-----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, O4sL6wK7P8wGvZGUr9lVrUZoEDTKB02r+DCnwB4I+LK9Nm8QQMl2Vc0VImZHkVDa Q33zs706kg1wQxrvLL4OjA== /in/edgar/work/20000815/0000950120-00-000206/0000950120-00-000206.txt : 20000922 0000950120-00-000206.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950120-00-000206 CONFORMED SUBMISSION TYPE: U-1 PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 20000815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WISCONSIN POWER & LIGHT CO CENTRAL INDEX KEY: 0000107832 STANDARD INDUSTRIAL CLASSIFICATION: [4931 ] IRS NUMBER: 390714890 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: U-1 SEC ACT: SEC FILE NUMBER: 070-09735 FILM NUMBER: 702945 BUSINESS ADDRESS: STREET 1: 222 W WASHINGTON AVE CITY: MADISON STATE: WI ZIP: 53703 BUSINESS PHONE: 6082523311 U-1 1 0001.txt FORM U-1 (As filed August 15, 2000) File No. 70- ---- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------------------------------------------------------- FORM U-1 APPLICATION OR DECLARATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ---------------------------------------------------------------------- Wisconsin Power and Light Company South Beloit Water, Gas & Electric Company 222 West Washington Avenue Madison, Wisconsin 53703 American Transmission Company LLC c/o ATC Management Inc. c/o Wisconsin Electric Power Company 231 W. Michigan Street Milwaukee, Wisconsin 53203 ATC Management Inc. c/o Wisconsin Electric Power Company 231 W. Michigan Street Milwaukee, Wisconsin 53203 (Names of companies filing this statement and addresses of principal executive offices) ---------------------------------------------------------------------- ALLIANT ENERGY CORPORATION (Name of top registered holding company parent) ---------------------------------------------------------------------- Edward M. Gleason, Vice President-Treasurer and Corporate Secretary Alliant Energy Corporation 222 West Washington Avenue Madison, Wisconsin 53703 (Name and address of agent for service) ---------------------------------------------------------------------- The Commission is requested to send copies of all notices, orders and communications in connection with this Application/Declaration to: Barbara J. Swan, General Counsel William T. Baker, Jr., Esq. Alliant Energy Corporation Thelen Reid & Priest LLP 222 West Washington Avenue 40 West 57th Street Madison, Wisconsin 53703 New York, New York 10019 John E. Ebright, Vice President, Chief Financial Officer and Treasurer ATC Management Inc. c/o Wisconsin Electric Power Company 231 W. Michigan Street Milwaukee, Wisconsin 53203 ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION. ----------------------------------- INTRODUCTION A. Alliant Energy Corporation ("Alliant Energy") is a registered holding company under the Public Utility Holding Company Act of 1935, as amended (the "Act"). 1 Its public-utility subsidiaries are Wisconsin Power and Light Company ("WPL"), South Beloit Water, Gas & Electric Company ("South Beloit"), Interstate Power Company, and IES Utilities Inc. The principal executive offices of Alliant Energy, WPL and South Beloit are located at 222 West Washington Avenue, Madison, Wisconsin 53703. American Transmission Company LLC (the "Transco"), which is described in further detail below, is a Wisconsin limited liability company which was formed on June 12, 2000 with Wisconsin Electric Power Company ("WEPCO"), a subsidiary of Wisconsin Energy Corporation ("WEC"), Wisconsin Public Power Inc. ("WPPI") and ATC Management Inc., a Wisconsin corporation formed on June 12, 2000 (the "Corporate Manager", and together with WPL, South Beloit and the Transco, "Applicants"), as its initial members. The principal executive officers of the Transco and the Corporate Manager are currently located at 231 W. Michigan Street, Milwaukee, Wisconsin 53203. The Commission, in HCAR No. 27206 (Aug. 2, 2000), authorized, among other things, - ------------------------ 1 See WPL Holdings, Inc., et al., Holding Co. Act Release No. 26856 (Apr. 14, 1998). WPL to become a member of the Transco and to acquire shares of the Corporate Manager. B. WPL is engaged principally in the generation, purchase, distribution and sale of electric power in 35 counties in a 16,000 square-mile area in southern and central Wisconsin. As of December 31, 1999, WPL provides retail electric service to approximately 407,000 customers in 599 cities, villages and towns, and wholesale service to 24 municipal utilities, three rural electric cooperatives, the Wisconsin Public Power Incorporated System, which provides retail electric service to nine communities in the WPL service area, and one privately owned utility. C. WPL is subject to regulation as a public utility as to retail electric, gas and water rates, service rules, issuance of securities, construction of new facilities, transactions with affiliates and various other matters by the Public Service Commission of Wisconsin (the "Wisconsin Commission"). It is also subject to regulation by the Federal Energy Regulatory Commission ("FERC"). The Nuclear Regulatory Commission ("NRC") regulates WPL in connection with its ownership interest in the Kewaunee Nuclear Power Plant. D. South Beloit is a wholly-owned subsidiary of WPL that supplies retail electric and gas services to customers in the cities of South Beloit and Rockton, Illinois, and the adjacent rural areas. South Beloit is subject to 2 regulation by the Illinois Commerce Commission (the "Illinois Commission"). As of December 31, 1999, South Beloit serves approximately 8,000 electric customers. The service territory of South Beloit is located in Illinois and is adjacent to the service territory of WPL in Wisconsin. The electric distribution systems of WPL and South Beloit are interconnected at many points along the Wisconsin-Illinois state line. The electric operations of WPL and South Beloit are integrated and all of WPL's generating units are centrally dispatched by Alliant Energy Corporate Services, Inc., the service company affiliate of WPL and South Beloit. 2 E. WPL owns and operates a transmission system comprising 107 miles of 345 kV transmission facilities, 758 miles of 138 kV transmission facilities, 1,908 miles of 69 kV transmission facilities and associated substations and real property interests (the "WPL Transmission Assets"). South Beloit owns and operates a transmission system comprising less than one mile of 345 kV transmission facilities, 10 miles of 69 kV transmission facilities, one substation and associated real property interests (the "South Beloit Transmission Assets"). - ------------------------ 2 South Beloit has no generating units. 3 F. At and for the twelve months ended June 30, 2000, Alliant Energy's consolidated assets, operating revenue and net income (all in thousands) were $6,597,078, $2,358,409 and $177,890, respectively. At and for the twelve months ended June 30, 2000, WPL's consolidated assets, operating revenue and earnings available for common stock (all in thousands) were $1,779,049, $795,096 and $67,448, respectively. At and for the twelve months ended June 30, 2000, South Beloit's assets, operating revenue and net income (all in thousands) were $21,494, $16,794 and $1,959, respectively. G. Applicants request authorization for (i) WPL to transfer, directly or indirectly, ownership and control over the WPL Transmission Assets to the Transco; (ii) South Beloit to transfer, directly or indirectly, ownership and control over the South Beloit Transmission Assets to the Transco; (iii) WPL and South Beloit to receive, directly or indirectly, in exchange for such transfer, member units of the Transco; (iv) WPL to purchase approximately 2,563 Class A shares of the Corporate Manager; 3 (v) WPL to purchase one Class B - ------------------------ 3 The final percentage ownership interests, as well as the definitive number of Transco member units and Corporate Manager Class A shares to be acquired, will depend upon the actual participants in the Transco and the Contribution Value (as defined below) of the transmission assets transferred to the Transco by such participants. 4 share of the Corporate Manager; 4 (vi) the Transco's issuance of member units in exchange for either transmission assets (in the case of all other transmission-owning Member Utilities (as defined below)) or cash (in the case of WPPI and any other transmission-dependent Member Utilities) and (vii) the Corporate Manager's issuance of its Class A and Class B shares in exchange for cash payments. Because of limitations imposed by the WPL indenture, WPL proposes to effect the transfer of the WPL Transmission Assets to the Transco, with instructions to the Transco to issue member units to a newly created limited liability company ("NewCo") to be wholly owned by WPL. Therefore, WPL also requests authorization to form NewCo and to acquire all of NewCo's membership interests in exchange for one or more cash payments to NewCo. Upon issuance of the Transco's member units to NewCo, NewCo will pay to the trustee under WPL's indenture, on behalf of WPL, cash in an amount approximately equal to WPL's corresponding cash payment to NewCo for NewCo's member units. WPL and South Beloit also seek Commission authority to transfer to the Transco, from time to time, up to $10,000,000 of transmission assets which are currently under - ------------------------ 4 WPL will pay a purchase price for these Class A and Class B Corporate Manager shares of $10 per share. 5 construction, in exchange for additional Transco member units to be issued to NewCo or South Beloit, as the case may be. H. Commission authorization through June 30, 2004 is also sought for external financing as follows: (i) short-term debt financing by the Transco in the form of, among other things, borrowings under a revolving credit agreement, issuance of commercial paper or other forms of short-term financing; (ii) long-term debt financing by the Transco in the form of debentures or other forms of long-term debt financing; and (iii) equity financing in the form of common or preferred stock of the Corporate Manager, other equity securities or additional interests in the Transco. The amount of the Transco's short-term and long term debt outstanding at any time will not exceed, in the aggregate, $400 million. TRANSCO LEGISLATION I. In 1999, the state of Wisconsin enacted legislation which facilitates the formation of the Transco as a for-profit, single-purpose transmission company. 5 The Transco will charge a single system-wide average network rate to be phased in over five years in accordance with the Transco Legislation, and a single system-wide average point-to-point rate for "through - ------------------------ 5 1999 Wisconsin Act 9, Sections 2335tr to 2335uh (Assembly Amendment to Assembly Subcommittee Amendment 1 to 1999 Assembly Bill 133) (the "Transco Legislation"). 6 and out" service, under an open access transmission tariff filed with the FERC on July 31, 2000. Key benefits of the Transco include the elimination of rate "pancaking" among the Transco members' multiple transmission systems; one-stop shopping for transmission and wholesale distribution service over multiple transmission systems; the reduction of operational barriers within the Transco service area; and the transfer of ownership of the transmission assets from vertically integrated utilities that will further functional unbundling. These benefits are in keeping with the goals of the Transco Legislation and FERC policies. The Transco Legislation, among other things, encourages public utility affiliates of Wisconsin holding companies, including WPL, to transfer ownership of their transmission assets to the Transco by beneficially adjusting the calculation of an existing limit on the amount of unregulated (or non-utility) investments the holding company system can make, after the transfer of assets to the Transco. 6 The Transco will be managed by the Corporate Manager. All - ------------------------ 6 Section 196.485(5) of the Wisconsin Statutes. This investment cap applies to any holding company system that owns a Wisconsin public utility. Generally, Wisconsin law limits the amount of assets that all non-utility affiliates in a holding company system may own to an amount equal to 25% of the assets owned by all of the electric utility affiliates within that system. Section 196.795(6m)(b) of the Wisconsin Statutes. The Transco Legislation permits an electric utility within a holding company system to exclude certain energy related "eligible assets" (as defined in the Wisconsin Utility Holding Company Act) from the calculation of non-utility assets that count towards the 25% asset cap if, among other things, each electric utility within a holding company system that owns transmission assets in Wisconsin transfers all of those transmission assets to the Transco before January 1, 2001 and each electric utility within that holding company system petitions, by June 30, 2000, the Wisconsin Commission and the FERC for authority to transfer operational control of all of its transmission facilities in Wisconsin and the surrounding states to the Midwest independent system operator. For purposes of the Transco Legislation, the term "eligible assets" includes assets of a non-utility affiliate used to, among other things, generate or transmit gas, oil, electricity or steam energy; provide energy management services; provide energy-related customer services; recover, produce energy from, or process waste materials; provide telecommunication services; provide environmental engineering services; and manufacture or sell products that filter, pump or process water or other fluids. All such assets in the Alliant Energy System will thus not count towards the investment cap if, among other things, WPL participates in the Transco in accordance with the Transco Legislation. 