-----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, HpvUMdnAZMt8ZeuyFfNnOCc10WjFamnAojOMOrD1ghM8oPbbMBuG7QehhkcRzAQZ 3sZ6Z4nvIpOkigBGoQJq+g== 0000950120-00-000355.txt : 20001229 0000950120-00-000355.hdr.sgml : 20001229 ACCESSION NUMBER: 0000950120-00-000355 CONFORMED SUBMISSION TYPE: U-1/A PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 20001228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WISCONSIN POWER & LIGHT CO CENTRAL INDEX KEY: 0000107832 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 390714890 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: U-1/A SEC ACT: SEC FILE NUMBER: 070-09735 FILM NUMBER: 797675 BUSINESS ADDRESS: STREET 1: 222 W WASHINGTON AVE CITY: MADISON STATE: WI ZIP: 53703 BUSINESS PHONE: 6082523311 U-1/A 1 0001.txt AMENDMENT NO. 3 TO FORM U-1 (As filed December 28, 2000) File No. 70-9735 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------------------ AMENDMENT NO. 3 TO FORM U-1/A APPLICATION OR DECLARATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ------------------------------------------ Alliant Energy Corporation 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. N16 W23217 Stone Ridge Drive Waukesha, Wisconsin 53187 ATC Management Inc. c/o Wisconsin Electric Power Company N16 W23217 Stone Ridge Drive Waukesha, Wisconsin 53187 (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 Daniel A. Doyle, Vice President, Chief Financial Officer and Treasurer ATC Management Inc. N16 W23217 Stone Ridge Drive Waukesha, Wisconsin 53187 Alliant Energy Corporation ("Alliant Energy"), Wisconsin Power & Light Company ("WPL"), South Beloit Water, Gas & Electric Company ("South Beloit"), American Transmission Company LLC (the "Transco") and ATC Management Inc. (the "Corporate Manager", and, together with Alliant Energy, WPL, South Beloit and Transco, "Applicants") hereby amend their Application/Declaration on Form U-1 in Commission file No. 70-9735 in its entirety to read as follows: ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION. ----------------------------------- INTRODUCTION A. 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 WPL, 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. The Transco, which is described in further detail below, is a Wisconsin limited liability company that 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 the Corporate Manager, a Wisconsin corporation - ------------------------ 1 See WPL Holdings, Inc., et al., Holding Co. Act Release No. 26856 (Apr. 14, 1998). formed on June 12, 2000, as its initial members. The principal executive officers of the Transco and the Corporate Manager are currently located at N16 W23217 Stone Ridge Drive, Waukesha, Wisconsin 53187. The Commission, in HCAR No. 27206 (Aug. 2, 2000), authorized, among other things, 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, transmission, 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 2 Commission ("FERC"). The Nuclear Regulatory Commission ("NRC") regulates WPL in connection with its ownership interest in the Kewaunee Nuclear Power Plant.2 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 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.3 - ------------------------ 2 WPL is exempt from registration as a holding company by Commission order under Section 3(a)(1) of the Act. See Wisconsin Power and Light Co., 1 S.E.C. ---------------------------- 362 (1936). 3 South Beloit has no generating units. 3 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"). 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, 4 member units 4 of the Transco; (iv) WPL to purchase approximately 2,400 shares of the Class A Common Stock ("Class A shares") of the Corporate Manager;5 (v) WPL to purchase one share of the Class B Common Stock ("Class B share") of the Corporate Manager;6 (vi) the Transco's issuance of its member units in exchange for which the Transco will acquire either transmission assets (in the case of WPL, South Beloit and any 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 (the "Indenture"), WPL will effect the transfer of the WPL Transmission Assets to the Transco and its acquisition of the Transco member units through a newly created limited - ------------------------ 4 Member units will evidence the respective holder's limited liability interests in the Transco. 5 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. 6 WPL will pay a purchase price for these Class A and Class B Corporate Manager shares of $10 per share. 5 liability company ("NewCo") to be wholly owned by WPL.7 The following steps, for which Applicants specifically seek authority, will occur essentially simultaneously: (1) WPL will form NewCo and acquire all of its member units for one or more cash payments; (2) NewCo will transfer to the trustee under the Indenture cash in an amount approximately equal to WPL's corresponding cash payment to NewCo for NewCo's member units 8; (3) upon receipt of such payment, the trustee will release the WPL Transmission Assets from the lien of the Indenture; (4) WPL will transfer the WPL Transmission Assets to the Transco; and (5) the Transco will issue its member units to NewCo.9 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 construction, in - ------------------------ 7 NewCo will exist solely for the purposes of this transaction and will never issue debt or equity securities. 8 This cash payment will be equal to the "fair value" to WPL of the WPL Transmission Assets, as is defined in, and required by, the Indenture. Such "fair value" will approximate the Contribution Value (as defined below) of the WPL Transmission Assets. Receipt of such cash by the trustee will permit the WPL Transmission Assets to be released from the lien of the Indenture. 9 NewCo will then continue to hold WPL's interests in the Transco, but the Transco's operating agreement will require that all Transco voting rights be exercised by WPL. WPL will hold its shares in the Corporate Manager directly. 6 exchange for additional Transco member units to be issued to NewCo or South Beloit, as the case may be.10 The transfer of the WPL Transmission Assets to the Transco in exchange for an indirect membership interest in the Transco will not be detrimental to WPL investors. There are currently outstanding approximately $306.1 million principal amount of WPL first mortgage bonds which are secured by permanent additions having a depreciated book value of approximately $1.5 billion. Of this amount, approximately $899.3 million of permanent additions (294% of the principal amount of the bonds) were applied to the issuance of the bonds, with the balance available for additional bonding or other applications permitted by the Indenture. The aggregate depreciated book value of the WPL Transmission Assets that will be released from the lien of the Indenture is approximately - ------------------------ 10 Applicants believe that as a result of the transactions contemplated herein, the Corporate Manager will be a "holding company" as defined in section 2(a)(7) of the Act. Additionally, as noted in note 2 above, WPL is already an exempt holding company. Both WPL and the Corporate Manager intend to file an exemption statement on Form U-3A-2 pursuant to Rule 2 under the Act. Applicants also believe that the Corporate Manager will become a "public utility company" as defined in Section 2(a)(5) of the Act in its capacity as operator of the Transco's assets. 7 $177.7 million. Following the release of the WPL Transmission Assets from the lien of the Indenture, WPL's outstanding bonds will be secured by permanent additions with a depreciated book value of approximately 428% of the aggregate principal amount of its outstanding first mortgage bonds. With respect to the equity investors in WPL, WPL's total assets will not be materially affected by the proposed transaction. WPL will receive indirectly an equity interest in the Transco that approximates the value of the WPL Transmission Assets transferred to the Transco. 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. 8 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.11 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 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 - ------------------------ 11 1999 Wisconsin Act 9, Sections 2335tr to 2335uh (Assembly Amendment to Assembly Subcommittee Amendment 1 to 1999 Assembly Bill 133) (the "Transco Legislation"). 9 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.12 The Transco will be managed by the Corporate Manager. The Transco participants will acquire, directly or indirectly, interests in the - ------------------------ 12 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 or its successor organization. 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. 10 Transco and the Corporate 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,13 will purchase their interests for cash at a price that will keep the other participants whole, as explained below.14 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 - ------------------------ 13 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. 14 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. 11 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 Transmission System Operator, Inc. (the "Midwest ISO") when the Midwest ISO becomes operational. If, however, the Midwest ISO fails to commence, or ceases, operations, the Transco, in accordance with the Transco Legislation, will join another independent system operator or other regional transmission organization authorized under federal law to operate in Wisconsin. K. It is expected that the initial 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 Public Service Commission), WPPI, Wisconsin Public Service Corp. ("WPS"), and Madison Gas & Electric Company ("MGE").15 All utilities participating in the Transco are referred to herein as "Member Utilities". Other entities, both - ------------------------ 15 The Corporate Manager will also initially own a less than 1% interest in the Transco. 12 within and outside of Wisconsin, may, in the future, decide to become members of the Transco and will then also become Member Utilities. The Member Utilities intend to contribute their transmission assets to the Transco on or about January 1, 2001 (the "Operations Date").16 The transmission systems of the Member Utilities are interconnected at numerous points and essentially all operate as part of the same reliability and planning council -- the Mid-America Interconnected Network, Inc. ("MAIN").17 MAIN promotes coordinated planning, construction, operation, maintenance and use of generation and transmission facilities by its members. The Member Utilities' transmission systems were also planned and built on a coordinated basis pursuant - ------------------------ 16 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 12 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. 17 The Alliant Energy system transmission assets that are not being transferred to the Transco are also interconnected at numerous points with the transmission assets that are being transferred to the Transco, but are, and will continue to be, operated as part of a different reliability and planning council - - - the Mid-Continent Area Power Pool. ESE is part of the East Central Area Reliability (ECAR), but is expected to become part of MAIN by January 1, 2001. 13 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.18 Services provided under the O&M Agreements will include operations services such - ------------------------ 18 Section 196.485 (3m)(a)1.b. of the Wisconsin Statutes. 14 as inspection, field switching and communications repair; line equipment maintenance services such as line inspection, line repair, grounding, corrosion control and right of way access maintenance; station equipment services including inspection, structure and foundation repair and system testing and maintenance; emergency response services such as field response, emergency clean up response and post-emergency repair; station related services such as grass maintenance, vegetation control and security checks; and other miscellaneous services including grounding repair and major equipment repair. Each utility will commit to maintain the organizational and physical resources needed to perform all services under an O&M Agreement. The Member Utilities and the Transco will also enter into a one or more services agreements ("Services Agreements") pursuant to which the Member Utilities will provide the Transco with certain services not covered by the O&M Agreements. Services provided under the Services Agreements include control center services, including the provision and supervision of control center operator labor and dispatch of field operations personnel; real estate services which include real estate records management, encroachment monitoring, lease management, billing and collection, joint facility management and route planning, siting and selection; project services necessary for the design, 15 functioning and construction of capital projects including engineering, protection and control design, procurement and construction; environmental services; supply chain services including sourcing, logistic, inventory and warehousing functions; engineering services; planning services and other miscellaneous services. The Transco will provide certain services from the Stoughton Operations Center ("SOC") to support Alliant Energy's operation of its transmission facilities outside of Wisconsin ("Non-Wisconsin Facilities") and its 34.5 kV facilities in Wisconsin that are not being transferred to the Transco ("East Facilities"). It is expected that such operations will be governed by an agency agreement ("Agency Agreement"). The SOC is part of the WPL Transmission Assets being transferred to the Transco. Services provided under the Agency Agreement will include control and operation services including the remote oversight, monitoring and control of the Non-Wisconsin Facilities and the East Facilities from the SOC, coordination of all planned switching, performance of security analysis, the monitoring of voltage, line flows, circuit breaker static and transformer tap positions and record keeping; emergency response services; blackstart services; and open access same-time information system ("OASIS") 16 services, including inserting and extracting data from the Alliant Energy OASIS node. Any services provided to 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 Section 13(b) of the Act and Rules 90 and 91 thereunder. The Transco will enter into an Asset Contribution Agreement ("ACA") with each Member Utility that is contributing transmission assets. The ACA provides for each Member Utility to identify the real estate rights-of-way and personal property that are to be contributed, and establishes the form of those conveyances. In brief, the assets conveyed are required to be all those necessary to enable the Transco to conduct transmission operations. Each Member Utility will make certain representations with respect to those assets conveyed, and will agree to indemnify the Transco in the event of a breach of those representations. Additionally, the Member Utilities and the Transco will enter into a Forming Party Agreement Regarding System Operating Procedures ("Forming Party Agreement") which memorializes certain principles of the Transco transmission system operation that the Member Utilities agreed are necessary to ensure that transmission system reliability and efficiency are continued during the transition of system control from the Member Utilities to the Transco. No 17 services will be provided under the Forming Party Agreement, though some of the principles articulated in the Forming Party Agreement have been incorporated into other agreements, such as service agreements, between the Member Utilities and the Transco. The distribution systems owned and operated by the Member Utilities are currently interconnected with the current Member Utilities' transmission systems. On January 1, 2001, when the Transco will take over ownership and operation of the Member Utilities' transmission systems, the Member Utilities' distribution systems will then be interconnected with the Transco's transmission system. Each Member Utility will enter into a Distribution-Transmission Interconnection Agreement (each, a "D-T Agreement") which will contain the terms and conditions that will govern the interconnection of the Member Utilities' distribution systems with the Transco transmission system, addressing such matters as maintenance, operating and meter standards, access to facilities and liability issues. The D-T Agreements contain no provisions for the payment of rates or charges to the Transco for the Transco's provision of interconnection services to the Member Utilities. 18 The Member Utilities' generators are currently interconnected with the Member Utilities' transmission systems. On January 1, 2001, the Member Utilities' generators will then be interconnected with the Transco's transmission system. Each Member Utility will enter into a Generation-Transmission Interconnection Agreement (each, a "G-T Agreement") which will contain the terms and conditions that will govern the interconnection of the Member Utilities' generators with the Transco transmission system, addressing such matters as maintenance, operating and metering standards, access to facilities, redispatch, provision of ancillary services and liability issues. The G-T Agreements contain no provisions for the payment of rates or charges to the Transco for the Transco's provision of interconnection service to the Member Utilities' generators. The Member Utilities will each enter into a Network Operating Agreement ("NOA") and Network Integration Transmission Service Agreement ("NITSA") with the Transco. These agreements are transmission service agreements pursuant to the Transco OATT on file at FERC for the provision of network integration transmission service. The NITSA is a form agreement on file at FERC that specifies the network resources and network load that will be served thereunder. 19 The NOA contains the specific operating provisions that allow a network customer to integrate its load and resources as provided in the OATT. N. In accordance with the Transco Legislation, all transmission-owning Member Utilities will transfer all transmission assets to the Transco on the Operations Date. For purposes of determining the initial distribution of Corporate Manager shares and Transco member units among the Member Utilities, 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 will acquire member units in the Transco for cash based upon their 1999 Wisconsin load share ratios 19. 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 24%. This - ------------------------ 19 These transmission-dependent utilities may also transfer an inconsequential amount of transmission assets to the Transco. 20 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,20 such entities will purchase their interests for a price that is 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 by the Transco 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 - ------------------------ 20 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. 21 other transmission-contributing participants is not diminished because of the tax exempt entities' participation. P. The Transco members will enter into an agreement (the "Operating Agreement") that will govern the activities of the Transco. Because the Transco is a manager-managed limited liability company 21, the Operating Agreement will grant to the Corporate Manager full, complete and exclusive discretion to exercise management control over the business of the Transco.22 As the manager of the Transco, the Corporate Manager is obligated to provide all management services to the Transco, which itself has no management. The Corporate Manager may not resign or be removed as manager without the unanimous consent of the Member Utilities and the Corporate Manager. (Initially, the members of the Transco also control the Corporate Manager so if they believe that it is - ------------------------ 21 Wisconsin law allows Wisconsin limited liability companies to elect to be either member-managed or manager-managed. The Transco has elected to be manager-managed, and Wisconsin law specifically allows the manager of any limited liability company to be a corporation. The Transco has designated the Corporate Manager, a Wisconsin corporation which has been formed for this purpose, to be its manager. The two legal entities, the Transco and the Corporate Manager, are a single functioning unit, as the Corporate Manager exists for the sole purpose of conducting the affairs of the Transco. The role of the Corporate Manager in the management of the Transco corresponds to the role of the general partner of a limited partnership. 22 This complete managerial control is analogous to complete voting control. 22 performing inadequately, their remedy is to replace the management of the Corporate Manager, and not the Corporate Manager as manager of the Transco). The Corporate Manager also is to have no other role than to serve as manager of the Transco. Thus, it will negotiate all contracts on behalf of the Transco, and make all required filings on the Transco's behalf. The Corporate Manager's employees will either directly or by contract with third parties perform all the functions necessary to run an electric transmission company. Accordingly, all of the Corporate Manager's expenses will be for the account of and will be reimbursed in full by the Transco. The Corporate Manager will have all powers as a manager to do all things necessary and convenient to carry out the Transco's business. The Transco will rely completely on the Corporate Manager to take all actions required in the conduct of the Transco's business. The Corporate Manager will not materially change its status, and in particular, will not engage in any activities other than acting as the manager of the Transco as discussed above, without prior approval by the Commission. 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 23 another Member Utility or an affiliate of the transferring Member Utility.23 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 Class A 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 (the "IPO") 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. As indicated, the Member Utilities will also purchase shares of common stock 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 24% interest in the Corporate Manager. The Corporate - ------------------------ 23 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. 24 Manager will have two classes of stock: Class A and Class B.24 WPL will receive approximately 24%, or 2,400 shares, of the nonvoting Class A shares. Additionally, each Member Utility, including WPL, will receive one of the five Class B voting shares to be issued at closing.25 Initially, 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 membership units 26 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 - ------------------------ 24 The Class A/Class B structure ensures that the Member Utilities will have economic interests proportionate to the value of their contribution to the Transco while still maintaining the desired per capita voting arrangement. 25 Neither South Beloit nor ESE will receive shares in the Corporate Manager because their interests will be held by their respective corporate parents. 26 The Corporate Manager's percentage ownership of the Transco will increase through (i) exchange by a Member Utility of its respective Transco member units for Corporate Manager Class A shares, which exchange will be effected by the Corporate Manager's issuance of additional Class A shares in exchange for the member units being converted; or (ii) its purchase of such additional member units from the Transco with the proceeds of a Corporate Manager Class A stock initial public offering ("IPO"), which purchase is required by the terms of the Corporate Manager's organizational documents. 25 Class B shares to Class A shares or after the Corporate Manager commences the IPO. Each Class A and Class B share will be entitled to the same amount of dividends. There will be four independent directors of the Corporate Manager, both before and after the IPO, who will have no affiliation with any entity engaged in the production, sale, marketing, transmission or distribution of electricity or natural gas. The Transco Legislation requires that the independent directors be elected by a "majority vote of the voting security holders". As stated above, initially, only the Class B shareholders of the Corporate Manager will be entitled to vote and, prior to the IPO, they will, therefore, elect all directors, including the independent directors. After the IPO, the Class A shareholders will be entitled to vote. If, after the IPO, the Corporate Manager owns 50% or less of the Transco member units, the Class A shareholders will elect a majority of the Corporate Manager's directors, including the four independent directors, and the Class B shareholders will elect a minority of the Corporate Manager's directors. As stated above, when the Corporate Manager owns more than 50% of the Transco member units, the Class B shares will convert to Class A shares and thus the Class A shareholders will elect all directors. The Corporate Manager may commence an IPO three years after the Operations Date with the consent of a majority of the Board of Directors. Prior thereto, an IPO is permitted only upon the unanimous consent of the Class B shareholders. 26 The Member Utilities will not be able to exchange their Transco member units for Corporate Manager Class A shares until the earlier of (i) a year after the IPO or (ii) three years after the Operations Date. However, such limitation on the exchange of member units could also be amended with the consent of all Class B shareholders. In certain instances, it is possible that the Class B shareholders would approve an early IPO without amending the exchange restrictions if, for instance, they were seeking simply to raise capital from public sources. The Transco legislation also allows any holder of 10% or more of the equity in the Transco, after three years, to require the Transco to comply with all state and federal laws necessary for the holder to sell or transfer its member units 27. Because corporate stock is more readily marketable to the public than member units in a limited liability company, the creation of the Corporate Manager as a stock corporation will facilitate access to the public financial markets. TRANSFERRED PROPERTIES T. The Member Utilities will transfer ownership and control of their respective transmission assets to the Transco. The Transco will acquire from the - ------------------------ 27 Section 196.485(3m)(a)5 of the Wisconsin Statutes. 27 Member Utilities transmission facilities that operate at voltages of 345 kV, 138 kV and 69 kV. The assets to be transferred from all Member Utilities 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.28 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 $314,276,000 and $678,000, 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 $177,650,000 and $439,000, respectively. The Contribution Value of - ------------------------ 28 The other Member Utilities will also be contributing similar assets to the Transco. 28 the WPL Transmission Assets and the South Beloit Transmission Assets will be approximately $126,784,000 and $590,000, respectively. It is expected that, as of December 31, 2000, the original cost of the transmission assets of WEPCO and ESE will be approximately $442.9 million and $41 million, respectively. The net book value (original cost less accumulated depreciation) of the WEPCO transmission assets and the ESE transmission assets at December 31, 2000 is expected to be approximately $230.0 million and $31.4 million, respectively. The Contribution Value of the WEPCO transmission assets and the ESE transmission assets will be approximately $214 million and $30 million, respectively. It is expected that, as of December 31, 2000, the original cost of the WPS transmission assets will be approximately $139 million. The net book value (original cost less accumulated depreciation) of the WPS transmission assets at December 31, 2000 is expected to be approximately $70 million. The Contribution Value of the WPS transmission assets will be approximately $63 million. It is expected that, as of December 31, 2000, the original cost of the MG&E transmission assets will be approximately $83.4 million. The net book value (original cost less accumulated depreciation) of the MG&E transmission assets at 29 December 31, 2000 is expected to be approximately $46.6 million. The Contribution Value of the MG&E transmission assets will be approximately $33.4 million. U. The facilities that 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 or its successor. Prior to the transfer, the Transco will have operational control of the transmission system contributed by Wisconsin utilities; provide ancillary 30 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 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, the Transco seeks authority to acquire transmission assets from MGE, WEPCO, WPS and ESE in exchange for Transco member units based on the Contribution Value of such transferred assets. For a description of these assets, including original cost, net book value and Contribution Value, see Paragraph T hereof. The Transco also 31 seeks authority 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 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 32 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. 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").29 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, - ------------------------ 29 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). 33 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. 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 34 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. 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 through June 30, 2004: (i) Class A shares of the Corporate Manager in connection with the IPO; (ii) additional Transco member units to the Corporate Manager in exchange for the proceeds from that IPO; (iii) Class A shares of the Corporate Manager to Member Utilities seeking to exchange their respective 35 Transco member units for such shares 30; (iv) Class A and Class B shares of the Corporate Manager to future Member Utilities ("Additional Member Utilities") when such Additional Member Utilities become members of the Transco, (v) member units in the Transco to those Additional Member Utilities, (vi) preferred stock of the Corporate Manager and (vii) other equity securities. Applicants respectfully request that the Commission reserve jurisdiction over all such equity securities except with respect to (i) Class A Corporate Manager shares issued to Member Utilities in connection with their exchange of Transco member units for such Class A shares and (ii) Class A and Class B Corporate Manager shares and Transco member units issued to Additional Member Utilities. The aggregate issuance price of such equity securities will not exceed $500 million. The dividend rate on any series of preferred securities issued by the Corporate Manager will not exceed 500 basis points over the yield to maturity of a U.S. Treasury security having a remaining term equal to the term of that series of preferred securities at the time of issuance. Such preferred securities may have mandatory redemption dates. - ------------------------ 30 Such exchange is discussed above in Paragraph Q. 36 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 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 37 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 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 38 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, 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 39 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.31 Such hedging transactions will qualify for hedge accounting treatment under generally accepted accounting principles. JJ. The Applicants are not at this time requesting Commission approval for any further transaction by the Transco or the Corporate Manager. In the event Applicants propose to engage in any transaction resulting in a material change in the corporate structure, management, or control of the Corporate Manager or Transco for which approval of the Commission may be required under the Act, the Applicants will undertake to file a Post-Effective Amendment requesting such approval. ITEM 2. FEES, COMMISSIONS AND EXPENSES. ------------------------------ The fees, commissions and expenses incurred or to be incurred by Alliant Energy and WPL in connection with the filing of this application are estimated not to exceed $200,000. The total costs incurred or to be incurred in connection - ------------------------ 31 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). 40 with the formation and start-up of the Transco and Corporate Manager and the transfer of transmission assets to the Transco are estimated not to exceed approximately $5 million, which includes legal expenses incurred in connection with obtaining necessary regulatory approvals, accounting and advisory fees. The foregoing fees and expenses do not include the fees and expenses of any debt offerings by the Transco, such as commitment fees, compensating balances, placement fees and dealer discounts on commercial paper offerings. Such fees and expenses will not exceed 5% of the amount of the proceeds of any such debt offering by the Transco. A statement with respect to the fees, commissions and expenses incurred or to be incurred in connection with the Corporate Manager IPO will be filed by a Post-Effective amendment hereto. 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 41 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. 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 42 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. 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 43 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 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 44 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 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 45 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".32 In certain instances, the Commission has found it appropriate to "look through" intermediate holding companies such as the Corporate Manager for purposes of its Section 11(b)(2) analysis. See Exelon Corp., HCAR No. 27256 ------------ (Oct. 19, 2000) (finding that an intermediate holding company structure designed to minimize the tax impact of a merger did not implicate the abuses Section - ------------------------ 32 As stated above in paragraph G of Item 1, after the transactions contemplated herein, WPL and the Corporate Manager will each file an exemption statement on Form U-3A-2 pursuant to Rule 2 under the Act. 46 11(b)(2) was designed to prevent); National Grid Group plc, HCAR No. 27154 (Mar. ----------------------- 15, 2000) (finding that intermediate holding companies created to capture the economic efficiencies of a cross-border transaction did not implicate the abuses Section 11(b)(2) was designed to prevent). Applicants believe that such a "look through" is appropriate in the Section 11(b)(2) analysis of the contemplated transactions although, unlike the intermediate holding companies in the Exelon ------ and National Grid orders, the Corporate Manager will have public investors. ------------- Nevertheless, Applicants believe that the Commission should find that the existence of the Corporate Manager will not "unduly or unnecessarily complicate the structure" of the Alliant Energy system. The nature of the per capita voting rights in the Corporate Manager adequately protects the rights of the minority interests that possess such voting rights. Moreover, the Corporate Manager exists to facilitate public investment in the Transco, and ultimately to transition the Transco into a publicly-held company, at which point it will cease to be a subsidiary of a registered public utility holding company. Therefore, none of the abuses associated with publicly-held minority interests will be present and, thus, the existence of the Corporate Manager will not implicate the abuses Section 11(b)(2) was designed to prevent. 47 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 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 48 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 economical and efficient development of an integrated public utility system, as required by Section 10(c)(2) of the Act. 49 (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. 50 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"). 51 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: (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 with respect to both the Transco system and the Alliant Energy system, post-Transco, which will consist of those current Alliant Energy transmission assets that are not transferred to the Transco (i.e., the Non-Wisconsin Facilities, which are located in Iowa, and the East Facilities) and Alliant Energy's approximate 24% interest in the Transco (the "Post-Transco Alliant Energy Transmission System"). 52 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. 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 and operated as a part of MAIN. Those assets are also physically interconnected with the Alliant Energy transmission system assets that will not be transferred to the Transco. All such interconnections will remain in place after the transactions 53 contemplated herein occur. Thus, the entire Post-Transco Alliant Energy Transmission System will also be 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 in Paragraph K of Item 1, the Post-Transco Alliant Energy Transmission System will continue to be operated in a manner that satisfies the standard of economic and coordinated operations in Section 2(a)(29)(A) of the Act. In effect, the proposed transactions will result in WPL and South Beloit transferring full ownership of their current transmission assets for a 24% interest, initially, in the Transco, which will own and operate a much larger mix of transmission assets in Wisconsin. Importantly, this change in form of ownership is not expected to have any effect on WPL's and South Beloit's use and enjoyment of the transferred assets, except that, in the future, they will have 54 to contract with he Transco for transmission service under the Transco's open-access tariffs. Moreover, the proposed transactions are expected to result in greater coordination and more efficient allocation of the provision of transmission services within the area served by the Transco. SINGLE AREA OR REGION. The "single integrated system" of the Post-Transco Alliant Energy Transmission System will initially be the central and eastern portions of the State of Wisconsin and small adjacent areas of the Michigan Upper Peninsula and Illinois, as well as Iowa. 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 -------------------------- 55 (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) 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 56 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 assets are transferred to the Transco, as will the non-Member Utility operating companies of the Alliant Energy system. Finally, communication between the Transco and its members will flow easily.33 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. - ------------------------ 33 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. 57 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 "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 September 30, 2000 was $201.7 million, or about 16% of Alliant Energy's "consolidated retained earnings" ($1,263.4 million for the four quarters ended September 30, 2000 as defined in Rule 53(a)(1)(ii) and including 58 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 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 which has also been approved. The FERC has also separately approved the acquisition by the Transco of the transmission assets of the transmission-owning Member Utilities other than WPL and South Beloit. The Transco has also filed an application with the FERC seeking approval of the Transco OATT. Based on the FERC's December 14, 2000 order approving the Transco 59 OATT, the Transco's December 15, 2000 Section 205 rate filing and FERC precedent, the Transco can begin operations on January 1, 2001 without violating the Federal Power Act. In addition, the Wisconsin Commission has approved certain elements of the proposed transactions. Specifically, the Wisconsin Commission authorized: (i) WPL and South Beloit to become members of the Transco by contributing their transmission facilities to the Transco; (ii) the Corporate Manager to acquire its interest in the Transco; (iii) the Transco to acquire the transmission facilities of WEPCO, ESE, WPL, South Beloit, WPS and MGE in exchange for its membership interests; and (iv) the Transco to sell membership interests to WPPI and the Corporate Manager. Finally, South Beloit has made a notice filing with the Illinois Commerce Commission and, in accordance with Section 16-111(g) of the Illinois Public Utilities Act, no further Illinois regulatory action is needed for South Beloit to transfer its transmission assets to the Transco. Except as stated above, no state commission or federal commission, other than this 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. 