compromised by the affiliation of two electric utilities under a new holding company because the new holding company's "management [would be] drawn from the present management" of the two utilities): Northeast Utilities, HCAR 25221, 47 SEC Docket 1270, 1285 (Dec. 21, 1990) (advantages of localized management would be preserved in part because the board of New Hampshire utility, which was to be acquired by an out-of-state holding company, included "four New Hampshire residents"). See Northeast Utilities, 47 SEC Docket at 1285 (utilities "will be maintained as separate New Hampshire corporations.. . . [t]herefore the advantages of localized management will be preserved"); Columbia Gas System, Inc., HCAR 35- 24599, 40 SEC Docket 654, 656 (March 15, 1988) (benefits of local management maintained where the utility to be added would be a separate subsidiary). See American Electric Power Co., 15 SEC Docket at 383-84 (distance of corporate headquarters from local management was a "less important factor in determining what is in the public interest" given the "present-day ease of communication and transportation"). the principal corporate office of the holding company will be located in Denver, which is the central location within the gas service territory. This location of the principal corporate office ensures that the company will be "responsive to local needs and local public feeling" of its gas customers, Lone Star Gas Corp., 12 SEC 286 (1942), since the decision making body of the company will most likely be aware of the issues of the population in the area of its residence. In addition, the Cheyenne gas division will continue to recognize economies of scale from certain centralized functions such as rate operations and billing, while the day- to-day operation of its system will continue to be located in Cheyenne, in the midst of its customers. By contrast, if the gas operations of Cheyenne were divested, and acquired by another company not currently a part of the community, such an acquiror would likely not be as sensitive to the needs and desires of the area as Cheyenne. The danger of such an acquisition is especially real here, since the Cheyenne gas system on a stand-alone basis would be relatively small, and the loss of economies occasioned by divestiture would be substantial, thereby rendering the company especially vulnerable to acquisition. Finally, the gas properties of PSCo and Cheyenne are located almost entirely within the electric service area of PSCo and Cheyenne. While the Commission has never required that additional systems must be entirely within the area served by the principal system, a substantial overlap of service territories has assisted in determining that a combination is not too large. See, e.g., Engineers Public Service Co., 12 SEC 41 (1942) (finding a combination to be not too large when the additional system was entirely within the principal service territory); New England Electric System, 41 SEC at 892 (finding that where 75 percent of the gas franchise area was located within the electric franchise area, no substantial question under clause C was raised). As a result, the continued combination of the gas and electric systems under the control of NCE will not be so large as to impair the advantages of localized management. (c) Efficiency of operation: The foregoing geographic and management factors also ensure that the continued combination of gas and electric properties under NCE will not impair the efficiency of gas and electric operation. Indeed, as set forth in NCE's Application, the Transaction is expected to result in significant efficiencies, a portion of which will directly benefit gas operations. By contrast, as described more fully in the divestiture impact analysis submitted by NCE in support of its Application, a forced divestiture of the PSCo and Cheyenne gas systems would result in a loss of substantial economies that can be preserved by the continued operation of those gas system under the control of NCE. 3. Recent Developments As previously mentioned, the Commission and courts have recognized that the Act must be interpreted "in the light of contemporary circumstances" and "changing economic and regulatory climates." Union Electric Co., 45 SEC at 503 & n.52, aff'd sub nom. City of Cape Girardeau v. SEC, 521 F.2d 324 (D.C. Cir. 1975). See also The Southern Company, HCAR 35- 25639, 50 SEC 1328, 1337 (Sep. 23, 1992) (citing Union Electric with approval). Section 11(b)(1)(C) itself calls on the Commission to consider the "state of the art" and thereby requires that advances in communications and changes wrought by intervening legal and regulatory developments must be considered by the Commission, and the Supreme Court's SEC v. New England Electric System decision permits the Commission to exercise its discretion in interpreting the Act to account for such changes. As set forth in section I-4 above, changes in the economic and regulatory climate are rapidly rendering the old labels of "gas utility company" and "electric utility company" obsolete, have effectively eliminated many of the policy concerns underlying the old hostility to registered combination utility systems, and have established competing policy priorities. Accordingly, it is appropriate for the Commission to reflect the radical developments in the utility industry and permit the request of NCE to become a combination utility. CONCLUSION For the reasons set forth above, and in NCE's Application and supporting exhibits, it is respectfully submitted that the Commission should allow NCE to retain the gas utility operations of PSCo and Cheyenne following the consummation of the Transaction and the registration of NCE as a holding company under the Act. EX-99.11 12 GAS STUDY EXHIBIT J-1 PUBLIC SERVICE COMPANY OF COLORADO CHEYENNE LIGHT, FUEL AND POWER COMPANY ANALYSIS OF THE ECONOMIC IMPACT OF A DIVESTITURE OF THE GAS OPERATIONS OF PSCO AND ITS CHEYENNE SUBSIDIARY This Study was undertaken by the management and staff of Public Service Company of Colorado (PSCo). The objective of the study is to quantify the economic impact on shareholders and customers of divesting PSCo of its Colorado natural gas assets and business, and of divesting Cheyenne Light, Fuel and Power Company (Cheyenne), a wholly-owned subsidiary of PSCo, of its natural gas assets and business. January 26, 1996 I. EXECUTIVE SUMMARY Public Service Company of Colorado's (PSCo) management and staff have undertaken this "Analysis of the Economic Impact of a Divestiture of the Gas Operations of PSCO and Its Cheyenne Subsidiary" (Study) in order to quantify the economic impact on its shareholders and its customers of spinning off its and Cheyenne Light, Fuel and Power Company's (Cheyenne's) natural gas assets and businesses. PSCo is currently an exempt holding company under the Public Utility Holding Company Act of 1935 (PUHCA) providing electric and natural gas service in a major portion of the State of Colorado. Cheyenne is a wholly-owned subsidiary of PSCo providing electric and natural gas service in and around Cheyenne, Wyoming. The Study quantifies the economic impacts of operating the following two entities as independent, stand-alone companies if they were disaggregated from PSCo's combined businesses: - The Colorado portion of PSCo's gas business spun- off into a new organization called, for the purpose of this Study, NewGasCo-Colo; and - Cheyenne's gas business spun-off into a new organization called, for the purpose of this Study, NewGasCo-Wyo. The Study evaluates the increased costs or "lost economies" associated with divestiture of these businesses from two perspectives shareholders and customers. The effect on shareholders is the direct result of the increased costs or lost economies resulting from a spin-off or divestiture, absent regulatory rate relief to recoup these lost economies. The effect on customers assumes recovery of these lost economies through rate increases, and is divided into