7 Transco participants will ultimately own direct or indirect interests in the Transco and the Manager in proportion to the value of the transmission assets or cash each participant contributes to the Transco. Transmission-dependent utilities, as defined by the Transco Legislation, that participate in the Transco will purchase their interests for cash and will obtain ownership shares in proportion to their 1999 Wisconsin load ratio shares. Tax exempt transmission-dependent entities that participate in the Transco, such as WPPI, 7 - ------------------------ 7 WPPI is a municipal electric company owned by 30 Wisconsin municipalities that operate electric utilities. These utilities supply electric power to more than 100,000 customers in Wisconsin and purchase all of their electric requirements from WPPI. WPPI was created pursuant to Wisconsin legislation and is a non-profit, political division of the state. Section 66.073 of the Wisconsin Statutes. 8 will purchase their interests for cash at a price that will keep the other participants whole, as explained below. 8 J. The Transco Legislation obligates the Transco to construct, operate, maintain and expand its transmission facilities to provide adequate, reliable transmission services for a single, system-wide rate for the use of its system under an open access transmission tariff (the "Transco OATT") that has been filed with the FERC. The Transco Legislation directs that the Transco support robust competition in energy markets, extend no favoritism to any participant and meet the transmission needs of all participants. Under the provisions of the Transco Legislation, the Transco will transfer the operational control of its transmission facilities to the Midwest Independent System Operator, Inc. (the "Midwest ISO") when the Midwest ISO becomes operational. It is presently expected that this transfer will occur on or about November 1, 2001. K. It is expected that the participants in the Transco and the Corporate Manager will include, in addition to WPL and South Beloit, WEPCO, Edison Sault Electric Company ("ESE") (a WEC subsidiary with operations solely in Michigan's Upper Peninsula that is subject to regulation by the Michigan - ------------------------ 8 Alternatively, the Transco participants may agree on special allocations of certain tax elements, rather than adjust the purchase price to be paid by such tax exempt entities. 9 Public Service Commission), WPPI, Wisconsin Public Service Corp. ("WPS"), and Madison Gas & Electric Company ("MGE"). 9 All utilities participating in the Transco are referred to herein as "Member Utilities". Other entities, both within and outside of Wisconsin, may, in the future, decide to become members of the Transco. The Member Utilities intend to contribute their transmission assets to the Transco on or about January 1, 2001 (the "Operations Date"). 10 The transmission systems of the Member Utilities are interconnected at various points and essentially all operate as part of the same reliability and planning council -- the Mid-America Interconnected Network, Inc. ("MAIN"). 11 MAIN promotes coordinated planning, construction, operation, maintenance and use of - ------------------------ 9 The Corporate Manager will also initially own a less than 1% interest in the Transco. 10 The Transco Legislation currently contemplates that the transfer of the transmission assets will occur by the Operations Date. Indeed, the Transco Legislation requires WPL to commit to transfer its transmission assets to the Transco by January 1, 2001 in order for Alliant Energy to obtain relief from the Wisconsin non-utility asset cap applicable to Wisconsin public utility holding companies described in note 6 above. Moreover, it is not clear how a failure to effect such transfer by the Operations Date would impact Alliant Energy's position with respect to such asset cap calculation. Accordingly, the Member Utilities are proceeding under the assumption that Transco operation will begin on the Operations Date and are therefore making all of the requisite FERC filings to have the Transco OATT effective as of such date. 11 ESE is part of the East Central Area Reliability (ECAR), but is expected to become part of MAIN by January 1, 2001. 10 generation and transmission facilities by its members. The Member Utilities' transmission systems were also planned and built on a coordinated basis pursuant to the Wisconsin "advance planning" law in effect from 1975 until 1997. For a map detailing the interconnection of the transmission systems of the Member Utilities, see Exhibit E hereto. TRANSCO OPERATIONS AND ORGANIZATION L. The Transco will have the exclusive duty to provide transmission service in geographic areas formerly served by the Transco members. The Transco will not, however, have that duty in areas where control of transmission facilities has been directly transferred to the Midwest ISO. Wisconsin law prohibits the Transco from directly serving retail customers and from bypassing distribution systems. M. It is expected that the transmission-owning Member Utilities and the Transco will enter into one or more agreements ("O&M Agreements") pursuant to which the Member Utilities will provide the Transco with "reasonable and cost effective operations and maintenance services" for at least the first three years after the Operations Date in accordance with the Transco Legislation. 12 The Member Utilities and the Transco will also enter into a one or more services - ------------------------ 12 Section 196.485 (3m)(a)1.b. of the Wisconsin Statutes. 11 agreements ("Services Agreements") pursuant to which the Member Utilities will provide the Transco with certain services not covered by the O&M Agreements. Additionally, the Member Utilities and the Transco will enter into a System Operating Agreement ("System Operating Agreement") pursuant to which the Transco will provide, among other things, ancillary services and control area operations at FERC-approved rates. Finally, the Transco will operate certain of Alliant Energy's transmission facilities outside of Wisconsin that are not being transferred to the Transco. It is expected that such operations will be governed by an agency agreement ("Agency Agreement"). Any services provided or received by WPL, South Beloit or any other Alliant Energy affiliate pursuant to the foregoing agreements will be provided "at cost" in accordance with Rules 90 and 91 under the Act, unless otherwise authorized or directed by appropriate governmental or regulatory authority. 13 N. In accordance with the Transco Legislation, all transmission-owning Member Utilities will transfer all transmission assets to - ------------------------ 13 The definitive terms of certain of the above-referenced agreements are still being developed. Provision may be made for certain services between the Transco and affiliates of Alliant Energy, including WPL and South Beloit, to be rendered at market rates, without regard to cost. The Commission is respectfully requested to reserve jurisdiction with respect to any request for an exemption from Section 13(b) of the Act, pending completion of the record. 12 the Transco on the Operations Date. For purposes of establishing relative shares, the transmission assets will be valued at their Contribution Value, defined as original cost less accumulated deprecation, as adjusted on a dollar-for-dollar basis for deferred taxes, excess deferred taxes and deferred investment tax credits. The resulting shares will then be adjusted based on various factors and the level of participation by transmission-dependent utilities which may acquire member units in the Transco for cash based upon their 1999 Wisconsin load share ratios. It is expected that WPL's and South Beloit's Contribution Values at December 31, 2000 will be $126,784,000 and $590,000, respectively, and their aggregate initial interest in the Transco will approximate 26%. This ownership percentage may fluctuate based on various factors, including the number of participants in the Transco. O. WPPI, and any other transmission-dependent tax-exempt entity that participates in the Transco, will also be members of the Transco, but will not be contributing transmission assets. Because the participation of tax exempt entities like WPPI will reduce the transmission revenue otherwise received by the Transco, 14 such entities will purchase their interests for a price that is - ------------------------ 14 Based on FERC precedent with respect to natural gas pipelines, the revenue requirement reflected in the Transco's FERC petition includes provision for income taxes payable by its members with respect to Transco income. The participation of any tax exempt entity in the Transco will reduce that revenue requirement and therefore each tax-exempt Transco member must make contributions to the Transco to make up for the diminished return of the other members. Alternatively, the Transco participants may agree on special allocations of certain tax elements, rather than adjust the purchase price to be paid by such tax exempt entities. 13 designed to keep the other participants whole. It is anticipated that funds received from WPPI and any other tax-exempt Transco member will be used to fund outlays necessary to pay start-up costs and construction work-in-progress or be used as cash working capital. The tax-exempt purchase price will be recalculated annually such that all tax-exempt participants will be required to make additional cash contributions (or receive a refund of any "over contributed" funds) to insure that the return otherwise payable to the other transmission-contributing participants is not diminished because of the tax exempt entities' participation. P. The Corporate Manager will manage the Transco, and will employ all personnel necessary to operate the Transco. All costs and expenses of the Corporate Manager will be treated as Transco expenses. The Transco members will enter into an agreement (the "Operating Agreement") which will govern the activities of the Transco. Q. In accordance with the Transco's Operating Agreement, the Member Utilities will not be permitted to sell their interests in the Transco for a period of three years following the Operations Date, except for transfers to 14 another Member Utility or an affiliate of the transferring Member Utility. 15 After the three year period expires, any Transco interest may be freely transferred, subject to any applicable legal constraints. The Member Utilities may exchange all or a portion of their Transco member units for shares in the Corporate Manager on a one-for-one basis at any time after the three years or, if earlier, one year after an initial public offering by the Corporate Manager. R. No Member Utility will be obligated to make any additional capital contributions to the Transco or the Corporate Manager; however, there may be optional contributions if a majority of the Corporate Manager's directors determine that such additional capital is appropriate. The Operating Agreement will establish a target dividend rate of 80% of the Transco's earnings, subject to adjustment. S. Member Utilities will also purchase shares of the Corporate Manager, for cash, in proportion to their percentage interests in the Transco. It is expected that WPL will pay $10 per share for an approximate 26% interest in the Corporate Manager. The Corporate Manager will have two classes of stock: - ------------------------ 15 The Operating Agreement defines an "affiliate" of the Member Utility as any company within the same holding company system as defined in ss.195.795(1)(i) of the Wisconsin Statutes. 15 Class A and Class B. WPL will receive approximately 26%, or 2,563 shares, of the nonvoting Class A shares. Additionally, each Member Utility, including WPL, will receive one Class B voting share. 16 Each holder of a Class B share will be entitled to appoint one of the Corporate Manager's directors. All Class B shares will convert into Class A shares on the earlier of (i) the ownership by the Corporate Manager of more than 50% of the Transco interests or (ii) the tenth anniversary of the Operations Date, unless the Corporate Manager's Board of Directors elects to override the conversion. Class A shares will become voting shares upon the conversion of Class B shares to Class A shares or after the Corporate Manager commences a public offering of its stock. Following the public offering, the Class A shareholders will have the right to elect a majority of the Board of Directors and the Class B shareholders will elect a minority of the directors, but each owner of a Class B share will continue to have the right to appoint one of the Corporate Manager's directors. TRANSFERRED PROPERTIES T. WPL and South Beloit propose to transfer their ownership and control of their respective Transmission Assets to the Transco. The Transco will acquire from WPL and South Beloit transmission facilities that operate at - ------------------------ 16 Neither South Beloit nor ESE will receive shares in the Corporate Manager. 16 voltages of 345 kV, 138 kV and 69 kV. The WPL Transmission Assets and South Beloit Transmission Assets proposed to be transferred include: o Transmission lines (including towers, poles and conductors) and transmission substations; o Transformers providing transformation within the bulk transmission system and between the bulk and area transmission systems; o Lines providing connections to generation sources and step-up (plant) substations; o Radial taps from the transmission system up to, but not including, the facilities that establish the final connection to distribution facilities or retail customers; o Substations that provide primarily a transmission function; o Voltage control devices and power flow control devices directly connected to the transmission system; and o WPL's systems operation center located in Stoughton, Wisconsin. It is expected that, as of December 31, 2000, the original cost of the WPL Transmission Assets and the South Beloit Transmission Assets will be approximately $298,965,000 and $974,000, respectively. The net book value (original cost less accumulated depreciation) of the WPL Transmission Assets and the South Beloit Transmission Assets at December 31, 2000 is expected to be approximately $163,321,000 and $699,000, respectively. 