60 ITEM 5. PROCEDURE. --------- The Commission has published a notice under Rule 23 with respect to the filing of this Application/Declaration and no hearing has been requested. The applicants request that the Commission's Order be issued as soon as practicable in order to accommodate a closing before December 29, 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. 61 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. 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. A-7 Form of Amended and Restated Articles of Incorporation of the Corporate Manager. A-8 Form of Amended and Restated Bylaws of the Corporate Manager. A-9 Form of Shareholders Agreement of the Corporate Manager. B-1 Form of O&M Agreement-- previously filed. B-2 Form of Services Agreement - previously filed. B-3 Reserved. 62 B-4 Form of Agency Agreement - previously filed. B-5 Form of Asset Contribution Agreement - previously filed. B-6 Form of Transco Forming Party Agreement - previously filed. B-7 Form of Transco Generation-Transmission Interconnection Agreement - previously filed. B-8 Form of Network Operating Agreement - previously filed. B-9 Form of Transco Distribution-Transmission Interconnection Agreement - previously filed. C Not Applicable. D-1 Application of WPL to the FERC - Previously filed. D-2 Application of South Beloit to the FERC - previously filed. D-3 Application of Alliant Energy Corporate Services, Inc. to the FERC - previously filed. D-4 Order of the FERC regarding WPL Application - previously filed. D-5 Order of the FERC regarding South Beloit Application - previously filed. D-6 Order of the FERC regarding Alliant Energy Corporate Services, Inc. Application - previously filed. D-7 Application of WPL to the Wisconsin Commission - previously filed. D-8 Order of the Wisconsin Commission regarding the Transco. D-9 Application of South Beloit to the Illinois Commission. 63 D-10 Reserved. D-11 Application of the Transco to the FERC - filed pursuant to Form SE. D-12 Order of the FERC regarding Transco Application. D-13 Omnibus Application of the Transco and Member Utilities to the Wisconsin Commission ("Comprehensive Application") - previously filed. D-14 Supplement to Omnibus Application - previously filed. D-15 Application of the Transco and Member Utilities to the Wisconsin Commission - previously filed. D-16 Exhibits to the Comprehensive Application to the Wisconsin Commission by the Transco and the Member Utilities - filed pursuant to Form SE. D-17 Application to the Wisconsin Commission by the Member Utilities regarding the Forming Party Agreement - filed pursuant to Form SE. D-18 Application to the Wisconsin Commission by Alliant Energy regarding Affiliated-Interest Agreements - filed pursuant to Form SE. 64 D-19 Application to the Wisconsin Commission by South Beloit regarding Affiliated-Interest Agreements - filed pursuant to Form SE. D-20 Application to the Wisconsin Commission by the Member Utilities regarding Documents Under FERC Jurisdiction - filed pursuant to Form SE. D-21 Transco Section 205 Filing with the FERC dated December 15, 2000. D-22 Transco Section 205 Filing with the FERC dated December 18, 2000. D-23 Clarification order of the FERC. D-24 Order of the FERC regarding WEPCO Application - Incorporated by reference to WEC SEC File No. 70-9741. D-25 Order of the FERC regarding ESE Application - Incorporated by reference to WEC SEC File No. 70-9741. D-26 Order of the FERC regarding WPS Application - Incorporated by reference to WPS SEC File No. 70-9769. D-27 Order of the FERC regarding MGE Application - Incorporated by reference to MGE SEC File No. 70-9791. E Interconnection Map - filed pursuant to Form SE. F-1 Opinion of Barbara Swan, Esq. 65 F-2 Opinion of Walter Woelfle, Esq.. G Not applicable. H Form of Notice - previously filed. 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) -- Previously filed. 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) -- Previously filed. 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) - previously filed. 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) -- Previously filed. 66 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. 67 SIGNATURES Pursuant to the requirements of the Public Utility Holding Company Act of 1935, as amended, the undersigned companies have duly caused this amended Application or Declaration filed herein to be signed on their behalf by the undersigned thereunto duly authorized. ALLIANT ENERGY CORPORATION WISCONSIN POWER AND LIGHT COMPANY 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/ Daniel A. Doyle ------------------------------------ Name: Daniel A. Doyle Title: Vice President, Chief Financial Officer and Treasurer ATC MANAGEMENT INC. By: /s/ Daniel A. Doyle ------------------------------------ Name: Daniel A. Doyle Title: Vice President, Chief Financial Officer and Treasurer Date: December 28, 2000 68 EX-99 2 0002.txt EXHIBIT A-5 EXHIBIT A-5 ARTICLES OF ORGANIZATION OF WPL TRANSCO, LLC The undersigned, acting as organizer of a limited liability company under Chapter 183 of the Wisconsin Statutes, adopts the following Articles of Organization for the purpose of forming such limited liability company. ------------------------ ARTICLE I NAME The name of the limited liability company is WPL Transco, LLC. ARTICLE II REGISTERED OFFICE AND REGISTERED AGENT The address of the initial registered office of the limited liability company is 222 W. Washington Avenue, Madison, Wisconsin 53703. Its initial registered agent at such address is Edward M. Gleason. ARTICLE III MANAGEMENT Management of the limited liability company shall be vested in a manager or managers. ARTICLE IV ORGANIZER The name and address of the sole organizer of the limited liability company is Leonard S. Sosnowski, c/o Foley & Lardner, 150 East Gilman, P.O. Box 1497, Madison, Wisconsin 53701-1497. Executed this 8th day of December, 2000. --------------------------------------- Leonard S. Sosnowski, Sole Organizer This instrument was drafted by and after filing should be returned to Attorney Leonard S. Sosnowski, Foley & Lardner, 150 East Gilman, P.O. Box 1497, Madison, Wisconsin 53701-1497. EX-99 3 0003.txt EXHIBIT A-6 EXHIBIT A-6 WPL TRANSCO, LLC (A WISCONSIN LIMITED LIABILITY COMPANY) OPERATING AGREEMENT DECEMBER , 2000 -- TABLE OF CONTENTS Page ARTICLE I FORMATION...........................................................1 1.1 Definitions....................................................1 1.2 Formation; Name................................................1 1.3 Purposes.......................................................1 1.4 Registered and Principal Offices...............................1 1.5 Term...........................................................2 1.6 Statutory Manager..............................................2 1.7 Separate Entity................................................2 1.8 Tax Classification.............................................2 ARTICLE II THE SOLE MEMBER....................................................2 2.1 Sole Member....................................................2 2.2 Admission of Additional Members................................2 2.3 Meetings.......................................................2 2.4 Consent without Meeting........................................3 ARTICLE III CAPITAL CONTRIBUTIONS.............................................3 3.1 Initial Capital Contributions..................................3 3.2 Additional Capital Contributions...............................3 ARTICLE IV DISTRIBUTIONS......................................................3 4.1 Limitation.....................................................3 4.2 Distribution...................................................3 ARTICLE V THE BOARD OF DIRECTORS..............................................3 5.1 Management.....................................................3 5.2 Authority and Powers...........................................3 5.3 Tenure and Qualifications......................................4 5.4 Meetings.......................................................4 5.5 Notice; Waiver.................................................4 5.6 Quorum.........................................................5 5.7 Manner of Acting...............................................5 5.8 Conduct of Meetings............................................5 5.9 Vacancies......................................................5 5.10 Compensation...................................................5 5.11 Unanimous Consent without Meeting..............................5 5.12 Restrictions on Authority of Sole Member, Board of Directors and Officers...................................................5 ARTICLE VI OFFICERS...........................................................6 6.1 Officers.......................................................6 6.2 Number.........................................................6 6.3 Term of Office.................................................6 -i- 6.4 Removal........................................................6 ARTICLE VII GENERAL...........................................................6 7.1 The fiscal year of the Company.................................6 ARTICLE VIII AMENDMENTS.......................................................7 8.1 By Sole Member.................................................7 8.2 Implied Amendments.............................................7 ARTILE IX INDEMNIFICATION OF OFFICERS AND DIRECTORS...........................7 9.1 Mandatory Indemnification......................................7 ARTICLE X DISSOLUTION AND WINDING UP..........................................7 10.1 Dissolution....................................................7 10.2 Winding Up and Liquidation.....................................8 ARTICLE XI TRANSFER...........................................................8 11.1 Assignment and Transfer........................................8 11.2 No Dissolution.................................................8 ARTICLE XII BOOKS, REPORTS, ACCOUNTING, AND TAX ELECTIONS.....................8 12.1 Books and Records..............................................8 12.2 Tax Elections..................................................8 ARTICLE XIII MISCELLANEOUS....................................................8 13.1 Binding Effect.................................................8 13.2 Rules of Construction..........................................8 13.3 Choice of Law and Severability.................................9 13.4 Entire Agreement...............................................9 13.5 Title to Property; No Partition................................9 13.6 Third-Party Beneficiaries......................................9 ARTICLE XIV GLOSSARY..........................................................9 -ii- WPL TRANSCO, LLC OPERATING AGREEMENT THIS OPERATING AGREEMENT is made as of the day of December, 2000, ---- by and between Wisconsin Power and Light Company, a Wisconsin corporation (the "Sole Member") and WPL Transco, LLC, a Wisconsin limited liability company (the "Company"). W I T N E S E T H : WHEREAS, the Sole Member has formed a Company by causing the filing of Articles of Organization (the "Articles") pursuant to the Wisconsin Limited Liability Company Act (the "Act"); WHEREAS, the Articles provide for a Manager as defined in Section 183.0102(13) of the Act. WHEREAS, the Sole Member desires the Company to engage in any and all activities permitted under the Act; WHEREAS, the Sole Member desires to set forth in full all of the terms and conditions of the operation of the Company in this Operating Agreement (the "Agreement"); NOW, THEREFORE, in consideration of the foregoing, of the mutual promises contained herein, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Sole Member and Company, intending legally to be bound, hereby agree as follows: ARTICLE I FORMATION 1.1 Definitions. Capitalized terms undefined in this Agreement shall ----------- have the meanings set forth in the Glossary contained in Article XIV. 1.2 Formation; Name. The Sole Member has formed the Company as a --------------- limited liability company pursuant to the Act by causing, on December 8, 2000, the Articles to be delivered to the Wisconsin Department of Financial Institutions. The Company's name shall be WPL Transco, LLC and all business of the Company shall be conducted under that name. 1.3 Purposes. The Company shall have the authority to engage in any -------- activity and to exercise any powers permitted to limited liability companies under the laws of the State of Wisconsin. 1.4 Registered and Principal Offices. The registered and principal -------------------------------- office of the Company shall initially be located at 222 West Washington Avenue, Madison, Wisconsin 53703. The registered agent of the Company shall be Edward M. Gleason, whose address is c/o Wisconsin Power and Light Company, 222 West Washington Avenue, Madison, Wisconsin 53703. The Sole Member may establish additional offices or may relocate the principal or registered offices. 1.5 Term. The Company's term officially began on November 21, 2000, ---- formalized by the filing of the Articles with the Wisconsin Department of Financial Institutions, and shall continue until terminated by operation of law or by some provision of this Agreement. 1.6 Statutory Manager. The Sole Member shall be the Manager of the ----------------- Company under the Act. All references in this Agreement to actions of the Sole Member shall mean acting in the capacity of Manager, except where the context of the action is that of a Member. 1.7 Separate Entity. Subject to Section 1.8, the Sole Member intends --------------- that the Company conduct its business in a manner consistent with its treatment as a limited liability company and not be operated or treated as an alter ego or surrogate of the Sole Member for any purpose, including, but not limited to, the Federal Bankruptcy Code, and this Agreement shall not be construed to suggest otherwise. The Sole Member shall not be liable for the liabilities of the Company except to the extent the Sole Member specifically assumes or guarantees any such liability in writing. The failure of the Company to observe any formalities or requirements relating to the exercise of its powers or the affairs of the Company shall not be grounds for imposing personal liability on the Sole Member for liabilities of the Company. 1.8 Tax Classification. For federal income tax purposes, and where ------------------ permitted, for state income tax purposes, the Company shall be treated as a division of the Sole Member unless the Sole Member elects different treatment under Treasury Regulation Section 301.7701-3 and/or applicable state tax law. ARTICLE II THE SOLE MEMBER 2.1 Sole Member. The name and business address of the Sole Member of ----------- the Company is: Wisconsin Power and Light Company 222 West Washington Avenue Madison, Wisconsin 53703 2.2 Admission of Additional Members. Additional members may be ------------------------------- admitted to the Company only with the prior written consent of the Sole Member. 2.3 Meetings. A meeting of the Sole Member may be held at such time -------- and place as may be designated by the Sole Member or by the Board of Directors, for the purpose of appointing Directors and for the transaction of such other business as may come before the meeting. -2- 2.4 Consent without Meeting. Any action required or permitted by the ----------------------- Agreement or any provision of law to be taken at a meeting of the Sole Member, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by the Sole Member. ARTICLE III CAPITAL CONTRIBUTIONS 3.1 Initial Capital Contributions. The Sole Member has made the ----------------------------- Capital Contributions set forth on Exhibit A hereto in return for a Membership --------- Interest. 3.2 Additional Capital Contributions. Additional capital -------------------------------- contributions to the Company may be made at the discretion of the Sole Member. Except and to the extent of the initial Capital Contribution, the Sole Member shall not be required to make any additional Capital Contributions. No additional Membership Interests in the Company shall be issued without the prior written consent of the Sole Member. ARTICLE IV DISTRIBUTIONS 4.1 Limitation. Distributions may be made only to the extent ---------- permitted by the Act and consistent with the Company's obligations to its creditors as determined by the Sole Member. 4.2 Distribution. Subject to Section 4.1, the Company shall make ------------ Distributions to the Sole Member at such times and in such amounts as determined by the Sole Member. ARTICLE V THE BOARD OF DIRECTORS 5.1 Management. In the discretion of the Sole Member, the management ---------- of the Company may be vested in a Board of Directors. In such event, (i) the number of Directors of the Company shall be three (3), who shall be appointed by the Sole Member; and (ii) the following provisions shall apply. 5.2 Authority and Powers. All powers of the Company shall be -------------------- exercised by or under the authority of the Board of Directors. Decisions of the Board of Directors within its scope of authority shall be binding upon the Company. Such powers shall specifically include but shall not be limited to the power to: (a) Authorize any Officer or Officers, agent or agents to sign all checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Company, which shall be signed by such Officer or Officers, agent or agents of the Company and in such manner, including by means of facsimile signatures, as shall from time to time be determined by or under the authority of a resolution of the Board of Directors; -3- (b) Select directly or under the authority of a resolution such banks, trust companies or other depositories to which all funds of the Company not otherwise employed shall be deposited from time to time to the credit of the Company; (c) Borrow and lend money at such rates of interest and from or to such parties as is approved, such approval may be general or confined to specific instances; (d) Take such actions as are consistent with the Company's business and purpose under Section 1.3 of this Agreement; (e) Insure the Company's activities and property; (f) Pay out of the Company's funds all fees and expenses incurred in the organization and operation of the Company; (g) Authorize the execution of all documents, instruments and agreements reasonably deemed by the Board of Directors to be necessary, appropriate or needed for the performance of its duties and the exercise of its powers under this Agreement; (h) Appoint a registered agent or change the registered office pursuant to Section 1.4 above; and (i) Retain attorneys, accountants and other professionals in the course of the performance of the Directors' duties and exercise of their powers. 5.3 Tenure and Qualifications. Each Director shall hold office until ------------------------- his or her successor shall have been duly appointed or until his or her prior death, resignation or removal. A Director may be removed from office by the Sole Member for any reason or no reason. A Director may resign at any time by filing his or her written resignation with the Secretary of the Company. 5.4 Meetings. Meetings of the Board of Directors may be called by or -------- at the request of the Chairman of the Board (if the Board of Directors determines to elect one), the President, Secretary or any two Directors. The Chairman of the Board, President or Secretary calling any meeting of the Board of Directors may fix the time and place for holding any special meeting of the Board of Directors called by them, and if no other place is fixed the place of the meeting shall be the principal business office of the Company. 5.5 Notice; Waiver. Notice of each meeting of the Board of Directors -------------- shall be given to each Director (i) by written notice delivered personally or mailed to such Director at his or her business address or at such other address as such Director shall have designated, or (ii) by word of mouth or telephone, in each case not less than 120 hours if by mail and not less than 48 hours if by word of mouth, telephone or facsimile, prior thereto. If mailed, such notice shall be deemed to be delivered when deposited in the mail so addressed, with postage thereon prepaid. Whenever any notice whatever is required to be given to any Director of the Company under this Agreement, a waiver thereof in writing, signed at any time, whether before or after the time of meeting, by the Director -4- entitled to such notice, shall be deemed equivalent to the giving of such notice. The attendance of a Director at a meeting shall constitute a waiver of notice of such meeting. Neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. 5.6 Quorum. Except as otherwise provided by the Agreement, a majority ------ of the Directors shall constitute a quorum ("Quorum") for the transaction of business at any meeting of the Board of Directors, but a majority of the Directors present (though less than such Quorum) may adjourn the meeting from time to time without further notice. 5.7 Manner of Acting. The act of the majority of the Directors ---------------- present at a meeting at which a Quorum is present shall be the act of the Board of Directors, unless the act of a greater number is required by the Agreement. 5.8 Conduct of Meetings. The Chairman of the Board, or in the event ------------------- the Board of Directors determines not to elect a Chairman of the Board, or in his or her absence, the President, and in his or her absence, a Vice-President in the order provided under Section 6.8, and in their absence, any Director chosen by the Directors present, shall call meetings of the Board of Directors to order and shall act as chairperson of the meeting. The Secretary of the Company shall act as secretary of all meetings of the Board of Directors but in the absence of the Secretary, the presiding Officer may appoint any Assistant Secretary or any Director or other person present to act as secretary of the meeting. 5.9 Vacancies. Any vacancy occurring in the Board of Directors, --------- including a vacancy created by an increase in the number of Directors, shall be filled by appointment by the Sole Member at its convenience. 5.10 Compensation. The Board of Directors, by affirmative vote of a ------------ majority of the Directors then in office, and irrespective of any personal interest of any of its members, may establish reasonable compensation of all Directors for services to the Company as Directors, Officers or otherwise, or may delegate such authority to an appropriate committee. The Board of Directors also shall have authority to provide for or delegate authority to an appropriate committee to provide for reasonable pensions, disability or death benefits, and other benefits or payments, to Directors, Officers and employees and to their estates, families, dependents or beneficiaries on account of prior services rendered by such Directors, Officers and employees to the Company. 5.11 Unanimous Consent without Meeting. Any action required or --------------------------------- permitted by the Agreement to be taken by the Board of Directors or any committee thereof at a meeting or by resolution may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the Directors or members of such committee entitled to vote with respect to such action. 5.12 Restrictions on Authority of Sole Member, Board of Directors and ---------------------------------------------------------------- Officers. None of the Sole Member, the Board of Directors, the Chairman of the - -------- Board or the Officers shall have the authority to: -5- (a) Do any act in contravention of applicable law or this Agreement or that would make it impossible to carry on the Company's activities; (b) Possess Company property, or assign rights in specific Company property, for other than a purpose of the Company; (c) Perform any act that would subject the Sole Member to liability in any jurisdiction except as expressly provided in this Agreement; (d) Change, convert or reorganize the Company into any other legal form without the prior written consent of the Sole Member; or (e) Except as permitted expressly by this Agreement, take any action that will cause the dissolution of the Company. ARTICLE VI OFFICERS 6.1 Officers. In the discretion of the Sole Member, Officers may be -------- appointed, and upon institution of a Board of Directors, the Board shall appoint Officers. In either such event, the following provisions shall apply. 6.2 Number. The Officers of the Company shall be a President, a Vice ------ President, a Secretary, a Treasurer and such assistant secretaries and assistant treasurers and other officers as may be appropriate. Any two or more offices may be held by the same person, except the offices of President and Secretary and the offices of President and Vice-President. Unless the Sole Member or Board of Directors decides otherwise, the authority and duties of the Officers shall be those that are normally associated with the holder of that office under the Business Corporations Act of the State of Wisconsin herein and any further duties designated by the Board of Directors. The duties herein specified for particular Officers may be transferred to and vested in such other Officers as the Board of Directors shall elect or appoint from time to time and for such periods or without limitation as to time as the Board shall order. 6.3 Term of Office. Each Officer shall hold office until his or her -------------- successor shall have been duly appointed or until his or her prior death, resignation or removal. 6.4 Removal. Any Officer or agent may be removed at any time, but ------- such removal shall be without prejudice to the contract rights, if any, of the person so removed. Appointment shall not of itself create contract rights. ARTICLE VII GENERAL 7.1 The fiscal year of the Company. The fiscal year of the Company ------------------------------ shall begin on the first day of January and end on the last day of December each year. -6- ARTICLE VIII AMENDMENTS 8.1 By Sole Member. The Agreement may be altered, amended or repealed -------------- and a new Agreement may be adopted only by the Sole Member, except as provided in Section 9.12. 8.2 Implied Amendments. Any action taken or authorized by the Sole ------------------ Member or by the Board of Directors, which would be inconsistent with the Agreement then in effect but is taken or authorized by the Sole Member shall be given the same effect as though the Agreement had been temporarily amended or suspended so far, but only so far, as is necessary to permit the specific action so taken or authorized. ARTICLE IX INDEMNIFICATION OF OFFICERS AND DIRECTORS 9.1 Mandatory Indemnification. The Company shall, as if and to the ------------------------- same extent as limited liability companies organized under the Act are permitted, indemnify, defend, and hold harmless the Sole Member, the Directors and the Officers (each, an "Actor"), to the extent of the Company's assets, for, from, and against any liability, damage, cost, expense, loss, claim, or judgment incurred by the Actor arising out of any claim based upon acts performed or omitted to be performed by the Company, its Sole Member, its officers, or any of its or their agents in connection with the business of the Company acting in capacity as a Sole Member or officer of the Company, including without limitation, attorneys' fees and costs incurred by the Actor in settlement or defense of such claims. Notwithstanding the foregoing, no Actor shall be so indemnified, defended, or held harmless for claims based upon its acts or omissions in the breach of this Agreement or which constitute fraud, willful misconduct, or breach of fiduciary duty to the Company or to the Sole Member. Amounts incurred by an Actor in connection with any action or suit arising out of or in connection with Company affairs shall be reimbursed by the Company if such action or suit does arise in a matter for which indemnification is available under this Section 9.1 (provided that the Company shall in all events advance expenses of defense but only if the Actor undertakes in writing to repay the advanced funds to the Company if the Actor is finally determined by a court of competent jurisdiction to not be entitled to indemnification pursuant to the provisions of this Section 9.1). ARTICLE X DISSOLUTION AND WINDING UP 10.1 Dissolution. The Company shall be dissolved upon the happening of ----------- any of the following: (a) The Sole Member's decision to dissolve the Company; (b) The unanimous affirmative vote of the Board of Directors; (c) The Company being adjudicated insolvent or bankrupt; -7- (d) Entry of a decree of judicial dissolution. 10.2 Winding Up and Liquidation. Upon a dissolution of the Company, -------------------------- the Sole Member shall select a liquidator (the "Liquidator"). The Liquidator shall liquidate as much of the Company's assets in its discretion, and shall do so as promptly as is consistent with obtaining fair value for them, and shall apply and distribute the assets of the Company in accordance with the following: (a) First, to the payment and discharge of all of the Company's debts and liabilities to creditors of the Company including the Sole Member, and also including, without limitation, the unpaid principal balance (and any interest thereon) of any loan made by the Sole Member; (b) Second, to the Sole Member. ARTICLE XI TRANSFER 11.1 Assignment and Transfer. The Sole Member may voluntarily Assign ----------------------- any portion of its rights with respect to, or interest in, the Company. As used in this Section 11.1, "Assign" means sell, transfer or assign and "Assignment" means a sale, transfer or assignment. 11.2 No Dissolution. The Sole Member's Assignment of any portion of -------------- its interest does not result in the dissolution of the Company. ARTICLE XII BOOKS, REPORTS, ACCOUNTING, AND TAX ELECTIONS 12.1 Books and Records. The Company shall maintain or cause to be ----------------- maintained at the Company's principal place of business, the records required by nonwaivable provisions of the Act. 12.2 Tax Elections. The Sole Member shall have the sole discretion and ------------- authority to make or revoke any elections on behalf of the Company for tax purposes. ARTICLE XIII MISCELLANEOUS 13.1 Binding Effect. Except as provided to the contrary, the terms and -------------- provisions of this Agreement shall be binding upon and shall inure to the exclusive benefit of the Sole Member, the Company and their successors and assigns. 13.2 Rules of Construction. The captions in this Agreement are --------------------- inserted only as a matter of convenience and in no way affect the terms or intent of any provision of this Agreement. All defined phrases, pronouns, and other variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular, or plural, as the actual identity of the organization, person, -8- or persons may require. No provision of this Agreement shall be construed against the Sole Member by reason of the extent to which the Sole Member or its counsel participated in the drafting hereof. 13.3 Choice of Law and Severability. This Agreement shall be construed ------------------------------ in accordance with the internal laws of Wisconsin. If any provision of this Agreement shall be contrary to the internal laws of Wisconsin or any other applicable law, at the present time or in the future, such provision shall be deemed null and void, but shall not affect the legality of the remaining provisions of this Agreement. This Agreement shall be deemed to be modified and amended so as to be in compliance with applicable law and this Agreement shall then be construed in such a way as will best serve the intention of the parties at the time of the execution of this Agreement. 13.4 Entire Agreement. This Agreement constitutes the entire agreement ---------------- of the Sole Member and the Company regarding the terms and operations of the Company, except for any amendments to this Agreement adopted in accordance with the terms herein. This Agreement supersedes all prior and contemporaneous agreements, statements, understandings, and representations regarding the terms and operations of the Company, except as provided in the preceding sentence. 13.5 Title to Property; No Partition. All real and personal property ------------------------------- owned by the Company shall be owned by it as an entity and the Sole Member shall have no ownership interest in such property in its individual right or name, and the Sole Member's Membership Interests represented thereby shall be personal property. 13.6 Third-Party Beneficiaries. The agreements contained in this ------------------------- Agreement inure solely to the benefit of the Sole Member, the Company and their successors and assigns. Except in an action brought by, but not on behalf of, the Sole Member, no provision of this Agreement is specifically enforceable, and no provision of this Agreement shall be construed to be for the benefit of any creditor of the Company or to create rights under any theory of third-party beneficiary. ARTICLE XIV GLOSSARY In this Agreement, the following terms shall have the meanings indicated below, and any derivations of these terms shall have correlative meanings: "Act" means the Wisconsin Limited Liability Company Act in its form as of the date of this Agreement. "Agreement" means the Operating Agreement of WPL Transco, LLC dated December , 2000 and any amendments hereto. -- "Board of Directors" or "Board" means the board that will manage the Company's business and affairs as described in the Agreement. -9- "Business Day" means a day other than a Saturday, Sunday, or a legal holiday on which federally chartered banks are generally closed for business. "Capital Contribution" means the gross amount of cash, property, services rendered, or promissory notes or other written obligations to provide cash or property or to perform services contributed to the Company by the Sole Member with respect to its Membership Interest. "Director(s)" means a member or the members of the Board of Directors appointed as provided in Section 5.1 for the purpose of delegating management of the Company. "Liquidator" means the person selected as such by the Sole Member pursuant to Section 10.2 hereof. "Membership Interest" or "Membership Interests" means the equity interest in the Company expressed as a percentage as such percentage may be adjusted from time to time pursuant to this Agreement. "Officers" means any of the persons holding a Company office pursuant to Section 6.2. "Sole Member" means Wisconsin Power and Light Company, a Wisconsin corporation. [SIGNATURE PAGE FOLLOWS] -10- IN WITNESS WHEREOF, the undersigned has caused this Agreement to be executed as of the day and year first above written. WISCONSIN POWER AND LIGHT COMPANY By: ------------------------------------ Name: Title: WPL TRANSCO, LLC By: Wisconsin Power and Light Company By: ------------------------------------ Name: Title: -11- EXHIBIT A --------- CAPITAL CONTRIBUTION OF $ ------- FOR 100% MEMBERSHIP INTEREST EX-99 4 0004.txt EXHIBIT A-7 EXHIBIT A-7 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF ATC MANAGEMENT INC. The following restated articles of incorporation of ATC Management Inc., duly adopted pursuant to the authority and provisions of Chapter 180 of the Wisconsin Statutes, supercede and take the place of the existing articles of incorporation and any amendments thereto: I. The name of the Corporation is ATC Management Inc. II. The Corporation is organized under Chapter 180 of the Wisconsin Statutes. III. The Corporation shall have the authority to issue 130,000,000 shares of Stock, consisting of 30,000,000 shares of Preferred Stock, par value $.01 per share, and 100,000,000 shares of Common Stock, of which 99,999,990 shares shall be Class A Common Stock, $.01 par value per share, and 10 shares shall be Class B Common Stock, $.01 par value per share. The Class A Common Stock and Class B Common Stock shall have the same relative rights, preferences and limitations with respect to any dividends and distributions upon liquidation, and in all other respects, except with respect to voting rights and conversion. A. Preferred Stock. The Preferred Stock may be issued from time to --------------- time in one or more series. The Board of Directors is hereby authorized, by filing one or more articles of amendment pursuant to the Wisconsin Business Corporation Law (each, a "Preferred Stock Designation"), to fix or, as permitted by the Wisconsin Business Corporation Law, alter from time to time the designations, powers, preferences and rights of each such series of the Preferred Stock and the qualifications, limitations or restrictions thereof, including without limitation the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), redemption price or prices, and the liquidation preferences of any wholly unissued series of the Preferred Stock, and to establish from time to time the number of shares constituting any such series and the designation thereof, or any of them; and to increase or decrease the number of shares of any series subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be decreased in accordance with the foregoing sentence, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. B. Common Stock. ------------ 1. Voting Rights. ------------- a. Class A. Until the earlier of (x) the closing of an offering of Class A Common Stock that has the effect of listing such shares on the New York Stock Exchange, American Stock Exchange, or the Nasdaq National Market System, or their respective successors (the "Listing"), or (y) the conversion of the Class B Common Stock into Class A Common Stock (the "Conversion"), the holders of the Class A Common Stock shall not have any right to vote in the election of directors of the Corporation, or any other right to vote except as may be required by law. Upon the earlier of the Listing or Conversion, the holders of the Class A Stock shall have the right, subject to any rights of any holders of Preferred Stock, to elect all directors of the Corporation that are not elected by the holders of the Class B Common Stock and shall possess all other voting rights incident to shares of Common Stock under Chapter 180 of the Wisconsin Statutes. b. Class B. Until the earlier of the Listing or Conversion, the holders of the Class B Common Stock shall have the right to elect all the directors of the Corporation, subject to any rights of any holders of Preferred Stock, and shall possess all other voting rights incident to shares of common stock under Chapter 180 of the Wisconsin Statutes. Upon the earlier of the Listing or Conversion, the holders of the Class B Common Stock (i) shall have the right to elect that number of directors of the Corporation specified in the Corporation's Bylaws; (ii) shall not have the right to vote with respect to any other director of the Corporation; and (iii) shall not have the right to vote on any other matter except to the extent required by law. 2. Conversion. Each share of Class B Common Stock shall automatically be converted into one share of Class A Common Stock on the earlier of (i) the tenth anniversary of the filing of these Amended and Restated Articles of Incorporation; or (ii) the date on which the Corporation's ownership of American Transmission Company LLC exceeds 50%; provided, however, that no 3. more than one year preceding such event, the Board of Directors may, by majority vote, elect not to have the Class B Common Stock converted as of such date. 4. Fractional Shares. The Corporation shall not have the authority ----------------- to issue any fractional shares of Class B Common Stock. IV. The number of directors constituting the Board of Directors shall be designated in the Corporation's Bylaws. The terms of the directors may be staggered to the extent provided in the Corporation Bylaws. V. The name and street address of the registered agent and registered office of the Corporation are Walter T. Woelfle, N16 W23217 Stone Ridge Drive, Waukesha, Wisconsin 53187. VI. The above amendments to the Articles of Incorporation of the Corporation were duly adopted in accordance with Section 180.1003 of the Wisconsin Statutes on November , 2000. -- These Amended and Restated Articles of Incorporation shall become effective on January 1, 2001. IN WITNESS WHEREOF, the Company has caused these Amended and Restated Articles of Incorporation to be executed by its duly authorized representative on this day of , 2000. ----- ------- ATC MANAGEMENT INC. By: ------------------------------------ Name: Jose M. Delgado Title: CEO and President This instrument was drafted by and is returnable to: Jack Molencamp, Esq. Hunton & Williams 1900 K Street, NW Washington, DC 20006-1109 EX-99 5 0005.txt EXHIBIT A-8 EXHIBIT A-8 AMENDED AND RESTATED BYLAWS OF ATC MANAGEMENT INC. The following terms used herein will have the following meaning: "COMPANY" means American Transmission Company LLC, a Wisconsin limited liability company. "CONVERSION" means the conversion of Class B Common Stock into Class A Common Stock. "CORPORATION" means ATC Management Inc., a Wisconsin corporation. "INDEPENDENT DIRECTOR" means a director who is not a director, employee or independent contractor of a person engaged in the production, sales, marketing, transmission or distribution of electricity or natural gas or an affiliate of such person. "LISTING" means the closing of an offering of Class A Common Stock that has the effect of listing such shares on the New York Stock Exchange, American Stock Exchange, Nasdaq National Market System, or any of their successors. "OPERATING AGREEMENT" means the Operating Agreement of American Transmission Company LLC, dated as of January 1, 2001. "OPERATIONS DATE" means the date that the Company commences operations, as determined by the Public Service Commission of Wisconsin. These Amended and Restated Bylaws supercede and replace entirely any and all prior bylaws of the Company and shall be effective as of, and as if in effect on January 1, 2001. ARTICLE I CAPITAL STOCK 1.1 Classes. ------- (a) There initially shall be three classes of capital stock of the Corporation, the preferences, limitations and relative rights of which are be set forth in the Articles of Incorporation, as it may be amended from time to time. (b) Subject to any restrictions imposed by the Wisconsin Business Corporation Law, the Board of Directors may issue additional shares of capital stock from time to time. 1.2 Certificates. The shares of capital stock of the Corporation shall be ------------ evidenced by certificates in forms prescribed by the Board of Directors and executed in any manner permitted by law and stating thereon the information required by law. Transfer agents and/or registrars for one or more classes of shares of the Corporation may be appointed by the Board of Directors and may be required to countersign certificates representing shares of such class or classes. If any officer whose signature or facsimile thereof shall have been used on a share certificate shall for any reason cease to be an officer of the Corporation and such certificate shall not then have been delivered by the Corporation, the Board of Directors may nevertheless adopt such certificate and it may then be issued and delivered as though such person had not ceased to be an officer of the Corporation. 