two parts. The potential effects on customers have first been evaluated in terms of increased revenue requirements and rates, and second in terms of the impact of other quantifiable and non-quantifiable costs. The projected impacts on the shareholders of the lost economies resulting from the spin-off of PSCo's gas business into NewGasCo- Colo and the spin-off of Cheyenne's gas business into NewGasCo- Wyo, assuming no rate adjustments to recover the lost economies and associated incomes taxes, are shown in Table I-1. TABLE I-1 ANNUAL SHAREHOLDER IMPACT OF LOST ECONOMIES NEWGASCO-COLO NEWGASCO-WYO LOST ECONOMIES AS A PERCENT OF: Total Gas Operating Revenue 6.44% 10.77% Total Gas Operating Revenue Deductions 7.18% 12.30% Gross Gas Income 62.54% 86.36% Net Gas Income 85.06% 109.94% In Table I-1, Total Gas Operating Revenue is the sum of rate and other revenue for the 12 months ending June 30, 1995 (Base Case). Total Gas Operating Revenue Deductions includes all operation and maintenance expenses, administrative and general expenses, depreciation and all taxes, except income taxes. Gross Gas Income is the difference between Total Gas Operating Revenue and Total Gas Operating Revenue Deductions. Net Gas Income is Gross Gas Income minus Income Taxes. Alternatively, and assuming that each organization is allowed to increase its rate revenue to recover these lost economies and attendant income taxes through rate increases, the projected impact on PSCo's and Cheyenne's customers is shown in Table I-2. TABLE I-2 ANNUAL GAS CUSTOMER IMPACT OF LOST ECONOMIES RATE REVENUE NEWGASCO-COLO NEWGASCO-WYO Pre Spin-off $674,013,500 $15,607,321 Post Spin-off $718,621,169 $17,382,760 Increase $ 44,607,669 $ 1,775,439 Percent Increase 6.62% 11.38% In addition to the foregoing impacts, the following table sets forth the impact on the remaining electric companies (comprised of PSCo's and Cheyenne's current electric businesses). This impact is primarily due to the expense of additional employees required to perform the multitude of functions accomplished by employees who currently work for both the electric and gas businesses and assumes that pass through of the lost economies and attendant income taxes is allowed by the appropriate regulatory agencies. TABLE I-3 ANNUAL ELECTRIC CUSTOMER IMPACT OF LOST ECONOMIES RATE REVENUE PSCO REMAINING ELECTRIC CHEYENNE REMAINING ELECTRIC Pre Spin-off $1,313,022,822 $35,297,354 Post Spin-off $1,357,892,731 $36,307,879 Increase $44,869,909 $1,010,525 Percent Increase 3.42% 2.86% If, on the other hand, the foregoing organizations were not spun- off from PSCo and Cheyenne, the merger was implemented as proposed, and assuming a rate decrease to pass on the potential merger benefits primarily relating to savings in gas costs, the impact on gas customers is shown in Table I-4. TABLE I-4 ANNUAL GAS CUSTOMER IMPACT OF POTENTIAL MERGER BENEFITS RATE REVENUE PSCO GAS CHEYENNE GAS Pre Merger $674,013,500 $15,607,321 Post Merger 668,891,526 15,453,495 Decrease 5,121,974 153,826 Percent Decrease 0.76% 0.99% Finally, both PSCo's and Cheyenne's gas customers would incur increased personal costs such as postage on a separate envelope and additional check costs to mail payments to two utilities rather than one. This does not include additional customer confusion resulting from doing business with two utilities rather than one. The increased postage expense alone of $3.84 per customer per year for all customers is shown in Table 1-5. TABLE I-5 OTHER ANNUAL CUSTOMER IMPACTS PSCO POSTAGE CHEYENNE POSTAGE $3,478,637 $101,395 II. CONCLUSIONS The spin-off of PSCo's and Cheyenne's current gas businesses into two stand-alone companies is estimated to result in a substantial increase in costs and therefore a substantial decrease in earnings to PSCo shareholders absent rate relief to recoup these decreased earnings. Without an increase in rates, the immediate negative effect on shareholders earnings would be substantial. For example, the earnings contribution relating to PSCo's and Cheyenne's gas businesses would be decreased by approximately 85 percent and 110 percent, respectively, as shown in Table I-1. Such a decline would make ownership of shares in these stand- alone companies unattractive. The pass through of these cost increases to customers in Colorado and Wyoming will result in a significant increase in the level of cost borne by these customers with no attendant increase in the level or quality of service. The rate increases required to provide the level of revenue needed to cover costs to operate the NewGasCos (NewGasCo-Colo and NewGasCo-Wyo) will be significant, amounting to approximately $46.4 million, as shown in Table I-2. Such rate increases would make the NewGasCos less competitive at a time when competition in the energy industry is rapidly increasing due to Federal Energy Regulatory Commission (FERC) Order 636 and other FERC and state regulatory initiatives. The potential by-pass of Local Distribution Companies (LDCs) is becoming a reality that LDCs must face daily, along with the commensurate possibility of a decreasing customer base, resultant rate increases, and potential stranded costs. The FERC has sanctioned the bypass of LDC systems by interstate pipelines in recent years in the interest of competition. In addition, natural gas service continues to compete with alternative fuels. The focus on competition is beginning to require the unbundling of LDC services. This trend is occurring as state commissions, LDCs, and their customers, call for a change in the way LDCs do business. While the objectives of these groups are not always consistent, the result will likely be the same increased competition. LDCs already face fierce price competition, and must remain competitive to avoid shareholder losses and a reduced customer base. As a result of the increased costs discussed herein, bundled or unbundled services may become uncompetitive as the pass through of these increases could potentially result in rates that few customers would pay when compared to other competitive options they may have. In addition, the FERC's ongoing electric Notice of Proposed Rulemaking Promoting Wholesale Competition Through Open Access Nondiscriminatory Transmission Services by Public Utilities (RM 95-8-000, et. al.) and state retail wheeling initiatives are expected to increase competition in the electric industry. The lost economies estimated for PSCo's and Cheyenne's remaining electric companies, if divestiture of gas operations were required, would also have an adverse impact on their ability to successfully compete in the electric industry. A forced divestiture as a result of the proposed merged company would result in the remaining companies becoming less competitive than they would be as part of a merged company. A graphic comparison of typical residential and commercial gas bills in Colorado and Cheyenne, Wyoming, illustrating the loss of each NewGasCo's relative position as compared to other utilities resulting from a spin-off, is contained in Table VIII-1, page 29. As opposed to the negative results of the economic impact, two positive conclusions were noted. - - First, it is expected that after divestiture, the two segments of PSCo's business analyzed in this Study would continue to be managed locally, as they currently are. PSCo's gas business would continue to be managed from and based in Denver and from the other local/regional parts of Colorado where management is currently based. Cheyenne's gas business would continue to be locally based in the City of Cheyenne, Wyoming. Therefore, the benefits and costs of localized management will continue to be realized. - - Second, it is expected that after divestiture the Colorado Public Utilities Commission (CPUC) and the Wyoming Public Service Commission (WPSC) would continue to have and exercise the same jurisdictional authority over the regulated businesses as they do today. PSCo's gas business would continue to be