17 U. The facilities WPL and South Beloit will transfer to the Transco do not include distribution facilities used to provide retail service or generation facilities. Distribution facilities include all facilities with voltages below 50 kV, including the final circuit connection to substations providing transformation or connection to any retail customer regardless of voltage level. V. WPL currently provides FERC jurisdictional transmission service to certain customers over distribution facilities operated at voltages of less than 50 kV. The Transco will continue the provision of such service as WPL's agent. Consequently, transmission customers that use WPL's distribution system will, in the future, be able to secure from the Transco all necessary transmission services over WPL's current transmission and distribution system. W. The Transco will be under a statutory mandate to transfer operational control of its jurisdictional facilities to the Midwest ISO. Prior to the transfer, the Transco will have operational control of the transmission system contributed by Wisconsin utilities; provide ancillary services; operate an Open Access Same-Time Information System ("OASIS") in conformance with FERC Order No. 889; and administer the Transco OATT. The Transco also will be responsible for the maintenance of the transmission facilities under its ownership and control and will assume responsibility for transmission system 18 planning. After the transfer to the Midwest ISO, the Transco will make changes to its OATT to accommodate operational differences between the Transco and the Midwest ISO open access transmission tariff. X. WPL and South Beloit will each enter into a bill of sale, deeds, easement assignments and other documentation with the Transco governing the conveyance of their respective transmission assets. The transmission assets transferred to the Transco will include WPL's rights and interest in any contracts under the Alliant Energy Open Access Transmission Tariff ("Alliant Energy OATT"). Y. In addition to the assets from WPL and South Beloit, it is expected that the Transco will also acquire transmission assets from MGE, WEPCO, WPS and ESE. For a description of these assets, including original cost, net book value and Contribution Value, see Exhibit I hereto. The Transco is also expected to acquire the incidental transmission facilities of transmission-dependent utilities, such as WPPI's member municipal utilities. The Transco will assign a nominal value of $10 to each unit of membership interest initially issued in exchange for transmission assets. Z. The Transco will offer ancillary services under the Transco's OATT. Because the Transco will own no generating facilities, it will purchase ancillary services from third parties and resell them under its OATT. The 19 Transco expects to enter into agreements to purchase must run and ancillary services from generators in the control areas of WEPCO, WPL, WPS and MGE. The Transco will contract for must-run operations and ancillary services with the generators located in its control area and connected to its transmission system. In accordance with Wisconsin law, the Transco will not, however, engage in the purchase and sale of energy other than to obtain necessary ancillary services required by its customers. AA. Upon receipt of necessary regulatory approvals, the Transco will begin providing open access transmission service under its OATT to those existing open access customers currently served by WPL under the existing Alliant Energy OATT and to any other eligible customer requesting transmission service from the Transco. WPL and South Beloit will become transmission customers of the Transco under its transmission tariff. Where WPL is responsible for providing transmission service under agreements or tariffs predating FERC Order No. 888 ("grandfathered agreements"), the Transco will make its transmission system available under the Transco OATT in order to provide transmission service to customers under the grandfathered agreements. 20 FINANCING BB. The Transco will initially obtain funds externally through short-term debt financing under a Credit Agreement between the Transco and Bank One, N.A., as Agent ("Credit Facility"). 17 The Transco now seeks to increase the authorized principal amount of borrowings under the Credit Facility to $125 million. To provide financing for general corporate purposes, including working capital requirements, and to fund construction spending to undertake large scale capital improvements to the Wisconsin transmission system necessary to maintain reliability, the Transco proposes to issue from time to time, through June 30, 2004, short-term debt consisting of borrowings under the Credit Facility, the issuance of commercial paper or other forms of short-term financing. The maturity of such debt will not exceed one year. The Transco seeks authority to amend the Credit Facility without further Commission authorization provided that the maturity date does not extend beyond June 30, 2004, and the aggregate principal amount of authorized borrowings does not exceed $125 million. - ------------------------ 17 The Commission has previously authorized borrowings of up to $30 million under the Credit Facility. The initial Credit Facility will, however, provide for only $25 million of borrowings. In connection therewith, Alliant Energy has authority to deliver a guaranty agreement to the lenders under the Credit Facility relating to up to $30 million of borrowings by the Transco under the Credit Facility. See HCAR No. 27206 (Aug. 2, 2000). 21 CC. The Transco will sell commercial paper, from time to time, in established domestic or European commercial paper markets to dealers at the prevailing discount rate per annum, or at the prevailing coupon rate per annum, at the date of issuance. It is expected that the dealers acquiring commercial paper from the Transco will re-offer such paper at a discount to corporate, institutional and, with respect to European commercial paper, to individual investors. DD. Back-up bank lines of credit for 100% of the outstanding amount of commercial paper are generally required by credit rating agencies. The Credit Facility will back-up the Transco's commercial paper program, thus negating the need for additional lines of credit. EE. The Transco also proposes to issue from time to time, through June 30, 2004, long-term debt consisting of debentures, which may be in the form of medium-term notes, convertible debt, subordinated debt, bank borrowings, other debt securities or other forms of long-term financing. Any long-term debt security would have a maturity ranging from one to 50 years. Debentures and medium-term notes would be issued under an indenture. The amount of short-term and long-term debt outstanding at any time, including debt under the Credit Facility, will not exceed, in the aggregate, $400 million. 22 FF. Any short-term or long-term debt security or credit facility would have such designation, aggregate principal amount, interest rate(s) or methods of determining the same (subject to paragraph HH below), terms of payment of interest, collateral, redemption provisions, non-refunding provisions, sinking fund terms, conversion or put terms and other terms and conditions as the Transco and the Corporate Manager may determine at the time of issuance. GG. The Transco and the Corporate Manager propose to issue from time to time equity securities consisting of common or preferred stock of the Corporate Manager, other equity securities or additional interests in the Transco. The Transco and the Corporate Manager request authority to issue such equity securities until such time as neither the Transco nor the Corporate Manager is a "subsidiary company" of Alliant Energy, as defined in Section 2(a)(8) of the Act. HH. Such securities may be issued and sold pursuant to standard underwriting agreements. Public distribution may be effected through private negotiations with underwriters, dealers or agents, or through competitive bidding among underwriters. In addition, such securities may be issued and sold through private placements or other non-public offerings to one or more persons. All such debt instruments and stock sales will be at rates or prices and under conditions negotiated, or based upon, or otherwise determined by, competitive 23 capital markets. In no event, however, will the effective cost of money on short-term debt exceed 300 basis points over the London Interbank Offered Rate for maturities of one year or less in effect at the time. The interest rate on long-term debt will not exceed 500 basis points over the yield-to-maturity of a U.S. Treasury security having a remaining term approximately equal to the average life of such debt. II. The Transco also requests authorization to enter into interest rate hedging transactions with respect to existing indebtedness ("Interest Rate Hedges"), subject to certain limitations and restrictions, in order to reduce or manage interest rate cost. Interest Rate Hedges would only be entered into with counterparties ("Approved Counterparties") whose senior debt ratings, or the senior debt ratings of the parent companies of the counterparties, as published by Standard and Poor's Ratings Group, are equal to or greater than BBB, or an equivalent rating from Moody's Investors Service, Fitch, or Duff and Phelps. Interest Rate Hedges will involve the use of financial instruments commonly used in today's capital markets, such as interest rate swaps, caps, collars, floors, and structured notes (i.e., a debt instrument in which the principal and/or interest payments are indirectly linked to the value of an 24 underlying asset or index), or transactions involving the purchase or sale, including short sales, of U.S. Treasury obligations. The transactions would be for fixed periods and stated notional amounts. Fees, commissions and other amounts payable to the counterparty or exchange (excluding, however, the swap or option payments) in connection with an Interest Rate Hedge will not exceed those generally obtainable in competitive markets for parties of comparable credit quality. In addition, the Transco requests authorization to enter into interest rate hedging transactions with respect to anticipated debt offerings (the "Anticipatory Hedges"), subject to certain limitations and restrictions. Such Anticipatory Hedges would only be entered into with Approved Counterparties, and would be utilized to fix and/or limit the interest rate risk associated with any new issuance through (i) a forward sale of exchange-traded U.S. Treasury futures contracts, U.S. Treasury obligations and/or a forward swap (each a "Forward Sale"), (ii) the purchase of put options on U.S. Treasury obligations (a "Put Options Purchase"), (iii) a Put Options Purchase in combination with the sale of call options on U.S. Treasury obligations (a "Zero Cost Collar"), (iv) transactions involving the purchase or sale, including short sales, of U.S. Treasury obligations, or (v) some combination of a Forward Sale, Put Options Purchase, Zero Cost Collar and/or other derivative or cash transactions, 25 including, but not limited to structured notes, caps and collars, appropriate for the Anticipatory Hedges. Anticipatory Hedges may be executed on-exchange ("On-Exchange Trades") with brokers through the opening of futures and/or options positions traded on the Chicago Board of Trade ("CBOT"), the opening of over-the-counter positions with one or more counterparties ("Off-Exchange Trades"), or a combination of On-Exchange Trades and Off-Exchange Trades. The Transco will determine the optimal structure of each Anticipatory Hedge transaction at the time of execution. The Transco may decide to lock in interest rates and/or limit its exposure to interest rate increases. All open positions under Anticipatory Hedges will be closed on or prior to the date of the new issuance and the Transco will not, at any time, take possession or make delivery of the underlying U.S. Treasury Securities. The Applicants will comply with existing and future financial disclosure requirements of the Financial Accounting Standards Board associated with hedging transactions. 18 - ------------------------ 18 The proposed terms and conditions of the Interest Rate Hedges and Anticipatory Hedges are substantially the same as the Commission has approved in other cases. See New Century Energies, Inc., et al., Holding Co. Act Release No. 27000 (April 7, 1999); and SCANA Corporation., et al., Holding Co. Act Release No. 27137 (February 14, 2000). 26 ITEM 2. FEES, COMMISSIONS AND EXPENSES. ------------------------------ The fees, commissions and expenses incurred or to be incurred in connection with the transactions proposed herein will be filed by amendment. ITEM 3. APPLICABLE STATUTORY PROVISIONS. ------------------------------- Sections 6(a), 7, 9(a), 10, 11, 12 and 13 of the Act and Rules 43, 44, 54, 90 and 91 thereunder apply to the proposed transactions. When the transmission assets of the Member Utilities are transferred from the Member Utilities to the Transco, the Transco, and the Corporate Manager, by virtue of its ownership interest in, and management of, the Transco, will each become an "electric utility company" as defined in Section 2(a)(3) of the Act as well as a "public utility company" as defined in Section 2(a)(5) of the Act. Because Alliant Energy will be indirectly acquiring the securities of the Transco and the Corporate Manager, and because the Transco, which may be a subsidiary of a registered holding company, will be acquiring utility assets from the Member Utilities, the transactions contemplated herein will be subject to Section 9(a) of the Act. Thus, Applicants believe that the proposed transactions cannot proceed without the Commission's approval pursuant to Section 10 of the Act. The relevant statutory standards to be satisfied are set forth in Sections 10(b), 10(c) and 10 (f) of the Act. 27 A. SECTION 10(b) Section 10(b) of the Act provides that, if the requirements of Section 10(f) are satisfied, the Commission shall approve an acquisition under Section 9(a) unless the Commission finds that: (1) such acquisition will tend towards interlocking relations or the concentration of control of public-utility companies, of a kind or to an extent detrimental to the public interest or the interest of investors or consumers; (2) in case of the acquisition of securities or utility assets, the consideration, including all fees, commissions, and other remuneration, to whomsoever paid, to be given, directly or indirectly, in connection with such acquisition is 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 interest of investors or consumers or the proper functioning of such holding company system. 