1.3 Lost, Destroyed and Mutilated Certificates. Holders of the shares of ------------------------------------------ the Corporation shall immediately notify the Corporation of any loss, destruction or mutilation of the certificate therefor, and the Board of Directors may in its discretion cause one or more new certificates for the same number of shares in the aggregate to be issued to such shareholder upon the surrender of the mutilated certificate or upon satisfactory proof of such loss or destruction, and the deposit of a bond in such form and amount and with such surety as the Board of Directors may require. 1.4 Transfer of Shares. The shares of the Corporation shall be ------------------ transferable or assignable only on the books of the Corporation by the holder in person or by attorney on surrender of the certificate for such shares duly endorsed and, if sought to be transferred by attorney, accompanied by a written power of attorney to have the same transferred on the books of the Corporation. The Corporation will recognize, however, the exclusive right of the person registered on its books as the owner of shares to receive dividends and to vote as such owner. 1.5 Fixing Record Date. For the purpose of determining shareholders ------------------ entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than 70 days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notices of the meeting are mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof unless the Board of Directors fixes a new record date, which it shall do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. 2 ARTICLE II MEETINGS OF SHAREHOLDERS 2.1 Places of Meetings. All meetings of the shareholders shall be held at ------------------ such place, either within or without the State of Wisconsin, as from time to time may be fixed by the Board of Directors. 2.2 Annual Meetings. The annual meeting of the shareholders, for the --------------- election of Directors and transaction of such other business as may come before the meeting, shall be held in each year on the third Tuesday in June, at 10 a.m., or such other day as shall be determined by the Board of Directors. 2.3 Special Meetings. A special meeting of the shareholders for any ---------------- purpose or purposes may be called at any time by the Chairman of the Board, the President or any Director. In addition, the Corporation shall call a special meeting upon the demand of holders of at least 10% of all votes entitled to be cast on any issue proposed to be considered at the proposed special meeting, which demands shall be signed and dated and shall describe one or more purposes for which the meeting is to be held. At a special meeting no business shall be transacted and no corporate action shall be taken other than that stated in the notice of the meeting. 2.4 Notice of Meetings. Written or printed notice stating the place, day ------------------ and hour of every meeting of the shareholders and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be mailed not less than 10 nor more than 60 days before the date of the meeting to each shareholder of record entitled to vote at such meeting, at his address which appears in the share transfer books of the Corporation. Such further notice shall be given as may be required by law, but meetings may be held without notice if all the shareholders entitled to vote at the meeting are present in person or by proxy or if notice is waived in writing by those not present, either before or after the meeting. 2.5 Quorum. Any number of shareholders together holding at least a ------ majority of the outstanding shares of capital stock entitled to vote with respect to the business to be transacted, who shall be present in person or represented by proxy at any meeting duly called, shall constitute a quorum for the transaction of business. If less than a quorum shall be in attendance at the time for which a meeting shall have been called, the meeting may be adjourned from time to time by a majority of the shareholders present or represented by proxy without notice other than by announcement at the meeting. 2.6 Voting. ------ (a) At any meeting of the shareholders each shareholder of a class entitled to vote on any matter coming before the meeting shall, as to such matter, have one vote, in person or by proxy, for each share of capital stock of such class standing in his name on the books of the Corporation on the date, not more than seventy days prior to such meeting, fixed by the Board of Directors as the record date for the purpose of determining shareholders entitled to vote. 3 Every proxy shall be in writing, dated and signed by the shareholder entitled to vote or his duly authorized attorney-in-fact. (b) The act of the majority of shareholders of a class at which a quorum is present shall be the act of such class of shareholders; provided, however, that a unanimous vote of the holders of the Class B Common Stock is required to (i) amend this Section 2.6 or Section 3.2 prior to the tenth anniversary of the Operations Date, (ii) approve a public offering before the third anniversary of the Operations Date; (iii) amend any provision hereof that incorporates or embodies a provision of 1999 Wisconsin Act 9; or (iv) amend Section 3.5(d) with respect to the requirement of a two-thirds affirmative vote by the Directors to issue Preferred Stock. 2.7 Inspectors. An appropriate number of inspectors for any meeting of ---------- shareholders may be appointed by the Chairman of such meeting. Inspectors so appointed will open and close the polls, will receive and take charge of proxies and ballots, and will decide all questions as to the qualifications of voters, validity of proxies and ballots, and the number of votes properly cast. ARTICLE III DIRECTORS 3.1 General Powers. The property, affairs and business of the -------------- Corporation shall be managed under the direction of the Board of Directors, and, except as otherwise expressly provided by law, the Articles of Incorporation or these Bylaws, all of the powers of the Corporation shall be vested in such Board. Without limiting the foregoing, the Board will consider and approve, for each fiscal year, an operating and a capital budget for the Company. 3.2 Number of Directors. ------------------- (a) Until the earlier of (1) the Conversion, or (2) the Listing, the number of Directors constituting the Board of Directors shall be five plus the number of Directors that an individual shareholder or group of shareholders is entitled to appoint in accordance with Chapter 196 of the Wisconsin Statutes. (i) Four of the five Directors that an individual shareholder or group of shareholders is not entitled to appoint shall be Independent Directors. (ii) The fifth Director that an individual shareholder or group of shareholders is not entitled to appoint shall be the President of the Corporation. (b) Upon the earlier of (1) the Conversion, or (2) the Listing, the number of Directors shall be the sum of (A) the number of Directors that an individual shareholder or group of shareholders is entitled to appoint under Chapter 196 of the Wisconsin Statutes and (B) the number specified in clause (A) plus one, or, if required to make the total number of Directors an odd number, plus two. (i) At least four of the Directors specified in clause (B) shall be Independent Directors. 4 (ii) Notwithstanding Section 196.485(3m)(c)(1), it is unanimously agreed that the number of Directors may exceed 14. (c) The provisions set forth in this Section 3.2 may be amended during the first ten years following the Operations Date only by the unanimous vote of the holders of the Class B Common Stock and thereafter by a 2/3 vote of such holders. 3.3 Term. ----- (a) The four Directors specified in Section 3.2(a)(i) shall be elected for four-year terms; provided, that initially one such Director shall be elected for a one-year term, one for a two-year term, and one for a three-year term; and provided, further, that such terms may be adjusted to accommodate the requirements of Section 3.3(b). (b) The number of Directors specified in Section 3.2(b)(ii) shall be divided into four groups as evenly as possible, with each group being elected for four-year terms, provided that initially one such group shall be elected for a one-year term, one for a two-year term, and one for a three-year term. 3.4 Election and Removal of Directors. --------------------------------- (a) Directors shall be elected at each annual meeting of shareholders to succeed those Directors whose terms have expired and to fill any vacancies then existing. (b) Any Director appointed in accordance with Chapter 196.485 of the Wisconsin Statutes may be removed only with the approval of the Shareholder that designated such Director. Any other Director may be removed from office at a meeting called expressly for that purpose by the vote of shareholders holding not less than a majority of the shares entitled to vote at an election of such Director. (c) Any vacancy occurring in the Board of Directors shall be filled as follows: If the vacancy is with respect to a Director entitled to be appointed in accordance with Chapter 196.485 of the Wisconsin Statutes, the Shareholder entitled to appoint such Director shall designate a replacement to serve the remainder of the term. If the vacancy is with respect to any other Director, it may be filled by a vote of the remaining Directors, and the term of office of any Director so elected shall expire at the next shareholders' meeting at which Directors are elected. 3.5 Meetings of Directors. --------------------- (a) An annual meeting of the Board of Directors shall be held as soon as practicable after the adjournment of the annual meeting of shareholders at such place as the Board may designate. Other meetings of the Board of Directors shall be held at places within or without the State of Wisconsin and at times fixed by resolution of the Board, or upon call of the Chairman of the Board, the President or upon the written request of two or more Directors. The Secretary or officer performing the Secretary's duties shall give not less than 48 hours' notice by letter, telegraph or telephone (or in person) of all meetings of the Board of Directors, provided that notice need not be given of the annual meeting or of regular meetings held at times and places fixed by resolution of the 5 Board. Meetings may be held at any time without notice if all of the Directors are present, or if those not present waive notice in writing either before or after the meeting. The notice of meetings of the Board need not state the purpose of the meeting. (b) Any regular or special meeting of the Board of Directors may be held by or through any means of communication by which all participating directors may simultaneously hear each other during the meeting, or whereby all communications during the meeting is immediately transmitted to each participating director, and each participating Director is able to immediately send messages to all other participating Directors. If a meeting is held in reliance on the foregoing, all participating Directors shall be informed that a meeting is taking place at which official business may be transacted. A Director participating in a meeting pursuant to the foregoing is deemed to be present in person at the meeting. (c) Action required or permitted by this Agreement to be taken at a Board of Directors meeting may be taken without a meeting if the action is taken by all of the Directors of the Board of Directors as evidenced by one or more written consents. Such written consent or consents shall be signed by each Director either before or after the action is taken, state the action taken, and be included in the minutes or filed with the corporate records reflecting the action taken. (d) Until the Listing, two-thirds of the number of Directors prescribed in these Bylaws shall constitute a quorum for the transaction of business. Thereafter, a majority of the number of Directors prescribed in these Bylaws shall constitute a quorum for the transaction of business. The act of a majority of Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, provided that any decision to issue Preferred Stock will require the affirmative vote of at least two-thirds of the Directors then in office. Less than a quorum may adjourn any meeting. 3.6 Compensation. By resolution of the Board, Directors may be allowed ------------ a fee and expenses for attendance at all meetings, but nothing herein shall preclude Directors, other than Independent Directors, from serving the Corporation in other capacities and receiving compensation for such other services. 3.7 Qualification of Directors. No Director may stand for re-election -------------------------- if he or she shall have attained the age of 70 prior to the annual meeting for the election of Directors. Until the Listing, if an Independent Director resigns, retires or is otherwise terminated from his or her primary employment and does not obtain, within six months thereafter, an employment position comparable to the one he or she had when first elected a Director, he or she shall resign from the Board effective the sixth month after termination of his primary employment, unless prior thereto a majority of the Class B Shareholders shall affirmatively vote to retain such director. 6 ARTICLE IV COMMITTEES 4.1 Executive Committee. The Board of Directors, by resolution adopted ------------------- by a majority of the number of Directors fixed by these Bylaws, may elect an Executive Committee which shall consist of not less than three elected Directors, including the President and one Independent Director. When the Board of Directors is not in session, the Executive Committee shall have all power vested in the Board of Directors by law, by the Articles of Incorporation, or by these Bylaws, provided that the Executive Committee shall not have power to approve or recommend to shareholders action that the Wisconsin Business Corporation Law requires to be approved by shareholders, fill vacancies on the Board or on any of its committees, amend the Articles of Incorporation, adopt, amend, or repeal the Bylaws, approve a plan of merger not requiring shareholder approval, authorize or approve a distribution, except according to a general formula or method prescribed by the Board of Directors, or authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences, and limitations of a class or series of shares, other than within limits specifically prescribed by the Board of Directors. The Executive Committee shall report at the next regular or special meeting of the Board of Directors all action, which the Executive Committee may have taken on behalf of the Board since the last regular or special meeting of the Board of Directors. 4.2 Finance Committee. The Board of Directors, by resolution adopted ----------------- by a majority of the number of Directors fixed by these Bylaws, may elect a Finance Committee, which shall consist of not less than three Directors, including one Independent Director. The Finance Committee shall consider and report to the Board with respect to operating and capital budgets of the Company and the Corporation, plans for Company expansion, capital structure and long-range financial requirements. The Committee shall also consider and report to the Board with respect to such other matters relating to the financial affairs of the Corporation as may be requested by the Board or the appropriate officers of the Corporation. The Committee shall report periodically to the Board of Directors on all action, which it may have taken. 4.3 Audit Committee. The Board of Directors, by resolution of a --------------- majority of the number of Directors fixed by these Bylaws, may elect an Audit Committee which shall consist of not less than three Directors, including one Independent Director. The Audit Committee shall consider and report to the Board with respect to the Corporation's accounting and treasury controls, the appointment of an independent auditing firm, and such other matters as shall be requested of it by the Board. The Committee shall report periodically to the Board of Directors on all action which it may have taken. Prior to the Listing, the Corporation shall establish a charter for the Audit Committee that is consistent with the requirements of the exchange or system upon which the Corporation's stock is traded, and with the rules and regulations of the Securities and Exchange Commission. 4.4 Other Committees. The Board of Directors, by resolution adopted by ---------------- a majority of the number of Directors fixed by these Bylaws, may establish such other standing or special committees of the Board as it may deem advisable, 7 consisting of not less than two Directors; and the members, terms and authority of such committees shall be as set forth in the resolutions establishing the same. The Board of Directors shall have the power to change the membership of or to dissolve any committee at any time. 4.5 Meetings. Regular and special meetings of any Committee -------- established pursuant to this Article may be called and held subject to the same requirements with respect to time, place and notice as are specified in these Bylaws for regular and special meetings of the Board of Directors. 4.6 Quorum and Manner of Acting. A majority of the members of any --------------------------- Committee serving at the time of any meeting thereof shall constitute a quorum for the transaction of business at such meeting. The action of a majority of those members present at a Committee meeting at which a quorum is present shall constitute the act of the Committee. 4.7 Term of Office. Members of any Committee shall be elected as above -------------- provided and shall hold office until their successors are elected by the Board of Directors or until such Committee is dissolved by the Board of Directors. 4.8 Resignation and Removal. Any member of a Committee may resign at ----------------------- any time by giving written notice of his intention to do so to the President or the Secretary of the Corporation, or may be removed, with or without cause, at any time by such vote of the Board of Directors as would suffice for his election. 4.9 Vacancies. Any vacancy occurring in a Committee resulting from any --------- cause whatever may be filled by a majority of the number of Directors fixed by these Bylaws. ARTICLE V OFFICERS 5.1 Election of Officers; Terms. The officers of the Corporation shall --------------------------- consist of a President, a Vice President, a Secretary and a Chief Financial Officer. Other officers, including without limitation a Chairman of the Board, Chief Executive Officer, one or more Vice Presidents (whose seniority and titles, including Executive Vice Presidents and Senior Vice Presidents, may be specified by the Board of Directors), and assistant and subordinate officers, may from time to time be elected by the Board of Directors. All officers shall hold office until the next annual meeting of the Board of Directors and until their successors is elected. Any two officers may be combined in the same person as the Board of Directors may determine. 5.2 Removal of Officers; Vacancies. Any officer of the Corporation may ------------------------------ be removed summarily with or without cause, at any time, by the Board of Directors. Vacancies may be filled by the Board of Directors. 5.3 Duties. The officers of the Corporation shall have such duties as ------ generally pertain to their offices, respectively, as well as such powers and duties as are prescribed by law or are hereinafter provided or as from time to time shall be conferred by the Board of Directors. The Board of Directors may 8 require any officer to give such bond for the faithful performance of his duties as the Board may see fit. 5.4 Duties of the Chief Executive Officer. The Chief Executive Officer ------------------------------------- of the Corporation shall be primarily responsible for the implementation of policies of the Board of Directors. The Chief Executive Officer also may serve as the President of the Corporation. He shall have authority over the general management and direction of the business and operations of the Corporation and its divisions, if any, subject only to the ultimate authority of the Board of Directors. He shall be a Director, and, except as otherwise provided in these Bylaws or in the resolutions establishing such committees, he shall be ex officio a member of all Committees of the Board. In the absence of the Chairman and the Vice-Chairman of the Board, or if there are no such officers, the President shall preside at all corporate meetings. He may sign and execute in the name of the Corporation share certificates, deeds, mortgages, bonds, contracts or other instruments except in cases where the signing and the execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation or shall be required by law otherwise to be signed or executed. In addition, he shall perform all duties as from time to time may be assigned to him by the Board of Directors. 5.5 Duties of the President. The President, who also may be the Chief ----------------------- Executive Officer, shall be primarily responsible for the implementation of policies of the Board of Directors. He shall have authority over the general management and direction of the business and operations of the Corporation and its divisions, if any, subject only to the Chief Executive Officer and the ultimate authority of the Board of Directors. He may sign and execute in the name of the Corporation share certificates, deeds, mortgages, bonds, contracts or other instruments except in cases where the signing and the execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation or shall be required by law otherwise to be signed or executed. In addition, he shall perform all duties incident to the office of the President and such other duties as from time to time may be assigned to him by the Board of Directors. 5.6 Duties of the Vice Presidents. Each Vice President, if any, shall ----------------------------- have such powers and duties as may from time to time be assigned to him by the President or the Board of Directors. Any Vice President may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts or other instruments authorized by the Board of Directors, except where the signing and execution of such documents shall be expressly delegated by the Board of Directors or the President to some other officer or agent of the Corporation or shall be required by law or otherwise to be signed or executed. 5.7 Duties of the Chief Financial Officer. The Chief Financial Officer ------------------------------------- shall have charge of and be responsible for all funds, securities, receipts and disbursements of the Corporation, and shall deposit all monies and securities of the Corporation in such banks and depositories as shall be designated by the Board of Directors. He shall be responsible (i) for maintaining adequate financial accounts and records in accordance with generally accepted accounting practices; (ii) for the preparation of appropriate operating budgets and financial statements; (iii) for the preparation and filing of all tax returns required by law; and (iv) for the performance of all duties incident to the office of Chief Financial Officer and such other duties as from time to time may 9 be assigned to him by the Board of Directors, the Finance Committee or the President. The Chief Financial Officer may sign and execute in the name of the Corporation share certificates, deeds, mortgages, bonds, contracts or other instruments, except in cases where the signing and the execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation or shall be required by law or otherwise to be signed or executed. 5.8 Duties of the Secretary. The Secretary shall act as secretary of ----------------------- all meetings of the Board of Directors and shareholders of the Corporation. When requested, he shall also act as secretary of the meetings of the committees of the Board. He shall keep and preserve the minutes of all such meetings in permanent books. He shall see that all notices required to be given by the Corporation are duly given and served; shall have custody of the seal of the Corporation and shall affix the seal or cause it to be affixed to all share certificates of the Corporation and to all documents the execution of which on behalf of the Corporation under its corporate seal is duly authorized in accordance with law or the provisions of these Bylaws; shall have custody of all deeds, leases, contracts and other important corporate documents; shall have charge of the books, records and papers of the Corporation relating to its organization and management as a Corporation; shall see that all reports, statements and other documents required by law (except tax returns) are properly filed; and shall in general perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board of Directors or the President. 5.9 Compensation. The Board of Directors shall have authority to fix ------------ the compensation of all officers of the Corporation. ARTICLE VI DISPUTE RESOLUTION All disputes concerning the Corporation or the Company, including without limitation, disputes between the shareholders and the Board of Directors or disputes between officers and the Board of Directors, will be resolved in accordance with the Dispute Resolution guidelines set forth in Exhibit B to the --------- Operating Agreement. ARTICLE VII INDEMNIFICATION 7.1 Definitions. In this Article: ----------- (a) "applicant" means the person seeking indemnification pursuant to this Article. (b) "director or officer" means (a) an individual who was or is a director or officer of the Corporation; (b) an individual who, while a director or officer of the Corporation, is or was serving at the Corporation's request, as a director, officer, partner, trustee, member of any governing or decision-making committee, manager, employee or agent of another corporation, 10 limited liability company, partnership, joint venture, trust or other enterprise; or (c) an individual who, while a director or officer of the Corporation, is or was serving as administrator or trustee of an employee benefit plan because his or her duties to the Corporation also impose duties on, or otherwise involve services by, the person to the plan or to participants in or beneficiaries of the plan. (c) "expenses" include fees, costs, charges, disbursements, attorney fees and any other expenses incurred in connection with a proceeding. (d) "liability" means the obligation to pay a judgment, settlement, penalty, assessment, forfeiture or fine, including an excise tax assessed with respect to an employee benefit plan, and reasonable expenses. (e) "party" includes an individual who was or is, or who is threatened to be made, a named defendant or respondent in a proceeding. (f) "proceeding" means any threatened, pending or completed civil, criminal, administrative or investigative action, suit, arbitration or other proceeding, whether formal or informal, which involves foreign, federal, state or local law and which is bought by or in the right of the corporation or by any other person. 7.2 Limitation of Liability. No director of the Corporation shall be ----------------------- liable to the Corporation or its shareholders for damages, settlements, fees, fines, penalties or other monetary liabilities arising from a breach of, or failure to perform, any duty resulting solely from his or her status as a director, unless the person asserting liability proves that the breach or failure to perform constitutes any of the following: (a) A wilful failure to deal fairly with the corporation or its shareholders in connection with a matter in which the director has a material conflict of interest; (b) A violation of the criminal law, unless the director or officer had reasonable cause to believe that his or her conduct was lawful or no reasonable cause to believe that his or her conduct was unlawful; (c) A transaction from which the director derived an improper personal profit; or (d) Wilful misconduct. 7.3 Mandatory Indemnification. ------------------------- (a) The Corporation shall indemnify a director or officer, to the extent that he or she has been successful on the merits or otherwise in the defense of a proceeding, for all reasonable expenses incurred in the proceeding if the director or officer was a party because he or she is a director or officer of the corporation. (b) In cases not included under Section 7.3(a) the Corporation shall indemnify a director of officer against liability incurred by the director or officer in a proceeding to which the director or officer was a party because he 11 or she is a director or officer of the corporation, unless liability was incurred because the director or officer breached or failed to perform a duty that he or she owes to the Corporation and the breach or failure to perform constitutes any of the following: (i) A wilful failure to deal fairly with the corporation or its shareholders in connection with a matter in which the director or officer has a material conflict of interest; (ii) A violation of the criminal law, unless the director or officer had reasonable cause to believe that his or her conduct was lawful or no reasonable cause to believe that his or her conduct was unlawful; (iii) A transaction from which the director or officer derived an improper personal profit; or (iv) Wilful misconduct. (c) The termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not of itself create a presumption that the applicant did not meet the standard of conduct described in Section 7.3(b) of this Article. 7.4 Indemnification of Employees and Agents. --------------------------------------- (a) The Corporation shall indemnify an employee who is not a director or officer of the Corporation, to the extent that he or she has been successful on the merits or otherwise in defense of a proceeding, for all reasonable expenses incurred in the proceeding if the employee was a party because he or she was an employee of the Corporation. (b) In addition to the indemnification required by Section 7.4(a), the Corporation may by majority vote of a quorum consisting of disinterested directors, indemnify or contract to indemnify, and allow reasonable expenses of an employee or agent who is not a director or officer of the Corporation. 7.5 Applicability. The provisions of this Article shall be applicable ------------- to all proceedings commenced after the adoption hereof by the shareholders of the Corporation, arising from any act or omission, whether occurring before or after such adoption. No amendment or repeal of this Article shall have any effect on the rights provided under this Article with respect to any act or omission occurring prior to such amendment or repeal. The Corporation shall promptly take all such actions, and make all such determinations, as shall be necessary or appropriate to comply with its obligation to make any indemnity under this Article and shall promptly pay or reimburse all reasonable expenses, including attorneys' fees, incurred by any such director, officer, employee or agent in connection with such actions and determinations or proceedings of any kind arising therefrom. 7.6 Determination of Right to Indemnification. Any indemnification ----------------------------------------- under Section 7.3 of this Article (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination 12 that indemnification of the applicant is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 7.3(b). The determination shall be made: (a) By the Board of Directors by a majority vote of a quorum consisting of directors not at the time parties to the proceeding; (b) If a quorum cannot be obtained under Section 7.6(a), by majority vote of a committee duly designated by the Board of Directors (in which designation directors who are parties may participate), consisting solely of two or more directors not at the time parties to the proceeding; (c) By special legal counsel: (i) Selected by the Board of Directors or its committee in the manner prescribed in Section 7.6(a) or (b); or (ii) If a quorum of the Board of Directors cannot be obtained under Section 7.6(a) and a committee cannot be designated under Section 7.6(b) of this section, selected by majority vote of the full Board of Directors, in which selection directors who are parties may participate; (d) By the shareholders, but shares owned by or voted under the control of directors who are at the time parties to the proceeding may not be voted on the determination; or (e) By a court underss.180.0854 of the Wisconsin Statutes. Any evaluation as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is appropriate, except that if the determination is made by special legal counsel, such evaluation as to reasonableness of expenses shall be made by those entitled under Section 7.6(c) to select counsel. Notwithstanding the foregoing, in the event there has been a change in the composition of a majority of the Board of Directors after the date of the alleged act or omission with respect to which indemnification is claimed, any determination as to indemnification and advancement of expenses with respect to any claim for indemnification made pursuant to this Article shall be made by special legal counsel agreed upon by the Board of Directors and the applicant. If the Board of Directors and the applicant are unable to agree upon such special legal counsel the Board of Directors and the applicant each shall select a nominee, and the nominees shall select such special legal counsel. 7.7 Indemnification Procedure. ------------------------- (a) Upon written request of a director or officer who is a party to a proceeding, the Corporation may pay or reimburse his or her reasonable expenses as incurred if the director or officer provides the Corporation with all of the following: 13 (i) a written affirmation of his good faith belief that he or she has not failed to perform his or her duties to the Corporation. (ii) A written undertaking, executed personally or on his or her behalf, to repay the allowance and, if required by the Corporation, to pay reasonable interest on the allowance to the extent that it is ultimately determined under Section 7.6 that indemnification under Section 7.3 is not required and that indemnification is not ordered by a court underss.180.0854(2)(b) of the Wisconsin Statutes. The undertaking under this subsection shall be an unlimited general obligation of the director or officer and may be accepted without reference to his or her ability to repay the allowance. The undertaking may be secured or unsecured. (b) Authorizations of payments under this section shall be made by the persons specified in Section 7.6. 7.8 Insurance. The Corporation may purchase and maintain insurance to --------- indemnify it against the whole or any portion of the liability assumed by it in accordance with this Article and may also procure insurance, in such amounts as the Board of Directors may determine, on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise, against any liability asserted against or incurred by him in any such capacity or arising from his status as such, whether or not the Corporation would have power to indemnify him against such liability under the provisions of this Article. 7.9 Additional Indemnification. Every reference herein to directors, -------------------------- officers, employees or agents shall include former directors, officers, employees and agents and their respective heirs, executors and administrators. The indemnification hereby provided and provided hereafter pursuant to the power hereby conferred by this Article on the Board of Directors shall not be exclusive of any other rights to which any person may be entitled, including any right under policies of insurance that may be purchased and maintained by the Corporation or others, with respect to claims, issues or matters in relation to which the Corporation would not have the power to indemnify such person under the provisions of this Article. Such rights shall not prevent or restrict the power of the Corporation to make or provide for any further indemnity, or provisions for determining entitlement to indemnity, pursuant to one or more indemnification agreements, bylaws, or other arrangements (including, without limitation, creation of trust funds or security interests funded by letters of credit or other means) approved by the Board of Directors (whether or not any of the directors of the Corporation shall be a party to or beneficiary of any such agreements, bylaws or arrangements); provided, however, that any provision of such agreements, bylaws or other arrangements shall not be effective if and to the extent that it is determined to be contrary to this Article or applicable laws of the State of Wisconsin. 7.10 Severability. Each provision of this Article shall be severable, ------------ and an adverse determination as to any such provision shall in no way affect the validity of any other provision. 14 ARTICLE VIII MISCELLANEOUS PROVISIONS 8.1 Seal. No seal shall be required in connection with the execution ---- by the Corporation of any deed, lease, mortgage, agreement, instrument or other document. 8.2 Fiscal Year. The fiscal year of the Corporation shall end on such ----------- date and shall consist of such accounting periods as may be fixed by the Board of Directors. 8.3 Checks, Notes and Drafts. Checks, notes, drafts and other orders ------------------------ for the payment of money shall be signed by such persons as the Board of Directors from time to time may authorize. When the Board of Directors so authorizes, however, the signature of any such person may be a facsimile. 8.4 Amendment of Bylaws. These Bylaws may be amended or altered at any ------------------- meeting of the Board of Directors; provided that the provisions of Section 2.6 and 3.2 may only be amended by the Class B Shareholders for so long as such Shares are outstanding. However, subject to the preceding sentence, until the Listing, the holders of the Class B Common Stock shall have the power to rescind, amend, alter or repeal any Bylaws and to enact Bylaws which, if expressly so provided, may not be amended, altered or repealed by the Board of Directors, and thereafter the holders of the Class A Shares shall have such authority. 8.5 Voting of Shares Held. Unless otherwise provided by resolution of --------------------- the Board of Directors or of the Executive Committee, if any, the President may from time to time appoint an attorney or attorneys or agent or agents of the Corporation, in the name and on behalf of the Corporation, to cast the vote which the Corporation may be entitled to cast as a shareholder or otherwise in any other corporation, partnership, limited liability company or joint venture, any of whose securities may be held by the Corporation, at meetings of the holders of the shares or other securities of such other corporation, partnership, limited liability company or joint venture or to consent in writing to any action by any such other corporation, partnership, limited liability company or joint venture; and the President shall instruct the person or persons so appointed as to the manner of casting such votes or giving such consent and may execute or cause to be executed on behalf of the Corporation, and under its corporate seal or otherwise, such written proxies, consents, waivers or other instruments as may be necessary or proper in the premises. In lieu of such appointment the President may himself attend any meetings of the holders of shares or other securities of any such other corporation, partnership, limited liability company or joint venture and there vote or exercise any or all power of the Corporation as the holder of such shares or other securities of such other corporation, partnership, limited liability company or joint venture. 