regulated primarily by the CPUC, and Cheyenne's gas business would continue to be regulated primarily by the WPSC. Therefore, the state commissions will continue as the primary agencies responsible for the regulation of the LDCs. However, it should be noted that these same conditions (continued local management and state regulatory jurisdiction) would exist if the gas businesses remain with the new merged entity. As previously discussed in the Executive Summary, there is a combination of approximately $46.4 million in revenue increases needed for the NewGasCos, shown in Table I-2, and an additional $45.9 million in revenue increases as a result of lost economies, including income taxes, that will impact the remaining PSCo and Cheyenne electric companies, and potentially their customers shown in Table I-3. Therefore, the total revenue increases that would be required is approximately $92.3 million. Based on the foregoing conclusions, PSCo believes that spinning off the gas businesses would adversely impact PSCo's shareholders and both electric and gas customers. Therefore, PSCo recommends that it is in the best interests of its shareholders and customers that PSCo and Cheyenne retain their existing gas assets and businesses. III. SPIN-OFF ASSUMPTIONS The Study assumes that two segments of PSCo's current business can, in fact, be spun-off into stand-alone companies. These two potential stand-alone businesses are currently part of the combined companies as described below: - - Within Colorado, PSCo is primarily a combination electric and gas utility, engaged in the generation, purchase, transmission, distribution and sale of electricity, and in the purchase, transmission, distribution, sale and transportation of natural gas. PSCo's Colorado gas business includes an extensive transmission and distribution system serving numerous communities throughout Colorado. PSCo's gas system serves over 900,000 residential, commercial, industrial, and transportation customers. Total annual gas revenues are approximately $656 million. Annual gas deliveries are nearly 220,000 million cubic feet (MMcf). The Study assumes that the Colorado gas portion of PSCo is spun-off into a stand-alone gas company NewGasCo-Colo. PSCo's Colorado electric business, which includes generation, transmission, and distribution facilities located statewide, provides service to nearly 1.1 million ____________________ The dollar amounts contained in the study are expressed in 1995 dollars. PSCo also understands, based on preliminary discussions with the CPUC and WPSC, that these regulatory agencies support the retention of these gas businesses post-merger. For a comparison of PSCo s and Cheyenne s gas operations relative to other utilities based on 1994 data, see Appendix A. customers throughout a large portion of Colorado. Total annual electric revenues are approximately $1.3 billion and annual sales are nearly 24 million megawatt hours (Mwh). - - PSCo's wholly-owned subsidiary, Cheyenne, operates a combination electric and gas business in the City of Cheyenne, Wyoming and in a significant portion of Laramie County, Wyoming. Cheyenne is engaged in the purchase, transmission, distribution and sale of electricity, and in the purchase, distribution, sale and transportation of natural gas. The Cheyenne gas distribution system serves over 26,500 customers. Total annual gas revenues are approximately $15.2 million. Annual gas deliveries are nearly 20,000 MMcf. The Study assumes that the gas portion of Cheyenne is spun-off into a stand-alone gas company NewGasCo-Wyo. The Cheyenne electric system consists of electric transmission and distribution facilities and serves over 33,000 customers. Total annual electric revenues are approximately $35.5 million and annual sales are approximately 776,000 Mwh. The Study assumes that it would be possible to spin-off PSCo's Colorado gas business and its Cheyenne gas business from their respective combined gas and electric businesses for the following reasons: - The electric and gas systems are physically separate; - A large number of personnel who are directly involved in the day-to-day operations of the electric and gas physical plant ("systems") are dedicated electric-only or gas-only; - The regulatory treatment of the respective electric and gas revenue requirements and tariff filings is, for the most part, handled separately; and, - In other parts of the country, stand-alone electric and gas companies routinely share overlapping service territories. In addition, the Study analyzes the NewGasCo-Colo and NewGasCo- Wyo organizations as two stand-alone companies rather than one combined-gas company for the following reasons: - Cheyenne is a wholly-owned subsidiary of PSCo with separate management and its own Board of Directors; - PSCo's Colorado gas business and Cheyenne's gas business are currently regulated by different state commissions. PSCo's is regulated by the CPUC, while Cheyenne's is regulated by the WPSC; - The PSCo and Cheyenne gas systems can be operated independently; and, - A significant number of personnel who oversee and maintain the operation of the two systems are employees of PSCo-only or Cheyenne-only. IV. GENERAL STUDY ASSUMPTIONS The assumptions, information and data utilized in the analyses undertaken in this Study are based on the energy industry expertise and experience possessed by the management and staff of PSCo and Cheyenne. Employees with experience in all major facets of the operations of PSCo and Cheyenne were consulted and provided input. The Study's aggregate conclusions are the result of many independent inputs and analyses from highly qualified individuals throughout the companies. Fortunately, much of the base information and data required for the Study was already in existence. For example, PSCo, with the assistance of Edgar Dunn & Company a nationally recognized management consulting firm recently completed a restructuring of the organization. During that restructuring, national utility benchmarking information on compensation, benefits, and organizational structure were obtained and evaluated. This Study was able to draw on that data and information, and the experience garnered during the reorganization, for the purpose of developing the stand-alone companies. Further, the Base Cases for the Study are founded upon sales, revenues, costs, and rates of return from rate of return studies recently filed with the CPUC and WPSC. An exhaustive analysis of every cost component that may be associated with a divestiture was not made. As a result of discussions with numerous personnel at PSCo and Cheyenne, the major cost components associated with a divestiture were identified, quantified, and included in the Study results. The remainder of this section discusses the major assumptions that were employed in developing the Study. A. For the purposes of developing the impacts of a spin-off on the various organizations, it is assumed that each of the organizations to be spun-off will operate as an independent, stand-alone company. Therefore, they will have all of the necessary management and personnel, along with the computer systems, facilities, equipment, materials and supplies required to operate as stand-alone companies. B. For the purpose of determining the staffing requirements of each stand-alone company, the guiding principle was that a sufficient number of employees be included in order to assure that all present functions applicable to the stand- alone organization are performed, and that the present level and quality of service remain unchanged. C. Labor costs are based on an assessment of straight-time, overtime, and pension and benefit costs for each employee of the stand-alone organizations, less an adjustment to capitalize wages associated with on-going construction to serve new and existing customers. D. Unless otherwise discussed, the non-labor costs will remain essentially unchanged from those costs allocated to the organization to