1. Section 10(b)(1). The proposed transactions will not tend towards interlocking relations or the concentration of control of public utility companies, of a kind or to an extent detrimental to the public interest or the interest of investors or consumers. The Corporate Manager will initially have a ten member Board of Directors. While five directors will be appointed by the Member Utilities, four directors will be independent, as mandated by the Transco Legislation. The remaining director will be the chief executive officer of the Corporate Manager. 28 The employees of the Transco and the Corporate Manager will not be employees of any of the Member Utilities. Therefore, any interlocking relations will be minimal, at most. Similarly, the proposed transactions will not tend toward any "concentration of control of public-utility companies" that is detrimental to the public interest, consumers or investors. The end result of the formation of the Transco will not be the concentration of control over the Wisconsin transmission system, but rather the dilution of control. There will be at least five Member Utilities with input, through the Corporate Manager, over decisions as to the management and operation of the Transco's transmission assets. One of these Member Utilities -- WPPI -- currently has no such input. Indeed, the creation of the Transco will encourage competition, rather than concentrate control. 2. Section 10(b)(2) - (a) Fairness of Consideration. Section 10(b)(2) of the Act requires the Commission to determine whether the consideration in connection with a proposed acquisition of securities is reasonable and whether it bears a fair relation to the investment in and the earning capacity of the utility assets underlying the securities being acquired. All transmission assets that will be transferred to the Transco will be valued 29 based on the same methodology. This methodology is generally mandated by the Transco Legislation and the specifics have been arrived at as the result of arms-length negotiations among all of the Member Utilities, subject to the review and approval of the Wisconsin Commission. Applicants further believe that such consideration bears a fair relation to the investment in and the earning capacity of the transmission assets to be transferred because it is based on the Contribution Value of those assets. Because the Transco's rates will also be subject to FERC approval, it can be expected that those rates (which will largely also be based on the same Contribution Value) will permit the Transco to earn a fair return on them as well. This being the case, all Member Utilities, including WPL and South Beloit, can expect to earn a fair return on their investment. (b) Reasonableness of Fees. An estimate of the fees and expenses to be paid in connection with the proposed transactions is set forth in Item 2 hereof. The estimated amounts to be paid are fees required to be paid to governmental bodies, fees for necessary professional services, and other expenses incurred or to be incurred in connection with carrying out the proposed transactions. Applicants believe that such fees and expenses are reasonable and 30 customary for a transaction of this kind, and that the standards of Section 10(b)(2) are thus satisfied. 3. Section 10(b)(3) - Capital Structure. Section 10(b)(3) requires that the Commission determine whether the proposed transactions will unduly complicate Alliant Energy's capital structure or will be detrimental to the public interest, the interests of investors or consumers or the proper functioning of Alliant Energy's system. The corporate capital structure of Alliant Energy after the consummation of the proposed transactions will not be unduly complicated. The ownership structure of the Corporate Manager and the Transco has been designed to simplify management of the Transco and to facilitate public investment in the Transco enterprise through a public offering of stock in the Corporate Manager, such stock being more attractive to investors than would be the equivalent LLC interests in the Transco. Although such structure introduces an additional corporate layer into the Alliant Energy system, the Transco and the Corporate Manager will, as a practical matter, function as one entity. The Corporate Manager has been introduced simply to make public investment in the Transco enterprise more "investor-friendly". 19 - ------------------------ 19 Upon transfer of its transmission assets to the Transco, and its acquisition of ownership interests in the Transco and the Corporate Manager, WPL will file an exemption statement on Form U-3A-2 pursuant to Rule 2 under the Act. The Corporate Manager's ownership interests in the Transco may also increase over time so as to render it a "holding company". In such event, it is anticipated that the Corporate Manager will take appropriate regulatory action which might include seeking an exemption under Section 3 of the Act, even though it may no longer be a "subsidiary company" of Alliant Energy at that time. 31 In any event, as set forth more fully in this Application/Declaration, the proposed formation of the new transmission company is expected to result in benefits to the public and to consumers and investors of the Alliant Energy holding-company system. B. SECTION 10(c) Section 10(c) of the Act provides that: Notwithstanding the provisions of subsection (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 efficient development of an integrated public utility system . . . . 1. Section 10(c)(1). Consistent with the standards set forth in Section 10(c)(1) of the Act, the proposed acquisition of securities will not be 32 unlawful under the provisions of Section 8 of the Act, or detrimental to the carrying out of the provisions of Section 11 of the Act. Section 8 prohibits a registered holding company or any of its subsidiaries from acquiring, owning interests in or operating both a gas utility company and an electric utility company serving substantially the same area if prohibited by state law, and is thus not applicable to the transactions contemplated herein. Section 11(a) of the Act requires the Commission to examine the corporate structure of registered holding companies to ensure, among other things, that unnecessary complexities are eliminated and voting powers are fairly and equitably distributed. As discussed above, the Transco/Corporate Manager ownership structure has been designed to facilitate public investment in the Transco enterprise and is therefore not unnecessarily complex. Moreover, voting powers have been fairly allocated among the Transco participants. Accordingly, the proposed transactions meet the standards of Section 11(a) of the Act. 2. Section 10(c)(2). As the following discussion will demonstrate, the proposed transactions will serve the public interest by tending towards the 33 economical and efficient development of an integrated public utility system, as required by Section 10(c)(2) of the Act. (a) Efficiencies and Economies. As described more fully above, the proposed transactions tend towards the following efficiencies and economies: (i) greater corporate and organizational separation of transmission from generation; and (ii) by tying together control, planning, maintenance and financial responsibilities for the Member Utilities' transmission facilities into a single company having an independent, streamlined and cost-efficient operation, synergies will be created that result in better service in the region and non-discriminatory access for all transmission users will be assured. (b) Integrated Public Utility 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. 34 The Commission has previously taken notice of developments that have occurred in the gas and electric industries in recent years, and has interpreted the Act and analyzed proposed transactions in light of these changed and changing circumstances. See, e.g., American Electric Power Co., HCAR No. 27186 --------------------------- (Jun. 14, 2000) ("AEP Order"); New Century Energies, Inc., HCAR No. 26748 (Aug. --------- -------------------------- 1, 1997) (approving transactions relating to combination of a Colorado gas and electric utility company and intrastate exempt holding company and a New Mexico electric utility company), citing Hearing on Regulation of Public Utility Holding Companies Before Subcomm. on Telecommunications and Finance and Subcomm. on Energy and Power of the House of Representatives Comm. on Commerce, 104th Cong., 1st Sess. (Aug. 4, 1995) (testimony of Arthur Levitt, Chairman, SEC). See also Rust v. Sullivan, 500 U.S. 173, 186-87 (1991) ("an agency is not required ---------------- to" establish rules of conduct to last forever, "but rather must be given ample latitude to "adapt [its] rules and policies to the demands of changing circumstances.") (citations omitted); Shawmut Assn. v. SEC, 146 F.2d 791, 796-97 -------------------- (1st Cir. 1945) (an agency "is expected to treat experience not as a jailer but as a teacher"). On the basis of the statutory definition above, 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 transaction: 35 (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. SEC, 895 F.2d 1255, 1263 (9th Cir. 1990), quoting - --------------------------------- In re Electric Energy, Inc., 38 S.E.C. 658, 668 (1958). - --------------------------- The proposed transactions satisfy all four of these requirements. In examining proposed transactions to determine whether the integration requirements have been satisfied, the Commission has "interpreted the Act and analyzed transactions in the light of . . . changed and changing circumstances." AEP Order. Applicants believe that the Transco Legislation, as well as the recent FERC Order No. 2000, both of which strongly encourage transmission company formation, constitute such changing circumstances which the Commission should consider when evaluating the proposed transactions. 36 PHYSICAL INTERCONNECTION. In view of the above, the facts presented clearly support a finding that the utility assets of the Transco will be "physically interconnected or capable of physical interconnection" within the meaning of Section 2(a)(29)(A) of the Act once the transactions contemplated herein are completed. Indeed, as discussed in paragraph K of Item 1, the utility assets to be owned by the Transco are already physically interconnected. SINGLE INTERCONNECTED AND COORDINATED SYSTEM. Section 2(a)(29)(A) of the Act requires that the utility assets, under normal circumstances, may be "economically operated as a single interconnected and coordinated system." The Commission has interpreted this language to refer to the physical operation of utility assets as a system in which, among other things, the generation and/or flow of current within the system may be centrally controlled and allocated as need or economy directs. See UNITIL Corp., HCAR No. 25524 (Apr. 24, 1992). As ------------ discussed above, the transmission assets that will be transferred to the Transco will be operated in a manner that satisfies the standard of economic and coordinated operations in Section 2(a)(29)(A) of the Act. Moreover, the proposed transactions are expected to result in greater coordination and more efficient 37 allocation of the provision of transmission services within the area served by the Transco. SINGLE AREA OR REGION. The "single integrated system" of the Transco will initially be the central and eastern portions of the State of Wisconsin and small adjacent areas of the Michigan Upper Peninsula and Illinois. Through the membership of additional transmission-owning utilities, the Transco's system may grow to include other parts of Wisconsin and portions of other Midwestern states. LOCALIZED MANAGEMENT, EFFICIENT OPERATION AND EFFECTIVE REGULATION. The creation of the Transco will not impair localized management, efficient operation or effective regulation by reason of its size. Moreover, the Commission's past decisions on "localized management" show that the proposed transactions fully preserve the advantages of localized management. In such cases, the Commission has evaluated localized management in terms of: (i) responsiveness to local needs, see American Electric Power Co., HCAR No. 20633 --------------------------- (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., 37 S.E.C. 28, 36 (1956)(localized management evaluated in terms - --------------- of "local problems and matters involving relations with consumers"); (ii) 38 whether management and directors were drawn from local utilities, see Centerior --------- Energy Corp., HCAR No. 24073 (April 29, 1986)(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); (iii) the preservation of corporate identities, see Northeast Utilities, HCAR No. 25221 ------------------- (December 21, 1990) (utilities "will be maintained as separate New Hampshire corporations . . . [t]herefore the advantages of localized management will be preserved"); Columbia Gas System, Inc., HCAR No. 24599 (March 15, 1988)(benefits ------------------------- of local management maintained where the utility to be added would be a separate subsidiary); and (iv) the ease of communications, see American Electric Power ----------------------- Co., HCAR No. 20633 (July 21, 1978)(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 communications and transportation"). These elements will all be satisfied here. The Transco is being created in response to local needs. The Wisconsin legislature has determined that the Transco will improve electric service in Wisconsin. Each local utility will elect one director to the Corporate Manager's board of directors. Each Member Utility will continue to exist after the transmission 39 assets are transferred to the Transco. Finally, communication between the Transco and its members will flow easily. 20 C. 