15 EX-99 6 0006.txt EXHIBIT A-9 EXHIBIT A-9 SHAREHOLDERS AGREEMENT ---------------------- THIS SHAREHOLDERS AGREEMENT (this "Agreement") is made and entered into as of January 1, 2001, by and among Wisconsin Electric Power Company ("WEPCO"), Wisconsin Power & Light Company ("WPL"), Madison Gas AND Electric CoMPANY ("MG&E"), Wisconsin Public Service CorpORATION ("WPS"), Wisconsin Public Power Inc. ("WPPI" and, together with WPL, WEPCO, MG&E and WPS, the "Shareholders"), and ATC Management Inc. (the "Corporation"), recites and provides as follows. RECITALS: A. The Shareholders will become pursuant to this Agreement the record and beneficial owners of 100% of the issued and outstanding Class B Common Stock, $.01 par value, of the Corporation, being all of the issued and outstanding voting capital stock of the Corporation; B. The Shareholders will also acquire Class A Common Stock, $.01 par value, of the Corporation pursuant to this Agreement. C. The parties hereto desire to provide for the voting of shares of Class B Common Stock on certain matters, and for certain other rights, obligations and courses of conduct; D. The Shareholders desire to promote their mutual interests and the interests of the Corporation as set forth herein. NOW, THEREFORE, in consideration of the promises contained herein and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. CERTAIN DEFINITIONS. ------------------- In addition to the definitions contained in this Agreement, the following terms used herein shall have the following meanings assigned to them. "Affiliate" has the meaning given it in the Operating Agreement. "ATCLLC" means American Transmission Company LLC, a Wisconsin limited liability company of which the Corporation is the manager. "Class A Common Stock" means the shares of capital stock of the Corporation designated as such in the Articles of Incorporation. "Class B Common Stock" means the shares of capital stock of the Corporation shares designated as such in the Articles of Incorporation. "Common Stock" means Class A Common Stock and Class B Common Stock. "Conversion" means the conversion of Class B Common Stock into Class A Common Stock. "Listing" means the closing of an offering of Class A Common Shares that has the effect of listing such shares on the New York Stock Exchange, American Stock Exchange, Nasdaq National Market System, or any of their successors. "Member Units" has the meaning given it in the Operating Agreement. "Non-Transmission Utility Shareholder" means a Class B Shareholder that is not a Transmission Utility Shareholder. "Operating Agreement" means the Operating Agreement of the ATCLLC, as it may be amended from time to time. "Operations Date" means the date that the ATCLLC commences operations as determined by the Public Service Commission of Wisconsin. "Ownership" means, with respect to any Person, such Person's Percentage Interest and that of any of its Affiliates, together with the proportionate interest of such Person and that of any of its Affiliates in the Corporation's Percentage Interest, based upon the ratio that the Common Stock held by such Person and that of any of its Affiliates bears to the aggregate outstanding Common Stock. "Percentage Interest" has the meaning given it in the Operating Agreement. "Person" has the meaning given it in the Operating Agreement. "Securities Act" means the Securities Act of 1933, as amended. "Transmission Utility Shareholder" means a Transmission Utility Security Holder as defined in Chapter 196.485 of the Wisconsin Statutes. 2. AGREEMENT TO PURCHASE AND SELL. ------------------------------ (a) Purchase and Sale of Common Stock. Each Shareholder hereby subscribes --------------------------------- for and agrees to purchase, and the Corporation agrees to sell, subject to the terms and conditions herein, the number of Class A Common Shares and Class B Common Shares listed next to such Shareholder's name on Schedule A, at a price of $10.00 per share. (b) Payment for Shares. The purchase price for the shares shall be payable ------------------ by each Shareholder by check or wire transfer of immediately available funds sent according to the following wire instructions: [Bank Name ] -------------- [Bank Address ------------ 2 ] ------------------------- ABA #: ------------------- FBO: --------------------- Account #: --------------- (c) Adjustment. The Shareholders agree that the exact number of shares of ---------- Class A Common Stock to be sold to and purchased by each Shareholder is subject to adjustment within 150 days after the Operations Date. At such time as the initial Percentage Interests are finalized under the Operating Agreement pursuant to Section 3.2(g) thereof, the number of shares of Class A Common Stock issued to each Shareholder shall be adjusted so that the number of shares of Class A Common Stock held by each Shareholder bears the same proportion to the total number of Common Shares outstanding as its and its Affiliate's combined Percentage Interest under the ATCLLC, as adjusted to eliminate the Corporation's interest in the ATCLLC. Any adjustments shall be made to the number of shares of Class A Stock outstanding. The purchase or redemption price shall be $10.00 per share and shall be payable by the Corporation or the Shareholder, as the case may be, within 30 days following notice by the Corporation of the final initial proportional ownership interests. (d) Sale of Additional Shares. ------------------------- (i) The Corporation may issue shares of Class A Common Stock or Preferred Stock from time to time in accordance with the provisions of Section 3.7 of the Operating Agreement; provided, however, that the Corporation may not engage in a Listing until the third anniversary of the Operations Date absent the approval of all holders of Class B Common Stock. (ii) The Corporation shall issue one share of Class B Common Stock to each Person or group of Persons entitled to designate a Director in accordance with Section 4(b). The purchase price therefor shall be the Corporation's net book value per share as of the end of the calendar quarter preceding the purchase. Any Person or group of Persons to whom a share of Class B Common Stock is issuable shall, as a condition to such issuance, execute a counterpart of this Agreement evidencing its assent hereto. (e) Redemption of Class B Common Stock. In the event that a Shareholder ---------------------------------- (i) is no longer entitled to designate a Director in accordance with Section 4(b), or (ii) sells or otherwise disposes of its Class A Common Stock or Member Units in the ATCLLC such that its aggregate Ownership in the ATCLLC is less than 2%, it shall sell, and the Corporation shall purchase, its share of Class B Common Stock for a price equal to the Corporation's net book value per share as of the end of the calendar quarter preceding the purchase, or if such sale occurs after the Listing, at the Value (as defined in the Operating Agreement) of a share of Class A Common Stock as of the date of sale that reduces such Shareholder's Ownership in the ATCLLC below 2%. The Corporation shall not have the right to redeem a Shareholder's share of Class B Common Stock to the extent that dilution has reduced its Ownership below 2%, but shall effect the redemption upon the first sale of Class A Shares or Member Units by such Shareholder that results in such Shareholder having an Ownership in the ATCLLC of less than 2% of the ATCLLC. 3 3. VOTING RIGHTS. ------------- (a) Until the earlier of the Conversion or the Listing, holders of the Class A Common Stock shall have no right to vote except as required by law. (b) Upon the earlier of the Conversion or the Listing, the holders of the Class A Stock shall have the right to elect all Directors of the Corporation that are not elected by the holders of the Class B Common Stock, and shall possess all other voting rights incident to shares of common stock under Chapter 180 of the Wisconsin Statutes. (c) Until the earlier of the Conversion or the Listing, the holders of the Class B Common Stock shall have the right to elect all Directors of the Corporation, and shall possess all other voting rights incident to shares of common stock under Chapter 180 of the Wisconsin Statutes. (d) Upon the earlier of the Conversion or the Listing, the holders of the Class B Common Stock (i) shall have the right to elect that number of Directors of the Corporation specified in the Corporation's Bylaws; (ii) shall not have the right to vote with respect to any other Director of the Corporation, and (iii) shall not have the right to vote on any other matter except to the extent required by law. 4. ELECTION OF DIRECTORS. --------------------- (a) Number of Directors. ------------------- (i) Until the earlier of (A) the Conversion, or (B) the Listing, the Shareholders agree that the number of Directors shall equal five plus the aggregate number of Directors that the Class B Common Shareholders are entitled to designate as set forth in Section 4(b). Four of the five Directors shall be Independent Directors, as defined in the Corporation's Bylaws, and the fifth shall be the President and Chief Executive Officer of the Corporation. (ii) Upon the earlier of (A) the Conversion, or (B) the Listing, the Shareholders agree that the number of Directors shall be the sum of (x) the aggregate number of Directors that the Class B Common Shareholders are entitled to designate as set forth in Section 4(b), and (y) the number specified in clause (x), plus one, or, if required to make the total number of Directors an odd number, plus two. (b) Entitlement to Directors. The Shareholders owning Class B Common Stock ------------------------ will be entitled to designate Directors in accordance with the following: (i) Each Transmission Utility Shareholder shall have the right to appoint one Director annually for a one-year term; (ii) Each Non-Transmission Utility Shareholder that has Ownership in the ATCLLC of 10% or more shall have the right to appoint one Director annually for a one-year term; 4 (iii) Each group of Non-Transmission Utility Shareholders that collectively have Ownership in the ATCLLC of 10% or more shall have the right to appoint one Director annually for a one-year term, provided that the group has entered into a written agreement regarding the appointment and has filed such agreement with the Corporation; (iv) Each Class B Shareholder that was admitted to the ATCLLC in accordance with Section 3.3(b) of the Operating Agreement that has Ownership in the ATCLLC of 5% or more shall have the right to appoint one Director annually for a one year term for so long as it continues to have Ownership in the ATCLLC of 5% or more; provided, however, that (A) no Person shall be entitled to appoint a Director pursuant to clause (iv) if it otherwise is entitled to appoint a Director pursuant to clauses (i), (ii) or (iii); (B) no Person entitled to appoint a Director pursuant to clause (ii) shall be entitled to appoint a Director or participate in a group to appoint a Director pursuant to clause (iii); (C) the Parties unanimously agree that WPPI shall be entitled to appoint a Director in accordance with clause (iv) for as long as it holds Class B Stock notwithstanding the reduction of its interest in the ATCLLC below 5%; and (D) under no circumstances shall the holders of Preferred Stock have any right to elect or remove, or interfere in any way with the election or removal of, any designated Directors that the Class B Shareholders are entitled to designate, elect and remove. (c) Term of Non-Designated Directors (i) The four Independent Directors specified in Section 4(a)(i) shall be elected for four-year terms; provided, however, that initially one such Director shall be elected for a one-year term, one for a two-year term, and one for a three-year term; and provided further that such terms may be adjusted to accommodate the requirements of Section 4(c)(ii). (ii) The number of Directors specified in Section 4(a)(ii)(y) shall be divided into four groups as evenly as possible, with each group elected for four-year terms, provided that initially one such group shall be elected for a one-year term, one for a two-year term, and one for a three-year term. (d) Designation of Director. The Shareholders shall elect and retain in ----------------------- office as Directors those nominees designated in accordance with this Section 4(d) by those Persons or groups entitled to appoint a Director. The nominees to serve for the period from the date hereof until the first annual meeting of Shareholders are as set forth below: Shareholder Nominee ----------- ------- MGE ------------------ WEPCO ------------------ WPL ------------------ WPPI ------------------ WPS ------------------ 5 Nominees for subsequent terms shall be designated to the Corporation by each Person entitled to designate a Director by written notice given at least 60 days before the annual (or any special) meeting of Shareholders at which Directors are to be elected. In the event of any special meeting, or in the event that any such annual meeting is held on a date other than that specified in the Bylaws, the Corporation shall give each Shareholder written notice of such meeting at least 90 days prior thereto. If no designation is made by a Person or Persons entitled to designate a Director within the time specified above, then the nominee for the next meeting of Shareholders shall be deemed to be the Person last duly designated. (e) Removal and Substitution of Designated Directors. The Corporation ------------------------------------------------ hereby agrees to take such actions as are necessary, and each of the Shareholders agrees to vote its shares of Class B Common Stock, and take such other actions as are necessary, for the removal of the Director designated by a Shareholder, upon the request of such Shareholder, and for the election to the Board of Directors of a substitute Director designated by such Shareholder in accordance with the provisions hereof. No Shareholder may remove or cause the removal of a designated Director not designated by that Shareholder. (f) Vacancies on Board of Directors. The Corporation hereby agrees to take ------------------------------- such actions as are necessary, and each of the Shareholders agrees to vote its shares of Class B Common Stock, and take such other actions as are necessary, in such manner as shall be necessary or appropriate to ensure that any vacancy on the Board of Directors (occurring for any reason) shall be filled only in accordance with the provisions hereof. 5. INFORMATION AND OTHER RIGHTS. ---------------------------- (a) Financial Information. The Corporation covenants and agrees with each --------------------- Shareholder that until the Listing, for so long as such Shareholder holds at least 2% of the outstanding shares of Common Stock, the Corporation will: (i) Annual Reports. Furnish to the Shareholders, as soon as -------------- practicable and in any event within 90 days after the end of each fiscal year of the Corporation and ATCLLC, beginning with the 2001 fiscal year, an audited balance sheet of the Corporation and ATCLLC as at the end of such year and audited statements of income and cash flows of the Corporation and ATCLLC for such year prepared by a "big five" accounting firm, setting forth in each case in comparative form the figures for the previous fiscal year, including footnotes, all in reasonable detail and accompanied by the opinion thereon of independent public accountants, which opinion shall be unqualified and shall state that such financial statements have been prepared in accordance with generally accepted accounting principles and that the audit by such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards; (ii) Quarterly Reports. Furnish to the Shareholders as soon as ----------------- practicable, and in any case within 45 days of the end of each calendar quarter, a balance sheet of the Corporation and ATCLLC as at the end of 6 such quarter and statements of income and cash flows of the Corporation and ATCLLC for each quarter, and setting forth in each case in comparative form the figures for the corresponding quarter of the previous fiscal year and year to date figures compared to budgets with variances delineated, all in reasonable detail and certified, subject to changes resulting from normal year-end audit adjustments, by the President and chief financial officer of the Corporation; (iii) Annual Budget. Furnish to the Shareholders as soon as ------------- practicable and in any event no later than 30 days before the close of each fiscal year of the Corporation and ATCLLC, a budget, including projected balance sheet of the Corporation and ATCLLC and statements of income and cash flows of the Corporation and ATCLLC for each month during the ensuing fiscal year, together with underlying assumptions and a brief qualitative description of the Corporation's and ATCLLC's plan by the President in support of the budget; (iv) Other Information. Furnish to each Shareholder, subject to ----------------- appropriate confidentiality provisions as established by the Board, with reasonable promptness, such other information and data with respect to the Corporation or ATCLLC as is furnished under any financing documents to which the Corporation or ATCLLC is a party or as from time to time may be reasonably requested by such Shareholder; (b) Confidentiality. Each Shareholder agrees to hold all information --------------- received pursuant to subsection (a)(i) through (a)(iii) in confidence, and not to use or disclose any of such information to any unaffiliated third party (other than its financial or legal advisors, consultants or representatives and then only if such advisors, consultants or representatives agree to keep such information confidential in accordance with the provisions hereof), except to the extent such information is made publicly available by the Corporation or ATCLLC or to the extent a Shareholder is required to disclose any such information to any governmental agency or as required by law, provided, however, that each Shareholder may, in its ordinary course of business, provide the financial results of the Corporation in connection with the provision of such information on its portfolio companies. (c) Inspection Rights. The Corporation and ATCLLC will permit each of the ----------------- Shareholders or any authorized representatives of such Shareholder, at such Shareholder's cost and expense, to visit and inspect any of the properties of the Corporation or ATCLLC including its books of account (and to make copies thereof and to take extracts therefrom) and to discuss its affairs, finances and accounts with its officers during normal business hours upon reasonable advance notice, provided that any such visit, inspection and discussion does not unreasonably interfere with the normal day-to-day operation of the Corporation's or ATCLLC's business or affairs. The rights set forth in this Section 5(c) shall be exercised solely in furtherance of the proper interests of each Shareholder as an investor in the Corporation or ATCLLC, and such Shareholder exercising its rights of inspection hereunder, and its agents and representatives, shall not use the information so obtained other than for such purposes and shall maintain the strict confidentiality of all financial and other confidential information of the Corporation or ATCLLC acquired by them in exercising such rights in accordance with the provisions of subsection (b). 7 6. SHAREHOLDER REPRESENTATIONS AND WARRANTIES. ------------------------------------------ Each Shareholder hereby represents and warrants to the Corporation and to each other Shareholder that, as of the date hereof, the following statements are all true and correct, and agrees with the Corporation, severally and not jointly, that: (a) Organization and Existence. Such Shareholder is either (i) a -------------------------- corporation duly organized and validly existing, or a limited liability corporation, duly organized and validly existing, under the laws of the state of its organization; or (ii) a municipal electric company, municipal electric utility or an electric cooperative duly formed under the laws of its state of organization. (b) Power and Authority. Such Shareholder has the full power and authority ------------------- to execute, to deliver and to perform this Agreement, and to own and to lease its properties and to carry on its business as now conducted and to carry out the transactions contemplated hereby. (c) Authorization and Enforceability. The execution and delivery of this -------------------------------- Agreement by such Shareholder and the carrying out by such Shareholder of the transactions contemplated hereby have been duly authorized by all requisite corporate action, and this Agreement has been duly executed and delivered by such Shareholder and constitutes the legal, valid and binding obligation of such Shareholder, enforceable against it in accordance with the terms hereof, subject, as to enforceability of remedies, to limitations imposed by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the enforcement of creditors' rights generally and to general principles of equity. (d) No Consents. No authorization, consent, approval or order of, notice ----------- to or registration, qualification, declaration or filing with, any governmental authority or other third parties is required for the execution, delivery and performance by such Shareholder of this Agreement or the carrying out by such Shareholder of the transactions contemplated hereby, except those previously obtained. (e) No Conflict or Breach. None of the execution, delivery and performance --------------------- by such Shareholder of this Agreement, the compliance with the terms and provisions hereof and the carrying out of the transactions contemplated hereby, conflicts or will conflict with or will result in a breach or violation of any of the terms, conditions or provisions of any law, governmental rule or regulation or the charter documents or bylaws of such Shareholder or any applicable order, writ, injunction, judgment or decree of any court or governmental authority against such Shareholder or by which it or any of its properties (other than its Percentage Interest in the Corporation), is bound, or any loan agreement, indenture, mortgage, bond, note, resolution, contract or other agreement or instrument to which such Shareholder is a party or by which it or any of its properties is bound, or constitutes or will constitute a default thereunder or will result in the imposition of any lien upon any of its properties. (f) No Proceedings. There is no suit, action, hearing, inquiry, -------------- investigation or proceeding, at law or in equity, pending, or, to the knowledge of such Shareholder, threatened, before, by, or in any court or before any regulatory commission, board or other governmental administrative agency against 8 or affecting such Shareholder which could have a material adverse effect on the business, affairs, financial position, results of operations, property or assets, or condition, financial or otherwise, of such Shareholder or on its ability to fulfill its obligations hereunder. (g) Purchase Representation. Such Shareholder has acquired its interest in ----------------------- the Corporation for its own account and not with (i) a view to, or for sale in connection with any distribution thereof or (ii) any present intention of distributing or selling such interest. (h) Restricted Securities. Such Shareholder understands that the shares of --------------------- the Common Stock are characterized as "restricted securities" under the Securities Act inasmuch as they are being acquired from the Corporation in a transaction not involving a public offering and that under the Securities Act and applicable rules and regulations thereunder such securities may be resold without registration under the Securities Act only in certain limited circumstances. In this connection, such Shareholder represents that such Shareholder is familiar with Rule 144 under the Securities Act, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act. Such Shareholder understands that no public market now exists for any of the shares of the Common Stock and that it is uncertain whether a public market will ever exist for the shares of the Common Stock. 7. CORPORATION REPRESENTATIONS AND WARRANTIES. ------------------------------------------ The Corporation hereby represents and warrants to the Shareholders that, as of the date hereof, the following statements are all true and correct: (a) Organization and Existence. The Corporation is a corporation duly -------------------------- organized, validly existing and in good standing under the laws of the state of its organization. (b) Power and Authority. The Corporation has the full power and authority ------------------- to execute, to deliver and to perform this Agreement, and to own and to lease its properties and to carry on its business as now conducted and to carry out the transactions contemplated hereby. (c) Authorization and Enforceability. The execution and delivery of this -------------------------------- Agreement by the Corporation and the carrying out by the Corporation of the transactions contemplated hereby have been duly authorized by all requisite corporate action, and this Agreement has been duly executed and delivered by the Corporation and constitutes the legal, valid and binding obligation of the Corporation, enforceable against it in accordance with the terms hereof, subject, as to enforceability of remedies, to limitations imposed by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the enforcement of creditors' rights generally and to general principles of equity. (d) No Consents. No authorization, consent, approval or order of, notice ----------- to or registration, qualification, declaration or filing with, any governmental authority or other third parties is required for the execution, delivery and performance by the Corporation of this Agreement or the carrying out by the Corporation of the transactions contemplated hereby, except those previously obtained. 9 (e) No Conflict or Breach. None of the execution, delivery and performance --------------------- by the Corporation of this Agreement, the compliance with the terms and provisions hereof and the carrying out of the transactions contemplated hereby, conflicts or will conflict with or will result in a breach or violation of any of the terms, conditions or provisions of any law, governmental rule or regulation or the charter documents or bylaws of the Corporation or any applicable order, writ, injunction, judgment or decree of any court or governmental authority against the Corporation or by which it or any of its properties (other than its Percentage Interest in the Corporation), is bound, or any loan agreement, indenture, mortgage, bond, note, resolution, contract or other agreement or instrument to which the Corporation is a party or by which it or any of its properties is bound, or constitutes or will constitute a default thereunder or will result in the imposition of any lien upon any of its properties. (f) No Proceedings. There is no suit, action, hearing, inquiry, -------------- investigation or proceeding, at law or in equity, pending, or, to the knowledge of the Corporation, threatened, before, by, or in any court or before any regulatory commission, board or other governmental administrative agency against or affecting the Corporation which could have a material adverse effect on the business, affairs, financial position, results of operations, property or assets, or condition, financial or otherwise, of the Corporation or on its ability to fulfill its obligations hereunder. (g) Capitalization. The capitalization of the Corporation consists of the -------------- following: (i) Capital Stock. The Corporation has authorized a total of 130,000,000 shares of capital stock, of which 30,000,000 are shares of Preferred Stock, $.01 par value per share, 99,999,990 are shares of Class A Common Stock, $.01 par value per share, and ten are shares of Class B Common Stock, $.01 par value per share. (ii) Options, Warrants, Reserved Shares. There are no outstanding options, warrants, rights or agreements for the purchase or acquisition from the Corporation of any shares of its Common Stock or any securities convertible into or ultimately exchangeable or exercisable for any shares of the Corporation's Common Stock except to the extent set forth in the Operating Agreement. Except as set forth in this Agreement, no shares of the Corporation's outstanding Common Stock are subject to any rights of first refusal or other rights to purchase such stock (whether in favor of the Corporation or any other person), pursuant to any agreement or commitment of the Corporation. (h) Valid Issuance of Stock. The shares of Common Stock, when issued, sold ----------------------- and delivered in accordance with the terms of this Agreement for the consideration provided for herein, will be duly and validly issued, fully paid and nonassessable, subject to Section 180.0622 of the Wisconsin Business Corporation Law, and judicial interpretations thereof. 8. STOCK LEGEND. ------------ All certificates representing shares of Common Stock shall during the term of this Agreement bear the following legend in conspicuous type: 10 The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be transferred except in compliance with such statute and applicable state securities laws. Further, the voting of such shares is subject to certain restrictions and agreements as set forth in the Shareholders Agreement, dated as of January 1, 2001, by and among ATC Management Inc. and all of its Class B Common Shareholders, a copy of which is on file at the principal office of the Corporation. 9. NOTICES. ------- Any notice, request, demand and other communication hereunder shall be in writing and shall be deemed to have been duly given when delivered in person, sent via a nationally recognized overnight courier or sent via facsimile to the recipient, addressed to the party for whom intended at the address set forth below, or such other address as may be designated by any party hereto by notice to all the other parties in accordance with this Section, or when actually received if sent by any other means. All notices to the Corporation shall be sent to ATC Management Inc., N16 W23217 Stone Ridge Drive, Wankesha, WI 53187, Attn: Walter T. Woelfle, General Counsel. All notices to the Shareholders shall be sent to the respective addresses set forth on Schedule A attached hereto, as amended from time to time. Any party may change its address for notice by giving notice as provided herein. 10. GOVERNING LAW. ------------- This Agreement shall be governed by and construed in accordance with the laws of the State of Wisconsin without regard to its conflicts of law principles or rules. 11. SURVIVAL; TERMINATION. --------------------- This Agreement, shall continue in full force and effect as to any party hereto to the extent that and for so long as such party, or its legal representative, heirs, successors or assigns, shall own or have any rights in or to any Class B Common Stock; provided, however, that this Agreement shall automatically terminate as to all parties, except for provisions which are expressly intended to survive termination of this Agreement by their terms, upon: (i) the liquidation, dissolution or indefinite cessation of the business operations of the Corporation; or (ii) the execution by the Corporation of a general assignment for the benefit of creditors or the appointment of a receiver or trustee to take possession of the property and assets of the Corporation. The termination of this Agreement as to a party shall not serve to terminate any obligations of such party or any remedies of any person or entity against such party occurring upon or prior to such termination. The termination of this Agreement as to less than all parties hereto shall in no way operate to impair 11 or destroy any of the rights or remedies of any remaining party or parties hereto. 12. SUCCESSORS AND ASSIGNS. ---------------------- This Agreement shall be binding upon the parties hereto and their respective heirs, legal representatives, successors and assigns. Any transferee of shares subject to this Agreement shall succeed to the same rights, and be subject to the same liabilities, as the Shareholder transferor and be deemed to be a "Shareholder" for all purposes hereof. Any Person or group of Persons to whom a share of Class B Common Stock is issuable after the date of this Agreement shall execute a counterpart of this Agreement, and shall thereafter be deemed to be a "Shareholder" for all purposes hereof. 13. AMENDMENT AND WAIVER. -------------------- This Agreement together with the Corporation's By-laws and the Operating Agreement, constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and cannot be amended except with the approval of all of the Shareholders owning Class B Common Stock; provided, however, that in the event that a Shareholder ceases to be a Shareholder of Class B Common Stock of the Corporation, the Corporation shall amend Schedule A to remove such Shareholder from this Agreement without requiring the written consent of the other Shareholders parties hereto; provided, further, that if a person becomes a shareholder of the Corporation who is not then a party to this Agreement then such shareholder shall sign a counterpart signature page to this Agreement and the Corporation shall amend Schedule A to add such shareholder without requiring the written consent of the other Shareholders parties hereto. No provision hereof may be waived except by a writing signed by the party against whom any such waiver is sought to be enforced. The waiver by any party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. 14. COUNTERPARTS. ------------ This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall be deemed one and the same Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 12 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth above. ATC MANAGEMENT INC., By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- WISCONSIN ELECTRIC POWER COMPANY By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- WISCONSIN POWER AND LIGHT COMPANY By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- WISCONSIN PUBLIC SERVICE CORPORATION By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- MADISON GAS AND ELECTRIC COMPANY By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- WISCONSIN PUBLIC POWER INC. By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- [SHAREHOLDERS AGREEMENT] Schedule A ---------- Shareholder Name and Address Number of Shares - ---------------------------- ---------------- Class A Class B $ Total Percentage ------- ------- ------- ---------- Wisconsin Electric Power Company 1 231 West Michigan Street Milwaukee, WI 53203 Wisconsin Power & Light Company 1 222 West Washington Madison, WI 53703 Wisconsin Public Service Corporation 1 700 North Adams Street [P.O. Box 19001, 54307] Green Bay, WI 54034 Madison Gas and Electric Company 1 P.O. Box 1231 Madison, WI 53701-1231 Wisconsin Public Power Inc. 1 1425 Corporate Center Drive Sun Prairie, WI 53590-9109 TOTAL Schedule A-1 EX-99 7 0007.txt EXHIBIT D-8 EXHIBIT D-8 BEFORE THE PUBLIC SERVICE COMMISSION OF WISCONSIN In the Matter of the Organization of American Transmission 137-NC-100 Company, LLC CERTIFICATE OF AUTHORITY AND FINAL DECISION INTRODUCTION In 1999, the Wisconsin Legislature included substantial changes in the state regulation of electric utilities as part of the biennial budget bill. 1999 Wis. Act 9 includes provisions relating to electric power transmission, air emissions from electric generating plants, and many other aspects of electric utility regulation. These changes are collectively known as "Reliability 2000" legislation. A central provision of this law authorizes the creation of a new transmission company, which would replace the transmission service of electric utilities that are members of the Mid- American Interconnected Network (MAIN) reliability council. Wis. Stat. ss. 196.485(1)(g).1 An electric utility can participate in this new entity by transferring ownership of its transmission facilities to the transmission company. American Transmission Company, LLC (ATC) is seeking Commission approval to become the transmission company described in this law. ATC represents that its creation will provide a number of benefits to Wisconsin. ATC suggests that it will eliminate rate "pancaking" among its member utilities by the creation of a single system for rates and operations; that it - ------------------------ 1 Operations of the transmission company are not limited to the area included in MAIN. will increase reliability in its service territory by reducing operational barriers; that it will use the transmission system more efficiently; that it will provide service on a fair and equitable basis to all customers; and that it will help develop both a reliable transmission system and competitive electric markets. The contribution of transmission facilities to the transmission company involves the transfer of the ownership of facilities, as well as associated deferred tax reserves and deferred investment tax credits to the extent permitted by law. This transfer must be structured to minimize material adverse tax consequences to the public utility affiliate. Wis. Stat.ss.196.485(1)(am) and (5)(b)2 and 3. The Commission must approve the terms and conditions of the transfer before a public utility affiliate can contribute its transmission facilities to the transmission company. Wis. Stat.ss.196.485(5)(b)1. If all the Wisconsin electric utility affiliates in a holding company system transfer their transmission facilities to this separate transmission company, become members of the Midwest Independent System Operator (MISO), and agree to transfer operating control over their transmission facilities to the MISO, Wis. Stat. ss.196.485(5) offers asset cap relief to the holding company.2 Other electric utilities may also participate in the transmission company, even if they are not public utility affiliates of a holding company. Wis. Stat. ss.196.485(6). ATC filed an application with the Commission on August 18, 2000, and filed additional documents to supplement its application on September 26, 2000, - ------------------------ 2 The "asset cap" is a statutory limit on the amount of nonutility assets that a public utility holding company may own. Wis. Stat. ss.196.795(5)(p) establishes a general standard that restricts nonutility assets to no more than 25 percent of the holding company's utility assets. If the electric utility affiliates of such a holding company all join a properly constituted transmission company, any restrictions on the holding company's investments in "eligible assets" are removed. In addition, the net book value of transmission facilities contributed by the electric utility affiliates to the transmission company becomes part of the "public utility" assets in the asset cap formula. Wis. Stat. ss.196.795(6m)(e). 2 October 17, 2000, November 14, 2000, and December 12, 2000. The application seeks a certificate of authority under Wis. Stat. ss.196.49, authorizing ATC and its corporate manager, ATC Management Inc., to commence operations as public utilities. It also requests the Commission's approval of the member electric utilities' transfer of transmission facilities to ATC under Wis. Stat. ss.196.80(1m). Wisconsin Electric Power Company (WEPCO), Wisconsin Power & Light Company (WP&L), and Wisconsin Public Service Corporation (WPSC) have filed irrevocable commitments to contribute their transmission facilities and land rights to ATC. The estimated net book value of the transmission facilities that will be contributed by these three utilities is $442.4 million. Madison Gas & Electric Company (MGE) has made a conditional commitment to transfer approximately $26.4 million of transmission facilities to ATC. Wisconsin Public Power, Incorporated (WPPI), which does not own any transmission facilities but represents a number of municipal utilities in wholesale electric transactions, has declared its intent to purchase an equity interest of approximately $28.5 million in ATC, as provided in Wis. Stat. ss.196.485(6)(a)3. The estimated total capital investment in ATC from all of these utilities will be $497.3 million, plus any additional amount relating to land rights.3 The comprehensive application describes the percentage interests in ATC's capital structure as follows: - ------------------------ 3 The Commission has also received applications from other municipal utilities to contribute transmission facilities or cash to ATC. The Commission is considering these applications in docket 05-EI-125. 3 MEMBER CONTRIBUTING UTILITY PERCENT OWNERSHIP WEPCO 4 51 percent WPL 5 25 percent WPS 13 percent WPPI 6 percent MGE 5 percent ----------- Total transmission facilities 100 percent Because ATC will be owned by its member electric utilities, these utilities will become affiliated interests of ATC, as defined in Wis. Stat. ss. 196.52(1).6 ATC has also filed a number of separate applications, seeking the Commission's approval of related affiliated interest agreements. The Commission is addressing these transactions in dockets 05-AE-102, 05-AE-103, 05-AE-104, 05-AE-105, 05-AE-106, 05-AE-107, 137-AE-100, 137-AE-101, 137-AE-102, and 137-AE-103. RELATED FERC PROCEEDINGS On July 31, 2000, ATC submitted its open access transmission tariff (OATT) to the Federal Energy Regulatory Commission (FERC) under Section 205 of the Federal Power Act (16 USC 824d).7 This FERC proceeding will establish ATC's transmission rates and the terms for providing transmission service. ATC has filed point-to-point transmission service agreements at the FERC for those entities that had been taking such service from its contributing utilities, and ATC needs the FERC's approval for interconnection agreements with distribution - ------------------------ 4 Including its Michigan affiliate, Edison Sault Electric Company. 