be spun-off. All gas related costs, such as the cost of gas, have been included in each gas organization's costs. Allocated costs such as accounting, billing, rents, materials and supplies, for example, are assumed to be the same after the spin-off as before. E. Annual facility costs relating to the additional employees required to maintain the current levels of service have been incorporated into the analyses. F. For the purpose of showing the final impact on each company's customers, it is assumed that full pass-through of all of the lost economies, including income taxes, will be allowed in a formal rate proceeding after divestiture, and that the current rate levels remain unchanged until that time. G. For the purposes of developing the impact of the spin-off on each organization, a comparison is made to a Base Case. The Base Case for each company is a pro forma rate of return study, or cost of service study, for the twelve months ended June 30, 1995, as discussed earlier, including all currently approved regulatory cost of service allowances, principles, and adjustments, such as adjustments for the authorized rate of return and annualized wage increases. H. It is assumed that each organization will be subject to the regulation of the same state & federal agencies that presently regulate each organization. I. If there currently exists a contract for services from independent third-parties, the contract will continue for the spun-off organizations. J. Only the categories of costs that are expected to change significantly were analyzed. Clearly many other costs beyond those presented in this Study will be impacted by a divestiture. Footnotes throughout the Study highlight instances in which analysts contributing to the project pointed out additional costs which were not quantified. V. NEWGASCO-COLO ANALYSIS A detailed study has been undertaken to analyze the potential impact on both the shareholders and customers of PSCo if it were ordered to divest its Colorado gas business. In order to accomplish that study, the management of PSCo provided estimates of the staffing levels of a NewGasCo-Colo, as well as any other operational and administrative changes that would have to be made in order to maintain the same level and quality of service to its gas customers after a spin-off of the gas business. A. Specific Assumptions In addition to the General Study Assumptions cited earlier, the following specific assumptions have been incorporated into the analysis of the spin-off of the gas operations of PSCo into a NewGasCo-Colo. 1. Labor Assumptions a. The PSCo organization as of September 30, 1995 was used as the template for developing the NewGasCo- Colo organization structure. b. Where practical, some management positions were combined, eliminated or replaced with non- management positions. Some further consolidation of management positions may be possible, particularly within the staff organizations. However, the overall span of control (the ratio of non-management employees to management employees) for NewGasCo-Colo is only slightly smaller than the span of control in the PSCo organization. As of September 30, 1995, PSCo had 421 management and 4,279 non-management employees, yielding a span of control of 10.2 employees per manager. NewGasCo- Colo has 185 management and 1,784 non-management employees, resulting in a span of control of 9.6 (i.e., more managers per non-management employee than the organization). This smaller span of control is due to the following: 1) A duplicate executive organization due to the need of having a separate set of executives for the new organization; 2) Management employees required in the geographic areas, but with a lower non- management employee count due to the elimination of electric responsibilities; and, 3) The number of management personnel required in the staff organizations possessing technical expertise and background with some decrease in non-management staff size due to the elimination of support for electric functions. c. To provide an equivalent quality of customer service an analysis was made of the Customer Accounts and Service Organization to determine the number of employees required for the customer service area of NewGasCo-Colo. The staffing percentages required in the NewGasCo-Colo compared to the current combined company for the following functional areas of the Customer Accounts and Service Organization are as follows: Credit 100 percent Personal Account Representatives 100 percent Billing 100 percent Remittance 100 percent Collection 75 percent Call Center 86 percent A 100 percent factor, for example, would result in a doubling of the number of existing employees, as the electric business would also require the same number of employees as the spun-off gas organization to accomplish the same function. These functions are accomplished by a relatively small number of personnel and a spin-off of gas responsibilities would not affect the number of employees required to accomplish electric-only functions. d. In order to determine the number of meter readers required, the average number of gas meters per meter reader in Pueblo, Colorado was compared to total gas meters in the entire NewGasCo-Colo service territory. Currently, in Pueblo, PSCo provides only gas service and therefore the meter readers read only gas meters, rather than both gas and electric. The customer density in and around Pueblo approximates the gas customer density in the rest of Colorado. ____________________ Both PSCo and Cheyenne are regulated to a minor extent by the FERC under the provisions of limited jurisdiction certificates pursuant to Section 7(c) of the Natural Gas Act of 1938. As discussed in the Application/Declaration on Form U-1 of New Century Energies to which this Study is an exhibit, the PSCo and Cheyenne gas systems together constitute an integrated public utility system within the meaning of Section 2 (a) (29) of the Public Utility Holding Company Act of 1935. The savings anticipated to be realized from the reorganization have been taken into account in both the PSCo Base Case and the NewGasCo-Colo impact analysis contained in this Study. The NewGasCo-Colo Base Case is essentially the rate of return study for PSCo s gas business contained in Exhibit DAB-1 to PSCo s merger applications filed with the CPUC on November 9, 1995. The NewGasCo-Wyo Base Case is based on the rate of return study filed with the WPSC in Cheyenne s October 1, 1995 Gas Cost Adjustment, Docket No. 30005-GP-95- 37. Both studies are based on the 12 months ended June 30, 1995. e. Executive salaries were based on national survey data. f. All non-executive salaries are based on current PSCo average compensation for the appropriate job level. g. Pensions and benefits are estimated as a percent of the labor cost. Currently, pension and benefits average an additional cost of approximately 37.6 percent above the base cost of labor. Therefore, after the base cost of labor was determined, an additional 37.6 percent was added to include pension and benefit costs. h. The cost of overtime varies depending upon the time of year, work load, and job classifications. The overtime cost assumptions utilized are comparable with the percent of overtime cost currently experienced by PSCo. 2. Operations & Maintenance (O&M) and Administrative and General Assumptions (A&G): a. Annual facility costs relating to the additional employees required to operate the stand-alone companies have been incorporated into the Study. b. Separate arrangements will be made for external auditing of the books and accounts of NewGasCo- Colo. c. Executive and administrative support from PSCo would cease upon any divestiture, and these functions have been provided for in the NewGasCo- Colo organizational structure. d. Separate gas bills will be provided the customers of NewGasCo-Colo. 3. Capital Expenditure and Cost Assumptions a. With the exception of a new Call Center which would need to be constructed in