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 of such acquisition have been complied with, except where the Commission finds that compliance with such State laws would be detrimental to the carrying out of the provisions of section 11. As discussed above, the Transco is being created pursuant to, and in accordance with, Wisconsin law. WPL and South Beloit have filed applications with the Wisconsin Commission and the Illinois Commission, respectively (copies of both applications are attached hereto as Exhibits D-7 and D-9, respectively). Thus, the requirements Section 10(f) are satisfied. Rule 54 Analysis. The transactions proposed herein are also subject to ---------------- Section 32(h)(4) of the Act and Rule 54 thereunder. Rule 54 provides that, in determining whether to approve any transaction that does not relate to an - ------------------------ 20 In addition, under the Transco Legislation, the Transco and/or the Midwest ISO are obligated, to the maximum extent practicable, to "eliminate[] advantages in electric generation, wholesale and retail markets that are otherwise related to ownership, control or operation of transmission facilities" and "[s]atisf[y] the reasonable needs of transmission users in this state for reliable, low-cost and competitively priced electric service". Section 196.485(3)(c) of the Wisconsin Statutes. 40 "exempt wholesale generator" ("EWG") or "foreign utility company" ("FUCO"), as defined in Sections 32 and 33, respectively, the Commission shall not consider the effect of the capitalization or earnings of any subsidiary which is an EWG or FUCO upon the registered holding company system if paragraphs (a), (b) and (c) of Rule 53 are satisfied. Alliant Energy is in compliance with all requirements of Rule 53(a). Alliant Energy's "aggregate investment" (as defined in Rule 53(a)(1)(i)) in all EWGs and FUCOs at June 30, 2000 was $190 million, or about 15% of Alliant Energy's "consolidated retained earnings" ($1,243 million for the four quarters ended June 30, 2000 as defined in Rule 53(a)(1)(ii) and including Alliant Energy's accumulated other comprehensive income). In addition, Alliant Energy has complied and will comply with the record-keeping requirements of Rule 53(a)(2), the limitation under Rule 53(a)(3) on the use of the Operating Companies' personnel to render services to EWGs and FUCOs, and the requirements of Rule 53(a)(4) concerning the submission of copies of certain filings under the Act to retail regulatory commissions. Finally, none of the circumstances described in Rule 53(b) has occurred or is continuing. Alliant Energy need not 41 make the affirmative demonstration contemplated by Rule 53(c) because Alliant Energy has satisfied the requirements of Rule 53(a) and (b). ITEM 4. REGULATORY APPROVALS. -------------------- WPL's application to the FERC seeking authorization to transfer the WPL Transmission Assets to the Transco has been approved. South Beloit filed a corresponding application with the FERC with respect to the South Beloit Transmission Assets on July 31, 2000, which application is pending. The Transco has also filed an application with the FERC seeking approval of the Transco OATT. In addition, the Wisconsin Commission, the Illinois Commission and the Michigan Public Service Commission must approve certain aspects of the transactions contemplated herein. No other state commission and, other than this Commission, no other federal commission, has jurisdiction over the proposed transactions. In addition, it is expected that other Member Utilities will make the requisite state, FERC and Commission applications with respect to certain aspects of the transactions discussed herein. ITEM 5. PROCEDURE. --------- The Commission is requested to publish a notice under Rule 23 with respect to the filing of this Application/Declaration as soon as practicable. The applicants request that the Commission's Order be issued as soon as practicable after the notice period and in any event not later than December 1, 42 2000 in order to accommodate a closing before December 15, 2000. This will facilitate the Member Utilities' meeting the January 1, 2001 deadline contemplated by the Transco Legislation for the commencement of Transco operations and the timely completion of the transmission asset transfers that are predicated to the Wisconsin public utility holding companies' relief from the Wisconsin non-utility asset cap limit. The applicants further request that there should not be a 30-day waiting period between issuance of the Commission's order and the date on which the order is to become effective, hereby waive a recommended decision by a hearing officer or any other responsible officer of the Commission, and consent that the Division of Investment Management may assist in the preparation of the Commission's decision and/or order, unless the Division opposes the matters proposed herein. ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS. --------------------------------- A. - EXHIBITS. -------- A-1 Form of Articles of Organization of the Transco. - - Incorporated by reference to Alliant Energy SEC File No. 70-9695. A-2 Form of Operating Agreement of the Transco. - - Incorporated by reference to Alliant Energy SEC File No. 70-9695. 43 A-3 Form of Articles of Incorporation of the Corporate Manager. - - Incorporated by reference to Alliant Energy SEC File No. 70-9695. A-4 Form of By-laws of the Corporate Manager. - - Incorporated by reference to Alliant Energy SEC File No. 70-9695. A-5 Form of Articles of Organization of NewCo.* A-6 Form of Operating Agreement of NewCo.* B-1 Form of O&M Agreements.* B-2 Form of Services Agreements.* B-3 Form of System Operating Agreement.* B-4 Form of Agency Agreement.* C Not Applicable. D-1 Application of WPL to the FERC. D-2 Application of South Beloit to the FERC.* D-3 Application of Alliant Energy Corporate Services, Inc. to the FERC.* D-4 Order of the FERC regarding WPL Application.* D-5 Order of the FERC regarding South Beloit Application.* D-6 Order of the FERC regarding Alliant Energy Corporate Services, Inc. Application.* D-7 Application of WPL to the Wisconsin Commission.* D-8 Order of the Wisconsin Commission regarding WPL.* D-9 Application of South Beloit to the Illinois Commission.* D-10 Order of the Illinois Commission regarding South Beloit.* 44 D-11 Application of the Transco to the FERC.* D-12 Order of the FERC regarding Transco Application.* E Interconnection Map - to be filed pursuant to Form SE.* F-1 Opinion of Barbara Swan, Esq.* F-2 Opinion of DeFrees & Fiske.* G Not applicable. H Form of Notice.* I Description and valuation of transferred assets.* * To be filed by amendment. B. FINANCIAL STATEMENTS. -------------------- 1.1 Balance Sheet of Alliant Energy and consolidated subsidiaries, as of June 30, 2000 (incorporated by reference to the Quarterly Report on Form 10-Q of Alliant Energy for the quarter ended June 30, 2000) (File No. 1-9894). 1.2 Statement of Income of Alliant Energy and consolidated subsidiaries for the period ended June 30, 2000(incorporated by reference to the Quarterly Report on Form 10-Q of Alliant Energy for the quarter ended June 30, 2000) (File No. 1-9894). 1.3 Balance Sheet of WPL, as of June 30, 2000 (incorporated by reference to the Quarterly Report on Form 10-Q of WPL for the quarter ended June 30, 2000) (File No. 0-337). 45 1.4 Statement of Income of WPL for the period ended June 30, 2000 (incorporated by reference to the Quarterly Report on Form 10-Q of WPL for the quarter ended June 30, 2000) (File No. 0-337). ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS. --------------------------------------- None of the matters that are the subject of this Application or Declaration involve a "major federal action" nor do they "significantly affect the quality of the human environment" as those terms are used in section 102(2)(C) of the National Environmental Policy Act. The transaction that is the subject of this Application or Declaration will not result in changes in the operation of the Applicants that will have an impact on the environment. The Applicants are not aware of any federal agency that has prepared or is preparing an environmental impact statement with respect to the transactions that are the subject of this Application or Declaration. 46 SIGNATURE Pursuant to the requirements of the Public Utility Holding Company Act of 1935, as amended, the undersigned companies have duly caused this Application or Declaration filed herein to be signed on their behalf by the undersigned thereunto duly authorized. WISCONSIN POWER AND LIGHT COMPANY By: /s/ Edward M. Gleason Name: Edward M. Gleason Title: Vice President-Treasurer and Corporate Secretary SOUTH BELOIT WATER, GAS & ELECTRIC COMPANY By: /s/ Edward M. Gleason Name: Edward M. Gleason Title: Vice President-Treasurer and Corporate Secretary AMERICAN TRANSMISSION COMPANY LLC By: ATC Management Inc., Its Manager By: /s/ John E. Ebright Name: John E. Ebright Title: Vice President, Chief Financial Officer and Treasurer ATC MANAGEMENT INC. By: /s/ John E. Ebright Name: John E. Ebright Title: Vice President, Chief Financial Officer and Treasurer Date: August 15, 2000 EX-99 2 0002.txt EXHIBIT D-1 EXHIBIT D-1 UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION ) WISCONSIN POWER & LIGHT ) DOCKET NO. EC00- COMPANY ) ---------------- ) APPLICATION OF WISCONSIN POWER & LIGHT COMPANY FOR AUTHORIZATION TO TRANSFER TRANSMISSION ASSETS TO WISCONSIN TRANSCO Wisconsin Power & Light Company ("WPL") requests authorization under Section 203 of the Federal Power Act, 16 U.S.C. ss. 824b, and Part 33 of the regulations of the Federal Energy Regulatory Commission, 18 C.F.R. Part 33, to transfer ownership and operational control of its jurisdictional transmission facilities to the Wisconsin transmission company ("Wisconsin Transco"), a transmission company created by operation of Wisconsin law to own and operate the high-voltage transmission system in Wisconsin. The Wisconsin statute that created the Wisconsin Transco was enacted on October 27, 1999, and the Wisconsin Transco is not yet in operation. Wisconsin law requires the Wisconsin Transco to take steps necessary to commence operations no later than November 1, 2000. WPL intends to transfer its transmission facilities to the Wisconsin Transco effective when the Wisconsin Transco commences operations. WPL submits this application well in advance of the Wisconsin Transco's anticipated commencement of operations because it wishes to secure the regulatory approvals required to complete the divestiture of its transmission facilities to the Wisconsin Transco, and also because WPL is required to file at this time in order to satisfy other requirements of Wisconsin law. On December 6, 1999, Alliant Energy filed an application with the Commission under Section 203 of the Federal Power Act to transfer to the Midwest System Operator, Inc. (the "Midwest ISO") 1/ operational control over substantial portions of the jurisdictional transmission facilities of the Alliant Energy Operating Companies. WPL requests authorization in this application to transfer ownership and control over the WPL Transmission System to the Wisconsin Transco, which is legally obligated to transfer control over its facilities to the Midwest ISO when the Midwest ISO commences operations. These two filings recognize that the Midwest ISO and the Wisconsin Transco will have different responsibilities and will commence operations at different times. The Midwest ISO will assume control over the transmission facilities of its members' systems rated 100 kV and higher, but it will not own transmission facilities. Assuming receipt of required regulatory approvals, upon commencement of its operations, the Midwest ISO will assume control over the transmission facilities of the Alliant Energy Operating Companies rated 100 kV and higher, including those transferred to the Wisconsin Transco pursuant to this application. The Midwest ISO likely will not commence operations until some time in 2001. Wisconsin Transco, on the other hand, will assume both ownership and control over the transmission facilities contributed by Wisconsin utilities and will exercise control until control is assumed by the Midwest ISO. Wisconsin Transco is expected to commence operations by November 2000. - ------------------------ 1/The Midwest ISO is an independent system operator that was established pursuant to Commission orders in Docket Nos. ER98-1438-000 and EC98-24-000. Midwest Independent Transmission System Operator, Inc., 84 FERC P. 61,231, order - ------------------------------------------------------ ----- on reconsideration, 85 FERC P. 61,250, order on reh'g, 85 FERC P. 61,372 (1998). - ------------------ -------------- In the event the Commission requires additional information about Wisconsin Transco, WPL will provide such information as a supplement to this application. I. DESCRIPTION OF THE PARTIES AND THE PROPOSED TRANSACTION A. WISCONSIN POWER AND LIGHT COMPANY WPL is a Wisconsin corporation and a wholly-owned subsidiary of Alliant Energy Corporation ("Alliant Energy"). WPL and Alliant Energy are headquartered in Madison, Wisconsin. WPL provides retail electric service to more than 401,000 customers in a 16,000 square-mile area stretching from southwest to northeast central Wisconsin and wholesale electric capacity, energy, and transmission services to 24 municipal electric systems in Wisconsin, one privately-owned utility, and to 3 rural electric cooperatives ("RECs"). Alliant Energy was formed on April 21, 1998, as a result of the merger among WPL Holdings, Inc., IES Industries Inc., and Interstate Power Company ("IPC"). Alliant Energy is a registered public utility holding company and is regulated by the Securities and Exchange Commission ("SEC") under the Public Utility Holding Company Act of 1935. In addition to WPL, Alliant Energy has two other direct public utility subsidiaries, IPC and IES Utilities Inc. ("IES"). WPL also has a wholly-owned utility subsidiary, South Beloit Water, Gas & Electric Company ("SBWGE"). 2/ Each of Alliant Energy Operating Companies is engaged in the production, transmission, and distribution of electricity for - ------------------------ 2/For purposes of this Application, WPL, IES, IPC, and SBWGE are collectively referred to as the "Alliant Energy operating Companies." 