5 Including its Illinois subsidiary, South Beloit Water, Gas, and Electric Company. 6 Pursuant to Wis. Stat. ss.196.795(1)(g)1 and (h)3, the creation of ATC will not constitute the formation of a holding company, even if any member utility holds five percent or more of ATC's outstanding voting securities. 7 Comprehensive Application Tab D-1; FERC Docket No. ER00-3316-000. On December 13, 2000, the FERC issued its initial ruling in this docket, which is further discussed below. 4 utilities and with entities that operate generating plants. These agreements govern the technical and operational aspects of ATC's interconnections. Section 203 of the Federal Power Act (16 USC 824b) requires FERC approval if a utility is seeking to buy, sell, or transfer control of FERC-jurisdictional facilities. The contributing utilities and ATC have submitted Section 203 filings to the FERC for this purpose. In Docket EC00-45-000, the FERC authorized the transfer of WEPCO's transmission assets to the transmission company. The FERC approved the Section 203 application of WEPCO's affiliate, Edison Sault Electric Company, in Docket EC00-131-000. The FERC issued an order approving the transfer of WP&L's facilities in Docket EC00-33-000, and approved the transfer of South Beloit Water, Gas, and Electric Company's facilities in Docket EC00-120-000. MGE and WPSC were granted approval to transfer their transmission assets to ATC in Docket EC00-136-000. RELATED SEC PROCEEDINGS The U.S. Securities and Exchange Commission (SEC) administers the Public Utility Holding Company Act of 1935 (15 USC 79 et seq.), which regulates the ownership of public utilities by other corporations. Because ATC and ATC Management, Inc., will each be public utilities, Alliant Energy Corporation, WPS Resources Corporation, Wisconsin Energy Corporation and MGE have sought approval from the SEC for their acquisition of ownership interests in ATC and in ATC Management, Inc. Under 15 USC 79j(f), the SEC cannot authorize these acquisitions until all state approvals have been granted. 5 COMMISSION PROCEEDINGS The Commission convened a procedural conference before Administrative Law Judge Jeffry Patzke on August 1, 2000. On October 4, 2000, the Commission invited interested persons to submit comments on the merits of the comprehensive application. It required that comments be submitted by October 20, 2000, and reply comments by November 1, 2000. The Commission received comments from a number of parties, raising issues that will be addressed in this order. FINDINGS OF FACT 1. ATC is organized as a limited liability company. Its sole purpose is the planning, constructing, operating, maintaining, and expanding of transmission facilities that it owns, to provide an adequate and reliable transmission system that meets the needs of all transmission users and that supports effective competition in energy markets without favoring any market participant. ATC's organizational start-up date, pursuant to Wis. Stat. ss.196.485(1)(dv), was June 12, 2000. 2. ATC Management, Inc., is organized as a corporation to be the corporate manager of ATC. It will own a de minimis interest in ATC's transmission facilities and is structured as a transmission company. ATC Management Inc.'s organizational start-up date, pursuant to Wis. Stat. ss.196.485((1)(dv), was June 12, 2000. 3. ATC and ATC Management, Inc., will transact business as a single transmission company. 6 4. The Operating Agreement, Amended and Restated Bylaws, Asset Contribution Agreement, Subscription Agreement, and Shareholders Agreement of ATC and ATC Management, Inc., describe the organization of these companies. 5. Except for transmission service provided by electric utilities that have not transferred their transmission facilities to ATC, ATC has undertaken the exclusive duty to provide transmission service in those areas where transmission facilities have been contributed to it. 6. WEPCO, WP&L, and WPSC, as public utility affiliates of their respective holding companies, have each completed the following: a. Informed the Commission that it has become a member of the MISO. b. Petitioned the Commission and the FERC to approve the transfer of operational control over its transmission facilities to the MISO. c. Filed an unconditional, irrevocable, binding commitment with the Commission to contribute its transmission facilities to ATC. d. Petitioned the Commission and the FERC to approve the contribution of its transmission facilities to ATC. 7. WPPI proposes to purchase a membership interest in ATC, so that its ownership share is equal to its share of the state's 1999 electric load. Other transmission-dependent municipal electric utilities have also filed applications with the Commission to purchase an equity interest in ATC. 8. The transfer of transmission facilities to ATC is structured to avoid or minimize material adverse tax consequences to the public utility affiliates. 7 9. The transfer of transmission facilities to ATC as proposed will avoid or minimize material adverse consequences to public utility rates, other than those arising out of the combination of transmission facilities into a single zone tariff of the MISO. 10. ATC and its contributing utilities are valuing the contribution of transmission facilities at net book value, determined on the basis of the regulated books of account at the time of transfer. 11. ATC and its contributing utilities are valuing all land rights that are conveyed or assigned to ATC at book value, determined on the basis of the regulated books of account at the time of transfer. 12. ATC is planning to secure a 50/50 debt-equity ratio for its capital structure. 13. Dairyland Power Cooperative (DPC) and WP&L are parties to an Interconnection and Interchange Agreement and to a General Transmission Facilities Planning and Installation Agreement. 14. Gen-Sys Energy (GSE) is the designated agent for four municipal electric utilities that take network integration transmission service from Alliant Energy Corporation. 15. ATC has not submitted an opinion to the Commission from a nationally recognized investment banking firm about the ability of ATC to finance its costs. 16. ATC applied to become a member of the MISO on June 30, 2000, in which it will operate as a single pricing zone. 17. ATC filed its OATT and rates for open access transmission service with the FERC on July 31, 2000. In its order dated December 13, 2000, in Docket ER00-3316-000, the FERC accepted ATC's proposed OATT and rejected its proposed rates for open access transmission service without prejudice to ATC's submittal 8 of revised proposed rates. On December 15, 2000, ATC filed with the FERC revised proposed open access transmission rates requesting expedited consideration that would allow it to begin operations on January 1, 2001. (Docket ER01-677-000) In its OATT, ATC has included a plan for phasing in a combined single zone rate for the purpose of pricing network use. CONCLUSIONS OF LAW 1. ATC and ATC Management, Inc., are transmission companies, as defined in Wis. Stat. ss. 196.485(1)(ge). 2. ATC and ATC Management, Inc., shall jointly constitute a public utility, as defined in Wis. Stat. ss.196.01(5). 3. ATC and ATC Management, Inc., are affiliated interests, as defined in Wis. Stat. ss.196.52(1). 4. The member electric utilities that meet the definition of affiliated interests pursuant to Wis. Stat. ss.196.52(1) are affiliated interests of ATC. 5. ATC meets the requirements of Wis. Stat. ss.196.485(3m) for operation as a transmission company subject to the conditions prescribed in the order in this final decision. 6. Wis. Stat. ss. ss.196.02(1), 196.37(2), 196.395, 196.40, 196.485, 196.49(1)(am), 196.52, 196.795, and 196.80 authorize the Commission to issue this certificate of authority and final decision. 9 7. Public utility affiliates WEPCO, WPL, and WPS have satisfied the provisions of Wis. Stat. ss. 196.485(5), thus entitling their respective holding companies to the asset cap exception provided in Wis. Stat. ss.196.795(6m)(e). OPINION State law imposes specific requirements regarding the creation of ATC, including a particular legal and management structure and duties that ATC must undertake. In addition, if a holding company seeks asset cap relief, state statutes describe the commitment that its public utility affiliates must make to ATC and explain how these utilities must transfer their transmission assets. STRUCTURE OF ATC Under Wis. Stat. ss.196.485(1)(ge), a transmission company must either be a corporation organized under Wis. Stat. ch. 180 or a limited liability company organized under Wis. Stat. ch. 183. ATC has chosen to operate as a limited liability company and has incorporated ATC Management, Inc., as its corporate manager, as provided in ATC Articles of Organization and ATC Management, Inc., Articles of Incorporation.8 Wis. Stat. ss.196.485(3m)(c) explains how a transmission company is organized. The company must be managed by five to fourteen directors.9 At least - ------------------------ 8 Comprehensive Application Tabs B-1 and B-3. 9 This arrangement can be modified by a unanimous vote of the directors, during the first ten years of company operations. 10 four directors must be independent of any electric or gas public utility; these four directors are elected by a majority vote of the stockholders and serve for staggered four-year terms. Under Wis. Stat. ss.196.485(3m)(c), a nontransmission utility security holder that owns at least 10 percent of the outstanding voting securities may appoint one director. Similarly, a group of nontransmission utility security holders that owns at least 10 percent of the outstanding voting securities may appoint one director. Each member that has purchased equity in the transmission company and holds at least five percent of the voting securities, as well as each member that is a transmission utility, may appoint one director for a one-year term. ATC Management, Inc., is organized in a manner that complies with these statutory provisions. ATC Management, Inc., Amended Bylaws ss. ss.3.2 and 3.3, and Shareholders Agreementss.4(b).10 Except by unanimous vote of the managing directors, public utility affiliates that become members of the transmission company may only increase their ownership of securities during the company's initial five years of operation if the transmission company makes an initial public offering of securities to third parties. Wis. Stat. ss. 196.485(3m)(c)4. ATC's Operating Agreement, ss. ss. 9.2 and 9.3, includes these restrictions on the transfer of company securities.11 ATC also has complied with the provisions of Wis. Stat. ss. 196.485(3m)(c)5, which provide that a member holding at least 10 percent of ATC's securities may require the company to comply with any state or federal laws, as needed, to allow the member to sell or transfer its shares. ATC Operating Agreement ss. 8.4(d). - ------------------------ 10 Comprehensive Application Tabs B-6 and B-7. 11 Comprehensive Application Tab B-2. 11 WPPI has declared its intent to become a member of ATC. Because it does not own transmission facilities, WPPI will purchase a membership interest in the company.12 Wis. Stat. ss.196.80(1m)(e) and (3) provide that a public utility may acquire an ownership interest in another public utility only if the Commission finds that such an action is "consistent with the public interest." Wis. Stat. ss.196.80(3). State law contemplates the participation of nontransmission utilities such as WPPI in ATC: WIS. STAT. SS. 196.485(6)(A)3. A transmission-dependent utility or retail electric cooperative may purchase equity interests in the transmission company at a price that is equivalent to net book value and on terms and conditions that are comparable to those for public utility affiliates that have contributed transmission facilities to the transmission company. A purchaser under this subdivision may contribute funds to the transmission company that are no more than the value of its prorated shares based on firm electric usage in this state in 1999. WPPI's investment in ATC is on terms comparable to other members, and the amount of equity it is purchasing will equal its 1999 electric load share. The Commission therefore finds that its acquisition of equity in ATC complies with this statute and is consistent with the public interest. This statute provides that transmission-dependent utilities and retail electric cooperatives may purchase an equity interest in ATC on the same "terms and conditions" as public utility affiliates that have become members of the transmission company by contributing their transmission facilities. The statutory right to participate on these terms expires on January 1, 2001. Wis. Stat. ss. 196.485(6)(a)(intro.). Section 3.3(a) of the Operating Agreement incorporates this statutory deadline for transmission-dependent utilities and cooperatives, but Section 3.3(b) allows any transmission-owning utility to complete its contribution of transmission facilities as late as June 30, 2001, as long as such a utility has obtained the requisite internal organizational approvals and completed its regulatory filings prior to January 1, 2001. - ------------------------ 12 Comprehensive Application Tab C-101. 12 On December 7, 2000, the Commission received applications from five municipal electric utilities and one municipal electric company, seeking authorization under Wis. Stat. ss. 196.80(1m)(b) to purchase equity interests in ATC.13 Other transmission-dependent municipal utilities (or cooperatives) may make similar applications before the end of the year. It will not be possible for the Commission to act on these applications by January 1, 2001, primarily because the Commission is focusing its resources on the approvals sought by ATC in this and other related dockets. Therefore, these municipal utilities will be unable to complete their proposed purchases of equity interests in ATC by January 1, 2001. It is not reasonable to require transmission-dependent utilities or cooperatives to complete the purchase of equity interests in ATC as of January 1, 2001, because of the Commission's inability to provide the necessary approvals prior to that date and because ATC's Operating Agreement allows the transmission-owning utilities until June 30, 2001, to complete their contribution of transmission facilities. It is in the public interest to require that ATC modify its Section 3.3(a) of its Operating Agreement to allow any transmission-dependent utility or retail electric cooperative to complete its purchase of an equity interest in ATC by June 30, 2001, provided that the utility or cooperative has submitted all necessary regulatory filings by January 1, 2001. ATC also intends to sell a de minimis interest to its corporate manager.14 ATC's sale of a membership interest to ATC Management, Inc., requires Commission approval under Wis. Stat. ss.196.80(1m). By acquiring a 1/1,000,000 interest, ATC Management, Inc., will meet the definition of a transmission company under Wis. Stat. ss.196.485(1)(ge). As a result, ATC Management, Inc., need not be - ------------------------ 13 These applications are consolidated in docket 05-EI-125. 14 Comprehensive Application Tab C-102. 13 regulated as a holding company, because transmission companies are exempt from Wisconsin's public utility holding company act. Wis. Stat.ss.196.795(1)(g) and (h)3. If the Commission were concerned that it would be losing regulatory authority over ATC Management, Inc., because of this statutory exemption, it could require that the company adopt a different structure and be formed as a holding company. These entities are affiliated interests, however, which gives the Commission separate authority that is sufficient to regulate their interactions. The Commission therefore finds that this sale is consistent with the public interest. Prior to commencing operations, ATC must provide the Commission with an opinion from a nationally recognized investment banking firm "that the transmission company is able to finance, at a reasonable cost, its start-up costs, working capital and operating expenses and the cost of any new facilities that are planned." Wis. Stat. ss. 196.485(3m)(a)3. Accompanying the comprehensive application is a draft opinion from Morgan Stanley & Co.15 This draft is not complete in that it contains a number of blank spaces and is highly conditional. Morgan Stanley & Co. declares that its opinion depends upon ATC's own projections of future operations, financial condition and capital structure. To meet its statutory requirements, ATC must provide a complete opinion from Morgan Stanley & Co. that includes the statutory provision quoted above. The Citizens' Utility Board (CUB) filed comments about the application. CUB recommends that the Commission not approve the formation of ATC until it can identify the likely economic benefits and costs that will result from the transmission company's operation. CUB asks the Commission to determine how the immediate costs of creating ATC, and the likely impact of transmission tariff - ------------------------ 15 Comprehensive Application Tab D-3. 14 charges, will affect retail rates. The Commission agrees with CUB's concern about whether the propounded economic benefits of a separate transmission company will become real. Because the state Legislature has already declared the specific conditions under which a transmission company can be created, however, it is not appropriate to impose CUB's recommendation as a condition of approval. CUB has other, more specific concerns. It recommends that ATC's transmission planning should be conducted openly, with material public input from an advisory board of interested parties. CUB asks that the Commission require ATC to submit a proposal for public input in its planning and decision-making processes, as a condition of commencing operations. As described below, ATC will be a participant in the joint utility transmission planning process, replacing its member utilities. Such participation will allow ATC to conduct its transmission planning in concert with other utilities, and thereby create plans that best serve the state's interest as a whole. The Commission is not persuaded that an advisory board would also be necessary. CUB is also concerned that ATC will not disclose its budgeting and expenditures that are recovered in retail rates. It urges the Commission to ensure that the public's access to utility information is not hindered by the creation of this new company. Since ATC and ATC Management, Inc., will both be regulated public utilities, the Commission will have adequate access to their books and records. It is reasonable, however, to require that ATC, ATC Management, Inc., and their subsidiaries provide the Commission with access to their records as a condition of this order. Any interested person may inspect records of these companies that are filed with the Commission, in accordance with the Open Records laws. 15 Under its proposed structure, ATC will operate as a control area certified by the National Electric Reliability Council, but the contributing utilities will continue to balance loads and resources within their own subordinate distributed control areas. CUB urges the Commission to condition any approvals in this proceeding on the formation of a single comprehensive control area for ATC, which includes load balancing for the entire ATC system. CUB argues that the continued existence of subordinate load balancing areas will reduce one of the main benefits that ATC is intended to provide: eliminating the anti-competitive commercial advantages that public utilities can currently obtain by operating their own control areas. ATC responds that it intends to become the balancing authority for its entire region as soon as practicable, but can only do so incrementally because the communications equipment and data bases necessary to operate these control areas have not yet been designed. The FERC examined the same issue when it approved the MISO. In its approval, the FERC required the MISO to provide an analysis concerning the continued existence of control areas, within eighteen months after commencing operations.16 Wis. Stat. ss.196.485(3m)(a)2.c allows ATC to operate a control area with the permission of the FERC. In the recent FERC proceedings addressing ATC's OATT, several intervenors argued that the FERC should not allow subordinate control areas to exist within ATC. The FERC, however, refused to issue a ruling. It stated, "Control area issues are not relevant to what is presently before us. i.e., whether ATCO's OATT is consistent with or superior to our pro forma tariff. Thus, we need not address the intervenors' arguments here."17 - ------------------------ 16 Midwest Independent System Operator, Inc., 84 FERC P. 61,231 at 62,158-62,159 (1998); order on compliance 87 FERC P. 61,085 (1999). 17 Order Accepting in Part and Rejecting in Part Filing of Open Access Transmission Tariff, Docket ER00-3316-000 (December 13, 2000), page 8. 16 The Commission recognizes CUB's concerns on this subject, because the proper operation of control areas is not just important to create a competitive market, but also to protect electric system security and reliability. This is a complex matter, however, requiring more information than the Commission has available in this proceeding. The Commission will continue to monitor this issue before the FERC, both within the context of the MISO and of ATC. In addition, it is reasonable to require that ATC provide the Commission with quarterly reports, commencing on January 1, 2002, and continuing for eighteen months, that analyze the extent to which it is capable of operating as a single control area in its service territory. ATC should also monitor on an ongoing basis whether allowing its member utilities to operate subordinate local control areas creates reliability or competitive problems. If it finds such problems, it is reasonable to require ATC to report to the Commission immediately and to recommend cost-effective solutions. The Commission will collect other information on this subject, as needed, pursuant to its authority under Wis. Stat. ss.ss. 196.02, 196.25, and 196.28. RESPONSIBILITIES OF ATC A transmission company must have as its sole purpose "the planning, constructing, operating, maintaining and expanding of transmission facilities that it owns to provide for an adequate and reliable transmission system that meets the needs of all users that are dependent on the transmission system and that supports effective competition in energy markets without favoring any market participant." Wis. Stat. ss. 196.485(1)(ge). State law also requires that a transmission company be the sole provider in its service territory. Wis. Stat. ss.196.485(1m)(b) declares: 17 After beginning operations, the transmission company shall, except for transmission service provided by an electric utility that has not transferred its transmission facilities to the transmission company, have the exclusive duty to provide transmission service in those areas in which transmission facilities have been contributed. The duty under this paragraph shall terminate on the date, as determined by the Commission under sub. (2)(d), that the Midwest independent system operator begins operations. ATC has assumed these responsibilities under the terms of its Operating Agreement.18 A transmission company must also undertake the existing transmission service obligations of its member utilities. State law provides: WIS. STAT. SS.196.485(3M)(A)1. The transmission company shall do each of the following: c. Assume the obligations of a transmission utility that has transferred ownership of its transmission facilities to the transmission company under any agreement by the transmission utility to provide transmission service over its transmission facilities or credits for the use of transmission facilities, except that the transmission company may modify such an agreement to the extent allowed under the agreement and to the extent allowed under state or federal law. DPC is a party to an Interconnection and Interchange Agreement and a General Transmission Facilities Planning and Installation Agreement with WP&L; these agreements predate the issuance of FERC Order No. 888.19 Under these agreements, DPC and WP&L provide reciprocal transmission service to each other, to serve their respective loads. In its comments, DPC asserts that these agreements constitute an obligation by WP&L to provide transmission service to DPC, and that this obligation must be assumed by ATC under Wis. Stat. ss. 196.485(3m)(a)1.c. DPC, WP&L, and ATC have provided the Commission with an agreement that resolves DPC's concerns regarding this issue. - ------------------------ 18 Comprehensive Application Tab B-2, ss. ss.2.3(c)(ii) and 2.7. 19 FERC Stats. and Regs. P. 31,036 (1996). 18 GSE,20 which is the designated agent of four municipal electric utilities that take network integration transmission service under the OATT of Alliant Energy, has also raised a concern about ATC's compliance with this statute. Alliant Energy's public utility affiliates provide service to these municipal utilities under separate agreements. One of these municipal electric utilities is located in Pardeeville, Wisconsin; the other three are in Minnesota and Iowa. Under their network transmission service agreements, GSE's municipal utilities have access to the entire Alliant transmission system by paying a single, non-pancaked rate. When ATC begins operation, the transmission facilities owned by WP&L will be transferred to ATC and Alliant Energy Corporation's transmission system will be split into two parts. Pardeeville will receive transmission service from ATC, and the other three municipal utilities will receive service from Alliant's transmission facilities in Minnesota and Iowa. GSE argues that such a division of Alliant's system will cause its member utilities to pay pancaked transmission charges to both ATC and Alliant, in order to receive the same level of service as is now provided by Alliant. GSE asserts that Wis. Stat. ss. 196.485(3m)(a)1.c requires ATC to assume the obligation to provide service throughout Alliant's transmission system, at a non-pancaked rate. When WP&L, Interstate Power Company and IES Utilities sought approval of their merger to form Alliant Energy Corporation, one of the benefits they advanced before this Commission and the FERC was that wholesale customers would be able to conduct transactions over the entire Alliant system with a single, non-pancaked charge. The Commission is concerned that municipal utilities and other wholesale customers, which now have access to the entire Alliant - ------------------------ 20 GSE is a power supply and marketing cooperative. DPC is a non-profit generation and transmission electric cooperative. Both are headquartered in La Crosse, Wisconsin. 19 transmission system, will lose this benefit of the merger when WP&L transfers its transmission facilities to ATC. The record, however, does not provide the Commission with adequate information to determine whether ATC is assuming Alliant's obligation to provide transmission service under the terms of its network transmission service agreements and its open access transmission tariff. It is therefore reasonable to require that ATC work with GSE and WP&L to address this matter, and report to the Commission on its resolution. CUB alleges that ATC will be prevented from performing its responsibilities of meeting the needs of all users that depend upon the transmission system, and of supporting effective competition in energy markets without favoring any market participant, because WEPCO has made a transmission reservation (a preferred right) to use incremental improvements in transmission import capacity to support load growth within its service territory. This load growth reservation, however, occurred independently of and does not depend upon the ATC's creation. As a result, it is inappropriate to address this matter in this docket. The FERC can properly resolve this issue. Transmission planning is an ongoing responsibility of all transmission-owning utilities in Wisconsin. Although the structure of Wisconsin's utilities is changing, the Commission has stated as recently as the final report of its Strategic Energy Assessment that "the need for comprehensive transmission planning remains."21 State law explicitly includes transmission planning in the definition of a transmission company, as one of its core functions. Wis. Stat. ss. 196.485(1)(ge). Wisconsin utilities jointly engage in transmission planning, in response to planning obligations that the Commission has imposed. It is reasonable to require that ATC assume the current - ------------------------ 21 Strategic Energy Assessment Final Report, Public Service Commission of Wisconsin (December 2000), page xix. 20 transmission planning responsibilities of its member utilities and become an active participant in their place. It is also reasonable to require that, when ATC submits its transmission system data for the biennial Strategic Energy Assessment under Wis. Admin. Code ss. PSC 111.43(2), it show how it has fulfilled these planning responsibilities. CUB is not just concerned that ATC should actively engage in transmission planning with other utilities, but also that transmission planning should be integrated with generation and distribution planning, to ensure that the best solutions are found to problems with the electric system. State law governing the Commission's approval of utility construction projects requires that the Commission consider reasonable alternatives before finding that a proposed facility will satisfy the reasonable needs of the public and is in the public interest. For example, the Wisconsin Environmental Policy Act provides that all agencies of the state must write an Environmental Impact Statement (EIS) on major actions significantly affecting the quality of the human environment, and such an EIS must include "alternatives to the proposed action." Wis. Stat. ss. 1.11(2)(c)3. The statute governing issuance of a certificate of public convenience and necessity (CPCN) for new transmission projects also requires the Commission to examine alternatives. State law prohibits the Commission from issuing a CPCN unless it determines that: WIS. STAT. SS.196.491(3)(D)3. The design and location or route is in the public interest considering alternative sources of supply, alternative locations or routes, individual hardships, engineering, economic, safety, reliability and environmental factors It is reasonable to grant ATC discretion in preparing its transmission project CPCN applications, but these statutes require that ATC also develop and analyze reasonable non-transmission alternatives. 21 State law provides ATC with specific obligations with respect to the MISO or its successor. It must apply for membership in the MISO, must elect to operate as a single pricing zone, and must transfer operational control of its transmission facilities to the MISO when the latter begins operations. Wis. Stat. ss. 196.485(3m)(a)1.d and f. ATC submitted a completed membership application to the MISO on June 30, 2000.22 In the cover letter submitted with its FERC tariff and rate filing, ATC indicates that it will transfer transmission control to the MISO and will apply to be a single zone for pricing purposes when the MISO begins operating.23 By law, ATC must remain a member of the MISO or its successor for at least six years. Wis. Stat. ss. 196.485(3m)(a)1.e. ATC has indicated in recent communications with the Commission that it may file with the FERC a conditional letter of withdrawal from the MISO. ATC may have legitimate concerns about its ability to operate within the MISO, if the withdrawal of other utility members from the MISO acts to cut off ATC's transmission connections to remaining MISO members, and about its continued liability for operating costs of the MISO if the MISO ultimately closes. In order to protect Wisconsin ratepayers, it is reasonable to require that ATC first provide the Commission with clear and convincing evidence that such an act is in the best interests of Wisconsin's electric ratepayers, and receives the Commission's consent to proceed, before it files with the FERC any petition seeking authority to withdraw from the MISO. ATC filed its OATT and rates for open access transmission service with the FERC on July 31, 2000.24 Wis. Stat. ss.196.485(3m)(a)4 requires that ATC prepare a plan for phasing in a combined single zone rate for the purpose of - ------------------------ 22 Comprehensive Application Tab D-2. 23 Comprehensive Application Tab D-1; July 31, 2000 cover letter, page 14. 24 Comprehensive Application Tab D-1. 22 pricing network use, if the transmission rate of any eastern Wisconsin utility exceeds the average rate of the eastern Wisconsin utilities by 10 percent or more. ATC has produced such a plan, which is included in its OATT.25 Wis. Stat. ss. 196.485(3m)(a)4 also specifies that this plan "shall phase in an average-cost price for the combined single zone in equal increments over a 5-year period, except that, under the plan, transmission service shall be provided to all users of the transmission system on a single-zone basis during the phase-in period." ATC's plan is initially to administer a "license plate" rate structure for network service in eastern Wisconsin, which it will gradually replace over five years with a single network rate. In its comments to the Commission, WPSC argues that ATC's proposed plan does not comply with the statutory phase-in requirements, because it is inappropriately based upon the costs reflected in the rates of retail customers as of January 1, 1999. WPSC maintains that the proper starting point to phase in rates should be the transmission costs that retail customers will be paying as of January 1, 2001, the date that ATC intends to commence operations. WPSC alleges that the great majority of customers affected by this phase-in will be paying projected 2001 transmission costs in their retail rates, not 1999 transmission costs. Using a 1999 starting point, it suggests, would materially distort the rate phase-in to the benefit of WEPCO, WP&L, and WPPI, and to the detriment of WPSC and MGE. ATC responds that it chose 1999 costs as its starting point based on a majority vote of the members. ATC contends that its proposal has the advantage of using actual current transmission costs and results in less severe "rate - ------------------------ 25 Comprehensive Application Tab D-1; OATT ss. 37.2 and Schedule 9. In its Order Accepting in Part and Rejecting in Part Filing of Open Access Transmission Tariff, Docket ER00-3316-000 (December 13, 2000), page 15, the FERC rejected ATC's rate proposal and authorized ATC to prepare a new Section 205 rate filing. The FERC did not discuss ATC's proposed method of implementing a five-year phase-in. 23 shock," while WPSC is recommending the use of projected transmission costs for the year 2001. Because the phase-in requirements are provisions of Wisconsin law, their enforcement falls to the Commission, not the FERC. Wis. Stat. ss. 196.485(3m)(a)4, however, does not define the starting point that must be used for the phase-in of rates. Under this statute it is necessary to examine the current transmission rates of eastern Wisconsin utilities in order to determine whether ATC must create this phase-in plan for its rates. ATC's proposal, which also uses current transmission costs as the foundation of its rate plan, is not unreasonable on its face and does not require Commission intervention at the state level. ATC is required to apply for any approvals under state or federal law that are needed for it to begin operations by January 1, 2001. Wis. Stat. ss. 196.485(3m)(a)1.a. ATC has requested that the FERC approve an effective date of January 1, 2001, for its OATT and transmission rates,26 and its comprehensive application to the Commission constitutes the request for approvals necessary under state law. On December 14, 2000, the FERC issued an order in Docket ER00-3316-000, Accepting in Part and Rejecting in Part Filing of Open Access Transmission Tariff. In that order, the FERC accepted ATC's proposed OATT with certain clarifications and modifications, as consistent with or superior to the FERC's pro forma tariff. American Transmission Company, LLC, 93 FERC 61,267 (2000) (Slip op. at 13). The FERC accepted the OATT to be effective on the date the associated rates become effective. With respect to ATC's proposed rates, however, the FERC stated that certain aspects of ATC's rate proposal deemed to be rate "incentives," such as the capital expansion adder and shortened - ------------------------ 26 Comprehensive Application Tab D-1; OATT cover letter to FERC dated July 31, 2000, page 2. 24 depreciation life for new transmission facilities, were only available in the context of a regional transmission organization (RTO), and ATC was seeking these innovative rate incentives before it joined an approved RTO. As a result, the FERC stated that it would reject the rate proposal, without prejudice to ATC's submitting a new Section 205 rate filing. On December 15, 2000, ATC submitted a new Section 205 rate filing without the capital expansion adder and shortened depreciation life proposals. (Docket ER01-677-000) The proposed rates reflect a reduction of approximately 5 percent from the rates proposed in the July 31, 2000, filing, but are otherwise identical to the rates proposed in ATC's July 31, 2000, filing. ATC's new rate filing also seeks waiver of the 60-day window between filing and effective date of the rate. With this waiver consent, ATC is able to begin operations on January 1, 2001, without further FERC action before that date. Hence, ATC may begin operations on January 1, 2001, using the newly-proposed rate, and the FERC will take action on that proposed rate after the onset of operations. In addition to approving ATC's OATT, the FERC has also already approved the asset transfers from all the contributing utilities. The Commission therefore finds that ATC has met the obligations imposed by Wis. Stats. ss.196.485(3m)(a)1.a. Wis. Stat. ss.196.485(3m)(a)1.b requires ATC to contract with its member transmission utilities to provide reasonable, cost-effective operation and maintenance services during the company's first three years. ATC has submitted such a contract to the Commission, which is being reviewed separately as an affiliated interest agreement in docket 05-AE-102. HOLDING COMPANY ASSET CAP Public utility affiliates must file unconditional, irrevocable, binding commitments with the Commission to contribute their transmission facilities to ATC, in order that their parent holding company can qualify for the asset cap relief offered by Wis. Stat. ss.196.485(5) . Each public utility affiliate must 25 commit to contribute its existing facilities 27 no later than January 1, 2001, and to contribute any transmission facilities that it subsequently acquires. Wis. Stat. 196.485(5)(a)2, 3. WEPCO, WP&L, and WPSC have each made these commitments.28 State law also requires a contributing public utility affiliate to perform other tasks. It must inform the Commission that it has become a member of the MISO and must remain a member until the date when it contributes transmission facilities to ATC; it must also petition the Commission and the FERC to approve the transfer of operational control over its transmission facilities to the MISO. The public utility affiliate may not withdraw these petitions, even if the state or federal agency imposes conditions upon its approval of the transfer of transmission facilities. Wis. Stat. 196.485(5)(a)1 and 4. The Commission declared that WEPCO, WP&L, and WPSC had each become a member of the MISO in docket 05-EI-123 (June 30, 2000), and the FERC has also ratified their MISO membership.29 These public utility affiliates have therefore complied with the requirement to notify the Commission when they become members of the MISO and the requirement to petition for the Commission's and FERC's approval of their transfer of operational control to the MISO. Under Wis. Stat. ss.196.485(5)(a)5, a public utility affiliate must also petition the Commission and the FERC to approve its contributions of transmission facilities to ATC. The comprehensive application filed in this docket constitutes the petition to the Commission that has been filed on behalf of WEPCO, WP&L, and WPSC. Since these three utilities have already received the - ------------------------ 27 "Existing facilities" means the transmission facilities a public utility affiliate owned on the date when 1999 Wis. Act 9 took effect (October 29, 1999). 28 Commission dockets 6630-EI-109 (WEPCO) and 6680-EI-106 (WP&L); WPSC filed its irrevocable commitment with the Commission in a letter dated October 23, 2000. Pursuant to ATC's request, dated September 22, 2000, dockets 6630-EI-109 and 6680-EI-106 are consolidated with this docket. 29 FERC Docket No. EC98-24-000 (WEPCO); FERC Docket No. EC00-29-000 (WP&L); FERC Docket No. EC00-84-000 (WPSC). 