order to handle customer orders and bill inquiries, estimated at $20.0 million, no additional capital expenditures will be made by NewGasCo-Colo as a direct consequence of spinning off the gas facilities from PSCo. This, of course, does not include planned capital expenditures to be made in the normal course of business in order to maintain existing levels of service and provide service to new customers. b. In the event PSCo was required to divest its gas operations, and assuming the assets were spun-off into a new stand-alone corporation, the requirements of the existing indentures would result in the need to recapitalize at market rates in effect at the time of the spin-off. Additionally, costs associated with the issuance of securities would be incurred and ultimately included in the NewGasCo-Colo cost of service. The current capital structure of PSCo is used for the purpose of analyzing capital costs for NewGasCo-Colo. This structure is approximately equal to the capital structure approved by the CPUC in PSCo's most recent rate proceeding, Docket No. 93S-001EG. As of June 30, 1995, PSCo's gas rate base was capitalized as follows: Ratio Cost Composite Cost Long Term Debt 40.39% 7.66% 3.09% Preferred Stock 7.80% 6.65% 0.52% Common Equity 51.81% 11.00% 5.70% Total: 100.00% 9.31% This Study assumes that NewGasCo-Colo would have access to capital at a cost similar to that of PSCo. The difference expected from the rates listed above would result from replacing embedded average debt and preferred costs with those available at the time the new company is capitalized. The existing debt financing supporting PSCo's assets is primarily thirty-year utility bonds rated BBB+ at an average imbedded rate of 7.66 percent. The estimated rate on new comparable debt securities in 1997 is 8.03 percent. Using this forecasted rate and adjusting for issuance costs of approximately 1.5 percent of proceeds to be rolled in and amortized over the life of the bonds, the cost of debt for NewGasCo-Colo would be 8.16 percent. An additional cost of $250,000 would be incurred in executing a new indenture. The market rate for utility sinking fund preferred stock in 1997 is forecast to be 7.22 percent, compared to the existing 6.65 percent imbedded cost. The cost to issue preferred stock would be approximately 2 percent of proceeds. As in the case of long term debt, these costs would be recovered as additional cost of capital and amortized over the life of the outstanding stock. The effective cost of preferred stock including issuance costs would be 7.40 percent. The cost of common equity is 11.00 percent which was established by the CPUC on October 14, 1993 in PSCo's most recent rate proceeding, Docket No. 93S-001EG. Common equity would not require the sale of new securities, as new stock certificates would be issued to current shareholders of PSCo. This would require some 78,000 certificates at a cost of approximately $780,000. This cost would be charged as a transition cost to be recovered over 30 years. 4. Transition Cost Assumptions Transition costs, such as the renegotiation of gas-only franchises with the numerous cities and towns in which PSCo provides service, as well as upfront costs related to the creation of new indenture agreements, would be incurred and amortized over the appropriate life of the asset. B. Organization of NewGasCo-Colo The functional organization chart of NewGasCo-Colo is contained in Appendix B. Design of NewGasCo-Colo Organization The PSCo organization at September 30, 1995 was used as the pattern for developing the NewGasCo-Colo organization structure. The organizational structure is the result of the recent major restructuring completed with the assistance of Edgar Dunn & Company, a nationally recognized management consulting firm. In order to develop the new structure for the stand-alone company, management representing each organization was contacted for input regarding staffing levels. Board of Directors The Board of Directors is assumed to consist of nine directors based on the size and scope of NewGasCo-Colo. Chief Executive Officer(CEO) The CEO reports to the Board of Directors and is responsible for overseeing the entire Company. The CEO oversees three direct-report executives (Chief Operating Officer; Chief Financial Officer; and General Counsel) and is responsible for Corporate Communications and Audit Services. The Executive Organization totals 23 employees, and is composed of 8 executives, 2 managers, and 13 non-management personnel. Chief Operating Officer (COO) The COO reports directly to the CEO and is responsible for the overall operating activities of the Company. The COO oversees the work of three executives (Marketing, Planning and Supply; Engineering and Technical Support; and Operations and Customer Service), and in addition directs the Managers of Business Processes and Information Technology and a secretary. The organization managed by the COO totals 1,767 employees, and is composed of 146 managers, and 1,621 non- management personnel. Vice President, Marketing, Planning and Supply The Vice President (VP) of Marketing, Planning and Supply is responsible for residential marketing, wholesale marketing, sales to large commercial and industrial customers, market research, measurement, program development and evaluation, business support, the natural gas vehicle program, acquiring interstate gas transportation, forecasting gas requirements, making sales gas purchases, and gas system control coordination. Marketing, Planning and Supply totals 129 employees, composed of 16 management and 113 non- management personnel. Vice President, Engineering and Technical Support The VP of Engineering and Technical Support is responsible for all major engineering functions such as system design (pipelines, storage reservoirs, and compressors), safety, environmental training, purchasing, contracts, material management, transportation, and facilities maintenance. Engineering and Technical Support totals 252 employees, composed of 27 management and 225 non-management personnel. Vice President, Operations and Customer Service The VP of Operations and Customer Service is responsible for the day-to-day interface with customers, customer accounts, regional management, pipeline construction, distribution system support services, meter reading, credit and billing, and customer information service. Operations and Customer Service is the largest department, totaling 1,363 employees, composed of 99 management and 1,264 non-management personnel. Manager, Business Processes The Manager of Business Processes is responsible for reviewing and recommending improvements to on-going business practices and procedures. Business Processes totals four employees and is composed of one management and three non- management personnel. Manager, Information Technology The Manager of Information Technology is responsible for asset management, technology management, and business planning. Information Technology totals 18 employees, and is composed of three management and 15 non- management personnel. The day-to-day operations, maintenance, software development, and equipment refresh functions will continue to be under contract with a third-party information technology provider. Chief Financial Officer (CFO) The CFO reports directly to the CEO and is responsible for rate, regulatory, finance, treasury, and accounting functions. The CFO oversees the work of four managers (Rates and Regulation; Investor Relations; Treasury; and the Controller/Corporate Secretary.) The organization managed by the CFO totals 113 employees, and is composed of 18 management and 95 non-management personnel. General Counsel The General Counsel reports directly to the CEO and oversees the VP of Human Resources, the Associate Legal Counsel, the Governmental Affairs Group, and the Unit Manager of Risk Management. The General Counsel is responsible for governmental affairs, legal services, and liability risk