3 domestic, commercial, and industrial use in the states of Iowa, Wisconsin, Illinois, and Minnesota. Alliant Energy has on file with FERC in Docket No. ER96-2560-000 a system coordination and operating agreement to, among other things, govern on a single-system basis the coordinated operations and joint planning of the Alliant Energy Operating Companies' electric transmission facilities (the "Coordination Agreement"). In order to implement the Coordination Agreement, Alliant Energy formed a subsidiary service company, Alliant Energy Corporate Services, Inc. ("Alliant Energy Corporate Services"), to act as an agent for the Alliant Energy operating companies and to, among other things, operate their transmission facilities as a single integrated system pursuant to Alliant Energy's open access transmission tariff ("OATT") on file with FERC. WPL owns and operates a transmission system in the area of the Alliant Energy system know as the "Alliant Energy - East" area comprising 100 miles of 345 kV transmission facilities, 700 miles of 138 kV transmission facilities, and 1,767 miles of 69 kV transmission facilities (the "WPL Transmission System"). B. THE WISCONSIN TRANSCO The State of Wisconsin recently enacted legislation that formed the Wisconsin Transco as a single-purpose transmission company. 3/ The Wisconsin statute encourages certain public utility affiliates of holding company systems in Wisconsin, including WPL, to transfer ownership of their transmission assets to Wisconsin Transco. 4/ Other Wisconsin electric utilities, including retail - ------------------------ 3/1999 Wisconsin Act 9, Sections 2335tr to 2335uh (Assembly Amendment to Assembly Subcommittee Amendment 1 to 1999 Assembly Bill 133). 4/Section 196.485(5) of the Wisconsin Statutes. 4 and wholesale cooperatives, also may contribute their transmission assets to Wisconsin Transco. 5/ In exchange for contributing its transmission assets, WPL will receive capital stock in Wisconsin Transco. 6/ - ------------------------ 5/Id. at Section 196.485(6). -- 6/Id. at Section 196.485(5). -- 5 The Wisconsin statute that created Wisconsin Transco obligates Wisconsin Transco to plan, construct, operate, maintain, and expand its transmission facilities to provide adequate, reliable transmission services charging a single fee for use of its system under an open access transmission tariff to be filed with FERC (the "Wisconsin Transco OATT"). 7/ Wisconsin Transco's statutory mission directs it to support robust competition in energy markets, with no favoritism towards any participant, while meeting the needs of users who are dependent upon it. Under the provisions of the Wisconsin Transco law, Wisconsin Transco will be required to transfer operational control of its facilities to the Midwest ISO. 8/ Under the Wisconsin Transco law, Wisconsin Transco will be a corporation or limited liability company, subject to the Commission's jurisdiction for rates and access. 9/ Wisconsin Transco will have a Board of Directors of 5 to 14 members (or managers if an LLC). At least 4 directors/managers will be elected by majority vote of the shareholders and may not be persons employed by or engaging in natural gas or electric businesses; the remaining directors will be appointed based on minimum ownership criteria. Each contributor of at least 10% - ------------------------ 7/Id. at Section 196.485(3m). -- 8/Id. -- 9/Id. -- 6 to of Wisconsin Transco's assets (including smaller parties that aggregate their shares to reach 10%) will appoint one Board member. 10/ - ------------------------ 10/Id. -- 7 Wisconsin Transco will have the exclusive duty to provide transmission service in geographic areas formerly served by the utilities that have contributed their transmission facilities to Wisconsin Transco. 11/ In areas where control of transmission facilities are transferred directly to the Midwest ISO, Wisconsin Transco will not have a duty to provide service. 12/ Wisconsin law prohibits Wisconsin Transco from directly serving retail customers and further prohibits Wisconsin Transco from bypassing distribution systems. 13/ For purposes of defining the transmission facilities to be transferred to Wisconsin Transco, a transmission facility is defined by the Wisconsin statute to mean a facility that is not a radial facility and is designed to operate above 130 kv. 14/ A facility from 50 kv through 130 kv which is not a radial facility also is presumed to be a transmission facility unless it is demonstrated to the Public Service Commission of Wisconsin ("PSCW") that the - ------------------------ 11/Id. at Section 196.485(1m). -- 12/Id. -- 13/Id. at Section 196.485(3m). -- 14/Id. at Section 196.485(5). -- 8 facility is not a transmission facility (based on FERC's standard Seven Factor Test). 15/ Radial facilities or those facilities designed to operate at 50 kv or less are presumed not to be transmission facilities, unless the contrary is demonstrated to the PSCW. - ------------------------ 15/In Order No. 888 the Commission established a "functional-technical" test that evaluates facilities on the basis of seven indicators of local distribution. These factors are: "(1) Local distribution facilities are normally in close proximity to retail customers. (2) Local distribution facilities are primarily radial in character. (3) Power flows into local distribution systems; it rarely, if ever, flows out. (4) When power enters a local distribution system, it is not reconsigned or transported on to some other market. (5) Power entering a local distribution system is consumed in a comparatively restricted geographic area. (6) Meters are based at the transmission/local distribution interface to measure flows into the local distribution system. (7) Local distribution systems will be of reduced voltage." Order No. 888 at 31,771. 9 Wisconsin Transco will be obligated to honor existing collective bargaining agreements contributing utilities have with those non-supervisory employees who are subject to transfer to Wisconsin Transco. Initially, Wisconsin Transco is authorized to contract with the transferring transmission utilities for operational and maintenance services. 16/ Wisconsin law mandates that the Wisconsin Transco is to "begin operations no later than November 1, 2000." 17/ Wisconsin Transco does not currently own or operate any facilities subject to the Commission's jurisdiction. However, upon the grant of Commission authorization of the transfer proposed here, Wisconsin Transco will own and operate all transmission facilities of WPL subject to the jurisdiction of the Commission. Wisconsin Transco also will own and operate the transmission facilities of the other public utilities that transfer transmission facilities to Wisconsin Transco. C. THE PROPOSED TRANSACTION WPL proposes to transfer its ownership and control of the WPL Transmission System to the Wisconsin Transco. Upon receipt of Commission authorization to transfer the facilities and completion of the transaction, Wisconsin Transco will own and operate the WPL Transmission System. The transmission facilities of the WPL Transmission System to be transferred to Wisconsin Transco are described in detail in Schedule A. In sum, Wisconsin Transco will acquire from WPL transmission facilities that operate at voltages of generally 345 kV and 138 kV (the "WPL Bulk Transmission System") and - ------------------------ 16/Section 196.485(3m) of the Wisconsin Statutes. 17/Id. 10 69 kV facilities (the "WPL Area Transmission System"). The WPL transmission facilities proposed to be transferred include: o Transmission lines (including towers, poles, and conductors) and transmission substations; o Transformers providing transformation within the bulk transmission system and between the bulk and area transmission systems; o Lines providing connections to generation sources and step-up (plant) substations; o Radial taps from the transmission system up to, but not including, the facilities that establish the final connection to distribution facilities or retail customers; o Substations that provide primarily a transmission function; o Voltage control devices and power flow control devices directly connected to the transmission system; and o The Stoughton Systems Operation Center. The original cost of the facilities of the WPL Transmission System is approximately $256,674,000. 18/ The facilities WPL will transfer to Wisconsin Transco do not include distribution facilities used to provide retail service. Distribution facilities include all facilities with voltages below 50 kV, including the final circuit connection to substations providing transformation or connection to any retail customer regardless of voltage level. - ------------------------ 18/The breakdown of the total original cost of the WPL Transmission System is $235,588,000 for lines and substations and $21,086,000 for the systems operation center located in Stoughton, Wisconsin (the "Stoughton System Operations Center"). 11 WPL currently provides transmission service to certain wholesale customers at delivery points of less than 50 kV. In order to ensure the continuity of service to such wholesale customers who elect to take service under the Wisconsin Transco OATT, WPL and Wisconsin Transco may need to enter into an agency agreement. Such an agreement likely would provide Wisconsin Transco the use of certain WPL distribution facilities necessary to continue transmission service to WPL wholesale customers served at delivery points whose voltages are less than 50 kV. Transmission service to wholesale customers over these distribution facilities would be made available under the Wisconsin Transco OATT, and associated distribution costs are expected to be recovered in rates on a direct assignment basis as a distribution adder. This procedure may be necessary to ensure that existing wholesale customers served under grandfathered transmission arrangements at voltages below 50 kV will have access to comparable transmission service. D. WISCONSIN TRANSCO'S OPERATION OF THE TRANSMISSION SYSTEM Wisconsin Transco is under a statutory mandate to transfer control of its jurisdictional facilities to the Midwest ISO. Wisconsin Transco will own and have operational control of the transmission system contributed by Wisconsin utilities; provide ancillary services; operate an Open Access Same-Time Information System ("OASIS") in conformance with Order No. 889; 19/ and administer the Wisconsin Transco OATT. Wisconsin Transco also will be - ------------------------ 19/Order No. 889, Open Access Same-Time Information System (Formerly Real-Time ----------------------------------------------------------- Information Network) and Standards of Conduct, FERC Stats. & Regs. P. 31, 035 - --------------------------------------------- (1996). 12 responsible for the maintenance of the transmission facilities under its ownership and control. 20/ Wisconsin Transco also will assume responsibility for transmission system planning. 21/ Wisconsin Transco will offer ancillary services under the Wisconsin Transco OATT. Since Wisconsin Transco will own no generating facilities, it will purchase ancillary services from third parties and resell them under its OATT. Wisconsin Transco expects to enter into agreements to purchase ancillary services from generators in its control area. Wisconsin Transco will contract for must-run operations and ancillary services from the generators located in its control area and connected to its transmission system. Wisconsin Transco will not, however, engage in the purchase and sale of energy other than to obtain necessary ancillary services required by its customers. 22/ Upon receipt of necessary regulatory approvals, Wisconsin Transco will commence providing open access transmission service under its OATT to those existing open access customers served by WPL under the existing Alliant Energy OATT and to any other eligible customer requesting transmission service from Wisconsin Transco. WPL will become a transmission customer of Wisconsin Transco under Wisconsin Transco's transmission tariff. Where WPL is responsible for providing transmission service agreements or tariffs predating Order No. 888 - ------------------------ 20/WPL anticipates that Wisconsin Transco initially will contract with WPL to perform maintenance on the WPL Transmission System facilities transferred to Wisconsin Transco. 21/Section 196.485(1)(ge) and 196.485(1m)(3m) of the Wisconsin Statutes. 22/Id. -- 13 ("grandfathered transmission agreements"), Wisconsin Transco will make the Wisconsin Transco transmission system available to WPL pursuant to Network Integration Service and Operating Agreements under the Wisconsin Transco transmission tariff in order to provide transmission service to grandfathered customers under the grandfathered transmission agreements. E. FINANCIAL ASPECTS OF THE TRANSACTION WPL and Wisconsin Transco will enter into a bill of sale governing the conveyance of the WPL Transmission System. The transmission assets transferred to Wisconsin Transco under the bill of sale will include WPL's rights and interests in any contracts under the Alliant Energy OATT. The WPL Transmission System will be conveyed by WPL to Wisconsin Transco at a net book value (original cost less accumulated book depreciation) of approximately $152.1 million as of December 31, 1998. 23/ WPL will provide final accounting entries at a later time. At the present time, WPL contemplates the following entries: Dr. a/c 108 Accum Prov for Depreciation Dr. a/c 111 Accum Prov for Amortization Dr. a/c 123 Investment in Associated Cos. Dr. a/c 102 Electric Plant Purchased or Sold - ------------------------ 23/Section 196.485(5) of the Wisconsin Statutes. 14 Cr. a/c 102 Electric Plant Purchased or Sold Cr. a/c 101 Electric Plant in Service Cr. a/c 107 Construction Work in Progress Cr. a/c 182 Regulatory Assets The legal structure of Wisconsin Transco has not yet been finalized. Accordingly, WPL does not yet know the extent to which tax-related accounts will be passed through to Wisconsin Transco. Specific accounts for which the treatment has not yet been determined are as follows: a/c 190 Prepaid Income Taxes a/c 255 Accumulated Deferred Income Taxes a/c 282 Deferred Income Taxes Wisconsin Transco will file to establish depreciation rates for the transmission facilities in a filing under Section 205 of the Federal Power Act. Release of the transmission facilities from the respective first mortgage indentures of WPL will take place when the transmission facilities are transferred to Wisconsin Transco. F. STANDARDS OF CONDUCT In Order No. 888, the Commission stated that "[f]unctional unbundling will work only if a strong code of conduct (including a requirement to separate employees involved in transmission functions from those involved in wholesale power merchant functions) is in place." 