26 FERC's approval for its contribution of transmission facilities, they meet the requirements of this statute.30 If ATC's capital structure includes a materially greater percentage of common equity than that of the public utility affiliates that have become its members, or if the fixed-cost portion of its capital structure is materially higher than that of these members, state law declares that the public utility affiliates must contract with ATC to accept a return on common equity that is based upon the equity rate of return approved by the FERC and upon a specified imputed capital structure. Wis. Stat.ss.196.485(5)(b)4. Since ATC is planning to secure a 50/50 debt-equity ratio, which is consistent with that of its member public utility affiliates, such a contract should not be necessary.31 The transfer of transmission facilities to ATC must be structured in a way that avoids or minimizes material adverse tax consequences to the contributing public utility affiliates. The transfer must also avoid or minimize material increases to public utility rates, other than those increases that "arise out of combining the transmission company's facilities into a single zone." To the extent practicable, the transfer must also be tax-free. Wis. Stat. ss. 196.485(5)(b)2. ATC has accomplished these requirements by being structured as a limited liability company; no party has contested ATC's representations that the transfer of transmission assets is a tax-free transaction and the company is not itself a taxable entity. ATC's creation as a limited liability company means that the member utilities can avoid the need to report taxable gains on their - ------------------------ 30 90 FERC P. 61,346 (WEPCO); 90 FERC P. 61,347 (WP&L); FERC Docket No. EC00-136-000 (WPSC). 31 Comprehensive Application, pp. 46 and 54 to 55. In addition, the statute declares that this return on equity calculation would cease to apply when the FERC, in its tariff approval, establishes an appropriate capital structure and capital costs for ATC. The FERC will probably do so shortly after ATC commences operating, thereby rendering moot any concerns about the propriety of ATC's capital structure. 27 transfer of assets. Wis. Stat.ss.196.485(5)(b)3 also requires that ATC issue, if practicable, a preferred class of securities to achieve the tax-free transfer. Incorporating ATC as a limited liability company, which accomplishes the intended goal of transferring transmission facilities on a tax-free basis and also minimizes future retail rate impacts, makes such an issuance of preferred stock impracticable. This is because the ownership interest in a limited liability company is divided among the members, not among shareholders by the issuance of stock. Wis. Stat. ss. ss.183.0102(11) and 183.0801. ATC is also seeking a letter ruling from the Internal Revenue Service, confirming its tax status. Transmission facilities must be transferred to ATC at net book value, "determined on the basis of the regulated books of account at the time of the transfer," and land rights must be transferred at book value. Wis. Stat. ss.196.485(5)(b)7 and (c)1.a. The transmission facilities that a public utility affiliate is required to transfer to the transmission company are defined in Wis. Stat. ss.196.485(5)(d). In its order dated July 13, 2000, in docket 05-EI-119, the Commission reconciled this statute with the general definition of transmission facilities that can be found in Wis. Stat.ss.196.485(1)(h). ATC's Operating Agreement provides that contributions of transmission facilities and land rights are valued as shown on the regulated books of account as of the date of contribution, as adjusted for deferred taxes and deferred investment tax credits.32 This valuation method complies with state law. In addition, the Asset Contribution Agreement properly provides a method of classifying which land rights involve joint use.33 - ------------------------ 32 Comprehensive Application Tab B-2, ss. 1.1 definition of "Contribution Value," and Tab C-3, ss. 3.8. 33 Comprehensive Application Tab C-1, Article II. 28 The contribution of these assets by public utility affiliates, in exchange for an ownership interest in ATC, is subject to the consent and approval of the Commission under Wis. Stat. ss. 196.80(1m). Similarly, ATC's acquisition of public utility operating units requires the Commission's consent and approval under this statute. Having determined that these transactions comply with the transmission company's enabling statute, the Commission finds that they are consistent with the public interest. AFFILIATED INTEREST AGREEMENTS The Operating Agreement is an affiliated interest agreement between ATC, its members, and ATC Management, Inc. The Operating Agreement complies with the transmission company's enabling legislation. The Commission therefore finds that this agreement is reasonable and consistent with the public interest, subject to the conditions specified in the Order. The Asset Contribution Agreement also requires the Commission's written approval pursuant to Wis. Stat. ss. 196.52(3), because it contains the terms and conditions for the transfer of each utility's transmission facilities to ATC. ATC has agreed to engage an independent accounting firm to verify, as part of the annual audit of its year 2000 financial statements, that the proper transmission assets have been transferred to ATC and that these assets have been valued appropriately. In accordance with the Operating Agreement, an internal audit by ATC will be completed within 150 days after ATC commences operations.34 - ------------------------ 34 Comprehensive Application Tab B-2, ss.3.2(g). 29 The Commission finds that the Asset Contribution Agreement is reasonable and consistent with the public interest, subject to the conditions specified in the Order. Finally, ATC seeks Commission approval of its Subscription Agreement 35 for the purchase of equity interests by WPPI and ATC Management, Inc., and Commission approval of its Shareholders Agreement between the member utilities and ATC Management, Inc. 36 These agreements do not constitute "contracts or arrangements" that require the Commission's approval under Wis. Stat. ss. 196.52(3), because they only concern investments by a public utility. Since they do comply with the transmission company's enabling legislation, however, the Commission finds that the Subscription Agreement and the Shareholders Agreement are reasonable and consistent with the public interest. CERTIFICATE OF AUTHORITY Pursuant to Wis. Stat. ss.196.49(1)(am), the Commission grants ATC and ATC Management, Inc., a certificate of authority to become a public utility, as defined in Wis. Stat. ss.196.01(5), and to transact public utility business. By this certificate, ATC and ATC Management, Inc., are authorized to commence operation as transmission companies, as defined in Wis. Stat. ss.196.485(1)(ge), subject to the conditions stated in the Order below. The operations date shall be January 1, 2001, or the date when ATC and ATC Management, Inc., comply with Order paragraph No. 5, whichever is later. - ------------------------ 35 Comprehensive Application, Tab C-101. 36 Comprehensive Application, Tab B-7. 30 ORDER Pursuant to the filings made in this docket by Joint Applicants, the following is ordered: 1. WEPCO, WP&L, WPSC, and MGE are authorized to become members in ATC by contributing their transmission facilities and land rights to ATC. 2. WPPI is authorized to purchase a membership interest in ATC. 3. ATC Management, Inc., is authorized to acquire a 1/1,000,000 interest in ATC. 4. ATC is authorized to acquire the transmission facilities and land rights of WEPCO, WP&L, WPSC, and MGE. It is also authorized to sell a membership interest to WPPI and to ATC Management, Inc. 5. Prior to commencing operations, ATC shall provide an opinion from a nationally recognized, investment banking firm that ATC is able to finance, at a reasonable cost, its start-up costs, working capital, operating expenses, and the cost of any new facilities that are planned. 6. As part of the approvals granted herein, the following ongoing conditions apply: a. ATC and ATC Management, Inc., are subject to the Commission's regulation as public utilities. b. The certificates of authority accompanying this final decision are void if ATC or ATC Management, Inc., files any petition with the FERC seeking authority to withdraw from the MISO during the six-year period specified in Wis. Stat. ss.196.485(3m)(a)1.e, unless ATC first proves to the Commission by clear and convincing evidence that such an act is in the best interests of Wisconsin's electric ratepayers, and receives the Commission's consent to proceed. c. ATC shall work with GSE and WP&L to address the proper assumption of WP&L's obligation to provide transmission service, in a manner that preserves the rights of GSE member utilities under Alliant Energy Corporation's current 31 network transmission service agreements and its open access transmission tariff. ATC shall report to the Commission on the resolution of this matter no later than July 1, 2001. d. The Commission has full access, as provided by law, to the books and records of ATC, of ATC Management, Inc., and of any subsidiaries of either entity. e. ATC shall assume the current transmission planning responsibilities of its member utilities and become an active participant in their place. When ATC submits its transmission system data for the biennial Strategic Energy Assessment under Wis. Admin. Codess.PSC 111.43(2), it shall show how it has fulfilled these planning responsibilities. f. ATC shall provide the Commission with quarterly reports, commencing on January 1, 2002, and continuing for eighteen months, that analyze the extent to which it is capable of operating a control area within its service territory, after it commences operations. ATC shall file such reports until it fully implements its single control area. ATC shall also monitor, on an ongoing basis, whether allowing its member utilities to operate subordinate control areas creates reliability or competitive problems. If it finds such problems, ATC shall report to the Commission immediately and recommend cost-effective solutions. g. ATC shall file a copy of the signed Operating Agreement with the Commission, within 30 days after the date ATC commences operations. h. ATC shall file a copy of any revisions to Schedule A of the Operating Agreement with the Commission, within 20 days after the date this schedule is revised. 32 i. ATC may not suspend, terminate, or modify any portion of the Operating Agreement, other than Schedule A, without the Commission's prior determination that this change is reasonable and consistent with the public interest. j. ATC, or ATC Management, Inc., shall notify the Commission and obtain its approval prior to establishing any subsidiaries of ATC Management, Inc. k. ATC shall file a copy of the signed Asset Contribution Agreement with the Commission, with the schedules completed and attached, within 30 days after the date ATC commences operations. l. ATC and its contributing member utilities shall provide the Commission with the accounting entries recording the transfer of assets to ATC, and segregating the deferred taxes and investment tax credits associated with each utility's transfer, within 30 days after their entry on the books of each company. m. ATC's independent auditor shall, as part of its annual audit of year 2000 financial statements, verify that the proper assets have been transferred to ATC, as defined in Commission docket 05-EI-119 and in this order. ATC's auditor shall also verify that these assets have been valued appropriately. n. ATC and its contributing member utilities shall each provide the Commission with a copy of their respective auditor reports regarding the transfer of assets to ATC upon completion. ATC and its contributing member utilities shall also provide any revisions to the accounting entries occurring as a result of this audit, within 30 days after their entry on the utility books. 33 o. ATC shall allow any transmission-dependent utility or retail electric cooperative until June 30, 2001, to complete the purchase of an equity interest under Wis. Stat.ss. 196.485(6)(a)3, provided that the utility or cooperative has completed all necessary regulatory filings by January 1, 2001. p. As provided in Wis. Stat.ss.ss.196.02, 196.52, and 196.795, the Commission reserves the right to revise and amend the terms and conditions of this order, to protect and promote the public interest. 7. This order shall be effective the date of mailing. 8. The Commission retains jurisdiction. Dated at Madison, Wisconsin, ------------------------------------- By the Commission: - ------------------------------------- Lynda L. Dorr Secretary to the Commission 34 Notice of Appeal Rights ----------------------- Notice is hereby given that a person aggrieved by the foregoing decision has the right to file a petition for judicial review as provided in Wis. Stat. ss. 227.53. The petition must be filed within 30 days after the date of mailing of this decision. That date is shown on the first page. If there is no date on the first page, the date of mailing is shown immediately above the signature line. The Public Service Commission of Wisconsin must be named as respondent in the petition for judicial review. Notice is further given that, if the foregoing decision is an order following a proceeding which is a contested case as defined in Wis. Stat.ss. 227.01(3), a person aggrieved by the order has the further right to file one petition for rehearing as provided in Wis. Stat.ss. 227.49. The petition must be filed within 20 days of the date of mailing of this decision. If this decision is an order after rehearing, a person aggrieved who wishes to appeal must seek judicial review rather than rehearing. A second petition for rehearing is not an option. This general notice is for the purpose of ensuring compliance with Wis. Stat.ss. 227.48(2), and does not constitute a conclusion or admission that any particular party or person is necessarily aggrieved or that any particular decision or order is final or judicially reviewable. Revised 9/28/98 35 EX-99 8 0008.txt EXHIBIT D-9 EXHIBIT D-9 STATE OF ILLINOIS ILLINOIS COMMERCE COMMISSION - -------------------------------------------------------------------------------- ) Thirty-day notice of the transfer of property ) located in Winnebago County, Illinois, SOUTH BELOIT WATER, GAS ) pursuant to Section 16-111(g) of the AND ELECTRIC COMPANY ) Public Utilities Act, as amended by the ) Electric Service Customer Choice and Rate ) Relief Law of 1997. SOUTH BELOIT WATER, GAS, AND ELECTRIC COMPANY'S NOTICE OF PROPERTY TRANSFER Pursuant to Section 16-111(g) of the Public Utilities Act, as amended by the Electric Service Customer Choice and Rate Relief Law of 1997 ("Act") (220 ILCS 5/16-111(g)), South Beloit Water, Gas and Electric Company ("SBWGE") submits this Notice of Property Transfer ("Notice") and states as follows: 1. SBWGE has reached agreement to transfer its ownership and control of its federal jurisdictional transmission assets, consisting of less than a mile of 345 kV transmission facilities and approximately ten miles of 69 kV transmission facilities located in Winnebago County, Illinois (the "Property"), to the American Transmission Company, LLC. (The facilities to be transferred are shown on the map attached hereto as Exhibit A, and do not include any facilities operated at voltages lower than 50 kV, or any facilities used to serve retail customers directly.) The transferred facilities represent less than 15% of the total depreciated original cost investment of SBWGE's transmission and distribution facilities. As required by Section 16-111(g) of the Act, SBWGE is providing the Commission with thirty days notice of the transfer. 1 2. SBWGE will record entries on its books and records of account in connection with the transfer of the Property as shown on the Schedule of Accounting Entries attached hereto as Exhibit B. 3. SBWGE has attached to this Notice as Exhibit C a statement by Arthur Andersen certifying that the foregoing entries are in accord with generally accepted accounting principles. 4. SBWGE has attached to this Notice as Exhibit D a statement by John Kratchmer, SBWGE's chief accounting officer, certifying that the foregoing entries are in accordance with the Commission's previously approved guidelines for cost allocations between SBWGE and its affiliates. 5. SBWGE will use the proceeds from the transfer of the property to reduce debt. 6. The Federal Energy Regulatory Commission (FERC) must approve the transaction pursuant to Section 203 of the Federal Power Act, 16 U.S.C. ss. 824b,1 and the Securities Exchange Commission must approve certain aspects of the transaction under the Public Utilities Holding Company Act. No Illinois State agency approvals are required prior to transferring the Property. 7. SBWGE irrevocably commits that it will not, as a result of transferring the Property, impose any stranded costs charges that it might otherwise be allowed to charge retail customers under federal law. 8. SBWGE irrevocably commits that it will not, as a result of transferring the Property, increase the transition charges that it is otherwise - ------------------------ 1 On September 27, 2000, FERC issued its Order approving this transfer in Docket No. EC00-120-000. 2 entitled to collect under Section 16 of the Public Utilities Act, as amended by the Electric Service Customer Choice and Rate Relief Law of 1997. By: ------------------------------------ Attorney for South Beloit Water, Gas and Electric Company Kent M. Ragsdale, Managing Attorney Alliant Energy Corporate Services 200 First Street, SE Post Office Box 351 Cedar Rapids, IA 52406-0351 Phone: (319) 398-7765 Fax: (319) 398-4533 kentragsdale@alliant-energy.com 3 STATE OF ILLINOIS ILLINOIS COMMERCE COMMISSION - -------------------------------------------------------------------------------- ) Thirty-day notice of the transfer of property ) located in Winnebago County, Illinois, SOUTH BELOIT WATER, GAS ) pursuant to Section 16-111(g) of the AND ELECTRIC COMPANY ) Public Utilities Act, as amended by the ) Electric Service Customer Choice and Rate ) Relief Law of 1997. NOTICE OF FILING ---------------- TO: Ms. Mary Selvaggio Financial Analysis Division Illinois Commerce Commission 527 East Capitol Avenue Springfield, Illinois 62706 PLEASE TAKE NOTICE that on this date we have sent by Federal Express for filing with the Illinois Commerce Commission, 527 East Capitol Avenue, Springfield, Illinois 62706, the original and three copies of South Beloit Water, Gas and Electric Company's Notice of Property Transfer. DATED this day of , 2000. ----- ------------ ---------------------------------- Attorney for SOUTH BELOIT WATER, GAS AND ELECTRIC COMPANY 4 ATTACHMENT D CERTIFICATION PURSUANT TO SECTION 16-111(G)(I) I, John E. Kratchmer, Corporate Controller and Chief Accounting Officer for Alliant Energy Corporation, state that I am the chief accounting officer for South Beloit Water, Gas & Electric Company and hereby certify that the pro forma adjustments shown in Attachment B to the notice, dated November __, 2000, of South Beloit Water, Gas & Electric Company pursuant to Section 16-111(g) of the Public Utilities Act, 220 ILCS 5/16-111, are in accord with the Service Company Agreement (Public Utility) entered into by South Beloit Water, Gas & Electric Company as of April 23, 1998 and approved by the Illinois Commerce Commission on September 11, 1998 in Docket No. 98-0011. ---------------------------------- 5 EX-99 9 0009.txt EXHIBIT D-12 EXHIBIT D-12 American Transmission Company LLC Docket No. ER00-3316-000 FEDERAL ENERGY REGULATORY COMMISSION - COMMISSION 93 F.E.R.C. P61,267 ORDER ACCEPTING IN PART AND REJECTING IN PART FILING OF OPEN ACCESS TRANSMISSION TARIFF December 14, 2000 PANEL: Before Commissioners: James J. Hoecker, Chairman; William L. Massey, Linda Breathitt, and Curt Hebert, Jr. OPINION: On July 31, 2000, pursuant to Section 205 of the Federal Power Act (FPA),1 American Transmission Company LLC (ATCO) submitted for filing an Open Access Transmission Tariff (OATT) and rates for open access transmission service. ATCO requests an effective date of January 1, 2001. The Commission will accept in part and reject in part, with modifications, without suspension or hearing, ATCO's proposal. - ------------------------ 1 16 U.S.C ss.824(d). Background ATCO was created pursuant to Wisconsin State law 2 (Act 9) as a single-purpose, for-profit, transmission company and will be formed predominantly from the transmission systems of Wisconsin investor-owned utilities (IOUs). If all regulatory approvals have been obtained, ATCO will begin operations on January 1, 2001. ATCO does not propose to qualify as a Regional Transmission Organization (RTO) pursuant to Order No. 2000.3 Instead, ATCO will join the Midwest Independent System Operator (Midwest ISO) and transfer operational control of the ATCO transmission assets to the Midwest ISO as soon as the Midwest ISO begins operations. ATCO states that six IOUs with service areas in the state of Wisconsin and adjacent areas of Michigan and Illinois will transfer ownership and operation of their transmission assets to ATCO in exchange for equity interests in ATCO.4 ATCO will own and operate the facilities transferred to it by these IOUs, and will plan, construct, operate, maintain, and expand its transmission facilities. The six IOUs are: Wisconsin Electric Power Company (WEPCO), Edison Sault - ------------------------ 2 Wis. Stat.ss.196.485. 3 Regional Transmission Organizations, Order No. 2000, 65 FR 809 (January 6, 2000), FERC Stats. & Regs. P31,089 (1999), order on reh'g, Order No. 2000-A, 65 FR 12,088 (March 8, 2000), FERC Stats. & Regs. P31,092 (2000), petitions for review pending sub nom, Public Utility District No. 1 of Snohomish County, Washington v. FERC, Nos. 00-1174, et al. (D.C. Cir.). 4 Transmission assets transferred to ATCO will be valued at their "Contribution Value" which is generally defined as original cost less accumulated depreciation and adjusted for deferred taxes. Equity interest in ATCO will be determined based on the value of transmission assets or the amount of cash contributed. 2 Electric Company (Edison Sault), Wisconsin Power & Light Company (WP&L), South Beloit Water, Gas and Electric Company (South Beloit), Madison Gas and Electric Company (MG&E), and Wisconsin Public Service Corporation (WPS).5 In addition, Wisconsin Public Power Inc. (WPPI), a Wisconsin municipal joint action agency that does not own any transmission facilities, will contribute cash in exchange for an equity interest in ATCO. Under Act 9, however, WPPI may only purchase an equity interest that is proportional to WPPI's firm load ratio share in Wisconsin in 1999.6 Notice Notice of ATCO's filing was published in the Federal Register on August 10, 2000, 65 Fed. Reg. 48,985 (2000), with comments, protests, and motions to intervene due on or before August 21, 2000. Timely, unopposed motions to intervene were filed by Duke Energy Trading & Marketing L.L.C.; WP&L and South Beloit, jointly; MidAmerican Energy Company; - ------------------------ 5 In Wisconsin Electric Power Company, 90 FERC P61,346 (2000) (WP&L); Wisconsin Power & Light Company, 90 FERC P61,347 (2000); South Beloit Water, Gas and Electric Company, 92 FERC P62,266 (2000); Edison Sault Electric Company, 93 FERC P61,146 (2000); and Madison Gas & Electric Company and Wisconsin Public Service Corporation, 93 FERC P61,215 (2000), the Commission authorized the transfer of transmission facilities to ATCO. 6 WPPI provides bulk power energy requirements to its thirty members, all of which are municipalities engaged in retail electricity distribution, from generation resources owned by WPPI and through purchased power contracts. 3 SEI Wisconsin, L.L.C.; Enron Power Marketing, Inc.; WEPCO; Wisconsin Paper Council; Dairyland Power Cooperative (Dairyland); MG&E; Midwest ISO; Upper Peninsula Transmission Dependent Utilities Group (Upper Peninsula TDUs); Southern Minnesota Municipal Power Agency (SMMPA); WPS; Wisconsin Transmission Customer Group (Wisconsin Customer Group); WPPI; and Wisconsin Industrial Energy Group (WIEG). A timely notice of intervention was filed by the Public Service Commission of Wisconsin (Wisconsin Commission). Late motions to intervene were filed by Commonwealth Edison Company; Sierra Pacific Power Company and Nevada Power Company, jointly; National Rural Electric Cooperative Association (NRECA); GEN SYS Energy (GSE); Missouri River Energy Services; the state of Michigan; and the Michigan Public Service Commission. WEPCO's intervention also requested clarification. The following intervenors protested ATCO's filing: Dairyland, SMMPA, Wisconsin Customer Group, WIEG, NRECA, and GSE. The Upper Peninsula TDUs and WPS protested the filing and requested a hearing. The Wisconsin Customer Group requested summary disposition. On September 1, 2000, WP&L and South Beloit jointly filed an answer to the protests. On September 5, 2000, MG&E, WPPI, and ATCO filed answers to the protests. On September 13, 2000, WPS filed an answer to ATCO's answer. On 4 September 18, 2000, Dairyland filed an answer to WP&L and South Beloit's answer. On September 20, 2000, Upper Peninsula TDUs filed an answer to ATCO's answer. On October 2, 2000, ATCO filed an answer to Upper Peninsula TDU's answer. On December 7, 2000, Upper Peninsula TDUs submitted a Motion to Lodge a market power report. Discussion Procedural Matters Pursuant to Rule 214 of the Commission's Rules of Practice and Procedure, 18 C.F.R. ss. 385.214 (2000), the timely, unopposed motions to intervene serve to make the filers of those motions parties to the proceeding. Given the early stage of the proceeding and the absence of undue prejudice or delay, as well as their interests, we find good cause to grant the untimely, unopposed motions to intervene. Although the Commission's Rules of Practice and Procedure normally do not permit answers to protests or answers,7 given the complex nature of the proceeding, and given that the answers help in clarifying certain issues, we will accept the answers. - ------------------------ 7 18 C.F.R.ss.385.213(a)(2) (2000). 5 Substantive Matters I. ATCO's Open Access Transmission Service ATCO will provide transmission service and ancillary services under its own OATT, which has been filed in the instant docket. During the period between ATCO's commencement of service and the date the Midwest ISO begins operations, ATCO will administer its own tariff. ATCO's OATT is closely modeled after the Midwest ISO's OATT, with changes made to accommodate operational differences between ATCO and Midwest ISO. Key features of ATCO's OATT are: transmission service will be provided over ATCO's combined transmission facilities under one tariff; transmission customers will no longer pay pancaked rates; ATCO will have the unilateral right to propose changes in tariff terms and conditions; available transmission capacity will be calculated on a system-wide basis; ATCO will have no merchant function and its members will own no transmission facilities; transmission data will be kept separate from the distribution and generation functions of the existing transmission owners; and former transmission owners will be network customers under ATCO's OATT. Intervenors have protested several aspects of ATCO's OATT. 6 1. Pre-Existing Load Growth Rights WEPCO argues that the right of current transmission providers to reserve transmission capacity to meet forecasted load growth should be preserved. WEPCO asserts that native load and network customers pay for both current uses and anticipated future uses and that the Commission has recognized this fact. WEPCO also, however, has relayed that the members of ATCO, including WEPCO, have agreed to defer the resolution of this issue. (The answers of MG&E and WPPI also agree with deferral of this issue.) Accordingly, we will not consider this issue at this time. 2. Non-Discriminatory Standard vs. Comparability Standard In recognition of the fact that ATCO will not have any native load or generation of its own, ATCO proposes to remove all OATT references to comparability. Instead, ATCO argues, the OATT should provide that transmission will be provided on a non-discriminatory basis. WEPCO asserts that a non-discriminatory standard, by itself, may not be sufficient. As an example, WEPCO observes that if ATCO fails to adequately plan for the reliability of its transmission system, a non-discriminatory standard by itself would not protect transmission customers from uniformly poor service. 7 WEPCO suggests that the Commission should consider including some stronger performance standard, such as a "Good Utility Practice" standard. ATCO answers that it is already under an obligation to comply with good utility practice under (1) the terms of the OATT, (2) other proposed agreements being developed, and (3) state law. Thus, according to ATCO, no new language is necessary to address WEPCO's concern. We find ATCO's reasoning that it is already required to comply with good utility practice sound. Accordingly, we will accept ATCO's non-discriminatory standard without further modification. 3. Reciprocity ATCO has adopted the reciprocity provision contained in the Midwest ISO's OATT, with one exception. ATCO proposes to extend the reciprocity provision to include all "other transmission customers" of ATCO and not just the contributing transmission owners.8 - ------------------------ 8 See ATCO OATT at Original Sheet No. 25, Section 6: "A Transmission Customer receiving transmission service under this Tariff agrees to provide comparable transmission service . . . to the Transmission Provider's other Transmission Customers . . . ." 8 Dairyland states that ATCO has modified the reciprocity provision in a manner that is unreasonable, is beyond the scope of the Commission's authority, and should be rejected. Dairyland argues that, in Order No. 888, the Commission included a reciprocity provision which was premised upon the principle that public utilities offering open access transmission service to non-public utilities should be entitled to obtain the same non-discriminatory access in return. Dairyland claims the reciprocal service required was limited only to the public utility from which the non-public utility takes open access service. NRECA also argues that ATCO's proposal to expand the established reciprocity provision should be rejected. NRECA states that the Commission has determined that reciprocal service is limited to the transmission provider and has denied requests to expand the reciprocity provision. NRECA also points out that the D.C. Circuit Court of Appeals recently affirmed the reciprocity provisions adopted by the Commission in Order No. 888. NRECA further states that ATCO has neither demonstrated nor asserted that its revision is either consistent with or superior to the pro forma tariff, nor provided any meaningful explanation for the proposed revision. 9 ATCO answers that it is proposing the change from the Midwest ISO OATT because, as written, it is not applicable to a transmission provider that is a single-purpose transmission company that will not use other transmission systems for its own use. ATCO contends that it is unfair to those transmission owners who are contributing facilities not to continue to benefit from reciprocity rights they had before transferring their transmission assets to ATCO. ATCO adds that, in fairness to all of its customers, it did not propose language that would limit the provision to only those customers who contribute facilities. The proposed change to the reciprocity provision to expand its reach to include all transmission customers of ATCO, not just those customers who have contributed facilities to ATCO, is inconsistent with Commission rulings in Order No. 888,9 which limit the reach of the reciprocity provision.10 Accordingly, ATCO's proposed revision is rejected. - ------------------------ 9 See Promoting Wholesale Competition Through Open Access Non-discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, Order No. 888, 61 Fed. Reg. 21,540 (1996), FERC Stats. & Regs. P31,036 at 31,760-62 (1996), order on reh'g, Order No. 888-A, 62 Fed. Reg. 12,274 (1997), FERC Stats. & Regs. P31,048 (1997), order on reh'g, Order No. 888-B, 81 FERC P61,248 (1997), order on reh'g, Order No. 888-C, 82 FERC P61,046 (1998). 10 The Commission's approach was recently affirmed. See Transmission Access Policy Study Group v. FERC, 225 F.3d 667, --- (slip op.. at 37-38) (D.C. Cir. 2000). 10 4. Capacity Benefit Margin and Transmission Reliability Margin WEPCO notes that ATCO has yet to determine the appropriate methodologies for calculating both the Capacity Benefit Margin (CBM) and the Transmission Reliability Margin (TRM). WEPCO states that it wishes to reserve its right to comment on the CBM and TRM methodologies once they are developed by ATCO. We find that nothing in this order will interfere with WEPCO's right to comment on ATCO's CBM and TRM methodologies once they are developed. 5. Control Area Operations ATCO indicates that it will not immediately be capable of taking on all of the control area operations currently being performed by utilities contributing facilities to ATCO. Accordingly, ATCO proposes to be a North American Electric Reliability Council (NERC) control area consisting initially of several sub-regional control areas. In other words, contributing utilities who operated control areas prior to the formation of ATCO will continue to operate the same control areas as sub-regional control areas within ATCO. The initial 11 sub-regional control areas will be the current MG&E, WEPCO (including Edison Sault), WP&L (including South Beloit), and WPS control areas. These sub-regional control area operators will balance loads and resources within their respective areas while ATCO will calculate an aggregate net Area Control Error (ACE) value for all network customers. ATCO also proposes to allow network customers who are not also control area operators to maintain subordinate load balancing areas within one or more of the sub-regional control areas. Intervenors who are not control area operators argue against this arrangement. The Wisconsin Customer Group argues that the sub-regional control area operators will have a competitive advantage over other market participants because of the special rights the operators enjoy. As an example, the Wisconsin Customer Group points out that the control area operator must have knowledge of all schedules and transactions, and real-time authority over market participants in order to maintain system reliability. This knowledge advantage and authority over its competitors gives the operator a competitive advantage in the Wisconsin Customer Group's opinion. The Wisconsin Customer Group also opposes the subordinate load balancing area proposal as conferring competitive advantage. Accordingly, the Wisconsin Customer Group urges the Commission to require ATCO 12 to move to a single control area as soon as possible. Alternatively, if the system is too large for a single control area, the Wisconsin Customer Group argues that ATCO should be the operator of all of its sub-regional control areas and should abandon the proposal for subordinate load balancing areas. ATCO answers that it has merely filed an OATT and whether or not it operates a control area is not relevant to the justness and reasonableness of its proposed rates. ATCO also states that the Commission should not require it to operate as a single control area from the start of operations because: (1) it will not be physically possible; (2) there is no incremental increase in competitive advantage due to the formation of ATCO since the same entities will operate the same control areas after formation of ATCO as they operated before; (3) even after the time that ATCO is able to operate the entire system as a single control area, ATCO could not deny any entity connected to ATCO's system the right to operate its own control area if that entity qualifies under NERC and regional reliability rules; (4) the Commission addressed and rejected similar arguments in the Midwest ISO proceeding; and (5) the requirement of Order No. 2000 that all regional entities create a real-time energy balancing market will address this concern in some way. 13 Control area issues are not relevant to what is presently before us, i.e., whether ATCO's OATT is consistent with or superior to our pro forma tariff. Thus, we need not address the intervenors' arguments here.11 6. Requests for New Services Upper Peninsula TDUs assert that a contract demand network rate should be made available. Upper Peninsula TDUs argue that this type of transmission service is important to transmission dependent entities because, in areas like the Upper Peninsula where transmission is inadequate, network transmission service offers the highest assurance of reliable availability. Additionally, Upper Peninsula TDUs note that some of their members have or may install local generation or may have deliveries of purchased power that is not transmitted over ATCO facilities. Thus, according to Upper Peninsula TDUs, those systems would want to obtain power from outside sources for integration. Upper Peninsula - ------------------------ 11 NERC is in the process of examining the various discrete functions that are currently performed by control area operators in an effort to identify and separate those functions that have commercial consequences from those functions related to maintaining the security of the system. We encourage NERC to expedite its efforts in this area and to develop and propose solutions that may be applied more broadly throughout the industry. 14 TDUs argue that point-to-point service is not an adequate substitute. Upper Peninsula TDUs assert that a purpose of ATCO is to permit greater integration of power from market sources within the ATCO transmission area or beyond. WEPCO states that ATCO should revise its OATT to include next hour market service (NHM Service), which is a new type of point-to-point service developed since the Midwest ISO's OATT was conditionally approved. The NHM Service enables customers to reserve for a one hour duration when a request is made no more than 60 minutes prior to the commencement of service. WEPCO points out that this type of service is beneficial for both the transmission customer and provider because it provides additional options to foster opportunity sales that may develop during the day. WEPCO strongly encourages ATCO to keep pace with the rapidly changing industry by including this service in its OATT. ATCO replies that, as a single-purpose transmission company, it is committed to being responsive to its customers when considering all requests and suggestions for new services. However, ATCO states that at this time, it must concentrate on providing existing pro forma tariff services for the near future while also focusing on the start of operations and system reliability. ATCO further states that it will work with its customers and coordinate with the 15 Midwest ISO, where necessary, to meet customers' needs in developing new services where appropriate for the system as a whole. While various new types of service may be attractive to some of ATCO's customers, we find that ATCO's OATT, as proposed, is consistent with or superior to the pro forma tariff. Accordingly, we will not require ATCO to provide new types of service at this time. 7. Alliant Split ATCO states that its single-system tariff, which combines the facilities of several utilities, will provide significant benefits to transmission users, such as the elimination of rate pancaking among member systems and the provision of one-stop shopping for transmission services, ancillary services and wholesale distribution service for multiple systems. WP&L, an ATCO member, is a public utility subsidiary of Alliant Energy Corporation (Alliant Energy). Alliant Energy has split its system into two areas, Alliant-West and Alliant-East, and transferred only the transmission facilities of Alliant-East to ATCO. (As stated above, WP&L (Alliant-East) has received Commission authorization to transfer the Alliant-East transmission facilities to ATCO.) 16 Dairyland states that ATCO does not explain that a new rate pancake will be created as a result of the splitting of the Alliant Energy transmission system, even as ATCO claims that a major benefit of its single system tariff is the elimination of rate pancaking. Dairyland contends that customers utilizing the Alliant Energy system will be required to "shop" in two places, ATCO and Alliant-West (the non-ATCO portion of the Alliant Energy system). Dairyland notes that it protested WP&L's authorization to transfer its facilities to ATCO; however, the Commission decided that Dairyland's request to evaluate the Alliant Energy system split was beyond the scope of that docket. SMMPA states that it is a network transmission customer of Alliant Energy. SMMPA states that it does not object to the concept of ATCO, but is affected by Alliant Energy's decision to limit its participation by transferring only those facilities designated as Alliant-East. SMMPA states that it has been informed that as a consequence of Alliant Energy's chosen method of joining ATCO, Alliant Energy intends to raise the transmission price paid by SMMPA on the Alliant-West system. As a result of Alliant Energy's decision to split its system and change pricing, SMMPA contends that its access to the transmission grid will decrease while the costs it faces will increase. Additionally, if SMMPA is able to 17 utilize transmission for purchases from or sales to Wisconsin, there will be an additional pancake. SMMPA states that it is not clear if this is the docket in which to resolve its objections; however, this docket is the basis for the Alliant Energy decision to which SMMPA objects. GSE also protests the fact that the implementation of the ATCO OATT, as proposed, will split the Alliant Energy transmission system. GSE adopts and incorporates by reference the protests filed by Dairyland and SMMPA. ATCO answers that, in order for Alliant Energy to charge a different rate for customers of the Alliant-West system, Alliant Energy would have to make an FPA section 205 filing with the Commission. ATCO argues that intervenors can address the issue of higher costs at that time.12 Regarding the pancaking issue, ATCO states that SMMPA acknowledges that once the Midwest ISO is operational, the pancaking issue between Alliant-East and Alliant-West will disappear. ATCO also notes that SMMPA has not alleged that it or any customer will actually pay such a pancaked rate. We find that consideration of the Alliant Energy system split is not appropriate in this docket. This docket involves ATCO's proposed OATT only, not - ------------------------ 12 Alliant Energy's revised OATT reflecting the Alliant Energy system split is pending in Docket No. ER01-312-000. 