management, and, through the VP of Human Resources, oversees company staffing, compensation, training, benefits, health services, and employee relations. The organization managed by the General Counsel totals 66 employees, and is composed of 11 management and 55 non- management personnel. C. Annual Cost Increases Based upon the foregoing general and specific assumptions, and the staffing requirements of the organizational structure, the following increased annual costs have been developed for NewGasCo-Colo: 1. Labor Costs $21,099,644 2. Pension and Benefits 11,880,673 3. Facility Costs 2,361,310 4. Postage Expense 1,788,667 5. Board of Director's Fees 189,000 6. Reporting Costs 670,660 7. Payroll Taxes 1,196,435 8. Call Center Deprecation 440,000 9. Capitalized Labor Depreciation 45,623 Total: $39,672,012 ____________________ Neither an Employee Incentive Plan (EIP), nor a Management Incentive Plan has been included when determining the NewGasCo-Colo cost of labor. Note, however, that it is estimated that a plan similar to the present PSCo plan could result in the following additional annual costs: EIP per employee $1000 per year Middle Management at Target 15 percent of base salaries Unit Managers at Target 10 percent of base salaries Shift differential pay, overtime meal pay, and other premium pay types (i.e., time and one half for holidays) have not been included in determining the payroll cost for NewGasCo- Colo. An analysis of these costs based on historic statistics indicates that these costs could be as high as one percent of total labor costs or approximately $1.0 million per year. It is probable that the level of investor risk for NewGasCo-Colo will be higher than PSCo because of the reduced asset base and relative volatility of cash flows. As a result, it would in all probability receive a lower bond rating and higher debt costs. However, no separate study was made to quantify the effect of a lower bond rating, and therefore, no impact was included. Retraining costs have not been included as it is assumed all new employees will be fully qualified and receive minimal on-the-job training. D. Capital Cost Increases Using the forecasted 1997 marginal rates for debt and preferred stock and the allowed cost of equity as discussed earlier, and recasting the cost of capitalizing the gas assets using PSCo's existing capital structure as a proxy for NewGasCo-Colo results in the following: Ratio Cost Composite Cost Long Term Debt 40.39% 8.16% 3.30% Preferred Stock 7.80% 7.40% 0.58% Common Equity 51.81% 11.00% 5.70% Total: 100.00% 9.58% The actual interest rates and preferred stock yields in effect at the time of divestiture could be substantially higher or lower than the forecasts employed here. Applying the foregoing capital cost to NewGasCo-Colo results in the following increased annual capital costs: 1. Increased Borrowing Cost $1,486,784 2. Capital Expenditure 1,874,615 3. Capitalized Labor 188,551 4. Capitalized Transition 259,172 Total: $3,809,122 E. Transition Cost Increases The following is a summary of the principal transition costs that will be incurred as a result of a spin-off of the gas business of PSCo and their annual costs: Annual Asset Cost Increase 1. Renegotiation of Franchises $1,794,400 $ 89,720 2. New Indenture 250,000 8,333 3. Stock Certificates 780,000 26,000 Total: $2,824,400 $124,053 F. Total Lost Economies Summarizing the foregoing increased annual costs, capital costs, and amortized transition costs which were developed in the Base Case Study yields the following total lost economies before the effect of income taxes: Total Lost Economies: $43,605,187 G. Income Taxes Recovery of the foregoing lost economies in a general rate proceeding would also require an increase to recover income taxes associated with the lost economies. The following is a summary of the revenue effect of income taxes: Total Income Taxes: $1,002,482 H. Base Case - 12 Months Ended June 30, 1995 The following is a summary of the key components of the Base Case (the definition of each item is the same as in the Executive Summary): 1. Total Gas Operating Revenue $677,326,418 2. Total Gas Operating Revenue Deductions $607,599,384 3. Gross Gas Income $69,727,034 4. Net Gas Income $51,266,520 I. Comparison of the Total Lost Economies of NewGasCo-Colo to the Base Case The Total Lost Economies, before the effect of income taxes as a percent of the key components of the Base Case are: 1. Percent of Total Gas Operating Revenue 6.44% 2. Percent of Total Gas Operating Revenue Deductions 7.18% 3. Percent of Gross Gas Income 62.54% 4. Percent of Net Gas Income 85.06% J. Comparison of Rates of Return on Rate Base The following is a comparison of the rates of return on rate base for the gas operations before and after an assumed spin-off: 1. Pro Forma Rate of Return - Existing 6.89% 2. Pro Forma Rate of Return - Base Case 9.31% 3. Pro Forma Rate of Return after Spin-off 2.47% 4. Required Rate of Return based on NewGasCo-Colo Cost of Capital 9.58% VI. NEWGASCO-WYO ANALYSIS As was the case with PSCo, a detailed study has been undertaken to analyze the potential impact on both the shareholders and customers of Cheyenne if it were ordered to divest the gas business. In order to accomplish that study, the management of Cheyenne provided estimates of the staffing levels of a NewGasCo-Wyo, as well as any other operational and administrative changes that would have to be made in order to maintain the same level and quality of service to its gas customers after a spin-off of the gas properties. A. Specific Assumptions In addition to the General Study Assumptions cited earlier, the following specific assumptions have been incorporated into the analysis of the spin-off of the gas operations of Cheyenne into a NewGasCo-Wyo. 1. Labor Assumptions: a. As was the case with NewGasCo-Colo, the Cheyenne organization at September 30, 1995 was used as the template for developing the NewGasCo-Wyo organization structure. b. In order to maintain the same quality of service after the divestiture as before, a detailed analysis of the staffing requirements for NewGasCo-Wyo was made by Cheyenne management and PSCo Human Resources personnel. The following is a summary of their analysis of the staffing requirements for NewGasCo-Wyo: A total of 57 employees would be required to operate NewGasCo-Wyo. Thirty-two employees of Cheyenne would be transferred to the new organization. The employees transferred include one manager and 31 non-management employees. An additional 25 employees would have to be hired in order for NewGasCo-Wyo to provide the same level of service as before the divestiture. These additional employees would include: one President, two managers and 22 non-management employees. c. Executive salaries are based on national survey data. Since the size of the organization is smaller than NewGasCo-Colo, the executive salaries are less for NewGasCo-Wyo. d. All non-executive salaries are based on current Cheyenne average compensation for the appropriate job level. e. After the base cost of labor was determined, an additional 37.6 percent was added to determine pension and benefit costs. This percent is based on PSCo's approximate current percentage in order to keep benefits similar for NewGasCo-Wyo. f. The cost of overtime varies depending upon the time of year, work load, and job classifications. The overtime cost assumptions utilized are comparable with the percent of overtime cost currently experienced for PSCo. 2. Operation & Maintenance and Administrative and General Assumptions: a. In addition to the General Study Assumptions cited earlier, it is assumed that certain minor administrative functions now performed by employees of PSCo and billed to Cheyenne will be contracted out on an as-needed basis, and further, it is assumed that the cost to NewGasCo-Wyo would be substantially the same after a divestiture as before. For example, the short- and long-term financing for Cheyenne is currently being accomplished