24/ WPL's proposed conveyance of the WPL Transmission System to Wisconsin Transco will further the Commission's objectives in developing the Standards of Conduct. Not only will Wisconsin Transco adopt the Standards of Conduct set forth in the Commissioner's regulations, 25/ but in accordance with Section 37.4(c), Alliant Energy and - ------------------------ 24/Order No. 888, FERC Stats. & Regs. at 31,655. 25/See 18 C.F.R. Part 37 and the Commission's February 15, 1999, order in Docket --- Nos. OA98-12-001, OA97-421-002, OA97-318-002, OA97-415-002, finding Alliant Energy's Standards of Conduct filings acceptable. 15 Wisconsin Transco have also developed procedures for implementation of the Standards of Conduct. These procedures, which are set forth in Wisconsin Transco Standards of Conduct include the following statement of policy: It is the policy of Wisconsin Transco to operate the Transmission System in a fair and nondiscriminatory manner and to implement such rules and regulations in the governance of the corporation as necessary to prevent control of the decision-making process by the merchant function of any affiliate or any User of the Transmission System. It is the policy of Wisconsin Transco to own, operate and plan the Transmission System without adverse distinction or preference to any affiliate or Users of the Transmission System, and that investments in new transmission facilities will be made by Wisconsin Transco without discrimination. Specifically, each employee directly responsible for either WPL's wholesale merchant operations or Wisconsin Transco's transmission operations will be required to sign a Standards of Conduct Acknowledgment and Compliance Statement, and abide by its terms. Managers of departments not directly responsible for these functions will be given a copy of the Standards of Conduct and will similarly be required to sign a Standards of Conduct Acknowledgment and Compliance Statement and abide by its terms. These managers will also be required to review the Standards of Conduct with all of their employees. Wisconsin Transco will develop procedures that will prevent access to the System Control Center by any affiliate employee responsible for wholesale merchant functions for the purpose of obtaining information on transmission capacity, price, curtailments, ancillary services, scheduled maintenance and line outages. Firewalls have been established within the Energy Management System ("EMS") to ensure that transmission information from the EMS cannot be accessed by wholesale merchant employees. Implementation of these measures is further evidence of Wisconsin Transco's commitment to further the Commission's objective to separate transmission from wholesale merchant functions in order to 16 ensure non-discriminatory access to its transmission system. Approval of the Wisconsin Transco Standards of Conduct will be sought in a Section 205 filing. II. THE PROPOSED TRANSACTION IS IN THE PUBLIC INTEREST Section 203(a) of the Federal Power Act, which establishes the Commission's jurisdiction over changes in control over facilities subject to FERC's jurisdiction, provides, No public utility shall sell, lease, or otherwise dispose ofBits facilities subject to the jurisdiction of the CommissionBor by any means whatsoever, directly or indirectly merge or consolidate such facilities or any part hereof with those of any other person, or purchase, acquire, or take any security of any other public utility, without first having secured an order of the Commission authorizing to do soBAfter notice and opportunity for hearing, if the Commission finds that the proposed disposition, consolidation, acquisition, or control will be consistent with the public interest it shall approve the same. 26/ WPL will transfer to Wisconsin Transco ownership and control of the WPL Transmission Systems, which comprises FERC-jurisdictional transmission facilities of a value in excess of $50,000. In analyzing the effect on the public interest of the proposed transfer of FERC-jurisdictional facilities on the public interest, FERC will assess three distinct effects: (1) the effect on competition; (2) the effect on rates; and (3) the effect on regulation. If the proposed transaction is determined not to present market power concerns, to adequately protect ratepayers, and not to impair federal and state regulation, the transaction will be deemed to be consistent with the public interest. See, --- - ------------------------ 26/16 U.S.C.ss.825b(a). 17 e.g., Duke Power Co., 79 FERC 61,236 (1997). WPL demonstrates below that its - ---- -------------- proposed transfer of the WPL Transmission System to Wisconsin Transco is consistent with the public interest. A. TRANSFER OF ASSETS TO A SEPARATE COMPANY ADVANCES COMMISSION POLICIES REQUIRING THE SEPARATION OF GENERATION AND TRANSMISSION FUNCTIONS In Order No. 888, the Commission determined that functional unbundling of wholesale generation and transmission services is necessary to implement non-discriminatory open access transmission. In doing so, the Commission stopped short of requiring corporate unbundling, which could include the establishment of a separate corporate affiliate to manage a utility's transmission assets. The Commission concluded "Bthat functional unbundling of wholesale services is necessary to implement non-discriminatory open access transmission and that corporate unbundling should not now be required." Order No. 888 at 31,654. The Commission determined that three requirements are necessary to ensure that public utilities provided non-discriminatory service: (1) a public utility must take transmission services (including ancillary services) for all of its new wholesale sales and purchases of energy under the same tariff of general applicability as do others; (2) a public utility must state separate rates for wholesale generation, transmission, and ancillary services; and (3) a public utility must rely on the same electronic information network that its transmission customers rely on to obtain information about its transmission system when buying or selling power. Order No. 888 at 31,654. While recognizing that these requirements should give public utilities an incentive to file fair and efficient rates, terms, and conditions, since they will be subject to those same rates, terms, and conditions, the Commission further concluded that functional unbundling will work only if strong 18 protections, including a requirement to separate employees involved in transmission functions from those involved in wholesale power merchant functions, are in place. With this objective in mind, the Commission encouraged utilities to explore whether corporate unbundling or other restructuring mechanisms may be appropriate in particular circumstances and indicated that it would "accommodate other mechanisms that public utilities may submit, including voluntary corporate restructuring (e.g., Bseparate corporate divisions, divestiture) to ensure that open access transmission service occurs on a non-discriminatory basis." Order No. 888 at 31,656. While the Commission did not affirmatively require actual corporate separation of generation from transmission, the practical effect of WPL's transfer of its transmission system to Wisconsin Transco will do exactly that, thereby achieving substantially more than that which is required by Order No. 888 and its progeny. Wisconsin Transco's acquisition and operation of the WPL Transmission System will exceed the functional unbundling requirements of Order No. 888 and bring with it greater corporate and organizational separation of transmission from generation. Wisconsin Transco will be responsible for providing all open access transmission and ancillary services under the Wisconsin Transco OATT, and existing open access service agreements under Alliant Energy's OATT for WPL customers will be assigned to Wisconsin Transco. WPL will remain responsible for obtaining transmission service associated with grandfathered transmission arrangements. After the transfer of assets, WPL will become a network transmission customer of Wisconsin Transco and will be required to secure transmission service from Wisconsin Transco in the same manner as unaffiliated network transmission customers. 19 The current organizational separation between the employees of WPL wholesale merchant function and transmission function will be significantly strengthened beyond the requirements of Order Nos. 888 and 889 because transmission personnel will become employees of a separate company, Wisconsin Transco. Wisconsin Transco will have its own board of directors. 27/ Wisconsin Transco will not be engaged in the electric power generation business, and it will contract with Alliant Energy and others on the open market to provide ancillary services on a least-cost basis. Wisconsin Transco will not own distribution facilities, and it will arrange for use of distribution only to the extent required to provide transmission services to wholesale customers served at voltages below 50 kV under the Wisconsin Transco Tariff. Wisconsin Transco will focus solely on efficiently and effectively operating and maintaining, and where necessary expanding, its transmission system, and will be well suited to respond quickly to customer needs. The restructuring of WPL's transmission system that is proposed here goes well beyond the Commission's requirements for comparability and functional unbundling. By transferring all of its transmission facilities to a separate corporation and by agreeing to take transmission and ancillary services under that corporation's open access tariff for the delivery of all power sold by the WPL to their wholesale and retail customers, WPL is going beyond what the Commission required of public utilities in Order No. 888. B. THE TRANSACTION MEETS THE REQUIREMENTS OF THE COMMISSION'S MERGER POLICY STATEMENT. - ------------------------ 27/Section 196.485(3m) of the Wisconsin Statutes. 20 The Commission Merger Policy Statement,28/ sets forth the revised criteria and considerations for evaluating applicants under Section 203. Specifically, the Commission examines three factors in analyzing whether a proposed transaction is consistent with the public interest: the effect on competition, the effects on rates, and the effect on regulation. Consideration of these factors, to the extent those factors guide the Commission's consideration of an intra-company divestiture proposal, further demonstrates that the transaction is consistent with the public interest. 1. THE TRANSACTION IS PRO COMPETITIVE. The proposed transaction will not ---------------------------------- have any adverse effects on competition in the market for generation or transmission services. The transaction does not involve any generating assets, so the transaction will have no impact on the generation market. The transaction does involve transmission facilities, but service over the WPL Transmission System facilities contributed to Wisconsin Transco will be provided under the Wisconsin OATT, under which all qualified transmission customers are entitled to take transmission service. As such, Wisconsin Transco will not have transmission market power. WPL has not submitted the competitive screen analysis described in Appendix A of the Merger Policy Statement because of the nature of WPL's proposed transaction. As proposed in this application, the WPL Transmission System now owned by WPL will be sold to Wisconsin Transco. Wisconsin Transco does not currently own any generation, distribution or transmission facilities, and it will not own or control any generation. This transmission-only transaction does not involve any concentration of utility or other generation capacity and will lead to even more substantial separation of transmission from generation assets. - ------------------------ 28/Inquiry Concerning the Commission's Merger Policy Under the Federal Power ------------------------------------------------------------------------- Act: Policy Statement, Order No. 592, 61 Fed. Reg. 68,595 (1996), FERC Stats. & - --------------------- Regs. P. 31,044 (1996), order on reconsideration, Order No. 592-A, 62 Fed. Reg. ------------------------ 33,441 (1997), 79 FERC P. 61,321 (1997) ("Merger Policy Statement"). 21 Upon completion of the proposed transfer, WPL will no longer own transmission facilities. As such, WPL and Wisconsin Transco will not both be providing open access transmission service in the same geographic market. While legal ownership will change, actual operation of the transmission system will not change in ways that could potentially increase market power. Wisconsin Transco cannot act in ways that confer greater market power than WPL currently possesses, and in no event will Wisconsin Transco own or control generation. WPL's market power can only remain as is or be diminished by the transfer. 2. THE TRANSACTION WILL HAVE EITHER MINIMAL OR NO DIRECT EFFECT ON --------------------------------------------------------------- JURISDICTIONAL RATES. This transaction will not have an impact on the wholesale - -------------------- bundled electric rates charged by WPL. The four year rate freeze commitment as well as the other rate payer protection mechanisms offered by Alliant Energy in its merger approval process (and accepted by FERC), remains in effect. 29/ WPL recognizes that certain start-up costs associated with the Wisconsin Transco may be assessed to WPL's current jurisdictional transmission customers. Wisconsin law allows Wisconsin Transco to elect to be included in a single system zone subject to certain provisions. 30/ Specifically, that law provides that in the event the transmission rates of any transmission utility are 10% or - ------------------------ 29/IES Utilities, et al., 81 FERC P. 61,187, Opinion No. 419 (1997). Alliant --------------------- Energy offered intervenors a number of ratepayer protection mechanisms including a four-year rate freeze for wholesale customers, an offer for wholesale customers to buy or lease WPL generation, and a hold harmless provision to ensure that merger-related costs are not imposed on existing customers in addition to their offer to reduce intervenors' contract terms or terminate the contracts in their entirety. 