18 the reasonableness of rates charged under other OATTs outside of ATCO's control. We also note that, with respect to existing transmission arrangements, WP&L will abide by commitments previously made by Alliant Energy.13 8. Clarifications Regarding Operations ATCO's OATT proposal includes a newly defined term, "Distribution Utility," not present in the original pro forma tariff or in the Midwest ISO OATT. WEPCO requests clarification as to the rights and obligations of "Distribution Utilities" as defined in ATCO's OATT. ATCO responds that such rights and obligations will be covered in the Distribution Utility Wholesale Distribution Service Agreements (Schedule 11 of the ATCO OATT). WEPCO also requests clarification as to the obligations of various entities to provide ancillary services. ATCO responds that such obligations will be more specifically set forth in generator interconnection agreements and the System Operating Agreement; both of which are being developed by the member systems (including WEPCO) and will be filed with the Commission prior to the start of ATCO's operations. Starting on November 2, 2000, ATCO began filing these subsidiary agreements. The matters raised by intervenors here are more appropriately considered in the respective dockets involving the subsidiary agreements. - ------------------------ 13 See WP&L, 90 FERC at 62,148-49. 19 9. Ancillary Service Penalties ATCO is statutorily prohibited from owning generation. Accordingly, to fulfill its supplier of last resort responsibilities, ATCO will have to contract with existing generators, including the sub-regional control area operators, for generation-related ancillary services. Assuming the transmission customer does not choose to self-supply or to contract directly with generators for these ancillary services, costs incurred by ATCO under these generators' ancillary service tariffs will then be passed through ATCO's OATT to the transmission customer. WEPCO notes that the ATCO OATT adopts the ancillary service penalty provisions of the Midwest ISO OATT. Consistent with these adopted procedures, ATCO will impose a penalty of 200% of the relevant control area's applicable ancillary service charge on all unauthorized use of ancillary services. WEPCO requests that the phrase "relevant control area" be replaced with the phrase "relevant control area or generation source providing the service." We agree with WEPCO that the penalty should be based on the ancillary service charge of the generator providing the service, whether that generator is 20 the relevant control area operator or not. Therefore, we direct ATCO to modify its OATT to reflect this clarification. WEPCO also takes issue with the fact that ATCO will use the entire amount of the penalties collected (over cost) to reduce its Annual Transmission Revenue Requirement, rather than distributing this net income to the sub-regional control area operator or generator which supplied the ancillary service. ATCO responds that WEPCO's request should be rejected for three reasons: (1) these revenues are expected to be minimal; (2) this issue is temporary since these provisions will be superseded by the penalty provisions of the Midwest ISO OATT, once the Midwest ISO is operational;14 and (3) ATCO's proposal benefits all transmission customers by reducing the revenue requirement. We find ATCO's proposal to be a reasonable method of dealing with net penalty revenues. Generators that provide ancillary services will have their costs fully reimbursed. Furthermore, power from these generators must flow on ATCO's transmission system since a generator must be located on ATCO's system in - ------------------------ 14 ATCO notes that the Midwest ISO OATT currently provides that Ancillary Services penalties will be collected by the Midwest ISO and used to reduce the Midwest ISO's annual costs. ATCO states that it has not changed this portion of the Midwest ISO OATT. 21 order to provide generation-related ancillary services to the system. Accordingly, these generators will receive a benefit through the reduced ATCO transmission revenue requirement, either directly or indirectly depending on whether the generator or its power purchaser contracts with ATCO for transmission service. 10. Additional Modifications to the OATT Various parties request certain additional modifications to ATCO's OATT, e.g., correcting typographical errors and adding NERC tagging requirements. To the extent that ATCO has already agreed to make certain requested modifications (and has provided substitute tariff sheets reflecting the modifications), we will accept these modifications without further discussion. 11. Buy-in Provisions for Entities Outside of Wisconsin As noted earlier, Act 9 allows certain non-transmission-owning entities within Wisconsin to become members of ATCO by contributing cash. While Act 9 does not prohibit ATCO from extending the same treatment to similarly situated entities outside Wisconsin, Act 9 does not require such treatment either. ATCO does not propose to extend this opportunity to non-transmission-owning entities outside of Wisconsin. 22 Upper Peninsula TDUs assert that they should be permitted to contribute cash in return for an ownership interest in ATCO, just like similarly situated Wisconsin entities such as WPPI. ATCO responds that such non-Wisconsin entities should have to wait for a public stock offering since allowing them to buy in at book value would dilute the value of the transmission assets contributed by other owners. This, ATCO argues, would discourage transmission owners from joining ATCO. First, Wisconsin's Act 9 was enacted by the Wisconsin legislature as a step toward meeting the reliability and competitive needs of the State of Wisconsin. Act 9 allows Wisconsin energy holding companies to increase their non-utility investments if they contribute their transmission facilities to a transmission company (i.e., ATCO). Act 9 also allows certain other Wisconsin entities, such as WPPI, to participate by contributing cash. Second, we note that, while ATCO will begin as an affiliated transmission company wholly owned by its initial members, ATCO has stated that it will have the ability to evolve into a publicly owned transmission company through future sales of stock. When such sales begin, Upper Peninsula TDUs will be able to invest cash and become part-owners of ATCO. 23 12. Conclusion With the above clarifications and modifications we find that ATCO's OATT is consistent with or superior to the Commission's pro forma tariff. Accordingly, it is accepted, subject to the above modifications, effective on the date the associated rates become effective. II. Rate Treatments ATCO's proposed OATT adopts the Midwest ISO's formula rate which uses the prior year's FERC Form No. 1 data to calculate the rate.15 ATCO proposes to include year-end net plant investment in the rate base in lieu of using a traditional average of 13 monthly plant balances. ATCO also proposes to increase this component of the formula by adding to the Form No. 1 year-end net plant investment the transmission plant additions that are expected to be in service at the end of the then-current year. ATCO explains that it plans to construct a great deal of new transmission plant over the next several years,16 and that this so called "Capital Expansion Adder" will help to raise the large amount of - ------------------------ 15 The FERC Form No. 1 is an electric utility's annual report providing detailed financial and operating data. The Form No. 1 containing data from the previous calendar year is due to the Commission on or before April 30th of the current year. 16 $80-$90 million over the first three years as compared with ATCO's starting capitalization of approximately $400 million. 24 capital that ATCO will need. ATCO states that at the end of each year it will true-up the difference between projected plant additions and actual plant additions. ATCO also proposes a depreciation rate of 3.3%, for new plant placed into service on or after 2001, based on an asset life of 30 years (rather than the generally accepted 35-40 years). ATCO asserts that this approach is consistent with Order No. 2000, which stated that the Commission would make a distinction between new and existing facilities when considering proposed depreciation rates so as to remove disincentives for construction of new facilities. Finally, ATCO proposes a return on equity (ROE) of 12.2%. ATCO provides testimony and exhibits to support its conclusion that 12.2% lies within a zone of reasonableness for ATCO based on any one or more of the following analyses: (1) a constant growth DCF analysis applied to the entire electric industry; (2) a constant growth DCF analysis applied to all single-A rated electric utilities; (3) a two-stage DCF analysis applied to the entire gas pipeline industry; and (4) a constant growth DCF analysis applied to the entire S&P 500. In addition, ATCO states that a consideration in evaluating its proposed ROE is the 25 importance of providing an adequate rate of return on equity in achieving the independence envisioned in Order No. 2000.17 Numerous intervenors have challenged these rate proposals and two have asked for an evidentiary hearing. Intervenors request that the "Capital Expansion Adder" be rejected because it would force ratepayers to pay a return on the capital invested in plant or property before the plant or property is "used and useful" to the utility's customers. Further, the Wisconsin Customer Group states that the proposed "Capital Expansion Adder" does not meet the Commission's requirements regarding construction work in progress (CWIP). Intervenors also note that the weighted average of the depreciation rates used by the utilities that are contributing transmission assets to ATCO is 2.49%. They argue that an increase in the depreciation rate to 3.3% is not supported by any study and cannot be justified. Further, several intervenors argue that the level of the proposed ROE is excessive in today's environment and that the low level of risk involved with operating transmission facilities can only justify a lower ROE. They also state that, since ATCO will join the Midwest ISO, it is appropriate for ATCO to have the same ROE as the Midwest ISO which, under a stipulation entered into by the parties to the Midwest ISO proceedings, cannot exceed 11.5%. Finally, intervenors also raise other miscellaneous cost of - ------------------------ 17 See Testimony of Dr. William E. Avera, Exhibit ATC-11 at 21. 26 service issues such as: estimating operation and maintenance costs; research and development costs; cash working capital; and phasing in ATCO's rates. In Order No. 2000, the Commission expressed its willingness in the context of approved RTOs to consider innovative rate treatments to spur the construction of new transmission facilities. The Commission stated, for example, that it would be open to, among other things, accelerated depreciation for new transmission facilities.18 We encourage ATCO's goal of expanding its transmission facilities to provide adequate and reliable transmission service. However, ATCO's rate proposal amounts to a request for the innovative rates that we have indicated we would consider in an RTO context. ATCO, however, seeks such rates prior to joining an approved RTO.19 Accordingly, the Commission will - ------------------------ 18 See Order No. 2000, FERC Stats. & Regs. at 31,194. 19 See e.g., International Transmission Company, 92 FERC P61,276 (2000). (The Commission authorized an effective date for innovative rate treatments in advance of RTO commencement; however, rate recovery is contingent on, among other things, participation in a Commission-approved RTO by a date certain.) In addition, while ATCO does not propose to do so at this time (see Application at 4, n.13), if ATCO later decides to attempt to qualify as an Appendix I participant in the Midwest ISO (i.e.- a participant who shares certain RTO responsibilities with the Midwest ISO), it would also have to meet the requirements of Commonwealth Edison Company, 90 FERC P61,192, reh'g denied, 91 FERC P61,178 (2000). 27 reject ATCO's innovative rate proposal, without prejudice to ATCO's submitting a new FPA section 205 rate filing.20 Regarding ATCO's proposal involving ROE, it would not be appropriate to rule on just one component of ATCO's rate proposal in isolation. Our decision is without prejudice to ATCO's resubmitting this ROE proposal and supporting information in its revised rate filing.21 The Commission orders: (A) With the above clarifications and modifications, we find that ATCO's OATT is consistent with or superior to the Commission's pro forma tariff, and subject to the above clarifications and modifications it is accepted effective on the date the associated rates become effective. - ------------------------ 20 ATCO may, at that time, wish to file fully developed Period I and II costs of service under Part 35 of the Commission's regulations. See 18 C.F.R. ss. 35 (2000). Also, contrary to the Wisconsin Customer Group's assertions, ATCO may seek rate base treatment for up to 50% of its test-year non-pollution control/non-fuel conversion CWIP, as long as it meets the requirements set forth in sections 35.13(h)(33) and 35.25 of the Commission's regulations. See 18 C.F.R. ss.ss. 35.13(h)(33) and 35.25 (2000). 21 However, as noted, ATCO's witness Dr. Avera, suggests that the ROE should be evaluated in the context of Order No. 2000. This suggestion is rejected since ATCO does not seek to qualify as an RTO. 28 (B) As discussed above, we reject ATCO's rate proposal without prejudice to ATCO's submitting a new FPA section 205 rate filing. By the Commission. Commissioner Massey concurred with a separate statement attached. APPENDIX: UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION American Transmission Company LLC Docket No. ER00-3316-000 (Issued December 14, 2000) MASSEY, Commissioner, concurring: I agree with the decisions reached in today's order but I write separately to express my continued strong disagreement with the Commission's earlier 29 decision in International Transmission Company 22 that is referenced in today's order at footnote 19. In the International Transmission Company order, the Commission unfortunately accepted ITC's request for innovative rate treatments that the Commission had said would be considered only for a Regional Transmission Organization,23 in the context of a specific RTO proposal,24 and based on an evaluation of the efficiency and reliability effects of the innovative rate proposal.25 ITC's proposal satisfied none of these rather clear conditions, and I therefore dissented from the ITC order. The straightforward theory of our RTO rule is that the societal benefits that flow from RTOs, may in some circumstances, justify higher transmission rates that are shown to be just and reasonable. Thus, innovative rate treatments, if any, should be put in effect only when society realizes the benefits of a particular RTO. - ------------------------ 22 International Transmission Company, 92 FERC P61, 276 (2000). 23 18 C.F.R.ss. 35.34(e) (2000). 24 18 C.F.R.ss. 35.34(e)(1) (iii) (2000). 25 8 C.F.R.ss.35.34(e)(1) (i) (2000), and Regional Transmission Organizations, Order No. 2000-A, FERC Stats. & Regs P31,092 (2000) at 31,389. 30 For these reasons, I want to clarify that my support for today's order does not mean that I would acquiesce in granting innovative rate treatments to ATCO, or any entity, that are not reasonably justified and proposed in the context of a specific, approved RTO. Therefore, I concur with today's order. ---------------------------------- William L. Massey Commissioner 31 EX-99 10 0010.txt EXHIBIT D-21 EXHIBIT D-21 HUNTON & WILLIAMS LINDA L. WALSH DIRECT DIAL: 202 o 955 o 1526 EMAIL: lwalsh@hunton.com December 15, 2000 FILE NO: 57007.000001 BY HAND The Honorable David P. Boergers, Secretary Federal Energy Regulatory Commission 888 First Street, NE Washington, D.C. 20426 RE: AMERICAN TRANSMISSION COMPANY LLC, SECTION 205 OPEN ACCESS TRANSMISSION RATE FILING AND REQUEST FOR EXPEDITED CONSIDERATION, DOCKET NO. ER01- -000 ---- Dear Mr. Boergers: Pursuant to Section 35.13 of the Commission's Regulations, 18 C.F.R. ss. 35.13 (1999), the American Transmission Company LLC (ATCLLC) is hereby filing proposed Open Access Transmission rates for Commission acceptance under Section 205 of the Federal Power Act (FPA). Because ATCLLC must begin operations by January 1, 2001, ATCLLC requests the following expedited consideration of this filing: 1. waiver of the 60-day notice requirement such that the proposed rates herein can be made effective on January 1, 2001; 2. expedited consideration of this filing, including a shortened notice period, if necessary, to enable the Commission to issue an order accepting the proposed rates as soon as reasonably possible within the 60-day notice period; and 1 3. waiver of the Commission's Part 35 filing requirements and Order No. 614 to allow ATCLLC to incorporate by reference testimony and exhibits filed by ATCLLC on July 31, 2000, in Docket No. ER00-3316-000, in support of the rates proposed herein. - ------------------------ 1 ATCLLC is sending a copy of this filing to the entities listed in Attachment 2 (entities who were sent copies of ATCLLC's July 31, 2000 rate filing) and to the entities on the official service list in Docket No. ER00-3316-000. The Honorable David P. Boergers, Secretary December 15, 2000 Page 2 1999 Wisconsin Act 9 ("Act 9") requires that ATCLLC apply for all state and federal approvals necessary so that it can begin operations by January 1, 2001.2 ATCLLC is submitting these newly proposed rates based on the testimony and cost support that it filed on July 31, 2000, in Docket No. ER00-3316-000 and intends to begin operations on January 1, 2001 based on this rate filing and the requested waivers. I. INTRODUCTION On December 14, 2000, the Commission issued an order in Docket No. ER00-3316-000, Accepting in Part and Rejecting in Part Filing of Open Access Transmission Tariff. In that order, the Commission accepted ATCLLC's proposed open access transmission tariff (OATT) with certain clarifications and modifications, as consistent with or superior to the Commission's pro forma tariff. American Transmission Company LLC, 93 FERC P. 61,267 (2000) (Slip op. at 13). The Commission accepted the OATT to be effective on the date the associated rates become effective. With respect to the ATCLLC's proposed rates, however, the Commission stated that certain aspects of ATCLLC's rate proposal deemed to be rate "incentives," such as the capital expansion adder and shortened depreciation life for new transmission facilities, were only available in the context of RTOs. As a result, the Commission stated that it would reject the rate proposal, without prejudice to ATCLLC's submitting a new FPA Section 205 rate filing. ATCLLC is now submitting a new FPA Section 205 rate filing without the capital expansion adder and shortened depreciation life proposals. The proposed rates reflect a reduction of approximately 5% from the rates proposed in the July 31, 2000 filing, but are otherwise identical to the rates proposed in ATCLLC's July 31, 2000 filing. Other rate issues raised by intervenors in the July 31, 2000 filing have already been fully briefed in Docket No. ER00-3316-000. ATCLLC believes that those issues can be summarily resolved on the record in that proceeding. - ------------------------ 2 1999 Wisconsin Act 9 took effect on October 29, 1999. Wis. Stats.ss. 196.485(5)(a)(5) (hereinafter referred to as Act 9), as amended April 12, 2000 A copy of the relevant portions of the legislation and the amendment are included as Appendix 5 in the July 31, 2000 rate filing. A public utility affiliate that irrevocably commits to contribute its facilities to ATCLLC and does not complete the contribution of transmission facilities to the transmission company in accordance with section 196.485(5)(a)(2) will be subject to a penalty of $25,000 for each day that the contribution is delayed, if the transmission company is legally able to accept the contribution. Wis. Stats.ss. 196.485(8). The Honorable David P. Boergers, Secretary December 15, 2000 Page 3 ATCLLC initially made its rate filing in July 2000 to allow time for ATCLLC to obtain all required regulatory approvals in time to begin operations. Because of the Commission's rejection of the entire rate filing (as opposed to rejection of only the objectionable portions), ATCLLC now finds itself without the necessary FERC authorization to begin operations on January 1, 2001. With this filing and request for waiver of the 60-day notice period, ATCLLC intends to begin operations on January 1, 2001, assuming it receives the other necessary federal and state authorizations. This letter, and the testimony that supports it, demonstrate that the proposed OATT rates are just and reasonable and should be accepted for filing without a hearing, with an effective date of January 1, 2001. II. BACKGROUND ATCLLC is a Wisconsin limited liability company created in accordance with Wisconsin State law as a single-purpose, for-profit transmission company to own and operate transmission facilities in portions of Wisconsin and other states in which facilities are contributed. Act 9 provides that Wisconsin public utility affiliates of Wisconsin holding companies (WPL, WEPCO and WPS) have until January 1, 2001 to make "an unconditional, irrevocable and binding commitment" to contribute their transmission facilities to ATCLLC and to complete the contribution. Upon completion of the contributions, their holding company parents will obtain relief from the limits Wisconsin law now places on investments in non-utility assets. Currently, six utilities will contribute their transmission facilities on January 1, 2001 (Day 1 of operations). Those utilities are Wisconsin Electric Power Company (WEPCO), Edison Sault Electric Company (ESE), Wisconsin Power & Light Company (WPL), South Beloit Water, Gas and Electric Company (SBWGE), Madison Gas and Electric Company (MGE), and Wisconsin Public Service Corp. (WPS). Each utility has already received Section 203 approval from the Commission authorizing the transfer of ownership and operation to ATCLLC on January 1, 2001.3 - ------------------------ 3 Wisconsin Electric Power Company, 90 FERC P. 61,346 (2000); Wisconsin Power & Light Company, 90 FERC P. 61,347 (2000); Madison Gas & Electric Company and Wisconsin Public Service Corp. 91 FERC P. 61,215 (2000); South Beloit Water, Gas & Electric Company, 92 FERC P. 62,266 (2000); Edison Sault Electric Company, 93 FERC P. 61,146 (2000). The Honorable David P. Boergers, Secretary December 15, 2000 Page 4 Act 9 was enacted as a progressive step to meet the reliability and competitive needs of the State of Wisconsin by: 1) creating a single transmission system without pancaked rates; 2) encouraging creation of a regional grid; 3) simplifying administration of the highly constrained MAPP-MAIN Interface by eliminating the multiple ownership of the MAIN side of the interface;4 4) increasing access from the south and west by creating incentives to improve overall import capability; and 5) preserving the value of the current owners' investments in the transmission system without write-up of the value of the assets. Act 9 will further the Commission's goals in Order Nos. 888 and 2000. ATCLLC will take the functional unbundling requirement a step further by separating transmission from generation and distribution, into a separate corporation. In addition, by combining the transmission systems of several utilities, ATCLLC will provide operational benefits, such as internalizing loop flows, eliminating constraints, and calculation of available transmission capability on a system-wide basis. Act 9 requires that ATCLLC become a member of the Midwest Independent Transmission System Operator, Inc. (Midwest ISO), or its successor.5 ATCLLC's forming members, WPS, WEPCO, WPL, MGE are currently transmission-owning members of the Midwest, ISO and WPPI is a transmission dependent member. On July 27, 2000, ATCLLC was granted membership in the Midwest ISO in its own right. III. SUMMARY OF TESTIMONY In support of this filing, ATCLLC relies on testimony and exhibits from three witnesses filed on July 31, 2000, in Docket No. ER00-3316-000. First, John E. Ebright, then Vice President-Finance and Treasurer for ATCLLC, discusses the development of the operating budget and start-up costs (ATC-1). Mr. Ebright sponsors the "A" cost statements and calculates the inputs to the Midwest ISO rate formula to arrive at ATCLLC's revenue requirement. Second, Malcolm L. - ------------------------ 4 Wisconsin is split between two reliability councils (MAPP on the west and MAIN on the east). Currently there is limited transfer capacity between the MAPP/MAIN interface. See Wisconsin Electric Power Company, 62 FERC P. 61,142 (1993); reh'g denied. 5 Regional Transmission Organizations, Order No. 2000, 65 Fed. Reg. 809, Regulations Preambles, FERC Stats. & Regs. P. 31,089, order on reh'g, Order No. 2000-A, 65 Fed. Reg. 12088, Regulations Preambles, FERC Stats. & Regs. P. 31,092 (2000). The Honorable David P. Boergers, Secretary December 15, 2000 Page 5 Bertsch sponsors the ATCLLC's OATT, the proposed transmission rates, Schedule 1 charges, and the "B" cost statements (ATC-5 through ATC-10). Mr. Bertsch describes the Midwest ISO formula rate and the development of ATCLLC's proposed recovery for start-up costs. In addition, Mr. Bertsch describes the methodology for the proposed true-up for the first year rates to capture any over- or under-estimation in ATCLLC's first year operating budget. Finally, Dr. William E. Avera develops the reasonable range for ATCLLC's proposed return on equity (ATC-11). IV. DESCRIPTION OF THE PROPOSED RATES ATCLLC will provide network and point-to point transmission service for a single-system rate based on the location of the load being served. By combining the transmission systems of six utilities, ATCLLC will eliminate rate pancaking over a large area. For example, prior to ATCLLC, a transaction from Green Bay to Madison would have involved at least two separate transmission rates. Under the ATCLLC OATT, that transaction will involve only one transmission rate. ATCLLC's proposed transmission rates are calculated using substantially the same rate formula contained in the Midwest ISO OATT, subject to a 5-year phase-in period for ATCLLC's single zone network rate.6 ATCLLC's OATT will contain a single system-wide rate for "through" and "out" point-to-point transmission service. ATCLLC will be a single zone for purposes of the Midwest ISO's license plate pricing. To mitigate rate shock, ATCLLC will administer a license plate rate (statutorily required for network rates in Eastern Wisconsin) that will be phased-in to a single network rate over a five-year period. The phase-in is triggered if any single utility rate differs from the average ATCLLC rate by more than 10%.7 In this regard, Act 9 requires that ATCLLC must elect to be included in the Midwest ISO as a single zone for pricing purposes, subject to FERC approval. - ------------------------ 6 Midwest Independent Transmission System Operator, Inc., 84 FERCP. 61,231 (1998), on reh'g 85 FERCP. 61,372, order on compliance, 87 FERCP. 61,085 (1999). Using the Midwest ISO Tariff and rate formula as the model for the ATCLLC transmission rates is appropriate because Wisconsin law requires ATCLLC to join the Midwest ISO as a transmission owner under the Midwest ISO Tariff. Wis. Stats. 196.485(3m)(a)1.d. 7 Wis. Stats ss. 196.485(3m)(a)4. As shown below, the phase-in has been triggered, and ATCLLC is hereby proposing network rates that incorporate the phase-in. See Bertsch Testimony, ATC-5 at 14. The Honorable David P. Boergers, Secretary December 15, 2000 Page 6 In this filing, ATCLLC is not proposing the capital expansion adder or the shortened depreciation period for new construction as was proposed in Docket No. ER00-3316-000. Consequently, ATCLLC is submitting herewith revised Schedules 7, 8 and 9 of the OATT that reflect rates reduced by approximately 5% from the operation of the Midwest ISO rate formula without these rate treatments. The reduced rates contained in these revised Schedules 7, 8 and 9 are proposed to go into effect on January 1, 2001. A. DESCRIPTION OF MIDWEST ISO RATE FORMULA AND PROPOSED TRUE-UP Because ATCLLC is a member in the Midwest ISO, ATCLLC's proposed transmission rates were developed using the rate formula agreed to by the parties in the Midwest ISO rate proceeding, Docket No. ER98-1438, with three adjustments.8 The Midwest ISO formula is a non-customer specific and non-levelized method for allocating transmission costs. The formula also removes transmission investment associated with Generation Step-up Transformers and expenses related to Ancillary Services, such as Account No. 561 (Scheduling, System Control and Load Dispatch).9 The Midwest ISO formula employs a rate year for the twelve-month period June 1 through May 31 and a cost year, which is the calendar year immediately preceding the beginning of the rate year. The formula uses the data from the prior year's Form No. 1 to calculate the rates. For example, the rates that will be in effect from June 1, 2002 to May 31, 2003 will be based on the 2001 Form No. 1.10 ATCLLC is proposing to use its January 1, 2001 plant balance (effectively the same as end-of-year 12/31/00 balance) as an input to the Midwest ISO formula, instead of the end of year 2001 plant balance that ATCLLC used in its July 31, 2000 filing. - ------------------------ 8 Bertsch Testimony, ATC-5, at 4. 9 Id. 10 The Midwest ISO formula template is included in Attachment O to the OATT, ATC-8. ATCLLC made two tax-related changes to the Midwest ISO formula. First, ATCLLC modified the tax calculation in the Midwest ISO formula (p.v., line 21) to reflect the fact that tax-exempt entities are part owners of ATCLLC. See, e.g., Pine Needle LNG Co., LLC, 75 FERC P. 61,121 at 61,408 (1996). This adjustment has the effect of reducing the tax provision included in rates by the amount of the tax-exempt owners' interest in ATCLLC. See Bertsch Testimony, ATC-5, at 6. Second, ATCLLC modified the income tax portion of the formula to flow back the benefit of excess deferred taxes previously recorded by the contributing utilities. The Honorable David P. Boergers, Secretary December 15, 2000 Page 7 To account for the fact that ATCLLC did not operate in the year 2000, and therefore will not have a Form No. 1 for the year 2000 on which to base its 2001 rates, ATCLLC is proposing to use its forecasted budget projections for 2001 rates with a true-up to actual 2001 costs once the 2001 Form No. 1 is available. ATCLLC is proposing the first-year "true-up" to account for any differences between actual results and ATCLLC's budget projections.11 The true-up will correct for any over-collection or under-collection. The revenue requirement difference from budgeted amounts will be added to the balance of ATCLLC's start-up costs (discussed below). To hold ATCLLC and its customers harmless, the over- or under-collection will accrue a carrying charge equal to ATCLLC's return under the Midwest ISO formula grossed up for taxes. After the first year of operation, ATC will have a FERC Form No. #1 for 2001, which will form the basis for rates commencing June 1, 2002, the same as other Transmission Owners in the Midwest ISO. B. EXISTENCE OF A RATE TRUE-UP ELIMINATES THE NEED FOR A HEARING ON COST ESTIMATES. ATCLLC's proposed rates were developed using the Midwest ISO stipulated rate formula.12 While ATCLLC's rates for its first seventeen months of operations (January 1, 2001 through May 31, 2002) will be based on costs estimated without the benefit of an established operating history, there is no need to set this application for hearing to determine the reasonableness of the proposed rates. ATCLLC's actual 2001 costs will replace (or "true up") the 2001 budget estimates at the time the 2002 rates are calculated.13 The true-up will - ------------------------ 11 Bertsch Testimony, ATC-5, at 5. 12 The Midwest ISO rate formula was the basis of a Joint Stipulation of the Midwest ISO Participants, the Commission Trial Staff and Other Undersigned Parties Regarding Certain Issues Set For Hearing, which was submitted as an exhibit in the Midwest ISO proceeding on June 10, 1999. The Presiding Judge issued an initial decision in that proceeding on November 26, 1999, which is currently pending before the Commission on exceptions. Midwest Independent Transmission System Operator, Inc., 89 FERC P. 63,008 (1999), pending on exceptions. Should the Commission order any changes to the stipulated formula, ATCLLC will incorporate those changes. 13 See, e.g., Boston Edison Company, 91 FERC P. 61,198 (2000) (accepting formula rate with true up mechanism). The Boston Edison formula approved by the Commission is based on estimated costs for the billing period rather than historical costs as in the Midwest ISO formula. The Honorable David P. Boergers, Secretary December 15, 2000 Page 8 correct for any over- or under-collection of costs and hold customers and ATCLLC harmless from any over- or under-collection with the addition of appropriate carrying charges. ATCLLC is requesting the Commission to approve the ATCLLC's proposed formula for calculating rates. It is not seeking the Commission's approval of any particular cost estimate. Such approval is not necessary when actual costs will be substituted at the next rate change. Conducting discovery and a hearing on estimates that will eventually be trued up (with all parties made whole) is premature and would serve no useful purpose. Actual 2001 costs (as stated in ATCLLC's 2001 Form No. 1) will be used to calculate ATCLLC's rates for the rate period from June 1, 2002 through May 31, 2003. If, at that time parties contend that the actual costs used to calculate the rates are unjust and unreasonable, they should challenge the prudence of those actual costs at that time. With the true-up mechanism in place, ATCLLC has no incentive to over- or under- estimate its 2001 operating costs. A hearing on ATCLLC's budget estimates would not be an efficient use of the Commission's or interested parties' resources. Moreover, many of ATCLLC's operating expenses will be reviewed by the Public Service Commission of Wisconsin in its proceeding regarding the affiliated interest agreements between ATCLLC and the contributing utilities. Thus, there is no need for a hearing on the reasonableness of ATCLLC's budget estimates.14 C. START-UP COSTS ATCLLC has developed an adder to collect for its start-up and development costs. These costs were incurred before ATCLLC began operating and are proposed to be amortized over a five-year period.15 Start-up and development costs are those expenses incurred during the year 2000 that will be capitalized as - ------------------------ 14 The lack of a need for a hearing on these same estimated costs was discussed in ATCLLC's Motion for Leave to File Response and Response to Interventions and Protests, filed on September 5, 2000, in response to the interventions and protests filed in Docket No. ER00-3316. 15 Bertsch Testimony, ATC-5, at 9; the startup costs will be added to the annual transmission revenue requirement (ATRR) produced by the Midwest ISO formula. OATT, ATC-8, Attachment O. The Honorable David P. Boergers, Secretary December 15, 2000 Page 9 pre-operating costs and amortized over a five-year period.16 These costs largely consist of deferred compensation and benefits associated with personnel hired before the first day of operations, consultants for legal, accounting, finance, tax and employee benefits issues, executive search and relocation expenses, and information technology purchases and installation. The total cost for start-up activities is estimated to be $17.7 million. These costs will be incurred through the end of the year prior to start-up on January 1, 2001.17 D. DEVELOPMENT OF THE NETWORK RATES - FIVE-YEAR PHASE-IN ATCLLC's proposed network rates were developed in the basic load ratio share manner prescribed in the Order No. 888 pro forma open access tariff. To eliminate rate shock that would occur in moving to an average system rate in one step, Act 9 requires that network rates be phased-in to the average rate over five years. ATCLLC's rate phase mechanism begins with base rates established for each of the four rate zone areas, WEPCO, WPSC, WPL and MGE. Each utility used its 1999 Form No. 1 data and applied it to the Midwest ISO rate formula to develop a uniformly calculated base rate for each area.18 The ATCLLC average rate is a weighted average of the four base rates calculated with the 1999 Form No. 1 data for each utility and weighted according to each utility's load.19 For the first year of the phase-in, each utility's base rate was moved toward the ATCLLC average by an amount equal to 20% of the difference between each utility's base rate and the ATCLLC average rate. For the second, third, fourth and fifth years of the phase-in, the rates will be adjusted by 25%, 33%, 50% and 100%, respectively.20 The ATCLLC average rate will change each year, depending on the amount of capital additions. - ------------------------ 16 Ebright Testimony, ATC-1, at 19. 17 Start-up costs will be trued up to actual expenses in the same manner as the estimated operating expenses. Ebright Testimony, ATC-1, at 20. 18 The 1999 Form No. 1 balances were adjusted to exclude A&G expenses to account for differences in the proportion of A&G each utility allocates to transmission. Bertsch Testimony, ATC-5, at 13; ATC-8, Schedule 9. The appropriateness of using the 1999 Form No. 1 as the starting point for the network phase in was discussed in ATCLLC's Response to Interventions and Protests in Docket No. ER00-3316-000, at 21. 19 As stated above, these rates are illustrative and may be subject to a compliance filing to incorporate final budget estimates. 20 OATT, ATC-8, at Schedule 9. The Honorable David P. Boergers, Secretary December 15, 2000 Page 10 Without the phase-in mechanism, an immediate move to a system average rate would impose substantial cost increases on lower cost utilities, such as WEPCO and WPSC. The rate phase-in, by itself, does not increase overall transmission costs on the system. After the five-year transition period, ATCLLC will have single-system average point to point and network service rates for the entire ATCLLC system. Because it minimizes rate increases for certain customers and does not increase overall costs on the system, the rate phase-in is a just and reasonable means of moving toward system-average rates. E. DEVELOPMENT OF THE POINT-TO-POINT RATE ATCLLC's point-to-point rate for through and out service will be the system average rate of all ATCLLC facilities.21 In addition to the "through" and "out" point-to-point rates, ATCLLC has proposed four intra-area (i.e., "into" and "within") point-to-point rates for service that is wholly within one network rate zone. The intra-area point-to-point rates were developed using the effective phased-in network rates for each area. After the phase-in is complete, intra-zonal transactions will be charged the same rate as the average rate for through and out transactions. F. ANCILLARY SERVICES RATES/LOSSES ATCLLC is statutorily prohibited from owning generation and will have to contract with existing generators to fulfill its supplier of last resort function for generation-related ancillary services under its OATT. For Schedules 2 through 6, customers have a choice to supply their own ancillary services or purchase them from a third party. If purchased from ATCLLC, costs for Ancillary Services in Schedules 2 through 6 will be a pass-through of the costs ATCLLC must pay to the utilities providing the service.22 These services will be provided to ATCLLC pursuant to rate schedules on file with the Commission. ATCLLC will provide service under Schedule 1 - Scheduling, System Control and Dispatch. ATCLLC's customers must purchase this service from ATCLLC.23 - ------------------------ 21 OATT, ATC-8, at Schedules 7 and 8. 22 OATT, ATC-8, at Schedules 2-6. 