by employees of the Long-term Finance Department of PSCo, and if divestiture of Cheyenne's gas operations were ordered, and such financing were required, arrangements would have to be made with another organization possessing the same or similar financial expertise. b. Annual facility costs relating to the additional employees required to operate NewGasCo-Wyo have been incorporated into the Study. c. Separate arrangements will be made for external auditing of the books and accounts of NewGasCo- Wyo. d. In like manner, legal assistance, billing and record-keeping assistance would be contracted out, and it is assumed that NewGasCo-Wyo would be able to acquire these services for substantially the same fees as it is currently paying PSCo. e. Operations support provided by PSCo, such as controlling the operation of the gas distribution system, would have to be transferred to NewGasCo- Wyo. However, it is assumed that this support could be accomplished for the same cost as currently incurred by NewGasCo-Wyo. f. Executive and administrative support from PSCo would cease upon any divestiture, and these functions have been provided for in the NewGasCo- Wyo organizational structure. g. Separate gas bills will be provided the customers of NewGasCo-Wyo. 3. Capital Expenditure and Cost Assumptions a. No additional capital expenditures will be made by NewGasCo-Wyo as a direct consequence of spinning off the gas facilities from Cheyenne. This, of course, does not include planned capital expenditures to be made in the normal course of business in order to maintain existing levels of service and provide service to new customers. b. Financing costs for Cheyenne would similarly be affected by a required spin-off of their gas operations as was PSCo. The current capital structure of Cheyenne is used for the purpose of analyzing capital costs for NewGasCo-Wyo. This structure is approximately equal to the capital structure approved by the WPSC in the most recent rate proceeding, Docket No. 30005-GR-92-19. As of June 30, 1995 Cheyenne's gas rate base was capitalized as follows: Recapitalizing NewGasCo-Wyo would involve issuing new long-term debt at marginal rates. Cheyenne debt is currently rated BBB. The forecasted rate for such debt in 1997 is 8.20 percent. Issuance expenses of 1.5 percent of proceeds amortized over ____________________ Additional financing costs, not quantified in this study, would arise from the short-term borrowing costs incurred by the stand-alone gas company. Because gas purchases are highly seasonal, the company would experience great volatility in its cash position. At the same time the book value of the assets of the company are much lower than those of the combined utility predecessor. As a result, the new company would be perceived as riskier and would be subject to higher short-term rates. However, these costs have not been quantified due to their uncertain nature. Neither an Employee Incentive Plan (EIP), nor a Management Incentive Plan has been included when determining the NewGasCo-Wyo cost of labor. Note, however, that it is estimated that a plan similar to the present PSCo plan could result in the following additional annual costs: EIP per employee $1000 per year Middle Management at Target 15 percent of base salaries Unit Managers at Target 10 percent of base salaries Shift differential pay, overtime meal pay, and other premium pay types (i.e., time and one half for holidays) have not been included in determining the payroll cost for NewGasCo-Wyo. An analysis of these costs based on historic statistics indicates that these costs could be as high as one percent of total labor costs or approximately $22,000 per year. thirty years would result in an all-inclusive rate of 8.34 percent. The cost of common equity is 11.66 percent which was established by the WPSC on November 9, 1992 in Cheyenne's most recent gas rate proceeding, Docket No. 30005-GR-92-19. Common equity would not require the sale of new securities; however, new stock certificates would be issued to current shareholders of PSCo. Assuming that a lesser number of shares were issued than is currently outstanding on a per-shareholder basis, this would require some 39,000 certificates at a cost of approximately $390,000. This cost would be charged as a transition cost to be recovered over 30 years. As in the case of PSCo, a new indenture would be required at an estimated cost of $250,000. This cost would be included in transition costs to be recovered over 30 years. 4. Transition Cost Assumptions Transition costs, such as the renegotiation of gas-only franchises with the City of Cheyenne, and the Towns of Burns and Pine Bluffs would be amortized over the appropriate life of the asset. B. Organization of NewGasCo-Wyo The functional organization chart of NewGasCo-Wyo is contained in Appendix D. The new structure is composed of a seven-member Board of Directors, a President, and four managers. The organization managed by the President totals 56 employees and is composed of four managers and 52 non-management personnel. The Manager of Operations will have the day-to-day responsibility for all new gas construction, including the installation of mains and services to new customers, as well as the installation of the meters and associated equipment for such service. In addition, this manager will have the responsibility for maintaining all gas facilities as well as inspecting the facilities on a routine basis. Operations totals 25 employees, composed of one manager and 24 non-management employees. The Manager of Operations Support will be in charge of the engineering and mapping functions, in addition to the purchasing and storing of the various equipment, materials, and supplies required for the operation of NewGasCo-Wyo. This manager will also supervise the trouble dispatch team and be responsible for the maintenance of NewGasCo-Wyo's vehicles. Operations Support totals 14 employees, composed of one manager and 13 non- management employees. The Manager of Customer Service will be responsible for marketing, meter reading, billing, and collection functions, in addition to the acquisition of natural gas, and the accounting and reporting required by the various state and federal agencies. Clerical support will also be this manager's responsibility. Customer Service includes 12 employees in addition to the manager. The Manager of Rates and Regulations will be responsible for all regulatory activities, including the development and filing of periodic rate cases with the WPSC and all regulatory reporting requirements. This department will have three employees in addition to the manager. C. Annual Cost Increases Based upon the foregoing general and specific assumptions, and the staffing requirements of the organizational structure, the following increased annual costs have been developed for NewGasCo-Wyo: 1. Labor Costs $ 551,779 2. Pension and Benefits 314,705 3. Facility Costs 120,475 4. Auditing Costs - External Auditor 10,000 5. Postage Expense 41,192 6. Board of Director's Fees 77,000 7. Reporting Costs 345,020 8. Payroll Taxes 52,341 9. Capitalized Labor Depreciation 6,961 Total: $1,519,473 D. Capital Cost Increases Using the capital structure, allowed cost of equity and increased debt costs for NewGasCo-Wyo discussed earlier, the resulting weighted composite cost of capital for the stand-alone gas company would be: Ratio Cost Composite Cost Long Term Debt 52.72% 8.34% 4.40% Common Equity 47.28% 11.66% 5.51% Total: 100.00% 9.91% Applying the foregoing capital cost to NewGasCo-Wyo results in the following increased capital costs: 1. Increased Borrowing Cost $ 46,139 2. Capitalized Labor 26,684 3. Capitalized Transition 66,394 Total: $139,217 E. Transition Cost Increases The following is a summary of the principal transition costs that will be incurred as a result of a spin-off of the gas business of Cheyenne and their annual costs: Annual Asset Cost Increase 1. Renegotiation of Franchises $54,000 $ 