30/Section 196.485(3m) of the Wisconsin Statutes. 22 more below the average transmission rates in the transmission area, 31/ Wisconsin Transco shall prepare a phase-in plan for "a combined single zone rate for the purpose of pricing network use by users of the transmission system operated" by the MISO. 32/ The Wisconsin statute specifically requires Wisconsin Transco to file this plan with the Commission. 33/ The rates charged for generation-based ancillary services by Alliant Energy will remain unchanged. Since Wisconsin Transco's rates for generation based ancillary services will simply be a pass-through on its purchased power costs, and since it will be free to purchase ancillary services from other suppliers where technically feasible and services are cheaper, rates for these ancillary services will remain the same or decline. Transmission customers will benefit from Wisconsin Transco's transmission-only business focus from both a tariff administration and system-planning standpoint. Many of WPL's transmission-dependent customers take service under grandfathered transmission agreements executed prior to issuance of Order No. 888. These customers will have the right to remain under their existing arrangements, or at their option, to contract with Wisconsin Transco for - ------------------------ 31/Wisconsin Statutes defines transmission area as that part of Wisconsin "that, on January 1, 1997, was served by the Mid-America Interconnected Network, Inc., reliability councilB" Section 196.485(1)(g). 32/Section 196.485(3m) of the Wisconsin Statutes. 33/Id. 23 unbundled transmission service under the Alliant Energy OATT. Customers who choose to obtain transmission services under their grandfathered transmission arrangements are free to do so, and will be included as part of the Network Load of WPL. These customers will continue to pay the same rates, and have the same rights and obligations as provided in their grandfathered transmission arrangements prior to approval of this application. The effect on rates to transmission-dependent customers who contract with the Wisconsin Transco for network service under the Wisconsin Transco OATT is almost entirely dependent on the individual circumstances of the customer. Because existing arrangements provide a variety of rates for service at voltages below 50 kV, and charges for transmission service over distribution facilities are typically averaged rather than directly assigned, the rate impact will vary from customer to customer. However, because the voltage differentiated feature of the network tariff and the direct assignment of distribution costs, rates under the Wisconsin Transco Tariff will more closely match the cost of providing service to particular customers. 3. THERE WILL BE NO ADVERSE EFFECT ON REGULATION. In the Merger Policy --------------------------------------------- Statement the Commission addressed two aspects of a transaction's effect no on regulation. First, in situations involving the creation of registered public utility holding companies, the Commission required section 203 applicants to choose between two options: (1) commit to abide by the Commission's policies with respect to intra-system transactions within any newly-formed holding company structure, or (2) go to hearing on the issue of the effect of the proposed registered holding company structure on effective regulation by this the Commission. The Commission stated that, with respect to the effect of a merger on state regulatory authority, where a State has authority to act on a merger, the Commission ordinarily will not set this issue for a trial-type hearing. However, if the State lacked this authority and raised concerns about 24 the effect on regulation the Commission may set the issue for hearing. In this case, WPL remains a part of a regulated holding company and Commission jurisdiction is unaffected. Alliant Energy agrees to abide by the Commission's policy on an intra-system transactions. Further, PSCW will have full authority to regulate WPL and to regulate markets and distribution facilities, after the transaction. This Commission will retain full authority to regulate transmission service provided by Wisconsin Transco. Applications for approval of this transaction will be submitted to the PSCW. Transmission service to retail customers will be unaffected by this application and retail rates will be unaffected. It is anticipated that Wisconsin Transco will plan, operate, and maintain the transmission system in accordance with NERC, industry, and applicable regulatory requirements in order to ensure that reliability of service is maintained. It is further anticipated that Wisconsin Transco will also grant access to its books and records to the PSCW as necessary to ensure regulatory compliance. Wisconsin Transco will become a public utility upon completion of the transaction, and its proposed rate schedules will be reviewed by the Commission under Section 205 of the Federal Power Act, and Wisconsin Transco will otherwise by subject to regulation by this the Commission under the Federal Power Act. Likewise, there will be no lapse in the Commission's jurisdictional reach over WPL's transactions and facilities. Further, due to its status as a public utility, any future merger, consolidation, or disposition of Wisconsin Transco transmission facilities will be subject to prior Commission authorization under Section 203. This means that any future disposition of any jurisdictional assets or service by Wisconsin Transco and any sale of Wisconsin Transco will be subject in Commission jurisdiction. 25 III. REQUEST FOR WAIVERS WPL believes that the proposed transfer to Wisconsin Transco is comparable to the establishment of an ISO. The Commission has held that the establishment of an ISO is a disposition of control over jurisdictional facilities and therefore requires Commission approval under Section 203. See Atlantic City --- ------------- Elec. Co., 76 FERC P. 61,306 (1996). Although the Commission has said that - --------- creation of an ISO requires approval under section 203, the Commission has not applied the Part 33 filing requirements, which are applicable to traditional mergers and consolidations, to the transfers of operational control of facilities to any of the ISOs that have been filed to date. This is not surprising. The Commission identified its eleven ISO principles in Order No. 888, and these are far more relevant to the approval of an ISO than the information described in Part 33. Moreover, the Commission's standard generally for compliance with Part 33 focuses on the practical question of whether the applicants have provided the Commission with sufficient information to evaluate the proposed disposition. Accordingly, to the extent deemed necessary, WPL requests waiver of the Part 33 filing requirements The January 15, 1998, filing under Section 203 of the Federal Power Act submitted by the Midwest ISO Public Utilities in Docket No. EC98-24-000 noted that the Commission generally has not applied the filing requirements set forth at 18 C.F.R. ss.ss. 33.2 and 33.3 to the transfers of facilities pursuant to the establishment of an independent system operator, and requested waiver of these regulations. The Commission granted that waiver, and the Commission should grant a similar waiver here. Good cause exists for granting such a waiver. These filing requirements are intended to ensure that section 203 applicants supply the Commission with sufficient information to determine whether the proposed transfer is consistent with the public interest. The information contained in 26 this application provides the Commission with sufficient information to evaluate WPL's proposal to transfer the WPL Transmission System to Wisconsin Transco. Accordingly, the Commission has a sufficient record upon which it can conclude the proposed transfer is similarly consistent with the public interest. IV. ADDITIONAL INFORMATION REQUIRED UNDER PART 33 OF THE COMMISSION'S REGULATIONS A. NAMES AND ADDRESSES OF PRINCIPAL BUSINESS OFFICES The exact name and the address of the principal business offices of the companies involved are as follows: Wisconsin Power & Light Company Wisconsin Transco ------------------------------- ----------------- Wisconsin Power & Light Company To be determined 222 West Washington Avenue Madison, Wisconsin 53701 B. NAMES AND ADDRESSES OF THE PERSONS AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS WITH RESPECT TO THE APPLICATION The names and addresses of the persons to whom all notices and communications with respect to this proceeding are to be sent are as follows: Kent M. Ragsdale Kenneth A. Goldsmith Managing Attorney Project Manager Alliant Energy Corporate Alliant Energy Corporate Services, Inc. Services, Inc. 200 First Street SE 200 First Street SE P.O. Box 351 P.O. Box 351 Cedar Rapids, IA 52406-0351 Cedar Rapids, IA 52406-0351 319.398.7765 + telephone 319.557.4167 + telephone 319.398.4533 + fax 319.398.4533 + fax kentragsdale@alliant-energy.com kengoldsmith@alliant-energy.com 27 C. DESIGNATION OF TERRITORIES SERVED, BY COUNTIES AND STATES As explained in Section III, above, WPL requests waiver of this requirement. D. DESCRIPTION OF JURISDICTIONAL FACILITIES See Schedule A. E. DESCRIPTION OF TRANSACTION AND STATEMENT AS TO CONSIDERATION See Section I.E., above. F. STATEMENT OF FACILITIES TO BE SOLD See Schedule A. G. STATEMENT OF THE COST OF THE FACILITIES INVOLVED IN THE TRANSACTION See Section I.C., above. H. STATEMENT AS TO THE EFFECT OF THE TRANSACTION UPON ANY CONTRACT FOR THE PURCHASE, SALE OR INTERCHANGE OF ELECTRIC ENERGY The proposed transaction is expected to have no direct impact on any contract for the purchase, sale, or interchange of electric energy. As stated previously, transmission customers served under existing grandfathered transmission agreements will have the right to continue receiving transmission service under these arrangements from WPL, which will take network integration service from Wisconsin Transco under its proposed Tariff. Service agreements will be assigned to Wisconsin Transco. I. STATEMENT AS TO THE OTHER REQUIRED REGULATORY APPROVALS In addition to the Federal Power Act ss. 203 authorization requested herein other regulatory approvals and notifications will be required before Wisconsin Transco can assume ownership and control of the Transmission Facilities, e.g., approvals from the PSCW and the SEC, and notification to the Nuclear Regulatory Commission. WPL has not yet made any such filings. J. FACTS SHOWING THAT THE PROPOSED TRANSACTION WILL BE CONSISTENT WITH THE PUBLIC INTEREST See Section II, above. 28 K. BRIEF STATEMENT OF FRANCHISES HELD As explained in Section III, above, WPL requests waiver of this requirement. L. FORM OF NOTICE A form of notice is appended to this Application. V. LIST OF EXHIBITS REQUIRED BY PART 33 OF THE COMMISSION'S REGULATIONS, 18 C.F.R.SS.33.3 EXHIBIT A. COPIES OF ALL RESOLUTIONS OF DIRECTORS As explained in Section III, above, WPL requests waiver of this requirement. EXHIBIT B. STATEMENT OF INTERCORPORATE RELATIONSHIPS As explained in Section III, above, WPL requests waiver of this requirement. EXHIBIT C. STATEMENTS A AND B, FERC FORM NO. 1 As explained in Section III, above, WPL requests waiver of this requirement. EXHIBIT D. STATEMENT OF ALL KNOWN CONTINGENT LIABILITIES As explained in Section III, above, WPL requests waiver of this requirement. EXHIBIT E. STATEMENT C, FERC FORM NO. 1 As explained in Section III, above, WPL requests waiver of this requirement. EXHIBIT F. ANALYSIS OF RETAINED EARNINGS As explained in Section III, above, WPL requests waiver of this requirement. EXHIBIT G. COPIES OF ALL APPLICATIONS FILED WITH ANY OTHER FEDERAL AND STATE REGULATORY BODY IN CONNECTION WITH THE PROPOSED TRANSACTION AND CERTIFIED COPIES OF EACH ORDER RELATING THERETO As explained in Section III, above, WPL requests waiver of this requirement. EXHIBIT H. COPIES OF ALL CONTRACTS WITH RESPECT TO THE TRANSACTION 29 As explained in Section III, above, WPL requests waiver of this requirement. EXHIBIT I. MAPS OF PROPERTY BEING CONVEYED, INTERCONNECTIONS, AND PRINCIPAL CITIES SERVED A map of the WPL facilities being transferred to Wisconsin Transco is attached as Schedule B. 30 VI. CONCLUSION. WPL respectfully requests that the Commission expeditiously authorize the transfer to Wisconsin Transco of the facilities proposed herein under the terms and conditions set forth in this application. Respectfully submitted, --------------------------------------- Kent M. Ragsdale Managing Attorney Alliant Energy 200 First Street SE P.O. Box 351 Cedar Rapids, IA 52406-0351 (319) 398-7765 - telephone (319) 398-4533 - fax kentragsdale@alliant-energy.com - e-mail Attorney for Wisconsin Power & Light Company Dated: December 8, 1999 31 SCHEDULE A LIST OF WPL TRANSMISSION SYSTEM FACILITIES TO BE TRANSFERRED TO WISCONSIN TRANSCO SCHEDULE B MAP UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION ) WISCONSIN POWER & LIGHT ) DOCKET NO. EC00- COMPANY ) ---------------- ) NOTICE OF FILING (August , 1999) ---- Take notice that on December 8, 1999, Wisconsin Power & Light Company filed an application under Section 203 of the Federal Power Act requesting authorization to transfer ownership and operational control of its jurisdictional transmission facilities to the Wisconsin Transco. Any person desiring to be heard or to protest said filing should file a motion to intervene or protest with the Federal Energy Regulatory Commission, 888 First Street, N.E., Washington, D.C. 20426, in accordance with Rules 211 and 214 of the Commission's Rules of Practice and Procedures (18 C.F.R. ss. 385.211 and 18 C.F.R. ss. 385.214). All such motions or protests should be filed on or before , 1999. Protests will be considered by the ----------------------- Commission in determining the appropriate action to be taken, but will not serve to make protestants parties to the proceedings. Any person wishing to become a party must file a motion to intervene. Copies of this filing are on file with the Commission and are available for public inspection. This filing may also be viewed on the Internet at http://www.ferc.fed.us/online/rims.htm (call 202-208-2222 for assistance). David P. Boergers Secretary -----END PRIVACY-ENHANCED MESSAGE-----