23 OATT, ATC-8, Schedule 1. The Honorable David P. Boergers, Secretary December 15, 2000 Page 11 Schedule 1 charges were developed based on ATCLLC's estimated Account 561 costs for the year 2001 divided by the 2001 billing determinants. The estimated Account 561 costs will be trued up to actuals in the same manner as the O&M and A&G expenses, as discussed above. Currently, each of the four Distributed Control Areas (DCAs), corresponding to the services areas of WEPCO, WPSC, WPL and MGE, will self-provide network service losses for its bundled load in real time. Because this self-provision of losses is a natural function of balancing an area metered by ties to other transmission entities, to make the transition easier, DCAs will continue to self-provide network service losses in the same manner.24 Once the Midwest ISO is operational, losses will be provided under the Midwest ISO tariff. A "Load Balancing Area," such as WPPI, that balances its load and generation inside one or more of the DCAs, will provide network losses through payment schedules that are based on the network loss rates of the individual DCAs.25 As with the network service rates, ATCLLC proposes to phase-in network losses to a single rate over a five-year period. Point-to-point transmission customers taking "through" and "out" service will provide losses at an average ATCLLC loss rate (to correspond with the average through and out transmission rate). For intra-area point-to-point service, customers will provide losses at a loss rate based on the loss rate for the DCA where the loads are located. G. ATCLLC'S OPERATING BUDGET/RATE BASE Because ATCLLC has no historical operating expense data, the budget was largely developed using a zero-based budgeting method, whereby expenses were estimated by considering the operational responsibility of each department within the company.26 ATCLLC's estimates were then compared to costs of similar departments at other utilities. For example, the number of personnel for each department was based on estimates gathered from the number of personnel at similar departments at various utilities. ATCLLC's A&G and O&M expenses amount to an estimated $64.6 million for the year 2001.27 - ------------------------ 24 Bertsch Testimony, ATC-5, at 20. 25 Attachment M to the ATCLLC OATT, ATC-8. 26 Ebright Testimony, ATC-1, at 8 27 Ebright Testimony, ATC-1, at 12-13. ATCLLC's July 31, 2000 transmittal letter contains a more detailed description of ATCLLC's operating budget. The Honorable David P. Boergers, Secretary December 15, 2000 Page 12 To develop a revenue requirement for ratemaking purposes, the 2001 budget estimates were then applied to the Midwest ISO rate formula. As discussed in more detail by Witness Bertsch, the Year 2001 estimates will be trued up to the actual expenses when the 2002 rates are calculated.28 As part of its budgeted expenses, ATCLLC proposes an EPRI contribution of $1 million. This contribution is for projects related solely to the development of electricity transmission technology. ATC-1 at 17. ATCLLC will not have its own research and development department and instead plans to direct the $1 million in research funds to EPRI for the development of certain transmission related projects. ATCLLC's contribution to EPRI is not duplicative of contributions made by former transmission owners.29 ATCLLC, as a regional transmission entity, is the most appropriate entity to make research contributions because the former transmission owners will no longer have an interest in new transmission technology once they divest to ATCLLC. Moreover, ATCLLC's contribution to EPRI for much needed technological transmission research benefits ATCLLC's customers and is more cost effective than if ATCLLC established its own R&D department, which would otherwise be rate-recoverable. Thus, ATCLLC submits that this contribution is just and reasonable.30 - ------------------------ 28 Bertsch Testimony, ATC-5 at 6-7. 29 Testimony of John Ebright, ATC-2 at 17. 30 ATCLLC's Response to Interventions and Protests in Docket No. ER00-3316-000 at 25, responds to intervenors allegations that such expenses are improper. The Honorable David P. Boergers, Secretary December 15, 2000 Page 13 With respect to ATCLLC transmission rate base, Act 9 defines all facilities 130 kV and above as transmission. Non-radial facilities between 50 kV and 130 kV are rebuttably presumed to be transmission facilities, while radial facilities and non-radial facilities below 50 kV are rebuttably presumed not to be transmission facilities. The Public Service Commission of Wisconsin (PSCW) has determined that all facilities operated at or above nominal voltages of 50 kV, including radial facilities, are "transmission facilities" for purposes of the ATCLLC (subject to a party's right to request an exemption for particular lines). A copy of the Wisconsin PSC order is attached as Appendix 5 in Volume ! of the July 31, 2000 filing.31 ATCLLC will calculate depreciation expense based on the rates currently being applied to the transmission facilities by each utility.32 For example, the depreciation expense for assets being transferred from WPL will be based on the existing WPL system depreciation rates. In the next few years, ATCLLC will likely perform a depreciation study and apply for authorization to use a uniform depreciation rate for all of the transferred transmission assets. H. ATCLLC'S PROPOSED RETURN ON EQUITY IS JUST AND REASONABLE. The return on equity (ROE) that ATCLLC proposes to use in deriving its rates is 12.2%, based on a debt/equity capitalization ratio of 50% debt and 50% equity.33 As demonstrated in the testimony of ATCLLC's witness Avera, a 12.2% return on equity is the lowest reasonable return on equity that is supported by his analysis and Commission precedent.34 A return on equity of 12.2% is - ------------------------ 31 Wis. Stat.ss. 196.485(5)(d). Act 9 defines all facilities 130 kV and above as transmission. Non-radial facilities between 50 kV and 130 kV are rebuttably presumed to be transmission facilities. Radial facilities and non-radial facilities below 50 kV are rebuttably presumed not to be transmission facilities. The Public Service Commission of Wisconsin (PSCW) has determined that all facilities operated at or above nominal voltages of 50 kV, including radial facilities, are "transmission facilities" for purposes of the ATCLLC. Parties can request an exemption from these general classifications for particular lines. Investigation into the Classification of Transmission Facilities Pursuant to Wis. Stat.ss. 196.485(1)(h), Docket No. 05-EI-119, July 13, 2000. 32 Ebright Testimony, ATC-1, at 19. 33 Ebright Testimony, ATC-1, at 29. 34 Avera Testimony, ATC-11, at 25. The Honorable David P. Boergers, Secretary December 15, 2000 Page 14 currently authorized for two of the companies that will be transferring their facilities to ATCLLC. ATCLLC's capitalization is based on the net book value of the assets to be contributed to the company, the cash contributions to be made by companies not contributing transmission assets, and the private placement borrowing that ATCLLC plans to undertake in the first quarter of 2001. This will bring ATCLLC's capital structure to approximately 50% debt and 50% equity. The assumed cost of long-term debt for rate of return purposes is 8% based on current yields on long-term debt instruments. The company will continue to issue long-term debt as its equity grows to maintain a 50/50 debt-to-equity ratio.35 The 12.2% return on equity used to develop ATCLLC's rates is based on a analysis of the company's capital requirements and the perceived risks faced by potential investors. Dr. Avera conducted his analysis in accordance with the Commission's recently articulated methodology in Southern California Edison Company, 92 FERC P. 61,070 (2000) and System Energy Resources, Inc. 92 FERC P. 61,119 (2000), which utilizes the Commission's standard constant-growth model for electric utilities.36 Therefore, the ROE should be no less than 12.2% if companies are not to be discouraged from contributing assets to a transmission company.37 In Wisconsin, as in other parts of the country, investment in the transmission system has been inadequate. Increased demands placed on transmission systems make new investment by ATCLLC in high voltage lines imperative. As noted by Mr. Ebright, the company plans capital expenditures of approximately $260 million from 2001 through 2003.38 ATCLLC's rate base will almost double over the next 4-5 years. The level of ROE needed to attract the necessary capital for such investment will be dictated by ATCLLC's status as a small, start-up company.39 Dr. Avera recognized that, in determining the level of return needed to attract investment, no one method for estimating the cost of equity can be regarded as wholly reliable. He therefore corroborated his DCF - ------------------------ 35 Ebright Testimony, ATC-1 at 30. 36 Avera Testimony, ATC-11, at 35. In addition, Dr. Avera conducted an analysis of returns for natural gas pipeline companies, which, as documented in his testimony, are likely to be viewed by investors as comparable to electric transmission companies. 37 Avera Testimony, ATC-11, at 25. However, as Dr. Avera explains, this ROE may be insufficient for a company with substantial capital requirements. 38 Ebright Testimony, ATC-1, at 26. 39 Avera Testimony, ATC-11, at 26-27. The Honorable David P. Boergers, Secretary December 15, 2000 Page 15 results with a risk premium analysis. He also adjusted his analysis for a number of factors that would affect investors' perceptions of ATCLLC's risk profile. Those include the company's small size, its high capital requirements, the fact that the company's common stock will not be publicly traded--at least initially--and that it will incur substantial "flotation costs" once it does issue shares to the public. Factors such as these have been recognized by the Commission as warranting an upward adjustment.40 Based on this analysis, Dr. Avera concluded that a fair rate of return on common equity would be between 12.2% and 14.5%. DR. AVERA DOES NOT BASE HIS CONCLUSIONS ON THE COMMISSION'S POLICIES IN ORDER NO. 2000.41 While ATCLLC believes that its risks merit a ROE at the high end of the range, it has proposed a ROE of 12.2%, which is the lowest ROE consistent with Dr. Avera's analysis. ATCLLC submits, therefore, that a ROE of 12.2% is just and reasonable. In Docket No. ER00-3316, several parties contested ATCLLC's proposed 12.2% return on equity as being too high.42 No party, however, offered any support for an argument that a lower ROE is just and reasonable. Bare allegations of unreasonableness are not sufficient.43 Equally unsupported were the - ------------------------ 40 Id. at 52-54.. When taking into account ATCLLC's relatively small size and the financing adjustments, the bottom of the Dr. Avera's range is 12.2 percent. Even without the size and financing adjustments, however, Dr. Avera's constant growth DCF analysis produces a zone of reasonableness of 11.1 to 15.1 percent, which fully supports his recommended 12.2 percent. 41 In the December 14, 2000 order in Docket No. ER00-3316-000, the Commission interpreted Dr. Avera's testimony as suggesting that the ROE in this case should be evaluated in the context of Order No. 2000. Slip Op. at 15, n.21. However, as shown in Dr. Avera's Testimony, ATC-11, at 4-6, 27, 28-53, he bases his conclusions on the results of capital market analyses. His references to Order No. 2000 were to acknowledge the need for investment in transmission assets and the benefits and risks of those investments. 42 WIEG at 3; UPTDU at 18-20; WTCG at 8-9. WIEG also contends that ATCLLC's proposed common equity ratio of 50% is also too high. The common equity ratio, however, will be trued-up each year to actual. 43 Northern States Power Co., 71 FERC P. 63,016, at 65,086 (1995) (stating that "[g]enuine issues of material fact are not created by mere conjecture, or allegations...); Woolen Mill Ass'n, 917 F.2d 589, 592 (D.C. Cir. 1990) (holding that where a party requesting an evidentiary hearing merely offers allegations or speculations without an adequate proffer, the Commission may properly disregard them. It is also the case that an evidentiary hearing is not necessary where the issues raised do not involve contested factual issues and can be disposed of summarily based on Commission policy. See Western Transmission Corp., 52 FERC P. 61,305 at 62,221 (1990) (denying a motion for rehearing where movant claimed that the Commission erred in not ordering an evidentiary hearing in a proceeding that conditionally accepted a compliance filing to establish terms and conditions for open-access and interruptible transportation service). The Honorable David P. Boergers, Secretary December 15, 2000 Page 16 Intervenors' arguments that ATCLLC has no risk. As discussed in Dr. Avera's testimony, ATCLLC, as a transmission-only company, faces several kinds of operational and business risks. ATC-11 at 10-13. For example, the restructuring of the electric industry has created operational challenges for a transmission company trying to accommodate competitive markets and large scale power transfers. ATC-11 at 10. In addition, according to Dr. Avera, regulation does not shield ATCLLC from competitive risks. Transmission companies will face competition because electricity competes with other energy services and customers can build their own generation to circumvent the transmission system. ATC-11 at 11. ATCLLC's proposed 12.2% ROE is a conservative proposal given Dr. Avera's conclusions that the top of his recommended range of reasonable ROEs would amount to 14.5%. Moreover, 12.2% is the ROE level approved by the PSCW for certain of the Wisconsin members contributing transmission facilities.44 Two of the utilities transferring their assets are authorized to earn that return on the bulk of the transmission assets they are contributing to ATCLLC. Thus, a lower return would penalize those entities for transferring their facilities to ATCLLC and would discourage participation by other entities.45 I. A HEARING IS NOT REQUIRED IN THIS PROCEEDING. As discussed above, ATCLLC's proposed rates are reduced from the rates filed on July 31, 2000 in Docket No. ER00-3316-000. The rate issues raised by - ------------------------ 44 ATC-11 at 25, n.21 (noting that the 12.2% allowed ROE has not been sufficient to stimulate adequate transmission investment). 45 Southern California Edison Company, 92 FERC P. 61,070, at n. 29 (2000) (approving an ROE of 11.6%, the same ROE level SoCal received from state regulators prior to joining the California ISO); see also New York State Electric & Gas Corp., 92 FERC P. 61,169 (2000) (concurring opinion by Commissioner Breathitt)(stating that allowance of a reasonable ROE is an important way for the Commission to encourage the development of a sufficient transmission infrastructure). The Honorable David P. Boergers, Secretary December 15, 2000 Page 17 the Intervenors in that proceeding have been fully presented to the Commission in pleadings filed in that docket. Moreover, as noted in ATCLLC's September 5, 2000 response to the intervenor arguments, there are no factual issues in this proceeding that require a hearing. First, many of the issues raised were in connection with ATCLLC's budget estimates. Setting budget estimates for hearing would serve no useful purpose since the estimates will be trued up to actuals, with the time value of any over- or under-collection fully accounted for. Second, other issues, such as the starting point for the network phase-in or the inclusion of EPRI expenses can be resolved summarily because they involve no disputes of fact. Finally, with respect to ROE, no intervenor offered any evidence to support an argument that the proposed 12.2% is unjust and unreasonable. Bare allegations of unreasonableness should not be sufficient to require a hearing. V. COMMUNICATIONS All communications regarding this filing should be addressed to: Walter T. Woelfle Linda L. Walsh Vice President - Legal and Secretary Hunton & Williams ATC Management Inc., 1900 K Street, NW Corporate Manager of ATCLLC Washington, DC 20006 N16 W23217 Stone Ridge Drive (202) 955-1526 P.O. Box 47 (202) 778-2201 Fax Waukesha, WI 53187-0047 lwalsh@hunton.com (262) 506-6830 ----------------- (262) 506-6710 Fax wwoelfle@atcllc.com ------------------- VI. SECTION 35.13 FILING REQUIREMENTS A. SECTION 35.13(B)(1) - CONTENTS OF FILING: The contents of this filing are as follows: o this Transmittal Letter o Attachment 1 - Revised Rate Schedules 7, 8 and 9 o Attachment 2 - List of persons receiving a copy of the filing The Honorable David P. Boergers, Secretary December 15, 2000 Page 18 o Form of Notice o Diskette containing electronic Form of Notice. B. PROPOSED EFFECTIVE DATE OF RATE SCHEDULE - SECTION 35.13 (B)(2) ATCLLC requests an effective date for ATCLLC's rates and charges for transmission and ancillary services of January 1, 2001, to coincide with the statutory deadline in Act 9. As discussed above, ATCLLC seeks expedited treatment of this filing and requests a waiver of the notice requirements in Section 35.3(a) to permit the rates to go into effect on January 1, 2001. C. LIST OF PERSONS RECEIVING A COPY OF THE FILING - SECTION 35.13(B)(3) See Appendix 2. D. DESCRIPTION OF THE RATE SCHEDULE CHANGE - SECTION 35.13(B)(4) See discussion in Section IV. E. REASONS FOR THE RATE SCHEDULE CHANGE - SECTION 35.13(B)(5) See discussion in Sections IV, above. F. SHOWING OF REQUISITE AGREEMENTS - SECTION 35.13(B)(6) (not applicable) G. COSTS OR EXPENSES THAT HAVE BEEN ALLEGED OR JUDGED TO BE ILLEGAL, DUPLICATIVE OR UNNECESSARY THAT ARE THE PRODUCT OF DISCRIMINATORY EMPLOYMENT PRACTICES - SECTION 35.13(B)(7) No expenses or costs included in this filing have been alleged or judged in any administrative or judicial proceeding to be illegal, duplicative or unnecessary costs that are demonstrably the product of discriminatory employment practices. H. FORM OF NOTICE SUITABLE FOR PUBLICATION - SECTION 35.13(B)(8) See Attachment 3. I. EFFECT OF THE RATE SCHEDULE CHANGE - SECTION 35.13(C) See discussion in Sections IV, above. The Honorable David P. Boergers, Secretary December 15, 2000 Page 19 VI. REQUEST FOR WAIVERS Because ATCLLC must begin operations by January 1, 2001, ATCLLC respectfully requests the following waivers and expedited consideration of this filing: 1. waiver of the 60-day notice requirement such that the proposed rates herein can be made effective on January 1, 2001; 2. expedited consideration of this filing, including a shortened notice period, if necessary, to enable the Commission to issue an order accepting the proposed rates as soon as reasonably possible within the 60-day notice period; and 46 3. waiver of the Commission's Part 35 filing requirements and Order No. 614 to allow ATCLLC to incorporate by reference testimony and exhibits filed by ATCLLC on July 31, 2000 in support of the rates proposed herein. ATCLLC intends to begin operations on January 1, 2001, pursuant to 1999 Wisconsin Act 9 ("Act 9") based on this filing and the requested waivers. ATCLLC requests any additional waivers necessary to permit ATCLLC's proposed OATT and rates therein to go into effect on January 1, 2001. - ------------------------ 46 ATCLLC is sending a copy of this filing to the entities listed in Attachment 2 (entities who were sent copies of ATCLLC's July 31, 2000 rate filing) and to the entities on the official service list in Docket No. ER00-3316-000. The Honorable David P. Boergers, Secretary December 15, 2000 Page 20 VI. CONCLUSION As discussed above and in the testimony filed in Docket No. ER00-3316-000, ATCLLC's proposed open access transmission rates and proposed rate of return on equity of 12.2 percent are just and reasonable and should be accepted by the Commission with an effective date of January 1, 2001 without suspension or hearing. In addition, the Commission should grant ATCLLC the waivers requested herein. Respectfully submitted, Walter T. Woelfle Linda L. Walsh Vice President - Legal and Secretary Hunton & Williams ATC Management Inc., 1900 K Street, NW Corporate Manager of ATCLLC Washington, DC 20006 N16 W23217 Stone Ridge Drive (202) 955-1526 P.O. Box 47 (202) 778-2201 Fax Waukesha, WI 53187-0047 lwalsh@hunton.com (262) 506-6830 ----------------- (262) 506-6710 Fax wwoelfle@atcllc.com ------------------- enc. cc: Entities listed in Attachment 2. EX-99 11 0011.txt EXHIBIT D-22 EXHIBIT D-22 American Transmission Company LLC First Revised Sheet No. 96 Schedule 7 Superseding Original Sheet No. 96 LINDA L. WALSH DIRECT DIAL: 202 o 955 o 1526 EMAIL: lwalsh@hunton.com FILE NO: 57007.000001 December 18, 2000 BY HAND The Honorable David P. Boergers, Secretary Federal Energy Regulatory Commission 888 First Street, NE Washington, D.C. 20426 RE: AMERICAN TRANSMISSION COMPANY LLC, SECTION 205 OPEN ACCESS TRANSMISSION RATE FILING AND REQUEST FOR EXPEDITED CONSIDERATION, DOCKET NO. ER01-677-000 Dear Mr. Boergers: On December 15, 2000, the American Transmission Company LLC (ATCLLC) filed proposed Open Access Transmission rates for Commission acceptance under Section 205 of the Federal Power Act (FPA). Attachment 1 to that filing was inadvertently omitted and is now being submitted. We apologize for any inconvenience. Sincerely Linda L. Walsh cc: Parties listed in Attachment 1 American Transmission Company LLC First Revised Sheet No. 96 Schedule 7 Superseding Original Sheet No. 96 SCHEDULE 7 LONG-TERM FIRM AND SHORT-TERM FIRM POINT-TO-POINT TRANSMISSION SERVICE The Transmission Customer shall compensate the Transmission Provider each month for Reserved Capacity at the sum of the applicable charges set forth below in addition to other applicable charges specified in the Tariff. All effective rates under this schedule shall be posted on the Transmission Provider's OASIS. The rates are calculated using the formulas included in Attachment O. The rates will be recalculated each June 1 based on the prior full calendar year. The initial rates are listed below and will be in effect until June 1, 2002, unless modified by a compliance filing: Firm Point to Point Transmission Rates -------------------------------------- For "through" and "out" service ATCLLC's Annual Transmission Revenue Requirement is: $142,993,635 For Network Integration Transmission Service Customers, the monthly charge is one-twelfth of the Customer's Load Ratio Share as calculated in accordance with the OATT's Section 1.16. Total NITS and long-term Point-to-Point kilowatts are: 114,898,598 Monthly Charge per MW: $ 1,244.52 Weekly Charge per MW: $ 287.20 On-Peak Daily Charge per MW: $ 47.87 Off-Peak Daily Charge per MW: $ 41.03 The total charge in any week, pursuant to reservations for daily service, shall not exceed the weekly charge specified above. American Transmission Company LLC First Revised Sheet No. 96 Schedule 7 Superseding Original Sheet No. 96 For "into" and "within" service MADISON GAS & ELECTRIC COMPANY Phase-in Revenue Requirement: $ 8,304,423 Total NITS and long-term Point-to-Point kilowatts are: 6,153,350 Monthly Charge per MW: $ 1,349.58 Weekly Charge per MW: $ 311.44 On-Peak Daily Charge per MW: $ 51.91 Off-Peak Daily Charge per MW: $ 44.49 WISCONSIN PUBLIC SERVICE Phase-in Revenue Requirement: $ 28,986,553 Total NITS and long-term Point-to-Point kilowatts are: 22,491,511 Monthly Charge per MW: $ 1.462.38 Weekly Charge per MW: $ 337.47 On-Peak Daily Charge per MW: $ 56.25 Off-Peak Daily Charge per MW: $ 48.21 WISCONSIN POWER & LIGHT Phase-in Revenue Requirement: $ 36,565,501 Total NITS and long-term Point-to-Point kilowatts are: 25,004,146 Monthly Charge per MW: $ 1,462.38 Weekly Charge per MW: $ 337.47 On-Peak Daily Charge per MW: $ 56.25 Off-Peak Daily Charge per MW: $ 48.21 WISCONSIN ENERGY CORP Phase-in Revenue Requirement: $ 69,137,159 Total NITS and long-term Point-to-Point kilowatts are: 61,249,590 Monthly Charge per MW: $ 1,128.78 Weekly Charge per MW: $ 260.49 On-Peak Daily Charge per MW: $ 43.42 Off-Peak Daily Charge per MW: $ 37.21 On-Peak service will be provided on Monday through Saturday from 06:00 to 22:00, excluding holidays [New Year's Day, Memorial Day, July 4th, Labor Day, Thanksgiving, Christmas]. Discounts: Three principal requirements apply to discounts for transmission service as follows (1) any offer of a discount made by the Transmission Provider must be announced to all Eligible Customers solely by posting on the OASIS, (2) any customer-initiated requests for discounts (including requests for use by one's wholesale merchant or an affiliate's use) must occur solely by posting on the OASIS, and (3) once a discount is negotiated, details must be immediately posted on the OASIS. For any discount agreed upon for service on a path, from point(s) of receipt to point(s) of delivery, the Transmission Provider must offer the same discounted transmission service rate for the same time period to all Eligible Customers on all unconstrained transmission paths that go to the same point(s) of delivery on the Transmission System. American Transmission Company LLC First Revised Sheet No. 101 Schedule 8 Superseding Original Sheet No. 101 SCHEDULE 8 NON-FIRM POINT-TO-POINT TRANSMISSION SERVICE The Transmission Customer shall compensate the Transmission Provider for Non-Firm Point-To-Point Transmission Service up to the sum of the applicable charges set forth below in addition to other applicable charges specified in the Tariff. All effective rates under this schedule shall be posted on the Transmission Provider's OASIS. The rates are calculated using the formulas included in Attachment O. The rates will be recalculated each June 1 based on the prior calendar year. The initial rates are listed below and will be in effect until June 1, 2002, unless modified by a compliance filing: Non-Firm Point to Point Transmission Rates ------------------------------------------ For "through" and "out" service: ATCLLC's Annual Transmission Revenue Requirement is: $142,993,635 For Network Integration Transmission Service Customers, the monthly charge is one-twelfth of the Customer's Load Ratio Share as calculated in accordance with the OATT's Section 1.16. Total NITS and long-term Point-to-Point kilowatts are: 114,898,598 Monthly Charge per MW: $ 1,244.52 Weekly Charge per MW: $ 287.20 On-Peak Daily Charge per MW: $ 47.87 Off-Peak Daily Charge per MW: $ 41.03 On-Peak Hourly Charge per MW: $ 2.99 Off-Peak Hourly Charge per MW: $ 1.99 The total charge in any week, pursuant to reservations for daily service, shall not exceed the weekly charge specified above. The total charge in any day, pursuant to reservations for hourly service, shall not exceed the daily charge specified above. American Transmission Company LLC First Revised Sheet No. 101 Schedule 8 Superseding Original Sheet No. 101 For "into" and "within" service: MADISON GAS & ELECTRIC COMPANY Phase-in Revenue Requirement: $ 8,304,423 Total NITS and long-term Point-to-Point kilowatts are: 6,153,350 Monthly Charge per MW: $ 1,349.58 Weekly Charge per MW: $ 311.44 On-Peak Daily Charge per MW: $ 51.91 Off-Peak Daily Charge per MW: $ 44.49 On-Peak Hourly Charge per MW: $ 3.24 Off-Peak Hourly Charge per MW: $ 2.16 WISCONSIN PUBLIC SERVICE Phase-in Revenue Requirement: $ 28,986,553 Total NITS and long-term Point-to-Point kilowatts are: 22,491,511 Monthly Charge per MW: $ 1,288.78 Weekly Charge per MW: $ 297.41 On-Peak Daily Charge per MW: $ 49.57 Off-Peak Daily Charge per MW: $ 42.49 On-Peak Hourly Charge per MW: $ 3.10 Off-Peak Hourly Charge per MW: $ 2.07 WISCONSIN POWER & LIGHT Phase-in Revenue Requirement: $ 36,565,501 Total NITS and long-term Point-to-Point kilowatts are: 25,004,146 Monthly Charge per MW: $ 1,462.38 Weekly Charge per MW: $ 337.47 On-Peak Daily Charge per MW: $ 56.25 Off-Peak Daily Charge per MW: $ 48.21 On-Peak Hourly Charge per MW: $ 3.52 Off-Peak Hourly Charge per MW: $ 2.34 WISCONSIN ENERGY CORP Phase-in Revenue Requirement: $ 69,137,159 Total NITS and long-term Point-to-Point kilowatts are: 59,966,000 Monthly Charge per MW: $ 1,128.78 Weekly Charge per MW: $ 260.49 On-Peak Daily Charge per MW: $ 43.42 Off-Peak Daily Charge per MW: $ 37.21 On-Peak Hourly Charge per MW: $ 2.71 Off-Peak Hourly Charge per MW: $ 1.81 On-Peak service will be provided on Monday through Saturday from 06:00 to 22:00, excluding holidays [New Year's Day, Memorial Day, July 4th, Labor Day, Thanksgiving, Christmas]. Discounts: Three principal requirements apply to discounts for transmission service as follows (1) any offer of a discount made by the Transmission Provider must be announced to all Eligible Customers solely by posting on the OASIS, (2) any customer-initiated requests for discounts (including requests for use by one's wholesale merchant or an affiliate's use) must occur solely by posting on the OASIS, and (3) once a discount is negotiated, details must be immediately posted on the OASIS. For any discount agreed upon for service on a path, from point(s) of receipt to point(s) of delivery, the Transmission Provider must offer the same discounted transmission service rate for the same time period to all Eligible Customers on all unconstrained transmission paths that go to the same point(s) of delivery on the Transmission System. American Transmission Company LLC First Revised Sheet No. 105 Schedule 9 Superseding Original Sheet No. 105 SCHEDULE 9 NETWORK INTEGRATION TRANSMISSION SERVICE RATE PHASE-IN PERIOD The Transmission Customer shall compensate the Transmission Provider for Network Integration Transmission Service at the applicable charges set forth below in addition to other applicable charges specified in the Tariff. The monthly rates are determined by multiplying Transmission Customer's Load Ratio Share times one twelfth (1/12) of the Transmission Provider's Annual Transmission Revenue Requirement (ATRR) calculated by the formulas in Attachment O and modified in accordance with the Rate Phase-In below. The ATRR will be recalculated each June 1 based on the prior full calendar year. The initial ATRR will be calculated based on a prior full calendar year period. The ATRR is equal to the revenue requirement produced by the transmission rate formula in Attachment O, plus the revenue requirement produced by the start-up cost adder formula in Attachment O. An example of the calculation of the ATRR for the period from January 1, 2001 through June 1, 2002 is attached. The ATRR produced by the attached example will apply through June 1, 2002, unless modified by a compliance filing. The currently applicable rates for the Transmission Provider's service areas will also be posted on the Transmission Provider's OASIS. American Transmission Company LLC First Revised Sheet No. 105 Schedule 9 Superseding Original Sheet No. 105 [OBJECT OMITTED] EX-99 12 0012.txt EXHIBIT D-23 EXHIBIT D-23 Madison Gas & Electric Company, Wisconsin Public Service Corporation, American Transmission Company LLC Docket No. EC00-136-000 FEDERAL ENERGY REGULATORY COMMISSION - OFFICE DIRECTOR 93 F.E.R.C. P62,201 ORDER PROVIDING CLARIFICATION December 15, 2000 OPINION: On November 24, 2000, the Commission issued an order (November 24 Order) in the above-referenced proceeding authorizing Madison Gas & Electric Company and Wisconsin Public Service Company (Wisconsin Public Service) to transfer their transmission assets, including jurisdictional facilities, to the American Transmission Company LLC (ATC) in exchange for equity interests in ATC.1 According to the September 8, 2000 initial filing in this proceeding (September 8 Filing), as well as the November 24 Order, upon transfer of these facilities to ATC, it will exercise control over these facilities until control is assumed by the Midwest Independent Transmission System Operator, Inc. (Midwest ISO) when the Midwest ISO commences operations. On November 29, 2000, Wisconsin Public Service filed a letter requesting clarification of one aspect of the November 24 Order. The requested clarification relates to whether the authorization granted in the November 24 Order encompasses the issuance of the membership units in ATC (that relate to the Wisconsin Public Service facilities) to WPS LLC, which is a wholly-owned subsidiary of Wisconsin Public Service. Specifically, the clarification request states that Wisconsin Public Service intends to transfer its transmission facilities to ATC and to transfer cash to WPS LLC. WPS LLC will then pay the cash back to Wisconsin Public Service and in return receive the right to receive and hold the membership units in ATC related to Wisconsin Public Service's former transmission facilities. ATC will transfer the membership units directly to WPS LLC. The clarification request states that the transfer to WPS LLC is being made for the purpose of complying with indenture bond restrictions, and that while the role of WPS LLC in the transaction was not referred to in the narrative descriptions contained in the September 8 Filing, its role was referred to in several underlying supporting documents that were submitted with the September 8 Filing. Notice of the request for clarification was published in the Federal Register, with comments due on or before December 11, 2000. No comments were received. - ------------------------ 1 Madison Gas & Electric Co., et al., 93 FERC P61,215 (2000). 2 After consideration, it is clarified that the authorization granted in the November 24 Order includes authorization of the participation of WPS LLC in the transaction, as described in the November 29, 2000 clarification request. Thus, the described role of WPS LLC in the transaction is covered under the authorization that was granted by the Commission in the November 24 Order. The conditions on the overall transaction that were imposed in the November 24 Order remain in full force and effect. Authority to act on this matter is delegated to the Director, Division of Corporate Applications, pursuant to 18 C.F.R. ss.375.307. This order constitutes final agency action. Requests for rehearing by the Commission may be filed within thirty (30) days of the date of issuance of this order, pursuant to 18 C.F.R. ss. 385.713. Michael C. McLaughlin, Director Division of Corporate Applications 3 EX-99 13 0013.txt EXHIBIT F-1 EXHIBIT F-1 [ON LETTERHEAD OF BARBARA J. SWAN, ESQUIRE] December 26, 2000 Securities and Exchange Commission 450 Fifth Street, NW Washington, D.C. 20549 RE: ALLIANT ENERGY CORPORATION, ET AL. FORM U-1 APPLICATION/DECLARATION (FILE NO. 70-9735) Ladies and Gentlemen: I refer to the Form U-1 Application/Declaration, as amended (the "Application"), under the Public Utility Holding Company Act of 1935, as amended (the "Act"), filed jointly with the Securities and Exchange Commission (the "Commission") by Alliant Energy Corporation ("Alliant Energy") and its wholly-owned, utility subsidiaries, Wisconsin Power and Light Company ("WPL") and South Beloit Water, Gas & Electric Company ("South Beloit"), and its subsidiaries, American Transmission Company LLC (the "Transco") and ATC Management Inc. (the "Corporate Manager") (collectively, the "Applicants"). I have acted as counsel for Alliant Energy, WPL and South Beloit (collectively, the "Alliant Energy Applicants") in connection with the Application. In the Application, the Applicants request authority for, among other things: (i) WPL and South Beloit to transfer certain transmission assets to the Transco; (ii) WPL and South Beloit to receive Transco member units in exchange for such assets; (iii) the purchase by WPL, South Beloit and other utilities of Corporate Manager shares; (iv) acquisition by the Transco of the transmission assets of other utilities in exchange for member units; and (v) the acquisition by WPL of all of the member units of a separate wholly-owned limited liability company ("NewCo") created to effect the transfer of WPL's transmission assets to the Transco. In connection with this opinion, I have examined original, certified or conformed copies of all such corporate records, agreements, instruments and documents of Alliant Energy, WPL and South Beloit, certificates of public officials and officers of Alliant Energy, WPL and South Beloit, and have made such other investigations as I have deemed necessary or appropriate for the purpose of rendering this opinion. In my examination, I have assumed the genuineness of all signatures, the authenticity of all documents submitted to me as originals and the conformity to originals of all documents submitted to me as conformed copies. I am of the opinion that, upon the issuance of your order or orders in this proceeding granting or permitting the Application to become effective with respect to such proposed transactions, and in the event that the proposed transactions are consummated in accordance with said Application and your order or orders in respect thereto: (a) all state laws applicable to the proposed transactions will have been complied with; (b) (i) NewCo is validly organized and duly existing, and (ii) the membership interests of NewCo will be validly issued, and the holders thereof will be entitled to all of the rights and privileges of a member of NewCo as set forth in NewCo's articles of organization and operating agreement; (c) WPL and South Beloit will legally acquire the membership interests of the Transco and the shares of the Corporate Manager; and (d) the consummation of the proposed transactions will not violate the legal rights of the holders or any securities issued by Alliant Energy, WPL, South Beloit or any associate company thereof. I am an attorney licensed to practice in the State of Wisconsin and have acted as counsel to Alliant Energy, WPL and South Beloit in connection with the proposed transactions. I express no opinion with respect to the laws of any other State or jurisdiction. I hereby consent to the use of this opinion in connection with the Application. Sincerely, 2 EX-99 14 0014.txt EXHIBIT F-2 EXHIBIT F-2 [ON LETTERHEAD OF WALTER WOELFLE, ESQUIRE] December 26, 2000 Securities and Exchange Commission 450 Fifth Street, NW Washington, D.C. 20549 RE: ALLIANT ENERGY CORPORATION, ET AL. FORM U-1 APPLICATION/DECLARATION (FILE NO. 70-9735) Ladies and Gentlemen: I refer to the Form U-1 Application/Declaration, as amended (the "Application"), under the Public Utility Holding Company Act of 1935, as amended (the "Act"), filed jointly with the Securities and Exchange Commission (the "Commission") by Alliant Energy Corporation ("Alliant Energy") and its wholly-owned utility subsidiaries, Wisconsin Power and Light Company ("WPL") and South Beloit Water, Gas & Electric Company ("South Beloit"), and its subsidiaries, American Transmission Company LLC (the "Transco") and ATC Management Inc. (the "Corporate Manager") (collectively, the "Applicants"). I have acted as counsel for the Corporate Manager and the Transco in connection with the Application. In the Application, the Applicants request authority for, among other things: (i) WPL and South Beloit to transfer certain transmission assets to the Transco; (ii) WPL and South Beloit to receive Transco member units in exchange for such assets; (iii) the purchase by WPL, South Beloit and other utilities of Corporate Manager shares; (iv) acquisition by the Transco of the transmission assets of other utilities in exchange for member units; (v) the issuance by the Transco and the Corporate Manager of their member units and shares, respectively; and (vi) the issuance by the Transco of short-term and long-term debt. In connection with this opinion, I have examined original, certified or conformed copies of all such corporate records, agreements, instruments and documents of the Transco and the Corporate Manager, certificates of public officials and officers of the Corporate Manager and the Transco, and have made such other investigations as I have deemed necessary or appropriate for the purpose of rendering this opinion. In my examination, I have assumed the genuineness of all signatures, the authenticity of all documents submitted to me as originals and the conformity to originals of all documents submitted to me as conformed copies. I am of the opinion that, upon the issuance of your order or orders in this proceeding granting or permitting the Application to become effective with respect to such proposed transactions, and in the event that the proposed transactions are consummated in accordance with said Application and your order or orders in respect thereto: (a) all state laws applicable to the proposed transactions will have been complied with; (b) (i) the Transco is validly organized and duly existing, and (ii) the membership interests of the Transco be validly issued, and the holders thereof will be entitled to all of the rights and privileges of a member of the Transco as set forth in the Transco's articles of organization and operating agreement; (c) (i) the Corporate Manager is validly organized and duly existing, and (ii) the shares of the Corporate Manger will be validly issued, full paid and nonassessable and the holders thereof will be entitled to the rights and privileges appertaining thereto set forth in the articles of incorporation and by-laws of the Corporate Manager; (d) any debt securities issued by the Transco will be valid and binding obligations of the Transco in accordance with their terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar laws affecting creditors' rights generally and the general principles of equity limiting the availability of equitable remedies; and (e) the consummation of the proposed transactions will not violate the legal rights of the holders or any securities issued by the Transco, the Corporate Manager or any associate company thereof. I am an attorney licensed to practice in the State of Wisconsin and have acted as counsel to the Transco and the Corporate Manager in connection with the proposed transactions. I express no opinion with respect to the laws of any other State or jurisdiction. I hereby consent to the use of this opinion in connection with the Application. Sincerely, 2 -----END PRIVACY-ENHANCED MESSAGE-----