2,700 2. New Indenture 250,000 8,333 3. Stock Certificates 390,000 13,000 Total: $694,000 $24,033 F. Total Lost Economies Summarizing the foregoing increased annual costs, capital costs, and amortized transition costs as developed in the Base Case Study, yields the following total lost economies before the effect of income taxes: Total Lost Economies: $1,682,723 G. Income and Franchise Taxes Recovery of the foregoing lost economies in a general rate proceeding would also require an increase to recover income and franchise taxes associated with the lost economies. The following is a summary of the revenue effect of income and franchise taxes: Total Income and Franchise Taxes: $92,716 H. Base Case - 12 Months Ended June 30, 1995 The following is a summary of the key components of the Base Case (the definition of each item is the same as in the Executive Summary): 1. Total Gas Operating Revenue $15,630,080 2. Total Gas Operating Revenue Deductions $13,681,672 3. Gross Gas Income $1,948,408 4. Net Gas Income $1,530,526 I. Comparison of the Lost Economies of NewGasCo-Wyo to the Base Case The Total Lost Economies, before the effect of income taxes, as a percent of the key components of the Base Case are: 1. Percent of Total Gas Operating Revenue 10.77% 2. Percent of Total Gas Operating Revenue Deductions 12.30% 3. Percent of Gross Gas Income 86.36% 4. Percent of Net Gas Income 109.94% J. Comparison of Rates of Return on Rate Base The following is a comparison of the rates of return on rate base for the gas operations before and after an assumed spin-off: 1. Pro Forma Rate of Return - Existing 7.97% 2. Pro Forma Rate of Return - Base Case 9.62% 3. Pro Forma Rate of Return after spin-off 3.13% 4. Required Rate of Return based on NewGasCo-Wyo Cost of Capital 9.91% VII. OTHER CUSTOMER IMPACTS A. Quantifiable Postage Costs Customers who currently pay their monthly bill with one check and one stamp will be required to use two separate checks and two separate stamps in paying the remaining electric company and the NewGasCo. For the gas and electric customers of the existing PSCo and Cheyenne companies, the doubling of postage cost alone, not counting check and envelope costs, will result in a total annual out-of-pocket cost increase to customers of over $3.5 million. These annual postage costs are broken downs as follows: Postage Costs NewGasCo-Colo Customers $3,478,637 NewGasCo-Wyo Customers $101,395 Total: $3,580,032 B. Non-quantifiable In addition to the quantifiable increased costs or lost economies which have been evaluated and included in the Study, there are other non-quantifiable costs which have not been included. The reason for not attempting to quantify these costs is that a meaningful estimate of these costs is beyond the scope of PSCo's present analysis. However these costs do exist, and the following are a few examples of these non-quantifiable costs. - The cost of additional regulation for both the CPUC and WPSC. The staffs of these agencies would undoubtedly experience additional duties and responsibilities as a result of dealing with an additional utility. - The cost to customers as a result of doing business with two utilities instead of one, including additional telephone calls for service questions or bill inquiries. - The cost to customers of providing access to meters and other facilities for two utilities. - The cost to customers, especially contractors and builders, of dealing with two utilities rather than one. VIII. BILL COMPARISON OF NEWGASCO-COLO AND NEWGASCO-WYO TO OTHER UTILITIES The following is a comparison of average monthly bills for various utilities with which PSCo competes. The average bills are based on PSCo 1994 statistics and rates in effect as of October 1, 1995. TABLE VIII-1 BILL COMPARISON OF NEWGASCO-COLO AND NEWGASCO-WYO TO OTHER UTILITIES TOTAL AVERAGE MONTHLY CHARGE NAME OF UTILITY (Ranked in ascending order of Total Average Monthly Residential CITY RESIDENTIAL COMMERCIAL Charge) CHEYENNE CHEYENNE $28.57 $142.57 NEWGASCO-WYO CHEYENNE $31.81 $158.77 CITY OF COLORADO COLORADO SPRINGS SPRINGS $33.00 $181.84 CITY OF FORT MORGAN $33.42 $168.29 FORT MORGAN ATMOS ENERGY CO GREELEY $33.76 $182.81 PEOPLES (DIVISION OF CASTLE ROCK $34.95 $184.88 UTILICORP) PSCO DENVER $35.16 $172.66 CITIZENS UTILITIES LA JUNTA $36.66 $192.62 NEWGASCO-COLO DENVER $37.49 $184.09 JULESBERG/ KN ENERGY OVID $39.68 $220.66 TRINIDAD TRINIDAD $43.06 $229.31 TOWN OF RANGELY RANGELY $43.64 $227.64 KN ENERGY (ROCKY MTN GLENWOOD NATURAL GAS) SPRINGS $48.67 $252.27 ____________________ As discussed in the NewGasCo-Colo analysis, and for the same reasons, no additional premium is assumed on debt even though it would have only one-third the asset base of the existing company. Retraining costs have not been included as it is assumed all new employees will be fully qualified and receive minimal on-the-job training. The stand-alone gas company would experience higher short-term borrowing rates much as expected for the NewGasCo-Colo; however, these costs have not been quantified due to their uncertain nature. IX. EFFECT ON REMAINING ELECTRIC COMPANIES A. PSCO As a result of any divestiture, the remaining NewElectricCo-Colo would experience increased costs in addition to those experienced by NewGasCo-Colo. These increased costs, as outlined earlier, are largely the result of increased labor costs associated with the additional personnel required to replace those who are currently working in both gas and electric operations. Additional postage costs would also be incurred since electric billings would no longer share postage with the gas billings. The total of these additional costs is $46.2 million, which equates to approximately 3.5 percent of electric rate revenues. A summary of the increased annual costs, capital costs, and amortized transition costs applicable to NewElectricCo-Colo is as follows: 1. Labor Costs $25,851,085 2. Pensions and Benefits 9,055,651 3. Facility Costs 2,361,310 4. Postage Expense 1,881,494 5. Reporting Costs 172,510 6. Payroll Taxes 1,244,022 7. Capitalized Labor Depreciation 99,076 8. Increased Borrowing Cost 5,168,480 9. Capitalized Labor 356,765 Total: $46,190,393 B. Cheyenne Similarly, the remaining NewElectricCo-Wyo would experience additional costs due to labor and postage. The additional labor is due to replacing those personnel who currently work in both gas and electric operations. The total of these additional costs is $0.9 million, which is approximately 2.7 percent of electric rate revenues. A summary of the increased annual costs, capital costs, and amortized transition costs applicable to NewElectricCo-Wyo is as follows: 1. Labor Costs $462,769 2. Pensions and Benefits 263,940 3. Facility Costs 14,457 4. Postage Expense 41,191 5. Payroll Taxes 43,897 6. Capitalized Labor Depreciation 5,837 7. Increased Borrowing Cost 87,034 8. Capitalized Labor 22,379 Total: $941,504 APPENDIX A COMPARISON OF PSCO AND CHEYENNE GAS TO REGIONAL GAS UTILITIES 1994 FINANCIAL NET 1994 PLANT NAME OF UTILITY GAS OPERATING OPERATING OPERATING AT (Alphabetical NUMBER OF SALES REVENUES REVENUES INCOME 12/31/94 Order) STATE(S) CUSTOMERS (MMCF) ($000) ($/MCF) ($000) ($000) Cheyenne Light, Fuel and Power Company WY 25,765 4,946 $13,799 $2.79 $1,506 $19,009 Gas Company of New Mexico NM 345,678 56,541 $302,104 $5.34 $24,913 $250,867 KS, NB, KN Energy, Inc. CO, WY 230,000 69,100 $320,557 $4.64 $48,304 $562,315 Montana power MT 131,316 20,845 $107,812 $5.17 $20,461 $289,968 Montana-Dakota MT, ND, Utilities Co. SD 192,150 30,113 $155,319 $5.16 $3,948 $83,434 Mountain Fuel Supply Company UT, WY 572,174 83,116 $378,260 $4.55 $34,046 $459,784 Public Service Company of Colorado CO 933,361 150,107 $624,922 $4.16 $36,915 $543,698 Source: Pipeline & Gas Journal, September 1995 EX-27 13
OPUR1 YEAR DEC-31-1995 DEC-31-1995 PER-BOOK 0 0 200 0 0 200 200 0 0 200 0 0 0 0 0 0 0 0 0 0 0 200 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
-----END PRIVACY-ENHANCED MESSAGE-----